Case BriefsHigh Courts

Tripura High Court: S.G. Chattopadhyay, J., highlights the essence of the provisions of Negotiable Instruments Act, in light of the object of a statutory notice.

It has been stated that the Courts below have concurrently held that the respondent has already established his case under the provisions of Section 138 of Negotiable Instruments Act, 1981 against the accused, who is the present petitioner.

The present petitioner was convicted for committing an offence under Section 138 of the Negotiable Instruments Act and he/she was penalised for a sentence of 1 year along with a fine of Rs 7,00,000.

Session Judge had also affirmed the above decision of the Chief Judicial Magistrate while reducing the sentence to fine and directing the petitioner to pay only Rs 4,00,000.

Being aggrieved with the above, the present criminal revision petition was filed.

Facts

Since both the petitioner and respondent were on good terms and known to each other, the petitioner used to borrow money from the respondents and repay the same in time. On 15-01-2014, he took a loan of Rs 3,50,000 and promised to repay the money within 30-11-2014.

On being requested for the above-amount, past the said date, petitioner handed over a cheque to the respondent but the said cheque was returned with an endorsement “insufficient funds”.

Demand Notice was issued with 15 days of time given for the repayment of the said amount. Every time that the postman visited the house for the service of the demand notice, housemates of the petitioner refused to receive the said letter and said that the petitioner was out of station.

Hence, in view of the above circumstance, the notice was returned to the respondent.

Later the matter reached the trial and the petitioner was convicted under Section 138 NI Act.

Misutilization of the Cheque

Petitioner contended in regard to the cheque that the accused had never issued any cheque in discharge of any debt or liability, but only a blank cheque was issued as a security for the loan which was borrowed by him from the complainant and after the loan was repaid, the complainant, instead of returning the cheque, misutilized it against him.

Statutory Presumption

Respondent’s counsel submitted that the presumption under Section 139 read with the Rule of Evidence as provided under Section 118, NI Act with regard to the existence of debt or liability is not a discretionary presumption, it is a statutory presumption which is obligatory on the part of the Court. Hence, a heavy burden is cast on the accused to rebut such presumption.

Further, the counsel added that apart from making mere denial of the existence of debt or liability, the accused did not lead any evidence to prove that he had no legal liability to be discharged and as such the courts below had drawn the statutory presumptions against him.

Section 138 NI Act requires proof of the essential ingredients:

  • there is legally enforceable debt
  • a cheque is drawn on an account maintained by the accused with his banker for payment of any amount to another person from his account in the discharge in whole or in part of the debt or liability
  • the cheque is returned by the bank unpaid, either because of the insufficient fund in the account of the accused to honour the cheque or that the cheque amount exceeds the amount arranged to be paid from that account by an agreement made with the bank.

Bench noted that the petitioner in his defence merely offered an explanation throwing suggestion to the prosecution witnesses in their cross-examination that he gave a blank signed cheque as security and did not deny the fact that he borrowed loan from the complainant.

Question for consideration:

In the instant matter, whether such an explanation offered by the petitioner is enough to disprove the statutory presumptions under Sections 138 and 139, NI Act?

In the decision of Hiten P. Dalal v. Bratindranath Banerjee, (2001) 6 SCC 16, Supreme Court that the presumptions to be drawn by the court under Sections 138 and 139, NI Act are presumptions of law which cast the evidential burden on the accused to disprove the presumptions.

Further, in the case of Mallavarapu Kasivisweswara Rao v. Thavikonda Ramulu Firm, (2008) 7 SCC 655, it was held that it is a settled position that the initial burden lies if the accused to prove the non-existence of consideration.

Decision

Bench on perusal of the above held that the explanation offered by the accused petitioner is not founded on proof and it does not stand to reason.

The object of the statutory notice is to protect an honest drawer of the cheque by providing him with a chance to make the fund sufficient in his bank account and correct his mistake.

Accused had an opportunity to explain himself, he instead repeatedly avoided the service of demand notice and did not state that he already has the repayment of the loan.

Therefore, Court held that the prosecution successfully discharged its burden in proving the case against the petitioner with the help of the statutory presumptions under the NI Act, and the accused failed to rebut those presumptions and prove the contrary by offering provable explanation founded on the proof.

Adding to the above, Bench also observed that the overall conduct of the accused depicted that he wanted to avoid the service of the notice. Impugned judgment by the below courts does not require any interference and the conviction and sentence were upheld by the High Court.

Bench directed the fine of Rs 4,00,000 within a period of 2 months.[Nitai Majumder v. Tanmoy Krishna Das, Crl. Rev. P. No. 79 of 2017, decided on 17-11-2020]

Case BriefsHigh Courts

Madras High Court: G.K. Ilathiraiyan, J., while addressing the instant matter, observed that, a person who is inducted as the Non-Executive Director of an accused company and not responsible for the day-to-day affairs of the company, he/she cannot be vicariously liable for the offence committed by the company.

Petitioners Counsel submitted that the petitioner was arrayed as Accused 3 on the complaint filed by the respondents for the offences punishable under Section 138 of Negotiable Instruments Act, 1881.

Magistrate took cognizance as against the petitioner when there was absolutely no specific allegation against the petitioner to attract the offences under Section 141 of NI Act and issued summon without application of mind.

Petitioner being merely Director of the company was not liable to be prosecuted for the offences under Section 141 of NI Act.

Further, it was stated that the respondent cannot presume every Director knows about the transaction while fastening criminal liability as against the Director of the Company.

To attract the offences under Section 141 of NI Act as against the petitioner, the complainant should have specifically averred in the complaint that at the time of offence the petitioner was in charge of and responsible for the conduct and the business of the company.

Adding to its contention, it was also stated that if a person who was in charge of the day to day management of the company or by stating that he / she was in charge of affairs of the company cannot be vicariously made liable under Section 141(1) of NI Act.

Counsel for the petitioner Nithyaesh Natraj and Counsel for the respondent R. Prasanna Vineeth Durai.

Dishonour of Cheque

On the Complaint lodged, in total there were 4 accused of the offences punishable under Sections 138 and 141 of NI Act. It was alleged that the accused persons had already availed term loan from the complainant to the tune of Rs 65 lakhs. Accused towards partial discharge of their liability issued eight cheques in favour of the respondent but the same were returned dishonoured on being presented for the reason “account closed”.

Respondent after serving statutory notice under Section 138 of NI Act, initiated proceedings for the offences punishable under Sections 138 and 141 of NI Act against the accused persons.

Respondent made allegation foisting liability on the petitioner in the complaint as follows:

“the second accused being the Managing Director and the third accused being one of the Director who are respectively in charge of the managing all such business activities of the first accused company and also running the day to day affairs naturally aware about their liability”.

Analysis and Decision

Bench stated that Section 141 of the NI Act does not make all the Directors liable for the offence. The person sought to be made liable should be in charge and responsible for the conduct of the business of the company at the relevant time.

Therefore, it was stated that there is no deemed liability of the Director in such case.

Several Supreme Court decisions have held that the complaint has to specifically say as to how and in what manner Director was responsible for the conduct of the business of the company.

Court held that unfortunately, in the impugned complaint, the allegation did not satisfy the requirements of Section 141 of the NI Act.

Further, on perusal of the complaint, Court observed that the petitioner was inducted as the Non-Executive Director of the first accused company, therefore the petitioner was not responsible for the day to day affairs of the company and hence cannot be made liable vicariously for the offence committed by the company.

Therefore, the Court, in order to secure ends of justice, opined to necessarily interfere with the proceedings in exercise of its jurisdiction under Section 482 of CrPC.

Hence, the Criminal Original Petitions were allowed and the proceedings on the file of Metropolitan Magistrate were ordered to be quashed as far as the petitioner was concerned, whereas, for other accused, the trial court has been directed to complete the trial. [Vijaya Arun v. New Link Overseas Finance Ltd., Crl. OP Nos. 5, 8 & 11 of 2020, decided on 18-08-2020]

Case BriefsHigh Courts

Madras High Court: G.K. Ilathiraiyan, J., addressed a petition wherein it was reiterated that Advocates are barred from having any business transaction or loan transaction with his client as the same amounts to professional misconduct.

