2017 (4) TMI 1038 - HC - Indian Laws

Complaints filed under Section 138 of the Negotiable Instruments Act for the dishonour of the cheques - whether the complaints should be quashed? - whether merely because there is an arbitration clause will take away the right of the complainant to move for criminal prosecution? - Held that - As held in S. W. Palanitkar vs. State of Bihar 2001 (10) TMI 1150 - SUPREME COURT merely because there is an arbitration clause in a commercial transaction agreement, the same would not operate as a bar for instituting criminal prosecution, if such breach even prima facie constituted a criminal offence. An arbitration clause in a agreement in respect of business transaction is not a bar for filing a criminal complaint under Section 138 of the Negotiable Instruments Act for dishonour of the cheque. It is also settled law that merely because there is a civil remedy available, the same is not a ground to quash the criminal proceedings, if the allegations, prima facie, made out a criminal offence as well.In view of the above discussion, the contention as regards the arbitration clause should fail and is hereby rejected. Only because the possession of the premises came to be handed over to the complainant by terminating the lease agreement at an early stage, will not absolve the accused from their liability incurred under the agreement. The cheques, at the relevant point of time, could be said to have been issued in favour of the complainant in discharge of a legally enforceable debt. Indisputably, on the date when the cheques were issued, there was a debt / liability in presenti in terms of the lease agreement. However, I leave it upon the Trial Court to look into this issue after appreciating the evidence that the parties may lead in the course of the trial. Ordinarily, a defence of an accused, although appears to be plausible, should not be taken into consideration for exercise of jurisdiction under Section 482 of the Cr.P.C. Section 142(c) invests certain Magistrates with the power of trying offences punishable under Section 138. When power is given to try an offence, it includes the power to convict or acquit and, in case of conviction, to exercise the sentencing discretion also to award an appropriate sentence, allowed by law. In order to convict an accused, the court must find him guilty. No case is made out for the quashing of the two complaints under Section 138 of the Negotiable Instruments Act.

Issues Involved:
1. Quashing of criminal proceedings under Section 138 of the Negotiable Instruments Act.
2. Legally enforceable debt or liability.
3. Effect of arbitration clause on criminal prosecution.
4. Vicarious liability of directors under Section 141 of the Negotiable Instruments Act.
5. Sufficiency of funds and stop payment instructions.

Detailed Analysis:

1. Quashing of criminal proceedings under Section 138 of the Negotiable Instruments Act:
The applicants sought to quash the proceedings of Criminal Cases Nos. 1213 of 2016 and 341 of 2016, filed under Section 138 of the Negotiable Instruments Act for dishonor of cheques. The court emphasized that the power to quash criminal proceedings should be exercised stringently and with circumspection. It was highlighted that merely because there is a civil remedy available, it does not preclude criminal prosecution under Section 138 if the allegations prima facie constitute a criminal offense. The court cited the Supreme Court's decision in M.M.T.C. Limited vs. Medchl Chemicals and Pharma Private Limited, which held that the presence of an arbitration clause or a civil remedy does not bar criminal prosecution under Section 138.

2. Legally enforceable debt or liability:
The court examined whether the cheques were issued in discharge of a legally enforceable debt or liability. It was noted that the cheques were issued as part of a lease agreement, and despite the termination of the lease and handing over of possession, the liability under the agreement persisted. The court referred to the Supreme Court's decision in Sampelly Satyanarayana Rao vs. Indian Renewable Energy Development Agency Limited, which clarified that postdated cheques issued for repayment of loan installments fall under Section 138 if the debt or liability exists on the date of the cheque. The court concluded that the cheques in question represented a legally enforceable debt.

3. Effect of arbitration clause on criminal prosecution:
The applicants argued that the presence of an arbitration clause in the lease agreement precluded criminal prosecution under Section 138. The court rejected this argument, citing the Supreme Court's decision in S. W. Palanitkar vs. State of Bihar, which held that an arbitration clause does not bar criminal prosecution if the breach prima facie constitutes a criminal offense. The court emphasized that the arbitration clause does not affect the maintainability of complaints under Section 138.

4. Vicarious liability of directors under Section 141 of the Negotiable Instruments Act:
The applicants contended that certain directors were not involved in the execution of the lease agreement and had resigned prior to its execution. The court noted that this was a disputed question of fact that could not be resolved at the quashing stage. The court referred to the Supreme Court's decision in Gunmala Sales Private Ltd. vs. Navkar Infra Projects Pvt Ltd, which stated that a director seeking quashing must furnish uncontrovertible material to substantiate their contention. The court concluded that the basic averment in the complaint was sufficient to proceed against the directors, and the matter should be decided at trial.

5. Sufficiency of funds and stop payment instructions:
The applicants argued that there were sufficient funds in the company's account when the stop payment instructions were issued, and hence no offense under Section 138 was made out. The court referred to the Supreme Court's decision in Modi Cements Ltd. vs. Kuchil Kumar Nandi, which held that even if a cheque is dishonored due to stop payment instructions, an offense under Section 138 can still be made out. The court emphasized that the burden of proving sufficient funds and valid reasons for stop payment lies with the accused and should be determined at trial.

Conclusion:
The court concluded that no case was made out for quashing the complaints under Section 138 of the Negotiable Instruments Act. The applications were rejected, and the interim order earlier granted was vacated. The court emphasized that the issues raised by the applicants should be decided by the trial court after appreciating the evidence.

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