Hindustan Cables Ltd. and Ors. V. The State, Govt.

of NCT of Delhi through the Secretary (Home) and Manish Industries Citation : 149 (2008) DLT 653 Facts: Petitioner issued cheque in favour of respondent no 2-cheque was revalidated for further period of six months several times on last revalidation it was the condition that the same shall be presented after confirmation from petitioner Cheque presented-dishonored for the reason exceed arrangement-statutory legal notice issued petitioner replied that the cheque was issued with condition same would be presented after getting confirmation from petitioner and BIFR had declared petitioner company as sick unit Complaint filed- summon was issued by Ld. Magistrate- against summoning order petitioner went in revision before session judge- revision petition was dismissed holding that proper remedy is under S. 482 Cr. PC. Petition under S. 482 on the ground that: -since the offending company has been declared sick by the BIFR, no steps could be taken by the respondent No. 2 (complainant) for realization of the amounts said to be due to them and therefore the criminal proceedings initiated against the petitioner company and its directors on the allegation that the cheque drawn in favor of the respondent No. 2 was dishonoured by the bank is misconceived and should be quashed. - When the cheque was drawn, the restraint order was in force. Hence the instant criminal proceeding against the petitioners is not maintainable - in view of the written undertaking, the Respondent No. 2 had no authority to present the said cheque in the bank for encashment and the said written undertaking by the respondent No. 2 amounts to an agreement and failure or refusal to abide by the stipulations contained in the said written undertaking amounts to a breach/violation which has rendered the said cheque an invalid instrument in the eyes of law Held that: Section 22A of SICA, does not bar the criminal prosecution and payment of legally enforceable dues.

Para 19 Even if the said order of BIFR was passed on 21.3.03, it was not in accordance with law as it apparent from the said order that there was no scheme Under Section 18 during the period of preparation of consideration or during the period beginning with the recording of opinion by the board or for winding up that the board under Section 20(1) and up to the commencement of the proceedings relating to the winding up before the High Court concerned, in the absence of both the conditions, the order under Section 22A of SICA is not in accordance with law. Para 20 The judgment in Kusum Ingots and Alloys Ltd. v. Pennar Peterson Securities Ltd. is not applicable in the facts and circumstances of the case as much as the Supreme Court has laid down that if the company is sick and a restraint order has been passed by the BIFR, it would be open to the aggrieved party to place relevant material in this regard before Ld. Magistrate before whom the case is pending and the said Magistrate will examine the matter. Para 21 The offence under Section 138 of the Negotiable Instruments Act stood completed when there was a default and non-payment subsequent to the receipt of the statutory legal notice under Section 138. It is the admitted case of both the parties that the amount is payable but the contention raised by petitioner company in its defense is that company is not in a position to pay. Para 22 As regards the argument that the petitioner company has been declared sick by the BIFR and the company/ promoters were restrained Under Section 22A of SICA not to dispose of any fixed or current assets without the consent of the secured creditors and the BIFR, the facts of the present case show that despite that restraint order, the BIFR passed directions to the petitioner company to make the payments for the running of the day-today business of the petitioner company. The payment made by the petitioner company to the Respondent No. 2 and M/s Shakun Polymers Ltd. also establish that there was no restraint order passed against the petitioner company by BIFR barring the payment of its liability to its customers/suppliers for the running of day-today business. In the explanation to the section clarification is made that the phrase 'debt or other liability' means a legally enforceable debt or other liability. Further, the petitioner company had taken a written undertaking from the respondent No. 2 that the cheque in question would not be presented for encashment in the bank without the consent of the petitioner company yet the revalidation letter has concealed about the restraint order made by the BIFR. Furthermore, there is no dispute that the present cheque

