Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): The Division Bench of Venugopal M (Judicial Member) and Alok Srivastava (Technical Member) held that a demand notice is a forerunner to the commencement of insolvency proceedings against a corporate debtor. Unpaid demand notice is good enough to exhibit the debtor’s inability to pay its debts for bankruptcy proceedings. If a bonafide dispute is established then an ‘Insolvency’ petition is not the appropriate proceeding to determine the validity of a disputed debt.

On being aggrieved with the decision of National Company Law Tribunal, Mumbai, the present Company Appeal was preferred by the appellant.

Appellant submitted that no ‘Demand Notice’ was ever served on the Corporate Debtor/Second Respondent as per Section 8 of the Insolvency and Bankruptcy Code.

Tribunal’s Assessment

Tribunal noted that the appellant’s plea stated that the alleged Demand Notice of the respondent 1 was sent to an address and the same was not registered address of the ‘Corporate Debtor’ as per the master data of the ‘Corporate Debtor’ on MCA website.

Further, it was submitted by the appellant that the Demand Notice was knowingly addressed to the wrong address of the ‘Corporate Debtor’ by respondent 1.

Tribunal expressed that:

As per Section 8 of the I&B Code an Operational Creditor is required to deliver a demand notice on the occurrence of the default within ten days from the receipt of the demand notice, the Corporate Debtor shall bring to the notice of the Operational Creditor ‘the existence of the dispute’, if any, and the record of the pendency of the suit or arbitration proceedings before the receipt of such notice or invoice in relation to such dispute.

While proceeding with discussion in the above matter, Bench also stated that a change in address of the registered office of the ‘Corporate Debtor’ cannot be a ruse for the failure of the party concerned to send/issue a ‘Demand Notice’ as per Section 8 of the I&B Code. In fact, serving the demand notice to the corporate debtor is mandatory.

“If a demand notice payment under the code is issued, the ‘Corporate Debtor’ will appreciate in right earnest the consequences flowing on account of failure to pay the ‘operational debt’. Also, that . after transfer of the case form High Court to Tribunal (in respect of winding up petition) an Operational Creditor is required to submit all information including the details of the proposed Insolvency Professional.”

Tribunal opined that service of ‘Demand Notice’ to the second respondent is mandatory as per Section 8 of the Code.

Further the Bench while making observations in the present matter also added that it cannot be forgotten that the proceedings under Section 138 NI Act pertain to criminal liability for dishonour of cheques issued and do not bar an application under Section 9 of the Code. Likewise, the pendency of proceedings under Order 37 of the civil Procedure Code will not prohibit an application under Section 9 of the Code.

While concluding, the Tribunal held that:

Since the ‘Service of notice’ at the registered address of the ‘Corporate Debtor’ was not established to the subjective satisfaction of the Tribunal and the admitted fact being that the notice sent to the second respondent at its registered office got returned, the said admission of debt and the reference with regard to NI Act that a holder of cheque received the cheque for the discharge either in whole or in part of any debt or other liability will not in any way heighten or improve the case of appellant.

Since the notice as per Section 8 of I&B Code was not served upon the corporate debtor and the same got returned, NCLT’s decision is to be set aside.

Hence NCLT’s order is to be declared as illegal in appointing the ‘Interim Resolution Professional’ declaring moratorium and all other orders passed.  Corporate Debtor is therefore released from all the rigour of law and is allowed to function independently through its Board of Directors.

Before parting, Tribunal granted liberty to the Operational Creditor to issue a fresh notice under Section 8 of I&B Code and on receipt of such notice of service if there is ‘Debt and Default’ to file a fresh application under Section 9 IBC. [Shailendra Sharma v. Ercon Composites, 2021 SCC OnLine NCLAT 3, decided on 13-01-2021]

Op EdsOP. ED.

On 8-6-2020, the Ministry of Finance sought public comments with respect to a proposal to decriminalise several minor offences to decrease the burden of potential criminal liability on businesses, reduce the pendency of cases and enhance the ease of doing business in India[1]. One of the offences sought to be decriminalised was that of cheque dishonouring under Section 138 of the Negotiable Instruments Act, 1881 (“the Act”). The proposal immediately attracted widespread opposition from both within the legal fraternity, and without. We, however, believe that the decriminalisation of cheque dishonouring would not have the overwhelmingly adverse impact that most detractors of the proposal feel it will. Instead, we see the decriminalisation of the offence as leading to a simplification and consolidation of the law relating to debt recovery.

If a cheque, issued by a drawer pursuant to the discharge of a liability to the payee, is returned by the drawee bank due to the drawer not having sufficient credit/funds in his bank account, the drawer is deemed to have committed the offence of dishonouring a cheque. This imposition of criminal liability, as per Section 138 of the Act, on a person issuing bad cheques is not an age-old concept. In fact, prior to the introduction of the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988, the only remedy available to the payee of a dishonoured cheque lay in civil law. It is only after 1988 that the law of the land, seeking “to enhance the acceptability of cheques in settlement of liabilities.[2], brought drawers of bounced cheques under the purview of criminal law, while leaving the jurisdiction of civil courts, to also give remedy to the payees of such cheques, unaffected. Though an act is usually criminalised for the purpose of punishing the offender, rather than compensating the victim; in the case of cheque dishonouring, practical experience and the scheme of the Act shows us that the compensatory aspect of the crime takes precedence over the punitive. This predominantly compensatory object of the provisions of Chapter 17 of the Act is evidenced by the fine imposable by the court being linked to the cheque amount[3], the compoundability of the offence[4], cognizance of the offence only being taken on written complaint by the payee[5], and the summary trial procedure applicable to Section 138 proceedings[6].

The scheme of the law governing the offence of cheque dishonour seems to encourage the parties to settle the dispute by having the offender pay the cheque amount and avoid penal confinement. The Supreme Court has even devised a scheme for the graded increase in fines levied to encourage early compounding of the offence[7]. Even if the accused refuses to compromise, the Court can impose a fine up to double the cheque amount and apply it to compensate the payees of the bad cheque[8]. This primary objective of giving compensatory relief to the payee of the cheque is essentially civil in nature. Section 138 of the Act, thus, seeks to provide a civil remedy through the criminal justice apparatus. The Supreme Court has on several instances recognised that cheque dishonour cases “are really civil cases masquerading as criminal cases”.[9] The pre-eminent role of compensatory, rather than punitive considerations, while disposing of cases of cheque dishonour is evident from the Supreme Court’s decision in Meters and Instruments (P) Ltd. v. Kanchan Mehta[10], wherein the Court allowed the discharging of the accused even if the cases were not compounded with the consent of both parties; so long as the criminal court found that the complainant was duly compensated[11]. In fact, the question of decriminalising cheque dishonouring was first hinted at by the Supreme Court in an order passed by it in March of 2020.[12] When we look at the basic end that the law relating to cheque dishonour aims to serve, as well as the operation of the law in practice, it is clear that the decriminalisation of the offence would not drastically alter the substantive rights of the payee of a dishonoured cheque.

