NI Act Digest

8/3/2019 NI Act Digest

1/21

Hindustan Cables Ltd. and Ors. V. The State, Govt. of NCT of Delhi through the

Secretary (Home) and Manish Industries

Citation : 149 (2008) DLT 653

Facts:

Petitioner issued cheque in favour of respondent no 2-cheque was revalidated for furtherperiod of six months several times on last revalidation it was the condition that the

same shall be presented after confirmation from petitioner

Cheque presented-dishonored for the reason exceed arrangement-statutory legal noticeissued petitioner replied that the cheque was issued with condition same would be

presented after getting confirmation from petitioner and BIFR had declared petitioner

company as sick unit

Complaint filed- summon was issued by Ld. Magistrate- against summoning order

petitioner went in revision before session judge- revision petition was dismissed holdingthat proper remedy is under S. 482 Cr. PC.

Petition under S. 482 on the ground that:

-since the offending company has been declared sick by the BIFR, no steps could be

taken by the respondent No. 2 (complainant) for realization of the amounts said to be dueto them and therefore the criminal proceedings initiated against the petitioner company

and its directors on the allegation that the cheque drawn in favor of the respondent No. 2was dishonoured by the bank is misconceived and should be quashed.

- When the cheque was drawn, the restraint order was in force. Hence the instant criminalproceeding against the petitioners is not maintainable

- in view of the written undertaking, the Respondent No. 2 had no authority to present thesaid cheque in the bank for encashment and the said written undertaking by the

respondent No. 2 amounts to an agreement and failure or refusal to abide by the

stipulations contained in the said written undertaking amounts to a breach/violationwhich has rendered the said cheque an invalid instrument in the eyes of law

Held that:

Section 22A of SICA, does not bar the criminal prosecution and payment of legally

enforceable dues.


2/21

Para 19

Even if the said order of BIFR was passed on 21.3.03, it was not in accordance with lawas it apparent from the said order that there was no scheme Under Section 18 during the

period of preparation of consideration or during the period beginning with the recording

of opinion by the board or for winding up that the board under Section 20(1) and up tothe commencement of the proceedings relating to the winding up before the High Court

concerned, in the absence of both the conditions, the order under Section 22A of SICA is

not in accordance with law.

Para 20

The judgment in Kusum Ingots and Alloys Ltd. v. Pennar Peterson Securities Ltd. is notapplicable in the facts and circumstances of the case as much as the Supreme Court has

laid down that if the company is sick and a restraint order has been passed by the BIFR, it

would be open to the aggrieved party to place relevant material in this regard before Ld.

Magistrate before whom the case is pending and the said Magistrate will examine thematter.

Para 21

The offence under Section 138 of the Negotiable Instruments Act stood completed when

there was a default and non-payment subsequent to the receipt of the statutory legalnotice under Section 138. It is the admitted case of both the parties that the amount is

payable but the contention raised by petitioner company in its defense is that company is

not in a position to pay.

Para 22

As regards the argument that the petitioner company has been declared sick by the BIFR

and the company/ promoters were restrained Under Section 22A of SICA not to dispose

of any fixed or current assets without the consent of the secured creditors and the BIFR,the facts of the present case show that despite that restraint order, the BIFR passed

directions to the petitioner company to make the payments for the running of the day-to-

day business of the petitioner company. The payment made by the petitioner company to

the Respondent No. 2 and M/s Shakun Polymers Ltd. also establish that there was norestraint order passed against the petitioner company by BIFR barring the payment of its

liability to its customers/suppliers for the running of day-today business. In the

explanation to the section clarification is made that the phrase 'debt or other liability'means a legally enforceable debt or other liability.

Further, the petitioner company had taken a written undertaking from the respondent No.2 that the cheque in question would not be presented for encashment in the bank without

the consent of the petitioner company yet the revalidation letter has concealed about the

restraint order made by the BIFR. Furthermore, there is no dispute that the present cheque


3/21

was with respect to supply of the goods on 13.2.02, i.e. subsequent to the reference made

by the petitioner company to the BIFR. These transactions were not restrained by BIFR.

In these facts and circumstances, the purported undertaking was voidable under Section

19 of Indian Contract Act since there was concealment of facts on the part of thepetitioner company. Keeping in mind the above discussions, the matter in dispute is a

friable issue and can only be decided after placing the evidence before the Trial Court

and the complaint cannot be quashed under Section 482, Cr.P.C.

Para 24

As observed by the Supreme Court in Kusum Ingots and Alloys Ltd. v. Pennar PetersonSecurities Ltd. if the company is sick and a restraint order has been passed by the BIFR,

it would be open to the aggrieved party to place relevant material in this regard before

Ld. Magistrate before whom the case is pending and the said Magistrate will examine the

matter. Analyzing the scope and ambit of the provisions of Sections 22 and 22A of theSICA, their Lordships have held that Section 22 of the SICA does not create any legal

impediment for instituting and proceeding with the criminal case on the allegations of anoffence Under Section 138 of the Negotiable Instruments Act against a company or its

director. However, Apex Court observed that it will depend on the facts and

circumstances of the case whether in such circumstances the proceedings could be

initiated or not.

