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A.R. Radha Krishna v. Dasari Deepthi And Others
Factual and Procedural Background
The appellant entered into an investment agreement with M/s Dhruti Infra Projects Ltd. (Accused 1) on 1 December 2013 on the representations of Respondents 1 and 2, who were Directors of the company. The appellant invested a total of Rs 2,11,50,000. As on 31 March 2016, Rs 1,81,50,000 remained unpaid. To discharge this liability the company issued seven cheques (six for Rs 25,00,000 and one for Rs 30,00,000). All cheques were dishonoured upon presentation with the remark “payment stopped by drawer.”
The appellant served a statutory notice dated 4 August 2016 on the company, its Managing Director, and Respondents 1 and 2. He then filed a complaint under Sections 138 and 141 of the Negotiable Instruments Act, 1881. While the complaint was pending, Respondents 1 and 2 moved the High Court under Section 482 CrPC to quash the proceedings. The High Court allowed their petitions and set aside the trial court’s cognizance order. The appellant challenged that decision before the Supreme Court in these appeals by special leave.
Legal Issues Presented
- Whether the High Court correctly exercised its inherent power under Section 482 CrPC in quashing the complaint against Respondents 1 and 2 under Sections 138 and 141 of the Negotiable Instruments Act.
- Whether the complaint contained adequate specific averments showing that Respondents 1 and 2 were in charge of, and responsible for, the conduct of the company’s business at the time of the alleged offence.
Arguments of the Parties
Appellant's Arguments
- A prima facie case existed against Respondents 1 and 2, as reflected in the complaint and the trial court’s cognizance order.
- All accused, acting in concert, issued the cheques and subsequently instructed the bank to stop payment, evidencing their active involvement.
- The High Court erred in invoking Section 482 CrPC to quash proceedings despite these specific averments.
Respondents' Arguments
- Respondents 1 and 2 were non-executive Directors not involved in the day-to-day affairs of the company.
- Mere directorship does not imply responsibility for the company’s business within the meaning of Section 141 of the Act.
- Without admitting liability, they expressed willingness to pay Rs 70,00,000 to the appellant within six months, which the appellant declined.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Gunmala Sales (P) Ltd. v. Anu Mehta (2015) 1 SCC 103 | The High Court’s duty under Section 482 CrPC to assess whether specific averments in the complaint and any unimpeachable evidence justify quashing proceedings under Sections 138/141 NI Act. | Used as the governing standard; the Supreme Court found that the High Court failed to apply this test properly because the complaint contained specific averments and no unimpeachable contrary evidence was produced. |
Court's Reasoning and Analysis
The Supreme Court reiterated that, in offences under Sections 138 and 141 of the Negotiable Instruments Act, a complaint must specifically aver that the Director sought to be prosecuted was in charge of and responsible for the company’s business at the relevant time. The Court observed:
- The appellant’s complaint expressly alleges that Respondents 1 and 2 actively participated in the company’s day-to-day affairs and, along with other family members, jointly ran the company.
- The complaint further alleges that all accused connived to issue cheques and later stop their payment, indicating conscious participation.
- No “unimpeachable evidence” was produced by Respondents 1 and 2 to negate these averments or to show that continuation of proceedings would amount to an abuse of process.
Applying the standard laid down in Gunmala Sales, the Court held that the High Court should not have quashed the complaint at the threshold. The High Court’s approach amounted to evaluating disputed facts prematurely, which is beyond the limited scope of its inherent jurisdiction under Section 482 CrPC.
Holding and Implications
Appeals Allowed; High Court order dated 22-9-2017 set aside; trial court’s cognizance order restored.
Direct Effect: Criminal proceedings against Respondents 1 and 2 under Sections 138 and 141 NI Act are revived and will proceed before the trial court, which has been directed to expedite the trial and decide the case on its own merits.
Broader Implications: The judgment reinforces the limited scope of the High Court’s power to quash complaints under Section 482 CrPC in cheque-dishonour cases, emphasizing that specific averments in the complaint suffice to proceed unless incontrovertible evidence shows abuse of process.
Order
1. Leave granted. These appeals, by special leave, are directed against the order dated 22-9-2017 passed by the High Court of Judicature at Hyderabad for the State of Telangana and the State of Andhra Pradesh in Dasari Deepthi v. State of Telangana 2017 SCC OnLine Hyd 334, whereby the High Court allowed the criminal petitions filed by Respondents 1 and 2 and set aside the cognizance order passed by the trial court.