was with respect to supply of the goods on 13.2.02, i.e. subsequent to the reference made by the petitioner company to the BIFR. These transactions were not restrained by BIFR. In these facts and circumstances, the purported undertaking was voidable under Section 19 of Indian Contract Act since there was concealment of facts on the part of the petitioner company. Keeping in mind the above discussions, the matter in dispute is a friable issue and can only be decided after placing the evidence before the Trial Court and the complaint cannot be quashed under Section 482, Cr.P.C. Para 24 As observed by the Supreme Court in Kusum Ingots and Alloys Ltd. v. Pennar Peterson Securities Ltd. if the company is sick and a restraint order has been passed by the BIFR, it would be open to the aggrieved party to place relevant material in this regard before Ld. Magistrate before whom the case is pending and the said Magistrate will examine the matter. Analyzing the scope and ambit of the provisions of Sections 22 and 22A of the SICA, their Lordships have held that Section 22 of the SICA does not create any legal impediment for instituting and proceeding with the criminal case on the allegations of an offence Under Section 138 of the Negotiable Instruments Act against a company or its director. However, Apex Court observed that it will depend on the facts and circumstances of the case whether in such circumstances the proceedings could be initiated or not. Para 26 Therefore, no exception can be taken against the order of the Magistrate taking cognizance of the offence Under Section 138, against the Petitioners. Undisputedly the cheques were drawn by the petitioners for payment of certain amount of money due to respondent No. 2, from the account in the Bank and the said cheque was dishonored by the Bank and the amount remained unpaid even after lapse of 15 days from the date of notice issued by respondent No. 2 after the cheque was dishonored. Therefore, the ingredients of Section 138 of the Act being prima facie, established from the complaint and the documents filed it with, the Magistrate rightly took cognizance of the offence and issued summons to the petitioners. Para 27 A question as to whether a magistrate after issuing process could recall it. It is now settled in Adalat Prasad v. Rooplal Jindal (supra), that he cannot recall the process. The Supreme Court in Subramanium Sethuraman v. State of Maharashtra (supra), held that the only course available to an aggrieved person to challenge the issuance of process under Seciton 204 is by way of a petition under Section 482 Cr.P.C. BHARATBHAI K. PATEL V. C.L. VERMA

Citation : 2002 CR. L.J. 3469 (GUJ) Held: "Normally, the High Court is supposed to read the averments made in the complaint and at the initial stage of proceedings, the High Court is not justified in entertaining and accepting the plea that there was no debt or liability. Defence plea can not be entertained in the quashing proceedings. But in the cases where the petitioner is able to show to the Court that there was no existing debt or liability at the time of the presentation of the cheque for encashment on the basis of the conduct of the complainant or admission made by the complainant though that may be in other legal proceedings, then in such cases, the proceedings can be terminated and the accused should not be asked to face the trial till it is concluded." SHAMSUL ISLAM V. 16TH ADDIL. DISTRICT JUDGE, KANPUR NAGAR Citation : 2002 CR LJ 4564 (ALL) Held: "The fact that in subsequent transaction the entire amount has been paid and no amount is due, can not be decided in petition under S. 482, Cr. PC. There is presumption that the amount was due and it was for the petitioner to prove that the debt was already discharged as provided by S. 139, Negotiable Instruments Act. Therefore, it is a matter of evidence and proceedings can not be quashed on this ground " A V MURTHY V. B.S. NAGABASAVANNA Citation : AIR 2002 SC 985= 2002 CR LJ 1479 Held: "Complaint can not be quashed at initial stage on the ground that as the loan in question had been advanced four years prior to the issuance of the cheque, the debt or the liability for which the cheque was drawn by him had ceased to be legally enforceable, when it was not a case that the cheque was drawn in respect of a debt or liability, which was completely barred from begin enforced under the law"

Bahulal Nainmal Jain v. khimji Ratanshi Dedhia Citation : 1998 CR. LJ. 4750 Held: "If a cheque is returned on account of any structural defect, i.e. any defect in its form, want of signature, date has not been properly written, figure of the amount has been over written or erasures in the drawers name, etc. the same will not amount to an offence punishable under S. 138" Anil Hada v. Indian Acrylic Ltd. Citation : AIR 2000 SC 145= (2000) 1 SCC 1= 2000 CRLJ 373 Held : "In the expanded ambit of the word company even firms or any other associations of person are included an as necessary adjunct thereof a partner of the firm is treated as director of that company M/S NAKODA LAMINATORS VS. STATE OF RAJASTHAN Citation : 1998 CRL LJ 3525 Held: "The period of 30 days has been prescribed for filing of the complaint in the court and not for taking cognizance of notice by the Magistrate."

M/S SAKETH INDIA LTD. VS. M/S INDIA SECURITIES LTD Citation : 1999 CRL LJ 1822 (SC) Held: "Ordinarily in computing the time, the rule observed is to exclude the first day and to include the last. Applying the said rule, the period of one month for filing the complaint

will be reckoned immediately following the day on which the period of 15 days from the date of the receipt of the notice by the drawer, expires."