Para 26

Therefore, no exception can be taken against the order of the Magistrate taking

cognizance of the offence Under Section 138, against the Petitioners. Undisputedly the

cheques were drawn by the petitioners for payment of certain amount of money due torespondent No. 2, from the account in the Bank and the said cheque was dishonored by

the Bank and the amount remained unpaid even after lapse of 15 days from the date of

notice issued by respondent No. 2 after the cheque was dishonored. Therefore, theingredients of Section 138 of the Act being prima facie, established from the complaint

and the documents filed it with, the Magistrate rightly took cognizance of the offence and

issued summons to the petitioners.

Para 27

A question as to whether a magistrate after issuing process could recall it. It is nowsettled in Adalat Prasad v. Rooplal Jindal (supra), that he cannot recall the process. The

Supreme Court in Subramanium Sethuraman v. State of Maharashtra (supra), held that

the only course available to an aggrieved person to challenge the issuance of processunder Seciton 204 is by way of a petition under Section 482 Cr.P.C.

BHARATBHAI K. PATEL V. C.L. VERMA


4/21

Citation : 2002 CR. L.J. 3469 (GUJ)

Held:

"Normally, the High Court is supposed to read the averments made in the complaint and

at the initial stage of proceedings, the High Court is not justified in entertaining and

accepting the plea that there was no debt or liability. Defence plea can not be entertainedin the quashing proceedings. But in the cases where the petitioner is able to show to the

Court that there was no existing debt or liability at the time of the presentation of the

cheque for encashment on the basis of the conduct of the complainant or admission made

by the complainant though that may be in other legal proceedings, then in such cases, theproceedings can be terminated and the accused should not be asked to face the trial till it

is concluded."

SHAMSUL ISLAM V. 16TH ADDIL. DISTRICT JUDGE, KANPUR NAGAR

Citation : 2002 CR LJ 4564 (ALL)

Held:

"The fact that in subsequent transaction the entire amount has been paid and no amount is

due, can not be decided in petition under S. 482, Cr. PC. There is presumption that theamount was due and it was for the petitioner to prove that the debt was already

discharged as provided by S. 139, Negotiable Instruments Act. Therefore, it is a matter of

evidence and proceedings can not be quashed on this ground "

A V MURTHY V. B.S. NAGABASAVANNA

Citation : AIR 2002 SC 985= 2002 CR LJ 1479

Held:

"Complaint can not be quashed at initial stage on the ground that as the loan in questionhad been advanced four years prior to the issuance of the cheque, the debt or the liability

for which the cheque was drawn by him had ceased to be legally enforceable, when it

was not a case that the cheque was drawn in respect of a debt or liability, which wascompletely barred from begin enforced under the law"


5/21

Bahulal Nainmal Jain v. khimji Ratanshi Dedhia

Citation : 1998 CR. LJ. 4750

Held:

"If a cheque is returned on account of any structural defect, i.e. any defect in its form,

want of signature, date has not been properly written, figure of the amount has been overwritten or erasures in the drawers name, etc. the same will not amount to an offence

punishable under S. 138"

Anil Hada v. Indian Acrylic Ltd.

Citation : AIR 2000 SC 145= (2000) 1 SCC 1= 2000 CRLJ 373

Held :

"In the expanded ambit of the word company even firms or any other associations of

person are included an as necessary adjunct thereof a partner of the firm is treated as

director of that company

M/S NAKODA LAMINATORS VS. STATE OF RAJASTHAN

Citation : 1998 CRL LJ 3525

Held:

"The period of 30 days has been prescribed for filing of the complaint in the court and not

for taking cognizance of notice by the Magistrate."

M/S SAKETH INDIA LTD. VS. M/S INDIA SECURITIES LTD

Citation : 1999 CRL LJ 1822 (SC)

Held:

"Ordinarily in computing the time, the rule observed is to exclude the first day and to

include the last. Applying the said rule, the period of one month for filing the complaint


6/21

will be reckoned immediately following the day on which the period of 15 days from the

date of the receipt of the notice by the drawer, expires."

Sudarshan Khaitna v. Patehja Forging Auto Parts And Manufacturing Ltd.

Citation : 2001 CRL LJ 3872

Held:

"There can be only one offence and such offence is committed by the drawer of theCheque immediately on the failure to make the payment within 15 days of the receipt of

the notice, which means that for similar failure after service of fresh notice on subsequent

dishonour the drawer can not be liable for any offence nor can the first offence be treated

as honest so as to give the payee a right to file a complaint treating the second offence asfirst one."

