Bombay High Court
Nizar Noorali Rangara And Anr vs The State Of Maharashtra And Ors on 19 August, 2022
Bench: N. J. Jamadar
ca-589-2019.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPLICATION NO.589 OF 2019
WITH
CRIMINAL APPLICATION NO.590 OF 2019
WITH
CRIMINAL APPLICATION NO.591 OF 2019
WITH
CRIMINAL APPLICATION NO.592 OF 2019
WITH
CRIMINAL APPLICATION NO.593 OF 2019
Nizar Noorali Rangara and Another ...Applicants
vs.
State of Maharashtra and Others ...Respondents
Mr. Ramprakash Pandey, for the applicants.
Ms. Anamika Malhotra, APP for the State/Respondent No.1.
Mr. Jatin Premji Shah a/w. Ms. Snehankita Munj, Mr. Tushar B.
Patel and Ms. Shraddha Kamble, for the Respondent No. 3.
CORAM : N. J. JAMADAR, J.
RESERVED ON : 28th APRIL, 2022
PRONOUNCED ON : 19th AUGUST, 2022
----------
JUDGMENT :
1. Rule. Rule made returnable forthwith and, with the consent of
the counsels for the parties, heard finally.
2. These applications under section 482 of the Code of Criminal
Procedure, 1973 (the Code) assail the orders of issue of process
against the applicants for an offence punishable under section 138
read with 141 of the Negotiable Instruments Act, 1881 (the Act,
Vishal Parekar ...1
ca-589-2019.doc
1881) passed by the learned Metropolitan Magistrate, 28 th Court,
Esplande, Mumbai.
3. The background facts leading to these applications can be
stated in brief as under:-
a] M/s. Rangara Industries Private Limited (accused No.1)
(hereinafter referred "M/s. Rangara") is a company in liquidation.
The applicant Nos. 1 and 2 were the Directors of M/s. Rangara. The
later owed a certain liability towards M/s. Surajbhan Rajkumar
Private Limited (M/s. Surajbhan), a company incorporated under
the Companies Act, 1956. Alleging that M/s. Rangara was not in a
position to discharge its debt, the complainant instituted a Company
Petition No. 207 of 2013 under section 439 of the Companies Act,
1956 for winding up of M/s. Rangara.
b] By an order dated 24th November, 2014 the said Company
Petition was admitted. Subsequently consent terms were executed
in the said Company Petition between M/s. Surajbhan and M/s.
Rangara, whereunder M/s. Rangara undertook to deposit an
amount of Rs. 1,50,00,000/- with the Prothonotary and Senior
Master of this Court. Upon the said deposit, the parties agreed, the
claims of M/s. Surajbhan be referred to arbitration by a sole
arbitrator. Recording the consent terms and undertakings therein,
Vishal Parekar ...2
ca-589-2019.doc
the Company Petition came to be disposed of by an order dated 30 th
January, 2015.
c] On 27th February, 2015 a joint motion was made before the
learned Company Judge. The Court was informed that the parties
resolved the dispute by entering into consent terms dated 26 th
February, 2015. In accordance with the consent terms and the
undertakings therein, above referred order dated 30 th January,
2015 was set aside and the Company Petition came to be disposed.
d] Under the consent terms it was, inter alia, agreed that M/s.
Rangara would pay to M/s. Surajbhan a sum of Rs. 4,50,00,000/-
towards full and final settlement of the claim of M/s. Surajbhan and
its sister concern M/s. Shree Durga Iron & Steel Co. Ltd. A schedule
of payment was agreed by and between the parties. After initial
payment of 60 lakhs in two installments, the balance sum of Rs.
3,90,00,000/- was agreed to be paid in 30 monthly installments of
Rs. 13 lakhs during the period from 15 th June, 2015 to 15th
November, 2017. Upon payment, the consent terms provided for
withdrawal of prosecution and giving consent for allowing the
appeal preferred by M/s. Rangara. In case of default in payment, the
parties agreed, that the Company Petition would stands allowed in
terms of prayer clause (a) and (b).
e] Asserting that M/s. Rangara committed default in payment of
Vishal Parekar ...3
ca-589-2019.doc
the amount in accordance with the consent terms and thus the
complainant M/s. Surajbhan was constrained to deposit the
cheques, and consequent to the dishonour of the cheques M/s.
Rangara failed to comply with the demand in the statutory notices,
M/s. Surajbhan, the complainant, has lodged five complaints for the
offences punishable under section 138 read with 141 of the Act,
1881.
f] Cheque Nos.089447, 089448 and 089449 drawn for Rs. 13
lakhs each payable on 15th October, 2015, 15th November, 2015 and
15th December, 2015, respectively, are the subject matters of
Complaint Case No. 645/SS/2016.
