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Jharkhand High Court · body

2009 DIGILAW 614 (JHR)

Laju Chandumal Chanrai v. State of Jharkhand

2009-04-27

R.R.PRASAD

body2009
JUDGMENT : Since both the applications arise out of the same case, it were heard together and are being disposed of by this common order. The petitioners of both the applications have invoked extraordinary jurisdiction of this Court under Article 226 of the Constitution of India seeking quashment of the entire criminal proceeding of complaint case bearing C-1 no.777 of 2004, pending in the court of Judicial Magistrate, 1st class, Jamshedpur including the order dated 25.1.2005 whereunder cognizance of the offences under section 420 of the Indian Penal Code and also under section 138 of the Negotiable Instrument Act has been taken against the petitioners. The facts giving rise these applications are that the complainant M/s. Joy Commercial Pvt. Ltd. incorporated under the Companies Act on execution of an agreement in between the complainant-company and the accused company (M/s. Shamken Multifab Limited) advanced a loan of Rs.30 lacs on 21.9.2002 on interest payable @ 22% per annum with further stipulation that in the event of default by the accused, penal interest @ 6% was payable by the accused in addition to interest of 22% and for that M/s. Archit Holdings and Credits Ltd. stood as guarantor. When accused defaulted in liquidating the loan amount within the time, a promissory note in favour of the complainant was executed on demand on 16.2.2003 promising therein that the amount would be returned within 60 days but only part of the money was paid and as such a sum of Rs.27,80,586/-remained outstanding payable by the accused company to the complainant. However, on repeated demands, accused company issued a cheque in favour of the complainant company on 27.12.2003 of Rs.20 lacs drawn on Standard Chartered Bank, Basant Lok, New Delhi with an assurance that cheque on its presentation would be honoured. But contrary to the assurance given by the accused company, when cheque was presented before the Bank, it got dishonored on the ground that one of the joint signatories of the cheque is not lawfully authorized to sign cheque on behalf of the accused company. Thereafter, Lawyer’s notice dated 15.6.2004 was sent to the accused company but in spite of receiving the same, the accused company did not come forward to pay the outstanding dues and thereby they committed offence of breach of trust and also committed offence under section 138 of the Negotiable Instrument Act. Thereafter, Lawyer’s notice dated 15.6.2004 was sent to the accused company but in spite of receiving the same, the accused company did not come forward to pay the outstanding dues and thereby they committed offence of breach of trust and also committed offence under section 138 of the Negotiable Instrument Act. Upon the said complaint, cognizance of the offence under section 420 of the Indian Penal Code as well as under section 138 of the Negotiable Instrument Act was taken. Being aggrieved with that order, these applications have been filed. Learned counsel appearing for the petitioners submits that it is true that the petitioners-company entered into an agreement with the complainant-company whereby loan of Rs.30 lacs was given to the petitioners-company on pledging certain shares worth Rs.6 lacs by M/s. Archit Holdings and Credits Ltd., a sister concern of the petitioners-company. Thereupon, a sum of Rs.10 lacs was paid to the complainant-company through different cheques and also issued a post dated cheque on 18.8.2003 of Rs.20 lacs drawn on M/s. Standard Chartered Bank, Basant Lok, New Delhi which, according to the complainant, got dishonoured. But before that complainant-company had sold those shares of worth Rs.6 lakhs which fetched the company huge amount of Rs.42 lacs as the value of the said shares at the relevant point of time had gone up to that extent. Still the complainant-company lodged the case, in order to have wrongful gain of further Rs.20 lacs, against the company as well as petitioners 2 to 5 [W.P.(Cr.) no.28 of 2006] who are the Directors and also against the petitioner [W.P.(Cr.) no.12 of 2006] who had resigned from the Directorship in the year 2002 itself without making any averment in the complaint that the petitioners were In-charge and responsible for the conduct of the business of the company and hence, order taking cognizance of the offence under section 138 of the Negotiable Instruct Act against the petitioners, in view of the ratio laid down in a case of S.M.S. Pharmaceuticals vs. Neeta Bhalla [ (2005) 8 SCC 89 ] and also in a case of Monaben Ketanbhai Shah vs. State of Gujarat and others [(2004) 7 SCC 15] is quite bad. Learned counsel further submits that otherwise also order taking cognizance is bad as according to the case of the complainant, the cheque in question got dishonoured on account of the fact that one of the signatories had not been authorized by the company to sign the cheque on behalf of the company but that cannot be a ground for initiation of a proceeding under section 138 of the Negotiable Instrument Act as provision of the Negotiable Instrument Act never contemplates offence being made under section 138 of the Negotiable Instrument Act in the aforesaid situation and this proposition gets support from a decision rendered in a case of Vinod Tana and another vs. Zaheer Siddique and others [ (2002) 7 SCC 541 ]. Learned counsel further submits that as per the averment made in the complaint, the case out and out falls within the domain of breach of contract as there has been no element of cheating, still cognizance of the offence has been taken under section 420 of the Indian Penal Code which is also bad and, therefore, under the aforesaid situation, entire criminal proceeding is fit to be quashed. However, learned counsel appearing for the respondent submits that if other elements as contemplated under sections 138 and 141 of the Negotiable Instrument Act get satisfied, the burden is on the Board of Directors or the Officers in charge of the affairs of the company to show that they are not liable to be prosecuted as existence of any special circumstance which makes them not