Secunderabad Health Care Ltd. and Ors. v. Secunderabad Hospitals Pvt. Ltd and

Ors.,

Citation : 1999 (96) C.C.(AP) 106

Andhra Pradesh High Court held :

Every Director of a company is not automatically vicariously liable for the offencecommitted by the company. Only such Directors or Director who were in charge of or

responsible Page 631 to the company for the conduct of business of the company at the

material time when the offence was committed alone shall be deemed to be guilty of theoffence. Further it was observed that the requirement of law is that "there must be clear,

unambiguous and specific allegations against the persons who are impleaded as accused

that they were in charge of and responsible to the company in the conduct of its business

in the material time when the offence was committed."

Suman Sethi v. Ajay K. Churiawal

Citation : AIR 2000 SC 828 =2000 Cr. LJ 1391

Held:


7/21

"In the notice, demand has to be made for the said amount i.e., the cheque amount. If

no such demand is made, the notice would fall short of its legal requirement. Where in

addition to the said amount there is also a claim by way of interest, cost etc. whetherthe notice is bad would depend on the language of the notice. If in a notice while giving

the break-up of the claim the cheque amount, interest, damages etc, are separately

specified, other such claims for interest, cost etc would be superfluous and theseadditional claims would be severable and will not invalidate the notice. If, however in the

notice an omnibus demand is made without specifying what was due under the

dishonoured cheque, the notice might well fail to meet the legal requirement and may beregarded as bad"

Sunil Kumar Chhaparia v. Dakka Eshwaraiah and Anr.

Citation : 2002 (108) CC (AP) 687

Andhra Pradesh High Court noted:

there was a consensus of judicial opinion that " a director of a company cannot beprosecuted for an offence under Section 138 of the Act in the absence of a specific

allegation in the complaint that he was in charge of and responsible to the company in the

conduct of its business at the relevant time or that the offence was committed with his

consent or connivance." The Court has quoted several judgments of various High Courtsin support of this proposition. We do not feel it necessary to recount them all.."

Texport Industries Ltd. v. DCM Limited

Citation : Co. Appeal 44/2005

Power of the company court Under Section 391(6) of the Companies Act, 1956 to staycriminal proceedings has given rise to the present appeal

Held:

"The legislature in its wisdom introduced Section 138 of the NI Act conscious of the

existence of the other provisions under the said Act. Thus, Section 138 of the NI Act, a

later enactment, envisaged criminal prosecution for the offence of negotiable instrumentsbeing dishonoured, including cheques. The object was to reinforce sanctity of

commercial transactions. Once the rigours of the provisions have been complied with, a

person/company cannot, as a matter of right, come to the Court to deposit the amount andclaim that the prosecution should be brought to an end. It can, thus, hardly be expected

that the provisions of Sections 442 and 446, or for that matter Section 391 of the said Act,

can be interpreted in a manner so as to bring the proceedings Under Section 138 of the NI

Act to a stand-still. Thus, even if in a scheme which is approved and it was envisaged that


8/21

certain amounts have to be paid, the debtor company or its Directors cannot insist that the

proceedings Under Section 138 of the NI Act be quashed."

"It can hardly be said that the object of Section 391 (6) of the said Act is to prevent action

against the officers of the company who may be involved in cheating, criminal breach of

trust, mis-appropriation, forgery and for that matter dishonour of cheque. Again theprovision cannot be used to bring to an end a prosecution arising from Income Tax Act or

Foreign Exchange Control Act. The proceedings are clearly not of a pecuniary nature

involving recovery of money. Interestingly, even the scheme stated to be approved at thebehest of the respondent company does not envisage bar to any criminal proceedings or

payment of any actual amount in the given facts of the case as discussed at the inception

of this judgment, but only seeks to extinguish the liability of the appellant on the ground

that the respondent is liable to pay a lesser amount, the interest not running, and the claimis alleged to have been extinguished by payment to a third party at the behest of the

appellant for which there is no written document."

Para 33

"We are, thus, unequivocal of the view that Section 391(6) of the said Act does notenvisage either quashing or stay of criminal cases against the company or its Directors

and, thus, the proceedings against the respondents Under Section 138 of the NI Act

instituted by the appellant could not have been stayed."

N. Rangachari Vs.Bharat Sanchar Nigam Ltd

Citation : AIR 2007 SC 1682=JT 2007 (6) SC 292=2007 (5) SCALE 821=(2007) 5

SCC 108

Held:

"That a prosecution could be launched not only against the company on behalf of

which the cheque issued has been dishonoured, but it could also be initiated against every

person who at the time the offence was committed, was in charge of and was responsible

for the conduct of the business of the company. In fact, Section 141 deems such personsto be guilty of such offence, liable to be proceeded against and punished for the offence,

leaving it to the person concerned, to prove that the offence was committed by the

company without his knowledge or that he has exercised due diligence to prevent thecommission of the offence. Sub-section (2) of Section 141 also roped in Directors,

Managers, Secretaries or other officers of the company, if it was proved that the offence

was committed with their consent or connivance".

