1998 ALL MR (Cri) JOURNAL 12
IN THE HIGH COURT OF JUDICATURE AT GUJARAT

R.R. JAIN, J.

Montari Industries Ltd. & Ors. Vs. State Of Gujarat & Ors.

Criminal Misc. Application No.2267 of 1997,Criminal Misc. Application No.2268 of 1997,Criminal Misc. Application No.2269 of 1997,Criminal Misc. Application No.2270 of 1997

4th July, 1997

Petitioner Counsel: B.S. PATEL, Mrs. RANJAN B. PATEL
Respondent Counsel: S.A. PANDYA, ASHOK L. SHAH

(A) Negotiable Instruments Act (1881) S.138 - Dishonour of cheque - Mere advance intimation to drawee not to present the cheque without making arrangement for sufficient funds in the account does not exonerate the drawer from the liability under Section 138.

Simple advance intimation not to present the cheque without making arrangement for sufficient funds in the account would not exonerate the drawer from the criminal liability contemplated under Section 138 of the Act. The advance intimation not to present the cheque should contain detailed sufficient and legally tenable reasons. Otherwise, anybody by giving cheque would induce somebody to act on it and without making arrangements of funds would simply inform the payee not to deposit and would get rid of liability. To say so is to encourage dishonesty and frustrate the object of Section 138 of the Act. If the drawer after issuance of cheque informs the drawee for not presenting the cheque for encashment without sufficient funds in his account, one has to raise statutory presumption that the cheque was given with dishonest intention to induce the payee to act on it and thus shall be deemed to have committed offence. 1997(1) ALL MR 502 = 1997 ALL MR (Cri) 304 followed.

(B) Negotiable Instruments Act (1881) S.141 - Offence committed by firm or company - Director or Partner primarily liable - No express allegation need be made against particular partner/director.

In the case of company and firm, Director and partner is always primarily liable, of course, subject to effective participation, knowledge, etc. Ordinarily also a company as a legal entity, has no soul, mind or limb to work physically and has to discharge functions through some human agency. Such human agency recognised under law to work, would always be liable for and on behalf of company. A company can be sentenced and, therefore, wherever the criminal liability refers to awarding sentence, such human agency only has to be convicted and sentenced. In the result, no such express allegations are required to be made against such human agency.

Cases Cited:
1997 ALL MR (Cri) 1027 (S.C.)=1996(1) JT (SC) 643, (1996 Cri L.J. 1692) [Para 5,8]
1990(1) GLR 557 [Para 6,7]
1997(1) ALL MR 502 (S.C.)=(1996)6 SCC 369 [Para 6,11]
1997 ALL MR (Cri) 304 (S.C.)=(1996)6 SCC 369 [Para 6,11]


JUDGMENT

JUDGMENT :- Heard Mr. B.S. Patel learned advocate for the petitioners. Mr. S.A. Pandya Learned A.P.P. for respondent No.1 - State and Mr. Ashok L. Shah learned advocate for respondent No.2.

2. Since all these matters involve identical question of law and as are between same parties represented by same advocates, are disposed of by this common order.

3. The petitioner No.1 is a Corporate Body of which petitioner No.2 is also a Company. As alleged, the petitioners borrowed some amount from respondent No.2 and in payment thereof gave some cheques of different amounts and dates drawn on Standard Chartered Bank. Parliament Street, New Delhi. On deposit, the said cheques were returned dishonoured, therefore, respondent No.2 filed four different criminal complaints under Section 138 of the Negotiable Instruments Act ('the Act' for short) in the Court of learned Metropolitan Magistrate (Court NO.9), Ahmedabad. The learned Magistrate was pleased to take cognizance and issued process. Aggrieved by the institution and subsequently taking cognizance by the learned Magistrate, the petitioners/original accused have filed these petitions for quashing in exercise of inherent powers under Section 482 of the Criminal Procedure Code ('The Code' for short).

4. A few relevant facts of all the cases are stated hereinunder :

CRIMINAL MISC. APPLICATION NO.2267 OF 1997

Cheque No. 473530 dated 10-5-1996 drawn on Standard Chartered Bank, Parliament Street, New Delhi, for Rs.30,00,000/- (Rupees thirty lacs only) was issued by the petitioners to respondent No.2 towards discharge of liability. The said cheque was deposited on 10-6-1996. As there were no sufficient funds the same was returned dishonoured on 13-6-1996 under intimation dated 18-6-1996 with an endorsement "exceeds arrangement". Consequently, the respondent No.2 filed Criminal Case No. 2543 of 1996.

CRIMINAL MISC. APPLICATION NO.2268 OF 1997

Cheque No. 473521 dated 10-5-1996 drawn on Standard Chartered Bank, Parliament Street, New Delhi, for Rs.1,59,049/- (Rupees one lac fifty nine thousand forty nine only) was issued by the petitioners to respondent No.2 towards discharge of liability. The said cheque was deposited on 10-6-1996. As there were no sufficient, funds the said cheque was returned dishonoured on 13-6-1996 under intimation dated 18-6-1996 with an endorsement "exceeds arrangement". Consequently, the respondent No.2 filed Criminal Case No.2544 of 1996.

