Modern Denim Ltd. And Others v. Lucas Tvs Ltd.

The petitioners who are accused 1 to 10 (in Crl.O.P 2983/98) and 1 to 11 (in Crl.O.P No. 2984/98) have filed these petitions u/S. 482 Cr.P.C to quash the proceedings in C.C No. 7080 and 7081/97 respectively on the file of the XVIII Metropolitan Magistrate, Saidapet, Chennai.

2. The 1st petitioner represented by the 2nd petitioner had availed a grant of an Inter Corporate Deposit on short term basis to the tune of Rs. Two crores on 3-3-1997 and 1st petitioner executed two promissory notes dated 3-3-1997 each for Rs. 1 crore undertaking to repay the said sum with interest at the rate of 20% per annum within 60 days i.e by 2.5.97 The 1st accused also issued cheques dt. 2-5-1997 for the said sum. As the amount was not paid in time, the 1st petitioner requested for extension of time and issued cheques bearing Nos. 138822 and 138934 dt. 31-7-1997 for the said sum. The 2nd petitioner executed a personal guarantee and security of shares worth Rs. Two crores. On the basis of those documents, the respondent extended the period of loans till 31.7.97 On 24.7.97, the 1st accused sent a letter requesting the complainant not to present the cheques on 31.7.97, despite which the cheques had been presented by the complainant on 31-7-1997 in the Bank of Baroda. Alwarpet, Chennai and the cheques were returned on 1-8-1997 with the endorsement “payment stopped by drawer”. The complainant issued a notice dt. 5-8-1997 and the same has been returned unserved with the endorsement “refused” on 12.8.97 Thereafter the complainant has preferred these complaints u/S. 138 of the Negotiable Instruments Act, which were taken in C.C Nos. 7080 and 7081/97 by the learned XVIII Metropolitan Magistrate, Saidapet, Chennai.

3. The petitioners have raised five grounds for quashing the said proceedings.

4. The respondent/complainant has filed counter refuting those grounds.

5. The major grounds of challenge are:

(i) By letter dt. 24-7-1997 the petitioners requested the respondent not to present the cheques on 31-7-1997 and they had given instruction to the bank to “stop payment” and inspite of it when the complainant presented the cheques for collection, it was returned with the endorsement, “payment stopped by drawer” and therefore the petitioners are not liable u/S. 138 Negotiable Instruments Act.

(ii) There are no sufficient allegations in respect of the petitioners 2 to 10 and 2 to 11 made in the complaints except that they are directors of the 1st petitioner company responsible for the day to day management of the affairs of the company and no specific allegation has been raised against them.

(iii) The complaints were filed by one Mr. K.G Sampath, Manager - Finance, of the complainant company on 24-7-1997 and the said person has no authorisation from the complainant company to sign or file the criminal complaint for and on behalf of the said company.

(iv) The cheques were given only as security towards the loan amount and the accused had also given security of shares worth Rs. 2 crores to the complainant company that the complainant/respondent has encashed cheques for Rs. 2,67,396/- and Rs. 3,87,124/- respectively towards the interest on the said loan amounts for the period 1-8-1997 to 30-9-1997 and they extended the period of loan by three months from 30.7.97

(v) The petitioner 2 to 10 and 2 to 11 in Crl.O.P Nos. 2983 & 2984/98 respectively, have their office in Worli, Mumbai, whereas the notices were sought to lie served in the address at Jaipur, and returned as “refused” which cannot amount to constructive services of notice and the same vitiates the proceedings.

6. In support of the first contention that inspite of the petitioners notice not to present the cheque for encashment, yet the payee presented the cheque to the bank for payment and when it is returned, the petitioners are not liable.

To substantiate his contention, the petitioner has relied on two decisions of the Supreme Court of India.

In Ms/Electronics Trade & Technology Development Corporation Limited, Secunderabad v. M/s. Indian Technologists & Engineers (Electronics) Private Ltd. 1996 (1) LW (Crl.) 325 it was held by Their Lordships of the Supreme Court at page 327

“It would thus be clear that when a cheque is drawn by a person on an account maintained by him with the banker for payment of any amount of money to another person out of the account for the discharge of the debt in whole or in part or other liability is returned by the bank with the endorsement like, in this case, (1) “refer to the drawer” (2) “instructions for stoppage of payment” and (3) “amount exceeds arrangement”, it amounts to dishonour within the meaning of S. 138 of the Act . . . .