Purpose of filing the present petition was to quash the proceedings taken place by the Judicial Magistrate for the offences punishable under Section 138 Negotiable Instruments Act against the petitioner.

Respondent who is an advocate appeared on behalf of the petitioner in a case cheated him along to the tune of Rs 7 lakhs and also misused the cheque issued by the petitioner and filed a false case against him.

Contentions

Lack of Jurisdiction

The alleged cheque was presented for collection before the Indian Bank, Madras High Court Branch whereas the complaint was lodged before the Judicial Magistrate, without any jurisdiction.

Hence, the complaint was liable to be quashed for lack of jurisdiction.

Further, the petitioner also relied upon the decision of Bridgestone India (P) Ltd. v. Inderpal Singh, (2016) 2 SCC 75.

Default in Notice

Another point raised by the petitioner was that the statutory notice by the respondent did not fulfil the procedures laid down under Section 138 NI Act and 15 days time is to be given for repayment under the provisions of NI Act which has not been given to the petitioner.

Fiduciary Relationship

Respondent misused the fiduciary relationship with his client and the continuation of the above complaint is harassment to the petitioner for choosing such a person for defending his case.

As per Rule 49(1) C of the Advocates Act, the Advocate is barred from having any business transaction or loan transaction with his client. Therefore the entire complaint is liable to be quashed.

Counsel for the petitioner, A. Edwin and Counsel R. Krishnakumar for the respondent.

Analysis and Decision

Complainant’s case is that the petitioner had borrowed a sum of Rs 24 lakhs for the development of his business and for personal expenditure. He also assured that he would pay interest on the borrowed amount. Thereafter in order to repay the part of the amount, he issued a cheque of Rs 9,45,000 and the same was presented for collection but the same was returned for the reason that “Exceeds Arrangement”.

Section 138 (c) of NI Act:

The drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.

Respondent issued a notice asking the petitioner to repay the cheque amount within a period of 7 days, whereas according to the above-stated Section, the notice period should have been 15 days.

Relying on the Supreme Court’s decision in B. Sunitha v. State of Telangana, (2018) 1 SCC 638, Bench held that when there is a specific bar for doing money lending business that too with his own client, the act of the respondents will amount to professional misconduct.

Hence the entire proceedings initiated against the petitioner is nothing but clear abuse of process of law.

Further, the Supreme Court decision in  Bridgestone India (P) Ltd. v. Inderpal Singh, (2016) 2 SCC 75, held that the place where the cheque is delivered for collection i.e., the branch of the payee or holder in due course, where the drawee maintains an account, would be determinative of the place of territorial jurisdiction.

Hence, in the instant case respondent ought to have filed the complaint within the jurisdiction of Indian Bank, High Court Branch. Therefore, the complaint cannot be sustained against the petitioner. [Ilakkia Raja v. T. Umamaheswaran, Crl. OP No. 1157 of 2020, decided on 29-07-2020]

Case BriefsHigh Courts

Kerala High Court: A Division Bench of A. Hariprasad and T.V. Anilkumar, JJ., while addressing a review petition,  reiterated that the relevant date which makes a postdated cheque payable is the date which the cheque bears.

In the appeal, the money decree in the respondent’s favour was confirmed rejecting the appellant’s plea that the suit was barred by limitation. It was held that the relevant article in the Limitation Act that applied to the suit was not Article 19 but Article 35 of the said Act.

Court had laid down the law that the appropriate Article which applied to the suit instituted on a dishonoured cheque is Article 35 of the Limitation Act, 1963.

It is trite law that a review is not an appeal in disguise.

Bench stated that it is true that the cheques were presented to the Bank for encashment after the passage of hardly seven years, since the date of delivery.

As per Section 84(2) of the Negotiable Instruments Act, the reasonableness of time to be taken for presentation from the date of issue of cheque, shall be determined with due regard to the nature of the instrument, the banking and trade usage and also the facts of each particular case.

In the opinion of the Court, the provision in Section 84(1) of the Negotiable Instruments Act, 1881 contemplating time of issue of the cheque as the starting point for determining the reasonable time required for the presentation of cheque, can be given effect to without having regard to the Scheme and purpose of Section 138 NI Act.

Date on which a cheque is drawn may not be confused with date of issue but must be understood as the date mentioned on the face of the document.

The reasonable period stipulated in Section 84(1) and (2) of the NI Act shall be read harmoniously with the time prescribed in proviso (a) to Section 138 NI Act.

“…what determines the time of commencement of period of presentation is the date of the cheque and not the date of delivery of the cheque.”

Bench further observed that the date of issue of cheque mentioned in Section 84(1) is not irrelevant and capable of rejection in cases where the date of cheque appearing on its face and the date of issue are one and the same.

In the instant case, cheques were postdated and they became payable only from the dates endorsed. Even though the dates of presentation and dishonour were not pleaded, the cheques were presented within the period of 2 months since they became payable.

The review fails in the instant matter as the issue of cheques was as early as in 2001, the presentation made in 2007 in accordance with Section 138(a) cannot be said to offend Section 84(2) of NI Act.

High Court partly allowed the review petition and ordered that the following sentence which was under review shall stand deleted.

“One of us (Justice A.Hariprasad) had occasion to hold in an unreported decision in Puthenveettil Malathy v. Kuttilakandy Balakrishnan [A.S.No.436 of 2002] that Article 35 is the appropriate provision applicable to a suit brought for recovery of money on dishonour of a cheque issued in discharge of liability of the debtor.”

[Subanamma Ninan v. George Veeran, 2020 SCC OnLine Ker 4151, decided on 18-09-2020]

Case BriefsHigh Courts

Allahabad High Court: Dr Kaushal Jayendra Thaker, J., held that a complaint made in light of dishonor of cheque filed with a delay of one day cannot be dismissed as one day delay has to be excluded.

The instant application was filed under Section 482 Criminal Procedure Code, 1973 on being aggrieved by an Order passed by Court of Additional Sessions Judge and another order passed by Additional Chief Judicial Magistrate under Section 138 of the Negotiable Instruments Act whereby applicants’ complaint was dismissed on the ground of delay.

Factual Matrix

INSUFFICIENCY OF FUNDS

Accused/OP 2 had requested for money of Rs 6,00,000 from the complainant/applicant on personal need which was later transferred in the accused’s bank account. At the time of the return of the same, OP 2 gave to the applicant a Cheque which was dishonoured on account of insufficiency of funds.

In view of the above, a notice was sent to OP 2, on receiving the same, he again gave a cheque which was presented with a remark “Alteration /Correction on Instruments”. Despite notice OP 2 has so far not given the amount of the cheque, further on being aggrieved, the applicant filed the complaint.

Court concerned in light of the complaint summoned OP 2 after recording the statements under Sections 200 and 202 CrPC against which the OP 2 preferred revision before the Sessions Judge, Aligarh. Sessions quashed the summoning order holding that legal notice was not sent within the time prescribed and hence matter was remanded back to the Court concerned.

Section 142 of NI Act gives ample power to the Judge to condone delay.

Bench stated that in view of the provisions amended in the Negotiable Instruments Act way back on 06-02-2003, even if Court considers there was a delay in the lodgement of the complaint, applicant’s counsel satisfied the Court’s conscience that the complaint was in time as the period of one day has to be excluded.

Court observed that the respondent wanted to take advantage of loopholes in the Act, hence Judge was directed to pass a reasoned summoning order to the respondents who evaded to appear even before this Court.

In view of the above discussion, the impugned order was set aside and quashed. [Pankaj Sharma v. State of U.P., 2020 SCC OnLine All 1339, decided on 22-09-2020]

Case BriefsHigh Courts

Madras High Court: G.K. Ilanthiraiyan, J., allowed a criminal original petition and quashed the proceedings in a criminal case filed against the petitioner.

Instant petition was filed to quash the proceedings pending on the file of Judicial Magistrate having been taken cognizance for the offences under Section 420 of Penal Code, 1860.