Under present law, upon dishonour of a cheque, the payee of the cheque can approach both civil and criminal fora. The payee can move civil courts by means of a suit for recovery linked to the liability sought to be discharged by the cheque. He or she can also approach criminal courts writing a complaint to a Magistrate of an offence under Section 138 of the Act. Though the liberty accorded to the payee of a dishonoured cheque to move multiple fora for remedy would, prima facie, appear to best serve the ends of justice, it does pose some problems, namely—

(i) If the payee proceeds against the accused both in criminal and civil courts, the cost incurred by both parties in contesting such simultaneous proceedings tends to create an undue burden. This would be especially true for the defendant who would be forced to contest two separate proceedings in two different fora pertaining to the alleged dishonour of a single cheque. Moreover, this would lead to a multiplicity of proceedings in relation to essentially the same subject-matter, seeking essentially the same relief. The Law Commission in its 213th Report, noted that approximately 38 lakhs Section 138 cases were pending in criminal courts nationwide[13]; while a more recent Supreme Court order put the figure closer to 35 lakhs, constituting more than 15% of criminal cases pending in District Courts.[14] Decriminalising the offence of cheque dishonouring would, at the very least, remove from the national pending cases roster those criminal cases where a corresponding civil proceeding has also been instituted, leaving the civil court to adjudicate the dispute.

(ii) If the complainant chooses to move only the criminal courts via Section 138 of the Act, the proceedings may not be concluded as expeditiously as required by the Act[15], and the civil right of action may be lost in the meantime due to the limitation period expiring. This problem came to the fore in R. Vijayan v. Baby[16], where the criminal case against the accused resulted in the Magistrate levying an inadequate amount of fine, while the limitation period for the civil action expired during the pendency of the appeal from the Magistrate’s judgment. This left the complainant with no means of recovering the cheque amount. The following obiter dicta of the Supreme Court encapsulates the problem—

  1. 19. In same type of cheque dishonour cases, after convicting the accused, if some courts grant compensation and if some other courts do not grant compensation, the inconsistency, though perfectly acceptable in the eye of the law, will give rise to certain amount of uncertainty in the minds of litigants about the functioning of courts. Citizens will not be able to arrange or regulate their affairs in a proper manner as they will not know whether they should simultaneously file a civil suit or not. The problem is aggravated having regard to the fact that in spite of Section 143(3) of the Act requiring the complaints in regard to cheque dishonour cases under Section 138 of the Act to be concluded within six months from the date of the filing of the complaint, such cases seldom reach finality before three or four years let alone six months. These cases give rise to complications where civil suits have not been filed within three years on account of the pendency of the criminal cases.[17]

Decriminalisation of the offence would do away with such exigencies, leaving the payee of a dishonoured cheque with recourse solely in civil courts. It must also be noted here that, civil courts have one advantage over criminal courts when it comes to affording relief to the payee – claiming of interest. While the scheme of Chapter 17 of the Act allows the criminal court to levy fines up to double the cheque amount and the general provisions of the Code of Criminal Procedure, 1973 also allows the criminal courts to award compensation if no such fine is levied[18], the awarding of such fines/compensation equivalent to the cheque amount together with reasonable interest accrued thereon is discretionary. The need for uniformity in the fines levied, which should include the cheque amount with 9% per annum interest thereon, was noted by the Supreme Court[19]. Civil courts, on the other hand, have a well-developed jurisprudence surrounding Section 34 of the Code of Civil Procedure, 1908, which allows for interest pre-institution of the suit, pendente lite and post-decree.

Apart from resolving the issues associated with giving the payee of a dishonoured cheque rights of action in multiple fora, decriminalising the offence leaves intact the rights of the parties to seek redressal of their disputes pertaining to such cheques by means of alternative dispute resolution processes. Under the current law, cases with regard to compoundable offences, such as the offence of cheque dishonouring, are capable of being referred to alternative dispute resolution mechanisms like arbitration, mediation, conciliation and Lok Adalats[20] for settlement, akin to references permitted under Section 89 of the Code of Civil Procedure, 1908[21]. Moreover, such alternative dispute resolution processes are usually utilised by parties to settle disputes pre-litigation, hence the rights of the parties in relation to such processes would not be affected by decriminalisation of the offence. Indeed, even without decriminalisation, alternative dispute resolution has been generally acknowledged as the key to reducing the huge backlog of cases arising out of minor wrongs such as cheque dishonouring[22].

It must be noted here that, though the decriminalisation of cheque dishonouring can make the law relating to the same more consistent, uniform and just to all litigants, it does not, in and of itself, mean that the disputes will be adjudicated more expeditiously. In fact, most critics of the decriminalisation proposal have pointed out that under the present legal framework, the remedy available to the payee of a dishonoured cheque in civil courts is by means of a general suit for recovery of money. Unlike in criminal law, there are currently no special provisions in civil law in relation to dishonoured cheque actions. However, it must be mentioned that, despite special provisions being available to payees of dishonoured cheques in criminal courts, such matters are hardly ever disposed of expeditiously, let alone within the statutory time-limit of 6 months.[23] The root cause of this problem does not relate to nature of the wrong, rather, it stems from the large-scale judicial vacancy in lower courts generally. With cheque dishonouring cases being destined to be tried in lower courts, and the large number of such cases filed, the pendency statistics of cheque dishonouring cases will continue to be aggravated for want of a sufficient number of Judges to hear them – whether civil or criminal. It has been reported that every 10 lakh Indians have access to just 19 Judges.[24] This apart, the Supreme Court has noted that, as on 22-10-2018, there were 5133 judicial vacancies out of a total of 22,036 such posts.[25] Regardless of whether cheque dishonouring is decriminalised, if the problem of judicial vacancies in the lower courts is not addressed, a mechanism for more expeditious disposal of such cases will remain elusive.

Apart from increasing the number of Judges in the lower courts, in order to ensure truly efficacious remedy to payees of dishonoured cheques, procedural provisions equivalent to those contained in Chapter 17 of the Act must be incorporated into civil law. Resultantly, suits for recovery of money arising out of dishonoured cheques must be made compulsorily summarily triable under Order 37 of the Code of Civil Procedure, 1908, with statutory time-limits for disposal of such suit and appeals therefrom. Parties to such proceedings should also be made to undergo mandatory pre-institution mediation to encourage early settling of the matter without going into litigation. Special Courts or Tribunals may also be designated the fora of recourse for all civil proceedings in relation to cheque dishonouring. If such changes to the civil law governing cheque dishonouring are effected, decriminalising the wrong would reduce the number of pending cases in criminal courts, and create one consolidated and equitable legal framework for dishonoured cheque related disputes. These changes would have the effect of bringing essentially civil wrongs out of the jurisdiction of criminal courts and bring them into the fold of the civil law system which would provide equally, if not more efficacious relief to victims of cheque dishonouring.


* Principal Associate, Khaitan and Co., e-mail: anunoy.basu@khaitanco.com. [Views are personal only and not of the Firm.]

