S. 448 Companies Act Can’t Be Read In Isolation; Must Be Read Along With S. 447 Companies Act: Supreme Court

The Supreme Court has clarified that Section 448 of the Companies Act, 2013 cannot be read in isolation and must be read along with Section 447 of the Companies Act.

The Court was deciding Criminal Appeals preferred against the Judgment of the Telangana High Court by which the Petition under Section 482 of the Code of Criminal Procedure, 1973 (CrPC) was dismissed.

The two-Judge Bench comprising Justice J.K. Maheshwari and Justice K. Vinod Chandran observed, “Section 448 of the Companies Act, therefore, cannot be read in isolation and must be read along with Section 447 of the Companies Act. Therefore, the offence under Section 448 is an offence ‘covered under Section 447’ of the Companies Act mentioned in Section 212(6), since the offence under Section 448 is inextricably linked to the punishment for ‘fraud’ as mentioned in Section 447 and as such, the second proviso to Section 212(6) of the Companies Act is attracted.”

The Bench said that even if, after trial, an offence under Section 448 is proved to have been committed by a ‘person’, it is only with the aid of Section 447 of the Companies Act that the punishment for the said offence may be imposed.

Senior Advocate Shailesh Madhiyal appeared for the Appellants, while Senior Advocate Jayant Muth Raj and Advocate Kumar Vaibhaw appeared for the Respondents.

Facts of the Case

A Petition was filed under Section 482 of CrPC before the High Court, seeking to quash the criminal proceedings in a Complaint Case filed by the Respondent-Complainant against the Appellants-accused. The Special Court for Economic Offences at Hyderabad took cognizance of the offences under Sections 448 and 451 of the Companies Act and Sections 420, 406, 426, 468, 470, 471, and 120B of the Indian Penal Code, 1860 (IPC). The genesis of the dispute lies in the affairs of a private limited company, which was incorporated by the Complainant and his wife. The Appellants were inducted as Directors in the said company. The initial disputes between the parties arose with regard to management and control of the company. Later, the Appellants ceased to be directors of the company and their removal was challenged before the National Company Law Tribunal (NCLT).

Subsequently, the Complainant filed a private complaint before the Special Court, alleging that the accused illegally convened an Extra-Ordinary General Meeting (EOGM) without authority, appointed third parties as directors in the company, fabricated the Board and shareholders’ resolutions, and uploaded statutory filings along with other forged and false documents on the website of the Ministry of Corporate Affairs (MCA). In parallel, two civil suits were also instituted by the Appellants before the Civil Courts seeking a permanent injunction against the company and Complainant from violating the terms and conditions of MoU (Memorandum of Understanding). The Special Court took cognizance and issued summons to the accused, which was challenged before the High Court. However, the Appellants’ Petition was dismissed and being aggrieved, they approached the Apex Court.

Court’s Observations

The Supreme Court in the above regard, elucidated, “… it is clear that Section 447 of the Companies Act lays down the punishment for ‘fraud’ in various forms. In the present case, cognizance has been taken by the Special Court under Section 448 and 451 of the Companies Act. Section 448 itself does not lay down any punishment for its contravention, it simply lays down the ingredients of the offence of making a false statement and provides that in case such a false statement is made, the ‘person(s)’ shall be liable under Section 447 of the Companies Act.”

The Court noted that in case an allegation of fraud under Section 447 of the Companies Act is to be made out, the complaint has to be made by the Director, SFIO or an officer authorized by a written order of the Government.

“This adds a further level of scrutiny and investigation prior to taking cognizance in cases where allegations of fraud are made and ensures that cognizance is not taken by the Special Court simply upon filing of a private complaint”, it added.

The Court remarked that the principles of judicial comity and stare decisis are applicable to the High Court and the Court while passing the impugned Order should have noticed its earlier Judgment and, if so required, referred the matter to a larger bench.

“… the punishment section for Section 448 of the Companies Act is Section 447 of the Companies Act and both sections cannot be read in isolation, since they are inextricably linked. … It is trite law that anything that cannot be done directly, also cannot be done indirectly”, it reiterated.

The Court observed that merely because there is a bar under the second proviso to Section 212(6) of the Companies Act against taking cognizance of the offence under Section 447 of the Companies Act unless specific conditions mentioned therein are met, does not mean that cognizance may be taken by the Special Court under Section 448 of the Act without including the punishment section, i.e. Section 447 on filing of a private complaint.

“Non-inclusion of the punishment section under Section 447 since the very inception will also lead to procedural absurdity since ultimately the said Section 447 of the Companies Act must be invoked in order to impose any punishment after trial is conducted. In saying so, we are aware of the proposition of law that cognizance is taken of an offence and not of a section under the law, and at the stage of framing charges, the Court may add or remove sections. However, in the present case, when there is a specific requirement under law which acts as a pre-condition for taking cognizance under Section 447 of the Companies Act, the decision of the Special Court to take cognizance under Section 448 of the Companies Act without invoking the punishment section, Section 447 cannot be countenanced”, it said.

The Court held that the offence under Section 448 of the Companies Act is an “offence covered under Section 447” as mentioned in Section 212(6) of the Companies Act and therefore, the bar against taking cognizance under the second proviso of Section 212(6) of the Companies Act, unless specific conditions are met, is attracted in the present case.

“Cognizance, therefore, in such a case, cannot be taken merely by filing of a private complaint by the Complainant. However, it is not to say that the Complainant is left absolutely remediless. The right recourse for a person, who makes an allegation of fraud in the affairs of a company is to file an application under Section 213 of the Companies Act before the NCLT upon satisfying the eligibility under Section 213(a) and 213(b) of the Companies Act”, it added.

The Court was of the view that once the offences under the Companies Act are quashed, it is the Court of appropriate territorial jurisdiction which would have jurisdiction to try the private complaint filed by the Respondent against the Appellants.

“It is trite law that mere institution or pendency of civil proceedings between the parties cannot be a ground to quash the criminal proceedings instituted by the Respondent No. 2 by filing a complaint case or to conclude that the dispute is purely civil in nature”, it further reiterated.

Conclusion

The Court also noted that pendency of the proceedings would not absolve the criminality as alleged in the complaint, in the facts and circumstances of this case.

“Therefore, without expressing any views on merits of the complaint case, we hold that there is no reason or ground to quash the offences under the IPC of which cognizance has been taken by the Special Court”, it added.

The Court, therefore, concluded that where the Special Court under the Companies Act is taking cognizance of an offence under a Section in the Companies Act which, if proved, would make the person(s) “liable under Section 447” or “liable for action under Section 447”, it must also invoke Section 447 with the corresponding section and in such a case, it must comply with the bar against taking cognizance as specified in the second proviso to Section 212(6) of the Companies Act.

Accordingly, the Apex Court partly allowed the Appeals, set aside the impugned Judgment, and quashed the proceedings to the extent of Sections 448 and 451 of the Companies Act.

Cause Title- Yerram Vijay Kumar v. The State of Telangana & Anr. (Neutral Citation: 2026 INSC 42)

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