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2007 DIGILAW 2078 (PNJ)

J. P. S. Sandhu v. Patiala Auto Enterprises Etc.

2007-11-28

RANJIT SINGH

body2007
Judgment Ranjit Singh, J. 1. Petitioner is a retired Colonel from Indian Army and is an unfortunate victim of mechanism of civil smart respondent, business person. He stands to loose his hard earned fortune of Rs. 25 lacs. He was deceived to loan, perhaps his entire saving of Rs. 25 lacs, to respondent No. 1 M/s Patiala Auto Enterprises, Patiala. He appears to have been hooked by crooks well and proper. Enticed by respondent No. 3 Parkash Chand Bansal, the petitioner entered into an agreement (Annexure P-1) with respondents, which is signed by respondent No. 3, posing himself to be a managing partner of respondent No. 1 M/s Patiala Auto Enterprises, Patiala. Respondent No. 3 signed an agreement with the petitioner for accepting loan of Rs. 25 lacs which was to be the working capital of respondent No. 1 M/s Patiala Auto Enterprises, Patiala. To secure this loan, even house No. 22, Brar Street Patiala was hypothecated in favour of the petitioner (first party) as a collateral security on behalf of 2nd party i.e. the respondents herein. The parties had also mutually agreed that respondents would pay an interest @ 24% per annum or Rs. 300/- per scooter on number of scooters sold in one calendar month which was to be payable by the Second party i.e. respondents by 5th of each month to the First party i.e. the petitioner. While accepting this loan on behalf of respondent No. 1, respondent No. 3 posed himself as Managing Partner and took responsibility in all respect on behalf of every one as can be seen from the following averments in the agreement :- "Having at the request Shri P.C. Bansal, Managing Partner of M/s Patiala Auto Enterprises, Lower Mall, Patiala, hereinafter called the borrower of the Second Part which expression shall including its successor, administrators and assigns and Shri Bimal Kumar Jain, Smt. Anita Rani and Shri Amit Kumar, resident of 22, Brar Street, Patiala, hereinafter called the Guarantors of the Third Part witnesseth:" 2. Responsibility on behalf of the respondents, as such, was undertaken by respondent No. 3, who also is the lone signatory to this agreement on behalf of the respondent borrower. As can be seen, respondent No. 3 had signed as a borrower in this case. The respondents, however, failed to repay the loan and also did not adhere to the terms of the agreement Annexure P-1. As can be seen, respondent No. 3 had signed as a borrower in this case. The respondents, however, failed to repay the loan and also did not adhere to the terms of the agreement Annexure P-1. Not only that the house, which was hypothecated as a collateral security, was also sold in a clandestine manner by the guarantors etc. When the issue hotted up, the respondents allegedly issued a cheque amounting to Rs. 23.50 lacs on 30.9.2001 as re-payment of the loan amount. This cheque, drawn on the Bank of Punjab, was signed by respondent No.2 as a partner of M/s Patiala Auto Enterprises, Patiala. Cheque was on behalf of respondent No. 1 concern and not in individual capacity. The cheque, when presented by the petitioner, was not encashed and was returned with the remarks "insufficient funds". The petitioner, thereafter, issued legal notice and failing to get response from the respondents, he filed a complaint under Section 138/142 of the Negotiable of Instruments Act on 11.4.2002. Copy of the complaint is annexed with the petition as Annexure P-2. 3. In support of his complaint, the petitioner appeared as a witness. Copy of the statement is on record as Annexure p-3. On the basis of the complaint and the evidence so given by the petitioner, the trial Magistrate summoned respondent No. 2 Sat Pal Bansal being partner of accused respondent No. 1 M/s Patiala Auto Enterprises, Patiala to face prosecution under Section 138 of the Act. The petitioner felt aggrieved against the action of the trial Magistrate in not summoning respondent No. 3, who according to the petitioner, was the main person responsible for getting the loan and to secure the same despite being the one who was managing the affairs of respondent No.1 concern. Initially the petitioner impugned this summoning order before the Court of Additional Sessions Judge, Patiala. The said revision petition, however, was dismissed on 23.9.2003 and order is at Annexure P-5. The petitioner then filed the present petition impugning both the orders passed by the Magistrate as well as the Additional Sessions Judge, Patiala in the year 2003. The petition is pending since then. In the meantime, the trial before the Magistrate continued and has ended in conviction of respondents No. 1 and 2. The trial Court has sentenced respondent No. 2 to suffer R.I. for two years coupled with fine of Rs. One lac. The petition is pending since then. In the meantime, the trial before the Magistrate continued and has ended in conviction of respondents No. 1 and 2. The trial Court has sentenced respondent No. 2 to suffer R.I. for two years coupled with fine of Rs. One lac. Respondent No. 1 company has also been fined a sum of Rs. One lac. The appeal against the order of convicting respondent Nos. 1 and 2 is pending before the Sessions Court. 