** 5th-year student, Department of Law, University of Calcutta, e-mail:shounakmukherjee96@gmail.com.

[1] Notice Seeking Public Comment dated 8-6-2020, Department of Financial Services, Ministry of Finance, Government of India, <https://financialservices.gov.in/sites/default/files/Decriminalization%20-%20Public%20Comments.pdf>.

[2] Statement of Objects and Reasons of the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 <http://www.scconline.com/DocumentLink/It14gm48>.

[3] S. 138 of the Negotiable Instruments Act, 1881.

[4] S. 147 of the Negotiable Instruments Act, 1881.

[5] S. 142(1)(a) of the Negotiable Instruments Act, 1881.

[6] S. 143 of the Negotiable Instruments Act, 1881.

[7] Damodar S. Prabhu v. Sayed Babalal H., (2010) 5 SCC 663.

[8] S. 357(1)(b) of the Code of Criminal Procedure, 1973

[9] R. Vijayan v. Baby, (2012) 1 SCC 260, para 16; see also, Rangappa    v. Sri Mohan, (2010) 11 SCC 441, para 14; Meters and Instruments (P) Ltd. v. Kanchan Mehta, (2018) 1 SCC 560, para 18.

[10] (2018) 1 SCC 560.

[11] Id., at para 18.

[12] Makwana Mangaldas Tulsidas v. State of Gujarat, (2020) 4 SCC 695, para 18.

[13] Law Commission of India, Report No. 213 on Fast Track Magisterial Courts for Dishonoured Cheque Cases, Para 2.18.

[14] Makwana Mangaldas Tulsidas v. State of Gujarat, (2020) 4 SCC 695, para 4.

[15] S. 143(3) of the Negotiable Instruments Act, 1881.

[16] (2012) 1 SCC 260.

[17] Id., at 268, para 19.

[18] S. 357(3) of the Code of Criminal Procedure, 1973.

[19] R. Vijayan v. Baby, (2012) 1 SCC 260, para 18.

[20] S. 20 of the Legal Services Authorities Act, 1987; see K.N. Govindan Kutty Menon v. C.D. Shaji, (2012) 2 SCC 51.

[21] Dayawati v. Yogesh Kumar Gosain, 2017 SCC OnLine Del 11032.

[22] Law Commission of India, Report No. 213 on Fast Track Magisterial Courts for Dishonoured Cheque Cases, Para 5.5.

[23] S. 143(3) of the Negotiable Instruments Act, 1881.

[24] <https://thewire.in/law/india-has-19-judges-per-10-lakh-people-law-ministry-data>.

[25] Filling up of Vacancies, In re, 2018 SCC OnLine SC 3648 para 2

Case BriefsHigh Courts

Allahabad High Court: Ravi Nath Tilhari, J., addressed a matter wherein a person being the director of the company signed a cheque on behalf of the company and since the said cheque got dishonoured, he was made liable, without the company being made liable under the offence of Section 138 of Negotiable Instruments Act, 1881.

The instant petition was filed under Section 482 of the Code of Criminal Procedure, 1973 for quashing of summoning order passed by Additional Chief Judicial Magistrate under Section 138 of the Negotiable Instruments Act.

Facts as stated by the applicant

Applicant has been stated to be the Director of a Company and complainant/OP 2, an employee in the railways, by giving assurance of contract of road construction from his superior officers in favour of applicant’s company obtained post-dated cheque of 5 lakh rupees in terms of security money.

Complainant had assured the applicant that once he starts earning profits from the said contract work he would return the post-dated cheques.

However, applicant without any prior notice to the company, complainant presented the cheque in the bank which was dishonoured due to non-availability of funds. One of the legal notice, though was not received by the applicant, but the second notice was served.

Points that arose for consideration:

High Court formulated the following points of consideration:

  • Whether criminal prosecution against the person in charge of, and responsible for conduct of the business of the company under Section 138 NI Act, can be maintained, in the absence of any prosecution of the Company for such offence and without making the company an accused, in view of Section 141 of the NI Act?
  • Whether the cheque in question was issued by the applicant in his personal capacity or in the capacity of director of the company?
  • Whether the orders under challenge and the criminal proceedings against the applicant deserve to be quashed in the exercise of jurisdiction under Section 482 CrPC?

Analysis of the above points:

In order to consider the first point, Court referred to Sections 138 and 141 of the Negotiable Instruments Act, 1881.

On perusal of the said provisions, the essential ingredients of offence under Section 138 NI Act as laid down by the Bench were:

  • The person drew a cheque on an account maintained by him with the banker
  • When such a cheque is presented to the bank is returned by the bank unpaid
  • such cheque was presented to the bank within a period of six months from the date it was drawn or within the period of its validity, whichever is earlier;
  • the payee demanded in writing from the drawer of the cheque the payment of the amount of money due under the cheque to the payee
  • Such a notice of payment is made within a period of 30 days from the date of the receipt of the information by the payee from the bank regarding return of the cheque, as unpaid and
  • Inspite of the demand notice the drawer of the cheque failed to make the payment within a period of 15 days from the date of receipt of the demand notice

For the offence to be constituted under Section 138 NI Act, all the above ingredients need to co-exist.

Supreme Court decision in Aneeta Hada v. Godfather Travels and Tours (P) Ltd., (2012) 5 SCC 661, held that Section 141 of NI Act is concerned with the offences by the company. It makes the other persons, vicariously liable for commission of an offence on the part of the company.

The vicarious liability gets attracted when the condition precedent laid down in Section 141 NI Act stands satisfied. There can be no vicarious liability unless there is a prosecution against the company. For maintaining a prosecution under Section 141 NI Act, arraying of the company as an accused is imperative.

 In Supreme Court’s decision of Standard Chartered Bank v. State of Maharashtra, (2016) 6 SCC 62, it was held that there cannot be any vicarious liability unless there was a prosecution against the Company.

In Harihara Krishnan v. J Thomas, (2018) 13 SCC 663, Supreme Court held that Section 141 stipulates the liability for the offence punishable under Section 138 NI Act when the person committing such an offence happens to be a company.

In Aneeta Hada v. Godfather Travels and Tours (P) Ltd., (2012) 5 SCC 661, it was settled that for maintaining a prosecution against the person in charge of and responsible for conduct of the business of the company under Section 138 NI Act, arraigning of the Company as an accused is imperative in view of Section 141 of the Act, as such a person can only be held vicariously liable.

With regard to point 1, hence Court held that such a person, cannot be prosecuted unless there was prosecution of the company.

Second Point

 Whether the cheque in question was issued by the applicant in his personal capacity or in the capacity of the Director of the Company?

The above-stated question can be determined from perusal of the cheque itself. It is one of the essential ingredients to constitute an offence under Section 138 NI Act, that the person drew a cheque on an account maintained with the Banker and the existence of this ingredient is to be proved from the document itself, i.e. the cheque, and for its proof no other evidence is required. Hence, Court could determine if the cheque was issued as authorized signatory or in personal capacity by the applicant by exercising its jurisdiction under Section 482 CrPC.

