Negotiable
Instruments Act, 1881 - Sections 138 and 141 - Offences by companies - Specific
proof of resignation of Director - defence taken that they were not directors
at the time of offence, is a fact which they have to prove before court below -
self written letter sent to boards of directors of firm without any Form 32 of
Company Act - these simple letters are not admissible.
Every
person who at the time the offence was committed, was in charge of, and was
responsible to the company for the conduct of the business of the company, as
well as the company, shall be deemed to be guilty of the offence and shall be
liable to be proceeded against and punished accordingly; further if any such
person proves that offence was committed without his knowledge, then he shall
be punished, so this is a rebuttable fact and burden lies upon the person, who
states that the offence was committed without his knowledge. Its proviso also
provides that where any offence under this Act has been committed by a company
and it is proved that the offence has been committed with the consent or
connivance of, or is attributable to, any neglect on the part of, any director,
manager, secretary or other officer of the company, such director, manager,
secretary or other officer shall also be deemed to be guilty of that offence
and shall be liable to be proceeded against and punished accordingly.
Negotiable
Instruments Act, 1881 - Section 139 - Presumption in favour of holder - admitted
signatures on cheques in question, so facts relied that there was no liability
and cheques were issued during purchase order; that cheques were given as
security and have been misused, are rebuttable facts to the facts narrated in
complaint, which petitioners required to prove before court below.
Negotiable
Instruments Act, 1881 - Sections 138 - Quashing of Complaint - all the
documents relied by petitioners were never before the trial court at the time
of taking cognizance. So these cannot be relied in these petitions for
quashing/setting aside the cognizance, unless these are public documents.
HIGH COURT OF
JAMMU AND KASHMIR AT
JAMMU
Coram: Hon’ble
Mr. Justice Sanjay Kumar Gupta, Judge
CRR No. 77/2016,
IA No. 01/2016 c/w CRR No. 78/2016, I A No. 01/2016 CRR No. 79/2016, IA No.
01/2016
Date of order:03.11.2018
M/s Grand Batteries Pvt. Ltd. and
ors. vs. M/s Osaka Alloya and Steels Pvt. Ltd. c/w connected matter
Appearing
counsel: For
Petitioner/appellant(s) : Mr. Sunil Sethi, Sr. Advocate with Mr. Nitin Parihar,
Advocate For respondent (s) : Mr. R. P. Sharma, Advocate
1.
Since
common questions of law and facts have arisen for consideration in these
criminal revision petitions, these were heard analogously and are being decided
by this common order.
CRR No.77/2016
2.
In
this criminal revision, the petitioners inter alia have assailed the
validity of order dated 04.07.2017 passed by the Munsiff, JMIC, Samba in
complaint, titled, Osaka Alloys and Steels Pvt. Ltd. Vs. Grand Batteries and
others, whereby cognizance of the complaint was taken and process against the
petitioners was issued as well as the subsequent orders passed by the Munsiff,
JMIC, Samba. The petitioners also seek quashing of complaint under section 138
of Negotiable Instruments Act.
CRR No.78/2016
3.
In
this criminal revision, the petitioners inter alia have assailed the
validity of order dated 31.08.2016 passed by the Chief Judicial Magistrate,
Samba in complaint, titled, Osaka Alloys and Steels Pvt. Ltd. Vs. Grand
Batteries and others, whereby cognizance of the complaint was taken and process
against the petitioners was issued as well as the subsequent orders passed by
the Chief Judicial Magistrate, Samba. The petitioners also seek quashing of
complaint under Section 138 of Negotiable Instruments Act.
CRR No.79/2016
4.
In
this criminal revision, the petitioners inter alia have assailed the
validity of order dated 31.08.2016 passed by the Chief Judicial Magistrate,
Samba in complaint, titled, Osaka Alloys and Steels Pvt. Ltd. Vs. Grand
Batteries and others, whereby cognizance of the complaint was taken and process
against the petitioners was issued as well as the subsequent orders passed by
the Chief Judicial Magistrate, Samba. The petitioners also seek quashing of
complaint under section 138 of Negotiable Instruments Act.
5.
For
facility of reference, the facts in brief are taken from CRR No.77/2016. The
petitioner No. 1 is a Private Limited Company duly incorporated under the
Companies Act, 1956 and registered with the Registrar of Companies Rajasthan.