Para 12


9/21

"A Company, though a legal entity, cannot act by itself but can only act through its

directors. Normally, the Board of Directors act for and on behalf of the company. This is

clear from Section 291 of the Companies Act which provides that subject to theprovisions of that Act, the Board of Directors of a Company shall be entitled to exercise

all such powers and to do all such acts and things as the Company is authorized to

exercise and do.

"A person in the commercial world having a transaction with a company is entitled to

presume that the directors of the company are in-charge of the affairs of the company. If

any restrictions on their powers are placed by the memorandum or articles of the

company, it is for the directors to establish it at the trial. It is in that context that Section141 of the Negotiable Instruments Act provides that when the offender is a company,

every person, who at the time when the offence was committed was in-charge of and was

responsible to the company for the conduct of the business of the company, shall also be

deemed to be guilty of the offence along with the company. It appears to us that anallegation in the complaint that the named accused are directors of the company itself

would usher in the element of their acting for and on behalf of the company and of theirbeing in-charge of the company."

Para 13

"A person normally having business or commercial dealings with a company, would

satisfy himself about its creditworthiness and reliability by looking at its promoters and

Board of Directors and the nature and extent of its business and its Memorandum orArticles of Association. Other than that, he may not be aware of the arrangements within

the company in regard to its management, daily routine, etc. Therefore, when a cheque

issued to him by the company is dishonoured, he is expected only to be aware generallyof who are in-charge of the affairs of the company. It is not reasonable to expect him to

know whether the person who signed the cheque was instructed to do so or whether he

has been deprived of his authority to do so when he actually signed the cheque. Those arematters peculiarly within the knowledge of the company and those in charge of it. So, all

that a payee of a cheque that is dishonoured can be expected to allege is that the persons

named in the complaint are in charge of its affairs. The Directors are prima facie in that

position."

Para 14

"In the light of the ratio in S.M.S. Pharmaceuticals Ltd. what is to be looked into is

whether in the complaint, in addition to asserting that the appellant and another are the

directors of the company, it is further alleged that they are in-charge of and responsible tothe company for the conduct of the business of the company. We find that such an

allegation is clearly made in the complaint which we have quoted above"

Para 17


10/21

"In the case on hand, reading the complaint as a whole, it is clear that the allegations in

the complaint are that at the time at which the two dishonoured cheques were issued bythe company, the appellant and another were the Directors of the company and were in-

charge of the affairs of the company. It is not proper to split hairs in reading the

complaint so as to come to a conclusion that the allegations as a whole are not sufficientto show that at the relevant point of time the appellant and the other are not alleged to be

persons in-charge of the affairs of the company. Obviously, the complaint refers to the

point of time when the two cheques were issued, their presentment, dishonour and failureto pay in spite of notice of dishonour. We have no hesitation in overruling the argument

in that behalf by the learned Senior Counsel for the appellant."

Para 18

We think that, in the circumstances, the High Court has rightly come to the conclusion

that it is not a fit case for exercise of jurisdiction under Section 482 of the Code of

Criminal Procedure for quashing the complaint. In fact, an advertence to Sections 138and 141 of the Negotiable Instruments Act shows that on the other elements of an offence

under Section 138 being satisfied, the burden is on the Board of Directors or the Officersincharge of the affairs of the company to show that they are not liable to be convicted.

Any restriction on their power or existence of any special circumstance that makes them

not liable is something that is peculiarly within their knowledge and it is for them to

establish at the trial such a restriction or to show that at the relevant time they were notincharge of the affairs of the company. Reading the complaint as a whole, we are

satisfied that it is a case where the contentions sought to be raised by the appellant can

only be dealt with after the conclusion of the trial."

S.M.S. Pharmaceuticals Ltd Vs. Neeta Bhalla and Anr

Citation : AIR 2005 SC 3512 = 2005 Cri. LJ 4140=123 (2005) DLT 275 (SC)=2005

(7) SCALE 397= (2005) 8 SCC 89

Question before Court:

(a) whether for purposes of Section 141 of the Negotiable Instruments Act, 1881, it issufficient if the substance of the allegation read as a whole fulfill the requirements of the

said section and it is not necessary to specifically state in the complaint that the persons

accused was in charge of, or responsible for, the conduct of the business of the company.

(b) whether a director of a company would be deemed to be in charge of, and responsible

to, the company for conduct of the business of the company and, therefore, deemed to beguilty of the offence unless he proves to the contrary.