Cheque Nos. 089450, 089451 and 089452 drawn for Rs. 13
lakhs each payable on 15th January, 2016, 15th February, 2016 and
15th March, 2016, respectively, are the subject matters of Complaint
Case No. 1629/SS/2016.
Complaint Case No. 5872/SS/2016 pertains to cheque Nos.
089453, 089454 and 089455 drawn for Rs. 13 lakhs each payable
on 15th April, 2016, 15th May, 2016 and 15th June, 2016 respectively.
Whereas, Complaint Case No.893/SS/2017 is in respect of
cheques Nos. 089459, 089460 and 089461 drawn for Rs. 13 lakhs
each payable on 15th October, 2016, 15th November, 2016 and 15th
December, 2016, respectively.
Vishal Parekar ...4
ca-589-2019.doc
Cheque Nos. 089456, 089457 and 089458 drawn for Rs. 13
lakhs each payable on 15th July, 2016, 15th August, 2016 and 15th
September, 2016 respectively are the subject matters of Complaint
Case No. 897/SS/2017.
g] Post recording of verification of the complainant, process
came to be issued in each of the complaints for the offence
punishable under section 138 read with 141 of the Act, 1881.
4. The applicants have approached this Court under section 482
of the Code with the assertion that the complaints suffer from the
vice of suppressio veri and suggestio falsi. The complainant has not
approached the Court with clean hands. The fact that in accordance
with the consent terms, executed on 26 th February, 2015,
consequent to the default M/s. Rangara automatically stood wound
up was deliberately suppressed by the complainant. In the
circumstances, after M/s. Rangara was ordered to be wound up,
there was no cause or occasion for the complainant to present the
cheques for encashment. In any event, with the winding up of M/s.
Rangara, the company in liquidation and/or the applicants who are
Ex-Directors of M/s. Rangara could not have complied with the
demand of payment of the amount covered by the subject cheques.
Vishal Parekar ...5
ca-589-2019.doc
5. Laying emphasis on the fact that the Official Liquidator took
possession of the assets of the complainant vide communication
dated 13th May, 2016, the applicants assert that the entire exercise
commencing from the presentment of the cheques to the lodging of
the complaint was mala fide. Thus, the learned Magistrate
committed a grave error in ordering issue of process against the
accused. Hence, these applications.
6. The applications are resisted by respondent No.3/
complainant.
7. I have heard Mr. Ramprakash Pandey, learned counsel for the
applicants, Ms. Anamika Malhotra, learned APP for the State
/Respondent No.1 and Mr. Jatin Shah, learned counsel for
respondent No. 3 at some length. The learned counsels took the
Court through the pleadings and the record of the previous
proceedings between the parties.
8. Mr. Pandey, learned counsel for the applicants would urge
that the complainant in spite of having been fully aware of the fact
that with the default in compliance with the consent terms, M/s.
Rangara stood wound up automatically, pursuant to the order dated
Vishal Parekar ...6
ca-589-2019.doc
27th February, 2017, could not have presented the cheques for
encashment. A strenuous effort was made by Mr. Pandey to draw
home the point that once a company is wound up, a prosecution for
offence punishable under section 138 of the Act, 1881 against such
company (in liquidation) is legally untenable, though the cheques
might have been delivered before the company was wound up. In
the case at hand, according to Mr. Pandey, there is no dispute over
the fact that the company stood wound up with the very first
default in payment of the amount. Thus, continuation of the
prosecution in such circumstances, would constitute a sheer abuse
of the process of the Court.
9. In addition, in Application No. 589 of 2019, arising out of
Complaint Case No. 645/SS/2016, there is a serious procedural
irregularity as the process has been issued much before recording
of the verification statement of the complainant. Inviting attention
of the Court to the verification statement of the complainant which
seems to have been recorded on 23 rd March, 2016, and the order of
issue of process, which was purportedly passed on 22nd March,
2016, it was submitted that the learned Magistrate ordered issue of
process even before recording verification statement and this
betrays a clear non application of mind.
Vishal Parekar ...7
ca-589-2019.doc
10. As regards the last submission which pertains to CC No. 645/
SS/2016, the subject matter of Application No. 589 of 2019, in all
fairness to Mr. Pandey, it is necessary to note that the submission is
not borne out by the facts. Indeed the verification statement seems
to have been recorded on 23rd March, 2016. However, there seems
to be an inadvertent mistake in recording the date of the order. This
become evident from the record of proceedings (Roznama)
tendered by the learned counsel for the respondent No. 3. It shows
that the verification statement was recorded on 23 rd March, 2016
and on the very day process was ordered to be issued. The alleged
irregularity sought to be highlighted seems to be non-existent.