On perusal of the copy f the cheque it was found that the said was signed by Sanjay Singh, the applicant for Udit Infraheights Private Limited, as its authorized signatory.

Hence the cheque was not issued in the applicant’s personal capacity.

In the absence of the company, as accused, any offence was not made out, even prima facie, against the applicant for his summoning under Section 138 read with Section 141 of the NI Act.

While referring to the Supreme Court decision in Ashoke Bafna v. Upper India Steel Manufacturing and Engineering Company Ltd., (2018) 14 SCC 202, it was held that before summoning an accused under Section 138 NI Act, the Magistrate is expected to examine the nature of the allegations made in the complaint and the evidence, both oral and documentary, in support thereof, and then to proceed further with the proper application of mind to the legal principle of the issue.

Last Point

 With regard to the last point of consideration, Bench referred to the decision of Supreme Court in Rishipal Singh v. State of U.P., (2014) 7 SCC 215, Supreme Court, while considering the scope of Section 482 CrPC held that when a prosecution at the initial stage is asked to be quashed, the test to be applied is as to whether the uncontroverted allegations as made in the complaint prima facie establish the case.

In Pooja Ravinder Devidasani v. State of Maharshtra, (2015) 88 ACC 613, Supreme Court held that the Superior Court should maintain purity in the administration of justice and should not allow the abuse of process of the Court.

Therefore, Court opined that the complaint was not filed against the company, as the company was not made a party accused and no vicarious liability could be imposed upon the accused applicant.

Since, the cheque was not signed by the applicant in his personal capacity, the complaint could not have proceeded against him and no offence could be made out against the applicant.

Petition was allowed and the orders challenged were quashed. [Sanjay Singh v. State of U.P., 2021 SCC OnLine All 120, decided on 10-02-2021]

Case BriefsHigh Courts

Madras High Court: P.N. Prakash, J., decided a criminal original petition addressing an issue with regard to an offence under Section 138 of Negotiable Instruments Act, 1881.

Sree Gokulam Chits and Finance Corporation Private Limited initiated prosecution in the Court of Judicial Magistrate for the offence under Section 138 of the Negotiable Instruments Act, 1881 against Jaishankar (A1) and Nagalakshmi (A2).

Gokulam’s case was that Jaishankar (A1) joined some chit groups floated by them and became a subscriber. Jaishankar was given chit amounts towards which, he issued some cheques as security while so, Jaishankar defaulted on the repayment of the chits and when Jaishankar was informed that legal action would be taken against him, he and his wife came for settlement. His wife issued cheque, which on presentation at the bank was returned unpaid with endorsement “payment stopped by the drawer”.

Gokulam after the above incident issued a statutory demand notice and on non-completion of the said demand, Gokulam initiated a prosecution under Section 138 of the NI Act against them.

Decision

Bench noted that the impugned cheque in the present case was issued by the accused 2, i.e. Nagalakshmi from her personal bank account in discharge of the debt of her husband Jaishankar (A1).

Court added that the said cheque was not issued from the bank account of any juristic entity for invoking vicarious liability provisions viz. Section 141 of the NI Act.

If a cheque is issued by a person in discharge of the liability of another person and if the cheque is dishonored, the person, who issued the cheque can be prosecuted under Section 138 NI Act.

 High Court stated that just because Jaishankar (A1) was the beneficiary of the loan, he could not be prosecuted under Section 138 of the NI Act for the dishonour of the cheque issued by his wife Nagalakshmi (A2).

Hence, in view of the above discussion, Court while partly allowing the petition issued the following directions:

  • Prosecution against Jaishankar (A1) quashed.
  • Nagalakshmi was asked to appear before the Judicial Magistrate.
  • Nagalakshmi shall file a bail petition and cooperate in the expeditious disposal of the case without adopting any dilatory tactics.
  • If Nagalakshmi absconds, a fresh FIR can be registered under Section 229 A.

[M. Jaishankar v. Sree Gokulam Chits and Finance Corpn. (P) Ltd., 2020 SCC OnLine Mad 5550, decided n 04-12-2020]

Case BriefsHigh Courts

Delhi High Court: Suresh Kumar Kait, J., reversed the order of the lower court issuing summons against the accused in a case under Section 138 of the Negotiable Instruments Act, holding that the lower courts fell in error while computing the period of limitation.

Factual Matrix

Petitioner had borrowed a sum of Rs 10 Lacs from respondent 2 who had lent the same vide two cheques amounting to Rs 5 lacs each. Further, it was stated that after approximately 3 years, respondent 2 approached petitioner for repayment of the loan amount, petitioner assured that he will return the entire amount and in order to discharge his part liability he issued a cheque amounting to Rs 10 lacs, which was dishonored with remarks “funds insufficient”.

Complainant stated that when the above-said was informed to the petitioner, he paid no heed to his complaint and thereafter, a legal demand notice was served upon him, yet petitioner failed to make payment, therefore a complaint was filed under Section 138 NI Act.

In view of the above complaint, summons were directed to be issued against the petitioner.

The above Order was challenged and the revisional court dismissed the said petition which has been challenged.

Contentions

Petitioners Counsel submitted that the Metropolitan Magistrate had no jurisdiction to take cognizance under Section 138 NI Act without that being accompanied by application under Section 142 (1) (b) NI Act for condoning the delay in filing the complaint.

Further, while taking cognizance of the complaint, Metropolitan Magistrate did not take note of the fact that the complaint was filed beyond the limitation period and did not rightly calculate the days and therefore, directed to issue summons to the petitioner was illegal and without jurisdiction.

Analysis and Decision

Bench referred to the decision of Supreme Court in Econ Antri Ltd. v. Rom Industries Ltd., (2014) 11 SCC 769, while deciding the issue of calculation of limitation period with regard to proviso (c) to Sections 138 and 142(b) of the NI Act.

Further, the Court added that the ratio of the decision in Saketh India Ltd. v. India Securities Limited, (1999) 3 SCC 1 has to be applied to the case in hand.

Crux in the instant case was that the 15 days period with regard to legal demand notice lapsed. In terms of Supreme Court decision in Saketh India Ltd. v. India Securities Limited,  (1999) 3 SCC 1 one day has to be excluded for counting the one month limitation period and therefore, excluding the day of 19-06-2019, the limitation period started from 20-06-2019 and the limitation period expired with the day in the succeeding month immediately preceding the day corresponding to the date upon which the period started.

Consequently, the limitation period in this case, which commenced on 20-06-2019, expired in the succeeding month on a day preceding the date of commencement i.e. 19-07-2019. Admittedly, the complaint, in this case, was instituted on 20-07-2019 i.e. 01 day after the limitation period had expired.

Hence, Bench held that both the courts below have fallen in error while computing the period of limitation. Moreover, at the time of filing, the complaint was not even accompanied by an application under Section 142(1) (b) NI Act for condoning the delay.

Adding to the above, Court stated that the Revisional Court erroneously took into consideration two different dates for service of demand notice while computing the limitation period.