Respondent lodged a private complaint alleging that the complainant was running a proprietorship concern in the name and style of M/s RSR Egg Centre along with poultry farms at Namakkal District.

Respondent approached the petitioners for the supply of animal feeds and the same was agreed and animal feeds were supplied to the respondent. In the normal course of business transaction between the petitioners and the respondent, for the purpose of holding out security as against the feeds supplied by the petitioners, the respondent issued two cheques for security purpose.

Further, in the year 2017, feeds supplied by the petitioners were not standard one and therefore the respondent issued stop payment in respect of the cheques issued to the petitioners.

In order to take further action as against the petitioners, the respondent lodged complaint before the District Crime Branch, Namakkal and after the direction issued by the Judicial Magistrate under Section 156(3) CrPC, the case was registered for the offences under Sections 23, 409, 415 and 420 IPC as against the petitioners.

Towards liability of purchase, the respondent issued cheques for the said sum. Thereafter, the respondent stopped payment and as such both the cheques were returned dishonoured. After issuance of statutory notice, the petitioners initiated proceedings for the offences punishable under Section 138 NI Act.

Bench stated that the private complaint lodged by the respondent was nothing but counter blast to the proceedings initiated by the petitioners.

“…impugned complaint is manifestly attended with malafides and / or where the proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accused and with a view to spite him due to private and personal grudge.”

Hence while allowing the present petition, Court held that  “the continuance of the impugned proceedings will be nothing but abuse of process of law and as such the petitioners need not go for the ordeal of the trial since the complaint itself cannot be sustained as against the petitioners.” [M. Chandrasekar v. R. Rajamani, 2020 SCC OnLine Mad 4777, decided on 24-08-2020]

Case BriefsHigh Courts

Allahabad High Court: While deciding a petition filed under Article 227 of the Constitution of India, Suresh Kumar Gupta, J., dismissed the same and declined to interfere in the judgment delivered by Sessions Court.

The present petition has been filed by the petitioner to set aside the impugned orders dated 31-10-2018 passed by Additional Court No. 3, Agra in Complaint No. 1500 of 2011 (Nepal Singh v. Dhirendra Singh) under Section 138 of Negotiable Instruments Act, 1881(Hereinafter referred as N.I. Act) and the order dated 6-02-2020 passed by Additional Sessions Judge, Agra in Criminal Revision No. 552 of 2018 (Dhirendra v. State of U.P. ) and to quash the summoning order dated 28-3-2012 as well as an entire proceeding of Complaint Case No. 1500 of 2011 pending in the Additional Court No. 3, Agra.

The factual matrix in the instant case is such that the present petitioner borrowed Rs 1,00,000 from respondent 2 and handed over cheques bearing Nos. 850213 & 850214 for repayment of the borrowed amount. However, the cheques were dishonoured by the bank due to insufficient amount in the account subsequent to which respondent 2 served a notice to the petitioner on 18-10-2011. Later, on 08-11-2011, respondent 2 filed a complaint case no. 1500 of 2011 (Nepal Singh v. Dhirendra Singh) under Section 138 of N.I. Act against the petitioner in the trial court. The trial court vide its order dated 28-3-2012 has taken cognizance and summoned the petitioner.

Counsel for the petitioner, Deepak Kumar Kulshrestha has relied on Section 138 of the N.I. Act, submitting that the complainant/respondent is incompetent to lodge the prosecution as the cheques were issued by the firm Rashmi Arosole & Chemicals and the petitioner is the proprietor of this firm but the firm is not arraigned as an accused. He relied on the judgments delivered in the cases of Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661 and Devendra Kumar Garg v. State of U.P., 1990 SCC OnLine All 806 and added that until and unless company or firm is arraigned as an accused director or the other officer of the company/firm cannot be prosecuted/punished in the complaint.

Counsel for the respondent, S.B. Maurya attempted to refute these contentions by submitting that the cheques were drawn by the petitioner in his personal capacity and were given by way of security for payment of money. The circumstances do not warrant the arraignment of the aforementioned firm as a party.

The Court perused the cheques closely and concluded that the cheques bear the petitioner’s signature and that there is no dispute with regard to the fact that the petitioner is the sole proprietor of Rashmi Arosole & Chemicals. Also, on perusal of the registration certificate of the firm, it can be established that the petitioner is the sole proprietor of the firm namely Rashmi Arosole & Chemicals.

Upon careful consideration of the facts, circumstances and arguments advances, the Court observed that-

“While a partnership results in the collective identity of a firm coming into existence, a proprietorship is nothing more than a cloak or a trade name acquired by an individual or a person for the purpose of conducting a particular activity. With or without such trade name, it (sole proprietary concern) remains identified to the individual who owns it. It does not bring to life any new or other legal identity or entity. No rights or liabilities arise or are incurred, by any person (whether natural or artificial), except that otherwise attach to the natural person who owns it. Thus it is only a ‘concern’ of the individual who owns it. The trade name remains the shadow of the natural person or a mere projection or an identity that springs from and vanishes with the individual. It has no independent existence or continuity.”

The Court was able to conclude that in a sole proprietary concern, vicarious liability cannot arise because there’s only one person involved. The identity of the sole proprietor and his concern remain one, even if the sole proprietor may adopt a different name for his concern. Hence, there is no defect in the complaint lodged by the respondent. The sole proprietorship firm need not be impleaded for the respondent to realise his claim against the petitioner.

In view of the above, the petition has been dismissed for lack of merit. The Court found no reason to interfere in the orders dated 31-10-2018 passed by Additional Court No. 3, Agra and the order dated 6-2-2020 passed by Additional Sessions Judge against the petitioner. [Dhirendra Singh v. State of U.P., 2020 SCC OnLine All 1130, decided on 13-10-2020]


Yashvardhan Shrivastav, Editorial Assistant has put this story together

Banking and Negotiable InstrumentsCase BriefsHigh Courts

Delhi High Court: V. Kameswar Rao, J., while addressing the present matter observed that a retired director of the company cannot be held liable for the day to day acts of company and cheques issued and dishonoured post his retirement.

Petitioner’s Counsel V.M. Kannan contended that the proceedings by respondent 1 have been initiated before the Metropolitan Magistrate under Section 138 of the Negotiable Instruments Act, 1881.

The ground of the above-stated proceedings:

The petitioner was a Director of respondent 2. The cheques in question were issued by respondent 2 and the same was dishonoured due to insufficient funds.

Cheques in question were issued by respondent 2 to discharge its liability towards respondent 1.

Petitioner’s Counsel added that he ceased to be the director of the respondent 2 at least 8 years prior to the issuance of the cheques. The resignation of the petitioner was also notified to the Registrar of Companies by the respondent 2 by filing Form 32, which is a public document

No application of Judicial Mind

Metropolitan Magistrate in a mechanical manner only by considering Company Master Data of the period when the petitioner was Director has entertained the complaint under Section 138 of the NI Act and without applying any judicial mind and without recording any satisfactory reasons as to whether the offence is made out against the petitioner has issued the summons.

Further, the essential ingredients for maintaining a complaint under Section 138 of the NI Act are absent with respect to the petitioner. The respondent 1 failed to show in what manner and how the petitioner was responsible for the affairs of the respondent 2. The issuance of summons was contrary to the settled position of law in terms of the judgments of the Supreme Court and this Court.

Crux of the matter

The crux of the present petition is with regard to the quashing of 5 complaint cases initiated by respondent 1 against the petitioner. Complaint cases were primarily grounded on the return of 5 cheques which were issued on behalf of respondent 2 for a total amount of Rs 45 lakhs.

Analysis 

It is also settled law that mere repetition of the phraseology of Section 141 of NI Act that the accused is In-charge and responsible for the conduct of the day-to-day affairs of the Company may not be sufficient and facts stating as to how the accused was so responsible must be averred.

Respondent 1 had submitted that respondent 1 was involved in the discussion and represented respondent 2 before the agreement was executed but that does not mean even after his resignation he continued to be responsible for the actions of the Company including the issuance of cheques and dishonour of same which then attracts proceedings under Section 138 of NI Act against him.