Sudarshan Khaitna v. Patehja Forging Auto Parts And Manufacturing Ltd. Citation : 2001 CRL LJ 3872 Held: "There can be only one offence and such offence is committed by the drawer of the Cheque immediately on the failure to make the payment within 15 days of the receipt of the notice, which means that for similar failure after service of fresh notice on subsequent dishonour the drawer can not be liable for any offence nor can the first offence be treated as honest so as to give the payee a right to file a complaint treating the second offence as first one." Secunderabad Health Care Ltd. and Ors. v. Secunderabad Hospitals Pvt. Ltd and Ors., Citation : 1999 (96) C.C.(AP) 106 Andhra Pradesh High Court held : Every Director of a company is not automatically vicariously liable for the offence committed by the company. Only such Directors or Director who were in charge of or responsible Page 631 to the company for the conduct of business of the company at the material time when the offence was committed alone shall be deemed to be guilty of the offence. Further it was observed that the requirement of law is that "there must be clear, unambiguous and specific allegations against the persons who are impleaded as accused that they were in charge of and responsible to the company in the conduct of its business in the material time when the offence was committed." Suman Sethi v. Ajay K. Churiawal Citation : AIR 2000 SC 828 =2000 Cr. LJ 1391 Held:

"In the notice, demand has to be made for the said amount i.e., the cheque amount. If no such demand is made, the notice would fall short of its legal requirement. Where in addition to the said amount there is also a claim by way of interest, cost etc. whether the notice is bad would depend on the language of the notice. If in a notice while giving the break-up of the claim the cheque amount, interest, damages etc, are separately specified, other such claims for interest, cost etc would be superfluous and these additional claims would be severable and will not invalidate the notice. If, however in the notice an omnibus demand is made without specifying what was due under the dishonoured cheque, the notice might well fail to meet the legal requirement and may be regarded as bad" Sunil Kumar Chhaparia v. Dakka Eshwaraiah and Anr. Citation : 2002 (108) CC (AP) 687 Andhra Pradesh High Court noted: there was a consensus of judicial opinion that " a director of a company cannot be prosecuted for an offence under Section 138 of the Act in the absence of a specific allegation in the complaint that he was in charge of and responsible to the company in the conduct of its business at the relevant time or that the offence was committed with his consent or connivance." The Court has quoted several judgments of various High Courts in support of this proposition. We do not feel it necessary to recount them all.." Texport Industries Ltd. v. DCM Limited Citation : Co. Appeal 44/2005 Power of the company court Under Section 391(6) of the Companies Act, 1956 to stay criminal proceedings has given rise to the present appeal Held: "The legislature in its wisdom introduced Section 138 of the NI Act conscious of the existence of the other provisions under the said Act. Thus, Section 138 of the NI Act, a later enactment, envisaged criminal prosecution for the offence of negotiable instruments being dishonoured, including cheques. The object was to reinforce sanctity of commercial transactions. Once the rigours of the provisions have been complied with, a person/company cannot, as a matter of right, come to the Court to deposit the amount and claim that the prosecution should be brought to an end. It can, thus, hardly be expected that the provisions of Sections 442 and 446, or for that matter Section 391 of the said Act, can be interpreted in a manner so as to bring the proceedings Under Section 138 of the NI Act to a stand-still. Thus, even if in a scheme which is approved and it was envisaged that

certain amounts have to be paid, the debtor company or its Directors cannot insist that the proceedings Under Section 138 of the NI Act be quashed." "It can hardly be said that the object of Section 391 (6) of the said Act is to prevent action against the officers of the company who may be involved in cheating, criminal breach of trust, mis-appropriation, forgery and for that matter dishonour of cheque. Again the provision cannot be used to bring to an end a prosecution arising from Income Tax Act or Foreign Exchange Control Act. The proceedings are clearly not of a pecuniary nature involving recovery of money. Interestingly, even the scheme stated to be approved at the behest of the respondent company does not envisage bar to any criminal proceedings or payment of any actual amount in the given facts of the case as discussed at the inception of this judgment, but only seeks to extinguish the liability of the appellant on the ground that the respondent is liable to pay a lesser amount, the interest not running, and the claim is alleged to have been extinguished by payment to a third party at the behest of the appellant for which there is no written document." Para 33 "We are, thus, unequivocal of the view that Section 391(6) of the said Act does not envisage either quashing or stay of criminal cases against the company or its Directors and, thus, the proceedings against the respondents Under Section 138 of the NI Act instituted by the appellant could not have been stayed." N. Rangachari Vs.Bharat Sanchar Nigam Ltd Citation : AIR 2007 SC 1682=JT 2007 (6) SC 292=2007 (5) SCALE 821=(2007) 5 SCC 108 Held: "That a prosecution could be launched not only against the company on behalf of which the cheque issued has been dishonoured, but it could also be initiated against every person who at the time the offence was committed, was in charge of and was responsible for the conduct of the business of the company. In fact, Section 141 deems such persons to be guilty of such offence, liable to be proceeded against and punished for the offence, leaving it to the person concerned, to prove that the offence was committed by the company without his knowledge or that he has exercised due diligence to prevent the commission of the offence. Sub-section (2) of Section 141 also roped in Directors, Managers, Secretaries or other officers of the company, if it was proved that the offence was committed with their consent or connivance". Para 12

"A Company, though a legal entity, cannot act by itself but can only act through its directors. Normally, the Board of Directors act for and on behalf of the company. This is clear from Section 291 of the Companies Act which provides that subject to the provisions of that Act, the Board of Directors of a Company shall be entitled to exercise all such powers and to do all such acts and things as the Company is authorized to exercise and do.