Therefore, the lower courts orders were set aside. [Simranpal Singh Suri v. State,  2021 SCC OnLine Del 236, decided on 01-02-2021]


Advocates for the parties:

Petitioner: M.S. Oberoi, Siddharth Khattar and Gaurav Rohilla, Advocates

Respondents: Izhar Ahmed, Additional Public Prosecutor for respondent 1

Anil Kumar Dhupar, Advocate for respondent 2

Case BriefsHigh Courts

Delhi High Court: Subramonium Prasad, J., addressed a matter wherein it was reiterated that the initial burden of proving the burden of the non-existence of debt is on the accused under Section 118 of Negotiable Instruments Act, 1881.

The instant revision petition was filed against the order passed dismissing the appeal and affirming the Metropolitan Magistrate’s order convicting the petitioner for offences punishable under Section 138 of Negotiable Instruments Act, 1881.

Petitioner has also challenged the order wherein the petitioner has been sentenced to undergo imprisonment for a period of two months and also directed the petitioner to pay an amount of Rs 13 lakhs as fine payable as compensation to the respondent as per the provision of Section 143 (1) of NI Act read with Section 357 (1)(3) of CrPC.

Facts that lead to the case

Respondent financed a bus for the petitioner by giving a loan and in discharge of the liability, petitioner handed over the cheques in favour of the respondent. When the said cheques were deposited they were returned as unpaid/dishonored for the reason ‘Funds Insufficient’.

Petitioner submitted that the vehicle was handed over to the respondent company for getting the vehicle converted to CNG but the said vehicle was never returned to the petitioner nor the accounts related to the hire purchase were settled. In fact, the blank cheques given to the respondent earlier were misused.

Though Metropolitan magistrate found the petitioner’s deposition to be inconsistent and found that the bus was already sold by the petitioner.

Metropolitan Magistrate, therefore, held that the accused/petitioner was not been able to rebut the presumption that the cheques had been paid for the discharge of any liability and hence convicted under Section 138 NI Act.

Analysis, Law and Decision

Section 118 of the NI Act raises a presumption that a cheque is issued for consideration until the contrary is proved. It is well settled that the initial burden in this regard lies on the accused to prove the non-existence of debt by bringing on record such facts and circumstances which would lead the Court to believe the non-existence of debt either by direct evidence or by preponderance of probabilities.

In the instant matter, other than mere ipsi dixit of the petitioner there was no debt due and payable nothing was on record to show that the cheques were not issued for discharge of liability for the bus.

Bench stated that the purpose of introducing Section 138 of the NI Act was to bring sanctity in commercial transactions.

Further, the Court noted that the lower courts on perusal of records came to the conclusion that the cheques were given in discharge of the debt.

While expressing that the scope of revision petition under Sections 397/401 CrPC read with Section 482 CrPC is extremely narrow Court referred the following Supreme Court decisions:

State v. Manimaran, (2019) 13 670

State of Haryana v. Rajmal, (2011) 14 SCC 326

In view of the above discussion, Bench did not find any that required the interference in the lower court’s judgment.

Further, the Court added that the respondent did not file the books of accounts was not fatal to the case of the respondent. It was open to the petitioner to produce his books of accounts to rebut the presumption and bring out a prima facie case that there was no debt due and payable on the date the cheques were dishonoured.

Petitioner failed to show as to how there was no subsisting debt on the date when the cheques were dishonoured due to insufficiency of funds.

In view of the above discussion, the revision petition was dismissed. [G.D. Kataria v. AVL Leasing & Financing Ltd., Crl. Rev. P. 774 of 2018 & Crl. M. (B) 1392 of 2018, decided on 03-02-2021]


Advocates for the parties:

Petitioner: Medhanshu Tripathi, Advocate

Respondent: Anuj Soni, Advocate

Case BriefsHigh Courts

Punjab and Haryana High Court: Arun Kumar Tyagi, J., addressed a petition challenging the impugned order of Judicial Magistrate Ist Class of dismissing the complaint due to non-appearance of the appellant under Section 256 of the Code of Criminal Procedure, 1973.

The appellant had filed a complaint under Section 138 of the Negotiable Instruments Act, 1881 on the grounds that the accused issued a Cheque No.031411 dated 17-04-2013 for Rs 6,50,000 drawn on HDFC Bank, in discharge of subsisting liability under the friendly loan taken by him but the said cheque was dishonoured with remarks ‘Funds Insufficient’ and ‘Account Closed’. While the case was fixed for arguments on the above said application, the appellant absented himself on which the complaint was dismissed for non-prosecution.

The appellant argued that he had been regularly appearing in his complaint case and absented just on one date due to noting down of wrong date of hearing. Hence, dismissal of his complaint and acquittal of the accused was not proper and justified.

The Court observed that prosecution of a private complaint about an offence under section 138 of the N.I. Act differs from the prosecution of private complaint in respect of other offences under other enactments as in case of complaint for an offence under Section 138 of the N.I. Act there is no remedy available to the complainant to file a second complaint when the first complaint is dismissed in default in view of the limitations prescribed and the only remedy available to the complainant is to file a revision or appeal. The Court relied on Steel Strips Ltd. Chandigarh v. Jyoti Mechanical Movements, 2001 SCC OnLine P&H 202, whereby it had been held that “It is imperative upon Magistrate to form his opinion by taking care of the matter as to whether it is appropriate to dismiss the complaint. The real test in such like matters is always good faith.” It was held that for absence of complainant on one occasion, the complaint should not be dismissed unless, the Court is of the opinion that the complainant had been trying to protract the matter to harass the accused deliberately or with ulterior motive and the like.

Noticing that the case was fixed for arguments on application filed by the accused for examination of hand-writing on the cheque, the Court stated that presence of the complainant was not absolute essential for hearing of the arguments and passing of appropriate order on the above-said application. The Court, while setting aside the impugned order held that the order suffered from material illegality since the Magistrate had mechanically passed the order without recording any opinion as to whether personal attendance of the complainant was necessary or could be dispensed with and whether in his absence the case could be further proceeded with. [Vikram Singh v. Naveen Siwatch, 2019 SCC OnLine P&H 5702, decided on 03-12-2019]

Case BriefsHigh Courts

Gujarat High Court: R.P. Dholaria, J., allowed an appeal which was filed in order to decide whether a matter can be remanded in order to comply with the principles of natural justice.

The appellant-original complainant was involved in the business of finance/money lending in the name and style of “Pappu Finance” and he was holding a valid license for engaging in the said business. The respondent 2-original accused was known to the complainant since many years due to business relations with him and accused was doing business as Road Contractor and therefore, whenever he required money, the accused used to borrow money from the complainant. Once, the respondent 2-accused was in need of money for the purpose of his business and therefore, the complainant lent Rs 6 lakhs by cheque for a period of six to seven months and for the due discharge of legal liability, two different cheques were issued in favour of the complainant which came to be dishonoured therefore, the complaint came to be filed under Section 138 of the N.I. Act. The counsel for the appellant, S.M. Ahuja submitted that there were two different proceedings between the same parties and due to inadvertent mistake on the part of an advocate who was appearing for the appellant-original complainant before the Magistrate of intermingling statutory notice as well as cheques and therefore, it was not matching with the pleadings as well as without appreciating the evidence that though in the year 2017, the appellant had availed license for carrying out business of lending money, the Magistrate rendered the judgment of acquittal.