CRIMINAL MISC. APPLICATION NO.2269 OF 1997

Cheque No. 473523 dated 6-3-1996 drawn on Standard Chartered Bank, Parliament Street, New Delhi, for Rs.2,65,283.00 (Rupees two lac sixty five thousand two hundred eighty three only) was issued by the petitioners to respondent No.2 towards discharge of liability. The said cheque was deposited on 10-6-96. As the payment was stopped by the drawer on 15-6-1996, the same was returned on 19-6-1996 with an endorsement 'payment stopped by drawer'. Consequently, the respondent No.2 filed Criminal Case No. 2542 of 1996.

CRIMINAL MISC. APPLICATION NO.2270 OF 1997

Cheque No. 473522 dated 6-3-1996 drawn on Standard Chartered Bank, Parliament Street, New Delhi, for Rs.50,00,000/- (Rupees fifty lacs only) was issued by the petitioners to respondent No.2 towards discharge of liability. The said cheque was deposited on 10-6-1996. As the payment was stopped by the drawer on 15-6-1996 the same was returned on 19-6-1996 with an endorsement "payment stopped by drawer". Consequently, the respondent No.2 filed Criminal Case No.2541 of 1996.

5. Mr. Patel, learned advocate for the petitioners, has argued that a legal express bar is engrafted in the provisions of law in continuing the proceedings on following grounds, consequently, continuation would be abuse of process and unnecessary harassment :

(i) that at the relevant time proceedings were initiated under Sick Industrial Companies (Special Provisions) Act, 1985 and Section 22 thereof engrafts express legal bar in continuing any legal proceedings:

(ii) before depositing the cheques in the bank by the respondent No.2 the petitioners had already intimated the respondent No.2 not to deposit the cheques and as per ratio laid down in the case of ET & TD Corpn. Ltd. V. M/s. Indian Technologists & Eng. (Electronics) Pvt. Ltd. 1996(1) JT (SC) 643 = 1997 ALL MR (Cri) 1027 = (1996 Cri L.J. 1692) there is an express bar in initiating criminal proceedings.

(iii) that no allegations are made against petitioner No.2 who is a Director.

6. To counter these arguments of Mr. Patel learned advocate for the petitioners, Mr. A.L. Shah learned advocate for the respondent No.2 has relied upon judgment of those Court in the case of Vijay Mills Co. Ltd. V. State reported in 1990(1) GLR 557 as well as the latest judgment of the Supreme Court in the case of K.K. Sidharthan v. T.P. Praveena Chandran, reported in (1996)6 SCC 369 = 1997(1) ALL MR 502 = 1997 ALL MR (Cri) 304.

7. In support of his first contention Mr. Patel for the petitioners has placed heavy reliance upon Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 stating the express legal bar is engrafted against institution and continuation. But on mere perusal of said section it is clear that the provisions of the Section apply only to winding up, execution, distress or like steps against the company can be taken within its sweep consequently, the institution and continuation of criminal proceedings is not vitiated or affected by and such alleged bar under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. My this view is fortified by a judgment of this Court in the case of Vijay Mills Co. Ltd., (supra). Thus, the submission of Mr. Patel on this count has no force in law and does not require any recognition.

8. As regards second contention, as held by the Supreme Court in the case of ET & TD Corpn. Ltd. (supra), it is true that after issuance of cheque and before its presentation or encashment if the drawer issued notice to the drawee not to present the cheque for encashment and still the drawee presents the cheque for encashment and is returned dishonoured provisions of Section 138 of the Act does not get attracted and no criminal prosecution can be initiated. But, with great respect, I say that the Apex Court has not clarified as to what shall be the nature and contents of such advance intimation. However, relying upon the judgment in the case of ET & TD Corpn. Ltd. (supra), the Apex Court has clarified in the subsequent judgment in the case of K.K. Sidharthan (supra) the nature of advance intimation to the drawee or holder of the cheque.

9. The object of bringing Section 138 of the Act on Statute appears to be to inculcate faith in the efficacy of Banking operations and credibility in transacting business on negotiable instruments. Despite civil remedy. Section 138 of the Act intended to prevent dishonesty on the part of the drawer of negotiable instrument to draw a cheque without sufficient funds in his account maintained by him in a bank and induces the payee or holder in due course to act upon it. Therefore, as held by the Supreme Court, once a cheque is drawn by a person on an account maintained by him for payment of any amount or discharge of liability or debt and is returned by the bank with endorsement like (i) refer to drawer, (ii) exceeds arrangement, (iii) instruction for stoppage of payment and like other usual endorsements, it amounts to dishonour within the meaning of Section 138 of the Act, therefore, even after issuance of notice if the payee or holder does not make the payment within stipulated period, the statutory presumption would be of dishonest intention exposing to criminal liability. In the instant cases, two cheques have not been encashed because the amount of cheques exceeded the arrangements made i.e., insufficient funds in the bank and other two cheques are returned because payment was stopped by the drawer. Prima facie, this amounts to dishonour, raising statutory presumption of dishonest intention, bringing the cases within the sweep of Section 138 of the Act.

