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TMI Blog2023 (10) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... in any of the provisions of the IBC restraining the complainant to approach the criminal court to seek penal action under Section 138 of the NI Act. The signatory/director cannot take the benefit of discharge obtained by the corporate debtor by operation of law under the IBC. Further, the facts of the cheques being issued, signature on the cheques, the cheques being issued in what capacity, the cheques being issued for legally enforceable debt or not, that the petitioners are/were directors of the company, what role the petitioners had in the day to day affairs of the company etc. are all facts which are required to be tested at the time of trial and the petitioner has failed to produce some impeachable and incontrovertible evidence beyond suspicion of doubt and all the contentions raised in these petitions are in the form of defence, which can be tested at the time of trial and not at the stage of quashing of the complaints. It is an undisputed fact that from bare reading of the complaint, the necessary averments are made regarding the liability of the accused persons (vicarious liability) under Section 138 read with Section 141 of the NI Act. It also transpires that Clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2. As the common question of facts and law are involved in these petitions, at the request of learned advocates for the parties, they are heard together and disposed of by this common oral judgment. 3. Rule returnable forthwith. Learned advocate Mr.Hardik Modh waives service of notice of rule for respondent no.1 and learned advocate Mr.Dhawan Jayswal waives service of notice of rule for respondent no.2. 4. The impugned complaints are filed by the complainant for dishonour of the cheques with the endorsement `payment stopped by drawer , which are prayed to be quashed by way of these petitions. 5. Heard learned advocate Mr.Vatsa for the petitioners, learned advocate Mr.Modh for respondent no.1 and learned APP Mr.Jayswal, with for respondent no.2. 5.1 Learned advocate Mr.Vatsa for the petitioners submits that there are no outstanding legally enforceable debt or legal dues or other liabilities except for the supplies made on or before 23.9.2019; that the corporate insolvency resolution process as against the company commenced vide order dated 23.9.2019 and hence the liability of the Board of Directors of the company would cease on 23.9.2019 pursuant to their suspension ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21 SCC Online SC 1174. (4) Indus Airways Pvt.Ltd. And Others V/s Magnum Aviation Private Limited, reported in (2014) 12 SCC 539. (5) Sudhir Kumar Bhalla V/s Jagdish Chand and others, reported in (2008)7 SCC 137. (6) Suryalakshmi Cotton Mills Ltd. V/s Rajvir Industries Limited and others, reported in (2008) 13 SCC 678. 6. Per contra, learned advocate Mr.Modh for the respondent no.1-complainant has submitted that the complainant entered into MOU dated 2.5.2019 since M/s Lakeland Chemicals (India) Ltd., failed to repay advanced which were given towards working capital; that the petitioners were issued in terms of the MOU and since the said company failed to discharge its payent obligation as per the MOU, the respondent deposited the said cheques; that the cheques were issued by the promoters/directors of the company as additional security, in terms of the MOU entered between the parties. He submitted that the legal impediment contained in Section 14 of the IBC would make it impossible for proceeding to continue or to be instituted against the corporate debtor but the same can be initiated or continue against natural persons including the persons mentioned in Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be deemed to have committed an offence and shall without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may extend to two year , or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless (a) The cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier. (b) The payee or the holder induce course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer, of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheques as unpaid, and (c) The drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice. Explanation: For the purpose of this section, debt or other liability means a legally enforceable debt or other liability. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had sufficient cause for not making a complaint within such period;] (c) no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under section 138.]. [(2) The offence under section 138 shall be inquired into and tried only by a court within whose local jurisdiction, (a) if the cheque is delivered for collection through an account, the branch of the bank where the payee or holder in due course, as the case may be, maintains the account, is situated; or (b) if the cheque is presented for payment by the payee or holder in due course, otherwise through an account, the branch of the drawee bank where the drawer maintains the account, is situated. Explanation. For the purposes of clause (a), where a cheque is delivered for collection at any branch of the bank of the payee or holder in due course, then, the cheque shall be deemed to have been delivered to the branch of the bank in which the payee or holder in due course, as the case may be, maintains the account.] 33. Initiation of liquidation. xxx xxx xxx (5) Subject to Section 52, when a liquidation order has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional, as the case may be, considers the supply of goods or services critical to protect and preserve the value of the corporate debtor and manage the operations of such corporate debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified. (3) The provisions of sub-section (1) shall not apply to (a) such transactions, agreements or other arrangements as may be notified by the Central Government in consultation with any financial sector regulator or any other authority; (b) a surety in a contract of guarantee to a corporate debtor. (4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process: Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of Section 31 or passes an order for liquidation of corporate debtor unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ential resolution applicants could be disincentivised from proposing a resolution plan. The Committee was also concerned that resolution plans could be priced lower on an average, even where the corporate debtor did not commit any offence and was not subject to investigation, due to adverse selection by resolution applicants who might be apprehensive that they might be held liable for offences that they have not been able to detect due to information asymmetry. Thus, the threat of liability falling on bona fide persons who acquire the legal entity, could substantially lower the chances of its successful takeover by potential resolution applicants. 