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Madhya Pradesh High Court · body

2020 DIGILAW 555 (MP)

Shashikant Patel v. Swadhyay Flex Pack Pvt. Ltd.

2020-05-12

S.K.AWASTHI

body2020
ORDER 1. This petition under Section 482 of the Cr.P.C. has been preferred by the applicants for quashment of Criminal Complaint No. 3732/2018 initiated against the applicants under Section 138 of the Negotiable Instruments Act, 1881 (herein after referred as 'NI Act'). 2. Facts of the case in short are that respondent/complainant filed a criminal complaint under Section 138 of the NI Act against the applicants claiming that the cheque No. 000413 dt. 16/02/2018 of Rajkot Nagrik Sahkari Bank Ltd., for Rs.4,24,800/- was issued by the company M/s. Plethico Pharmaceuticals Ltd. In their favour, which was presented in the bank on 17/02/2018 and the said cheque was return unpaid on 18/02/218 with the note 'Income Tax Notice 1 . Thereafter, the respondent gave a statutory notice to the applicants and even after the service of notice, neither the applicants has filed the reply of the said notice nor they have paid the cheque amount. Therefore, the respondent/complaint made a complaint against the applicants before the Court of Additional Chief Judicial Magistrate, Indore. The learned Magistrate took the cognizance against the applicants for the commission of offence punishable under Sections 138 of the NI Act, vide order dated 27/07/2018, which was got registered as Criminal Complaint No. 3732/2018 Feeling aggrieved with the aforesaid order of taking cognizance, the applicants have preferred the present petition before this Court. 3. Learned counsel for the applicants submitted that the company has gone in liquidation and before the date of issuance of notice under Section 138 of the NI Act, the Official Liquidator was appointed by the High Court, vide order dated 14/05/2018 and he had taken physical possession of the Company M/s Plethico Pharmaceuticals Ltd., thus, there was no chance that the applicants would have received the notice dated 23/05/2018. It is also submitted that the cheque issued by the company was returned by the bank as the bank account of the said company with Rajkot Nagrik Sahkari Bank Ltd., was put on hold by Income Tax Department, therefore, the applicants were not at fault for return of the cheque amount. It is further submitted that the applicants have no administrative or financial control over the day to day affairs of the company as winding up proceedings have been initiated, therefore, the applicants even though willing to pay the cheque amount, could not pay the same to the respondents. It is further submitted that the applicants have no administrative or financial control over the day to day affairs of the company as winding up proceedings have been initiated, therefore, the applicants even though willing to pay the cheque amount, could not pay the same to the respondents. As per Section 279 of the Companies Act, 2013 no proceedings could be proceeded against the company without leave of the company court, which ordered winding up and therefore, the proceedings initiated under Section 138 of the NI Act are void ab-initio . 4. It is also submitted by the learned counsel for the applicants that on the date of presentation of cheque in question, the said company was in liquidation and cannot be stated to have been committed any offence. It is further submitted that the applicant No.1 was appointed as Managing Director of the said company on 04/12/1991 and he continued to be Managing Director of the company till 17/09/2013, applicant No.2 was appointed as Director on 05/02/2016 and he continued to be Director till 21/10/2016; whereas, the applicant NO.3 was appointed as Director on 20/08/1994 and he continued to be director of the said company till 17/09/2013 i.e. till the date of presentation of the winding up petition. It is also submitted that as the directors were not in-charge of day to day affairs and conduct of the business of the company on that date, therefore, the complaint cannot be proceeded against the directors of the company, therefore, the applicants are not committed any offence under Section 138 of the NI Act as alleged against them. Hence, learned counsel for the applicants prays for quashment of Criminal Complaint No. 3732/2018 initiated against the applicants under Section 138 of the NI Act. 5. On the other hand, learned counsel for the respondent opposed the application by contending that the cheque in question worth of Rs.4,24,800/- has been issued by the applicants company for discharge of legal debt and the same was dishonoured, therefore, the applicants are liable to be prosecuted for commission of offence punishable under Section 138 of the NI Act, therefore, the trial Court has not committed any error in taking the cognizance under Section 138 of the NI Act. Hence, he prayed for rejection of the petition. 6. Having heard learned counsel for the parties and perused the record. 7. Hence, he prayed for rejection of the petition. 6. Having heard learned counsel for the parties and perused the record. 