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2015 DIGILAW 266 (KER)

Gujarath Guardian Limited v. George Kurian

2015-03-19

A.HARIPRASAD

body2015
JUDGMENT : A. Hariprasad, J. Appeal filed under Section 378(4) Cr.P.C. Appellant is a company registered under the Companies Act. The company filed a complaint before the learned Magistrate against the respondent/accused alleging an offence punishable under Section 138 of the Negotiable Instruments Act, 1881 (in short 'the NI Act'). Learned Magistrate, after trial, convicted the accused and imposed sentence. The accused took up the matter in appeal before the learned Additional Sessions Judge. He reconsidered the matter and reversed the finding of the learned Magistrate and dismissed the complaint, thereby the accused was acquitted. Aggrieved by that decision, the complainant/appellant has approached this Court. Facts in short, necessary for disposal of the appeal, are as follows: Appellant company is engaged in the business of manufacturing and marketing various varieties of glass. The accused/respondent purchased goods from the complainant company and in order to discharge that liability, he issued Ext. P1 cheque dated 25/09/2002 for an amount of Rs. 2,50,000/-. The complainant presented the cheque for collection through their banker. The cheque was returned with an endorsement that the account of the accused was freezed by the Income Tax Department. Complainant received an intimation regarding the dishonour of the cheque on 28/03/2003. Complainant thereafter caused to issue a lawyer notice on 24/04/2003 to the accused informing about the dishonour of the cheque and calling up him to pay off the liability. Accused after receiving the notice, sent a reply on 02/06/2003 raising untenable contentions. He failed to discharge the liability and hence the complaint was filed. 2. At the time of trial, two witnesses were examined on the side of the complainant and nine documents were marked. There was no defence evidence. 3. Heard the learned counsel for the appellant/complainant and the learned counsel for the respondent/accused. Learned Public Prosecutor was also heard. 4. Learned counsel for the appellant contended that the reasonings stated by the lower appellate court for dismissing the complaint and acquitting the accused are factually and legally incorrect. It is argued by the learned counsel for the appellant that the offence under Section 138 of the NI Act is attracted at the moment the cheque is dishonored. Further, in spite of the demand made, the accused failed to discharge the liability. Hence, the appellate court should have seen that whatever be the reason for non payment, the offence had already been committed. Further, in spite of the demand made, the accused failed to discharge the liability. Hence, the appellate court should have seen that whatever be the reason for non payment, the offence had already been committed. Per contra, the learned counsel for the accused submitted that the cheque was returned not due to any willful act on the part of the accused. It is seen from Ext. P2 memo issued by the payee bank that the account of the accused was freezed by the Income Tax Department. In the reply notice sent by the accused (Ext. P6), he mentioned that his business went into loss and tax arrears accumulated. Therefore, the Income Tax Department had initiated stringent action against him. Accused stated that the Income Tax Department had even freezed his bank accounts and the cheque issued by him to the complainant was bounced for that reason. So, there is no dispute regarding the fact that the cheque could not be encashed due to the instructions given by the Income Tax Department to the bank concerned. Learned counsel for the appellant contended that there is no provision in the Income Tax Act enabling the Income Tax Department to freeze the account as mentioned in Ext. P2 as well as in the testimony of PW 2. PW 2, the Branch Manager, Dhanalakshmi Bank, Thodupuzha Branch deposed that the cheque was returned in accordance with the order passed by the Income Tax Department for freezing the account of the accused. He further deposed that there was no sufficient funds to honour the cheque. Learned counsel for the appellant contended that non-availability of funds in the account of the appellant is one of the reasons for the dishonour of cheque and therefore the offence contemplated under Section 138 of the NI Act had been attracted for that reason alone. In answer to this argument, learned counsel for the accused contended that even if there was money in the account of the accused, the cheque could not have been encashed due to the order passed by the Income Tax Department. It is also submitted by the counsel for the accused that after freezing the account, money could not be put in the account. 