liable is only known to them and not to the complainant and, therefore, this issue is to be resolved only in course of trial and hence, the complaint on the ground of lack of averment relating to the Board of Directors being responsible for day-today affairs of the company is not liable to be quashed. In support of his submission, learned counsel has referred to a decision rendered in a case of N. Rangachari vs. Bharat Sanchar Nigam Limited [ (2007) 5 SCC 108 ] . In support of his submission, learned counsel has referred to a decision rendered in a case of N. Rangachari vs. Bharat Sanchar Nigam Limited [ (2007) 5 SCC 108 ] . Learned counsel further submits that the learned Magistrate in the facts and circumstances has rightly taken cognizance of the offence under section 420 of the Indian Penal Code as the cheque in discharge of the debt was paid to the complainant fully knowing that the same would not be encashed and this amply proves that the accused persons had had intention right from the beginning to cheat the complainant. Having heard learned counsel appearing for the parties, it does appear that the dispute is with respect to non-payment of the amount in terms of the agreement by the petitioner to the complainant but the question is as to whether in the facts and circumstance the petitioners can be prosecuted for the offence of cheating ? It has been well settled that non-payment of the amount by itself does not amount to commission of an offence of cheating. To hold a person guilty of cheating, it is necessary to show that he had fraudulent or dishonest intention at the time of making the promise. From his mere failure to keep up promise subsequently such a culpable intention right at the beginning, that is, when he made the promise cannot be presumed. In order to attract offence under section 420 of the Indian Penal Code, there should have been following ingredients: (i) Deception of any person; (ii) Fraudulently or dishonestly inducing any person to deliver any property; or (iii) To consent that any person shall retain any property and finally intentionally inducing that person to do or omit to do anything which he would not do or omit. From bare perusal of the complaint petition, it would appear that no act of inducement on the part of the petitioners has been alleged by the respondent, rather from the averment made in the complaint petition, it would appear that the loan was advanced when the accused persons agreed to the terms put forth by the complainant including payment of the interest on furnishing security, with further stipulation that if loan amount is not liquidated within the stipulated time, the complainant would be entitled to further interest. The statement made in the complaint petition would further go to show that some payment had been made by the petitioners company. Thus, there does not appear to be any circumstances showing that petitioners had had intention right from the beginning to cheat the complainant-company and this is the element which differentiates the case of mere breach of contract and the offence of cheating. In this respect I may, at this stage, refer to a case of Hriday Ranjan Prasad Verma vs. State of Bihar [ (2000) 4 SCC 168 ] wherein it has been observed as follows: “ In determining the question it has to be kept in mind that the distinction between mere breach of contract and the offence of cheating is a fine one. It depends upon the intention of the accused at the time of inducement which may be judged by his subsequent conduct but for this subsequent conduct is not the sole test. Mere breach of contract cannot give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction, that is, the time when the offence is said to have been committed. Therefore, it is the intention which is the gist of the offence. To hold a person guilty of cheating it is necessary to show that he had fraudulent or dishonest intention at the time of making the promise. From his mere failure to keep up promise subsequently such a culpable intention right at the beginning, that is when he had the promise cannot be presumed.” So far the instant case is concerned, as I have stated that nothing seems to be there to show that the petitioners had fraudulent or dishonest intention at the time of making promise. In such a situation, if a cheque issued gets dishonoured it would never mean that intention was there to cheat the complainant from the beginning . In this context, I may refer to a case of Vir Prakash Sharma vs. Anil Kumar Agarwal and another [ (2007) 7 SCC 373 ]. Under this situation, the order taking cognizance under section 420 of the Indian Penal Code certainly appears to be bad. In this context, I may refer to a case of Vir Prakash Sharma vs. Anil Kumar Agarwal and another [ (2007) 7 SCC 373 ]. Under this situation, the order taking cognizance under section 420 of the Indian Penal Code certainly appears to be bad. Coming to the other aspect of the matter, I may reiterate that the cheque issued by the petitioners company got dishonored on account of the fact that one of the signatories had not been authorized by the company to sign cheque on its behalf and, therefore, the question would arise as to whether offence as contemplated under section 138 of the Negotiable Instrument Act gets attracted. For this purpose, one needs to take notice of the provisions as contained in section 138 of the Negotiable Instrument Act which reads as under: “138-Dishonour of cheque for insufficiency, etc. of funds in the account – Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may be extended to two years or with fine which may extend to twice the amount of the cheque, or with both. Provided that nothing contained in this section shall apply unless – (a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier. Provided that nothing contained in this section shall apply unless – (a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier. (b) The payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, (within thirty days) of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and (c)the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice. From its perusal it is evidently clear that section 138 of the Negotiable Instrument Act contemplates prosecution