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R.B.F Nidhi Ltd. And Another v. State Of A.P And Others
Administrative Summary of Judgment delivered by Ch. S.R.K. Prasad, J.
Factual and Procedural Background
The petitioners (accused Nos. 1 and 2 in C.C. No. 1012 of 2000 before the X Metropolitan Magistrate, Secunderabad) sought quashing of criminal proceedings under the court's inherent powers. Respondents Nos. 2, 3 and 4 (de facto complainants) had, on July 8, 1999, deposited amounts with the first petitioner-company as short-term deposits. After maturity, on February 7, 2000, a cheque (No. 010696) for Rs. 82,961 drawn on ICICI S.D. Road Branch and signed by two whole-time directors was issued in favour of the second respondent, deposited, and dishonoured. A legal notice was issued on July 31, 2000. The first petitioner later sent a demand draft for Rs. 4,150 (dated August 8, 2000) and the petitioners replied to the legal notice on August 21, 2000, explaining that the company had been mismanaged earlier and that the Company Law Board had reconstituted the board, with the second petitioner assuming charge on September 21, 2000. Proceedings were initiated and the accused sought quashing of the complaint.
Legal Issues Presented
- Whether the criminal proceedings in C.C. No. 1012 of 2000 should be quashed by invocation of the court's inherent powers on the grounds identified in the petition.
- Whether a General Power of Attorney (GPA) holder may present a complaint under section 142 of the Negotiable Instruments Act (i.e., whether a complaint not signed by the payee is maintainable when presented by a GPA holder).
- Whether the magistrate complied with the procedural requirements of section 200 of the Criminal Procedure Code (Chapter XV) — specifically, whether the magistrate examined the complainant(s) and recorded sworn statements as required.
- Whether the second petitioner (appointed after issuance of the cheque and after dishonour) can be held vicariously or personally liable under section 141 of the Negotiable Instruments Act for offences committed prior to his becoming a director.
Arguments of the Parties
Petitioners' (Accused Nos. 1 & 2) Arguments
- The second petitioner cannot be held responsible for issuance of the cheques and their dishonour because he was appointed and assumed charge only on September 21, 2000 — after issuance and dishonour.
- The complaint presented by a GPA holder is invalid because the GPA holder has no right to present a complaint on behalf of the payee; accordingly, the petition is bad and the proceedings should be quashed.
Respondents' (De Facto Complainants) Arguments
- Reliance was placed on S.P. Sampathy v. Smt. Manju Gupta (2002) and it was submitted that the Supreme Court had granted a stay in respect of the principle laid down by the Division Bench in that case, such that the complaint is maintainable.
- The company was issued a notice to furnish information about directors but failed to do so; therefore, the first respondent (who is in charge of company affairs) is responsible for the alleged offences.
Public Prosecutor's Submission
- The case is not one in which the court's inherent powers should be exercised to quash the proceedings; rather, the matter should proceed to trial.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| S.P. Sampathy v. Smt. Manju Gupta, [2002] 111 Comp Cas 492; [2002] 1 ALD Crl. 619 (AP) | Holds that if the complaint is not signed by the payee, the complaint is not maintainable by a G.P.A. holder or his agent. | The court observed that the S.P. Sampathy decision states a GPA holder cannot maintain a complaint not signed by the payee; however, the court also noted that the operation of that decision was stayed by the Supreme Court. The case was used to analyse the role of GPA holders under section 142 of the Negotiable Instruments Act. |
| Smt. Payyati Savitri Devi v. Malireddy Damayanthamma, [1997] 4 ALD 815; [1998] 93 Comp Cas 958 (AP) | Earlier authority on maintainability of complaints (implicitly allowing GPA-holder complaints as per prior practice). | The court recorded that S.P. Sampathy overruled this earlier decision; the fact of overruling was used to explain the changed legal position regarding GPA holders presenting complaints. |
| Y. Venkateswara Rao v. Mahee Handlooms (P.) Ltd., [1992] 3 ALT 73; [1994] 79 Comp Cas 206 (AP) | Confirms that a magistrate must proceed in accordance with Chapter XV of the Cr.P.C., meaning sections 200–203 must be followed when a complaint is presented. | The court applied this principle to hold that the magistrate was obliged to examine complainants and record sworn statements as required by section 200 of the Cr.P.C., and that failure to do so rendered the proceedings irregular and liable to be quashed. |
Court's Reasoning and Analysis
The court undertook a statutory and procedural analysis focused primarily on the Negotiable Instruments Act (particularly section 142 and section 141) and the Cr.P.C. (section 200 and related provisions in Chapter XV). Key points in the court's reasoning are as follows:
- Section 142 of the Negotiable Instruments Act requires that cognizance of offences under section 138 be taken only on a complaint in writing made by the payee or the holder in due course. The court considered whether a GPA holder may serve as the presenting complainant under this provision.