5. In regard to the authority of the Income Tax Department, learned counsel for the appellant drew my attention to Section 226(3) of the Income Tax Act. It reads as follows: "226. It is also submitted by the counsel for the accused that after freezing the account, money could not be put in the account. 5. In regard to the authority of the Income Tax Department, learned counsel for the appellant drew my attention to Section 226(3) of the Income Tax Act. It reads as follows: "226. Other modes of recovery.--(1) xxxx xxxx xxxx (2) xxxx xxxx xxxx (3).(i) The Assessing Officer or Tax Recovery Officer may, at any time or from time to time, by notice in writing require any person from whom money is due or may become due to the assessee or any person who holds or may subsequently hold money for or on account of the assessee to pay to the Assessing Officer or Tax Recovery Officer either forthwith upon the money becoming due or being held or at or within the time specified in the notice (not being before the money becomes due or is held) so much of the money as is sufficient to pay the amount due by the assessee in respect of arrears or the whole of the money when it is equal to or less than that amount. (ii) A notice under this sub-section may be issued to any person who holds or may subsequently hold any money for or on account of the assessee jointly with any other person and for the purpose of this sub-section, the shares of the joint holders in such account shall be presumed, until the contrary is proved, to be equal. (iii) A copy of the notice shall be forwarded to the assessee at his last address known to the Assessing Officer or Tax Recovery Officer and in the case of a joint account to all the joint holders at their last addresses known to the Assessing Officer or Tax Recovery Officer. (iv) Save as otherwise provided in this sub-section, every person to whom a notice is issued under this sub-section, shall be bound to comply with such notice, and, in particular, where any such notice is issued to a post office, banking company or an insurer, it shall not be necessary for any pass book, deposit receipt, policy or any other document to be produced for the purpose of any entry, endorsement or the like being made before payment is made, notwithstanding any rule, practice or requirement to the contrary. (v) Any claim respecting any property in relation to which a notice under this sub-section has been issued arising after the date of the notice shall be void as against any demand contained in the notice. (vi) Where a person to whom a notice under this sub-section is sent objects to it by a statement on oath that the sum demanded or any part thereof is not due to the assessee or that he does not hold any money for or on account of the assessee, then, nothing contained in this sub-section shall be deemed to require such person to pay any such sum or part thereof, as the case may be, but if it is discovered that such statement was false in any material particular, such person shall be personally liable to the Assessing Officer or Tax Recovery Officer to the extent of his own liability to the assessee on the date of the notice, or to the extent of the assessee's liability for any sum due under this Act, whichever is less. (vii) The Assessing Officer or Tax Recovery Officer may, at any time or from time to time, amend or revoke any notice issued under this subsection or extend the time for making any payment in pursuance of such notice. (viii) The Assessing Officer or Tax Recovery Officer shall grant a receipt for any amount paid in compliance with a notice issued under this subsection, and the person so paying shall be fully discharged from his liability to the assessee to the extent of the amount so paid. (ix) Any person discharging any liability to the assessee after receipt of a notice under this sub-section shall be personally liable to the Assessing Officer or Tax Recovery Officer to the extent of his own liability to the assessee so discharged or to the extent of the assessee's liability for any sum due under this Act, whichever is less. (ix) Any person discharging any liability to the assessee after receipt of a notice under this sub-section shall be personally liable to the Assessing Officer or Tax Recovery Officer to the extent of his own liability to the assessee so discharged or to the extent of the assessee's liability for any sum due under this Act, whichever is less. (x) If the person to whom a notice under this sub-section is sent fails to make payment in pursuance thereof to the Assessing Officer or Tax Recovery Officer, he shall be deemed to be an assessee in default in respect of the amount specified in the notice and further proceedings may be taken against him for the realisation of the amount as it were an arrear of tax due from him, in the manner provided in Sections 222 to 225 and the notice shall have the same effect as an attachment of a