"A person in the commercial world having a transaction with a company is entitled to presume that the directors of the company are in-charge of the affairs of the company. If any restrictions on their powers are placed by the memorandum or articles of the company, it is for the directors to establish it at the trial. It is in that context that Section 141 of the Negotiable Instruments Act provides that when the offender is a company, every person, who at the time when the offence was committed was in-charge of and was responsible to the company for the conduct of the business of the company, shall also be deemed to be guilty of the offence along with the company. It appears to us that an allegation in the complaint that the named accused are directors of the company itself would usher in the element of their acting for and on behalf of the company and of their being in-charge of the company." Para 13 "A person normally having business or commercial dealings with a company, would satisfy himself about its creditworthiness and reliability by looking at its promoters and Board of Directors and the nature and extent of its business and its Memorandum or Articles of Association. Other than that, he may not be aware of the arrangements within the company in regard to its management, daily routine, etc. Therefore, when a cheque issued to him by the company is dishonoured, he is expected only to be aware generally of who are in-charge of the affairs of the company. It is not reasonable to expect him to know whether the person who signed the cheque was instructed to do so or whether he has been deprived of his authority to do so when he actually signed the cheque. Those are matters peculiarly within the knowledge of the company and those in charge of it. So, all that a payee of a cheque that is dishonoured can be expected to allege is that the persons named in the complaint are in charge of its affairs. The Directors are prima facie in that position." Para 14 "In the light of the ratio in S.M.S. Pharmaceuticals Ltd. what is to be looked into is whether in the complaint, in addition to asserting that the appellant and another are the directors of the company, it is further alleged that they are in-charge of and responsible to the company for the conduct of the business of the company. We find that such an allegation is clearly made in the complaint which we have quoted above" Para 17

"In the case on hand, reading the complaint as a whole, it is clear that the allegations in the complaint are that at the time at which the two dishonoured cheques were issued by the company, the appellant and another were the Directors of the company and were incharge of the affairs of the company. It is not proper to split hairs in reading the complaint so as to come to a conclusion that the allegations as a whole are not sufficient to show that at the relevant point of time the appellant and the other are not alleged to be persons in-charge of the affairs of the company. Obviously, the complaint refers to the point of time when the two cheques were issued, their presentment, dishonour and failure to pay in spite of notice of dishonour. We have no hesitation in overruling the argument in that behalf by the learned Senior Counsel for the appellant." Para 18 We think that, in the circumstances, the High Court has rightly come to the conclusion that it is not a fit case for exercise of jurisdiction under Section 482 of the Code of Criminal Procedure for quashing the complaint. In fact, an advertence to Sections 138 and 141 of the Negotiable Instruments Act shows that on the other elements of an offence under Section 138 being satisfied, the burden is on the Board of Directors or the Officers incharge of the affairs of the company to show that they are not liable to be convicted. Any restriction on their power or existence of any special circumstance that makes them not liable is something that is peculiarly within their knowledge and it is for them to establish at the trial such a restriction or to show that at the relevant time they were not incharge of the affairs of the company. Reading the complaint as a whole, we are satisfied that it is a case where the contentions sought to be raised by the appellant can only be dealt with after the conclusion of the trial." S.M.S. Pharmaceuticals Ltd Vs. Neeta Bhalla and Anr Citation : AIR 2005 SC 3512 = 2005 Cri. LJ 4140=123 (2005) DLT 275 (SC)=2005 (7) SCALE 397= (2005) 8 SCC 89 Question before Court: (a) whether for purposes of Section 141 of the Negotiable Instruments Act, 1881, it is sufficient if the substance of the allegation read as a whole fulfill the requirements of the said section and it is not necessary to specifically state in the complaint that the persons accused was in charge of, or responsible for, the conduct of the business of the company. (b) whether a director of a company would be deemed to be in charge of, and responsible to, the company for conduct of the business of the company and, therefore, deemed to be guilty of the offence unless he proves to the contrary. (c) even if it is held that specific averments are necessary, whether in the absence of such averments the signatory of the cheque and or the Managing Directors of Joint Managing