only in case where the cheque was returned unpaid due to (i) insufficiency of the amount in the account of the drawer of the cheque to honour the cheque and (ii) the amount covered by the cheque exceeded the arrangement to be paid to the account and not on any other ground. No third eventuality has been contemplated under section 138 of the Negotiable Instrument Act. One can comprehend that cheque can be dishonored for so many reasons and there may be so many eventualities in which payee is denied payment by the Bank but in spite of that, section 138 of the Negotiable Instrument Act contemplates only two contingencies as mentioned above. No third contingency or eventuality has been contemplated, that is why the words “ either …….. or” have been used in section 138 of the Act. Therefore, when the expression used under section 138 of the Negotiable Instrument Act is so specific, no other case of the dishonor of the cheque can be held to be penal under the said section under the maxim “expressum facit cessare tacitum” which enunciates the principle that the express mention of one thing implies the exclusion of another. Therefore, when the expression used under section 138 of the Negotiable Instrument Act is so specific, no other case of the dishonor of the cheque can be held to be penal under the said section under the maxim “expressum facit cessare tacitum” which enunciates the principle that the express mention of one thing implies the exclusion of another. Thus, section 138 of the Negotiable Instrument Act never contemplates prosecution in other situation than a situation where cheque gets returned unpaid for the reason of (i) insufficiency of the amount in the account of the drawer to honour the cheque (ii) the amount covered by the cheque exceeds the arrangement to be paid to the account. The same view has been expressed in a case of Vinod Tana and another vs. Zaheer Siddique and others (supra). The next question fell for consideration as to whether a person simply being a Director of a company is liable to be prosecuted by virtue of the provision of Section 141 of the Act or the person who at the time of offence was in charge of, and was responsible to, the company for the conduct of the business of the company would be prosecuted ? This issue has already been decided in a case of S.M.S Pharmaceuticals Limited vs. Neeta Bhalla (supra) by three Judge Bench of the Hon’ble Supreme Court where three questions given hereunder were posed. “1 (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 fulfils the requirements of the said section and it is not necessary to specifically state in the complaint that the person 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. (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 or 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.” The above questions were answered in the following terms:- “19 (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 the question posed in sub-para (b) has to be in the 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 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. (c)The answer to Question (c) has to be in the 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 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, these persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 141. 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 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.” However, the aforesaid issue again came up for consideration in N. Rangachari vs. Bharat Sanchar Nigam Limited (supra) and their Lordships after taking notice of the aforesaid decision rendered in a case of S.M.S Pharmaceuticals Limited vs. Neeta Bhalla (supra) observed hereunder: “But as has already been noticed, the decision of S.M.S Pharmaceuticals Limited binding on us, has postulated that a Director in a company cannot be deemed to be in charge of and responsible to the company for the conduct of the business in the context of section 141 of the Act. Bound as we are of that decision, no further discussion on this aspect appears to be warranted’.” Having said so, their Lordship further observed as follows: “ A person normally having business or commercial dealings with a company, would satisfy himself about its creditworthiness and reliability by looking as 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 disnohoured, 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. 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.” However, their Lordships considered the case in the light of the ratio laid down in S.M.S Pharmaceuticals Limited vs. Neeta Bhalla (supra) and did find that complainant had asserted in the complaint that the appellant and another being Directors of the company were in charge of and were responsible to the company for the conduct of the business of the company and under that situation, their Lordships did not interfere with the order passed by the High Court. Subsequently, the matter again came up before the Hon’ble Supreme Court for consideration in N.K.Wahi vs. Shekhar Singh [ (2007) 9 SCC 481 ] wherein it reiterated the earlier view and held that where there were no clear averments in the complaint or the evidence with regard to the role played by the Directors and as to whether they were in charge and responsible for the conduct of the affairs of the company, it would not be possible to maintain the prosecution against them. Having considered all those judgments, the matter boils down to the situation that the person/persons who is/are in charge and responsible for the conduct of the affairs of the company is liable to be prosecuted. Having examined the case from the aforesaid perspective, I do find that the complainant never seems to have averred in the complaint that the petitioners of both the cases were in charge of and responsible for the conduct of the affairs of the company and as such they are not liable to be prosecuted under section 138 of the Negotiable Instrument Act. For the reasons discussed above, entire proceeding of complaint case bearing C-1 no.777 of 2004, pending in the court of Judicial Magistrate, 1st class, Jamshedpur including the order dated 25.1.2005 is hereby quashed. In the result, both the applications are allowed.