Prem Chand Gupta vs State & Anr.
2010 Latest Caselaw 345 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI

+                                     Crl.M.C. No. 145/2009

                                      Reserved on: 13th January 2010
                                      Pronounced on: 21st January 2010

#      PREM CHAND GUPTA               ..... Petitioner
!                     Through: Mr. Sudhir Makkar,
                      Ms. Meenakshi Singh and Mr. Ankit
                      Malhotra, Advs.

                                 versus

$      STATE & ANR.                                   ..... Respondents
^                                     Through:   Mr. Jaideep Malik, APP.

                                          And

+                                     Crl.M.C. No. 146/2009

#      PREM CHAND GUPTA               ..... Petitioner
!                     Through: Mr. Sudhir Makkar,
                      Ms. Meenakshi Singh and Mr. Ankit
                      Malhotra, Advs.

                                 versus

$      STATE & ANR.                                   ..... Respondents
^                                     Through:   Mr. Jaideep Malik, APP.


*      CORAM:
       HON'BLE MR. JUSTICE V.K. JAIN

       1.      Whether the Reporters of local papers
               may be allowed to see the judgment?              Yes

       2.      To be referred to the Reporter or not?           Yes

       3.      Whether the judgment should be
               reported in the Digest?                          Yes

Crl.M.C. No. 145 & 146 of 2009                                  Page 1 of 12
 : V.K. JAIN, J.

1. Vide this common judgment I shall dispose of both the

petitions referred above. The petitioner is Managing Director of

Elite Appliances Ltd. (hereinafter referred as „the Company‟), a

company incorporated under the provisions of Companies Act,

1956. A reference was made to Board of Industrial and

Financial Reconstruction (hereinafter referred as „BIFR‟) under

Section 15 of Sick Industrial Companies (Special Provision) Act,

1985 (hereinafter referred as „SICA‟), on the ground that in the

opinion of the Board of Directors, the company had become a

Sick Industrial Company. Vide order dated 1st December 1998,

BIFR nominated UPFC as the Operating Agency to work out the

rehabilitation scheme for the company and also directed that

neither the company nor any of the involved party should

dispose of/alienate any of the assets of the company. On 4th

October 2002 BIFR recommended that the company be wound

up. Vide order dated 13th December 2002, passed in Company

Petition 89 of 1997, this Court directed the company to be

wound up and appointed Official Liquidator as Provisional

Liquidator for the company and instructed him to take over the

attached property of the company as well as its accounts books

and records.

2. Complaints under Section 138 of Negotiable Instruments

Act was filed by respondent No.2 Delhi Safe Deposit Company

Ltd. against the petitioner in his capacity as Managing Director

of the company. It was alleged in the complaints that two

cheques, both dated 3rd February 1999, which are subject matter

of Crl.M.C. 145/2009 and two cheques dated 3rd November 1998,

which are subject matter of Crl.M.C. 146/1999, when presented

by the banker of the petitioner, were dishonoured and payment

was not made to the complainant despite issue of Demand

Notice dated 15th February 1999.

3. The petitioner having been summoned under Section 138

of Negotiable Instruments Act, he has filed these petitions

seeking quashing of the complaints primarily on the ground that

the alleged offence was completed after the commencement of

the proceedings under the provisions of SICA and on account of

freezing of the assets of the company, it was not permissible for

the bank to honour the cheque nor could he have made payment

to the complainant from the funds of the company on that date.

4. Admittedly, the cheques in question were issued by the

company and were signed by the petitioner in his capacity as its

Managing Director and not in his personal capacity. The

following are the essential ingredients of the offence punishable

under Section 138 of Negotiable Instruments Act:

"(1) drawing of the cheque by a person on an account maintained by him with a banker, for payment to another person from out of that account for discharge in whole/part any debt or liability, (2) presentation of the cheque by the payee or the holder in due course to the bank, (3) returning the cheque unpaid by the drawee bank for want of sufficient funds to the credit of the drawer or any arrangement with the banker to pay the sum covered by the cheque, (4) giving notice in writing to the drawer of the cheque within 15 days of the receipt of information by the payee from the bank regarding the return of the cheque as unpaid demanding payment of the cheque amount, (5) failure of the drawer to make payment to the payee or the holder in due course of the cheque, of the amount covered by the cheque within 15 days of the receipt of the notice."