11. Before adverting to the contentious issues, it may be apposite
to note few un-controverted facts. Institution of the Company
Petition No. 207 of 2013 and the passing of the orders therein are
not much in contest. The Company Petition was admitted on 24 th
November, 2014. Initially, by an order dated 30 th January, 2015,
upon an undertaking to deposit a sum of Rs. 1,50,00,000/- in this
Court and with the consent of the parties, the Company Petition was
disposed of and the parties were referred to arbitration.
Subsequently, on 27th February, 2015, upon a joint motion having
been made by the parties, the learned Company Judge was
Vishal Parekar ...8
ca-589-2019.doc
persuaded to recall the order dated 30 th January, 2015 and dispose
of the Company Petition in accordance with the consent terms. It
may be expedient to extract the relevant clauses of the consent
terms which bear upon the controversy at hand.
12. Paragraph Nos. 2 to 4 of the consent terms, read as under:-
2] The respondent have confirmed and admitted the
claim of the petitioner. The respondent have
expressed their inability to repay the entire
outstanding dues along with interest till date and has
agreed to settle their dues by paying Rs. 4,50,00,000/-
towards full and final settlement (hereinafter
"settlement amount").
3] The respondent shall pay to the petitioner a sum of
Rs. 4,50,00,000/- towards full and final settlement of
all claims of the petitioner and their sister concerns
M/s. Shree Durga Iron & Steel Co. Ltd. against the
respondent as per the following schedule of payment.
a) The respondent shall pay a sum of Rs. 30,00,000/-
by cheque bearing No. 089441 dated 05.04.2015
drawn on ICICI Bank Limited, Bhat Bazaar Branch, in
favour of petitioner.
b) The respondent shall pay a sum of Rs. 30,00,000/-
by cheque bearing No. 089442 dated 05.05.2015
drawn on ICICI Bank Limited, Bhat Bazaar Branch, in
favour of the petitioner.
c) The respondent shall pay balance sum of Rs.
3,90,00,000/- in 30 monthly installments of Rs.
13,00,000/- each by post dated cheques drawn on
ICICI Bank Limited, Bhat Bazaar Branch duly signed
by director of the respondent company dated 15th day
of each calender month starting from 15.06.2015
ending on 15.11.2017 towards full and final settlement
of petitioners claim in the above petition and their
sister concern M/s. Shree Durga Iron & Steel Co. Ltd.
Vishal Parekar ...9
ca-589-2019.doc
d) If the 15th day in any of the above referred period
falls bank holiday, then due date for that relevant
month will be following working day. The details of the
amount payable to the petitioner towards installments
as aforesaid is being annexed and marked as
Annexure -A.
4] The respondent company undertakes to clear all
the installments on time and also it is hereby agreed
that in case of any default in making payment of any
one of the above installments, the respondent shall
make payment of the said defaulted installment with
in further grace period of 15 days failing which this
concession stands withdrawn and the entire dues as
claimed in the petition stands admitted and the
petition shall stand revived without any further
reference to Court, and in that event the petition
stands absolute in terms of prayers (a) and (b) of the
petition without any further reference to this Court.
13. It appears that on 13th May, 2016 a notice was issued by
Official Liquidator that pursuant to the order dated 27 th February,
2015 the Official Liquidator attached to High Court came to be
appointed as a Liquidator of M/s. Rangara, and took possession of
the assets of the said company.
14. Mr. Pandey urged, with a degree of vehemence, that
consequent to default on the part of M/s. Rangara, the later part of
Clause 4 (extracted above) kicked in and M/s. Rangara stood wound
up as the Company Petition stood allowed in terms of prayer clause
(a) and (b). After the company stood so wound up, according to Mr.
Pandey, the complainant could not have proceeded to present the
Vishal Parekar ...10
ca-589-2019.doc
cheques for encashment and institute the complaints. Secondly,
without impleading the Official Liquidator, the complaint under
section 138 read with 141 of the Act, 1881 could not have been
entertained and proceeded with.
15. Mr. Jatin Shah, learned counsel for respondent No. 3 joined
the issue by canvassing a submission that none of the aforesaid
submission is worthy of acceptance. Neither is it the requirement of
law that while instituting a complaint for the offence punishable
under section 138 of the Act, 1881, where it is alleged that the
company has committed an offence, leave of the Company Court
under section 446 of the Companies Act, 1956 is necessary. Nor the
company and its directors are absolved of the liability in respect of
the cheques which were drawn in discharge of legally enforceable
debt incurred before the company stood wound up.