Further, the bench stated that if the Metropolitan Magistrate had called for the latest Company Master Data along with the complaint, the Metropolitan Magistrate would have issued the summons as it would have revealed that the name of the petitioner does not find mention and the petitioner was not In-charge of the Company. Hence the summons issued against the petitioner were not justified.

Court also added that, petitioner was justified in relying on the decision of the Coordinate Bench of this Court in J.N. Bhatia v. State 2006 SCC OnLine Del 1598.

Supreme Court’s decision in  Harshendra Kumar D. v. Rebatilata, (2011) 3 SCC 351, was also referred with other decisions of the Supreme Court.

Decision

In cases where the accused has resigned from the Company and Form 32 has also been submitted with the Registrar of Companies then in such cases if the cheques are subsequently issued and dishonoured, it cannot be said that such an accused is in-charge of and responsible for the conduct of the day-to-day affairs of the Company, as contemplated in Section 141 of NI Act for being proceeded against.

In view of the above-stated decisions, the present petition was allowed and all proceedings pending before the Metropolitan Magistrate including summons were quashed. [Alibaba Nabibasha v. Small Farmers Agri-Business Consortium, 2020 SCC OnLine Del 1250, decided on 23-09-2020]


Read More:

Section 141 NI Act: Offences of Companies

Section 138 NI Act: Dishonour of cheque for insufficiencyetc., of funds in the account

Dishonour of Cheque [S. 138 NI Act and allied sections]

OP. ED.SCC Journal Section Archives

The National Company Law Appellate Tribunal (hereinafter “Nclat”) recently in Shah Bros. Ispat1, approved parallel continuation of proceedings under the Negotiable Instruments Act, 1881 (hereinafter “the NI Act”) against a company subjected to moratorium while undergoing resolution process under the Insolvency and Bankruptcy Code, 2016 (hereinafter “the IB Code”). The decision of Nclat raises multiple issues ranging from an apparent conflict between the NI Act and the IB Code to practical impossibilities in allowing both the proceedings to continue simultaneously. The object of the article is to discuss the legal problems that may arise in light of the decision in Shah Bros. Ispat1, and why the decision needs to be revisited in light of the settled law.

DECISION IN SHAH BROS. ISPAT2

The appellant creditors before Nclat had initiated two separate proceedings under Section 138 of the NI Act, one prior to the admission of insolvency proceedings under the IB Code and one post the admission of insolvency proceedings under the IB Code. The respondent debtor contended that once a moratorium is imposed under Section 14(1)2 of the IB Code, proceedings under the NI Act would have to be halted. Nclat categorically rejected the submission and held:

6. … as Section 138 is a penal provision, which empowers the court of competent jurisdiction to pass order of imprisonment or fine, [and] cannot be held to be proceeding or any judgment or decree of money claim. Imposition of fine cannot held to be a money claim or recovery against the Corporate Debtor nor order of imprisonment, if passed by the court of competent jurisdiction on the Directors, they cannot come within the purview of Section 14. Infact no criminal proceeding is covered under Section 14 of I&B Code.3

The major precise for allowing parallel continuation of proceedings was that the moratorium does not cover criminal proceedings, but it is submitted that while this position might be true, proceedings under the NI Act cannot be classified as criminal proceedings in strict sense. The decision of Nclat raises multiple issues, namely:

(a) whether proceedings under the NI Act are purely criminal in nature,

(b) whether the accused company’s right to compose (and put an end to) a cheque bounce case is circumvented during the imposition of moratorium, and

(c) whether continuation of parallel proceedings under the NI Act and the IB Code conflict with the object as well as the procedure of the resolution process and if whether it affects the rights of other creditors.

For the purposes of the argument, the article does not distinguish between the NI proceedings initiated prior to the initiation of proceedings under the IB Code and the NI proceedings initiated post the initiation of proceedings under the IB Code since the reasoning of Nclat permeates both the scenarios.

NATURE OF PROCEEDINGS UNDER NI ACT

The Supreme Court in a catena of cases has laid down that the proceedings under Section 138 of the Negotiable Instruments Act, 1881 are civil in nature with the primary object to be compensatory. In Kaushalya Devi Massand4, the Supreme Court categorically held that “the gravity of a complaint under the Negotiable Instruments Act cannot be equated with an offence under the provisions of the Penal Code, 1860 or other criminal offences.”

The extent to which the proceedings under Section 138 of the Negotiable Instruments Act, 1881 have been categorised to be civil in nature can also be gauged from the question of law that was before the Hon’ble Court in the aforesaid case of Meters and Instruments5. The Court was confronted with the issue as to whether the consent of the complainant is required to bring an end to the proceedings under Section 138 of the Negotiable Instruments Act, 1881 or not. And noting the legislative history of the Act, it stated:

11. … The statutory scheme post-2002 amendment … has brought about a change in law and it needs to be recognised. … [b]asic object of the law is to enhance credibility of the cheque transactions by providing speedy remedy to the complainant without intending to punish the drawer of the cheque whose conduct is reasonable or where compensation to the complainant meets the ends of justice.6

(emphasis supplied)

The Court ultimately held that:

18. ***

18.2. The object of the provision being primarily compensatory, punitive element being mainly with the object of enforcing the compensatory element, compounding at the initial stage has to be encouraged….

18.3. Though compounding requires consent of both parties, even in absence of such consent, the court, in the interests of justice, on being satisfied that the complainant has been duly compensated, can in its discretion close the proceedings and discharge the accused.7

From the above percipience, it becomes clear that a crucial element of a proceeding under Section 138 of the NI Act is its nature that basically involves an in personam legal action. Generally criminal law as enshrined under the Penal Code, or special Acts like the Narcotics, Drugs and Psychotropic Substances Act involves legal action in rem with the State initiating legal action against an accused. While understandably, the reason behind providing criminal overtone to the proceedings under Section 138 of the NI Act is to instil faith in the mode of conducting business, but the inherent nature of the cases under Section 138 of the NI Act remains the same i.e. to provide for a mechanism wherein a debtor can recover its dues from the creditors in a timely and more secured manner since fear of incarceration is the stick that dangles over the head of the accused debtor.

RIGHT TO COMPOSE A CHEQUE BOUNCE CASE IS CIRCUMVENTED DURING THE IMPOSITION OF MORATORIUM

The decisions of the Supreme Court in Meters and Instruments5, Kaushalya Devi Massand4 and Damodar Prabhu8, categorically lay down the option of paying reasonable compensation to the cheque-holder and thereby putting an end to the proceeding under Section 138 of the NI Act. It is submitted that this particular right gets circumvented when insolvency proceedings are admitted against a corporate debtor and a moratorium is imposed.

The IB Code has led to considerable change in the legal landscape pertaining to corporate entities and has brought in radical shift to the bankruptcy and insolvency process. Under the IB Code, in order to initiate resolution process of an insolvent company, it is necessary to prove that the alleged corporate debtor is insolvent. Once an insolvency petition is “admitted”, the resolution process is initiated and the current management is suspended and an Interim Resolution Professional (IRP) is appointed.9 Section 17 of the IB Code is categorical in its ambit when it stipulates:

17. Management of affairs of corporate debtor by interim resolution professional.—(1) From the date of appointment of the interim resolution professional—

(a) the management of the affairs of the corporate debtor shall vest in the interim resolution professional;

(b) the powers of the Board of Directors or the partners of the corporate debtor, as the case may be, shall stand suspended and be exercised by the interim resolution professional;

(emphasis supplied)

IRP is mandated to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern.10 The Resolution Professional who replaces IRP carries forward the mandate to protect and preserve the assets of the “corporate debtor company”11 and is statutorily mandated to conduct the entire corporate insolvency resolution process and manage the operations of the corporate debtor during the corporate insolvency resolution process period.12

Subsequent to all these steps, the resolution plan submitted by any resolution applicant is required to be presented for the approval of the “committee of creditors”13. Section 3114 of the Insolvency and Bankruptcy Code, 2016 stipulates that the resolution plan once approved would be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan. In case the resolution plan is not approved, then the company goes into liquidation. However, during all this time, the Board of Directors of the company are suspended and possess no control over the financial decisions or the functioning of the company.