Director who admittedly would be in charge of the company and responsible to the company for conduct of its business could be proceeded against." Held : ..What is required is that the persons who are sought to be made criminally liable under Section 141 should be at the time the offence was committed, in charge of and responsible to the company for the conduct of the business of the company. Every person connected with the company shall not fall within the ambit of the provision. It is only those persons who were in charge of and responsible for conduct of business of the company at the time of commission of an offence, who will be liable for criminal action. It follows from this that if a director of a Company who was not in charge of and was not responsible for the conduct of the business of the company at the relevant time, will not be liable under the provision. The liability arises from being in charge of and responsible for conduct of business of the company at the relevant time when the offence was committed and not on the basis of merely holding a designation or office in a company. Conversely, a person not holding any office or designation in a Company may be liable if he satisfies the main requirement of being in charge of and responsible for conduct of business of a Company at the relevant time. Liability depends on the role one plays in the affairs of a Company and not on designation or status. If being a Director or Manager or Secretary was enough to cast criminal liability, the Section would have said so. Instead of "every person" the section would have said "every Director, Manager or Secretary in a Company is liable"....etc. The legislature is aware that it is a case of criminal liability which means serious consequences so far as the person sought to be made liable is concerned. Therefore, only persons who can be said to be connected with the commission of a crime at the relevant time have been subjected to action. A reference to Sub-section (2) of Section 141 fortifies the above reasoning because Subsection (2) envisages direct involvement of any Director, Manager, Secretary or other officer of a company in commission of an offence. This section operates when in a trial it is proved that the offence has been committed with the consent or connivance or is attributable to neglect on the part of any of the holders of these offices in a company. In such a case, such persons are to be held liable. Provision has been made for Directors, Managers, Secretaries and other officers of a company to cover them in cases of their proved involvement. The conclusion is inevitable that the liability arises on account of conduct, act or omission on the part of a person and not merely on account of holding an office or a position in a company. Therefore, in order to bring a case within Section 141 of the Act the complaint must disclose the necessary facts which make a person liable. Para 14 There is almost unanimous judicial opinion that necessary averments ought to be contained in a complaint before a persons can be subjected to criminal process. A liability under Section 141 of the Act is sought to be fastened vicariously on a person connected with a Company, the principal accused being the company itself. It is a departure from

the rule in criminal law against vicarious liability. A clear case should be spelled out in the complaint against the person sought to be made liable. Section 141 of the Act contains the requirements for making a person liable under the said provision. That respondent tails within parameters of Section 141 has to be spelled out. A complaint has to be examined by the Magistrate in the first instance on the basis of averments contained therein. If the Magistrate is satisfied that there are averments which bring the case within Section 141 he would issue the process. We have seen that merely being described as a director in a company is not sufficient to satisfy the requirement of Section 141. Even a non director can be liable under Section 141 of the Act. The averments in the complaint would also serve the purpose that the person sought to be made liable would know what is the case which is alleged against him. This will enable him to meet the case at the trial. In view of the above discussion, our answers to the questions posed in the Reference are as under: (a) It is necessary to specifically aver in a complaint under Section 141 that at the time the offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company. This averment is an essential requirement of Section 141 and has to be made in a complaint. Without this averment being made in a complaint, the requirements of Section 141 cannot be said to be satisfied. (b) The answer to question posed in sub-para (b) has to be in negative. Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for conduct of its business. The requirement of Section 141 is that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a director in such cases. (c) The answer to question (c ) has to be in affirmative. The question notes that the Managing Director or Joint Managing Director would be admittedly in charge of the company and responsible to the company for conduct of its business. When that is so, holders of such positions in a company become liable under Section 141 of the Act. By virtue of the office they hold as Managing Director or Joint Managing Director, these persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 141. So far as signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under Sub-section (2) of Section 141.

D.K. GOEL V. DR (MRS.) KAMAL SUJIT Citation : 2001 (4) CRIMES 170

Held: Verbal intimation -not a demand Intimation to the accused regarding dishonour of Cheque which presumably was verbal, can not be treated as a demand within the meaning of proviso to Section 138 of the N.I. Act.