10. Mr.Patel for the petitioners has argued that the petitioners had already informed the payee before the date of presentation of the cheques not to present yet the cheques were presented and dishonoured and hence the provisions of Section 138 of the Act would not get attracted.

11. But as held by the Supreme Court in the case of K.K. Sidharthan (supra) simple advance intimation not to present the cheque without making arrangement for sufficient funds in the account would not exonerate the drawer from the criminal liability contemplated under Section 138 of the Act. The advance intimation not to present the cheque should contain detailed sufficient and legally tenable reasons. Otherwise, anybody by giving cheque would induce somebody to act on it and without making arrangements of funds would simply inform the payee not to deposit and would get rid of liability. To say so is to encourage dishonesty and frustrate the object of Section 138 of the Act. If the drawer after issuance of cheque informs the drawee for not presenting the cheque for encashment without sufficient detailed and legally tenable reasons grounds and without making arrangement for sufficient funds in his account, in my view, one has to raise statutory presumption that the cheque was given with dishonest intention to induce the payee to act on it and thus shall be deemed to have committed offence.

12. In the instant case admittedly the advance intimation refers to protection under Section 22 of The Sick Industrial Companies (Special Provisions) Act, 1985 and pendency of BIFR proceedings. As discussed above, this is not a legally tenable ground. This does not come in way of petitioners to fulfill the promises upon which have made other one (payee) to believe and act. It is also an admitted fact that despite giving cheques funds were not arranged. The act of not making arrangements for funds ipso facto reflects that drawer did not have intention of honouring the same and thus raising presumption about dishonest intention. The reasons contained in advance intimation should be such that despite making arrangements for the funds the drawer is reasonably prevented from honouring the cheque, therefore, has expressed the inability in advance with a request not to present the cheque.

13. In Criminal Misc. Application No.2267 of 1997, the petitioners have relied upon advance intimation dated 26-2-1996. But the same does not pertain to cheque No.473530 which is the subject-matter of the complaint and hence of no avail. Even treating this as an advance intimaation, it clearly shows that the petitioners were not able to make arrangement for sufficient funds. This statement itself reflects upon the dishonest intention. Similarly, in Criminal Misc. Application No.2268 of 1997 the criminal proceedings are initiated for dishonour of cheque No.473521 and the so-called advance intimation dated 26-2-1996 is in connection with some other cheque. Therefore, in the eye of law, this is no more an advance intimation. Yet for the sake of arguments, even if it is taken as an advance intimation, the intimaation does not contain sufficient and tenable reasons and only says that petitioners have not been able to make arrangement for sufficient funds. In Criminal Misc. Application No.2269 of 1997 though advance intimaation pertains to cheque in question and the payment was stopped by drawer yet prima facie it constitutes offence because in advance intimaation petitioners expressed inability to make arrangement for sufficient funds in the account maintained in the bank. In Criminal Misc. Application No.2270 of 1997 also the payment was stopped by drawer on account of inability to make sufficient funds in the account. As discussed above, an advance notice not to present cheque without making arrangements for sufficient funds does not take out the case from the ambit of Section 138 of the Code. Therefore, prima facie, the act amounts to an offence.

14. The third contention has no force in law by virtue of Section 141 of the Act. In case of company and firm. Director and partner is always primarily liable, of course, subject to effective participation, knowledge, etc. Ordinarily also a company as a legal entity, has no soul, mind or limb to work physically and has to discharge functions through some human agency. Such human agency recognised under law to work, would always be liable for and on behalf of company. A company can be sentenced and therefore, wherever the criminal liability refers to awarding sentence, such human agency only has to be convicted and sentenced. In the result, no such express allegations are required to be made against such human agency.

15. For the reasons stated above, any interference by this Court in exercise of inherent powers at the initial stage would amount to scuttling the prosecution in its embryo without affording opportunity to the parties to lead their evidence and the Court to appreciate. As a cardinal rule, the Court should be slow in exercising inherent powers in quashing proceedings at the initial stage as same are required to be used sparingly and in rare cases to prevent abuse of process of Court. In the instant cases, prima facie, ingredients of Section 138 of the Act are satisfied consequently, the petitioners shall be deemed to have committed an offence exposing to criminal liability, of course, subject to appreciation of evidence by the Court below. Therefore, in my view, initiation of criminal proceedings is completely in accordance with law and cannot be termed as an abuse of process of Court. Under these circumstances, the applications being devoid of merits do not require any further consideration. Hence, the applications are rejected. Notice is discharged. Interim relief stands vacated.

16. At this stage, Mr.Patel for the petitioners, requests the Court to stay operation of order for a period of eight weeks. Mr.Shah for the respondent No.2 has no objection if reasonable time is given so as to approach the Apex Court. Accordingly, operation of order is stayed till 19-8-1997.

Petition dismissed.