2. The case of the prosecution in brief is that the appellant had entered into an investment agreement with M/s Dhruti Infra Projects Ltd. (Accused 1) on 1-12-2013 on the basis of representation of Respondents 1 and 2 herein, who were the Directors of the said company. The appellant invested a total amount of Rs 2,11,50,000 in the said project. According to the appellant, as on 31-3-2016, a total amount of Rs 1,81,50,000 was left to be repaid to him along with applicable interest on it. Thereafter, upon several representations by the appellant, M/s Dhruti Infra Projects Ltd. agreed to repay the amount via issue of seven cheques in favour of the appellant. Six cheques for Rs 25,00,000 each and one cheque for Rs 30,00,000 were drawn on different dates by the authorised signatory i.e. MD of M/s Dhruti Infra Projects Ltd., which were returned dishonoured, on presentation by the appellant, with the remark “payment stopped by drawer”.
3. Thereafter, the appellant issued a legal notice on 4-8-2016 to:
(i) M/s Dhruti Infra Projects Ltd. (Accused 1);
(ii) MD of M/s Dhruti Infra Projects Ltd. (Accused 2);
(iii) Respondent 1 and Respondent 2 (as Directors).
4. Consequently, proceedings were initiated by the appellant under Sections 138 and 141 of the Negotiable Instruments Act, 1881 (hereinafter referred to as “the Act”). During the pendency of the said complaint, Respondents 1 and 2 made an application before the High Court for the quashing of the proceedings initiated against them. The High Court, as mentioned above, allowed the criminal petitions filed by Respondents 1 and 2 and quashed the proceedings against them. Being aggrieved, the appellant has approached this Court through the instant appeals.
5. The learned counsel for the appellant, Mr Y. Rajagopala Rao vehemently contended that the High Court was not justified in allowing the quashing petitions by invoking its power under Section 482 CrPC despite the fact that a prima facie case was made out against Respondents 1 and 2 in the complaint filed by the appellant. He contended that the trial court, on the basis of the material on record, took cognizance of the case against Respondents 1 and 2 under Sections 138 and 141 of the Act. The learned counsel for the appellant further submitted that all the accused, in active connivance, mischievously and intentionally issued the cheques in favour of the appellant and later issued instructions to the bank to “stop payment”.
6. On the other hand, the learned counsel for the respondents, Mr Kaushal Yadav submitted that the answering respondents are only non-executory Directors of the company, neither playing any role in the conduct of day-to-day business of the company nor being in charge of the affairs of the company. Further, he also contended that merely by virtue of being a Director in a company, one cannot be deemed to be in charge of, or responsible to, the company for the conduct of its business. In any case, the learned counsel for the respondents further submitted that his clients are ready to pay the balance amount of Rs 70,00,000 to the appellant within a period of six months. However, the learned counsel for the appellant did not agree to the same.
7. Having heard the learned counsel for the parties and carefully scrutinising the record, we are of the considered opinion that the High Court was not justified in allowing the quashing petitions by invoking its power under Section 482 CrPC. In a case pertaining to an offence under Section 138 and Section 141 of the Act, the law requires that the complaint must contain a specific averment that the Director was in charge of, and responsible for, the conduct of the company's business at the time when the offence was committed. The High Court, in deciding a quashing petition under Section 482 CrPC must consider whether the averment made in the complaint is sufficient or if some unimpeachable evidence has been brought on record which leads to the conclusion that the Director could never have been in charge of and responsible for the conduct of the business of the company at the relevant time. While the role of a Director in a company is ultimately a question of fact, and no fixed formula can be fixed for the same, the High Court must exercise its power under Section 482 CrPC when it is convinced, from the material on record, that allowing the proceedings to continue would be an abuse of process of the Court. [See Gunmala Sales (P) Ltd. v. Anu Mehta (2015) 1 SCC 103.]
8. A perusal of the record in the present case indicates that the appellant has specifically averred in his complaint that Respondents 1 and 2 were actively participating in the day-to-day affairs of Accused 1 company. Further, Accused 2 to 4 (including Respondents 1 and 2 herein) are alleged to be from the same family and running Accused 1 company together. The complaint also specifies that all the accused, in active connivance, mischievously and intentionally issued the cheques in favour of the appellant and later issued instructions to the bank to “stop payment”. No evidence of unimpeachable quality has been brought on record by Respondents 1 and 2 to indicate that allowing the proceedings to continue would be an abuse of process of the court.
9. In the above view of the matter, the instant appeals are allowed and the impugned order dated 22-9-2017, passed by the High Court of Judicature at Hyderabad for the State of Telangana and the State of Andhra Pradesh in Dasari Deepthi v. State of Telangana 2017 SCC OnLine Hyd 334, is set aside and that of the trial court is restored.
10. Before parting with the matter, we make it clear that we have not expressed any opinion on the merits of the case pending before the trial court. Needless to say, the trial court will adjudicate the matter on its own merits uninfluenced by any of the observations made herein. However, keeping in view the nature of the case, we direct the trial court to expedite the trial and dispose of the same in accordance with law.
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