(c) even if it is held that specific averments are necessary, whether in the absence of such

averments the signatory of the cheque and or the Managing Directors of Joint Managing


11/21

Director who admittedly would be in charge of the company and responsible to the

company for conduct of its business could be proceeded against."

Held :

..What is required is that the persons who are sought to be made criminally liableunder Section 141 should be at the time the offence was committed, in charge of and

responsible to the company for the conduct of the business of the company. Every person

connected with the company shall not fall within the ambit of the provision. It is onlythose persons who were in charge of and responsible for conduct of business of the

company at the time of commission of an offence, who will be liable for criminal action.

It follows from this that if a director of a Company who was not in charge of and was not

responsible for the conduct of the business of the company at the relevant time, will notbe liable under the provision. The liability arises from being in charge of and responsible

for conduct of business of the company at the relevant time when the offence was

committed and not on the basis of merely holding a designation or office in a company.

Conversely, a person not holding any office or designation in a Company may be liable ifhe satisfies the main requirement of being in charge of and responsible for conduct of

business of a Company at the relevant time. Liability depends on the role one plays in theaffairs of a Company and not on designation or status. If being a Director or Manager or

Secretary was enough to cast criminal liability, the Section would have said so. Instead of

"every person" the section would have said "every Director, Manager or Secretary in a

Company is liable"....etc. The legislature is aware that it is a case of criminal liabilitywhich means serious consequences so far as the person sought to be made liable is

concerned. Therefore, only persons who can be said to be connected with the commission

of a crime at the relevant time have been subjected to action.A reference to Sub-section (2) of Section 141 fortifies the above reasoning because Sub-

section (2) envisages direct involvement of any Director, Manager, Secretary or other

officer of a company in commission of an offence. This section operates when in a trial itis proved that the offence has been committed with the consent or connivance or is

attributable to neglect on the part of any of the holders of these offices in a company. In

such a case, such persons are to be held liable. Provision has been made for Directors,Managers, Secretaries and other officers of a company to cover them in cases of their

proved involvement.

The conclusion is inevitable that the liability arises on account of conduct, act oromission on the part of a person and not merely on account of holding an office or a

position in a company. Therefore, in order to bring a case within Section 141 of the Act

the complaint must disclose the necessary facts which make a person liable.

Para 14

There is almost unanimous judicial opinion that necessary averments ought to be

contained in a complaint before a persons can be subjected to criminal process. A liability

under Section 141 of the Act is sought to be fastened vicariously on a person connected

with a Company, the principal accused being the company itself. It is a departure from


12/21

the rule in criminal law against vicarious liability. A clear case should be spelled out in

the complaint against the person sought to be made liable. Section 141 of the Act

contains the requirements for making a person liable under the said provision. Thatrespondent tails within parameters of Section 141 has to be spelled out. A complaint has

to be examined by the Magistrate in the first instance on the basis of averments contained

therein. If the Magistrate is satisfied that there are averments which bring the case withinSection 141 he would issue the process. We have seen that merely being described as a

director in a company is not sufficient to satisfy the requirement of Section 141. Even a

non director can be liable under Section 141 of the Act. The averments in the complaintwould also serve the purpose that the person sought to be made liable would know what

is the case which is alleged against him. This will enable him to meet the case at the

trial.

In view of the above discussion, our answers to the questions posed in the Reference are

as under:

(a) It is necessary to specifically aver in a complaint under Section 141 that at the timethe offence was committed, the person accused was in charge of, and responsible for the

conduct of business of the company. This averment is an essential requirement of Section141 and has to be made in a complaint. Without this averment being made in a complaint,

the requirements of Section 141 cannot be said to be satisfied.

(b) The answer to question posed in sub-para (b) has to be in negative. Merely being adirector of a company is not sufficient to make the person liable under Section 141 of the

Act. A director in a company cannot be deemed to be in charge of and responsible to the

company for conduct of its business. The requirement of Section 141 is that the personsought to be made liable should be in charge of and responsible for the conduct of the

business of the company at the relevant time. This has to be averred as a fact as there is

no deemed liability of a director in such cases.

(c) The answer to question (c ) has to be in affirmative. The question notes that the

Managing Director or Joint Managing Director would be admittedly in charge of thecompany and responsible to the company for conduct of its business. When that is so,

holders of such positions in a company become liable under Section 141 of the Act. By

virtue of the office they hold as Managing Director or Joint Managing Director, these

persons are in charge of and responsible for the conduct of business of the company.Therefore, they get covered under Section 141. So far as signatory of a cheque which is

dishonoured is concerned, he is clearly responsible for the incriminating act and will be

covered under Sub-section (2) of Section 141.

D.K. GOEL V. DR (MRS.) KAMAL SUJIT

Citation : 2001 (4) CRIMES 170


13/21

Held:

Verbal intimation -not a demand

Intimation to the accused regarding dishonour of Cheque which presumably was verbal,

can not be treated as a demand within the meaning of proviso to Section 138 of the N.I.

