Dishonour of Cheque: Delhi High Court sets aside summon order due to lack of specific allegations against directors in the complaint

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Delhi High Court: The petitions were filed under Section 482 of Criminal Procedure Code (CrPC) seeking quashing of summon orders dated 08-03-2017 passed by the Metropolitan Magistrate, District Courts, in respective complaints seeking prosecution of the petitioners under section 138 Negotiable Instruments Act, 1881. Anup Jairam Bhambhani, J., quashed the summoning orders and sets aside all the proceedings arising from the summoning orders insofar as they relate to the petitioners.

Petitioners 1, 2, and 3 are directors of respondent 2 company, respondent 1 company/complainant is engaged in the business of resale of imported steam coal and Respondent 3 is the signatory of the cheques that are the subject matter of the present petition. The allegation in the criminal complaints is that the respondent 2 company was supplied coal on the purchase order, consequent whereupon an amount of Rs. 3,74,25,537/- became due and recoverable by respondent 1 from respondent 2.

The cheques were issued each being of Rs. 50,00,000 and returned as dishonoured with different remarks. Multiple statutory notices were issued in relation to the dishonoured cheques on different dates which is challenged by the other side as it contends that no statutory notice was received by the petitioners. However, upon not receiving the cheque amounts, complaints were filed under Section 138 Negotiable Instruments Act against the accused persons, and therefore, vide order dated 08-03-2017 summons were issued by Metropolitan Magistrate to all the accused persons in those complaints which stands impugned in the present petition.

The Court noted that in the body of the criminal complaint, the complainant does not even aver that the petitioners, or any of them, were directors of the accused company; and if so, whether they were directors at the relevant time. Only the memorandum of parties to the criminal complaints set out the names of the petitioners with the designation “Director” alongside each name. There is no allegation that the petitioners were involved in the issuance of the cheques; nor any allegation that they were responsible for the dishonour of the cheques. No role has been ascribed to the petitioners on that behalf.

The Court further noted that there is a vague and sweeping allegation claiming that all directors of the accused company had engaged with the complainant in relation to the transaction, which is insufficient to impute any criminal liability upon any of the petitioners. Neither the summoning orders made by the Bangalore Court, nor the summoning orders made by the Delhi Court contain any reference, leave alone any discussion as to any allegations against the petitioners or any of them. This is so evident because there are no specific allegations spelt out against the petitioners in the criminal complaints.

The Court remarked that it appears to have become commonplace for complainants to arraign all and sundry directors of a company as accused in a criminal complaint in relation to dishonour of cheques, with the evident intention of pressurizing and arm-twisting a company into paying-up a claimed debt. It is necessary to articulate that a criminal complaint under section 138 of the NI Act is not, in and of itself, a money recovery proceeding, even though a fine and compensation may be imposed upon conviction.

The Court concluded that insufficiency of funds in an account or the cheque amount exceeding the arrangement with the drawer’s bank is the grounds that form the gravamen of the offence contained in section 138 of the NI Act. However, when a cheque is returned with a noting that it has been dishonoured for “other reasons”, it certainly begs the question as to what the specific reason for dishonour was. This question ought to have been raised during proceedings before summons were issued, failing which it is not even clear if the basic ingredients of the offence under section 138 are made-out in relation to a given cheque.

Thus, the Court held that there are no specific allegations in the criminal complaints in relation to the petitioners, thus, it cannot be said that the petitioners would incur any vicarious liability along with the accused company merely because they were directors of the company. There being no allegations against the petitioners in the criminal complaints, the issuance of the summoning orders was evidently not informed by any application of mind but was the outcome of a purely mechanical process.

[Sashi Kumar Nagaraji v. Magnifico Minerals Pvt. Ltd., 2023 SCC OnLine Del 3673, decided on 28-06-2023]

Advocates who appeared in this case :

Mr. Mukul Gupta, Senior Advocate with Mr. Achin Mittal, Mr. Sumit and Mr. Saurav Tomar, Advocates for the Petitioner;

Mr. Ayush Jindal with Mr. Pankush Goyal and Mr. Anuj Kapoor, Advocates for the R1.

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