Gujarat High Court

Pavers England Ltd., Through ... vs State Of Gujarat on 1 August, 2023

Bench: Sandeep N. Bhatt

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     R/CR.MA/18167/2017                                ORDER DATED: 01/08/2023

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             IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

             R/CRIMINAL MISC.APPLICATION NO. 18167 of 2017
                                 With
             R/CRIMINAL MISC.APPLICATION NO. 18176 of 2017
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       PAVERS ENGLAND LTD., THROUGH UMAKANT MAHAPATRA
                     (DIRECTOR) & 6 other(s)
                             Versus
                  STATE OF GUJARAT & 1 other(s)
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Appearance:
MR SH SANJANWALA SENIOR ADVOCATE WITH MR. SAHIL M
SHAH(6318) for the Applicant(s) No. 1,2,3,4,5,6,7
MR AMIT M NAIR(5895) for the Respondent(s) No. 2
MR DHAWAN JAYSWAL, APP for the Respondent(s) No. 1
==========================================================

 CORAM:HONOURABLE MR. JUSTICE SANDEEP N. BHATT

                               Date : 01/08/2023

                                ORAL ORDER

1. Both these applications are filed under Section

482 of the Code of Criminal Procedure, 1973 (`the Code'

for short) for quashing and setting aside the complaints

being Criminal Case Nos.8692 of 2017 and 669 of 2017 rd respectively pending before the learned 3 Additional

Senior Civil Judge, Ahmedabad filed under the provisions

of the Negotiable Instruments Act (`NI Act' for short).

2. As the common question of facts and law are

involved in these applications, at the request of learned

advocates for the parties, they are heard together and

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disposed of by this common oral order.

3. For the sake of convenience, the facts of

Criminal Miscellaneous Application No.18167 of 2017 are

considered, which are as under:

3.1 It is averred in the application that the

applicant no.1 is a company incorporated under the

provisions of the Companies Act, 1956 and is engaged in

the business of selling footwear across India; the

applicant nos.2 to 4 are the directors of the applicant

no.1-company; that the original accused no.1-Triton Retail

Private Limited is a private limited company incorporated

under the provisions of the Companies Act; that the said Triton Retail Private Limited had taken on lease about

400 sq.feet of commercial space owned by respondent

no.1-complainant for opening a showroom to sell products

of applicant no.1 company in August, 2012; that as the

post-dated cheques issued for the lease rent of the said

premises have been dishonoured, the impugned

complaints are filed, which are sought to be quashed by

way of these applications.

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4. Heard learned senior advocate Mr.Sanjanwala

for the applicants, learned advocate Mr.Nair for

respondent no.1-complainant and learned APP Mr.Jayswal

for respondent no.2-state.

4.1 Learned senior advocate Mr.Sanjanwala for the

applicants submitted that none of the applicants are

signatories to the cheques in question; the applicant no.1

was not a subsidiary of the applicant no.1-company; that

the applicant no.1 does not hold any shares of original

accused no.1-Triton Retail Private Limited; that the only

relationship between the accused no.1 and the applicant

no.1 is purely contractual to the accused no.1-Triton

Retail Private Limited has been appointed by the applicant no.1-Pavers England Ltd. As franchisee to sell

its footwear and other products across various cities,

including Ahmedabad; that the lease arrangement was

purely and exclusively between the landlord and the

tenant i.e. respondent no.1-complainant and the accused

no.1; that the applicants are not involved in day-to-day

affairs of the accused no.1-Triton Retail Pvt.Ltd.; that the

applicant no.1-Pavers England is a separate and distinct

legal entity; that the applicant no.1 is not a party to the

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lease agreement; that there is no privity of contract

between applicant no.1 and the complainant; that

applicant nos.5 and 6 are directors of accused no.1-Triton

Retail Pvt. Ltd., however, they are not involved in day-

to-day affairs of the accused no.1-Triton Retail Pvt.Ltd.

4.2 He further submitted that in one of the

complaints filed by the complainant before the learned

Additional Chief Metropolitan Magistrate, Ahmedabad, the

learned Magistrate has refused to issue summons to the

applicants herein by holding that the applicants were not

connected with the cheques which were issued or the

agreement which was executed and that no person by

merely being a director of a company, becomes automatically responsible for the dishonour of the cheque

and the said order is not challenged and therefore has

attained finality.

4.3 He further submitted that the applicant no.1-

company has not issued the disputed cheques and the

others applicants who are the directors of the applicant

no.1-company have not signed the disputed cheques; that

neither the applicant no.1-company nor the other

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applicants who are directors of the applicant no.1 have

signed the lease agreement executed by the accused no.1-

Triton Retail Private Limited with the complainant; that

none of the applicants have entered into any contractual

relationship with the complainant where under they are

obliged, either in fact or in law, to make any payment

to the complainant; that none of the applicants are privy

to the lease agreement entered into between the

aforesaid two parties; that the applicants are not in

management of the accused no.1-Triton Retail Private

Limited nor in any manner responsible for the day to

day affairs of the accused no.1; that except for the bald

averments made in the complaint, nothing has been

shown as to how the applicant nos.2 to 7 are involved in the day-to-day affairs of the accused no.1-Triton Retail

Private Limited and persons who are not in charge of an

not responsible for the conduct of business of the

company at the relevant time cannot be made liable for

a criminal offence under the provisions of the NI Act.

