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2019 DIGILAW 746 (GUJ)

Servalakshmi Paper Limited v. State Of Gujarat

2019-07-18

A.S.SUPEHIA

body2019
JUDGMENT : Draft amendment is allowed. Amendment to be carried out forthwith in terms of draft. 1. Present petitions have been filed seeking quashing of the Criminal Complaint No.11055 of 2016 filed by the original complainant-respondent no.2 pending before the Judicial Magistrate, First Class, Vadodara as well as the process issued thereon and other consequential proceedings. 2. Since common issue arises in all these petitions, the same are heard analogously and are decided by a common judgment. 3. The facts are incorporated from Special Criminal Application No.4344 of 2017. 3.1. The respondent no.2 has filed the impugned criminal complaint alleging, inter alia, that the petitioner-company is a customer of respondent no.2company and a running account was maintained with the petitioner-company of the respondent-company as there were on going transactions between them. It is alleged that orders were placed for purchase of goods in bulk quantity of high value in price and such orders were always met by the respondent no.2. It is further alleged that the goods were delivered from the period between June 2014 to October 2014 and the petitioner-company in March 2015 tendered two cheques amounting to Rs.5,00,000/- each to the complainant. The said cheques were dated 18.07.2015 and 01.09.2015 respectively. It is further alleged that the cheques were tendered by the petitioners nos.2 and 3 for the petitioner-company to the respondent-company. The cheque dated 18.07.2015 was deposited on 28.07.2015 and it returned on 30.07.2015 with a remark to contact drawer/drawee bank and present it again. Thereafter, the said cheque was re-deposited and it returned dishonoured with Return Memo dated 18.08.2015 with the remark “funds insufficient.” 3.2. It is further alleged in the aforesaid complaint that thereafter the officer of the petitioner-company asked the respondent-company to deposit again the cheque dated 18.07.2015 and also to deposit the cheque dated 01.09.2015. It is also alleged that as on 31.08.2015 amount of Rs.1,23,45,010/- is due and payable by the petitioners. 3.3. It is alleged that thereafter both the cheques were re-deposited on 07.09.2015 by respondent no.2 and each cheque returned with Returned Memo dated 09.09.2015 with remark “exceeds arrangements”. It is alleged that thereafter, the respondent-company issued statutory notice under Section 138 of the Negotiable Instruments Act, 1881 (for short 'the NI Act') dated 22.09.2015. Thereafter, the reply to the said notice was given on behalf of the petitioner-company on 29.09.2015. It is alleged that thereafter, the respondent-company issued statutory notice under Section 138 of the Negotiable Instruments Act, 1881 (for short 'the NI Act') dated 22.09.2015. Thereafter, the reply to the said notice was given on behalf of the petitioner-company on 29.09.2015. It is alleged that since the amount of the cheque is not paid, the aforesaid complaint is filed wherein the process is issued. 4. Learned advocate Mr.P.P.Majmudar appearing for the petitioners has submitted that on behalf of the petitioner-company the reply dated 29.09.2015 is given to the aforesaid notice wherein it is, inter alia, contended that the petitioner-company is a sick industrial company and its case is duly registered with Board for Industrial and Financial Reconstruction (BIFR) as Case No.7 of 2015. He has submitted that vide letter dated 13.08.2015, the Registrar of BIFR has restrained the petitioner-company from disposing of or alienating in any manner any fixed assets of the petitioner-company without the consent of the BIFR. He has also invited the attention of this Court to Section 22(1) as well as Section 22A of the Sick Industrial Companies (Special Provisions) Act, 1985 and submitted that in view of the restrain order passed on 13.08.2015, the impugned Criminal Case No.11055 of 2016 and the process is required to be quashed and set aside. 4.1. Learned advocate Mr.Majmudar for the petitioners has further submitted that there was no existing legal debt or liability as imposed where the cheques were issued by the petitioners. He has also invited the attention of this Court to the reply filed by the petitioners in response to the notice. He has further submitted that the goods were sold on credit and postdated cheques were given to the respondent no.2, and hence, no liability arose. Since it was beyond the control of the petitioners, the cheques were dis-honoured. 