The issue before the Court was that whether when the two separate proceedings between the same parties were being conducted by the same Judge, in that event, due to intermingling of the statutory notices as well as cheques which were mismatching to the respective proceedings, but upon joint perusal of both the complaints, it could have been tallied which had not been done so far by the trial Court or the trial Court had not even afforded reasonable opportunity of interchanging the statutory notices as well as cheques, in that case, in order to comply with the principles of natural justice, the matter was required to be remanded or not.

The Court while allowing the appeal explained that since the proceedings before the same Judge and statutory notices as well as cheques and other documentary evidence alleged to have been intermingled due to which they were found to be mismatching with the pleadings, but the Magistrate could have afforded reasonable opportunity of interchanging the statutory notices as well as cheques in the complaint so as to match with the factual scenario that was merely a clerical mistake committed on behalf of advocate for the complainant which had rendered into grave prejudice as well as injustice to the complainant which deserved to be remanded with a liberty to the appellant original complainant to give an opportunity of interchanging statutory notices and cheques and correcting the records of respective cases.

[Dilipbhai Bhagwandas Aashwani Proprietor Pappu Finance v. State of Gujarat,2019 SCC OnLine Guj 6621, decided on 04-12-2019]


Suchita Shukla, Editorial Assistant has put this story together

Case BriefsHigh Courts

Punjab and Haryana High Court: Gurvinder Singh Gill, J., observed that,

Right to appeal against conviction is an invaluable statutory right vested upon a convict by Criminal Procedure Code which cannot be allowed to be defeated by imposing any condition for availing such right.

“..depriving a convict of his right to appeal by imposing any pre-requisite for availing his statutory right to challenge conviction in a higher Court would amount to depriving his liberty without adhering to the established procedure of law.”

Petitioners were arrayed as accused in the complaint filed by the respondent under Section 138 of Negotiable Instruments Act, 1881.

It was alleged that the cheques drawn by the accused upon their presentation in the bank by the complainant for their encashment were dishonoured.

In light of the above background, accused were tried by the Judicial Magistrate and directed to pay compensation.

Accused, on being aggrieved by the above decision preferred appeals before the Sessions Court, wherein at the time of admission of appeals, impugned orders dated 28-2-2020 were passed, wherein following was stated:

“Criminal Appeal received by entrustment. As there are fairly arguable points involved in the adjudication of the present appeal, hence, the present appeal is admitted for hearing, subject to just exceptions and to deposit of 20% of the compensation amount in view of latest amendment in Section 148 of Negotiable Instruments Act (applicable w.e.f. 01.09.2018), within one month from today. It is registered as Criminal Appeal. Now notice of this appeal be issued to the respondent through ordinary process as well as speed post on furnishing of speed post charges and copies of grounds of appeal within a week for 02-07-2020. Trial Court Record be also called for that date.”

Counsel representing the complainant argued that the lower Appellate Court having passed the orders in question in exercise of jurisdiction under statutory provisions of Section 148 of the Act, the same cannot be called to question.

Analysis, Law and Decision

The language of Section 148 of the NI Act would show that the amended provisions vest the Appellate Court with a discretion to direct deposit of an amount not less than 20% of the compensation amount as awarded by the trial Court. Although the word ‘may’ has been used in the Section but the Supreme Court in Surinder Singh Deswal v. Virender Gandhi, (2019) 11 SCC 341 has interpreted the said provisions to mean that issuance of such a direction is more in the nature of a mandate.

In view of the above-stated Supreme Court decision, power of Appellate Court, though discretionary is supposed to be a ‘rule’ and said discretion should be exercised in all the cases unless there are some exceptional circumstances

In the instant case, there were no exceptional circumstances before the lower Appellate Court so as to justify non-deposit of an amount as provided under Section 148 of the Act.

Section 148(2) of the Act would show that it is provided in unambiguous terms that the amount is required to be deposited within a period of 60 days which may further be extended by another 30 days.

In the instant case, lower Appellate Court having granted only 1 month’s period for depositing the amount, the same is contrary to the above-stated provisions.

Right of Appeal

Section 374 CrPC does not prescribe any condition for admission of an appeal.

Provisions of the statute which vests a convict with a valuable right to challenge his conviction are not circumscribed by any conditions.

Nor does any provision of the Negotiable Instruments Act, 1881 refer to any pre-condition for availing a valuable right of the first appeal.

Further, the Bench expressed that Section 148 of the Act just vests the Appellate Court with the power to direct the appellant to deposit an amount not less than 20% of the compensation amount but under no circumstances the same can be interpreted to be a condition pre-requisite for availing the right of appeal.

Imposition of any condition at the time of suspending of sentence may be a different matter and the trial Court may in its wisdom, impose such a condition failing which the order suspending sentence may be vacated.

Supreme Court in Babu Rajirao Shinde v. State of Maharashtra, (1971) 3 SCC 337, observed that a convicted person must be held to be at least entitled to one appeal as a substantial right.

High Court also made another significant observation:

Even though the Negotiable Instruments Act, 1881 is a special Act and could override provisions of Cr.P.C., but there is no such specific provision in the Act which could be interpreted to mean that availing of right to appeal by a person convicted for an offence under the Act, has been made subject to some conditions.

While parting with the decision, Court held that:

(i) The condition made in the impugned orders wherein the admission of appeal has been made subject to deposit of 20% of the compensation amount is set aside and it is ordered that the appeals shall stand admitted before the lower Appellate Court. The petitioners are, however, directed to deposit an amount equivalent to 20% of the amount of compensation awarded by the trial Court within 60 days from today.

(ii)  In case the aforesaid amount is deposited within 60 days from today, the bail already granted vide order dated 28.2.2020 by lower Appellate Court shall continue subject to any such fresh conditions as may be imposed by lower Appellate Court.

(iii)  In case bail of any of the petitioner has been cancelled on account of non-deposit of the amount or has already been taken into custody, he shall be released forthwith on bail subject to any such conditions as may be imposed by the lower Appellate Court. He shall, however, deposit the amount of 20% within 60 days from today.

(iv) In case of failure to deposit the amount in question within a period of 60 days from today, it shall be open to the lower Appellate Court to cancel bail and to hear the appeal on merits, provided, however, subject to any such general directions issued by the High Court in the matter of hearing of cases, having regard to the present circumstances of spread of pandemic COVID-19.[Sudarshan Kumar v. Manish Manchanda, 2020 SCC OnLine P&H 2321, decided on 15-12-2020]


Advocates who appeared before the matter:

Vaibhav Sehgal, Advocate, counsel for the petitioner(s).

Nitin Thatai, Advocate for the respondent (s)

Case BriefsHigh Courts

And, that’s a wrap!