- The court referred to S.P. Sampathy which holds that a complaint not signed by the payee is not maintainable by a GPA holder or agent, and noted that S.P. Sampathy overruled the earlier Payyati Savitri Devi decision. The court observed that the operation of S.P. Sampathy had been stayed by the Supreme Court, but proceeded to analyse the statutory language.
- The court read section 142 literally and, importing the General Clauses Act rule that singular may include plural, concluded that the statute contemplates the payee (or payees) themselves presenting the complaint in writing. The court held that a lacuna in the statute cannot be filled to permit GPA holders to invoke section 142 when the statute does not contemplate it.
- Even assuming, for argument's sake, that a GPA holder can present a complaint, the court emphasized that section 200 of the Cr.P.C. mandates examination on oath of the complainant and witnesses when the magistrate takes cognizance. The court found that in the present case the magistrate examined only the GPA holder and not the other payees (who were not present). Because the payees' sworn statements were not recorded, the procedure in section 200 was not followed.
- The court examined the factual sequence relating to the second petitioner: he was appointed by the Company Law Board after issuance of the cheque and after dishonour; therefore, he was not a director at the time the offence was committed. Applying section 141 of the Negotiable Instruments Act, the court held that vicarious liability of a director requires that the person was in charge and responsible at the time the offence was committed, or that consent/connivance/attributability is established; the court found no basis to impute such conduct to the second petitioner for the period prior to his appointment.
- The court noted that the drawer of the cheque is generally liable under section 138, but that the present complaint was defectively presented (sworn statements of payees missing), and that the irregularity could not practically be cured (one complainant had died and another was aged and bedridden), which would make re-presentation or recall-and-recording of sworn statements unworkable and prejudicial to the petitioners.
- Given the procedural defects and the absence of a basis for prosecuting the second petitioner individually (on the present record), the court concluded that the proceedings were liable to be quashed.
- To avoid future injustice in similar situations, the court issued detailed guidelines to lower courts when complaints are presented by GPA holders (including insistence on payee signatures, examination of all complainants, filing of the GPA and affidavit in lieu of proof of execution, and thorough exercise of discretion under sections 200–203 Cr.P.C.). The court noted these guidelines are not exhaustive and that judicial discretion remains available for cases not specifically covered.
Holding and Implications
HOLDING: The court held that the proceedings in C.C. No. 1012 of 2000 are liable to be quashed, and accordingly the same are quashed. The petition for quashing was ordered accordingly.
Implications and Consequences:
- Direct effect: The criminal proceedings against the petitioners in C.C. No. 1012 of 2000 were quashed on account of procedural irregularity (failure to comply with section 200 Cr.P.C. when a complaint was presented by a GPA holder) and on the factual finding that the second petitioner was not a director at the time of issuance/dishonour of the cheque and therefore could not be held vicariously liable on the present record.
- Procedural guidance: The court issued guidelines for magistrates dealing with complaints presented by GPA holders to ensure signatures of payees, recording of sworn statements of payees and other persons with knowledge, filing of GPA and supporting affidavit, and careful exercise of discretion under sections 200–203 Cr.P.C. until formal rules are framed under the Negotiable Instruments Act or the Cr.P.C.
- Scope: The court's action was limited to quashing the specific proceedings and providing interim guidelines to lower courts. The judgment does not purport to create comprehensive legislative rules; it frames procedural safeguards to be followed until rules are enacted. The court did not assert that it was laying down binding new statutory law beyond these practical directions for magistrates in similar situations.
This summary is strictly limited to the matters and findings expressly recorded in the provided opinion.
The Judgment of the court was delivered by
Ch. S.R.K Prasad, J.:— The petitioners who are accused Nos. 1 and 2 in C.C No. 1012 of 2000 on the file of the X Metropolitan Magistrate, Criminal Courts, Secunderabad, seek quashing of the proceedings by invoking inherent powers.
2. The brief facts of the case are as follows:
On July 8, 1999, respondents Nos. 2, 3 and 4 who are the de facto complainants deposited Rs. 31,000; Rs. 7,500 and Rs. 41,400 with the first petitioner-company as a short-term deposit for a period of 90 days. After maturity, on February 7, 2000, a cheque bearing No. 010696 was issued in favour of the second respondent for Rs. 82,961 drawn on the ICICI Banking Corporation Ltd., S.D Road Branch, Secunderabad, singed by two whole-time directors. The said cheque was deposited into the bank and the same was dishonoured. Thereafter, a legal notice is stated to have been issued on July 31, 2000.