16. Mr. Shah, would further urge that the stage of the proceedings
before the trial Court cannot be lost sight of. Plea of the accused has
been recorded. Evidence of the complainant has also been recorded.
The applicants had, in fact, sought recall of the complainant's
witnesses for cross examination and, at that stage, the applicants
have moved these applications which are nothing but abuse of the
Vishal Parekar ...11
ca-589-2019.doc
process of the Court. The element of delay and latches, in the
circumstances, also becomes relevant and on that count alone the
applications deserve to be dismissed summarily, urged Mr. Shah.
17. I am inclined to deal with the second challenge first.
18. From a meaningful reading of the consent terms, it becomes
abundantly clear that the parties had agreed that in the event of
default, the Company Petition would stand allowed and M/s.
Rangara wound up. In fact, the Official Liquidator vide notice dated
13th May, 2016 seems to have entered into liquidation. In this
backdrop, the moot question that crops up consideration is,
whether the impleadment of Official Liquidator is necessary in a
complaint for the offence punishable under section 138 of the Act,
1881, where it is alleged that the company in liquidation has
committed the said offence ? In other words, whether the leave of
the Court under section 446 of the Companies Act is peremptory ?
19. A learned single Judge of this Court in the case of Firth
(India) Steel Co. Ltd. vs. Bombay Leasing Company Private Limited 1
held that:
"The expression legal proceedings or other legal
1 1999 (4) Bom. C.R. 748.
Vishal Parekar ...12
ca-589-2019.doc
proceedings for the purpose of sections 442 and 446
must be read ejusdem generis with the expression
'suit' and can mean only civil proceedings which have
a bearing so far as the winding up is concerned
namely realisation of the assets and discharge of
liabilities of the company.
20. The learned Judge repelled the contention that the
expression 'legal proceedings' would include criminal complaint
under section 138 of the Negotiable Instruments Act, 1881.
21. In Suresh K. Jasnani vs. Mrinal Dyeing and Manufacturing
Co. Ltd. And Ors.2 another learned single Jude of this Court took the
view that section 446(1) of the Companies Act applied to the
proceedings under section 138 of the Act, 1881 as well.
22. A reference was thus made to a Division Bench in Indorama
Synthetics (I) Limited vs. State of Maharashtra 3. The Division
Bench considered the following question:-
"Whether the expression 'suit or other proceedings'
in section 446(1) and the expression 'suit or
proceedings' in section 442, under chapter II of part
VII of the Companies Act, 1956, include criminal
complaints filed under section 138 of the Negotiable
Instruments Act, 1881 ? "
23. The Division Bench, after adverting to the judgment of the
Supreme Court in the case of S.V. Kondaskar, Official Liquidator and
2 Cri. Revn. Appln. No. 245 of 1997.
3 2016 ALL MR (CRI) 3458.
Vishal Parekar ...13
ca-589-2019.doc
Liquidator of the Colaba Land and Mills Co. Ltd. (In Liqn.) vs. V.M.
Deshpande, Income Tax Officer, Companies Circle I (8), Bombay and
Another4 and Division Bench judgment of this Court in the case of
Orkay Industries Limited and Ors. vs. State of Maharashtra and
Others5 concurred with the view recorded in the case of Firth
(India) (supra) and answered the reference as under:-
"The expression "suit or other proceedings" in
section 446(1) under Chapter II of Part VII of
Companies Act, 1956, does not include criminal
complaints filed under section 138 of the Negotiable
Instruments Act, 1881".
24. The observations in paragraph Nos. 29 and 30 are material
and hence extracted below:-
29. Learned counsel for the Petitioner in this case has
also relied upon the decision of Orkay Industries
Limited & Ors. Vs. State of Maharashtra & Ors., 1998
(2) Mh.L.J. 910. The Division Bench of this Court,
while dealing with the application of Section 446(1) of
the Companies Act to proceeding under Section 138 of
N.I. Act, has observed that, what was directly in issue
in the case filed under Section 138 of the N.I. Act was
the Company being liable for prosecution on dishonour
of the cheques issued by its Directors. The commission
of offence under Section 138 is not dependent on
winding-up of the Company, but is dependent upon
dishonour of cheque and non-payment of the amount
within fifteen days from the receipt of the notice. The
offence under Section 138 of N.I. Act is complete after
the ingredients of Section 138 are satisfied and,
therefore, mere filing of Petition for winding-up of the
Company would not result into staying of the said
proceedings. Even when the order of winding-up is
passed or the order is made appointing a provisional
liquidator, it can have no effect under the proceedings
4 AIR 1972 SC 878.
5 1998 (2) Mh.L.J. 910.