debt by the Tax Recovery Officer in exercise of his powers under Section 222. (4) xxxx xxxx xxxx (5) xxxx xxxx xxxx" 6. Appellant's counsel contented that the Income Tax Department cannot claim priority over the creditors of the accused. Learned counsel for the respondent contended that a debt which is secured or which by reason of the provisions of a Statute becomes the first charge over the property of the defaulter will prevail over the Crown debt, which is an unsecured one. To buttress this contention, a decision in Union of India (UOI) and Others Vs. SICOM Ltd. and Another, (2009) 147 CompCas 531 : (2009) 2 CompLJ 23 : (2009) 161 ECR 1 : (2009) 233 ELT 433 : (2009) 1 JT 87 : (2009) 1 SCALE 10 : (2009) 2 SCC 121 : (2010) 18 STR 673 : (2009) 18 STT 100 , is pressed into service. Learned counsel for the appellant further relied on a decision in Builders Supply Corporation Vs. The Union of India (UOI) Represented by the Commissioner of Income Tax, West Bengal and Others, AIR 1965 SC 1061 : (1965) 56 ITR 91 : (1965) 2 SCR 289 , to contend a proposition that the Income Tax Department cannot claim priority over a creditor. I am of the view that issuance of cheque for the discharge of a debt cannot elevate the payee to the position of a secured creditor. Whatever that be, the bank did not make payment of Ext. I am of the view that issuance of cheque for the discharge of a debt cannot elevate the payee to the position of a secured creditor. Whatever that be, the bank did not make payment of Ext. P1 cheque on account of the fact that the Income Tax Department had issued instructions to treat the account as 'inoperative'. 7. Learned counsel for the accused contended that the complaint is not maintainable for the reason that it was not instituted by a Power of Attorney holder duly constituted by the complainant company. Reference is made to Exts. P7 and P9. Ext. P9 is a resolution passed by the Board of Directors of the company. It is seen that on 28th November, 1997, the following resolutions have been passed by the Board of Directors: "RESOLVED THAT Mr. V.K. Modi, Chariman, Mr. Dave Rose, Managing Director, Mr. A.M. Surana, Finance Director and Mr. Sanjiv Gupta, Director be and are hereby authorised severally to take all or any of the following actions on behalf of the company in connection with Excise and Custom matters, Imports and Exports and matters concerning Central/State Government or local authorities such as Sales Tax, Income Tax, Octroi, Telecommunication, Electricity, Gas, Water, Pollution Clearance, etc.; 1. To finalise sign and execute agreements/bonds/deeds etc. as may be required; 2. To engage and appoint attorneys/lawyers/advocates and accountants or other persons either in India or overseas to represent the company and execute power of attorneys in their favour; 3. To sign and file returns, petitions, applications, appeals, claims and other papers; 4. To generally to do all other lawful acts, deeds and things which are necessary and expedient from time to time; RESOLVED FURTHER THAT the aforesaid Directors of the Company be and are hereby authorised severally to give/withdraw authority in favour of any other officers of the company by virtue of the aforesaid resolutions as they may deem fit from time to time. The aforesaid Directors are, further, authorised severally to approve and finalise such other deeds and documents as may be required time to time and that the common seal of the company be affixed thereto in the presence of any two of the following directors, namely - Mr. V.K. Modi, Chariman, Mr. David L. Rose, Managing Director, Mr. Alok K. Modi, Jt. Managing Director, Mr. A.M. Surana, Finance Director and Mr. V.K. Modi, Chariman, Mr. David L. Rose, Managing Director, Mr. Alok K. Modi, Jt. Managing Director, Mr. A.M. Surana, Finance Director and Mr. Sanjiv Gupta, Director of the company who shall sign the same in token thereof and/or any one of the aforesaid Directors of the company and Mr. R.B. Dadu, Company Secretary who shall sign the same in token thereof and in the event of the affixation of the common seal not being required the same be executed severally by the directors aforementioned." 