Act.

JAYASWALS NECO. LTD. V. ISHER ALLOYS STEELS LTD.


Held:

"There is no provision in Sec. 138 of the NI Act that the presentment of Cheque should

be the drawers bank only. The Cheque can be presented either in the payees bank or in

the drawers bank within a period of six months from the date on which it was drawn."

ALKA N. SHAH V. STATE OF GUJRAT


Held:

"Cause of action under 138 of Act can not be said to have been accrued against the Ex.Managing Director of the company"

SESSERIYIL JOSEPH V. DEVASSIA

Citation : 2001 CR. LJ 24 (KER)

Held:

"S. 138 is attracted only if the cheque is issued for the discharge of a legally enforceable

debt or other liability. If a cheque is issued for a time-barred debt and it is dishonoured,

the accused can not be convicted under S. 138 of the Negotiable Instruments Act, simply

on the ground that the debt was not legally recoverable "


14/21

Uniplas India Ltd. V. State

Citation : AIR 2001 SC 2625= (2001) 6 SCC 8= 2001 Cr. LJ 3326

Held:

"If any notice is issued under S. 434 of the Companies Act within 15 days of the

information from the bank regarding return of the cheque drawn by a company as unpaid,such a notice would as well as be good enough under Cl (b) of the proviso to S. 138 of

the Negotiable Instruments act"

Rajneesh Aggarwal v. Amit J. Bhalla

Citation : (2001) 1 SCC 631

Held:

"Even if the amount in question was deposited after the complaint had been institutedUnder Section 138 of the NI Act, by no stretch of imagination the criminal proceedings

can be quashed on account of the said deposit of money in Court nor could it be held that

the criminal proceedings were unsustainable in law because of deposit of money."

K. Chellakkannu Nadar V. Sri Chenkal M.R. Simen

Citation : 2001 CRL. L.J. 2322

Held:

"Once the offence is complete with the failure to pay the amount within the prescribed

period after making demand in writing a subsequent presentation of the Cheque for

encashment is of no use so far as Sec. 138 of the Act is concerned.


15/21

SATISH KUMAR GOENKA V. S.R.K. MOHAN 2000(4) CRIMES 253

Citation : 2000(4) CRIMES 253

Held:

"Section 5 of the Limitation Act applies to a complaint filed under Section 138 of the NI

Act and if the court is satisfied that there is a sufficient cause for not filing the complaintwithin the time prescribed under sub-clause (b) of Section 142 the period of limitation

can be extended and the delay in fling a complaint can be condoned."

Kusum ingots & alloys ltd. v. Pennar Peterson Securities Ltd.

Citation : AIR 2000 SC 954= 2000 Cr. L.J. 1464

Held:

"Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, does not

create any legal impediment for instituting and proceeding with a criminal case on theallegation of offence under S. 138 of the Negotiable Instruments Act against a company

or its directors"

KATTA SUJATHA V. FERTILIZERS & CHEMICALS TRAVANCORE

Citation : 2003 SCC (CR.) 151

Held :

"The partner of a firm is liable to be convicted for an offence committed by the firm if he

was in charge of and was responsible to the firm for the conduct of the business of the

firm or if it is proved that the offence was committed with the consent or connivance of,or was attributed to any neglect on the part of the partner concerned"

VETERAN Co. (P) Ltd. vs. State

Citation : 2004 Cr LJ 1258 (Cal)

Held:


16/21

"Non-compliance with Section 204 (2) of the Criminal Procedure Code is not a serious

lacuna in the complaint as the complainant is also entitled to furnish additional list ofwitnesses. However, if any prejudice is caused to the accused for non-furnishing of

witness, he can be satisfied by giving sufficient time to set up his defence. In a complaint

under Section 138, Negotiable Instruments Act normally there would be only one witnessi.e. person in whose favour the cheque is issued. Therefore, the non-compliance of

Section 204 (2) CR PC is not a slip in case of this nature"

Orkay Industries Ltd. v. State of Maharastra

Citation : (1998) 2 Mah L.J. 910 (D.B)

Held:

"Mere on the presentation of a petition for winding up the affairs of a company do not

come to an absolute standstill. If after notice under S. 138 of the Negotiable InstrumentsAct, payments have not been made merely on the ground that the petition for winding up

has been presented, there would a failure to make payment under S. 138 of the

Negotiable Instruments Act"

M/s Kusum Ingots & Alloys Ltd. v. M/s. Pennar Peterson Securities Ltd. & Ors.