The Code in order to give full effect to its provisions and the object of insolvency resolution of companies, unencumbered by any other pending legal proceedings or legal right, provides for the imposition of moratorium that prohibits any interference with the assets of the company. The object of moratorium under Section 14 IBC is to keep the corporate debtor’s assets together during the corporate insolvency resolution process and to facilitate orderly completion of the entire process. A “moratorium” ensures that the company continues as a “going concern”, as long as the creditors take a view on the resolution of default. In its report, the Bankruptcy Law Reforms Committee states that the motivation behind the “moratorium” is that it is value-maximising for the entity to continue operations even as the company’s viability is being assessed by the Interim Resolution Professional. The same report further states that:

there should be no additional stress on the business after the public announcement of the Interim Resolution Professional. The order for the moratorium during the Interim Resolution Professional imposes a stay not just on debt recovery actions, but also any claims or expected claims from old lawsuits, or on new lawsuits, for any manner of recovery from the entity.

The report added that the moratorium would be active for the period over which IRP is active.

In light of the above-mentioned discussion, the position under the Insolvency and Bankruptcy Code can be summarised in the following terms:

(a) once proceedings for Insolvency and Bankruptcy against a company are initiated and “admitted” before the National Law Company Tribunal, the company goes into resolution process,

(b) once resolution process is initiated the Board of Directors of the debtor company are suspended from their positions,

(c) during the resolution process, the operations of the company are carried on by the “interim resolution process” only,

(d) during the resolution process there is an imposition of “moratorium” which prohibits institution of suits or continuation of pending suits or proceedings against the corporate debtor; also prohibits transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein; and

(e) the financial institutions maintaining accounts of the corporate debtor shall act on the instructions of the “Resolution Professional” only and in relation to such accounts and furnish all information relating to the corporate debtor available with them to the “Resolution Professional”.

Therefore, it is clear that the proceedings under Section 138 of the NI Act cannot be composed/settled during the time moratorium is operational since the control over the financial and functioning of the Company is tied up in the hands of the Resolution Professionals with the object of allowing the “committee of creditors” explore and evaluate better plans to make the company solvent again.

POSSIBLE CONFLICT BETWEEN THE NI ACT AND THE IB CODE

It is submitted that carrying on of the proceedings under the Negotiable Instruments Act, 1881 also conflicts with the overriding, non obstante clause in the Code under Section 23815. Once an insolvency application is admitted by the adjudicating authority, it is mandated that a public announcement be released intimating admission of insolvency proceedings against a company and imposition of a moratorium.16 The same is required so that all the creditors can submit their respective claims before IRP who can process them further.17 Consequently, all the creditors have to submit their claims to the committee of creditors that has to evaluate the claims and prepare a resolution plan that once approved, is binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan.14

Therefore, if a creditor seeks recovery of its dues independent of the resolution proceedings, there is an attempt to reclaim dues by two parallel proceedings. Furthermore, by allowing parallel proceedings, rights of other creditors according to the “priority” list prescribed under the IB Code are compromised:

178. Priority of payment of debts.—(1) Notwithstanding anything to the contrary contained in any law enacted by Parliament or the State Legislature for the time being in force, in the distribution of the final dividend, the following debts shall be paid in priority to all other debts

(a) firstly, the costs and expenses incurred by the bankruptcy trustee for the bankruptcy process in full;

(b) secondly—

(i) the workmen’s dues for the period of twenty-four months preceding the bankruptcy commencement date; and

(ii) debts owed to secured creditors;

(c) thirdly….

(emphasis supplied)

Once the drawee complainant is provided compensation under the NI Act, the priority list of the creditors is affected and the entire purpose of all the creditors submitting their claims for the resolution process to collate is defeated.

Furthermore, while proceedings under Section 138 of the NI Act are against “individuals” and result in personal liability of the person implicated and charged, in case a cheque is issued by an artificial person i.e. “company”, the liability is put primarily on the issuing company. If the company were solvent, then it would not be undergoing an insolvency resolution process, but if it has to escape prosecution under Section 138 of the NI Act, it would have to pay the amount in toto. On account of the insolvency of a company and the consequent inability to pay the cheque amount, the criminal liability in effect falls upon the Directors of a company, who are more often than not, the signatory on the cheques when acting on behalf of the company. On the other hand, the Directors cannot take the funds of the company to settle the NI proceedings, since they are suspended from their positions in the company. Clearly, there is an inherent contradiction between the two Acts and the respective framework they envisage.

CONCLUSION

Due to the admission of insolvency proceedings against a company under the IB Code, and imposition of moratorium, two consequences arise, namely, (a) the option to compose a cheque bounce is not available to the company and its erstwhile Directors, and (b) since the claims of the creditors have to be submitted before a committee of creditors, there would result a scenario where two separate recoveries over same cause of action would be carried on. The primary liability in a cheque bounce case is upon the drawer company, and since the accounts of the same are under the control of a resolution professional, there is a sword hanging over the former suspended Directors of the company whereby vicarious criminal liability is imposed on them.

Apart from the practical impossibilities that arise by carrying on proceedings under the Negotiable Instruments Act, 1881, there are legal conflicts that result. Proceedings under Section 138 of the NI Act are not purely criminal in nature with the provision for incarceration and fine provided only to pressurise the accused debtor to repay the debt owed to the complainant. When all types of civil proceedings are suspended, allowing continuation of proceedings under Section 138 of the NI Act results in defeating the object of resolution process. Also, the resolution process and the resolution plan caters to the claims of all creditors since under Section 31 of the IB Code once a resolution plan is approved, it binds all the creditors. By allowing independent recovery process to the drawee complainant, the entire process of resolution stands undermined.

In light of the above discussion, it is needed that this issue is thoroughly addressed in light of the letter and spirit of the IB Code.


Advocate, Punjab and Haryana High Court, Chandigarh, BA LLB (Hons.) and Executive Member, Bar Association of Punjab and Haryana High Court. Graduated in 2016 from National Law University, Delhi. Ph. No: +918447586173. Email Address mittalakaant@gmail.com, akaant.mittal.alumni@nludelhi.ac.in.

** This article was first published in Supreme Court Cases (2020) 1 SCC J-23. It has been reproduced with the kind permission of Eastern Book Company

[1] Shah Bros. Ispat (P) Ltd. v. P. Mohanraj, 2018 SCC OnLine NCLAT 415.

[2] Insolvency and Bankruptcy Code 2016, Section 14(1) states:

14. Moratorium.—(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the adjudicating authority shall by order declare moratorium for prohibiting all of the following, namely:

(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;

(emphasis supplied)

[3] Shah Bros. Ispat (P) Ltd., 2018 SCC OnLine NCLAT 415, para 6.

[4] Kaushalya Devi Massand v. Roopkishore Khore, (2011) 4 SCC 593, 595, para 11.

[5] Meters and Instruments (P) Ltd. v. Kanchan Mehta, (2018) 1 SCC 560.

[6] Id, 568, para 11.

[7] Id, 571-72, para 18.

[8] Damodar S. Prabhu v. Sayed Babalal H., (2010) 5 SCC 663. The Court framed guidelines for compounding cases under Section 138 of the NI Act.

[9] Insolvency and Bankruptcy Code, 2016, Section 17.

[10] Insolvency and Bankruptcy Code, 2016, Section 20.

[11] Insolvency and Bankruptcy Code, 2016, Section 25.

[12] Insolvency and Bankruptcy Code, 2016, Section 23.

[13] Insolvency and Bankruptcy Code, 2016, Section 30.

[14] Insolvency and Bankruptcy Code, 2016, Section 31 stipulates:

31. Approval of resolution plan.—(1) If the adjudicating authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of Section 30 meets the requirements as referred to in sub-section (2) of Section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan.