JAYASWALS NECO. LTD. V. ISHER ALLOYS STEELS LTD. Citation : 2001 (1) CRIMES 157 Held: "There is no provision in Sec. 138 of the NI Act that the presentment of Cheque should be the drawers bank only. The Cheque can be presented either in the payees bank or in the drawers bank within a period of six months from the date on which it was drawn." ALKA N. SHAH V. STATE OF GUJRAT Citation : 2001 (4) CRIMES 170 Held: "Cause of action under 138 of Act can not be said to have been accrued against the Ex. Managing Director of the company" SESSERIYIL JOSEPH V. DEVASSIA Citation : 2001 CR. LJ 24 (KER) Held: "S. 138 is attracted only if the cheque is issued for the discharge of a legally enforceable debt or other liability. If a cheque is issued for a time-barred debt and it is dishonoured, the accused can not be convicted under S. 138 of the Negotiable Instruments Act, simply on the ground that the debt was not legally recoverable "

Uniplas India Ltd. V. State Citation : AIR 2001 SC 2625= (2001) 6 SCC 8= 2001 Cr. LJ 3326 Held: "If any notice is issued under S. 434 of the Companies Act within 15 days of the information from the bank regarding return of the cheque drawn by a company as unpaid, such a notice would as well as be good enough under Cl (b) of the proviso to S. 138 of the Negotiable Instruments act"

Rajneesh Aggarwal v. Amit J. Bhalla Citation : (2001) 1 SCC 631 Held: "Even if the amount in question was deposited after the complaint had been instituted Under Section 138 of the NI Act, by no stretch of imagination the criminal proceedings can be quashed on account of the said deposit of money in Court nor could it be held that the criminal proceedings were unsustainable in law because of deposit of money."

K. Chellakkannu Nadar V. Sri Chenkal M.R. Simen Citation : 2001 CRL. L.J. 2322 Held: "Once the offence is complete with the failure to pay the amount within the prescribed period after making demand in writing a subsequent presentation of the Cheque for encashment is of no use so far as Sec. 138 of the Act is concerned.

SATISH KUMAR GOENKA V. S.R.K. MOHAN 2000(4) CRIMES 253 Citation : 2000(4) CRIMES 253 Held: "Section 5 of the Limitation Act applies to a complaint filed under Section 138 of the NI Act and if the court is satisfied that there is a sufficient cause for not filing the complaint within the time prescribed under sub-clause (b) of Section 142 the period of limitation can be extended and the delay in fling a complaint can be condoned."

Kusum ingots & alloys ltd. v. Pennar Peterson Securities Ltd. Citation : AIR 2000 SC 954= 2000 Cr. L.J. 1464 Held: "Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, does not create any legal impediment for instituting and proceeding with a criminal case on the allegation of offence under S. 138 of the Negotiable Instruments Act against a company or its directors" KATTA SUJATHA V. FERTILIZERS & CHEMICALS TRAVANCORE Citation : 2003 SCC (CR.) 151 Held : "The partner of a firm is liable to be convicted for an offence committed by the firm if he was in charge of and was responsible to the firm for the conduct of the business of the firm or if it is proved that the offence was committed with the consent or connivance of, or was attributed to any neglect on the part of the partner concerned"

VETERAN Co. (P) Ltd. vs. State Citation : 2004 Cr LJ 1258 (Cal) Held:

"Non-compliance with Section 204 (2) of the Criminal Procedure Code is not a serious lacuna in the complaint as the complainant is also entitled to furnish additional list of witnesses. However, if any prejudice is caused to the accused for non-furnishing of witness, he can be satisfied by giving sufficient time to set up his defence. In a complaint under Section 138, Negotiable Instruments Act normally there would be only one witness i.e. person in whose favour the cheque is issued. Therefore, the non-compliance of Section 204 (2) CR PC is not a slip in case of this nature" Orkay Industries Ltd. v. State of Maharastra Citation : (1998) 2 Mah L.J. 910 (D.B) Held: "Mere on the presentation of a petition for winding up the affairs of a company do not come to an absolute standstill. If after notice under S. 138 of the Negotiable Instruments Act, payments have not been made merely on the ground that the petition for winding up has been presented, there would a failure to make payment under S. 138 of the Negotiable Instruments Act" M/s Kusum Ingots & Alloys Ltd. v. M/s. Pennar Peterson Securities Ltd. & Ors. Citation : AIR 2000 SC 954=84 ( 2000 )DLT 229 ( SC )= JT 2000 (2) SC 390 Held: "A bare reading of the Section 22 of the SICA makes the position clear that during pendency of an inquiry under Section 16 or during the preparation of a scheme referred to under Section 17 or during implementation of a sanctioned scheme or pendency of an appeal under Section 25, no proceedings for winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof and no suit for the recovery of money or for enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company, shall lie or be proceeded with further, except with the consent of the Board or, the Appellate Authority, as the case may be. The section only deals with proceedings for recovery of money or for enforcement of any security or a guarantee in respect of any loans or advance granted to the company and a proceedings for winding up of the company. The section does not refer to any criminal proceeding. In B.S.I. Ltd. and Anr. v. Gift Holdings Pvt. Ltd. Criminal Appeal No. 847 of (1999) we held that pendency of proceeding under Section 22(1) of SICA alone is not sufficient to get absolved from the liability under Section 138 of the NI Act."

