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TMI Blog2021 (12) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany by the name of R.L. Steels & Energy Limited "Company". 2. The background in which the controversy has arisen needs to be noticed. On 19 December 2015, a Letter of Intent was issued by the company to the second respondent for providing uninterrupted power supply at the plant of the company situated at Aurangabad in Maharashtra. Clause (k) of the Letter of Intent envisages that all payments would be made within sixty days through a Letter of Credit "LC" to be opened by the company. On 29 April 2016, an email was addressed by the company stating that payment security would be by cheque for an amount equivalent to the quantum of energy to be scheduled for forty-five days. Payments for monthly billing were to be made by LC within seven days of the receipt of bills. This was agreed upon in a communication dated 30 April 2016 addressed on behalf of the second respondent. On 30 June 2016, the company addressed a communication to the second respondent that it was issuing two cheques "only for security deposit" and that the cheques were to be deposited "after getting confirmation only". The details of the cheques were : Cheque No. Amount 013287 13392000/- 013286 26784000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it failed to provide LCs in the correct format. 7. On 4 August 2016, the second respondent raised a provisional bill for Rs. 1,77,56,157/- for electricity supplied during the period from 1 July 2016 to 31 July 2016. On 27 August 2016, an invoice for Rs. 1,66,48,028/- was issued for power supply during the month of July 2016. On 1 September 2016, an invoice was raised in the amount of Rs. 2,17,24,875/- for power supplied during August 2016. On 1 October 2016, an invoice was raised in the amount of Rs. 2,19,18,186/- for power supplied during September 2016. 8. On 20 October 2016, the company terminated its agreement with the second respondent. The cheque which was issued by the company was deposited on 28 August 2017. On 18 September 2017, a legal notice was issued by the second respondent to the appellants alleging the commission of offences under Section 138 of the NI Act. It was alleged in the notice that according to the ledger maintained by the second respondent in its books of account, a sum of Rs. 6,02,91,089/- remained outstanding. The notice alleged that the appellants had issued a cheque dated 28 August 2017 drawn on Karur Vysya Bank, Aurangabad which had been dishonour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust 2017, and is buttressed by the stipulation under PSA that payment was to take place by means of LC. A suit has been instituted by the company against the second respondent in the court of the Civil Judge, Senior Division, RCS 15/2017 in which the defence in the written statement is that: a. There was a default by the company in the payment of electricity consumption charges from July to September 2016; and b. Though the company had issued LC to cover the dues of the electricity bills/ invoices, it had intentionally avoided to furnish them in terms of the draft LCs' furnished by the bankers of the company. In the suit instituted by the second respondent against the company, being CS 236/2019 before the High Court of Judicature at Madras, the pleading in paragraph 8 of the plaint is that the cheques were issued by way of security: "8. As agreed between the parties, the Defendant thereafter by its issued two cheques bearing Nos.013287 & 013286 of amount of Rs. 1,33,92,000/- (One Crore Thirty Three Lakhs and Ninety Two Thousand only) and Rs. 2,67,84,000/- (Two Crores and Sixty Seven Lakhs and Eighty Four Thousand Only) respectively as security deposit to the Plaintiff on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd from the admission in paragraph 8 of the plaint instituted by the second respondent in the High Court of Madras; (iii) Under the terms of the PSA, payment was envisaged to be made through LC and not by cheque; (iv) A civil suit has been instituted by the second respondent for the recovery of its dues; (v) MSEDCL has raised an additional charge which has been occasioned by the default of the second respondent; and (vi) Apart from the bald statement that the Directors are in-charge of and responsible for the management of the company, no specific role has been ascribed to them in the plaint so as to invoke the doctrine of vicarious liability. 15. On the other hand, Mr. Mohit Mathur and Ms. Rebecca John, learned senior counsel appearing on behalf of the second respondent have submitted that: (i) The High Court has noted in the impugned judgment that there is no dispute in regard to the liability of the company for electricity supplied during the months of August, September and October 2016; (ii) Though the PSA envisaged that payment would be made through LC, they could not be honoured because the LC were not in a format acceptable to the Bankers of the second responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. The appellants had placed two purchase orders for the supply of aircraft parts with the first respondent and had issued two post-dated cheques as advance payment. The supplier received a letter from the purchasers cancelling the purchase and requesting the return of both the cheques. Following a notice by the suppliers, a complaint was instituted under Section 138 upon which cognizance was taken by the Magistrate and summons were issued. The High Court allowed a petition under Section 482 CrPC and set aside the order issuing process by construing the expression "discharge of any debt or other liability" in Section 138 holding that there must be a liability at the time of issuing the cheque 10 "138. Dishonour of cheque for insufficiency, etc., of funds in the account.-Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the goods and for any reason purchase order is not carried to its logical conclusion either because of its cancellation or otherwise, and material or goods for which purchase order was placed is not supplied, in our considered view, the cheque cannot be held to have been drawn for an existing debt or liability. The payment by cheque in the nature of advance payment indicates that at the time of drawal of cheque, there was no existing liability." 19. Drawing the distinction between civil and criminal liability, it was observed that if there is a breach in the condition of advance payment, it would not incur criminal liability under Section 138 of the NI Act since there is no legally enforceable debt or liability at the time when the cheque was drawn. The Court held that if at the time when a contract is entered into, the purchaser has to pay an advance and there was a breach of that condition, the purchaser may have to make good the loss to the seller, but this would not occasion a criminal liability under Section 138. The issuance of a cheque towards advance payment at the time of the execution of the contract would not - in the view which has adopted in Indus Airways - be cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity or not, or whether there was outstanding liability or not is a question of fact which could have been determined only by the trial court after recording evidence of the parties. In our opinion, the High Court should not have expressed its view on the disputed questions of fact in a petition under Section 482 of the Code of Criminal Procedure, to come to a conclusion that the offence is not made out. The High Court has erred in law in going into the factual aspects of the matter which were not admitted between the parties. 22. In a more recent judgment of a two judge Bench in Sripati Singh v. State of Jharkhand 2021 SCC OnLine SC 1002, an order of the Magistrate taking cognizance and issuing summons on a complaint under Section 420 IPC and Section 138 of the NI Act was challenged before the High Court. There was a transaction between the second respondent and the complainant pursuant to which the appellant had advanced sums of money. Several cheques were handed over but they were dishonored on presentation. The High Court allowed the petitions. An appeal was filed before this Court. Before this Court, the appellant urged that a cheque issued towards discharge of the loan and p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility in any other form and in that manner if the amount of loan due and payable has been discharged within the agreed period, the cheque issued as security cannot thereafter be presented. Therefore, the prior discharge of the loan or there being an altered situation due to which there would be understanding between the parties is a sine qua non to not present the cheque which was issued as security. These are only the defences that would be available to the drawer of the cheque in a proceedings initiated under Section 138 of the N.I. Act. Therefore, there cannot be a hard and fast rule that a cheque which is issued as security can never be presented by the drawee of the cheque. If such is the understanding a cheque would also be reduced to an 'on demand promissory note' and in all circumstances, it would only be a civil litigation to recover the amount, which is not the intention of the statute. When a cheque is issued even though as 'security' the consequence flowing therefrom is also known to the drawer of the cheque and in the circumstance stated above if the cheque is presented and dishonoured, the holder of the cheque/drawee would have the option of initiating the civil proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity. A sum payable or recoverable by action in respect of money demand." Lindey L.J in Webb v. Strention 1888 QBD 518 defined debt as "... a sum of money which is now payable or will become payable in the future by reason of a present obligation, debitum in praesenti, solvendum in futuro." The definition was adopted by this Court in Keshoram Industries v. CWT AIR 1966 SC 1370. Justice Mookerjee writing for a Full Bench of the Calcutta High Court in Banchharam Majumdar v. Adyanath Bhattacharjee (1909) ILR 36 Cal 936 adopted the definition provided by the Supreme Court of California in People v. Arguello 1869 37 Calif 524: "Standing alone, the word 'debt' is as applicable to a sum of money which has been promised at a future day as to a sum now due and payable. If we wish to distinguish between the two, we say of the former that it is a debt owing, and of the latter that it is a debt due. In other words, debts are of two kinds: solvendum in praesenti and solvendum in future ... A sum of money which is certainly and in all events payable is a debt, without regard to the fact whether it be payable now or at a future time. A sum payable upon a contingency, however, is not a debt or d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yet consume power, the cheques were capable of being presented for the purpose of meeting