(emphasis supplied)

[15] Insolvency and Bankruptcy Code, 2016, Section 238 states:

238. Provisions of this Code to override other laws.—The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.

(emphasis supplied)

[16] Insolvency and Bankruptcy Code, Section 13.

[17] Insolvency and Bankruptcy Code, Section 15.

Case BriefsHigh Courts

Allahabad High Court: In the instant case where the summoning order issued as per the requisites of Section 138 of Negotiable Instrument Act, 1881, was challenged as being ‘bad in law’ and the question arose that once the intention of the party is clear that he does not wish to make payment, should a complainant wait for 15 days to file the complaint; the Bench of Dr Kaushal Jayendra Thaker, J., answering the question in negative, dismissed the petition while observing that proviso (c) to Section 138 of the NI Act cannot be interpreted to mean that even if the accused refuses to make a payment, the complainant cannot file a complaint.

As per the facts of the case, two cheques of Rs 5,00,000 and Rs 5,98,000 were dishonoured on 28-05-2019. The complainant sent a notice on 11-06-2019. Upon not receiving any money, on 29.06.2019 the complainant filed the complaint under Section 138 of Negotiable Instrument Act, 1881. Consequently, a summoning order dated 03-09-2019 was issued whereby which the petitioner was supposed to present himself on 30-11-2019. The counsel for the petitioner Ajay Dubey upon being asked to explain that why the summoning order is bad, stated that as per the provisions of Section 138 the petitioner cannot be asked to answer the summons as he had already filed a reply and the complaint could have been filed only after 15 days of his reply and it was filed before the said date. The petitioner’s counsel further contended that summoning order was not in compliance with the provisions of Section 138 and that the application was falsely implicated due to enmity and financial dispute with the complainant.

Perusing the arguments and the Sections 138 and 142 of NI Act, the Court observed that the 15 days statutory period as per Section 138 proviso (c), is for making payment and does not constitute ingredients of offence punishable under Section 138. The proviso simply postpones the actual prosecution of the offender till such time he fails to pay the amount, then the statutory period prescribed begins for the lodging of complaint. The Court noted that, “In the case in hand, the petitioner herein replied to the notice which goes to show that the intention of the drawer is clear that he did not wish to make the payment. Once this is clarified, should the complainant wait for the minimum period of 15 days, the answer would be ‘no’”.[Ravi Dixit v. State of U.P., 2020 SCC OnLine All 1056, decided on 23-09-2020]


Sucheta Sarkar, Editorial Assistant has put this story together

Case BriefsHigh Courts

Punjab and Haryana High Court: Sudhir Mittal, J., while addressing an issue with regard to the dishonour of cheque held that,

“Offence under Section 138 NI Act is quasi-criminal in nature and it is not an offence against society, hence an accused can escape punishment by settling with the complainant.”

Revision petitioner issued a cheque to the complainant–respondent 1 which was dishonored. 

On the dishonour of cheque, the complainant sent a notice demanding payment of the cheque amount but no response was received.

In view of the above, he filed a complaint under Section 138 of the Negotiable Instruments Act, 1881.

Revision petitioner was acquitted and later he filed an appeal against the said Judgment and the case was remanded for a fresh decision.

Appeal against the aforementioned judgment of conviction was dismissed which lead to the filing of the present revision petition.

In the present appeal, the revision petitioner prayed for a reduction in the quantum of sentence.

Question for adjudication is — Whether the petitioner is entitled to reduction of his sentence?

When can a Revisional Court exercise its powers to alter the nature or the extent or the nature and extent of the sentence?

Do sympathetic consideration have any role to play in the matter of sentencing?

Sentencing is primarily a matter of discretion as there are no statutory provisions governing the matter.

Bench citing the decision of the Supreme Court in State of Himachal Pardesh v. Nirmala Devi, 2017 (2) RCR (Criminal) 613, stated that the sentence imposed must be commensurate with the crime committed and in accordance with jurisprudential justification such as deterrence, retribution or restoration. Mitigating and aggravating circumstances, both should be kept in mind.

Court added that the provisions inserted for inculcating greater faith in banking transactions needed more teeth so that cases involving dishonour of cheques reduced.

Therefore, it is apparent that deterrence and restoration are the principles to be kept in mind for sentencing.

In the present matter, the order of sentence for 2 years has been imposed on the grounds that the offence is a socio-economic offence.

Award of compensation is also justified and reflects a judicious exercise of mind.

In view of the above, the revision petition was dismissed and maintained. [Rakesh Kumar v. Jasbir Singh, 2020 SCC OnLine P&H 1197, decided on 11-08-2020]


Also Read:

Dishonour of Cheque [S. 138 NI Act and allied sections]

Case BriefsHigh Courts

Madhya Pradesh High Court: Rajendra Kumar Srivastava, J., while addressing a matter with regard to dishonour of cheque held that, Director/Managing Director/Joint Director/other officers and employees of company can not be prosecuted under Section 138 of NI Act unless the company is impleaded as an accused

Petitioner is aggrieved with the Order passed against him by JMFC framing a charge under Section 138 of Negotiable Instruments Act, 1881.

Complaint was filed by respondent-trade firm against the petitioner wherein it was mentioned that on account of business relations between the parties petitioner had borrowed an amount of Rs 2,00,000 from respondent, which was to be returned by within a period of four months.

In November 2017, petitioner handed over a cheque amounting to Rs 2,00,000 which when the respondent submitted in January, 2018 was dishonoured due to “stop payment” by the petitioner.

On the above-event’s occurrence respondent had sent a legal notice to the petitioner which was ignored by the petitioner and thus a complaint before JMFC was filed.

Petitioners Contention

Respondent had given the amount in question for business purpose and the petitioner had given the said cheque under the capacity of chairman of company namely ‘Well Built Industry India Ltd.’ but the respondent did not implead the company as a party in the complaint case.

The respondent/complainant also failed to specify the role of present petitioner on behalf of the company. Hence, in view of the provision of Section 141 NI Act, the proceedings under Section 138 NI Act are bad in law and deserves to be quashed. With the aforesaid, he prayed to allow this petition.

Section 138 NI Act: Dishonour of cheque for insufficiency, etc. of funds in the account.

Section 141 NI Act: Offences by Companies

“…if an offence is committed by a company under Section 138 of the Act, every person, at the time, the offence was committed, was in-charge and responsible to the company in the conduct of the business of the company, is liable along with the company to be proceeded against and punished accordingly.”

S.M.S Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89

“…Necessary averments ought to be contained in a complaint before a person can be subjected to criminal process. A liability under Section 141 NI Act is sought to be fastened vicariously on a person connected with a company, principal accused being the company itself. It is a departure from the rule in criminal law against vicarious liability. A clear case should be spelled out in the complaint against the person sought to be made liable.”

Bench while referring to several decisions held that the person (Director/Managing Director/Joint Director/other officers and employees) of company can not be prosecuted under Section 138 of NI Act unless the company is impleaded as an accused.

Thus, in the present matter it is to be noted that a demand notice was served only on the petitioner/accused, there was no demand notice against company, therefore, without arraying the company as an accused in complaint case, the petitioner can not be prosecuted for the offence of Section 138 NI Act.

Hence the present petition was allowed.[Bhupendra Suryawanshi v. Sai Traders, 2020 SCC OnLine MP 1277 , decided on 09-06-2020]

Case BriefsHigh Courts

Karnataka High Court: A Division Bench of Abhay Shreeniwas Oka, CJ and S Vishwajith Shetty, J., dealt with the following issues through the present petition:

  • whether the personal presence of the complainant is necessary when a complaint reduced into writing is sought to be filed by him in the Magistrate Court; Other issue in regards to complaints was in the context of Negotiable Instruments Act, 1881.
  • whether examination upon oath of the complainant as contemplated under Section 200 of the Code of Criminal Procedure, 1973 can be done on the basis of an affidavit of the complainant or affidavit of an authorized representative of the complainant.
  • Whether the personal presence of a party who files a proceeding under the Family Courts Act, 1984 is mandatory at the time of filing the proceedings.
  • Another issue that arose was, when a petition for seeking divorce by mutual consent is filed, whether appearance of both the parties before the Family Court at the time of filing the petition is necessary?
  • when summons is issued in the proceedings filed before the Family Court to the defendant/respondent, whether the personal appearance of the defendant/respondent is mandatory.