The petitioner No. 2 is one of the Directors of the petitioner No. 1-Company,
whereas the petitioner Nos. 3 & 4 were also the directors of the company
but have resigned and are no more associated or dealing with the affairs of the
petitioner No. 1-Company. The petitioner No.1-Company is manufacturer of
Batteries having its industrial unit in the State of Rajasthan. The petitioner
No.1-Company in connection with manufacturing of Batteries was requiring Lead
and Lead Alloys, and accordingly came in contact with the respondent, who is
engaged in the business of manufacturing of Lead Alloys having one of its
industrial unit in the State of Jammu and Kashmir at Industrial Growth Centre,
Samba. It is contended that after due negotiations with respect to purchase of
aforesaid products from the respondent, the petitioner No.1-Company placed a
standing purchase order dated 15.10.2014 with the respondent for supply of Lead
and Lead Alloy on the terms and conditions as were stipulated in the said
Standing Purchase Order. The Purchase Order issued by the petitioner No.
1-Company was for a period of one year only. It was further envisaged in the
Standing Purchase Order dated 15.10.2014 that rate of each consignment will be
discussed and then proforma invoice will be raised by the respondent at the
agreed rate of payment.
6.
The
significant condition of the Standing Purchase Order dated 15.10.2014 after due
negotiation with the respondent was that the petitioner No.1 will provide to
the respondent security cheques so that the respondent could start and complete
the production and at the time of dispatch, payment was required to be made
through RTGS/LC. It is also indicated in the said Standing Purchase Order that
use of security cheques will be invalid and illegal. It is further contended
that the petitioner No.1-Company has provided as many as 27 cheques of
different amounts from time to time as security notwithstanding the fact that
it has made all the payments from time to time commensurate to the supplies
made by the respondent. That the respondent with dishonest intention and in
order to blackmail the petitioner-Company started executing threats to the
petitioner Nos.2 to 4 that respondent will present security cheques given by
the petitioner No.1-Company and on getting the same dishonoured, the
petitioners will be roped into criminal liabilities. It is further contended
that the respondent in utter breach and contravention of the Standing Purchase
Order dated 15.10.2014, presented three such security cheques bearing Nos.
077884 dated 28.04.2016; 077885 dated 09.04.2016; and 077887 dated 09.05.2016
all amounting to Rs. 2,50,000/- and drawn on Punjab National Bank, Beawar
Ajmer. On presentation of the cheques, the same were dishonoured and the
respondent after issuance of notice, service of which was never effected upon
any of the petitioners, has filed the complaint under section 138 of the
Negotiable Instrument Act. The Court of Munsiff, JMIC, Samba on presentation of
the complaint, took cognizance and issued process against the petitioner vide
order dated 04.07.2016. It is contended that the summons issued by the trial
court were never served upon the petitioners and on finding petitioners absent,
the Court of Munsiff, JMIC, Samba issued non-bailable warrants against
petitioner No.2 through SSP Ajmer Beawar, Rajasthan and petitioner Nos. 3 &
4 were directed to be informed through registered envelop, through some reputed
courier service. Thereafter, on 08.11.2016, the petitioner No. 2 was produced
before the Court of Munsiff JMIC, Samba in execution of the warrants issued and
on his application filed, the court passed order on the same day directing
petitioner No.2 to furnish personal bond and local surety to the tune of
Rs.50,000/- with the direction to be remained present on the next date of
hearing i.e. on 08.12.2016. It is lastly contended that the respondent has
filed the complaint purely with the intention of blackmailing, harassing and
victimizing the petitioners just to extract as much money as it could and the
judicial proceedings are being abused by the respondent. In the aforesaid
factual background, the petitioners have approached this Court seeking reliefs
as stated supra.
7.
The
petitioners, being aggrieved of the impugned order as well as the proceedings
being conducted in the complaint, titled Osaka Alloys and Steels Pvt. Ltd. vs.
Grand Batteries and others, have challenged the same in the instant criminal
revision on the following grounds:
(a) That the
impugned complaint under section 138 of Negotiable Instruments Act, titled,
Osaka Alloys and Steel Pvt. Lld. Vs. Grand Batteries and others filed by the
respondent against the petitioners is highly motivated, aimed at harassing and
blackmailing the petitioners and is a clear abuse of process of law.
