2021 (8) TMI 1283 - HC - Indian Laws

Dishonor of cheque - insufficient funds - Termination of agreement - appellant submits that as the respondent had been convicted for an offence under Section 138 of the Negotiable Instruments Act, the appellant was well within its right to terminate the dealership of the respondent - HELD THAT - In criminal law, the offences are of two kinds Offences may be mala in se and/or malum prohibitum. Offences mala in se are those offences which are repugnant to human conscience and are offences involving moral turpitude. Therefore, acts such as murder, theft, rape, cheating etc., are offences mala in se. Per contra, the offences which are malum prohibitum are those acts, though not morally repugnant, are made offences by an act of legislature as in the case of Section 138 under the Negotiable Instruments Act. It is not necessary that an act which is an offence malum prohibitum in India be an offence in any other country. Clause 45 (d) is wide and open ended and does not define a criminal offence for which there can be cancellation of dealership by its invocation. The said clause cannot be interpreted pedantically to include each and every act or omission which may constitute an offence under the jus scriptum. In an offence under Section 138 of the Negotiable Instruments Act, knowledge that the accused did not have sufficient balance in his bank account while issuing the cheque is preponderant on the part of the accused. That may be so, but the same does not make the act morally repugnant. The issue is no longer res integra as the Supreme Court in P. MOHANRAJ ORS. VERSUS M/S. SHAH BROTHERS ISPAT PVT. LTD. 2021 (3) TMI 94 - SUPREME COURT has held that the act constituting the offence u/s. 138 of the NI Act is of a civil nature with a criminal liability. Invocation of clause 45(d) can only be in cases involving moral turpitude or those offences where the company itself is a victim and the licensee the perpetrator of the offence. Therefore, impugned order passed by the learned single Judge is just and proper and the present appeal is without substance. Appeal dismissed.

Summary

Issues:
1. Termination of dealership based on criminal conviction under Section 138 of Negotiable Instruments Act.
2. Interpretation of Clause 45(d) of the agreement for termination of dealership.
3. Differentiation between offences mala in se and malum prohibitum.
4. Distinction between Section 339 IPC and Section 138 of Negotiable Instruments Act.
5. Applicability of moral turpitude in invoking Clause 45(d) for termination.

Issue 1: Termination of dealership based on criminal conviction under Section 138 of Negotiable Instruments Act

The appellant, Indian Oil Corporation, sought to terminate the dealership of the respondent based on the respondent's conviction under Section 138 of the Negotiable Instruments Act. The appellant argued that the criminal conviction justified the termination of the dealership. However, the court analyzed the nature of the offence under Section 138, stating that it is a civil wrong with criminal liability. The court referred to relevant judgments and provisions of the Cr.P.C. to determine that the act leading to punishment under Section 138 is a civil transaction. The court held that the termination based solely on this conviction was not justified.

Issue 2: Interpretation of Clause 45(d) of the agreement for termination of dealership

The court examined Clause 45(d) of the agreement, which allowed for termination of the dealership. The appellant contended that the clause empowered them to terminate the dealership based on the criminal conviction under Section 138. However, the court interpreted the clause, noting that it was broad and did not specifically define a criminal offence warranting termination. The court cautioned against a pedantic interpretation that could lead to arbitrary terminations based on any act punishable under the law. The court held that Clause 45(d) should be invoked only in cases involving moral turpitude or where the company itself is a victim, which was not the case here.

Issue 3: Differentiation between offences mala in se and malum prohibitum

The court distinguished between offences mala in se and malum prohibitum to emphasize that the offence under Section 138 of the Negotiable Instruments Act falls under malum prohibitum. While mala in se offences are morally repugnant acts, malum prohibitum offences are those defined by legislation, like Section 138. The court highlighted that not all malum prohibitum acts in India are offences in other countries. This distinction was crucial in assessing the seriousness of the offence under Section 138 in the context of the dealership termination.

Issue 4: Distinction between Section 339 IPC and Section 138 of Negotiable Instruments Act

The court compared the elements of Section 339 IPC and Section 138 of the Negotiable Instruments Act to underscore the differences in mens rea and culpability. It noted that Section 339 does not require mens rea and is based on negligent conduct, whereas Section 138 necessitates knowledge of insufficient funds while issuing a cheque. Despite this distinction, the court reiterated that the act under Section 138 is not morally repugnant and falls under civil wrong with criminal liability, as established by Supreme Court precedents.

Issue 5: Applicability of moral turpitude in invoking Clause 45(d) for termination

The court emphasized that invoking Clause 45(d) for termination should be reserved for cases involving moral turpitude or where the company is the victim. It rejected the appellant's argument that the criminal conviction under Section 138 warranted termination, as the offence was not morally repugnant. The court held that the termination based on the criminal conviction alone was unjustified, affirming the lower court's decision as just and proper. Consequently, the appeal was dismissed.

This comprehensive analysis of the judgment highlights the key legal issues addressed by the Madhya Pradesh High Court in the context of dealership termination and criminal convictions under the Negotiable Instruments Act.