Vishal Parekar ...14
ca-589-2019.doc
under Section 138 of N.I. Act.
30. Thus, there is a long line of decisions making the
position clear that the expression 'suit or legal
proceedings', used in Section 446(1) of the Companies
Act, can mean only those proceedings which can have
a bearing on the assets of the companies in winding-up
or have some relation with the issue in winding-up. It
does not mean each and every civil proceedings,
which has no bearing on the winding-up proceedings,
or criminal offences where the Director of the
Company is presently liable for penal action.
(emphasis supplied)
25. In view of the aforesaid enunciation of the legal position, the
controversy sought to be raised on behalf of the applicants that the
complaints for the offence punishable under section 138 of
Negotiable Instruments Act, 1881 sans permission of the Company
Court under section 446(1) of the Companies Act, 1956 are not
tenable, does not merit countenance.
26. This takes me to a more substantive challenge on behalf of the
applicants that with the order of automatic winding up of the
company, consequent to the default in accordance with the consent
terms, the company could not have been prosecuted for the offence
punishable under section 138 of the Act, 1881. To appreciate this
challenge, in a proper perspective, a re-visit to the facts becomes
necessary, especially the time line.
27. The consent terms were accepted on 27 th February, 2015 and
Vishal Parekar ...15
ca-589-2019.doc
the Company Petition stood disposed. The cheques in question were
purportedly drawn in accordance with Clause (c) of paragraph 3 of
the consent terms (extracted above). All the cheques were drawn
for Rs. 13 lakhs. The cheques in Complaint No. 645/SS/2016 were
presented for encashment and were returned un-encashed on 19 th
December, 2015 with the remarks "account blocked". The statutory
notice was addressed on 8th January, 2016.
In Complaint No.1629/SS/2016 the cheques were returned un-
encashed on 19th March, 2016 and demand notice was issued on 7th
February, 2016.
In Complaint No.5872/SS/2016 the cheques were returned un-
encahsed on 7th July, 2016, followed by a demand notice dated 12 th
July, 2016.
In Complaint No. 893/SS/2017 the cheques were returned un-
encashed on 17th January, 2017 and the demand notice was issued
on 20th January, 2017.
In Complaint No. 897/SS/2017 the cheques were dishonoured
on 14th October, 2016 and the demand notice was issued on 27 th
October, 2017.
28. As indicated above, on 13th May, 2016 the Official Liquidator
gave notice of having entered into liquidation. Evidently in two of
Vishal Parekar ...16
ca-589-2019.doc
the complaints i.e. Complaint No. 645/SS/2016 and Complaint
No.1629/SS/2016 the cheques were presented and dishonoured and
the demand notices were issued before the Official Liquidator gave
notice dated 13th May, 2016. The cheques, in rest of the complaints,
appear to have been presented after the said notice by the Official
Liquidator.
29. With the aforesaid clarity on facts, the submissions advanced
on behalf of the parties now fall for consideration.
30. Mr. Pandey, would urge that the instant complaint, in the face
of the aforesaid incontrovertible facts, do not pertain to a legally
enforceable debt. Once the complainant and M/s. Rangara entered
into the settlement, evidenced by the consent terms, the liability
came to an end. Consequent to non-compliance with the consent
terms, the only remedy which the complainant could avail was the
one which flowed from Company Petition having been made
absolute. Institution of the complaint on the basis of the cheques
which were issued under the consent terms, therefore, cannot be
said to be for the enforcement of a legal liability.
31. To bolster up this submission, Mr. Pandey placed reliance on
Vishal Parekar ...17
ca-589-2019.doc
a judgment of the Supreme Court in the case of Lalitkumar Sharma
and Another vs. State of Uttar Pradesh and Another6. In the said
case, during the pendency of the first complaint, the parties entered
into a compromise and in terms thereof, one of the accused had
drawn a cheque. Upon dishonour of the said cheque, a fresh
complaint for the offence punishable under section 138 of the Act
came to be lodged. In that context, the Supreme Court held that,
"since the cheque was issued in terms of the compromise, it did not
create a new liability. Since the compromise did not fructify, the
same cannot be said to have been issued towards payment of debt."
32. I am afraid the aforesaid pronouncement advances the cause
of the applicants. The reason is not far to seek. In the said case, in
the first complaint, for the compounding of which the second cheque
was drawn, the accused were already convicted and punished. In
that context, the Supreme Court observed that the second cheque
drawn in terms of the compromise did not create a fresh liability.