3. While so, the first petitioner herein sent a demand draft bearing No. 26137 dated August 8, 2000, for an amount of Rs. 4,150. In response to legal notice dated July 31, 2000, a reply notice dated August 21, 2000, was issued by the first and second petitioners. In the complaint it is specifically stated in the reply notice dated August 21, 2000, that due to mismanagement in the first petitioner-company by the erstwhile board of directors, the company remained closed throughout January, 2000, and an application was made to the Company Law Board in C.P No. 2 of 2000 on January 18, 2000, thereby, the erstwhile board was superseded and new board was reconstituted. The second petitioner was appointed as chairman and the new board assumed charge on September 21, 2000. In the reply notice August 21, 2000, there was a specific reference of interim orders of the Company Law Board, which form part of the complaint. Learned counsel appearing for the accused assails the orders on the ground that the second petitioner was not responsible for issuance of the cheques and their dishonour since he was appointed subsequently and assumed charge only on September 21, 2000. It is also contended that the GPA holder, has no right to present a complaint on behalf of the de facto complainant and the present petition is bad.
4. Learned counsel appearing for respondents Nos. 2, 3 and 4 contends that the Supreme Court has granted stay in respect of the principle laid by the Division Bench in S.P Sampathy v. Smt. Manju Gupta, [2002] 111 Comp Cas 492; [2002] 1 ALD Crl. 619 (AP). In that view of the matter, it is submitted that the complaint is maintainable and it is contended that the notice was also issued to the company to furnish the information regarding the directors of the company. The company has failed to furnish the same, and hence the first respondent who is in charge of the affairs of the company is also responsible for the offences alleged.
5. The learned public prosecutor contends that it is not a fit case where inherent powers can be exercised to quash the proceedings and contends that the matter has to be neglected to trial.
6. Adverting to the said contentions, it is clearly stated in S.P Sampathy's case, [2002] 111 Comp Cas 492; [2002] 1 ALD Crl. 619 (AP) that if the complaint is not signed by the payee, the complaint is not maintainable by the G.P.A holder or his agent. It appears that in the said decision, the decision in Smt. Payyati Savitri Devi v. Malireddy Damayanthamma, [1997] 4 ALD 815; [1998] 93 Comp Cas 958 (AP) was overruled. However, it is already urged that the operation of the S.P Sampathy's case, [2002] 111 Comp Cas 492; [2002] 1 ALD Crl. 619 (AP) was stayed by the apex court. It is necessary to have a look at section 142 of the Negotiable Instruments Act.
7. section 142 of the Negotiable Instruments Act reads as under:
“Cognizance of offences. —Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),—
(a) no court shall take cognizance of any offence punishable under section 138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the cheque;
(b) such complaint is made within one month of the date on which the cause of action arises under clause (c) of the proviso to section 138;
(c) no court inferior to that of a Metropolitan Magistrate or a judicial magistrate of the first class shall try any offence punishable under section 138.”
8. It is clearly stated in Y. Venkateswara Rao v. Mahee Handlooms (P.) Ltd., [1992] 3 ALT 73; [1994] 79 Comp Cas 206 (AP) that a magistrate has to proceed with the case in accordance with the provisions of the Chapter 15 of the Code of Criminal Procedure. That means the procedure contemplated under section 200 to section 203 of the Criminal Procedure Code has to be followed by the magistrate, whenever a complaint is presented. section 200 of the Criminal Procedure Code, reads as under:
“Examination of complainant. —A magistrate taking cognizance of an offence on complaint shall examine upon oath the complainant and the witnesses present, if any, and the substance of such examination shall be reduced to writing and shall be signed by the complainant and the witnesses, and also by the magistrate:
Provided that, when the complaint is made in writing the magistrate need not examine the complainant and the witnesses—(a) if a public servant acting on purporting to act in the discharge of his official duties or a court has made the complaint; or (b) if the magistrate makes over the case for inquiry or trial to another magistrate under section 192:
Provided further that if the magistrate makes over the case to another magistrate under section 192 after examining the complainant and the witnesses the latter magistrate need not examine them.”
9. It is clear from section 200 of the Criminal Procedure Code that whenever a complaint is presented, the magistrate shall examine the complainant and witnesses present. It is a case, where the GPA holder has presented a complaint on behalf of 3 people. The GPA holder has been examined on oath. The other complainants are not present, and they are not examined. It is now represented that one of the de facto complainants, i. e, the second respondent died and that the fourth respondent is an aged person. As per the complaint, 3 persons are said to have deposited amounts belonging and the said amounts are deposited separately, knowledge can be attributable to other complainants who have made deposits. They have to speak personally about the same. As per the provisions of the General Clauses Act, a singular includes the plural, while interpreting the provisions of the statute. If that is imported into section 142 of the Negotiable Instruments Act, a payee in writing includes payees in writing. In fact the complaint has been presented on behalf of 3 persons by a GPA holder. A lacuna in a statute cannot be filled up when it does not contemplate presentation of the complaint by GPA holder. The accused is always entitled to take advantage of the lacunas in statute and seek for quashing of the proceedings. On examination of the language of section 142 of the Negotiable Instruments Act, I am of considered view that the GPA holder cannot invoke section 142 of the Negotiable Instruments Act and only the payee has to invoke section 142 of the Negotiable Instruments Act by presenting a complaint in writing.