ANIL G. SHAH V. J CHITTRANJAN CO Citation : 1998 CR LJ 3870= (1998) 2 CRIMES 247(GUJ) Held: "Once the Magistrate happens to take cognizance of the offence under S. 138, the death of the Payee-complainant of the cheque has no bearing on the trial in question. There is no provision of the code of criminal procedure or in the Negotiable Instrument Act laying down that on account of death of payee, the trial must abate. When there is no such provision either in the code of criminal procedure o r in negotiable instruments act, then merely because the original complainant payee has died, there could not be abatement of the proceedings. The legal heirs of the original complainant are entitled to come forward and ask for their substitution in place of the complainant so as to proceed further with the trial " S.M.S. PHARMACEUTICALS LTD. V. NEETA BHALLA AND ANOTHER Citation : 2005 (8) SCC 89 Held : there is almost unanimous judicial opinion that necessary averments ought to be contained in a complaint before a person can be subjected to criminal process. A liability under section 141 of the Act is sought to be fastened vicariously on a person connected with a company, the principle accused being the company itself. It is a departure from the rule in criminal law against vicarious liability. A clear case should be spelt out in the complaint against the person sought to be made liable. Section 141 of the Act contains the requirements for making a person liable under the said provision. That the respondent falls within the parameters of Section 141 has to be spelled out. A complaint has to be examined by the Magistrate in the first instance on the basis of averments contained therein, if the Magistrate is satisfied that there are averments which bring the case within Section 141, he would issue the process. We have seen that merely being described as a Director in a company is not sufficient to satisfy the requirement of Section 141. Even a non-director can be liable under Section 141 of the Act. The averments in the complaint would also serve the purpose that the person sought to be made liable would know what is alleged against him. This will enable him to meet the case at the trial. Para 18 Merely being a Director of a company is not sufficient to make the person liable under Section 141 of the Act. A Director in a company can not be deemed to be in charge

of and responsible to the company for the conduct of its business. The requirement of Section 141 is that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a Director in such cases. .the Managing Director or Joint Managing Director would be admittedly in charge of the company and responsible to the company for the conduct of its business. When that is so, holders of such positions in a company become liable under Section 141 of the Act, by virtue of the office they hold as Managing Director or Joint Managing Director, there persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 141. So far as the signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under sub-section (2) of Section 141. S.K.D. Lakshmanan V. Sivarama Krishn & Anr Citation : 1995 CRL L.J. 1384 (F.B) Held: "The payee or holder in due course is at liberty to present the cheque for payment till it is honoured within the period of six months or of its validity. It is open to him to present it even after his failure to file a complaint on the basis of the first cause of action accrued to him. If the Cheque is again dishonoured, it will again be open to the payee or holder in due course to issue a notice demanding payment of the amount due as per the Cheque. If the drawer once again fails to satisfy the demand, working of the Section 138 is wide enough to permit the payee or holder in due course to claim that he had acquired a fresh cause of action and the provision would plainly enable him to establish all the ingredients of the offence against the drawer in case he files a complaint within the time allowed by Section 142 (b) of the Act. Texport Industries Ltd. v. DCM Limited Citation : Co. Appeal 44/2005 Power of the company court Under Section 391(6) of the Companies Act, 1956 to stay criminal proceedings has given rise to the present appeal Held: "The legislature in its wisdom introduced Section 138 of the NI Act conscious of the existence of the other provisions under the said Act. Thus, Section 138 of the NI Act, a later enactment, envisaged criminal prosecution for the offence of negotiable instruments

