1999 (8) TMI 1019 - HC - Indian Laws

Summary

Issues Involved:
1. Liability under Section 138 of the Negotiable Instruments Act despite "stop payment" instructions.
2. Sufficiency of allegations against directors (petitioners 2 to 10 and 2 to 11).
3. Authorization of the complainant to file the complaint.
4. Cheques given as security and subsequent encashment of interest cheques.
5. Validity of notice service to petitioners.

Issue-wise Detailed Analysis:

1. Liability under Section 138 of the Negotiable Instruments Act despite "stop payment" instructions:
The petitioners argued that they requested the respondent not to present the cheques and issued a "stop payment" instruction to the bank. Despite this, the cheques were presented and returned with the endorsement "payment stopped by drawer." The court referenced the Supreme Court decisions in *M/s. Electronics Trade and Technology Development Corporation Limited, Secunderabad v. M/s. Indian Technologists & Engineers (Electronics) Private Ltd.* and *K.K. Sidharthan v. Praveena Chandran*, which established that "stop payment" instructions still amount to dishonour under Section 138. The court concluded that the petitioners' instruction for "stoppage of payment" amounts to dishonour and attracts Section 138 of the Negotiable Instruments Act, thus negating the petitioners' first contention.

2. Sufficiency of allegations against directors (petitioners 2 to 10 and 2 to 11):
The petitioners contended that there were no sufficient allegations against them except that they were directors responsible for the company's day-to-day management. The court referred to Section 141(1) of the Negotiable Instruments Act, which holds every person in charge of and responsible for the conduct of the business of the company liable. The court noted that the complaints included clear averments that the second accused personally guaranteed repayment and that the directors were managing the company. However, the court found that there was no evidence to show that petitioners 3 to 10 (in C.C.No. 7080 of 1997) and petitioners 3 to 11 (in C.C.No. 7081 of 1997) were in charge and responsible for the conduct of the business at the time of the offence. Therefore, the proceedings against these petitioners were quashed.

3. Authorization of the complainant to file the complaint:
The petitioners argued that the complaints were filed by Mr. K.G. Sampath without proper authorization from the complainant company. The court cited the Supreme Court decision in *All India Reporter Ltd v. Ramchandra* and other relevant cases, concluding that oral authorization is sufficient and that the authorization given to K.G. Sampath was valid. Thus, the argument that the complaints were not properly authorized was rejected.

4. Cheques given as security and subsequent encashment of interest cheques:
The petitioners claimed that the cheques were given as security for the loan, and since the respondent had already encashed cheques for interest, the present complaints were not liable. The court clarified that the cheques in question represented the principal amount, while the encashed cheques represented interest. The existence of a civil remedy does not preclude criminal proceedings under Section 138 of the Negotiable Instruments Act. Therefore, this argument was dismissed.

5. Validity of notice service to petitioners:
The petitioners argued that notices were sent to incorrect addresses and returned as "refused," which they claimed did not constitute constructive service. The court found that the notices were sent to the registered office and respective addresses of the accused, and the refusal to receive the notice amounted to proper and valid service. Thus, the contention regarding improper notice service was not accepted.

Conclusion:
The court allowed the petitions in part, quashing the proceedings against petitioners 3 to 10 in C.C.No. 7080 of 1997 and petitioners 3 to 11 in C.C.No. 7081 of 1997. The proceedings against the 1st and 2nd petitioners in both cases were to continue in accordance with the law. Consequently, no orders were necessary in Crl.M.Ps.1776 to 1779 of 1998.