Citation : AIR 2000 SC 954=84 ( 2000 )DLT 229 ( SC )= JT 2000 (2) SC 390

Held:

"A bare reading of the Section 22 of the SICA makes the position clear that during

pendency of an inquiry under Section 16 or during the preparation of a scheme referred tounder Section 17 or during implementation of a sanctioned scheme or pendency of an

appeal under Section 25, no proceedings for winding up of the industrial company or for

execution, distress or the like against any of the properties of the industrial company or

for the appointment of a receiver in respect thereof and no suit for the recovery of moneyor for enforcement of any security against the industrial company or of any guarantee in

respect of any loans or advance granted to the industrial company, shall lie or be

proceeded with further, except with the consent of the Board or, the Appellate Authority,as the case may be. The section only deals with proceedings for recovery of money or for

enforcement of any security or a guarantee in respect of any loans or advance granted to

the company and a proceedings for winding up of the company. The section does notrefer to any criminal proceeding. In B.S.I. Ltd. and Anr. v. Gift Holdings Pvt. Ltd.

Criminal Appeal No. 847 of (1999) we held that pendency of proceeding under Section

22(1) of SICA alone is not sufficient to get absolved from the liability under Section 138

of the NI Act."


17/21

ANIL G. SHAH V. J CHITTRANJAN CO

Citation : 1998 CR LJ 3870= (1998) 2 CRIMES 247(GUJ)

Held:

"Once the Magistrate happens to take cognizance of the offence under S. 138, the deathof the Payee-complainant of the cheque has no bearing on the trial in question. There is

no provision of the code of criminal procedure or in the Negotiable Instrument Act laying

down that on account of death of payee, the trial must abate. When there is no such

provision either in the code of criminal procedure o r in negotiable instruments act, thenmerely because the original complainant payee has died, there could not be abatement

of the proceedings. The legal heirs of the original complainant are entitled to come

forward and ask for their substitution in place of the complainant so as to proceed further

with the trial "

S.M.S. PHARMACEUTICALS LTD. V. NEETA BHALLA AND ANOTHER

Citation : 2005 (8) SCC 89

Held :

there is almost unanimous judicial opinion that necessary averments ought to be

contained in a complaint before a person can be subjected to criminal process. A liability

under section 141 of the Act is sought to be fastened vicariously on a person connectedwith a company, the principle accused being the company itself. It is a departure from the

rule in criminal law against vicarious liability. A clear case should be spelt out in the

complaint against the person sought to be made liable. Section 141 of the Act containsthe requirements for making a person liable under the said provision. That the respondent

falls within the parameters of Section 141 has to be spelled out. A complaint has to be

examined by the Magistrate in the first instance on the basis of averments contained

therein, if the Magistrate is satisfied that there are averments which bring the case withinSection 141, he would issue the process. We have seen that merely being described as a

Director in a company is not sufficient to satisfy the requirement of Section 141. Even a

non-director can be liable under Section 141 of the Act. The averments in the complaintwould also serve the purpose that the person sought to be made liable would know what

is alleged against him. This will enable him to meet the case at the trial.

Para 18

Merely being a Director of a company is not sufficient to make the person liable

under Section 141 of the Act. A Director in a company can not be deemed to be in charge


18/21

of and responsible to the company for the conduct of its business. The requirement of

Section 141 is that the person sought to be made liable should be in charge of and

responsible for the conduct of the business of the company at the relevant time. This hasto be averred as a fact as there is no deemed liability of a Director in such cases.

.the Managing Director or Joint Managing Director would be admittedly in chargeof the company and responsible to the company for the conduct of its business. When that

is so, holders of such positions in a company become liable under Section 141 of the Act,

by virtue of the office they hold as Managing Director or Joint Managing Director, therepersons are in charge of and responsible for the conduct of business of the company.

Therefore, they get covered under Section 141. So far as the signatory of a cheque which

is dishonoured is concerned, he is clearly responsible for the incriminating act and will be

covered under sub-section (2) of Section 141.

S.K.D. Lakshmanan V. Sivarama Krishn & Anr

Citation : 1995 CRL L.J. 1384 (F.B)

Held:

"The payee or holder in due course is at liberty to present the cheque for payment till itis honoured within the period of six months or of its validity. It is open to him to present

it even after his failure to file a complaint on the basis of the first cause of action accrued

to him. If the Cheque is again dishonoured, it will again be open to the payee or holder indue course to issue a notice demanding payment of the amount due as per the Cheque. If

the drawer once again fails to satisfy the demand, working of the Section 138 is wide

enough to permit the payee or holder in due course to claim that he had acquired a freshcause of action and the provision would plainly enable him to establish all the ingredients

of the offence against the drawer in case he files a complaint within the time allowed by

Section 142 (b) of the Act.