Bench while relying on the two decisions of Karnataka High Court, Komal S. Padukone v. Principal Judge, ILR 1999 KAR 1866; Cyprian D’Souza v. Rene D’Souza, ILR 2002 KAR5145 ; stated the following:

When a petition is filed to the Family Court, it can be presented by the petitioner either in person or through an authorized agent.

Further the Court observed that,

a petitioner can file a petition in the Family Court through an advocate acting as an authorized agent. In such a case, the personal presence of the petitioner at the time of presentation of the petition cannot be insisted upon.

Th same principle would apply for the respondent as well,

respondent may either appear in person or enter appearance through an advocate in his capacity as an authorized agent. The respondent can also file an application for grant of permission to engage services of an advocate.

Thus, Court held that

“there is no legal basis for the practice adopted by some of the Family Courts in the State when they insist on personal presence of the petitioner or petitioners at the time of filing the cases.”

Issue: Presence of complainant when a complaint in writing is governed by Section 200 CrPC is filed in Judicial Magistrate’s Court.

Court found no provision in CrPC that makes the presence of complainant who files a written complaint mandatory at the time of filing of the complaint in the Magistrate’s Court when the person is represented by an Advocate.

As far as the requirement of the Magistrate examining a complainant on oath in accordance with Section 200 of Cr.P.C is concerned, except in cases governed by clauses (a) and (b) of the proviso to Section 200 and the complaints alleging offences punishable under Section 138 of NI Act, the examination of the complainant upon oath as per Section 200 is mandatory.

As far as the statement of the complainant under Section 200 of CrPC is concerned, Supreme Court’s decision in Indian Bank Assn. v. UOI, (2014) 5 SCC 590, held that the affidavit filed by the complainant along with the complaint for taking cognizance of the offences is good enough at both the stages of pre-summoning and post-summoning.

In case of a complaint alleging offence punishable under Section 138 of NI Act, it is not necessary for the Magistrates to insist upon personal presence of the complainant for examining him upon oath as contemplated by Section 200 of CrPC, if such a complaint is accompanied by an affidavit of the complainant or his authorized representative.

Another issue in the context of COVID-19 was with regard to the judicial deposits and payment of amounts to the litigants:

Court stated that, “while passing an order directing payment of maintenance, it may be possible for the Judicial Officers to take the account details of the person to whom maintenance is payable on record and direct the person liable to pay maintenance to directly transfer the maintenance amount to the account of the beneficiary.”

Registrar (Computers ) has been directed to prepare an exhaustive note dealing with both the legal and technical issues concerning the treasury Rules and one week’s time os granted to file the same.[High Court of Karnataka v. State of Karnataka, 2020 SCC OnLine Kar 543 , decided on 03-06-2020]

Case BriefsHigh Courts

Jharkhand High Court: Amitav K. Gupta, J. acquitted the petitioners of the charges on an amicable settlement between the parties.

The relevant facts of the case are that the petitioner has been convicted for the offence under Section 138 of Negotiable Instrument Act, by the court of Judicial Magistrate, 1st Class, Jamshedpur and sentenced to undergo simple imprisonment of 18 days and pay the compensation of Rs 31,000 under Section 357 (3) CrPC. The said judgment and conviction has been affirmed in Criminal Appeal by the Sessions Judge, East Singhbhum, Jamshedpur. Hence the instant criminal revision.

The counsel Ashok Kumar Yadav for the petitioner submitted that in compliance of the order dated 31-01-2020, amount of Rs 31,000 has been paid. The counsel P. Mitra for the complainant submitted that amount has been handed over by the petitioner and since the entire amount has been paid he does not want to proceed with the case. The Court relied on the judgment titled Meters & Instrument (P) Ltd. v. Kanchan Mehta; (2018) 1 SCC 560  held that the object of the provision of the Negotiable Instrument Act is primarily compensatory and the court can in the interest of justice discharge the accused on amicable settlement of the matter. In view of the above arguments the petitioner is acquitted of the charges and the judgment dated 08.05-2019 is set aside. [Alok Kumar v. State of Jharkhand, Cr. Revision No. 694 of 2019, decided on 06-03 2020]

Case BriefsHigh Courts

Delhi High Court: Manoj Kumar Ohri, J., while allowed the present petition and quashed the impugned order summoning the petitioners under Section 138 Negotiable Instruments Act, 1881.

Petitioners in the present case were summoned for the offence punishable under Section 138 NI Act.

Respondent filed a complaint stating that the accused were regular purchasers of goods from the complainant on a credit basis and made regular payment towards sale consideration from time to time in the past. There was an outstanding balance payable by the accused against which 4 account payee cheques were issued. However, the same were returned unpaid to the complainant vide bank’s return with remarks “Funds Insufficient”.

Complainant issued a legal notice of demand calling upon the accused to make payment within 15 days from the date of receipt. Since no payment was made within the statutory period of 15 days, a complaint under Section 138 read with Sections 141/142 of NI Act was filed.

Counsel for the petitioner contended that, petitioners were the independent non-executive Additional Directors and were never involved in the day to day affairs of the company at any point of time. Further, he referred to the complaint where the present petitioners were wrongly described as Directors.

It is an admitted case of the respondent that the petitioners were neither the Managing Directors nor the signatories to the cheques in question.

Further, the Counsel for the respondent submitted that the petitioners were named as Directors in the complaint on the basis of the information which was downloaded from the official website of ROC.

Decision

While concluding its decision, Court stated that, Vicarious liability of a person arises in terms of Section 141 of NI Act, and referred to S.M.S Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89.

Another Supreme Court’s decision that the bench referred was a recent one,

Chintalapati Srinivasa Raju v. Securities and Exchange Board of India, (2018) 7 SCC 443, wherein it was held that

Non-Executive Directors are, therefore, persons who are not involved in the day-to-day affairs of the running of the company and are not in charge of and not responsible for the conduct of the business of the company.

Thus, in view of the above, Court stated that the petitioners were neither the Managing Directors nor the authorized signatories of the accused company.

Further, the Court noted that, a perusal of the complaint filed by the respondent shows that except for general allegation stating that petitioners were responsible for control and management and day to day affairs of the accused company, no specific role had been attributed to petitioners.

To fasten the criminal liability under The Negotiable Instruments Act, 1881, the above generalised averment without any specific details as to how and in what manner, the petitioners were responsible for the control and management of affairs of the company, is not enough.

Hence the impugned order summoning the petitioners under Section 138 NI Act is quashed. [Sunita Palta v. Kit Marketing (P) Ltd., Crl. MC No. 1410 of 2018, decided on 03-03-2020]

Case BriefsHigh Courts

Himachal Pradesh High Court: Sandeep Sharma, J. compounded and quashed the impugned judgments and acquitted the petitioner of the charge framed under Section 138 of Negotiable Instruments Act, 1881

The brief facts of the case are that the respondent-complainant instituted a complaint under Section 138 of the Act against the present petitioner-accused, alleging he lent sum of Rs 1,00,000 to the petitioner-accused to buy a car. The petitioner accused with a view to discharge his liability issued a cheque in favour of the complainant which was dishonored on its presentation on account of insufficient funds. Since petitioner-accused failed to make the payment within the stipulated period despite issuance of legal notice, respondent/complainant initiated proceedings under Section 138 of the Act. 

The trial Court held the petitioner-accused guilty under Section 138 of the Act and sentenced him accordingly. Being aggrieved, accused preferred an appeal in the court of learned Sessions Judge, Una, which also came to be upheld by the trial court. Hence the present petition seeking acquittal and setting aside of the judgments of conviction recorded by the courts.