10. Assuming for arguments sake that the GPA holder is entitled to present the complaint, the examination of the complainant under section 200 of the Criminal Procedure Code by the magistrate is mandatory. It does not contemplate examining GPA holders only. The original complainant has to be examined at the time of presentation of the complaint. As the payees are not present at the time of filing of the complaint and have not filed the written complaint into court and as their sworn statements are not recorded, I am of the considered view that the procedure contemplated under section 200 of the Criminal Procedure Code has not been followed or adhered to by the learned magistrate and the proceedings are liable to be quashed on that ground also.
11. Coming to the aspect of the petitioners contention that the second respondent was not responsible for issuance of the cheques it cannot be said that the said argument is without any force. In order to make the director or a managing director who succeed the company, after issuance of the cheque, it is to be seen whether he can be prosecuted individually as a director under section 141 of the Negotiable Instruments Act.
12. Section 141 of the Negotiable Instruments Act reads as follows:
“Offences by companies.—(1) If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence.
(2) Notwithstanding anything contained in sub-section (1) where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
Explanation.—For the purpose of this section, — (a) ‘company’ means any body corporate and includes a firm or other association of individuals; and (b) ‘director’ in relation to a firm, means a partner in the firm.”
13. By the date of dishonour of the cheques, he was not a director. It is only after the issuance of the notice, he was appointed by the Company Law Board. In that view of the matter, he cannot be held responsible vicariously under section 141 of the Negotiable Instruments Act, as it cannot be said that he has given consent and connivance as he is not a director at the time of issuance of the cheque. Coming to non-furnishing of the information of the prior directors, it cannot lead to prosecute the present directors. This court is unable to understand how the de facto complainant can demand as of right to furnish the information of the company regarding the past directors, that too, when they want to prosecute them. It is a common knowledge that no person will furnish the information to facilitate for prosecution before the court. In any view of the matter, the demand made by the de facto complainant to disclose about the information of the prior directors appears to be an odd desire and it is not shown having legal basis.
14. Under section 138 of the Negotiable Instruments Act, the drawer of the cheque is always liable and he cannot escape the responsibility, except in cases where the complaint is not properly presented or barred by limitation. This is one such case, where the complaint has not been presented properly and the sworn statements are not recorded. The contention of learned counsel for the respondent that the matter may be sent back for recording sworn statements after setting aside the cognizance of the order, cannot be complied with for the fact that the irregularity cannot be cured, since one of the complainant had already died and another one is stated to be an aged person and bedridden, and thus, it will only lead to postponing the trial. In any view of the matter, prejudice will be cause to the petitioner, if such a course is adopted.
15. Under the above circumstances, I am of the considered view that certain guidelines have to be given to the lower courts in cases where the complaint has been presented by GPA holders to avoid injustice being caused to the parties under the Negotiable Instruments Act, till rules are framed either under the Negotiable Instruments Act or under the Criminal Procedure Code. The guidelines are as follows:
(a) whenever the GPA holder presents a complaint before the court, the magistrate shall insist upon the signature of the payee on the complaint, and he shall record the sworn statement of not only the payee, GPA holder and endeavor shall also be made to record the sworn statement of the de facto complainant, at whose instance the provisions of section 142 of the Negotiable Instruments Act are invoked.
(b) If more than one complaint is presented, the complainant and the persons who have got the knowledge of the offence shall be examined before the court.
(c) If the cause of action differs for each of the complainant, the magistrate shall examine all complainants separately, though cognizance might be taken on a common complaint under section 142 of the Negotiable Instruments Act.
(d) The magistrate shall insist on filing of the GPA in court and also insist on filing an affidavit to be presented in lieu of proof of execution of the said GPA.
(e) The magistrate shall thoroughly examine the statement of GPA holder as well as the original complainant and documents produced before him and exercise his discretion vested under sections 200 to 203 of Criminal Procedure Code.
(f) The above guidelines are not exhaustive. There may be some cases which are not covered by the above guidelines. In such cases, the magistrate shall exercise his judicial discretion and proceed to deal with the cases arising under section 200 of the Criminal Procedure Code.
16. Coming to the facts of the present case, the second petitioner was not responsible for issuance of the cheque and was not director of the company at the time of dishonour of the cheques in question. Apart from this, sworn statements were not recorded as per section 200 of the Criminal Procedure Code. In view of my above discussion the proceedings in C.C 1012 of 2000 are liable to be quashed and accordingly the same are quashed.
17. The petition is ordered accordingly.
Negotiable Instruments Act,Alert