8. Learned counsel for the accused contended that it is evident from Ext. P9 that the person, who executed Ext. P7 Power of Attorney, namely the Director-Finance of the Company is not competent to execute Ext. P7 going by the authority conferred on him as per Ext. P9. In other words, Ext. P9 authorized the Director-Finance of the company only to deal with matters relating to Excise, Customs, Imports, Exports etc. No power regarding criminal prosecution was conferred on the principal in Ext. P7 as per Ext. P9 resolution. Hence, it is contended by the learned counsel for the accused that the initiation of prosecution itself is bad. 9. Per contra, the learned counsel for the appellant contended that the specific clauses mentioned in Ext. P9 would show that the principal in Ext. P7 was competent to authorise the Power of Attorney holder to initiate prosecution on behalf of the company. I am unable to agree with this contention for the reason that the powers specified in Ext. P9, in respect of the persons named therein, are only to do the matters specifically described in Ext. P9. It is settled law that the powers conferred by a document authorising the holder of the power should be construed strictly. In other words, one is not legally entitled to read into the document such powers which are not intended to be conferred on the agent by the document. Therefore, a combined reading of Exts. P7 and P9 will go to show that the Power of Attorney holder was not competent to file a complaint on the basis of Ext. P7. It is also contended by the learned counsel for the appellant that Director-Finance of the company is a delegate of the company. A delegate cannot further delegate his powers without specific authority. Ext. P9 does not confer power on the principal (Director-Finance) to sub-delegate. P7. It is also contended by the learned counsel for the appellant that Director-Finance of the company is a delegate of the company. A delegate cannot further delegate his powers without specific authority. Ext. P9 does not confer power on the principal (Director-Finance) to sub-delegate. Therefore, on that score also Ext. P7 cannot be legally countenanced. The cumulative effect is that the institution of the complaint is legally improper. 10. Learned counsel for the appellant basing on a decision rendered by three learned Judges of the Supreme Court in A.C. Narayanan Vs. State of Maharashtra and Another, AIR 2014 SC 630 : (2013) 4 BC 212 : (2013) 117 CLA 4 : (2013) 180 CompCas 258 : (2014) CriLJ 576 : (2013) 5 CTC 560 : (2013) 4 JCC(NI) 214 : (2013) 4 PLR 733 : (2013) 4 RCR(Civil) 382 : (2013) 4 RCR(Criminal) 306 : (2013) 11 SCALE 360 , contended that the evidence tendered by PW 1 as agent of the company does not stand a legal scrutiny because he has no personal knowledge about the matters deposed by him at the time of trial. It is also contended by the learned counsel for the accused that the averments in the complaint are highly insufficient to show that PW 1 was aware about the transaction sought to be proved. Following principle in the above decision was pressed into service. "The power of attorney holder may be allowed to file, appear and depose for the purpose of issue of process for the offence punishable under Section 138 of the NI Act. An exception to the above is when the power of attorney holder of the complainant does not have a personal knowledge about the transactions then he cannot be examined. However, where the attorney holder of the complainant is in charge of the business of the complainant-payee and the attorney holder alone is personally aware of the transactions, there is no reason why the attorney holder cannot depose as a witness. Nevertheless, an explicit assertion as to the knowledge of the power of attorney holder about the transaction in question must be specified in the complaint. The attorney holder about the transaction in question must be specified in the complaint. Nevertheless, an explicit assertion as to the knowledge of the power of attorney holder about the transaction in question must be specified in the complaint. The attorney holder about the transaction in question must be specified in the complaint. The attorney holder cannot file a complaint in his own name as if he was the complainant, but he can initiate criminal proceedings on behalf of his principal, (i) Filing of complaint petition under Section 138 of NI Act through power of attorney is perfectly legal and competent, (ii) The power of attorney holder can depose and verify on oath before the Court in order to prove the contents of the complaint. However, the power of attorney holder must have witnessed the transaction as an agent of the payee/holder in due course or possess due knowledge regarding the said transactions, (iii) It is required by the complainant to make specific assertion as to the knowledge of the power of attorney holder in the said transaction explicitly in the complaint and the power of attorney holder who has no knowledge regarding the transactions cannot be examined as a witness in the case." On applying the ratio in the above decision to the facts and circumstances in this case, especially after going through the averments in the complaint and the testimony of PW 1, I am of the view that this is a case where the witness examined on the side of the complainant has not proved the case in the complaint. Therefore, on that score also, the appeal is liable to be dismissed. In the result, the appeal is dismissed as it is devoid of any merit. All pending interlocutory applications will stand dismissed.