4. It may also require a mention that the parties to the agreement had liberty to take the dispute and differences arising out of a claim to be settled by the arbitration in accordance with the Indian Arbitration Act 1940. Even the arbitrator had been appointed in the agreement itself and was Sh.Suresh Kumar Mittal, C.A. In case of his death, refusal, neglect, inability or incapability to act as an arbitrator, Lt.Col. Mandeep Singh Sandhu (Retd.) was to act as a sole arbitrator. 5. Mr. Navkiran Singh has pointed out that invoking the arbitration clause as contained in the agreement, the petitioner had also approached the arbitrator when the respondents failed to re-pay his loan. The arbitrator has also given his award dated 12.8.2005 holding that the petitioner is entitled to a sum of Rs. 30.30 lacs, which was directed to be paid on or before 30.9.2005. Copy of the award has also been placed on record as Annexure P-9. However, the respondents have not cared to make any payment pursuant to the arbitration award. To justify this, the counsel, appearing for respondent No. 3, says that the objection petition has been filed against this arbitration award. That generally is the fate of almost every litigant. He has not only to file one but contest different proceedings for realising his own money. 6. However, what is required to be seen in the present case is whether respondent No. 3 could be excused of his liability as is the effect of order made by the trial Magistrate. The counsel has drawn my attention to the agreement Annexure P-1 to say that it was respondent No. 3 who had negotiated and had entered into this agreement as a Managing Partner of respondent No. 1 M/s Patiala Auto Enterprises, Patiala. He had also signed the agreement as a borrower. The counsel has drawn my attention to the agreement Annexure P-1 to say that it was respondent No. 3 who had negotiated and had entered into this agreement as a Managing Partner of respondent No. 1 M/s Patiala Auto Enterprises, Patiala. He had also signed the agreement as a borrower. The counsel accordingly contends that responsibility of respondent No. 3 was required to be seen and appreciated in the entirety and not on some isolated facts or limiting it to his role as a director or that he was or was not responsible for the day to day affairs of the company. 7. It is not disputed before me that respondent No. 2 and 3 are real brothers. Respondent No. 1 seems to be a family concern. It is seen that respondent No. 3 had described himself as a Managing Partner. In this background, it is required to be seen if he can be permitted to back out of this agreement now to say that he is not responsible. The cheque which was dishonoured was also from the account of respondent No. 1 M/s Patiala Auto Enterprises, Patiala and was not the cheque given by any one in individual capacity. The money advanced as a loan by the petitioner was also to respondent No. 1 company which had been accepted by respondent No. 3. 8. Mr. Navkiran Singh also refers to the statement of the petitioner made before the Magistrate. Copy of which is at Annexure P-3. He would, with particular emphasis, refer to the fact that the petitioner had clearly stated in his statement before the Court that respondent Nos. 2 and 3 were responsible for the day to day affairs of accused company respondent No.1 being its partners. The counsel accordingly contends that in view of this factual position, the action of the trial Magistrate in not summoning respondent No. 3 cannot be justified on any count whatsoever. 9. Counsel, appearing for respondent No. 3, however, says that the respondent has not been shown to be a Director or otherwise responsible for day to day affairs of the company. He accordingly prays that no justification is made out for summoning respondent No. 3 to face this prosecution. In addition, he also refers to the fact that respondent No. 3 had resigned as a Director on 12.3.2001. He accordingly prays that no justification is made out for summoning respondent No. 3 to face this prosecution. In addition, he also refers to the fact that respondent No. 3 had resigned as a Director on 12.3.2001. This fact, however, is not supported by any document or evidence on record. To be fair to the counsel, he made a prayer for placing on record certain documents, which he is having today in his hand but the same is declined. 