the outstanding dues. 27. According to the complainant, the LCs' were not in a format agreed to by their bankers. The cheques which were initially towards security could not have been presented before the payments under the PSA fell due. Moreover, if the company were to discharge its liability to pay the outstanding dues under the power supply agreement through the agreed modality of an LC to the satisfaction of the second respondent's bankers, there would be no occasion to present the cheque thereafter. In other words, once payments for electricity supply became due in terms of the PSA, and the company failed to discharge its dues, the second respondent was entitled in law to present the cheque for payment. Merely labelling the cheque as a security would not obviate its character as an instrument designed to meet a legally enforceable debt or liability, once the supply of power had been provided for which there were monies due and payable. There is no inflexible rule which precludes the drawee of a cheque issued as security from presenting it for payment in terms of the contract. . It all de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have been issued as a security is not in dispute since it stands admitted from the pleading of the second respondent in the suit instituted before the High Court of Madras. The legal requirement which Section 138 embodies is that a cheque must be drawn by a person for the payment of money to another "for the discharge, in whole or in part, of any debt or other liability'. A cheque may be issued to facilitate a commercial transaction between the parties. Where, acting upon the underlying purpose, a commercial arrangement between the parties has fructified, as in the present case by the supply of electricity under a PSA, the presentation of the cheque upon the failure of the buyer to pay is a consequence which would be within the contemplation of the drawer. The cheque, in other words, would in such an instance mature for presentation and, in substance and in effect, is towards a legally enforceable debt or liability. This precisely is the situation in the present case which would negate the submissions of the appellants. 31. The second submission which has been urged on behalf of the appellants turns upon Section 202 CrPC, which is extracted: "202. Postponement of issue of proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ants is that in these circumstances, the Magistrate was duty bound to postpone the issuance of process and to either enquire into the case himself or to direct an investigation either by a police officer or by some other person. Section 203 stipulates that if the Magistrate is of the opinion on considering the statement on oath, if any, of the complainant and of the witnesses, and the result of the enquiry or investigation if any under Section 202 that there is no sufficient ground for proceeding, he shall dismiss the complaint recording briefly his reasons for doing so. The requirement of recording reasons which is specifically incorporated in Section 203 does not find place in Section 202. Section 204 which deals with the issuance of process stipulates that if in the opinion of the Magistrate taking cognizance of an offence, there is sufficient ground for proceeding, he may issue (a) in a summons case, a summons for attendance of the accused; (b) in a warrant case, a warrant or if he thinks fit a summons for the appearance of the accused. These proceedings have been interpreted in several judgments of this Court. For the purpose of the present case, some of them form the subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prima facie makes the inquiry or the investigation, as the case may be, by the Magistrate mandatory. The word "shall" is ordinarily mandatory but sometimes, taking into account the context or the intention, it can be held to be directory. The use of the word "shall" in all circumstances is not decisive. Bearing in mind the aforesaid principle, when we look to the intention of the legislature, we find that it is aimed to prevent innocent persons from harassment by unscrupulous persons from false complaints. Hence, in our opinion, the use of the expression "shall" and the background and the purpose for which the amendment has been brought, we have no doubt in our mind that inquiry or the investigation, as the case may be, is mandatory before summons are issued against the accused living beyond the territorial jurisdiction of the Magistrate." 34. This Court has held that the Magistrate is duty bound to apply his mind to the allegations in the complaint together with the statements which are recorded in the enquiry while determining whether there is a prima facie sufficient ground for proceeding. In Mehmood UI Rehman v. Khazir Mohammad Tunda (2015) 12 SCC 420, this Court followed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and when considered along with the statements recorded and the result of inquiry or report of investigation under Section 202 CrPC, if any, the accused is answerable before the criminal court, there is ground for proceeding against the accused under Section 204 CrPC, by issuing process for appearance. The application of mind is best demonstrated by disclosure of mind on the satisfaction. If there is no such indication in a case where the Magistrate proceeds under Sections 190/204 CrPC, the High Court under Section 482 CrPC is bound to invoke its inherent power in order to prevent abuse of the power of the criminal court. To be called to appear before the criminal court as an accused is serious matter affecting one's dignity, self-respect and image in society. Hence, the process of criminal court shall not be made a weapon of harassment." These decisions were cited with approval in Abhijit Pawar v. Hemant Madhukar Nimbalkar (2017) 3 SCC 528. After referring to the purpose underlying the amendment of Section 202, the Court observed: "25. ... the amended provision casts an obligation on the Magistrate to apply his mind carefully and satisfy himself that the allegations in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The above principles have been reiterated in the judgment in Krishna Lal Chawla v. State of U.P (2021) 5 SCC 435. 