(b) That the
respondent has misused the security cheques issued by the petitioner No.
1-company, which as per the terms and conditions of the Standing Purchase Order
and Minutes of Meeting dated 16.06.2016 were already held to be invalid. Once
the respondent is signatory to an agreement that the security cheques are
invalid and cannot be presented, it is ex-facie illegal and unlawful on the
part of the respondent to present the cheques, which were dishonored and
without valid service of notice of demand upon the petitioners, impugned
complaint was filed, and that the manner in which the learned Magistrate
entertained the complaint and initiated proceedings against the petitioners is
highly contrary to the provisions of law.
(c) That the
learned Magistrate has failed to appreciate the provisions of Section 138 of
the Negotiable Instruments Act in reference to the allegation alleged in the
complaint and could not have taken cognizance of the complaint and issued the
process.
(d) That the
cheques dishonored in the instant case is not a disputed question of fact,
therefore, maintainability of the impugned complaint is highly disputed. The
trial court while taking cognizance of the complaint and issuing process
against the petitioners has not recorded any satisfaction with regard to
commission of offence under the provisions of Section 138 of the NI Act.
8.
On
the other hand, the respondent has filed objections, wherein it is stated that
the petitioner-company and respondent-company had business dealing with each
other. The petitioner-company had been purchasing lead Ingots on credit from
the respondent company and on account of such transaction there was a liability
in the sum of Rs. 49,44,023/- against the petitioner-company and to discharge
the liability in part, the petitioner company had issued the cheques in
question. Evidencing the transaction having been taken place from time to time
between the petitioner-company and the respondent-company as also as to the
above stated outstanding against the petitioner-company, along with the
complaint, the respondent-company has also annexed copies of the invoices/bills
and the statement of account. It is further stated that the petitioner-company
has proceeded to file the instant misconceived petition mindful of the fact
that the case sought to be projected by the petitioners, the matter in hand
would involve a question of fact, capable of being determined only by the trial
court after recording evidence of the parties. It is also stated that to
impeach cognizance having been validly taken by the trial Court in the
complaint, the petitioners have acted totally unmindful of the mandate as
envisaged under section 139 of Negotiable Instruments Act, which provides for
presumption in favour of the holder.
9. Learned senior
counsel for the petitioners has reiterated the grounds taken in the revision
petition, whereas counsel for the respondent has argued that the documents
which have been attached with this criminal revision petition are pertaining to
a disputed question of facts, which cannot be adjudicated upon by this Court in
a petition under Section 561-A Cr.P.C. It is argued that this Court while
exercising power under section 561-A code of Criminal Procedure does not
function as a court of trial, appeal or revision, therefore, this disputed
question of facts can well be adjudicated by the trial court, who has power to
do so.
10.
I
have considered the submissions made by the learned counsel for the parties and
perused the record.
11.
First
argument of counsel for petitioners is that petitioners no.3 and 4 have already
resigned from partnership concern, prior to filing of complaint, so they were
not concerned with the business concern. In support of this argument counsel
for petitioners has relied upon Annexure-A, i.e. the letter written to Board of
Directors of Company by petitioners 3 and 4 dated 23.03.2016 and 01/04/2016
respectively. Further counsel has argued that for fastening the vicarious
labiality of Directors of Company, complaint should have specifically mentioned
as to how directors and what manner, they were liable. He relied upon 2017
AIR (SCW ) 2854 case titled Ashoke Mal Bafna v Upper India Steel Mfg. &
Engg. Co. Ltd., wherein it is held as under:-
―10. To fasten
vicarious liability under Section 141 of the Act on a person, the law is well
settled by this Court in a catena of cases that the complainant should
specifically show as to how and in what manner the accused was responsible.
Simply because a person is a Director of defaulter Company, does not make him
liable under the Act. Time and again, it has been asserted by this Court that
only the person who was at the helm of affairs of the Company and in charge of
and responsible for the conduct of the business at the time of commission of an
offence will be liable for criminal action [See: Pooja Ravinder Devidasani v.
State of Maharashtra & ors. AIR 2015 SC 675].
11. In other
words, the law laid down by this Court is that for making a Director of a
Company liable for the offences committed by the Company under Section 141 of
the Act, there must be specific averments against the Director showing as to
how and in what manner the Director was responsible for the conduct of the
business of the Company.