7. It is not disputed fact that the cheque No. 000413 dt. 16/02/2018 amounting to Rs.4,24,800/-of Rajkot Nagrik Sahkari Bank Ltd. was issued by the company M/s. Plethico Pharmaceuticals Ltd in favour of the respondent. The said cheque was presented for encashment on 16/02/2018 and the same was dishonoured on 18/02/2018 with the note "Income Tax Noticee". It is alleged that the respondent/complainant orally informed the Company regarding dishonour of the said cheque, then they asked the complainant for representation of the cheque in the second week of May 2018 so that it can be realized. Thereafter, on 11/05/2018, the complainant again presented the aforesaid cheque in his bank account for realization and the same got dishonoured with the remark other reasons or "Income Tax Noticee". Then, the respondent/complainant issued a statutory notice to the applicants on 23/05/2018 and even after service of the notice, the applicants have not paid the cheque amount. However, the creditors of the Company viz. City Bank filed a writ petition No. 35/2013 before the M.P. High Court, Bench at Indore seeking winding up of the said company under the Provisions of Companies Act, 1956 on 17/09/2013. After hearing the parties, the said petition was admitted on 01/10/2014 and the Court has appointed Official Liquidator as Provisional Liquidator to look after the day to day affairs of the Company. Thereafter, this Court, vide order dated 14/05/2018 permitted the Official Liquidator to took the actual physical possession of assets of the Company M/s Plethico Pharmaceuticals Ltd. in liquidation. After that, on 23/05/2018, the respondent /complainant gave a notice to the applicants for payment of the cheque amount and when the applicants fails to pay the cheque amount, then the respondent/complainant filed private complaint against the applicants under Section 138 of the Negotiable Instruments Act,1881 on 05/07/2018, which was got registered vide order dated 27/07/2018. 8. Now the question arises that where cheque presented is dishonoured and complaint is filed under Section 138 of the Negotiable Instruments Act against the company and its Directors after the company has already been ordered to be wound up. Whether such a complaint would be maintainable. 9. 8. Now the question arises that where cheque presented is dishonoured and complaint is filed under Section 138 of the Negotiable Instruments Act against the company and its Directors after the company has already been ordered to be wound up. Whether such a complaint would be maintainable. 9. From the record, it is borne out that after the winding up orders and taking over the affairs of the company by the Official Liquidator since erstwhile the directors seized to be the directors as on the date of dishonour of the cheque because they were not in-charge of day to day affairs of the company. Offence is committed under Section 138 of the Act only on the dishonour of cheque amount and issuance of notice for demand of the cheque amount. As on that day, no such notice could be issued to the Company, which was in liquidation and the creditors is not to be paid as per the statute of the Companies Act, Therefore, the liability on them also cannot be fastened under Section 141 of the Negotiable Instruments Act, 1881. 10. Although, in the case of Counter Point Advt. P. Ltd, vs. Harita Finance Limited, 2006(2) CTC 501 , the Madras High Court has held that Negotiable Instruments Act is a Special Act, which overrides the provisions of the Companies Act. The legal liability contemplated under Section 446 of the Companies Act does not synchronise with the criminal proceedings under the Negotiable Instruments Act and the personal criminal liability and not the civil liability of the company inforced under Section 138 read with Section 142 of the Negotiable Instruments Act. The company and its directors cannot shirk their criminal liability on the ground that the company was already wound up and the Official Liquidator had taken charge of the affairs of the company. However, in the aforesaid judgment, it is not clear that when the cheque was presented by the complainant for encashment and when it was got dishonoured, therefore, it cannot be said that this judgment is applicable in the facts of the present case. 11. However, in the aforesaid judgment, it is not clear that when the cheque was presented by the complainant for encashment and when it was got dishonoured, therefore, it cannot be said that this judgment is applicable in the facts of the present case. 11. The Division Bench of the Kerala High Court in Jose Antony Kakkad v. Official Liquidator 2000 Company Cases (Vol.100) 811 affirming the decision of the single Judge in Jose Antony Kokkad v. Official Liquidator (1999) 98 Company Cases 275 has categorically held as follows:- "The expression "other legal proceedings" in Section 446 of the Companies Act, 1956, does not take in all proceedings and proceedings under a special Act have an overriding effect over the general provisions under the Companies Act. The object of winding up of a company by the Court is to facilitate the protection and realisation of its assets with a view to ensure an equitable distribution thereof among those entitled. Once the Court has taken the assets of a company under its control or has passed an order for its being wound up, in the ordinary course, it will not be proper to allow proceedings to be started or continued against the company. Section 446 of the Companies Act is intended to avoid multiplicity of proceedings and to safeguard the assets of a company against wasteful or expensive litigation in regard to matters capable of being determined expeditiously and effectively by the winding up Court itself. Though the words "legal proceedings" in Section 446 of the Companies Act is wide enough to be taken in criminal proceedings also, such criminal proceedings must be in relation to the assets of the company. Criminal proceedings which are not in respect of the assets of the company but which end in the conviction or acquittal of the accused, cannot be stayed under Section 446 of the Companies Act. Proceedings under Section 138 of the Negotiable Instruments Act, 1881, can end only in the conviction or acquittal of the accused in the case and no recovery of any amount covered by the dishonoured cheques can be made in the criminal proceedings. As the proceedings under Section 138 of the Negotiable Instruments Act are not in respect of the assets of the company, the proceedings pending in the criminal Courts cannot be stayed under Section 446 of the Companies Act. As the proceedings under Section 138 of the Negotiable Instruments Act are not in respect of the assets of the company, the proceedings pending in the criminal Courts cannot be stayed under Section 446 of