Shri Nageswara Rao, learned counsel appearing for the respondents, contended that stoppage of payment due to instructions does not amount to an offence under S. 138 and that, therefore, the ingredients in S. 138 have not been satisfied. We find no force in the contention.”

This decision was followed by Their Lordships of the Supreme Court in K.K Sidharthan v. Praveena Chandran, JT 1996 (9) SC 196. After quoting Section 138, Negotiable Instruments Act, in para-3 Their Lordships held —

“This shows that Section 138 gets attracted in terms if cheques is dishonoured of insufficient funds or where the amount exceeds the arrangement made with the bank. It has, however, been held by a Bench of this Court in Electronics Trade and Technology Development Corpn., Ltd. v. Indian Technologists and Engineers (Electronics) (P) Ltd. JT 1996 (1) SC 643 that even if a cheque is dishonoured because of ‘stop payment’ instruction to the bank, Section 138 would gel attracted”.

Their Lordships have further held in para-6 —

“The above apart, though in the aforesaid case this Court held that even ‘stop payment’ instruction would attract the mischief of Section 138”

From what is stated by Their Lordships in 1996 (1) LW (Crl.) 325 (stated supra), it is clear that instruction for ‘stoppage of payment’ also amounts to dishonour within the meaning of Section 138 of the Act. The contrary argument made by the learned counsel appearing for the respondent in that case was not accepted by Their Lordships.

The same view was confirmed by Their Lordships of the Supreme Court in JT 1996 (9) SC 191 (stated supra). From what is stated in the said decision, it is clear that even if a cheque is dishonoured because of ‘stop payment’ instruction to the bank. Section 138 would get attracted.

This Court while relying the above decision in 1996 (1) LW (Crl.) 325 held in Mubarak Nisha v. Subramanian, 1997 (1) Crimes 55 that after notice is issued to payee or to holder in due course not to presents the cheque to the Bank and when it is returned on instruction., S. 138 of Negotiable Instruments Act does not get attracted.

This may be for the reason that in 1996 (1) LW (Crl.) 325 in para-5 it is stated as follows:

“S. 138 draws presumption that one commits the offence if he issued the cheque dishonestly. It is seen that once the cheque has been drawn and issued to the payee and the payee has presented the cheque and thereafter, if any instructions are issued to the bank for non-payment and the cheque is returned to the payee with such an endorsement, it amounts to dishonour of cheque audit comes within the meaning of S. 138. Suppose after the cheque is issued to the payee or to the holder in due course and before it is presented for encashment, notice is issued to him not to present the same for encashment and yet the payee or holder in due course presents the cheque to the Bank for payment and when it is returned on instructions, S. 138 does not get attracted”.

The real meaning conveyed by the said decision in 1996 (1) LW (Crl.) 325 is that instruction for ‘stoppage of payment’ amounts to dishonour within the meaning of Sec. 138 of Negotiable Instruments Act and the same was succinctly pointed out by Their Lordships in the case of Sidharthan v. Praveena Chandran (stated supra). Therefore, the view expressed by this Court in 1997 (1) Crimes 55 is not in consonance with the view expressed by Their Lordships of the Supreme Court. When Their Lordships of the Supreme Court have clearly held that instruction for “stoppage of payment” would amount to dishonour within the meaning of Sec. 138 of the said Act, no different interpretation can be given to the said decision in 1996 (1) LW (Crl.) 325.

In the instant case, the petitioners have sent notice not to present those two cheques each for Rs. 1 crore for encashment and inspite of it, the cheques were presented for collection and the same were returned as instruction for ‘stoppage for payment’ which would amount to dishonour within the meaning of Section 138 of the Negotiable Instruments Act. In the case of Sidharthan v. Prayeena Chandran there was sufficient funds in the account, whereas the petitioner herein have not shown that they had sufficient funds on the date of cheques or on the date of presentation of the cheques. Therefore, the first contention raised by the petitioners has to be negatived.

7. The second ground is that there are no sufficient allegations in the complaint to make respondents 2 to 10 and 2 to 11 liable for an offence u/S. 138 of Negotiable Instruments Act. It is the admitted case of both parties that the respondents 2 to 10 in C.C No. 7080/97 and respondents 2 to 11 in C.C No. 7081/97 are the partners of the 1st respondent/company.

Section 141 (1) of the Negotiable Instruments Act says —

“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 m 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.”

