2022 (4) TMI 61 - HC - Indian Laws

Dishonor of Cheque - vicarious liability - directors have resigned from the company - Impact of injunction order to initiate prosecution - cognizance of the offence under Section 138 of the Negotiable Instrument Act, 1881 - HELD THAT - it is apparent that a clear averment is made in the complaint that at the time of commission of the offence they were in charge of and responsible to the company for the conduct of business to the company and as such they are vicariously liable for a criminal offence under Section 141 of the N.I. Act. It is to be mentioned here that in paragraph No. 21 of the complaint petition it has been categorically stated that the petitioner along with accused No. 2 in collusion and in connivance with each other, hatched up a criminal conspiracy against the respondent for making wrongful personal gain and acting upon such conspiracy they used to take advance payment from the complaint in lieu of supply of sugar and by restoring to cheating and foul play, created the huge liability payable to the complainant during the last 4 years and misappropriated the amount of the complainant for their wrongful and personal gain and after repeated request and demand they have arrived at a settlement and agreed to return ₹ 10 crore to the complainant and issued two cheques amounting to ₹ 5 crore each in favour of the complainant against discharge of their liabilities. But, they played foul play with the complainant and both the cheques were dishonoured and they issued the cheques knowing fully well that said cheque will be dishonoured and being the Director of the accused No. 1 Company they have committed the offence of criminal breach of trust and cheating and are liable to be punished accordingly. Section 41 of the Specific Relief Act 1963 lays down in what cases injunction cannot be granted. Under Clause (a) an injunction cannot be granted to restrain any person from prosecuting a judicial proceeding pending at the institution of the suit in which the injunction is sought, unless such restraint is necessary to prevent a multiplicity of proceedings. According to Clause (b), an injunction cannot be granted to restrain any person from instituting or prosecuting any proceeding in a Court not subordinate to that from which the injunction is sought. According to Clause (d) injunction cannot be granted to restrain any person from instituting or prosecuting any proceeding in a criminal matter. Thus, it cannot be said that the Civil Suit instituted by the petitioners has stands in the way of filing the complaint by the respondent before the court of leaned CJM, Tinsukia, the process of which was started much prior to passing the impugned order on 03.01.2019, whereas the cheques were presented in the bank by the respondents on 21.11.2018 - there are no merit in the petition. Petition dismissed.

Issues Involved:
1. Legality of the impugned order dated 18.01.2019.
2. Vicarious liability of the petitioners.
3. Territorial jurisdiction and compliance with Section 202 of the Cr.P.C.
4. Applicability of Section 138 of the Negotiable Instrument Act, 1881.
5. Nature of the cheques as security/advance and their enforceability.

Detailed Analysis:

1. Legality of the Impugned Order:
The petitioners argued that the impugned order dated 18.01.2019, which took cognizance of the offence under Section 138 of the Negotiable Instrument Act, 1881, and issued summons, is "bad in law and abuse of the process of law." They contended that the order was passed without proper consideration of the facts and circumstances, including the existence of an injunction order dated 03.01.2019, which restrained the respondents from utilizing the cheques.

2. Vicarious Liability of the Petitioners:
The petitioners claimed that they were not in charge of or responsible for the company's day-to-day affairs and thus could not be held vicariously liable under Section 141 of the Negotiable Instrument Act, 1881. They cited several judgments, including National Small Industries Corporation Limited Vs. Harmid Singh Pental and N.K. Wahi Vs. Shekhar Singh, to support their argument that mere designation as a director does not automatically imply liability.

However, the court found that specific averments in the complaint indicated that the petitioners were actively involved in the business transactions and were responsible for the conduct of the company's business. Therefore, the court held that the petitioners could be held vicariously liable.

3. Territorial Jurisdiction and Compliance with Section 202 of the Cr.P.C.:
The petitioners argued that the learned Chief Judicial Magistrate (CJM), Tinsukia, lacked territorial jurisdiction and did not comply with the procedural requirements under Section 202 of the Cr.P.C. The court noted that the cheques were presented and dishonored within the jurisdiction of the CJM, Tinsukia, and thus the court had the jurisdiction to take cognizance of the offence.

4. Applicability of Section 138 of the Negotiable Instrument Act, 1881:
The petitioners contended that the ingredients of Section 138 were not met as the cheques were issued as security/advance and not for the discharge of any legally enforceable debt. The court, however, found that the cheques were issued in connection with a business transaction and were dishonored due to insufficient funds. The court held that the factual foundation for the offence was laid down in the complaint, and thus the applicability of Section 138 was justified.

5. Nature of the Cheques as Security/Advance:
The petitioners argued that the cheques were issued as security/advance and not for any legally enforceable debt, thus not attracting the provisions of Section 138. The court, however, noted that the cheques were part of a business transaction and were issued with the understanding that they would be honored. The court referred to the case of M. Krishnan Vs. Vijay Singh, which held that the mere pendency of a civil suit does not bar the initiation of criminal proceedings under Section 138.

Conclusion:
The court dismissed the petitions, finding no merit in the arguments presented by the petitioners. The court held that the impugned order dated 18.01.2019 was legally valid, the petitioners could be held vicariously liable, the CJM, Tinsukia had territorial jurisdiction, and the cheques in question attracted the provisions of Section 138 of the Negotiable Instrument Act, 1881. The court also vacated any stay granted earlier and directed the parties to bear their own costs.

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