12. Turning to
the case on hand, admittedly the cheques dated 28.12.2004 were issued while the
appellant was Director of the Company with validity for a period of six months
but during that period they were not presented for realisation at the bank. The
appellant has resigned as Director w.e.f. 02.01.2006 and the fact of his
resignation has been furnished by Form 32 to the Registrar of Companies on
24.03.2006 in conformity with the rules. Thereafter, the appellant had played
no role in the activities of the default Company. This fact remains substantiated
with the Statement filed by the default Company on 20.02.2006 with the
Registrar of Companies that in an advertisement of the Company seeking deposits
(Annexure P3), only the names of three Directors of the Company were shown as
involved in the working of the Company and the name of appellant was not
therein. Indisputably, therefore, the cheques bounced on 24.08.2006 due to
insufficient funds were neither issued by the appellant nor the appellant was
involved in the day to day affairs of the Company.‖
12.
I
have considered this aspect of the matter. Section 141 of N.I. Act reads as
under:-
―141 Offences by
companies. —
(1) If the
person committing an offence under section 138 is a company, every person who,
at the time the offence was committed, was in charge of, and was responsible to
the company for the conduct of the business of the company, as well as the
company, shall be deemed to be guilty of the offence and shall be liable to be
proceeded against and punished accordingly: Provided that nothing contained in
this sub-section shall render any person liable to punishment if he proves that
the offence was committed without his knowledge, or that he had exercised all
due diligence to prevent the commission of such offence: 22 [Provided
further that where a person is nominated as a Director of a company by virtue
of his holding any office or employment in the Central Government or State
Government or a financial corporation owned or controlled by the Central
Government or the State Government, as the case may be, he shall not be liable
for prosecution under this Chapter.]
(2)
Notwithstanding anything contained in sub-section (1), where any offence under
this Act has been committed by a company and it is proved that the offence has
been committed with the consent or connivance of, or is attributable to, any
neglect on the part of, any director, manager, secretary or other officer of
the company, such director, manager, secretary or other officer shall also be
deemed to be guilty of that offence and shall be liable to be proceeded against
and punished accordingly. Explanation.— For the purposes of this section,—
(a) ―company‖
means anybody corporate and includes a firm or other association of individuals;
and
(b) ―director‖,
in relation to a firm, means a partner in the firm.‖
13. Perusal of this
section would reveal that every person who at the time the offence was
committed, was in charge of, and was responsible to the company for the conduct
of the business of the company, as well as the company, shall be deemed to be
guilty of the offence and shall be liable to be proceeded against and punished
accordingly; further if any such person proves that offence was committed
without his knowledge, then he shall be punished, so this is a rebuttable fact
and burden lies upon the person, who states that the offence was committed
without his knowledge. Its proviso also provides that where any offence under
this Act has been committed by a company and it is proved that the offence has
been committed with the consent or connivance of, or is attributable to, any
neglect on the part of, any director, manager, secretary or other officer of
the company, such director, manager, secretary or other officer shall also be
deemed to be guilty of that offence and shall be liable to be proceeded against
and punished accordingly.
14. In present
case, bare perusal of para no.6 of complaint it is evident that there is
specific mention that accused Nos.2-4 are directors of company and are in
control of affairs of said company. The defence taken that they were not
directors at the time of offence, is a fact which they have to prove before
court below. The law cited above is not applicable, because in that case there
was specific proof of resignation of Director as per Form 32 sent to Registrar
of Companies. But in present case, there are only self written letter by
petitioners which were sent to boards of directors of firm, without any Form 32
of Company Act. So these simple letters are not admissible.
15.
Next
argument of counsel for petitioners is that cheques in questions were issued,
when there was no liability and were issued during purchase order. Further it
has been argued that cheques were issued as security and have been misused. He
has relied upon Annexure-E i.e. agreement/minutes of meeting allegedly executed
between parties, wherein it is held that all the old security cheques, which
have already been held with complainant shall be deemed invalid. Whereas
counsel for complainant has rebutted this argument and has said that these are
facts which are to be proved by petitioners before court below.
16. I have
considered this aspect of the matter also. First from the perusal of
Annexure-E, it is evident that this agreement was subject to conditions that
all previous liability has to be cleared; which as per counsel for complainant
has not been cleared.