It has been stated in the complaint in C.C No. 7080/97 that besides the issuance of cheque by the accused, the second accused personally guaranteed the due repayment and the 1st accused gave a letter with the knowledge of the 2nd accused on 26-6-1997 whereby they assured to provide sufficient funds to honour the cheque on its due date and unequivocally undertaken not to issue any instructions to stop payment of the cheque. Further, in para 11, it was stated that the first accused is being Managed by A-2 to A-10 and they are in control of day to day management of the affairs of the company and as such have committed offence u/S. 138 of Negotiable Instruments Act.

Similar allegations are found in C.C No. 7081/97 in respect of accused 2 to 11.

In Sham Sundar v. State of Haryana, AIR 1989 SC 1982, Their Lordships of the Supreme Court held. —

“It is, therefore, necessary to add an emphatic note of caution in this regard. More often it is common that some of the partners of a firm may not even be knowing of what is going on day to day in the firm. There may be partners, better known as sleeping partners who are not requested to take part in the business of the firm. There may be ladies and minors who wee admitted for the benefit of partnership. They may not know anything about the business of the firm. It would be a travesty of justice to prosecute all partners and ask them to prove under the proviso to sub-section (1) that the offence was committed without their knowledge. It is significant to note that the obligation for the accused to prove under the proviso that the offence took place without his knowledge or that he exercised all due diligence to prevent such offence arises only when the prosecution establishes that the requisite condition mentioned in sub-section (1) is established. The requisite condition is that the partner was responsible for carrying on the business and was during the relevant time in charge of the business. In the absence of any such proof, no partner could be convicted. We, therefore, reject the contention urged by counsel for the State”.

In Municipal Corporation of Delhi v. Ram Kishan Rohtagi, 1983 Crl.L.J 159 at pages 162 and 163 it was held —

“So far as the Directors are concerned, there is not even a whisper nor a shred of evidence nor anything to show, apart from the presumption drawn by the complainant, that there is any act committed by the Directors from which a reasonable inference can be drawn that they could also be vicariously liable.”

In Alfred Borg & Co. India (P) Ltd. v. M/s. Antox India (P) Ltd., 1992 L.W (Crl.) 120 it was held. —

“In catena of cases, the Apex Court has held, that initiating prosecution against sleeping partners or women, when the company is the main offender, cannot be sustained unless there was basic material to show that such partners or directors were also in charge of and responsible for the conduct of the business of the company.”

As already stated above, that in both the complaints there are clear averments that the 2nd accused has personally guaranteed the due payment. Apart from that the 1st accused gave the letter dt. 26-6-1997 with the knowledge of the 2nd accused whereby they assured to provide sufficient funds to honour the cheque on its due date and unequivocally undertaking not to issue any payment. In these circumstances, the liability of 2nd accused cannot be absolved. So the contention of the petitioner that A. 3 to A. 10 in C.C No. 7080/97 and A. 3 to A. 11 in C.C No. 7081/97 are not liable, has to be considered. A. 1 is the drawer and A. 2 has acted on behalf of A. 1. Apart from that A. 2 stood as guarantor. Therefore, A. 1 and A. 2 are liable for offences u/S. 138 of Negotiable Instalments Act. As far as A. 3 to A. 10 in C.C 7080/97 and A-3 to A-11 in C.C No. 7081/97 are concerned except for the bald statement that they are Directors, there is no evidence to show that at the time of commission of offence that they were incharge of and were responsible to the company for the conduct of the business of the company and as such they are not liable.

8. Both these complaints were filed on 24.9.97, whereas the resolution was passed authorising Mr. K.G Sampath - Manager-Finance to sign the complaint, execute Vakalat, engage Advocate and give evidence in the matter of prosecution against Modern Denim Ltd. and its Directors, was given only on 17.11.97, after filing of complaint and therefore the complaint filed by Sampath is not in accordance with law.

The respondent has relied on a decision of the Supreme Court in All India Reporter Ltd. v. Ramachandra, AIR 1961 Bom. 292, wherein it was held at page 295 —

“Order 6, rule 14, provides that in certain circumstances a pleading may be signed by any person duly authorised by the plaintiff to sign the plaint or to sue on his behalf. The expression “signed by any person duly authorised by him to sign the same” in rule 14 need not be restricted to written authorisations. If the authorisation is proved, even an oral authorization should be taken, as sufficient and there is no reason to read Order 6, rule 14 as requiring written authorisation or a power of attorney.”