Here’s the list of our coverage on Negotiable Instruments Act in the year 2020.

 [Allahabad High Court]

All HC | Can a complaint filed in light of S. 138 NI Act be dismissed on ground of one day delay? Read Court’s reasoned order

[Pankaj Sharma v. State of U.P., 2020 SCC OnLine All 1339, decided on 22-09-2020]

All HC | Principle contained in S. 141 of NI Act is not applicable to a sole-proprietary concern, firm need not be arraigned as an accused while making a claim for recovery under S. 138 of the NI Act

[Dhirendra Singh v. State of U.P., 2020 SCC OnLine All 1130, decided on 13-10-2020]

All HC | Once the intention of the party is clear that he does not wish to make payment, should complainant wait for 15 days to file a complaint for dishonour of cheque? HC answers

[Ravi Dixit v. State of U.P., 2020 SCC OnLine All 1056, decided on 23-09-2020]


[Bombay High Court]

Bom HC | Does NI Act authorises a complainant to fill an incomplete cheque? Court discusses while reversing acquittal of accused under S. 138 NI Act

[Kiran Rameshlal Bhandari v. Narayan Purushottam Sarada, 2020 SCC OnLine Bom 3562, decided on 07-12-2020]

Bom HC | Appeal filed against conviction under S. 138 NI Act cannot be dismissed for non-payment of fine without going into merits of appeal

[Adesh Prakashchand Jain v. Harish Punamchand Une, 2020 SCC OnLine Bom 96, decided on 08-01-2020]

Bom HC | S. 139 NI Act imposes evidentiary burden and not a persuasive burden; acquittal upheld where complainant failed to prove capacity to give loan

[Tasneem Murshedkar Mazhar v. Ramesh, 2020 SCC OnLine Bom 20, decided on 02-01-2020]


[Delhi High Court]

Del HC | Can a director who has resigned from company be held liable for cheques subsequently issued and dishonoured? HC explains in light of S. 141 NI Act

[Alibaba Nabibasha v. Small Farmers Agri-Business Consortium, 2020 SCC OnLine Del 1250, decided on 23-09-2020]

Del HC | Proceedings under S. 138 NI Act quashed against Independent Non-executive Directors not involved in day-to-day affairs of Company

[Sunita Palta v. Kit Marketing (P) Ltd., Crl. MC No. 1410 of 2018, decided on 03-03-2020]

Del HC | Ss. 143-147 NI Act lay down Special Code for trial, recourse to S. 482 CrPC as a substitute for initiating second revision petition denied

[Tathagat Exports (P) Ltd. v. PEC Ltd., 2020 SCC OnLine Del 405, decided on 20-01-2020]


[Himachal Pradesh High Court]

HP HC | Legislative intent of NI Act, 1881 is not to send the people to suffer incarceration but to execute recovery of cheque amount by showing teeth of penalty loss; conviction set aside

[Gaurav Sharma v. Ishwari Nand, 2020 SCC OnLine HP 2464, decided on 13-11-2020]

HP HC | Whether the trial court can exercise any discretion while entertaining an application under S.145 of the NI Act; HC elucidates upon procedural nuances

[Vikas Sharma v. Vishant Bali,  2020 SCC OnLine HP 2876, decided on 08-12-2020]

HP HC | While exercising power under S. 147 of NI Act the Court can proceed to compound the offence even after recording of conviction

[Satish Kumar v. Rahul Kumar, 2020 SCC OnLine HP 338, decided by 03-03-2020]


[Jharkhand High Court]

 Jhar HC | Object of NI Act is primarily compensatory; Court can discharge accused on full payment and amicable settlement

[Alok Kumar v. State of Jharkhand, Cr. Revision No. 694 of 2019, decided on 06-03 2020]


[Kerala High Court]

[Negotiable Instruments Act] Ker HC | What determines commencement of period of presentation is date of cheque and not the date of delivery of cheque

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


[Karnataka High Court]

 Kar HC | In a case where both the complainant and the accused remained continuously absent, Court ought to have “dismissed the complaint for non-prosecution under S. 256 CrPC and not on merits”

[Karage Gowda v. S. Nagaraj, 2020 SCC OnLine Kar 2012, decided on 11-12-2020]

Kar HC | If the complainant produces evidence regarding the transaction as well as dishonour of cheque, is it still necessary to examine the banker to prove the endorsement issued by him? HC decides

[M. Narayanaswamy v. Nagaraj N.S., 2020 SCC OnLine Kar 2013, decided on 11-12-2020]

Kar HC | No legal basis for Family Courts insisting on personal presence of petitioners at the time of filing cases; Presence of complainant while filing S. 138 NI Act case not necessary

[High Court of Karnataka v. State of Karnataka, 2020 SCC OnLine Kar 543 , decided on 03-06-2020]


[Madras High Court]

Madras HC | Can a ‘Non-Executive Director’ who is not responsible for day-to-day affairs of company be made vicariously liable for offence committed by the company? Court’s interpretation in light of S. 141 NI Act

[Vijaya Arun v. New Link Overseas Finance Ltd., Crl. OP Nos. 5, 8 & 11 of 2020, decided on 18-08-2020]

[Malafide Litigation] Madras HC | Proceedings under S. 420 IPC quashed for being counterblast to complaint instituted under S. 138 NI Act

[M. Chandrasekar v. R. Rajamani, 2020 SCC OnLine Mad 4777, decided on 24-08-2020]


[Madhya Pradesh High Court]

[Dishonour of Cheque] MP HC | Director/MD/JD/other officers and employees of a company can not be prosecuted under S. 138 of NI Act unless the company is impleaded as an accused

[Bhupendra Suryawanshi v. Sai Traders, 2020 SCC OnLine MP 1277, decided on 09-06-2020]


[Punjab and Haryana High Court]

[S. 138 NI Act] P&H HC | Do sympathetic consideration have any role to play in the matter of sentencing? Court discusses

[Rakesh Kumar v. Jasbir Singh, 2020 SCC OnLine P&H 1197, decided on 11-08-2020]


[Tripura High Court]

Tri HC | What is the purpose of a serving a ‘Statutory Notice’ under Negotiable Instruments Act? Detailed analysis of significance of ‘Statutory Presumption’

[Nitai Majumder v. Tanmoy Krishna Das, 2020 SCC OnLine Tri 537, decided on 17-11-2020]


Also Read:

2020 Wrap Up — Flashback of Stories on Consumer Cases

2020 Wrap-Up — Family Law & Allied Provisions

Case BriefsHigh Courts

Karnataka High Court: John Michael Cunha J., allowed the appeal and sets aside the impugned order.