37. In this backdrop, it becomes necessary now to advert to an order dated 16 April 2021 of a Constitution Bench in Re: Expeditious Trial of Cases under Section 138 of N.I. Act 1881 Suo Motu Writ Petition (Crl) No. 2 of 2020, decided on 16 April 2021. The Constitution Bench notes "the gargantuan pendency of complaints filed under Section 138" and the fact that the "situation has not improved as courts continue to struggle with the humongous pendency". The court noted that there were seven major issues which arose from the responses filed by the State Governments and the Union Territories including in relation to the applicability of Section 202 of the CrPC. Section 143 of the NI Act provides that Sections 262 to 265 of the CrPC (forming a part of Chapter XXI dealing with summary trials) shall apply to all trials for offences punishable under Section 138 of the NI Act. On the scope of the inquiry under Section 202 CrPC in cases under Section 138 of the NI Act, there was a divergence of view between the High Courts. Some High Courts had held that it was mandatory for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on after holding an inquiry that there are sufficient grounds to proceed against the accused. We are in agreement with the learned Amici." 38. Section 145 of the NI Act provides that evidence of the complainant may be given by him on affidavit, which shall be read in evidence in an inquiry, trial or other proceeding notwithstanding anything contained in the CrPC. The Constitution Bench held that Section 145 has been inserted in the Act, with effect from 2003 with the laudable object of speeding up trials in complaints filed under Section 138. Hence, the Court noted that if the evidence of the complainant may be given by him on affidavit, there is no reason for insisting on the evidence of the witnesses to be taken on oath. Consequently, it was held that Section 202(2) CrPC is inapplicable to complaints under Section 138 in respect of the examination of witnesses on oath. The Court held that the evidence of witnesses on behalf of the complainant shall be permitted on affidavit. If the Magistrate holds an inquiry himself, it is not compulsory that he should examine witnesses and in suitable cases the Magistrate can examine documents to be satisfied that there are sufficient grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation.-For the purposes of this section, - (a) "company" means anybody corporate and includes a firm or other association of individuals; and (b) "director", in relation to a firm, means a partner in the firm." 42. Section 141 of the NI Act stipulates that if a company is alleged to have committed an offence under Section 138, then every person who 'was in charge of, and responsible to, the company for the conduct of the business of the company' shall also be deemed guilty of the offence. The proviso provides an exception if she proves that the offence was committed without her knowledge or that she had exercised due diligence. In Sunil Bharati Mittal v. CBI (2015) 4 SCC 609, a three judge Bench of this Court observed that the general rule is that criminal intent of a group of people who undertake business can be imputed to the Company but not the other way around. Only two exceptions were provided to this general rule: (i) when the individual has perpetuated the commission of offence and there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t responsible for the conduct of the company at the time of the commission of the offence. The Court observed: "9. The position of a managing director or a joint managing director in a company may be different. These persons, as the designation of their office suggests, are in charge of a company and are responsible for the conduct of the business of the company. In order to escape liability such persons may have to bring their case within the proviso to Section 141(1), that is, they will have to prove that when the offence was committed they had no knowledge of the offence or that they exercised all due diligence to prevent the commission of the offence. [...] Every person connected with the company shall not fall within the ambit of the provision. It is only those persons who were in charge of and responsible for the conduct of business of the company at the time of commission of an offence, who will be liable for criminal action. It follows from this that if a director of a company who was not in charge of and was not responsible for the conduct of the business of the company at the relevant time, will not be liable under the provision. The liability arises from being in c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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