17.4. This could have substantially hampered the Code s goal of value maximisation, and lowered recoveries to creditors, including financial institutions who take recourse to the Code for resolution of the NPAs on their balance sheet. At the same time, the Committee was also conscious that authorities are duty bound to penalise the commission of any offence, especially in cases involving substantial public interest. Thus, two competing concerns need to be balanced. xxx xxx xxx 17.6. Given this, the Committee felt that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g in force, such as authorities to whom statutory dues are owed,] guarantors and other stakeholders involved in the resolution plan. [Provided that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this sub-section, satisfy that the resolution plan has provisions for its effective implementation.] (2) Where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan. (3) After the order of approval under sub-section (1), - (a) the moratorium order passed by the Adjudicating Authority under section 14 shall cease to have effect; and (b) the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database. [(4) The resolution applicant shall, pursuant to the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the commission of such offence as per the report submitted or complaint filed by the investigating authority, shall continue to be liable to be prosecuted and punished for such an offence committed by the corporate debtor notwithstanding that the corporate debtor's liability has ceased under this sub-section. xxx xxx xxx 11. In the case of P.J.Mohanraj (supra), it is held by the Hon ble Apex Court in paragraph 77 as under : 77. As far as the Directors/persons in management or control of thecorporate debtor are concerned, a Section 138/141 proceeding against them cannot be initiated or continued without the corporate debtor see Aneeta Hada (supra). This is because Section 141 of the Negotiable Instruments Act speaks of persons in charge of, and responsible to the company for the conduct of the business of the company, as well as the company. The Court, therefore, in Aneeta Hada (supra) held as under: 51. We have already opined that the decision in Sheoratan Agarwal [(1984) 4 SCC 352 : 1984 SCC (Cri) 620] runs counter to the ratio laid down in C.V. Parekh [(1970) 3 SCC 491 : 1971 SCC (Cri) 97] which is by a larger Bench and hence, is a binding preceden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the drag-net on the touchstone of vicarious liability as the same has been stipulated in the provision itself. We say so on the basis of the ratio laid down in C.V. Parekh [(1970) 3 SCC 491 : 1971 SCC (Cri) 97] which is a three-Judge Bench decision. Thus, the view expressed in Sheoratan Agarwal [(1984) 4 SCC 352 : 1984 SCC (Cri) 620] does not correctly lay down the law and, accordingly, is hereby overruled. The decision in Anil Hada [(2000) 1 SCC 1 :2001 SCC (Cri) 174] is overruled with the qualifier as stated in para 51. The decision in Modi Distillery [(1987) 3 SCC 684 : 1987 SCC (Cri) 632] has to be treated to be restricted to its own facts as has been explained by us hereinabove. Since the corporate debtor would be covered by the moratorium provision contained in Section 14 of the IBC, by which continuation of Section 138/141 proceedings against the corporate debtor and initiation of Section 138/141 proceedings against the said debtor during the corporate insolvency resolution process are interdict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e NI Act. 14. As per the provisions of Section 138 of the NI Act, if the cheque was dishonoured, statutory notice was issued, the amount is not paid within 15 days thereafter, the cause of action arises and if the complaint is filed within one month from the date of cause of action, the only question before the criminal court is whether the cheque was issued, it was bounced, and despite the service of notice, the amount is not paid. There is no bar contained in any of the provisions of the IBC restraining the complainant to approach the criminal court to seek penal action under Section 138 of the NI Act. The signatory/director cannot take the benefit of discharge obtained by the corporate debtor by operation of law under the IBC. 15. Further, the facts of the cheques being issued, signature on the cheques, the cheques being issued in what capacity, the cheques being issued for legally enforceable debt or not, that the petitioners are/were directors of the company, what role the petitioners had in the day to day affairs of the company etc. are all facts which are required to be tested at the time of trial and the petitioner has failed to produce some impeachable and incontrove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specific spheres of activities and one ought not to tread over the other sphere; ix) The functions of the judiciary and the police are complementary, not overlapping; x) Save in exceptional cases where non-interference would result in miscarriage of justice, the Court and the judicial process should not interfere at the stage of investigation of offences; xi) Extraordinary and inherent powers of the Court do not confer an arbitrary jurisdiction on the Court to act according to its whims or caprice; xii) The first information report is not an encyclopaedia which must disclose all facts and details relating to the offence reported. Therefore, when the investigation by the police is in progress, the court should not go into the merits of the allegations in the FIR. Police must be permitted to complete the investigation. It would be premature to pronounce the conclusion based on hazy facts that the complaint/FIR does not deserve to be investigated or that it amounts to abuse of process of law. After investigation, if the investigating officer finds that there is no substance in the application made by the complainant, the investigating officer may file an approp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitution of India. xvii) Even in a case where the High Court is prima facie of the opinion that an exceptional case is made out for grant of interim stay of further investigation, after considering the broad parameters while exercising the powers under Section 482 Cr.P.C. and/or under Article 226 of the Constitution of India referred to hereinabove, the High Court has to give brief reasons why such an interim order is warranted and/or is required to be passed so that it can demonstrate the application of mind by the Court and the higher forum can consider what was weighed with the High Court while passing such an interim order. xviii) Whenever an interim order is passed by the High Court of no coercive steps to be adopted within the aforesaid parameters, the High Court must clarify what does it mean by no coercive steps to be adopted as the term no coercive steps to be adopted can be said to be too vague and/or broad which can be misunderstood and/or misapplied. 17. In view of the above discussion, it is an undisputed fact that from bare reading of the complaint, the necessary averments are made regarding the liability of the accused persons (vicarious liability) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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