2017 (10) TMI 31 - HC - Indian Laws

Dishonor of cheque - Is an Insolvent a immune from criminal prosecution arising out of dishonour of cheque? - Whether the retired partner is liable for criminal prosecution for dishonour of cheque and whether such a plea can be considered in the quashment of the private complaint arising out of dishonour of cheque? - Held that - The protection given under Section 29 and 31 of the Presidency Towns Insolvency Act is only in respect of debtor for a civil decree and he cannot be detained in civil detention and the civil arrest has contemplated under the Civil Procedure Code. The primary concept of the Insolvency Act gives only protection against the civil detention and civil arrest for a person for non-payment of money in the business transaction either based on the pro-note or a cheque before the amendment. But after the amendment in respect of bouncing of cheque that has been specifically declared as an offence and hence, the protection contemplated under the Section 29 and 31 of the Presidency Towns Insolvency Act does not loom large and protect the petitioner herein. Since, after the amendment as stated above dishonor of cheque has became a criminal liability and in this view of the matter though the petitioner herein be declared has insolvent under the Presidency Towns Insolvency Act . However, it does not cloth him with immunity from criminal prosecution for dishonour of cheque and in this view of the matter this petition is devoid of merits and the same is dismissed.

Summary

Issues:
1. Whether an insolvent person is immune from criminal prosecution arising from dishonour of a cheque?
2. Whether a retired partner can be held liable for criminal prosecution for dishonour of a cheque and if such a plea can be considered for quashing a private complaint?

Analysis:
1. Issue 1 - Insolvency and Criminal Prosecution:
- The second accused in the case sought to quash the criminal proceedings against him on the grounds of being declared insolvent. The High Court examined the provisions of the Insolvency Act and the Negotiable Instrument Act. It was clarified that protection under the Insolvency Act is limited to civil matters and does not extend to criminal liabilities arising from dishonour of cheques, as per the amended Section 138 of the Negotiable Instrument Act.
- The Court emphasized that after the amendment, dishonour of cheques is a criminal offense, and insolvency protection does not shield individuals from criminal prosecution in such cases. The judgment cited relevant legal provisions and previous court decisions to support this interpretation. Consequently, the petition seeking quashment based on insolvency was dismissed.

2. Issue 2 - Liability of Retired Partner:
- The third accused, a retired partner, also sought quashment of the private complaint against him for dishonour of cheques. The petitioner claimed retirement from the partnership firm before the cheque issuance and argued that he should not be held liable for the actions of the remaining partners.
- The Court examined the retirement deed and partnership documents to determine the validity of the retirement claim. It was noted that mere assertion of retirement without proper compliance with statutory requirements does not suffice for quashment of proceedings. The Court highlighted the need for evidence and compliance with partnership laws to substantiate the retirement claim.
- The judgment emphasized that the plea of retirement must be proven with valid documentation and compliance with legal procedures, which should be presented before the trial court. The Court ruled that the quashment proceedings under Section 482 Cr.P.C. require substantiation with necessary documents and compliance with partnership laws, which can only be established during trial.

In conclusion, both Criminal Original Petitions were dismissed by the High Court, emphasizing the importance of legal compliance and evidence in claims related to insolvency and retirement in the context of criminal proceedings for dishonour of cheques.