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TMI Blog2006 (11) TMI 346X X X X Extracts X X X X X X X X Extracts X X X X ..... thereafter this company was finally wound up by the orders of the High Court passed on 23-11-1998 and Official Liquidator (OL) was appointed to take charge of all the assets and properties of the company. The necessary legal consequence was discharge of all the employees and officers from the services of the company including the Board of Directors. It is not in dispute that complainant presented cheque dated 19-10-1999 for payment much after the winding up of the company. This cheque which was issued by the company and returned with the remarks "No Account/Account Closed". Notice of dishonour of the cheque was issued to the company in liquidation at the registered office of the company in liquidation and thereafter complaint filed under section 138 of the Negotiable Instruments Act. In this complaint the company is made accused No. 1 whereas petitioners are arraigned as accused Nos. 2 and 3. The cause title of the complaint reads as under : In the Court of Chief Metropolitan Magistrate, Karkardooma, Delhi Complaint No. .... of 2000 In the Matter of : Ceat Financial Services Ltd. 601, Adishwar Apartment, 34, Ferozshah Road, New Delhi through itself authorised representative S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions. Therefore, normally, in the case of a company incorporated under the Companies Act it is the company which would be the offender. However, by virtue of section 141 of the Act, penal liability under section 138 is cast upon other persons connected with the company. Therefore, those persons also become liable for penal action in addition to the company. It further held that if the offence is committed by a company it can be punished only if the company is prosecuted. However, if, instead of prosecuting the company, a payee opts to prosecute other persons falling within the description of section 141, it is permissible for him to do so. It would be of interest to reproduce the discussion as contained in this judgment on the aforesaid aspect. "Three categories of persons can be discerned from the said provision who are brought within the purview of the penal liability through the legal fiction envisaged in the section. They are: (1) The company which committed the offence, (2) Everyone who was in-charge of and was responsible for the business of the company, (3) Any other person who is a director or a manager or a secretary or officer of the company, with whose connivance, or du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the company is sine qua non for prosecution of the other persons who fall within the second and the third categories mentioned above. No doubt a finding that the offence was committed by the Company is sine qua non for convicting those other persons. But if a company is not prosecuted due to any legal snag or otherwise, the other prosecuted persons cannot, on that score alone, escape from the penal liability created through the legal fiction envisaged in section 141 of the Act." (p. 245) 6. The Court also noted the provisions of section 139 of the Act which draws a legal presumption in favour of holder, namely, to the effect that the holder of a cheque received the cheque of the nature referred under section 138 of the Act in discharge, in whole or in part, of any debt or any other liability and held that such a presumption mentioned in this section would operate not only against the drawer but against other persons who can be roped in by virtue of section 141 of the Act. The liability of the company as well as Directors under sections 138 and 141 of the Negotiable Instruments Act would remain if the cheque is presented after the winding up petition is filed and is pending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to disastrous consequence and it may become difficult for the company to do its business merely because winding up petition is filed. This position is succinctly stated in para-20 of the judgment which reads as under : "20. It is difficult to lay down that all dispositions of property made by a company during the interregnum between the presentation of a petition for winding up and the passing of the order for winding up would be null and void. If such a view is taken the business of the company would be paralysed, for, the company may have to deal with very many day-to-day transactions, made payments of salary to the staff and other employees and meet urgent contingencies. An interpretation which could lead to such a catastrophic situation should be averted. That apart, if any such view is adopted, a fraudulent company can deceive any bona fide person transacting business with the company by stage-managing a petition to be presented for winding up in order to defeat such bona fide customers. This consequence has been correctly voiced by the Division Bench in the impugned judgment." 7. Therefore, even up to this stage there is no problem. From the aforesaid discussion, the two p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y are not incharge of day-to-day affairs of the company. Offence is committed under section 138 of the Act only on the dishonour of the cheque and issuance of notice for demand to pay the amount. As on that date, no such notice could be issued to the company which was in liquidation and the creditors are now to be paid as per the scheme of the Companies Act. Therefore, liability on them also cannot be fastened under section 141 of the Negotiable Instruments Act. 10. However, some of the observations made by the Supreme Court in the case of Pankaj Mehra ( supra) were referred to by the learned counsel for the respondent to contend that complaint can be maintainable against the Directors even after the company has been wound up. It was submitted that the Court has hinted in this judgment that even if a company goes into the liquidation, enforcement of debt due from the company is only made subject to conditions prescribed therein. It would not mean that the debt has become enforceable altogether. Para 26 of the judgment deals with this aspect. It would be apposite to reproduce the same at this stage to understand its implication : "26. There is no provision in the Companies Act, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ps some kind of explanation would be sufficient to alleviate the rigor of the offence which may be useful to mitigate the quantum of sentence to be imposed. But that is no ground for consideration at this stage." 