He, therefore, submitted that none of the ingredients of

the alleged offences are made out and hence, continuing

of the criminal proceedings against the applicants would

be nothing but gross abuse of the process of the criminal

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laws. He, therefore, prayed to allow these applications

and quash the impugned complaints. Learned senior

advocate has relied on the decision in the case of

Dashrathbhai Trikambhai Patel V/s Hitesh Mahendrabhai Patel and Another, reported in (2023) 1 SCC 578.

5. Per contra, learned advocate Mr.Nair for

respondent no.1-complainant and learned APP Mr.Jayswal

for respondent no.2-state have objected these applications

and submitted that this Court should not exercise its

powers by interfering with the proceedings of recovery of

amount and the proceedings initiated under Section 138

of the Act are perfectly justified and therefore, this

Court should not exercise inherent powers under Section 482 of the Code, which otherwise, should be exercised

sparingly. They, therefore, prayed to dismiss these

applications.

5.1 Learned advocate Mr.Nair for the respondent

no.2-complainant, referring to the affidavit-in-reply filed

by the respondent no.2-complainant, has submitted that

the applicants as well as other accused were involved in

the transactions with the complainant in one way or the

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other and therefore it cannot be said that they are not

responsible for the dishonour of the cheques in question.

He, therefore, prayed to dismiss these applications.

6. I have considered the rival submissions and

perused the material on record.

7. At the outset, the provisions of Sections 138

and 141 of the NI Act are required to be seen, which

read as under:

"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 be paid from that account by an agreement made with that bank, such person shall 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

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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."

"141 Offences by companies. (1) If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the

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company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and proceeded against and punished accordingly: Provided that nothing contained in this subsection shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence:

Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter. (2) Notwithstanding anything contained in subsection (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attribute to, any neglect on the part of, any director, Manager, secretary, or other office of the 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,

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(a) "company" means any body corporate and includes a firm or other association of individuals; and

(b) "Director", in relating to a firm, means a partner in the firm."

8. Now, if the facts of the present case are

perused, it transpires from the record that the applicant

no.1 had entered into a franchisee agreement with the

accused no.1-Triton Retail Private Limited; that from the

lease agreement produced on the record, it was entered

into by the accused no.1-Triton Retail Private Limited

and the respondent no.1-company; that the lease rent

was paid by accused no.1-Triton to the respondent no.1-

complainant, however, it remained in arrears from

September, 2015; that the post dated cheques were deposited which returned dishonoured; that previously

two complaints were filed in which the learned Court

below did not find it proper to issue summons against

the applicants herein and the said orders are not

challenged till date; there is no material or averment in

the complaint showing that the applicants are in any

way connected with the company issuing the cheques or

the actual issuance of the cheques; that the complainant

did not disclose the fact of the previous complaints being

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filed and non-issuance of summons in those complaints

while filing these complaints; the cheques in question

have not been issued by the applicants herein; that the

applicant no.1-company is a separate legal entity and

there is no role of the applicant no.1-company or its

directors-applicant nos.2 to 4 in the transactions between

the accused no.1-Triton and the complainant; there is no

privity of contract between the complainant and the

applicant-company and its directors; though the applicant

nos.5 to 7 are the directors of the accused no.1-company,

there is no specific averment in the complaint showing

that the applicants are involved in day-to-day affairs of

the accused no.1-Triton Retail Private Limited. This

Court (J.B.Pardiwala, J (as His Lordship then was) had dismissed the applications filed for quashing of the FIRs

for accused no.1-company, accused nos.4 and 5 vide order

dated 4.4.2017 passed in Criminal Miscellaneous

Application Nos.24863 of 2016 and 24868 of 2016; the

accused no.1 had executed lease agreement in favour of

the complainant, the accused no.4 and 5 were the active

directors of the accused no.1-company, the accused no.5

had signed the cheques and accused no.4 had signed the

lease agreement. However, the applicants herein, as

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discussed hereinabove, there is no specific averment in

the complaint that they are in any way connected with

the cheques in question or the day-to-day affairs of the

accused no.1-company. The submissions coming out from

the affidavit-in-reply of the complainant are all relating

to facts, which will be tested at the time of trial of the

accused nos.1, 4 and 5 and do not come in the way of

the present applicants as they are not involved in the

transactions, lease agreement of cheques in question. In

view of these facts and undisputed material on record,

the ingredients of the provisions of the NI Act invoked

in these applications are not satisfied.

9. Paragraphs 20 and 29 of the judgment in the

case of Dashrathbhai Trikambhai Patel (supra), it is held by the Hon'ble Apex Court as under:

"20. The judgments of this Court on post-dated cheques when read with the purpose of Section 138 indicate that an offence under the provision arises if the cheque represents a legally enforceable debt on the date of maturity. The offence under Section 138 is tipped by the dishonour of the cheque when it is sought to be encashed. Though a post- dated cheque might be drawn to represent a legally enforceable debt at the time of its drawing, for the offence to be

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attracted, the cheque must represent a legally enforceable debt at the time of encashment. If there has been a material change in the circumstance such that the sum in the cheque does not represent a legally enforceable debt at the time of maturity or encashment, then the offence under Section 138 is not made out.