the Companies Act. Moreover, Section 138 to 142 in Chapter XVII were introduced in the Negotiable Instruments Act by Central Act 66 of 1988 with effect from April 1, 1989. The above provisions were incorporated in the Negotiable Instruments Act with the intention of safeguarding and sustaining the credibility of commercial transactions and those provisions were introduced while Section 446 of the Companies Act was in force. When specific provision has been made with respect to the commission of an offence under Section 138 of the 1881 Act by a company or its directors or its employees, it has to be presumed that Parliament introduced the above provisions in the Negotiable Instruments Act fully knowing that Section 446 was there in the Companies Act." 12. Aforesaid view is also followed by the Andhra Pradesh High Court in the case of Dintakurthi Krishna Moorthy Vs. State of Andhra Pradesh, passed in Criminal Petition No. 10630/2013 vide order dated 06/06/2013 . 13. It is worth to note that the question involved in the present case was in different fact situation, namely, filing of complaint under Section 138 of the N.I. Act during the pendency of winding up petition where no orders for winding up of the company had been passed, as on the date when the complaint was filed. However, in the present case, the complaint has been filed after the company has already been ordered to be wound up. Thus, it is clear that the question involved in the aforesaid case was totally different from the facts of the present case. 14. Insofar as interpretation of the expression "fails to make payment" is concerned, the drawer in the instant case would be a company, which has gone into liquidation and case of a company is on different footing and is governed by the statute, namely, the Companies Act. 15. The observation made in paras referred to above are with a view to answer the aforesaid question, clearly indicates that such a complaint would not be maintainable when the cheque is presented after the company has already been ordered to be wound up. 16. 15. The observation made in paras referred to above are with a view to answer the aforesaid question, clearly indicates that such a complaint would not be maintainable when the cheque is presented after the company has already been ordered to be wound up. 16. The Hon'ble apex Court in the case of Anil Hada v. Indian Acrylic Ltd. 2000 Crl.L.J. 373 , in paragraph No. 12 has held as under: "12. xxxxxxxxx The effect of reading Section 141 is that when the company is the drawer of the cheque such company is the principal offender under Section 138 of the Act and the remaining persons are made offenders by virtue of the legal fiction created by the Legislature as per the section. Hence the actual offence should have been committed by the company, and then alone the other two categories of persons can also become liable for the offence. " 17. Thus, what is emphasized is that actual offence has to be committed by the company and then alone the Directors can become liable for the offence. When the company goes into liquidation and the cheque is presented thereafter, it cannot be said that the company has committed the offence as it is because of legal bar that it is precluded from making the payment. Once dishonour of the cheque by the Bank and failure to make payment of amount by the company is beyond its control, the Directors (who are in fact ex-Directors) can also not be held liable. Sustenance for this proposition can be drawn from another judgment of the Supreme Court in the case of Kusum Ingots and Alloys Ltd. etc. vs. Pennar Peterson Securities Ltd. and Ors. [2000] 100 Company Cases 755(SC) . That was a case where reference in respect of the company was pending before the Board of Industrial and Financial Reconstruction (for short 'BIFR') under the Sick Industrial Companies of Special Provisions Act. 1985 (SICA). The Court held that mere registering the reference would not be sufficient to bar the proceedings under Section 138 of the N.I. Act even by virtue of Section 22 of SICA as Section 22 which provided that no proceedings would be instituted against the company related to only to civil proceedings and does not include criminal proceedings. 1985 (SICA). The Court held that mere registering the reference would not be sufficient to bar the proceedings under Section 138 of the N.I. Act even by virtue of Section 22 of SICA as Section 22 which provided that no proceedings would be instituted against the company related to only to civil proceedings and does not include criminal proceedings. However, the Court further held that position would be different if order is passed by the BIFR under Section 22A of SICA restraining the company or its Directors from disposing of the assets of the company. Following observations would be relevant for our purposes: "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 Sub-section (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." 18. Thus, such a complaint would not be maintainable, when the cheque is presented after the company has already been ordered to be wound up. 19. In view of the aforesaid discussion, the complaint filed under Section 138 of the Negotiable Instruments Act, 1881 is not maintainable because the complainant /respondent sent a notice to the applicants on 23/05/2018 i.e. after passing of the wind up order by this Court on 14/05/2018 in writ petition No. 35/2013 meaning thereby on the date of issuance of notice to the applicants the company was in liquidation and cannot be stated to have committed any offence, therefore, summoning order is bad in law. Accordingly, the present petition is allowed and Criminal complaint No. 3732/2018 registered against the applicants for commission of offence punishable under Section 138 of the Negotiable Instruments Act, 1881 is hereby quashed. 20. Let a copy of this order be sent to the concerned trial Court for information and necessary compliance.