17. Section 139 of
N.I. Act reads under. ―
139. Presumption
in favour of holder.—It shall be presumed, unless the contrary is proved, that
the holder of a cheque received the cheque of the nature referred to in section
138 for the discharge, in whole or in part, of any debt or other liability.
18. In Kumar
Exports vs. Sharma Carpets, 2009 (2) SCC 513, Supreme Court had considered
the provisions of Negotiable Instruments Act as well Evidence Act. Referring to
Section 139, Apex Court laid down the following in paragraphs 14, 15, 18 and 19
of the judgment:
"14.
Section 139 of the Act provides that it shall be presumed, unless the contrary
is proved, that the holder of a cheque received the cheque of the nature
referred to in Section 138 for the discharge, in whole or in part, of any debt
or other liability.
15. Presumptions
are devices by use of which the courts are enabled and entitled to pronounce on
an issue notwithstanding that there is no evidence or insufficient evidence.
Under the Evidence Act all presumptions must come under one or the other class
of the three classes mentioned in the Act, namely, (1) "may presume"
(rebuttable), (2) "shall presume" (rebuttable), and (3)
"conclusive presumptions" (irrebuttable). The term "presumption"
is used to designate an inference, affirmative or disaffirmative of the
existence of a fact, conveniently called the "presumed fact" drawn by
a judicial tribunal, by a process of probable 13 reasoning from some matter of
fact, either judicially noticed or admitted or established by legal evidence to
the satisfaction of the tribunal. Presumption literally means "taking as
true without examination or proof".
18. Applying the definition of the
word "proved" in Section 3 of the Evidence Act to the provisions of
Sections 118 and 139 of the Act, it becomes evident that in a trial under
Section 138 of the Act a presumption will have to be made that every negotiable
instrument was made or drawn for consideration and that it was executed for
discharge of debt or liability once the execution of negotiable instrument is
either proved or admitted. As soon as the complainant discharges the burden to
prove that the instrument, say a note, was executed by the accused, the rules
of presumptions under Sections 118 and 139 of the Act help him shift the burden
on the accused. The presumptions will live, exist and survive and shall end
only when the contrary is proved by the accused, that is, the cheque was not
issued for consideration and in discharge of any debt or liability. A
presumption is not in itself evidence, but only makes a prima facie case for a
party for whose benefit it exists. 19. The use of the phrase "until the
contrary is proved" in Section 118 of the Act and use of the words
"unless the contrary is proved" in Section 139 of the Act read with
definitions of "may presume" and "shall presume" as given
in Section 4 of the Evidence Act, makes it at once clear that presumptions to
be raised under both the provisions are rebuttable. When a presumption is
rebuttable, it only points out that the party on whom lies the duty of going
forward with evidence, on the fact presumed and when that party has produced
evidence fairly and reasonably tending to show that the real fact is not as
presumed, the purpose of the presumption is over.‖
19. In present
case, petitioner no.2 has admitted his signatures on cheques in question, so
facts relied that there was no liability and cheques were issued during
purchase order; that cheques were given as security and have been misused, are
rebuttable facts to the facts narrated in complaint, which petitioners required
to prove before court below.
20. In 2016 AIR
SC 4363 in case titled Sampelly Satyanaryana Rao v. Indian Renewable
Energy Development Agency, it is held as under:-
“--------------The High Court
did not accept the above contention and held:-
―10. In the
present case when the post-dated cheques were issued, the loan had been
sanctioned and hence the same fall in the first category that is they were
cheque issued for a debt in present but payable in future. Hence, I find no
reason to quash the complaints. However, these observations are only prima
facie in nature and it will be open for the party to prove to the contrary
during trial.‖ We have heard learned counsel for the parties. ---------------
Reference may
now be made to the decision of this Court in Indus Airways Private Limited
versus Magnum Aviation Private Limited [1], on which strong reliance has been
placed by learned counsel for the appellant. The question therein was whether
post-dated cheque issued by way of advance payment for a purchase order could
be considered for discharge of legally enforceable debt. The cheque was issued
by way of advance payment for the purchase order but the purchase order was
cancelled and payment of the cheque was stopped. This Court held that while the
purchaser may be liable for breach of the contract, when a contract provides
that the purchaser has to pay in advance and cheque towards advance payment is
dishonoured, it will not give rise to criminal liability under Section 138 of
the Act. Issuance of cheque towards advance payment could not be considered as
discharge of any subsisting liability. View to this effect of the Andhra
Pradesh High Court in Swastik Coaters (P) Ltd. versus Deepak Bros.[2], Madras
High Court in Balaji Seafoods Exports (India) Ltd. versus Mac Industries
Ltd.[3], Gujarat High Court in Shanku Concretes (P) Ltd. versus State of
Gujarat[4] and Kerala High Court in Supply House versus Ullas[5] was held to be
correct view as against the view of Delhi High Court in Magnum Aviation (P)
Ltd. versus State[6] and Mojj Engg. Systems Ltd. versus A.B. Sugars Ltd.[7]
which was disapproved. --------------------------------
Crucial question
to determine applicability of Section 138 of the Act is whether the cheque
represents discharge of existing enforceable debt or liability or whether it
represents advance payment without there being subsisting debt or liability.