5. No offence under Section 138 of Negotiable Instruments

Act is made out in case the drawer of the cheque makes payment

of the amount of the cheque to its holder, within 15 days of the

receipt of the notice, envisaged in Section 138(b) of Negotiable

Instruments Act. Issuing of cheque, towards discharge, in whole

or in part of any debt or other liability, and its being returned

unpaid by the bank on account of want of funds, are necessary

ingredients of the offence under Section 138 of Negotiable

Instruments Act and must necessarily be proved before a person

can be convicted under the aforesaid provision. No criminal

liability is however incurred in case payment is made within 15

days of receipt of notice. This proposition of law has been

accepted in a number of cases including the decision of the

Hon‟ble Supreme Court in „K. Bhaskaran v. Sankaran

Vaidhyan Balan & Anr.‟ (1999) 7 SCC 510, where the Hon‟ble

Supreme Court inter alia observed as under:

"The offence under Section 138 of the Act can be completed only with the concatenation of a number of acts. The following are the acts which are components of the said offence: (1) drawing of the cheque, (2) presentation of the cheque to the bank, (3) returning the cheque unpaid by the drawee bank, (4) giving notice in writing to the drawer of the cheque demanding payment of the cheque amount, (5) failure of the drawer to make payment within 15 days of the receipt of the notice.

It is not necessary that all the above five acts should have been perpetrated at the same locality. It is possible that each of those five acts could be done at five different localities. But a concatenation of

all the above five is a sin qua non for the completion of the offence under Section 138 of the Code......." (emphasis supplied)

6. In „Harman Electronics (P) Ltd. Vs. National

Panasonic India (P) Ltd.‟ 2009 (1) SCC 720, the Hon‟ble

Supreme Court observed as under:

"A distinction must also be borne in mind between the ingredient of an offence and commission of a part of the offence. While issuance of a notice by the holder of a negotiable instrument is necessary, service thereof is also imperative. Only on a service of such notice and failure on the part of the accused to pay the demanded amount within a period of 15 days thereafter, commission of an offence is completed." (emphasis supplied)

7. It is an admitted case that BIFR, vide its order dated 1 st

December 1998, had directed that neither the company nor any

other involved party should dispose of/alienate any of the assets

of the company. Consequently, it was not possible for the

company to make any payment to anyone including the

complainant after 1st December 1998. Admittedly, Legal Notice

in respect of cheques dated 3rd November 1998 was issued on

18th November 1998. The payment of the amount of the cheques

dated 3rd November 1998 could have been made by the company

at any time upto 3rd December 1998 presuming that the notices

were received by the company on the very same day on which

they were issued. Since BIFR had, vide its order dated 1 st

December 1998 put a complete embargo on disposal or

alienation of any of the assets of the company, which would

include amount lying in the bank of the company, it was not

possible either for the company or for any of its Directors to

thereafter comply with the notice. The offence under Section

138 of Negotiable Instruments Act was complete only on 3 rd

December 1998, when the stipulated period of 15 days for

making payments in terms of the notice expired and on that day,

it was not possible for the company or its Directors, to comply

with the notice. It is true that nothing prevented the company

and its Directors from honouring the cheques when they were

presented for encashment prior to 1st December 1998 and/or

from complying with the notice prior to order dated 1 st

December 1998 being passed by BIFR. But, the offence itself

came to be complete only on 3rd December 1998. No offence

under Section 138 of Negotiable Instruments Act was committed

by the company or any of its Directors prior to 3 rd December

1998.