Though the said decision is based on Order 6 Rule 14 of C.P.C there is no distinction between civil and criminal laws as far as authorisation of power of attorney is concerned. Authorisation and power of attorney are basically civil matters which are at times adopted in criminal proceedings. As the present case is u/S. 138 Negotiable Instruments Act, the authorisation given by the complainant in favour of K.G Sampath cannot be thrown out on the ground that there was no authorisation in his favour prior to the filing of the complaint.

In Gopala Krishna Trading Co. v. D. Baskaran, 1990 Vol. 80 Company Cases 53 it was held —

“A company is legal entity and has to be represented by some human agency in preferring a complaint before the court. There is no express or explicit provision in the Act as to the manner in which the company is to be represented in preferring a complaint before the court for violation of the provisions under Section 138 of the Act. The person connected with the affairs of the company in the normal run of things, who may be either its manager, partner, managing partner or director or any other person authorised by the company, can represent it during the course of legal proceedings before the court”.

This view was further followed by this Court in Salar Solvent Extractions Ltd. v. South India Viscose Ltd., 1995 Vol. 83 Company Cases 450.

In view of these decisions, the arguments advanced on the side of the petitioners herein that K.G Sampath has no proper authorisation to sign the complaint and to represent the complainant, do not attract our consideration.

9. The fourth ground that the cheques were given only as security towards the loan, that since the respondent has encashed the cheques for Rs. 2.67, 396 & 3,87,124 towards interest and therefore the present complaints are not liable, are all reasons which cannot be appreciated. By encashing the cheque for Rs. 2,67,396 and Rs. 3,87,124, it cannot be said that the complainant cannot sign the two cheques each for Rs. One crore for encashment. Those two cheques represent the principal amount and the cheques for Rs. 2,67,396 and Rs. 3,87,124 represent only interest. By encashing the cheques issued towards interest, it cannot be said that the payee should not encash the cheques issued towards principal amount. The civil and criminal jurisdictions are different. Section 138 Negotiable Instruments Act is enacted to see that if a drawer issued the cheque with a dishonest intention, he shall be punished. Because there is a civil remedy available, it cannot be said the payee cannot come to a criminal court by way of complaint u/S. 138 of Negotiable Instruments Act even after the dishonour of the cheque. Therefore this argument advanced on the side of the petitioner cannot be accepted.

10. The registered Office of the 1st accused is in Pochkhanwala Road, Worli, Mumbai, however, accused 2 to 10 in C.C No. 7080/97 and accused 2 to 11 in C.C No. 7081/97 were living in different places. The notices have been sent to their respective addresses as shown in the complaints and the same were returned. As far as the 1st accused is concerned, the registered office is at Vijay Path, Tilak Nagar, Jaipur and therefore the notice has been sent to Jaipur and some of the accused are also residing at Jaipur. As far as the company is concerned, the notice has been sent to the address of the registered office and accordingly it has been sent to Jaipur. As far as the other accused are concerned, the notice has been sent to their respective address and all of them refused to receive the notice. It is onething to say that the notices were sent to a wrong address and it is quite another thing to say that the notices were not sent to a particular address. The very endorsement that they refused to receive the notice would speak volumes about their intention not to receive the notice. When once the persons refused to receive notice, it amounts to proper and valid service on such persons. As all the accused/petitioners herein refused to receive the notice, there was proper and valid service on the petitioners and the contention of the petitioners contra to this factual aspect of this case, cannot be accepted.

From the foregoing discussion that as there is no evidence that A. 3 to A. 10 in C.C No. 7080/97 and A. 3 to A. 11 in C.C No. 7081/97 were incharge of and were responsible to the company for the conduct of the business of the company at the time when the offence was committed and therefore they are not liable and the proceedings against them shall be quashed.

In the result Crl.O.P Nos. 2983 & 2984/98 are allowed in part and the proceedings in respect of Petitioners 3 to 10, who are accused Nos. 3 to 10 in C.C No. 7080/97 and in respect of petitioners 3 to 11, who are accused Nos. 3 to 11 in C.C No. 7081/97, are quashed, and the learned Magistrate shall proceed against 1st and 2nd petitioners m both the cases in accordance with law. Consequently, there are no orders necessary in Crl.M.Ps 1776 to 1779/98.