10. I have heard learned counsel for the parties. I am unable to accept the arguments raised on behalf of respondent No. 3. To me, respondent No. 3 appears to be rather smart person who is totally unfair in his approach. He has not only hoodwinked the petitioner but has played truants with the Court. He blew hot and told even before the Court by taking different stands on different dates. In between, he sought adjournment to pay money as can be seen from order dated 26.9.2007, which is as under :- "Learned counsel for the respondents say that efforts are being made to arrange the money and if possible, they would pay the same." 11. He sought adjournment to comply with same to back out of this commitment subsequently. Can he be trusted ? He appears to be totally untrustworthy. He has cheated an innocent service man of his entire money which he earned hard way while being in the Army. In fact, not only the liability of respondent No. 3 would be there under Section 138 of the Act, he seems to be responsible for cheating the petitioner as well. If the statements made by respondent No. 3 are accepted it would obviously mean that he had first posed himself as a Managing Partner of the concern, of which he was a Director up to 12.3.2001. He is now refusing to honour his commitment and his responsibility after borrowing huge amount of Rs. 25 lacs from a retired service officer. What is his aim if not to cheat a person ? Otherwise there is nothing which can justify the act or conduct of respondent Nos. 1 to 3. They would not even honour the arbitration award. Can such person be allowed to circumvent and misuse legal provisions to frustrate society? A person after having advanced his fortune is now before various Courts to get back his hard earned money. Otherwise there is nothing which can justify the act or conduct of respondent Nos. 1 to 3. They would not even honour the arbitration award. Can such person be allowed to circumvent and misuse legal provisions to frustrate society? A person after having advanced his fortune is now before various Courts to get back his hard earned money. The respondents would utilise this amount to advance their business but would force the petitioner to be before various forums. What can be more frustrating than this. It can not be permitted. 12. The fact that respondent No. 3 had resigned as a Director on 12.3.2001 even if accepted, would not be of any consequence. Rather it would show that prior to this date respondent No. 3 was a Director of this company. Even otherwise the statement made on behalf of the petitioner is that respondent No. 3 was responsible for day to day affairs of the company at the time this loan was accepted. The cheque which was dishonoured is dated 30.9.2001. The action of respondent No. 3 in resigning as a Director prior to the date cheque was dishonoured, again can be seen under a well thought out scheme by him which is to be appreciated accordingly. In any event this does appear to be of any material consequence as he is the one who had taken responsibility to accept the loan. He would remain bound to re-pay the same. Having regard to these peculiar facts, he cannot be permitted to escape from the responsibility arising out of dis-honouring of the cheque. Prima facie this may appear to be a clear case of cheating. The trial Court would look into this aspect and see if a charge for cheating can be framed if the same is made out from the facts and circumstances of the case. Section 141 of the Negotiable Instruments Act would bind respondent No. 3 with the liability. If an offence under Section 138 of the Act is committed by a company then every person, who at the time the offence was committed was incharge of company and was responsible to the company for conduct of business of the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against. If an offence under Section 138 of the Act is committed by a company then every person, who at the time the offence was committed was incharge of company and was responsible to the company for conduct of business of the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against. In my view Section 141 of the Act would create a liability against a person irrespective of his capacity as a Director or Managing Director etc. What the person prosecuting such an accused is required to show is the responsibility of an individual at the time of commission of an offence. If viewed in this background, conclusion is inescapable that respondent No. 3 was certainly responsible for the affairs of the accused company respondent No. 1 at the time of commission of offence and subsequently. Even in equity, respondent No. 3 cannot be allowed to escape this responsibility. It will be too much that a person would first pose himself as a Managing Director, obtain a loan and thereafter would wash his hands off and make a person to run from pillar to post. This situation cannot be accepted. Even otherwise there is a clear liability seen against respondent No. 3 for which he ought to be prosecuted. 