2008 (5) TMI 407 - SC - Companies Law

Dishonor of cheques - Held that - According to the High Court admittedly the purchase orders in question were entered into and the purchases were made by the appellants with full knowledge of the proceedings that the company was declared sick under the SICA the appellants clearly all through gave the impression to the respondent company that the outstanding amount towards the purchase of the goods would be shortly cleared. The fact that the purchases were made with the clear promise to repay could not be disputed by the appellants. The Directors had in fact issued the cheques for discharging their liability with the full knowledge would not only clearly show that there was an undisputed debt but would also show that right from the inception the appellants in fact had no intention of paying the amount for the purchases made by them. The intention of the appellants can be gathered by their subsequent acts conduct and behaviour of taking a shelter under the provisions of SICA. Hence the appellants are not entitled to any indulgence of this court under its extraordinary jurisdiction under Article 136 of the Constitution. The appellants had lost their total credibility because of their conduct. When the appellant company was declared sick then without disclosing this fact the appellants ought not to have made huge purchases from the respondent company. Ultimately the appellant company did not pay for the purchases. This clearly indicates that the appellants had no intention of making payment of the purchases made by it.

Issues:
1. Appeal against the judgment of the High Court of Karnataka in Criminal Petition Nos. 948 and 949 of 2003.
2. Dishonored cheques issued by the appellants in favor of the respondent company.
3. Appellants contending immunity from legal proceedings under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA).
4. Criminal complaint under section 138 of the Negotiable Instruments Act, 1881 initiated by the respondent company.
5. Appeals for quashing criminal proceedings under section 138 of the Negotiable Instruments Act.
6. Legal position regarding discharge of accused or quashing proceedings at mid-stage.
7. Appellants' reliance on judgments in BSI Ltd. v. Gift Holdings (P.) Ltd. and Kusum Ingots & Alloys Ltd. v. Pennar Peterson Securities Ltd.
8. Dismissal of appeals by the High Court based on peculiar facts and circumstances.
9. Analysis of legal principles enunciated in relevant cases.
10. Appellants' conduct indicating lack of intention to repay outstanding amount.
11. Direction for expeditious disposal of cases by the trial court.

Detailed Analysis:

1. The appeals were filed against the judgment of the High Court of Karnataka in Criminal Petition Nos. 948 and 949 of 2003, concerning dishonored cheques issued by the appellants in favor of the respondent company after the appellant company was declared sick under the provisions of SICA.

2. The appellants contended immunity from legal proceedings under SICA, stating that no recovery proceedings could be initiated against them due to their status as a sick company. However, the respondent initiated criminal proceedings under section 138 of the Negotiable Instruments Act, 1881, against the appellants for dishonored cheques.

3. The appellants filed appeals seeking to quash the criminal proceedings, relying on judgments in similar cases. The High Court dismissed the appeals, emphasizing the peculiar facts and circumstances of the case, indicating that the judgments cited by the appellants did not apply to their situation.

4. The High Court noted that the appellants made purchases from the respondent company after being declared sick under SICA, with a clear promise of repayment. The court found that the appellants' subsequent behavior, including taking shelter under SICA, indicated a lack of intention to pay for the purchases made.

5. The High Court directed the trial court to expedite the disposal of the cases within six months, emphasizing that the appellants' actions had caused unnecessary delays. The Supreme Court upheld the High Court's decision, dismissing the appeals as lacking merit and instructing the trial court to conclude the trial expeditiously without being influenced by previous judgments.

This detailed analysis covers the issues raised in the legal judgment comprehensively, providing an in-depth understanding of the facts, legal arguments, court decisions, and directions given for further proceedings.

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