4.2. In support of his submissions, learned advocate Mr.Majmudar for the petitioners has placed reliance on the judgment of the High Court of Delhi dated 21.01.2010 passed in Crl. M.C. Nos.145 and 146 of 2009, on the judgment of the Rajasthan High Court in the case of Jaipur Syntex Ltd. & Ors. vs. State of Rajasthan & Anr. and on the judgment of the Apex Court in the case of M/s. Indus Airways Pvt. Ltd & Ors. M.C. Nos.145 and 146 of 2009, on the judgment of the Rajasthan High Court in the case of Jaipur Syntex Ltd. & Ors. vs. State of Rajasthan & Anr. and on the judgment of the Apex Court in the case of M/s. Indus Airways Pvt. Ltd & Ors. vs. M/s. Magnum Aviation Pvt. Ltd. & Anr., passed in Criminal Appeal No.830 of 2014 dated 07.04.2014 and has submitted that the postdated cheques, which were issued by the petitioners cannot be considered in discharge of legally enforceable debt or other liability, and the dishonour of such cheques would not amount to an offence under Section 138 of the NI Act. Thus, he has submitted that the impugned criminal case and other consequential proceedings are required to be quashed and set aside. 5. At the outset, learned advocate Mr.Amit Nair appearing for the respondent no.2 has submitted that he would not be pressing the criminal case so far as the present accused no.5 i.e. the present petitioner no.5-Srinivasan Srinivasa Ragavan is concerned. He has submitted that the petitions cannot be entertained in view of the law enunciated by the Apex Court in the case of Kusum Ingots & Alloys Ltd. V/s. Pennar Peterson Securities Ltd. & Ors., (2002) 2 SCC 745. He has submitted that at this stage there are various disputed questions of fact and hence, as per the observations made by the Apex Court, it is always open for the petitioners to take a defence of the bar under Section 22 of the SICA of the letter/order dated 13.08.2015. It is submitted by him that the Magistrate can examine all the issues, which are pending before this Court and since there are disputed questions of fact, the petitions are required to be dismissed. In support of his submissions, he has placed reliance on the judgment of this Court in the case of Ruturaj Ayurvedic Gruh Udhyog V/s. Navnitlal & Company, 2017 (2) GLH 312 and on the judgment of the Apex Court in the case of BSI Limited vs. Gift Holdings Private Limited, 2000 (0) GLHEL-SC 4197 and has submitted that the proceedings under Section 22(1) of the SICA cannot bar the criminal prosecution of a criminal complaint duly instituted under Section 142 of the NI Act. 6. I have heard learned advocates appearing for the respective parties. 6. I have heard learned advocates appearing for the respective parties. I have also perused the documents as pointed out by the learned advocates. 7. Since the learned advocate for the respondent no.2 does not press the criminal case apropos the present accused no.5 i.e. petitioner no.5- Srinivasan Srinivasa Ragavan, the present writ application is confined to the rest of the accused. 8. The only question which needs deliberation is whether the bar of Section 22 of the SICA and the letter/order dated 13.08.2015 passed under the same will apply to the criminal case registered under Section 138 of the NI Act. 9. The issue is no more res integra in view of the decision of the Apex Court in the case of Kusum Ingots & Alloys Ltd. (supra). The Apex Court has observed thus: “16.A contention was raised on behalf of the appellants that if the criminal case is proceeded with and the appellants are convicted and sentenced to fine then it will be necessary to realise the amount of fine from the assets of the company which would be impermissible in view of the provisions of section 22 of the SICA. We have no hesitation in rejecting this contention. In fact the same contention was considered by us at length in M/s. BSI Ltd. v. Gift Holdings, (Criminal Appeal No. 847 of 1999) and it was repelled. In our considered view the contention is premature and farfetched as the occasion to realise fine from the accused company or its directors will arise only in case they are convicted and sentence of fine is imposed against them. That is not a ground to hold that the criminal proceeding should be foreclosed at the threshold. 17. Another contention which was raised on behalf of the appellant in this connection is that if the Directors of the company on being convicted are arrested and kept in jail the efforts of the BIFR for reconstruction/revival of the company will not be possible and in that event the very purpose of inquiry by the BIFR will be rendered futile. The contention is too remote and the apprehension farfetched. We reject the said contention. 18. The contention is too remote and the apprehension farfetched. We reject the said contention. 