The case involves default under Section 138 Negotiable Instruments Act, 1881 for the discharge of hand loan of Rs 5,00,000 by the petitioner. The notice was issued by the appellant/ complainant demanding the payment of the cheque amount, which went unreplied by the respondent. In the course of the trial, evidence was produced like the original cheque, the dishonour memo and the refused postal cover in proof of service of the demand notice on the respondent. Trial Court found respondent guilty of the offence under Section 138 of NI Act, 1881 and sentenced him to pay fine. The Respondent filed an appeal being aggrieved by the said order which was reversed observing that no opportunity was provided to the respondent to present his case and hence the matter was remanded back top the Trial Court. The accused yet not produce about defence evidence nor did he controvert the evidence produced by the complainant. The Trial Court, this time acquitted the respondent on the ground that the complainant has not examined the concerned bank manager in proof of the endorsement given by him regarding the “payment stopped by the drawer”.

Counsel for the appellants submitted that the reasoning assigned by the Trial Court is completely perverse and irrelevant.

The Court observed that the complainant had initiated action for the offence of dishonor of cheque the Trial Court was only required to consider the proof of the ingredients of the offence namely the issuance of cheque by the respondent towards the discharge of the legally enforceable debt and the consequent dishonour thereof. It was further observed that it is not in dispute that the evidence given by him regarding the transaction as well as the dishonour of the cheque has remained uncontroverted and under the said circumstance, the complainant was not required to examine the banker to prove the endorsement issued by him.

In view of the above, the appeal was allowed and the impugned order was set aside.[M. Narayanaswamy v. Nagaraj N.S., 2020 SCC OnLine Kar 2013, decided on 11-12-2020]


Arunima Bose, Editorial Assistant has put this story together

Case BriefsHigh Courts

Bombay High Court: Vibha Kankanwadi, J., reversed the acquittal of the respondent-accused holding him guilty of having committed an offence under Section 138 (dishonour of cheque) of the Negotiable Instruments Act, 1881.

Facts on record

The complainant had come with a case wherein he stated he had friendly relations with the accused. Since the accused was in need of money to purchase immovable property, therefore he requested the complainant to extend the amount of Rs 15,00,000 and Rs 6,00,00 which was extended by the complainant.

In regard to the above legal enforceable debt or liability, two cheques were issued.

On depositing the above cheques, both were dishonoured for the reason “refer to drawer”.

In light of the above circumstances, the complainant filed two separate complaints and Magistrate on taking into consideration the above said facts, acquitted the accused.

In view of the above, the present appeal has been filed.

Advocate for the complainant relied on the decision of Vijay v. Laxman, 2013 STPL (DC) 679 SC, wherein it was held that:

“The burden of proving the consideration for dishonour of cheque is on the complainant, but the burden of proving that a cheque had not been issued for discharge of a legally enforceable debt or liability is on the accused. If he fails to discharge the said burden he is liable to be convicted.”

In view of the above decision, Complainant’s Counsel submitted that trial judge committed illegality and the decision was in view of the legal position and therefore the appeal deserved to be allowed.

Analysis, Law and Decision

Whether the complainant has discharged the initial burden to prove that he had advanced loan to the accused?

With regard to the amount of Rs 15,00,000, it was held that as regards the said amount, the complainant discharged the initial burden of proof that he has advanced loan to the accused.

In his statement under Section 313 of the CrPC, accused did not state that he was holding such account, on which the cheque was issued by the complainant and he did not specifically state that he had not received the amount through the said account.

Bench stated that the complainant had proved that it was legally enforceable debt or liability, which was to the extent of Rs 15,00,000 as against the accused.

As regards the other disputed cheque i.e. amount of Rs 6,00,000, complainant stated he had given the said amount by cash.

In this case, also it can be said that the complainant has discharged the initial burden of proof that he had advanced amount of Rs 6,00,000 as a loan to the accused.

In the instant case, the accused did not deny his signature on the disputed cheques. Though he came with a defence, as to how those cheques went into the possession of the complainant, but as aforesaid that defence is unbelievable.

Bench stated that even if for the sake of arguments we admit that the disputed cheques were blank cheques; yet, when accused admits his/her signatures on the disputed cheques, then the legal position on this point is also clear that the complainant would get an authority under Section 20 of Negotiable Instruments Act to complete the incomplete cheque.

When now the position stands that the complainant has discharged the initial burden, accused admits his signature on the disputed cheques; then presumption under Section 139 of the Negotiable Instruments Act definitely gets attracted in favour of the complainant.

The complainant was the ‘holder of cheques’ and therefore, was entitled to present the same for encashment. Both the cheques were dishonoured.

Statutory notices issued by the complainant were complied with, and therefore, Court held that the accused is guilty of committing the offence punishable under Section 138 of the Negotiable Instruments Act.

Magistrate did not scan the evidence properly with sound legal principles and therefore, interference of this Court was required.

Bench relied on the Supreme Court’s decision in Govindaraju v. State, (2012) 4 SCC 722, with regard to the powers of the Appellate Court, wherein it was observed that:

“The law is well-settled that an appeal against an order of acquittal is also an appeal under the Code of Criminal Procedure, 1973 and an appellate Court has every power to re-appreciate, review and reconsider the evidence before it, as a whole. It is no doubt true that there is presumption of innocence in favour of the accused and that presumption is reinforced by an order of acquittal recorded by the trial Court. But that is the end of the matter. It is for the Appellate Court to keep in view the relevant principles of law to re-appreciate and reweigh the evidence as a whole and to come to its own conclusion on such evidence, in consonance with the principles of criminal jurisprudence”.

Honest drawers’ interest who issue cheques is safeguarded in the Act itself.

In Dalmia Cement (Bharat) Ltd v. Galaxy Traders & Agencies Ltd., (2001) 6 SCC 463, the Supreme Court has explained the scope of offence under Section 138 of the NI Act.

In R. Vijayan v. Baby, (2012) 1 SCC 260, Supreme Court held that while awarding compensation in matters under Section 138 NI Act, interest can be awarded @9% p.a.

Court stated that in view of the above decisions, awarding jail sentence to the respondent/accused may not be in the interest of justice.

Bench also added to its decision that the appellant would also be interested in getting his amount back. Therefore, payment of compensation under Section 357 of the Code of Criminal Procedure to the complainant would be in the interest of justice.

The punishment that can be awarded for an offence under Section 138 of Negotiable Instruments Act is “ imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or both” (stress supplied by me).

Since the complaint was filed in 2013 after the statutory notice. The amount became due to complainant after the date of the notice.

Some amount needs to be given to complainant above the cheque amount towards interest.

Since the rate of interest in banks has gone down nowadays, and therefore, the said rate cannot be equal to the rate granted in R. Vijayan’s case.

After taking into consideration all the above pronouncements it would be in the interest of both the parties to impose fine of Rs 18,00,000 and Rs 8,00,000 in respective cases and to direct the amount of Rs 17,50,000 and Rs 7,50,000 to be paid to complainant as compensation under Section 357(1) of the Code of Criminal Procedure. Deposit time will not be extended. [Kiran Rameshlal Bhandari v. Narayan Purushottam Sarada, 2020 SCC OnLine Bom 3562, decided on 07-12-2020]


Advocates who appeared for the matter:

Shyam C. Arora, Advocate for the appellant
Amol Kakade, Advocate h/f C.D. Fernandes, Advocate for respondent

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, 2020 SCC OnLine Tri 537, 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]