That does not seem to be the case at hand. It is nobodies case that
M/s. Rangara or the applicants discharged the liability for which
the Company Petition was filed.
33. To bolster up the submission that the complaint under section
6 (2008) 5 Supreme Court Cases 638.
Vishal Parekar ...18
ca-589-2019.doc
138 of the Act, 1881 cannot be filed after the winding up order of
the company, Mr. Pande placed a very strong reliance on the
judgment of a learned single Judge of Delhi High Court M.L. Gupta
and Another vs. Ceat Financial Services Limited 7 . In the said case,
the Delhi High Court considered the said question in the context of
the undisputed facts therein that as on the date of presentment and
filing of complaint the company was in liquidation and held that :
"When the company goes into liquidation and the
cheque is presented thereafter, it cannot be said that
the company has committed the offence as it is
because of legal bar that it is precluded from making
the payment. Once dishonour of the cheque by the
Bank and failure to make payment of amount by the
company is beyond its control, the Directors (who are
in fact ex-Directors) can also not be held liable.
34. Holding thus, the Delhi High Court concluded that a complaint
under section 138 of the 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.
35. Mr. Pandey also placed reliance on two judgments of this
Court. First, in the case of NRC Limited and Others vs. Fuel
Corporation of India and Others8 and, second Rajeev Raj Kumar vs.
State of Maharashtra9.
7 2006 SCC OnLine Del 1448.
8 2019 SCC OnLine Bom 1222.
9 2018 SCC OnLine Bom 2352.
Vishal Parekar ...19
ca-589-2019.doc
36. The judgment in the case of NRC Limited (supra) turned on
its peculiar facts as in the said case the question arose in the
context of direction under section 22A of the Sick Industrial
Companies (Special Provisions) Act, 1985 restraining the company
from disposing of the assets of the company.
37. In the case of Rajeev Kumar (supra) though the contention
regarding the company having been ordered to be wound up was
raised, this Court was persuaded to quash the proceedings against
the Directors of the company on the ground that in the absence of
specific averments to bring the acts and conduct of the Directors
within the ambit of section 141 of the Act, 1881, the order of issue of
process was legally infirm.
38. Per contra, Mr. Shah, learned counsel for the applicants
commended me to accept the proposition enunciated by Division
Bench of Kelra, High Court in the case of Jose Antony Kakkad vs.
Official Liquidator10 wherein it was in terms observed that the
Parliament had introduced Chapter XVII of the Negotiable
Instruments Act, 1881 despite being fully aware of the provisions
contained in section 446 of the Companies Act, 1956 and, therefore,
there was no bar to prosecute a company, which is under
10 2000 (1) K.L.J. 757.
Vishal Parekar ...20
ca-589-2019.doc
liquidation, for an offence punishable under section 138 of the Act.
39. The judgment of the Supreme Court in the case of Kusum
Ingots & Alloys Ltd. vs. Pennar Peterson Securities Ltd. and
Others11 rendered in the context of section 22A of the SICA
delineates the approach to be adopted by the Court. The
observations of the Supreme Court in paragraph 19 are instructive
and hence extracted below:
19] The question that remains to be considered is
whether section 22 A of SICA affects a criminal case
for an offence under section 138 NI Act. In the said
section provision is made enabling the Board to make
an order in writing to direct the sick 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 condi- tioned 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 22-A
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 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 contention can be accepted or not will
depend on the facts and circumstances of the case.
11 (2000) 2 Supreme Court Cases 745.
Vishal Parekar ...21
ca-589-2019.doc
Take for instance, before the date on which the cheque
was drawn or before expiry of the statutory period of
15 days after notice, a restraint order of the BIFR
under Section 22-A was passed against the company
then it cannot be said that the offence under section
138 NI Act was completed. In such a case it may
reasonably be said that the dishonouring of the cheque
by the bank and failure to make payment of the
amount by the company and/or its Directors is for
reasons beyond the control of the accused. It may also
be contended that the amount claimed by the com-
plainant is not recoverable from the assets of the
company in view of the ban order passed by the BIFR.
In such circumstances it would be unjust and unfair
and against the intent and purpose of the statute to
hold that the Directors should be compelled to face
trial in a criminal case.
(emphasis supplied)
40. The Supreme Court has in terms observed that the
contention that the criminal case for the alleged offence under
section 138 of the Act, 1881 cannot be instituted during the period
in which restraint order passed by BIFR remains operative cannot
be rejected outright. Whether the contention can be accepted or not
will depend upon the facts and circumstances of a given case.