18. In our considered view section 22 SICA does not create any legal impediment for instituting and proceeding with a criminal case on the allegations of an offence under section 138 of the NI Act against a company or its Directors. The section as we read it only creates an embargo against disposal of assets of the company for recovery of its debts. The purpose of such an embargo is to preserve the assets of the company from being attached or sold for realisation of dues of the creditors. The section does not bar payment of money by the company or its directors to other persons for satisfaction of their legally enforceable dues. 19. The question that remains to be considered is whether section 22 A of SICA affects a criminal case for an offence under section 138 NI Act. In the said section provision is made enabling the Board to make an order in writing to direct the sick industrial company not to dispose of, except with the consent of the Board, any of its assets ( a) during the period of preparation or consideration of the scheme under section 18; and (b) during the period beginning with the recording of opinion by the Board for winding up of the company under subsection (1) of section 20 and up to commencement of the proceedings relating to the winding up before the concerned High Court. This exercise of the power by the Board is conditioned by the prescription that the Board is of the opinion that such a direction is necessary in the interest of the sick industrial company or its creditors or shareholders or in the public interest. In a case in which the BIFR has submitted its report declaring a company as 'sick' and has also issued a direction under section 22-A restraining the company or its directors not to dispose of any of its assets except with consent of the Board then the contention raised on behalf of the appellants that a criminal case for the alleged offence under section 138 NI Act cannot be instituted during the period in which the restraint order passed by the BIFR remains operative cannot be rejected outright. Whether the contention can be accepted or not will depend on the facts and circumstances of the case. Whether the contention can be accepted or not will depend on the facts and circumstances of the case. Take for instance, before the date on which the cheque was drawn or before expiry of the statutory period of 15 days after notice, a restraint order of the BIFR under Section 22-A was passed against the company then it cannot be said that the offence under section 138 NI Act was completed. In such a case it may reasonably be said that the dishonouring of the cheque by the bank and failure to make payment of the amount by the company and/or its Directors is for reasons beyond the control of the accused. It may also be contended that the amount claimed by the complainant is not recoverable from the assets of the company in view of the ban order passed by the BIFR. In such circumstances it would be unjust and unfair and against the intent and purpose of the statute to hold that the Directors should be compelled to face trial in a criminal case. 20. Except in the circumstances noted above we do not find any good reason for accepting the contentions raised by the learned counsel for the appellants in favour of the prayer for quashing the criminal proceedings or for keeping the proceedings in abeyance. It will be open to the appellants to place relevant materials in this regard before the learned Magistrate before whom the cases are pending and the learned Magistrate will examine the matter keeping in mind the discussions made in this judgment. We make it clear that we have not considered the question whether in the facts and circumstances of a particular case Section 138 NI Act is attracted or not, for that is a question to be considered by the Court at the appropriate stage of the case in the light evidence on record. The appeals are disposed of on the terms aforesaid.” The Supreme Court has refused quashing of the criminal proceedings and stated that all the relevant materials can be examined by the Magistrate before whom the cases are pending and the Magistrate was directed to examine the matter keeping in mind the discussions made in the judgment. 10. The appeals are disposed of on the terms aforesaid.” The Supreme Court has refused quashing of the criminal proceedings and stated that all the relevant materials can be examined by the Magistrate before whom the cases are pending and the Magistrate was directed to examine the matter keeping in mind the discussions made in the judgment. 10. At this stage, it would be apposite to refer to the judgment of the Supreme Court in the case of Sampelly Satyanarayana Rao vs. Indian Renewable Energy Development Agency Limited, (2016) 10 SCC 458 wherein the Apex Court while examining the issue of postdated cheques whether it can be described as 'security' towards repayment of installment of already disbursed loan amount has held thus: “16. 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. 