Crl. P. No.4136 of 1996

24th July, 1997

Petitioner Counsel: Mr. C. B. RAMMOHAN REDDY
Respondent Counsel: Mr. I. VENKATANARAYANA

Cases Cited:
1994 (2) ALT (Crl) 475 (AP) [Para 5]
AIR 1960 Cal. 469 [Para 8]

JUDGMENT

JUDGMENT :- This petition is filed under Section 482 Cr.P.C. to quash the proceedings in C.C.No.376 of 1995 on the file of the VIII Metropolitan Magistrate, Vijayawada.

2. The facts in giving rise to the filing of this petition are, briefly, as follows:

3. It is mentioned in the complaint that the second respondent is the company and manufactures DAP and other fertilisers. The first petitioner is the firm represented by its Managing Partner, the second petitioner, and did business in the name and style of Sri Srinivasa Trading Company at Pamidipadu, Guntur District and the petitioners 2 and 3 are the partners of the first petitioner firm. It is further alleged that the company used to supply fertilisers and chemicals to the petitioners on credit and when the accounts were settled, the first petitioner issued a cheque for Rs.2,92,072.62 Ps. drawn on Andhra Bank, Vinumonda Branch alongwith a letter requesting to present the cheque in second week of May, 1993 and accordingly, they presented the cheque on 17-5-1993 with their Banker, Andhra Bank, Labbipet, Vijayawada for collection, the cheque was returned with an endorsement 'insufficient funds' on 25-5-1993 with a debit charge of Rs.449.50 Ps. towards bank charges. Then the complainant gave a phonogram to the first petitioner on the same day informing about the dishonour of cheque and demanded payment of the sum within fifteen days. Again on 31-5-1993, the complainant got issued another notice through advocate and it was returned on 1-6-93 with an endorsement that the accused left without instructions. Again the complainant after making enquiries got issued another notice under certificate of posting on 3-6-1993 and all the accused gave reply with false and frivolous allegations denying the cheque. It is further alleged that the petitioners filed IP No.17-93 on the file of the Sub-Court, Narsaraopet to declare them as insolvent persons and thus he sought to punish the accused.

4. Now the petitioners filed this petition to quash the proceedings.

5. The learned Counsel for the petitioners submitted that the petitioners already filed I.P. No.17/93 on the file of the Sub-Court, Narsaraopet showing the second respondent as creditor and in view of the filing of the said insolvency petition, the second respondent is not entitled to prosecute the petitioners for an offence under Section 138 of the Negotiable Instruments Act. He further submitted that under Section 28 of the Provincial Insolvency Act no suit or other legal proceeding except with the leave of the Court can be initiated or prosecuted and similar provision under Section 446 is incorporated in Companies Act and this Court quashed the proceedings initiated for the offence under Section 138 of the Negotiable Instruments Act in view of the winding up orders passed in a Company Petition and Liquidator was appointed and he relied on a decision Venkateswara Rao Vs. Abdul Lateef & Anr., 1994 (2) ALT (Crl.) 475 (AP), wherein it is held as under :-

"..... It is contended inviting attention to Sec.446 of the Companies Act that the winding up proceeding is filed in the Court and when the Court had passed an order appointing Official Liquidator, no legal proceeding shall be instituted or if pending earlier, it cannot be proceeded further without the leave of the Court. Leave was not taken and therefore, the prosecution filed by the de facto complainant is bad in law.

Accepting the contention, it is held that the prosecution filed against the petitioner is bad in law and therefore, it stands quashed ....."

He further submitted that, admittedly, no leave of the Court was obtained to continue the proceedings in C.C. No.376 of 1995 the said proceedings are liable to be quashed.

6. But the learned Counsel for the respondents submitted that though the petitioners filed insolvency petition, they are not adjudicated as insolvents and hence, the question of invoking Section 28 of the Provincial Insolvency Act does not arise. He further submitted that even otherwise the suits or other proceedings as mentioned in Section 28 of the Act means suit or legal proceedings against the property of an insolvent which vests in the Receiver, but not with regard to the criminal proceedings.

7. It is useful to extract Section 28 of the Provincial Insolvency Act to appreciate the rival contentions of both the parties :-

"(1) On the making of an order of adjudication, the insolvent shall aid to the utmost of his power in the realisation of his property and the distribution of the proceeds among his creditors.

(2) On the making of an order of adjudication, the whole of the property of the insolvent shall vest in the Court or in the Receiver as hereinafter provided, and shall become divisible among the creditors, and thereafter, except as provided by this Act, no creditor to whom the insolvent is indebted in respect of any debt provable under this Act shall during the pendency of the insolvency proceedings have any remedy against the property of the insolvent in respect of the debt, or commence any suit or other legal proceedings except with the leave of the Court and on such terms as the Court may impose.

(3) x x x x

(4) x x x x

(5) x x x x

(6) x x x x

(7) x x x x "

8. Thus it is clear that Section 28 is applicable only when an order of adjudication was passed. It appears that the petitioners and another filed I.P. No.17/1993 seeking to adjudicate them as insolvent showing the second respondent as 110th respondent-creditor and the debt shown is Rs.1,56,000/-. It is also an admitted fact that still the insolvency petition is pending and no adjudication order was passed. Hence, the question of obtaining leave of the Court in view of Section 28(2) does not arise. Even otherwise, the suit or other legal proceedings means suit or other legal proceedings against the property of the insolvent which vests in the Receiver but not with regard to criminal proceedings. The Calcutta High Court in a decision Damodar Mukherjee & Ors. Vs. Bonwarilal Agarwalla & Ors., AIR 1960 Cal. 469, took the view that there is no bar against personal action and it is observed as under:-

"..... The words "suit or other legal proceedings" in Sec.28(2) mean suit or other legal proceedings against the property of the insolvent, which vests in the Receiver and the remedy against which is controlled by that sub-section. Section 28(2) has no application in respect of any suit or appeal which is merely a personal action against the insolvent, for example, a suit for bare claim of money against the insolvent. This view finds additional support from the provisions of Sec.59(d) under which the Receiver's right to defend has been limited only to suits or other legal proceedings relating to the property of the insolvent ....."

9. The section is based on the broad principle that when once a person is adjudicated as an insolvent, creditors seeking any remedy against him must come to Insolvency Court and the operation of Sec.28 affects all the creditors if the petitioner is adjudicated as insolvent, the property vests with the Receiver and he has to dispose it of to distribute the assets to all the creditors and hence, filing of the suit and other proceedings against the insolvents, property are prohibited, but not with regard to the criminal cases. The offence under Section 138 of the Negotiable Instruments Act is a statutory offence and the petitioners 1 to 3 are being prosecuted for the issue of cheque without there being sufficient funds in the bank and thus the proceedings are totally different and by any stretch of imagination, it cannot be said that Sec.28(2) prohibits the continuation of criminal proceedings initiated for dishonour of the cheques under Section 138 of the Negotiable Instruments Act, without leave of the Court against a person who is seeking to adjudicate as insolvent.

10. The facts leading to the decision relied on by the learned Counsel for the petitioners are different to the facts of the case on hand and not helpful to him.

11. Therefore, in the light of foregoing discussion, it emerges that when the petitioners are not adjudicated as insolvents, the question of obtaining leave as contemplated under Section 28(2) does not arise. Even otherwise, the suit or other legal proceedings (sic means) a suit or the legal proceedings against the property of the insolvent which vests in the Receiver, but not with regard to the criminal proceedings, particularly for an offence under Section 138 of the Negotiable Instruments Act. There is no merit in the petition and the petition is not maintainable.

12. In the result, the petition fails and is dismissed.

Petition dismissed.