Though the observations were made in the context of the direction
under section 22A of the SICA restraining disposition of the assets
of sick company, yet, inquiry on facts in the face of such directives
was held to be not impermissible to assess the scope and amplitude
of the interdict against institution and continuation of the
proceedings.
Vishal Parekar ...22
ca-589-2019.doc
41. At this stage, it would be appropriate to refer to the
pronouncement of the Supreme Court in the case of Pankaj Mehra
and Another vs. State of Maharashtra and Others12. In the said case,
the Supreme court was confronted with the following question:
"Can a company escape from penal liability under
Section 138 of the Negotiable Instruments Act on the
premise that a petition for winding up of the company
has been presented and was pending during the
relevant time ?"
42. The aforesaid question arose as the Division Bench of this
Court had held that the company can not avert its liability on the
mere ground that winding up petition was presented prior to the
company being called upon by a notice to pay the amount of the
cheque. The Supreme Court, after an analysis of the previous
precedents, enunciated the law 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, make 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
transact-ing business with the company by stage-
managing a petition to be presented for winding up in
order to defeat such bona fide customers. This conse-
quence has been correctly voiced by the Division
Bench in the impugned judgment.
12 (2000) 2 SCC 756.
Vishal Parekar ...23
ca-589-2019.doc
21] If the payment is not ab initio void the
company cannot contend that it is legally forbidden
from making payment of the cheque amount when
notice was issued by the payee regarding dishonour of
the cheque. To circumvent this hurdle an endeavour
was made by some of the appellants' counsel to show
that the very issuance of a cheque would amount to
disposition of property. We are unable to accept the
said contention particularly in view of the definition of
"cheque" in the NI Act. "A Cheque is a bill of exchange
drawn on a specified banker and not expressed to be
payable otherwise than on demand."
43. The Supreme Court further postulated that the special
provisions contained in the Companies Act, 1956, regarding the
debts and liabilities of the company do not render the debt
unenforceable. The Supreme Court went on to expound the position
on the assumption that the disposition of the property made by a
company after commencement of the winding up proceeding is null
and void. The observations of the Supreme Court in paragraph Nos.
25 to 30 are material and hence extracted below:
25] There is no provision in the Companies Act which
prohibits enfor-cement of the debt due from a
company. When a company goes into liquidation,
enforcement of debt due from the company is only
made subject to the conditions prescribed therein. But
that does not mean that the debt has become
unenforceable altogether. Perhaps due to want of
sufficient assets for the company the realisation of a
debt would be difficult. But that is no premise to hold
that the debt is legally unenforceable. Enforceability of
a debt is not to be tested on the touchstone of the
modality or the procedure provided for its realisation
or recovery. Hence the contention that the special
provision incorporated in the Companies Act
regarding the debts and liabilities due from the
Vishal Parekar ...24
ca-589-2019.doc
company will render the debt unenforceable, cannot
be accepted.
26] The alternative approach is this : Even assuming
that any disposition of the property made by a
company after commencement of the winding up
proceedings is null and void, how that is an escape
ground from the offence under Section 138 of the NI
Act? That section created a statutory offence which
on the confluence of the various factors enumerated
therein, commencing with the drawing of the cheque
and ending with the failure of the drawer of the
cheque to pay the amount covered by it within the
time stipulated, ripens into a penal liability.
27] The last factor for constituting the offence under
Section 138 of the NI Act is formulated in clause c of
the proviso to the Section which reads thus : "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.
28] The words "the drawer of such cheque fails to
make the payment" are ostensibly different from
saying "the drawer refuses to make payment". Failure
to make payment can be due to the reasons beyond
the control of the drawer. An illustrative case is, if the
drawer is not a company but individual who has
become so pauper or so sick as he cannot raise the
money to pay the demanded sum. Can he contend that
since failure to make payment was on account of such
conditions he is entitled to be acquitted? The answer
cannot be in the affirmative though the aforesaid
conditions can be put forth while considering the
question of sentence.
29] We therefore feel that legislature has thoughtfully
used the word "fails" instead of other expressions as
failure can be due to variety of reasons including his
disability to pay. But the offence would be complete
when the drawer "fails" to make payment within the
stipulated time, whatever be the cause for such
failure.
30] The drawer of the cheque can have different
explanations for the failure to pay the amount covered
by the cheque. But no such explanations would be
sufficient to extricate him from the tentacles of the
offence contemplated in the Section. Perhaps same
Vishal Parekar ...25
ca-589-2019.doc
kind of explanations 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.