Texport Industries Ltd. v. DCM Limited

Citation : Co. Appeal 44/2005

Power of the company court Under Section 391(6) of the Companies Act, 1956 to staycriminal proceedings has given rise to the present appeal

Held:

"The legislature in its wisdom introduced Section 138 of the NI Act conscious of the

existence of the other provisions under the said Act. Thus, Section 138 of the NI Act, a

later enactment, envisaged criminal prosecution for the offence of negotiable instruments


19/21

being dishonoured, including cheques. The object was to reinforce sanctity of

commercial transactions. Once the rigours of the provisions have been complied with, a

person/company cannot, as a matter of right, come to the Court to deposit the amount andclaim that the prosecution should be brought to an end. It can, thus, hardly be expected

that the provisions of Sections 442 and 446, or for that matter Section 391 of the said Act,

can be interpreted in a manner so as to bring the proceedings Under Section 138 of the NIAct to a stand-still. Thus, even if in a scheme which is approved and it was envisaged that

certain amounts have to be paid, the debtor company or its Directors cannot insist that the

proceedings Under Section 138 of the NI Act be quashed."

"It can hardly be said that the object of Section 391 (6) of the said Act is to prevent action

against the officers of the company who may be involved in cheating, criminal breach of

trust, mis-appropriation, forgery and for that matter dishonour of cheque. Again theprovision cannot be used to bring to an end a prosecution arising from Income Tax Act or

Foreign Exchange Control Act. The proceedings are clearly not of a pecuniary nature

involving recovery of money. Interestingly, even the scheme stated to be approved at the

behest of the respondent company does not envisage bar to any criminal proceedings orpayment of any actual amount in the given facts of the case as discussed at the inception

of this judgment, but only seeks to extinguish the liability of the appellant on the groundthat the respondent is liable to pay a lesser amount, the interest not running, and the claim

is alleged to have been extinguished by payment to a third party at the behest of the

appellant for which there is no written document."

Para 33

"We are, thus, unequivocal of the view that Section 391(6) of the said Act does notenvisage either quashing or stay of criminal cases against the company or its Directors

and, thus, the proceedings against the respondents Under Section 138 of the NI Act

instituted by the appellant could not have been stayed."

SABITHA RAMAMURTHY AND ANOTHER V. R.B.S.

CHANNBASAVARADHYA

Citation : (2006) 10 SCC 581

Held :

"A bare perusal of the complaint petition demonstrates that the statutory requirements

contained in Section 141 of the Negotiable Instrument Act had not been complied with. It

may be true that it is not necessary for the complainant to specifically reproduce thewordings of the section but what is required is a clear statement of fact so as to enable the

Court to arrive at a prima facie opinion that the accused are vicariously liable. Section

141 raises a legal fiction. By reason of the said provision, a person although is not

personally liable for commission of such an offence would be vicariously liable there for.


20/21

Such vicarious liability can be inferred so far as company registered or incorporated

under the Companies Act, 1956 is concerned only if the requisite statements, which are

required to be averred in the complaint petition, are made so as to make the accusedtherein vicariously liable for the offence committed by the company. Before a person can

be made vicariously liable, strict compliance with the statutory requirements would be

insisted. Not only the averments made in para 7 of the complaint petitions do not meetthe said statutory requirements, the sword statement of witness made by the son of the

respondent herein, doe not contain any statement that the appellants were in charge of the

business of the company. In a case where the Court is required to issue summons whichwould put the accused to some sort of harassment; the Court should insist strict

compliance with the statutory requirements. In terms of Section 200 of the Code of

Criminal Procedure, the complainant is bound to make statements on oath as to how the

offence has been committed and how the accused persons are responsible there for. In theevent, ultimately, the prosecution is found to be frivolous or otherwise malafide, the

Court may direction registration of case against the complainant for malafide prosecution

of the accused. The accused would also be entitled to file a suit for damages. The relevant

provisions of the Code of Criminal Procedure are required to be construed from theaforementioned point of view"

BSI Ltd. and Anr. etc. v. Gift Holdings Pvt. Ltd. and Anr., etc.

Citation : AIR 2000 SC 926 = 2000 Cri LJ 1424

Question arose whether Section 2(1) of the Sick Industrial Companies (SpecialProvisions) Act, 1985 (in short SICA) declaring out a sick company could bar the

institution of criminal complaint against the company and its Directors Under Section

138 of the NI Act.

Held:

A criminal prosecution is neither for recovery of money nor for enforcement of any

security etc. Section 138 of the NI Act is a penal provision the commission of which

offence entails a conviction and sentence on proof of the guilt in a duly conducted

criminal proceedings. Once the offence under Section 138 is completed the prosecutionproceedings can be initiated not for recovery of the amount covered by the cheque but for

bringing the offender to the penal liability. What was considered in Maharashtra Tubes

Ltd. (supra) is whether the remedy provided in Section 29 or 31 of the State FinanceCorporation Act, 1951 could be pursued notwithstanding the ban contained in Section 22

of the SICA. Hence the legal principal adumbrated in the said decision is of no avail to

the appellants.

Para 20


21/21

NI Act Digest

Documents

Transcript of NI Act Digest