12. As noted above, the question in that case was in a different fact situation, namely, filing of complaint under section 138 of the N.I. Act during the pendency of winding up petition where no orders for winding up of the company had been passed, as on the date when the complaint was filed. The manner in which this question was answered has already been noticed above. It is thus clear that the question involved was totally different as is clear from the very first para of the said judgment formulating the judgment in the following manner : "Can a company escape from penal liability under section 136 of the Negotiable Instruments Act ('the NI Act') on the premise that a petition for winding up of the company has been presented and was pending during the relevant time?" 13. The observation made in paras referred to above are with a view to answer the aforesaid question formulated by the Court. The entire judgment has to be read in that context. It is a trite law that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... editors. After payment of preferential creditors, if there is any money due, it is to be utilized for payment of statutory dues and governmental dues and only thereafter the turn of unsecured creditors comes. Therefore, obviously the debt does not become enforceable as rightly pointed out in para-26 of the judgment, but at the same time it is payable only in accordance with Scheme of the Act. The observation in this para if at all would go against the respondent herein. 15. Insofar as interpretation of the expression "fails to make payment" is concerned, no doubt what is clarified is that 'failure to pay' is different from 'disability to pay'. However, in para-29 while giving an example, the Court has specifically excluded a company, and has given the illustration of an individual. What is to be noted is that the discussion is qua the drawer who 'fails' to make payment. Drawer in the case before us would be a company which has gone into liquidation and case of a company is on different footing and is governed by the statute, namely, the Companies Act. It would also be interest to note that in the case of Anil Hada (supra) which is also incidentally a judgment by Hon'ble Mr. Justic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k industrial company not to dispose of, except with the consent of the Board, any of its assets - (a) during the period of preparation or consideration of the scheme under section 18; and (b) during the period beginning with the recording of opinion by the Board for winding up of the company under sub-section (1) of section 20 and up to commencement of the proceedings relating to the winding up before the concerned High Court. This exercise of the power by the Board is conditioned by the prescription that the Board is of the opinion that such a direction is necessary in the interest of the sick industrial company or its creditors or shareholders or in the public interest. In a case in which the BIFR has submitted its report declaring a company as 'sick' and has also issued a direction under section 22A restraining the company or its directors not to dispose of any of its assets except with consent of the Board then the contention raised on behalf of the appellants that a criminal case for the alleged offence under section 138 of NI Act cannot be instituted during the period in which the restraint order passed by the BIFR remains operative cannot be rejected outright. Whether the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the accused persons was that since the alleged offence was committed after 6-6-1992, Special Court had no jurisdiction to entertain the same. On the other hand the case of the bank/complainant was that Special Court had jurisdiction to entertain the complaint in view of provisions of section 3(2) of the Special Court Act which mentioned that all those transactions which took place between 1-4-1991 and 6-6-1992 could be entertained by the Special Court. Therefore, it was interpretation of section 3 of the Special Court Act which was involved and the relevant portion which reads as under : ". . .any offence relating to transactions in securities after the 1st day of April, 1991 and on and before the 6th June, 1992. . . ." (p. 505) 19.The question which was posed for consideration is mentioned in para 5 of the judgment in the following words : "The question is - does the period specified qualify the word 'offence' or the word 'transactions'? If it is the former, the jurisdiction of the Special Court would be, as contended by the appellant, limited to offences committed within the period specified whenever the transactions may have taken place. The respondent has, however, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21.On the aforesaid averments, complaint under section 138 of the Negotiable Instruments Act cannot be filed as on the date of presentation of the cheque the company was in liquidation and cannot be stated to have committed any offence. Even second and third accused (petitioners herein) were not the Incharge of the day-to-day affairs and conduct of the business of the company on that date. No doubt there are allegations of cheating as well and the complaint is under section 420 read with section 120B of the IPC as well. It would have reference to the date when the cheques were issued with intent to cheat and complaint to that extent may be maintainable if prima facie case under these provisions is made out. However, the summoning orders dated 29-7-2000 would show that the cognizance of the alleged offence is taken only after section 138 of the Negotiable Instruments Act and not under section 420 read with section 120B of the IPC. Since complaint under section 138 of the Negotiable Instruments Act is not maintainable if filed after the winding up of the company, summoning order issued is bad in law. 22. The petition is accordingly allowed and the summoning order is set aside. The c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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