2012 (6) TMI 91 - SC - Companies Law

Negotiable Instruments Act dishonor of cheque - Held that - cheques referred to in both the complaints are presumed to have been given for consideration. The presumption under section 139 of the Act has not been rebutted by the accused and, therefore, trial court wrongly acquitted the accused by taking a view that there was no consideration for which the cheques were given by Munish Jain to the complainants. accused ought to have been held guilty, especially accused No. 4, Munish Jain who had signed all the cheques for M/s. A.T. Overseas Ltd. Munish Jain, accused No. 4 and respondent No. 4 herein, in both the cases guilty of the offence under section 138 of the Act. Accused Munish Jain was acquitted by the trial court and the High Court has confirmed the acquittal, which is being set aside by this Court by allowing these appeals. as per the provisions of section 235(2) of the Criminal Procedure Code, this Court will have to give an opportunity of being heard to him on the question of sentence

Issues Involved:
1. Nature of the dispute - civil or criminal.
2. Liability of M/s. A.T. Overseas Ltd. for cheques issued.
3. Presumption of consideration under Section 139 of the Negotiable Instruments Act.
4. Relationship between sister concerns and lifting the corporate veil.
5. Rebuttal of presumption under Section 139 of the Act.

Issue-wise Detailed Analysis:

1. Nature of the Dispute - Civil or Criminal:
The respondents argued that the dispute was of a civil nature and was given a criminal color with an oblique motive. The complaint was filed under sections 406 and 420 of the Indian Penal Code, suggesting a criminal nature. However, the court determined that the case involved dishonor of cheques, thus falling under the purview of Section 138 of the Negotiable Instruments Act.

2. Liability of M/s. A.T. Overseas Ltd. for Cheques Issued:
The trial court acquitted the accused, reasoning that the goods were supplied to M/s. Shree Nath Spinners (P.) Ltd., not M/s. A.T. Overseas Ltd., which issued the cheques. The High Court confirmed this view. The Supreme Court, however, found that M/s. A.T. Overseas Ltd. issued the cheques in consideration of goods supplied to M/s. Shree Nath Spinners (P.) Ltd., establishing liability under Section 138 of the Act.

3. Presumption of Consideration under Section 139 of the Negotiable Instruments Act:
Section 139 of the Act presumes that a cheque is issued for discharge of debt or liability unless proven otherwise. The trial court failed to consider this presumption, leading to an erroneous acquittal. The Supreme Court emphasized that the presumption was not rebutted by the accused, thus the cheques were presumed to have been issued for consideration.

4. Relationship Between Sister Concerns and Lifting the Corporate Veil:
The complainants argued that M/s. A.T. Overseas Ltd. and M/s. Shree Nath Spinners (P.) Ltd. were sister concerns with common directors, necessitating the lifting of the corporate veil to reveal the true nature of transactions. The Supreme Court agreed, acknowledging the inter se transactions and common directors, thereby holding M/s. A.T. Overseas Ltd. liable for cheques issued in consideration of goods supplied to M/s. Shree Nath Spinners (P.) Ltd.

5. Rebuttal of Presumption under Section 139 of the Act:
The accused did not make any effort to rebut the presumption under Section 139. The Supreme Court found that the trial court erred in concluding that there was no consideration for the cheques. The evidence showed an understanding that M/s. A.T. Overseas Ltd. would make payments for goods supplied to M/s. Shree Nath Spinners (P.) Ltd., reinforcing the presumption of consideration.

Conclusion:
The Supreme Court set aside the acquittal orders of the trial court and the High Court, convicting Munish Jain under Section 138 of the Negotiable Instruments Act. The case was adjourned for hearing on the question of sentence, providing Munish Jain an opportunity to be heard.

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