8. Since the company was not in a position to dispose of or

alienate any of its assets and it was not possible for them to

make payment of amount of the cheques on 3 rd December 1998,

no offence under Section 138 of Negotiable Instruments Act was

committed by the company on account of non-payment of these

cheques. As regards the cheques, subject matter of Crl.M.C

145/2009, they being dated 3rd February 1999 and the notice

pursuant to dishonor of these cheques being dated 15 th February

1999, this proposition of law would be equally applicable in

respect of those cheques.

9. In fact, the issue involved in this case is no mere res

integra, in view of the decision of the Hon‟ble Supreme Court in

„Kusum Ingots vs. Pennar Piterson Securities Ltd.‟ AIR

2000 SC 1954 where the Hon‟ble Supreme Court inter alia held

as under:

"The question that remains to be considered is whether S.22A of SICA affects a criminal case for an offence under S.138 NI Act. In the said section provision is made enabling the Board to make an order in wring 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 S.18; and (b) during the period beginning with the recording of opinion by the Board for

winding up of the company under sub- sec.(1) of S.20 and up to 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 S.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 or the alleged offence under S.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. 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 S.22A was passed against the company then it cannot be said that the offence under S.138 NI Act was completed. In such a case it may be 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 complainant 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)

10. In view of the above referred authoritative

pronouncements of the Hon‟ble Supreme Court, it cannot be

disputes that the offence under Section 138 of Negotiable

Instruments Act is not complete before expiry of the statutory

period of 15 days, after receipt of notice and, therefore, it cannot

be said that an offence under Section 138 of Negotiable

Instruments Act was committed by the company on account of

dishonor of these cheques and its non-payment within 15 days of

the receipt of the notice envisaged in Section 138(b) of

Negotiable Instruments Act. Since the company could not have

disobeyed the order passed by BIFR, it was not possible for it to

make payment of the amounts of the cheques at any time after

1st December 1998. The purpose of issuing of notice under

Section 138(b) of Negotiable Instruments Act is to inform an

honest drawer of the cheque, who, for one reason or the other,

could not arrange funds at the time of presentation of the

cheque to his bank, to show his bona fide, by making payment

within 15 days of the receipt of the notice. If a person is

prohibited on account of an order passed by BIFR from making

payment on the date the statutory period of 15 days expires,

non-payment being beyond his control, no offence under Section

138 of Negotiable Instruments Act would be made out against

him.

11. The decision of the Hon‟ble Supreme Court in the case of

Kusum Ingot (supra) was applied by this Court in some

subsequent cases involving this very company. In Crl.M.C.

52/2003, decided on 22nd January 2004, this Court quashed the

complaint that had been instituted against this company under

Section 138 of Negotiable Instruments Act. Similar order was

passed by this Court in Crl.M.C. 634, 648, 1084-86 and 5631 of

2005, filed by the petitioner Prem Chand Gupta and company

Elite Appliances Ltd. in respect of the complaint filed by Delhi

Safe Deposit Company Ltd, which is also the

respondent/complainant in these petitions.

12. The learned counsel for the complainant/respondent has

relied upon the decision of this Court in „Ramaswamy vs.

Bharti Infotel Ltd‟. 148 (2008) DLT 79 where a learned Single

Judge of this Court observed in para 21 of the judgment that the

date of commission of the offence cannot be said to be the date

of its dishonor of the cheque, but the date on which it was

drawn. In view of the authoritative pronouncements of the

Hon‟ble Supreme Court in Kusum Ingot (supra) and K.

Bhaskaran (supra), it is not possible for me to go by the view

taken in this case. More importantly, this judgment does not

take into consideration, the decision of the Hon‟ble Supreme

Court in the case of Kusum Ingot as well the subsequent

decisions of this Court relying upon and following the decision of

the Hon‟ble Supreme Court in the case of Kusum Ingot and,

therefore, does not bind this Court.

13. For the reasons given in the preceding paragraphs, both

the petitions are allowed and the criminal complaints, subject

matter of these petitions are here quashed.

V.K. JAIN (JUDGE) JANUARY 21, 2010 Ag