While approving the views of different High Courts noted earlier, this is the
underlying principle as can be discerned from discussion of the said cases in
the judgment of this Court. In Balaji Seafoods (supra), the High Court noted
that the cheque was not handed over with the intention of discharging the
subsisting liability or debt. There is, thus, no similarity in the facts of
that case simply because in that case also loan was advanced. It was noticed
specifically therein – as was the admitted case of the parties – that the
cheque was issued as ―security‖ for the advance and was not intended to be in
discharge of the liability, as in the present case. In HMT Watches Ltd. versus
M.A. Abida[8], relied upon on behalf of the respondent, this Court dealt with
the contention that the proceedings under Section 138 were liable to be quashed
as the cheques were given as ―security‖ as per defence of the accused.
Negativing the contention, this Court held :-
―10. Having
heard the learned counsel for the parties, we are of the view that the accused
(Respondent 1) challenged the proceedings of criminal complaint cases before
the High Court, taking factual defences. Whether the cheques were given as
security or not, or whether there was outstanding liability or not is a
question of fact which could have been determined only by the trial court after
recording evidence of the parties. In our opinion, the High Court should not
have expressed its view on the disputed questions of fact in a petition under
Section 482 of the Code of Criminal Procedure, to come to a conclusion that the
offence is not made out.
The High Court
has erred in law in going into the factual aspects of the matter which were not
admitted between the parties. The High Court further erred in observing that
Section 138(b) of the NI Act stood uncomplied with, even though Respondent 1
(accused) had admitted that he replied to the notice issued by the complainant.
Also, the fact, as to whether the signatory of demand notice was authorised by
the complainant company or not, could not have been examined by the High Court
in its jurisdiction under Section 482 of the Code of Criminal Procedure when
such plea was controverted by the complainant before it. -----------------
--------------- As is clear from the above observations of this Court, it is
well settled that while dealing with a quashing petition, the Court has
ordinarily to proceed on the basis of averments in the complaint. The defence
of the accused cannot be considered at this stage. The court considering the
prayer for quashing does not adjudicate upon a disputed question of fact. In
Rangappa versus Sri Mohan[9], this Court held that once issuance of a cheque
and signature thereon are admitted, presumption of a legally enforceable debt
in favour of the holder of the cheque arises. It is for the accused to rebut
the said presumption, though accused need not adduce his own evidence and can
rely upon the material submitted by the complainant. However, mere statement of
the accused may not be sufficient to rebut the said presumption. A post dated
cheque is a well recognized mode of payment.
Thus, the
question has to be answered in favour of the respondent and against the
appellant. Dishonour of cheque in the present case being for discharge of
existing liability is covered by Section 138 of the Act, as rightly held by the
High Court. Accordingly, we do not find any merit in this appeal and the same
is dismissed. Since we have only gone into the question whether on admitted
facts, case for quashing has not been made out, the appellant will be at
liberty to contest the matter in trial court in accordance with law."
21. In
view of above law, the defence taken by petitioners is not tenable in these
petitions. Further, all the documents relied by petitioners were never before
the trial court at the time of taking cognizance. So these cannot be relied in
these petitions for quashing/setting aside the cognizance, unless these are
public documents.
22.
In view of above, these revision petitions are dismissed. Stay, if any,
is vacated.
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