13. In support of his submission, learned counsel for the petitioner has also drawn my attention to the case of Anil Hada v. Indian Acrylic Ltd., 2000(1) RCR(Criminal) 1 (SC). Honble Supreme Court in this case has held that if a cheque is issued by a company then dishonour of the cheque would create criminal liability on everyone who was incharge of the company and was responsible for the business of the company in terms of Section 141 of the Act. This view is further supported by the judgement of Gujarat High Court in the case of M. Sivakami v. Bharat Ginning & Oil Mill Factory, 2000(1) RCR(Criminal) 565 and in the case of Steel Authority of India Ltd. v. Harbhajan Singh (Allahabad), 1999(4) RCR(Criminal) 40. On the other hand learned counsel for respondent No. 3 would refer to the case of Saroj Kumar Poddar v. State (NCT of Delhi) and another, 2007(1) RCR(Criminal) 741 : 2007(1) RAJ 205 (SC). Honble the Supreme Court in this case was dealing with the case of a Director, who had not issued the cheque. On the other hand learned counsel for respondent No. 3 would refer to the case of Saroj Kumar Poddar v. State (NCT of Delhi) and another, 2007(1) RCR(Criminal) 741 : 2007(1) RAJ 205 (SC). Honble the Supreme Court in this case was dealing with the case of a Director, who had not issued the cheque. It was also noted that it had not been stated in the complaint as to how and in what way the said Director was responsible in the conduct of the business of the company or otherwise responsible to it in regard to the event. In this background it is held that ingredients of Section 141 of the Act was not satisfied. This position does not appear to arise in the present case. Here the petitioner has clearly made averment in regard to the involvement of respondent No. 3 and his responsibility in the complaint as well as in his statement before the Court. Not only that the responsibility of respondent No. 3 is clearly seen from the agreement but agreement was not with respondent No. 2 who has been prosecuted. The agreement had been entered into by respondent No. 3 on behalf of respondent No. 1 with the petitioner. The ratio of law laid down in Saroj Kumar Poddars case, as such, is clearly not attracted in the facts of the present case. 14. Counsel would then refer to the case of N.K. Wahi v. Shekhar Singh and others, 2007(2) RCR(Criminal) 266 : 2007(2) RCR(Civil) 379 : 2007(2) RAJ 1 (SC). The counsel has with particular emphasis drawn my attention to the ratio of law culled out from this judgment to the effect that every person, who is Director or employee of the company is not liable and that only such person would be held liable if at the time when the offence is committed he was incharge and was responsible to the company for the conduct of the business of the company as well as the company. I have not been able to appreciate as to how this will benefit the cause of respondent No. 3. It has already been noted that he was not only responsible for the affairs of the company but was its Managing Director as can be seen from the agreement. I have not been able to appreciate as to how this will benefit the cause of respondent No. 3. It has already been noted that he was not only responsible for the affairs of the company but was its Managing Director as can be seen from the agreement. He in that capacity had entered into an agreement, accepting responsibility to return the loan which would remain to be his. These facts are peculiar to the case which would not allow respondent No. 3 to escape his responsibility. It is to be noticed that it is specifically averred in the complaint as well as in the evidence that he was responsible for the offence. It will be a matter of evidence and proof before the trial Court whether the prosecution succeeds in showing the exact responsibility of respondent No. 3 at the time of commission of offence. Respondent No. 3 would also get a chance and opportunity to show that he was not responsible for the affairs of the company on the date of the offence. Prima facie he is seen to be responsible for accepting this money and also for discharge of liability on the basis of a complaint as well as evidence given by the petitioner. Action of the trial Court in not summoning respondent No. 3, as such, cannot be accepted. He can also be made answerable for cheating in the background of his act in signing agreement and then attempting to evade liability by this or that way. The impugned orders declining to summon respondent No. 3 are accordingly set aside. Directions are hereby issued to the trial Court to summon respondent No. 3 and try him for all the offences which are made out against him. 15. Mr. Navkiran Singh is justified in praying that some directions be issued to the trial Court to conclude this trial within time bound period. The petitioner, who has advanced this loan, has lost his fortune and is already in the Courts for the last so many years. It would be appreciated if the trial Court makes an endevour to conclude the trial within a period of six months. Petition accordingly is allowed.