(emphasis supplied)
44. Undoubtedly the aforesaid pronouncement primarily deals
with the question as to whether a company can escape from penal
liability on the ground that a petition for winding up of the company
had been presented and was pending during the time, the offence
under section 138 of the Act was allegedly committed. Nonetheless,
the aforesaid observations lay emphasis on the fact that the
Parliament has advisedly used the word "fails" so as to fasten the
liability on the drawer who commits default.
45. In view of the enunciation of legal position in Kusum Ingots
(supra) and Pankaj Mehra (supra), in my considered view, the
question sought to be raised on behalf of the applicants cannot be
answered in the abstract. The facts of the given case must bear
upon the determination. It is true that an offence under section 138
of the Act, 1881 can be said to have been committed upon a
confluence of certain facts. Each of the facts, which constitute the
ingredients of the offence, is required to be established. Yet the
disability which is sought to be put fourth to pay the amount
covered by the dishonored cheque, post winding up order, cannot be
Vishal Parekar ...26
ca-589-2019.doc
appreciated de hors the facts of the case and especially in such a
fashion so as to insulate a company and its ex-directors from the
rigors of law where it appears that they profess to take advantage of
their own wrong.
46. In the facts of the case, if the submission on behalf of the
applicants is readily acceded to, then M/s. Rangara would get a long
leash to avoid the liability by taking undue advantage of its own
default. M/s. Rangara, it can be fairly assumed, entered into
consent terms in the Company Petition to wriggle out of the
consequences which would have otherwise ensued in the Company
Petition. M/s. Rangara committed default in compliance with the
undertakings in the consent terms. Undoubtedly the consent terms
provided for the consequence of the winding up petition being
allowed in the event of any default. But that stipulation appears to
be in the nature of a dyke against the default. In such a situation, to
accede to the submission on behalf of the applicants, would amount
to playing into the hands of a party who succeeds in avoiding the
liability under the original proceedings as well as the one incurred
under the consent terms.
47. In a case of this nature, a distinction is necessarily required to
Vishal Parekar ...27
ca-589-2019.doc
be made between a winding up order passed after weighing of all the
options, especially after recording satisfaction under sub section
(2) of section 440 of the Companies Act, 1956 and an order of
winding-up, which is invited, by executing consent terms. It is trite,
an order of winding-up on merits manifests a judicial exercise upon
recording a satisfaction that having regard to the interest of the
creditors or contributors or both, winding-up is imperative. An
order of winding-up which automatically comes into force upon a
default in compliance with the consent terms executed on behalf of
the company, and its directors cannot be placed on the same
pedestal as an order passed on merits, especially in a case like the
one at hand where it appears to be in the nature of a device to
obviate the liability at that moment.
48. At this juncture, the submission on behalf of respondent No.
3 that the conduct of the applicants deserves to be taken into
account, also merits consideration. Attention of the court was
invited to Application No. 1155 of 2016 filed by the applicants on
21st September, 2015 on behalf of M/s. Rangara, even after the
Official Liquidator came to be appointed. Thus, the applicants,
according to Mr. Shah, take the ground that the company is under
liquidation or the company is a running concern, to suit their
Vishal Parekar ...28
ca-589-2019.doc
convenience, in a given case. Without delving deep into this issue, it
would be suffice to note that such a proceedings appears to have
been filed by the applicants on behalf of M/s. Rangara, post
Liquidator entering into liquidation.
49. To add to this, the stage at which the applicants have
approached this Court also assumes critical significance. In all the
complaints, the process was issued in the year 2016-17. Trial has
commenced. Two of the complaints are at the stage of recording the
cross examination of the complainant's witnesses. At this juncture
and in the light of the facts which have emerged, I am not persuaded
to exercise inherent jurisdiction to indict the complaints. Thus, I am
impelled to dismiss the applications. However, I deem it in the
fitness of things to clarify that the defence based on the
consequences of winding up of M/s. Rangara is expressly kept open
for determination by the learned Magistrate.
Hence, the following order.
ORDER
1] The applications stand dismissed.
2] It is however clarified that the observations hereinabove are
confined to the determination of the prayer to quash the complaints
Vishal Parekar ...29
ca-589-2019.doc
and the learned Magistrate shall decide the complaints on their on
merits and in accordance with law without being influenced by any
of the aforesaid observations while considering the defences which
may be raised by the applicants, including the defence of the effect
of automatic winding up of M/s. Rangara, the accused No. 1
company in accordance with Clause 4 of the consent terms
(extracted above).
3] No costs.
4] Rule discharged.
(N. J. JAMADAR, J.)
Vishal Parekar ...30