The counsel Dheeraj K. Vashishat for the petitioner informed the Court that parties have resolved to settle their dispute amicably inter-se for a total sum of Rs 1,15,000 and Rs 15,000 stands already paid, remaining amount shall be paid on or before 18.2.2020. It was further submitted by learned counsel for the parties that entire sum of Rs 1,15,000 stands received by the respondent complainant in terms of compromise arrived inter-se between them. 

The counsel Leena Guleria for respondent states that since amount in terms of compromise arrived inter-se parties stands received by the complainant, the complainant shall have no objection in case prayer made on behalf of the petitioner for compounding the offence is accepted. Respondent-complainant (Rahul Kumar), who is present in Court stated on oath that he of his own volition and without there being any external pressure has entered into compromise stated to have no objection in case petitioner is acquitted of the charge under Section 138 of the Negotiable Instruments Act. 

The Court while exercising power under Section 147 of the Act and relying on the Judgment titled Damodar S. Prabhu v. Sayed Babalal H., (2010) 5 SCC 663, wherein it has been categorically held that, while exercising power under Section 147 of the Act, Court can proceed to compound the offence even after recording of conviction.

Consequently, in view of the above, the present matter was compounded and impugned judgments quashed and set-aside and the petitioner-accused was acquitted of the charge framed against him under Section 138 of the Act.

In view of the above, the petition was disposed of. [Satish Kumar v. Rahul Kumar, 2020 SCC OnLine HP 338, decided by 03-03-2020]

Case BriefsHigh Courts

Rajasthan High Court: Vijay Bishnoi, J., allowed a criminal revision petition seeking to set aside judgments convicting the petitioner with regard to offences under the Negotiable Instruments Act. 

In the present case, the petitioner being aggrieved by the orders of the trial court and the appellate court wherein he was convicted for an offence under Section 138 of the Negotiable Instruments Act, 1881 (“NI Act”) has filed this criminal revision petition. 

Learned counsel representing the petitioner, Umesh Shrimali submitted that in view of the fact that the parties have entered into a compromise, the impugned orders under challenge may be set aside and the petitioner may be acquitted from the charges.

The public prosecutor representing the respondent, Laxman Solanki submitted that the respondent has agreed to the compromise entered into and it does not want to press any charges for the offence punishable under the NI Act.

The Court perused Section 147 of the NI Act and stated that every offence punishable under the Act is compoundable hence the impugned orders are set aside and the criminal revision petition is set aside. However, the Court upon placing reliance on the Supreme Court judgment Damodar S. Prabhu v Sayed Babalal H, (2010) 5 SCC 663 and directed the petitioner to submit 15% of the cheque amount by way of the cost before the Legal Services Authority. [Jasmel Singh v. State of Rajasthan,2020 SCC OnLine Raj 334, decided on 03-03-2020]

Case BriefsHigh Courts

Kerala High Court: R. Narayana Pisharadi J., allowed a criminal revision petition in part in a matter relating to Section 138 of Negotiable Instruments Act, 1881.

In the present case, the accused had obtained an amount of Rs 5, 00,000 from the complainant on the promise that he would arrange a licence for the complainant for conducting petrol pump. Upon demanding the repayment of the amount the accused issued a cheque dated 05-02-2007 for Rs 5,00,000 in discharge of the liability. The cheque was dishonoured upon presenting it to the bank for the reason that there was no sufficient amount in the account of the accused. 

The trial court had found the petitioner guilty of offence punishable under Section 138 of Negotiable Instruments Act, 1881 and sentenced him to simple imprisonment for a period of four months and to pay a fine of Rs 5,00,000. The appellate court had also affirmed the conviction and the sentence imposed on the petitioner and dismissed the appeal. 

High Court upon perusal of the facts and circumstances allowed the revision petition in part. The Court affirmed the conviction passed by the trial court and affirmed by the appellate court thereafter but the sentence imposed upon the petitioner has been set aside. In supersession of the sentence, accused has been sentenced to pay a fine of Rs 5,10,000 and in default of payment of fine, to undergo simple imprisonment for a period of two months. [C.K. Mohini v. Varghese. M. Mathew, 2020 SCC OnLine Ker 492, decided on 05-02-2020]

Case BriefsHigh Courts

Delhi High Court: Rajnish Bhatnagar, J., dismissed a petition filed against the order of the Sessions Court whereby it had dismissed the review petition filed by the petitioners against the order of the Metropolitan Magistrate taking cognizance of offences under Section 138 and Section 141 of the Negotiable Instruments Act, 1881, against the petitioner.

The respondent company instituted a complaint under Section 138 read with Section 142 against the petitioners in respect of non-payment against the four dishonoured cheques for the total amount of Rs 16 crores issued on behalf of and/or by petitioner company in favour of the respondent’s company. The Metropolitan Magistrate had passed an order taking cognizance. Aggrieved, the petitioners filed a revision petition before the Sessions Court, which was dismissed. The petitioners now invoked the jurisdiction of the High Court under Sections 482 CrPC (inherent powers).

It was contended by the petitioners that the demand notice was defective as the demand had been made over and above the cheque amount and the legal demand notice was vague and ambiguous. Rejecting this point, the High Court held that the notice should be read as a whole. The perusal of the notice clearly set out the details of the cheque which had been dishonoured, so it could not be said that the demand made was ambiguous or in any way confusing the petitioners as there was no denial that the cheque in question were not issued or that they were not dishonoured for insufficient funds.

Besides the above point, a procedural issue arose as to whether the petitioners having availed of the remedy of revision should be allowed to take recourse to Section 482 CrPC as a substitute for virtually initiating a second revisional challenge or scrutiny which is clearly barred under Section 397(3) CrPC.

Perusing various provisions of the Negotiable Instruments Act, the High Court observed: “The provisions of Sections 142 to 147 lay down a Special Code for the trial of offences under Chapter 17 of the NI Act.” Reliance was placed on the Supreme Court decision in Mandvi Coop. Bank Ltd. v. Nimesh B. Thakore, (2010) 3 SCC 83, which held that the provisions of Sections 143, 144, 145 and 147 expressly depart from and override the provisions of CrPC, the main body of adjective law for criminal trials.

In the instant case, Court did not find any material which could be stated to be of sterling and impeccable quality warranting invocation of the jurisdiction of the High Court under Section 482 CrPC at this stage. More so, the defence as raised by the petitioners requires evidence, which could not be appreciated, evaluated or adjudged in the proceedings under Section 482. The petitioners, therefore, could not be allowed to take recourse to Section 482 as a substitute for initiating a second revision petition when there was nothing to show that there is a serious miscarriage of justice or abuse of the process of law.

Accordingly, the court found no infirmity in the order passed by the Session Judge and, therefore, dismissed the petition. [Tathagat Exports (P) Ltd. v. PEC Ltd., 2020 SCC OnLine Del 405, decided on 20-01-2020]

Case BriefsHigh Courts

Kerala High Court: R. Narayana Pisharadi, J., dismissed a revision petition which was filed against the judgment of the trial and the appellate court by the petitioner holding him guilty of the offence punishable under Section 138 of the Negotiable Instruments Act, 1881.

According to the complainant, the accused had borrowed an amount of Rs 2,50,000 from the complainant promising that he would repay the amount within three months which he failed to repay later the accused issued a cheque dated 17-08-2011 for Rs 2,50,000 to the complainant in discharge of the liability, the complainant presented the cheque in the bank but it was returned unpaid for the reason that there was no sufficient amount in the account of the accused further the complainant sent notice to the accused demanding payment of the amount of the cheque, the accused received the notice and replied to the complainant raising false contentions and did not pay the amount of the cheque. The accused contended that he was the manager of the petrol pump conducted by his brother-in-law and the complainant was the watchman in that petrol pump and that he had kept a signed blank cheque in the petrol pump and the complainant committed theft of the cheque and misused it and filed the case although no evidence was presented by the accessed to support his contentions.

The Court while dismissing the petition held that the courts above have properly analyzed the evidence in the case and come to the right conclusion. [T. Sunilkumar v. State of Kerela,  2020 SCC OnLine Ker 201, decided on 17-01-2020]