Bombay High Court: Rohit B. Deo, J. allowed a petition filed against the order of the trial court whereby it had issued process against the accused-petitioners for the offence punishable under Section 138 (dishonour of cheque) of the Negotiable Instruments Act, 1881.
The accused were a company registered under the Companies Act and its Managing Director and Chief Financial Officer. The accused contended that the company was registered with the Board for Industrial and Financial Reconstruction (BIFR), and was declared a “sick unit” on 16-7-2009, and a direction under Section 22-A of the Sick Industrial Companies (Special Provision) Act, 1985, restraining the company from disposing of its assets was issued.
The company entered into certain contracts with the complainant-respondent and issued 12 cheques in complainant’s favour in regard to the said agreements. Subsequently, the complainant presented the cheques for encashment which were dishonoured and therefore after codal formalities, the complaint was filed under Section 138 NI Act. The trial court passed an order issuing process under the said offence. The accused challenged the order of the trial court on several grounds. The thrust of the submissions of Senior Counsel Anil Mardikar, representing the accused was that in view of the decision Kusum Ingots &Alloys Ltd. v. Pennar Peterson Securities Ltd., (2000) 2 SCC 745, the ingredients of offence punishable under Section 138 were not established. This submission was on the premise that in view of the proceedings under SICA and the orders passed by the BIFR therein, the accused were precluded from honoring the cheques, even if it is assumed that the cheques were issued towards satisfaction of the existing and legally enforceable debt.
The High Court noted that in Kusum Ingots, the Supreme Court articulated that if before the date on which the cheque was drawn or expiry of the statutory period of 15 days after notice, a restraint order of BIFR under Section 22-A was passed against the company, then it cannot be said that the offence under Section 138 of the Act was completed. The reasoning of the Supreme Court was that the failure to make the payment would be for reasons beyond the control of the accused and it may also be contended that the amount claimed is not recoverable from the assets of the company in view of the ban order passed by the BIFR.
However, Shilpa Tapdiya, Advocate appearing for the complainant contended the provisions of the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 came into force in 2016, the proceedings pending before the BIFR stood abated in view of the provisions of Section 4(b) of the Repeal Act. The submission was that in view of the repeal, the proceedings initiated under Section 138 of the Act were not barred and no exception could be taken to the order of issuance of process dated 20-04-2018.
The High Court found itself unable to countenance the said submission. It was held: “The statutory immunity available under Section 22 of the SICA Act may not be available w.e.f. 1-12-2016. However, in view of the observations in Para 19 of Kusum Ingots, it must be held that the offence under Section 138 of NI Act was not complete and the order of issuance of process is unsustainable. The offence is not complete, not because there was a statutory bar, but as explained by the Supreme Court, because the directors of the company were prevented by reasons beyond their control from honouring the cheques. The repeal of SICA, cannot breathe life in the complaint which was still born since the offence was not complete as on the date of the issuance of process by the learned Magistrate.”
In view of that the effect of the restraint order under the SICA which was in force prior to the issuance of the cheque, and in any event prior to the expiry of the statutory period and having found merit in the submission that the offence under Section 138 of the NI Act was not complete, it was held that the order of issuance of process was liable to be quashed. Orders were made accordingly.[NRC Ltd. v. Fuel Corpn. of India, 2019 SCC OnLine Bom 1222, decided on 09-07-2019