2019 (7) TMI 891 - HC - Indian Laws

Dishonor of Cheque - Section 138 of the Negotiable Instruments Act, 1881 - Company declared as sick unit - whether a company and its directors can be proceeded against for having committed an offence punishable under Section 138 of the Act after the company has been declared sick under the provisions of the SICA before the expiry of the period for payment of the cheque amount? - HELD THAT - The Apex Court in KUSUM INGOTS ALLOYS LTD. VERSUS PENNAR PETERSON SECURITIES LTD. 2000 (2) TMI 724 - SUPREME COURT has held that Section 22 only deals with the proceedings for recovery of money or for enforcement of any security or guarantee in respect of any loans or advance granted to the company and a proceedings for winding up of the company and there is no reference to any criminal proceedings - The Apex Court then referred to its earlier decision in BSI LTD. VERSUS GIFT HOLDINGS (P.) LTD. 2000 (2) TMI 719 - SUPREME COURT which holds that pendency of proceedings under Section 22(1) of the SICA alone is not sufficient to get absolved from the liability under Section 138 of the Act (emphasis supplied). The offence under Section 138 of the Act was not complete and the order of issuance of process is unsustainable. The offence not complete, not because there was a statutory bar, but as explained by the Apex Court, because the directors of the company were prevented by reasons beyond their control from honouring the cheques. The repeal of SICA, cannot breathe life in the complaint which was still born since the offence was not complete as on the date of the issuance of process by the learned Magistrate. The order for issuance of process is quashed - petition allowed.

Summary

Issues Involved:
1. Territorial Jurisdiction
2. Maintainability of Joint Complaint
3. Preliminary Inquiry Requirement
4. Presentation of Cheques for Encashment
5. Establishment of Offence under Section 138 of the Negotiable Instruments Act
6. Requirement of Prior Permission from BIFR under Section 22 of SICA

Issue-wise Detailed Analysis:

1. Territorial Jurisdiction:
The accused argued that since the cheques were deposited in Mumbai, the Judicial Magistrate in Nagpur did not have territorial jurisdiction to entertain the complaint.

2. Maintainability of Joint Complaint:
The accused contended that a joint complaint regarding the dishonour of 12 cheques was not maintainable.

3. Preliminary Inquiry Requirement:
The accused claimed that the process was issued against persons not residing within the territorial jurisdiction of the court without conducting the preliminary inquiry mandated under Section 202(1) of the Criminal Procedure Code, 1973.

4. Presentation of Cheques for Encashment:
The accused argued that based on Section 46 of the Negotiable Instruments Act and written stipulations, the cheques could not have been presented for encashment without written confirmation from the accused company.

5. Establishment of Offence under Section 138 of the Negotiable Instruments Act:
The accused, referencing the Supreme Court decision in M/s. Kusum Ingots & Alloys Ltd. vs. M/s. Pennar Peterson Securities Ltd., contended that the ingredients of the offence under Section 138 of the Negotiable Instruments Act were not established. They argued that the proceedings under SICA and orders by BIFR precluded them from honouring the cheques.

6. Requirement of Prior Permission from BIFR under Section 22 of SICA:
The accused asserted that no prosecution could have been initiated without prior permission from BIFR due to the statutory bar under Section 22 of SICA.

Analysis:

1. Territorial Jurisdiction:
The court did not specifically address this issue in detail, focusing instead on the more substantive arguments related to the SICA proceedings and their impact on the completion of the offence under Section 138.

2. Maintainability of Joint Complaint:
Similarly, the court did not delve deeply into the maintainability of the joint complaint, as the primary focus was on the effect of the SICA proceedings.

3. Preliminary Inquiry Requirement:
The court did not find it necessary to address the lack of preliminary inquiry under Section 202(1) of the Criminal Procedure Code, given the more pressing issue of the SICA proceedings.

4. Presentation of Cheques for Encashment:
The court noted that the cheques were issued with specific stipulations that they should not be deposited without written confirmation from the accused company. The accused argued that they did not receive any material against the cheques handed over as security.

5. Establishment of Offence under Section 138 of the Negotiable Instruments Act:
The court heavily relied on the Supreme Court's decision in M/s. Kusum Ingots & Alloys Ltd., which held that Section 22 of SICA does not create a legal impediment for instituting criminal proceedings under Section 138 of the Negotiable Instruments Act. However, if a restraint order under Section 22A of SICA was in place before the issuance of the cheques or the expiry of the statutory period, it could be argued that the offence under Section 138 was not complete due to reasons beyond the control of the accused.

6. Requirement of Prior Permission from BIFR under Section 22 of SICA:
The court found merit in the argument that the restraint order under Section 22A of SICA, which was in force prior to the issuance of the cheques and the expiry of the statutory period, prevented the completion of the offence under Section 138. The court noted that the accused company was declared sick and restrained from disposing of its assets without BIFR's consent, which precluded the accused from honouring the cheques.

Conclusion:
The court quashed the order of issuance of process dated 20.04.2018 in Criminal Complaint Case 3866 of 2011, holding that the offence under Section 138 of the Negotiable Instruments Act was not complete due to the statutory restraint under Section 22A of SICA. The petition was allowed, and the order of issuance of process was set aside.