being dishonoured, including cheques. The object was to reinforce sanctity of commercial transactions. Once the rigours of the provisions have been complied with, a person/company cannot, as a matter of right, come to the Court to deposit the amount and claim that the prosecution should be brought to an end. It can, thus, hardly be expected that the provisions of Sections 442 and 446, or for that matter Section 391 of the said Act, can be interpreted in a manner so as to bring the proceedings Under Section 138 of the NI Act to a stand-still. Thus, even if in a scheme which is approved and it was envisaged that certain amounts have to be paid, the debtor company or its Directors cannot insist that the proceedings Under Section 138 of the NI Act be quashed." "It can hardly be said that the object of Section 391 (6) of the said Act is to prevent action against the officers of the company who may be involved in cheating, criminal breach of trust, mis-appropriation, forgery and for that matter dishonour of cheque. Again the provision cannot be used to bring to an end a prosecution arising from Income Tax Act or Foreign Exchange Control Act. The proceedings are clearly not of a pecuniary nature involving recovery of money. Interestingly, even the scheme stated to be approved at the behest of the respondent company does not envisage bar to any criminal proceedings or payment of any actual amount in the given facts of the case as discussed at the inception of this judgment, but only seeks to extinguish the liability of the appellant on the ground that the respondent is liable to pay a lesser amount, the interest not running, and the claim is alleged to have been extinguished by payment to a third party at the behest of the appellant for which there is no written document." Para 33 "We are, thus, unequivocal of the view that Section 391(6) of the said Act does not envisage either quashing or stay of criminal cases against the company or its Directors and, thus, the proceedings against the respondents Under Section 138 of the NI Act instituted by the appellant could not have been stayed." SABITHA RAMAMURTHY AND ANOTHER V. R.B.S. CHANNBASAVARADHYA Citation : (2006) 10 SCC 581 Held : "A bare perusal of the complaint petition demonstrates that the statutory requirements contained in Section 141 of the Negotiable Instrument Act had not been complied with. It may be true that it is not necessary for the complainant to specifically reproduce the wordings of the section but what is required is a clear statement of fact so as to enable the Court to arrive at a prima facie opinion that the accused are vicariously liable. Section 141 raises a legal fiction. By reason of the said provision, a person although is not personally liable for commission of such an offence would be vicariously liable there for.

Such vicarious liability can be inferred so far as company registered or incorporated under the Companies Act, 1956 is concerned only if the requisite statements, which are required to be averred in the complaint petition, are made so as to make the accused therein vicariously liable for the offence committed by the company. Before a person can be made vicariously liable, strict compliance with the statutory requirements would be insisted. Not only the averments made in para 7 of the complaint petitions do not meet the said statutory requirements, the sword statement of witness made by the son of the respondent herein, doe not contain any statement that the appellants were in charge of the business of the company. In a case where the Court is required to issue summons which would put the accused to some sort of harassment; the Court should insist strict compliance with the statutory requirements. In terms of Section 200 of the Code of Criminal Procedure, the complainant is bound to make statements on oath as to how the offence has been committed and how the accused persons are responsible there for. In the event, ultimately, the prosecution is found to be frivolous or otherwise malafide, the Court may direction registration of case against the complainant for malafide prosecution of the accused. The accused would also be entitled to file a suit for damages. The relevant provisions of the Code of Criminal Procedure are required to be construed from the aforementioned point of view" BSI Ltd. and Anr. etc. v. Gift Holdings Pvt. Ltd. and Anr., etc. Citation : AIR 2000 SC 926 = 2000 Cri LJ 1424 Question arose whether Section 2(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (in short SICA) declaring out a sick company could bar the institution of criminal complaint against the company and its Directors Under Section 138 of the NI Act. Held: A criminal prosecution is neither for recovery of money nor for enforcement of any security etc. Section 138 of the NI Act is a penal provision the commission of which offence entails a conviction and sentence on proof of the guilt in a duly conducted criminal proceedings. Once the offence under Section 138 is completed the prosecution proceedings can be initiated not for recovery of the amount covered by the cheque but for bringing the offender to the penal liability. What was considered in Maharashtra Tubes Ltd. (supra) is whether the remedy provided in Section 29 or 31 of the State Finance Corporation Act, 1951 could be pursued notwithstanding the ban contained in Section 22 of the SICA. Hence the legal principal adumbrated in the said decision is of no avail to the appellants. Para 20

" it is pertinent to point out that Section 138 of NI Act was introduced in 1988 when SICA was already in vogue. Even when the amplitude of the word "company" mentioned in Section 141 of the NI Act was widened through the Explanation added to the section, Parliament did not think it necessary to exclude companies falling under Section 22 of SICA from the operation thereof. If Parliament intended to exempt sick companies from prosecution proceeding, necessary provision would have been included in Section 141 of the NI Act. More significantly, when Section 22(1) of SICA was amended in 1994 by inserting the words ["and no suit for the recovery of money or for enforcement of any security against industrial company or of any guarantee in respect of any loans or advance granted to industrial company"] Parliament did not specifically include prosecution proceedings within the ambit of the said ban." K. Bhaskaran v. Sankaran Vaidhyan Balan Citation : (1999) 7 SCC 510: 1999 CR. LJ 4606 Held: "It must be remembered that offence under S. 138 would not be complete with the dishonour of the cheque. It attains completion only with the failure of the drawer of the cheque to pay the cheque amount within the expiry of 15 days mentioned in Cl. of the proviso to S. 138 of the Act. It is normally difficult to fix up a particular locality as the place of failure to pay the amount covered by the cheque. A place, for that purpose, would depend upon a variety of factors, it can either be at a place where the drawer resides or at the place where the payee resides or at the place where either of them carries on business"/..