17. In Rangappa V/s. Sri Mohan, 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 postdated cheque is a well-recognised mode of payment.” Thus, the Apex Court has held that in a quashing petition, the Court ordinarily proceeds on the basis of the averments in the complaint and the defence of the accused cannot be considered at this stage and the Court cannot adjudicate upon a disputed question of fact. 11. In the case of HMT Watches Limited V/s. M.A.Aida & Another, (2015) 11 SCC 776 , the Apex Court has held that the High Court should not express his view on the disputed questions of fact in a petition under Section 482 of the Code of Criminal Procedure, 1973 to come to the conclusion that the offence is not made out. The Apex Court in the case of HMT Watches Limited (supra) has observed thus: “10. The Apex Court in the case of HMT Watches Limited (supra) has observed thus: “10. Having heard learned counsel for the parties, we are of the view that the accused (respondent no.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 N.I. Act stood uncomplied, even though the respondent no.1 (accused) had admitted that he replied the notice issued by the complainant. Also, the fact, as to whether the signatory of demand notice was authorized 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. 14. Lastly, it is contended on behalf of the respondent no.1 that it was not a case of insufficiency of fund, as such, ingredients of offence punishable under Section 138 of the N.I. Act are not made out. We are not inclined to accept the contention of learned counsel for respondent no.1. In this connection, it is sufficient to mention that in the case of Pulsive Technologies P. Ltd. vs. State of Gujarat, this Court has already held that instruction of "stop payment" issued to the banker could be sufficient to make the accused liable for an offence punishable under Section 138 of the N.I. Act. Earlier also in Modi Cements Ltd. vs. Kuchil Kumar Nandi, this Court has clarified that if a cheque is dis-honoured because of stop payment instruction even then offence punishable under Section 138 of N.I. Act gets attracted. 15. Earlier also in Modi Cements Ltd. vs. Kuchil Kumar Nandi, this Court has clarified that if a cheque is dis-honoured because of stop payment instruction even then offence punishable under Section 138 of N.I. Act gets attracted. 15. For the reasons as discussed above, we find that the High Court has committed grave error of law in quashing the criminal complaints filed by the appellant in respect of offence punishable under Section 138 of the N.I. Act, in exercise of powers under Section 482 of the Code of Criminal Procedure by accepting factual defences of the accused which were disputed ones. Such defences, if taken before trial court, after recording of the evidence, can be better appreciated.” 12. In the present case, there are various notices issued to the petitioners by the respondents on 22.09.2015 for the cheques, which were returned on 09.09.2015, on 27.11.2015 for the cheques, which were returned on 19.11.2015, on 28.10.2015 for the cheques, which were returned on 07.10.2015, on 14.03.2016 for the cheques, which were returned on 25.02.2016 and on 10.05.2016 for the cheques, which were returned on 16.04.2016. The petitioners have placed reliance on the order dated 13.08.2015 passed under Section 22 of the SICA. The Apex Court in the case of Kusum Ignots (supra) has held that ; “section 22 of SICA does not create any legal impediment for instituting and proceeding with a criminal case on the allegations of an offence under section 138 of the NI Act against a company or its Directors. The section as we read it only creates an embargo against disposal of assets of the company for recovery of its debts.”. Thus, the provisions of Section 138 of the NI Act are penal in nature and hence, the proceedings under Section 22 of the SICA cannot be stretched to such proceedings. The question of law and fact that whether the order dated 13.08.2015 will rescue the petitioner from the rigours of section 138 of NI Act can only be examined during the trial proceedings. 13. Thus, on the backdrop of the aforesaid analysis and the observations, the present writ petitions fail, except accused no.5. Notice is discharged. FURTHER ORDER After the judgment was dictated, learned advocate Mr.P.P. Majmudar, for the petitioners has requested for extension of the stay of the proceedings. 13. Thus, on the backdrop of the aforesaid analysis and the observations, the present writ petitions fail, except accused no.5. Notice is discharged. FURTHER ORDER After the judgment was dictated, learned advocate Mr.P.P. Majmudar, for the petitioners has requested for extension of the stay of the proceedings. The same is vehemently objected to by the learned advocate Mr.Nair by submitting that since the Court is not inclined to entertain the writ applications, the interim relief cannot be extended. In light of the foregoing observations, the request is not acceded to. The prayer is, accordingly, hereby declined.