29. Section 138 creates a deeming offence. The provisos prescribe stipulations to safeguard the drawer of the cheque by providing them the opportunity of responding to the notice and an opportunity to repay the cheque amount. The conditions stipulated in the provisos need to be fulfilled in addition to the ingredients in the main provision of Section

138. It has already been concluded above that the offence under Section 138 arises only when a cheque that represents a part or whole of the legally enforceable debt at the time of encashment is returned by the bank unpaid. Since the cheque did not represent the legally enforceable debt at the time of encashment, the offence under Section 138 is not made out."

10. At this stage, it is fruitful to refer to the

judgment rendered by the Hon'ble Apex Court in the

case of S.P.Mani and Mohan Dairy V/s Dr.Snehalatha

Elangovan reported in 2022(13) Scale, page 543, more

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particularly, paragraphs 33, 35, 41 and 42, which read

as under:

"33. Thus, the legal principles discernible from the aforesaid decision of this Court may be summarized as under:

(a) Vicarious liability can be fastened on those who are in- charge of and responsible to the company or firm for the conduct of its business. For the purpose of Section 141, the firm comes within the abmit of a company.

(b) It is not necessary to reproduce the language of Section 141 verbatim in the complaint since the complaint is required to be read as a whole;

(c) If the substance of the allegations made in the complaint fulfill the requirements of Section 141, the complaint has to proceed in regards the law.

(d) In construing a complaint a hyper technical approach should not be adopted so as to quash the same.

(e) The laudable object of preventing bouncing the cheques and sustaining the credibility of commercial transactions resulting in the enactment of Sections 138 and 141 respectively should be kept in mind by the Court concerned.

(f) These provisions create a statutory presumption of dishonesty exposing a person to criminal liability if payment is not made within the statutory period even after the issue of notice.

(g) The power of quashing should be exercised very

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sparingly and where, read as a whole, the factual foundation for the offence had been laid in the complaint, it should not be quashed.

(h) The Court concerned would owe a duty to discharge the accused if taking everything stated in the complaint is correct and construing the allegations made therein liberally in favour of the complainant, the ingredients of the offence are altogether lacking.

35. This Court in Assistant Commissioner, Assessment II, Bangalore and Ors. v. Velliappa Textiles Ltd. And Ors. AIR(2004)SC 86, introduced the concept of ego and alter ego in relation to the employee and the employer corporation. The Court elucidated this principle in the following words:-

"In order to trigger corporation criminal liability for the actions of the employee (who must generally be liable himself), the actor-employee who physically committed the offence must be the ego, the centre of the corporation personality, the vital organ of the body corporate, the alter ego of the employer corporation or its directing mind. Since the company/corporation has no mind of its own, its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation. To this extent there are no difficulties in

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our law to fix criminal liability on a company. The common law tradition of alter ego or identification approach is applicable under our existing laws.

Specific Averments in the complaint:

41. In Gunmala Sales Private Limited (supra), this Court after an exhaustive review of its earlier decisions on Section 141 of the NI Act, summarized its conclusion as under:

"a) Once in a complaint filed under Section 138 read with Section 141 of the NI Act the basic averment is made that the Director was in charge of and responsible for the conduct of the business of the company at the relevant time when the offence was committed, the Magistrate can issue process against such Director;

b) If a petition is filed under Section 482 of the Code for quashing of such a complaint by the Director, the High Court may, in the facts of a particular case, on an overall reading of the complaint, refuse to quash the complaint because the complaint contains the basic averment which is sufficient to make out a case against the Director;

c) In the facts of a given case, on an overall reading of the complaint, the High Court may, despite the presence of the basic averment, quash the complaint because of the absence of more particulars about role of the Director in the complaint. It may do so having come across some

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unimpeachable, incontrovertible evidence which is beyond suspicion or doubt or totally acceptable circumstances which may clearly indicate that the Director could not have been concerned with the issuance of cheques and asking him to stand the trial would be abuse of the process of the court. Despite the presence of basic averment, it may come to a conclusion that no case is made out against the Director. Take for instance a case of a Director suffering from a terminal illness who was bedridden at the relevant time or a Director who had resigned long before issuance of cheques. In such cases, if the High Court is convinced that prosecuting such a Director is merely an armtwisting tactics, the High Court may quash the proceedings. It bears repetition to state that to establish such case unimpeachable, incontrovertible evidence which is beyond suspicion or doubt or some totally acceptable circumstances will have to be brought to the notice of the High Court. Such cases may be few and far between but the possibility of such a case being there cannot be ruled out. In the absence of such evidence or circumstances, complaint cannot be quashed;

d) No restriction can be placed on the High Court's powers under Section 482 of the Code. The High Court always uses and must use this power sparingly and with great circumspection to prevent inter alia the abuse of the process of the Court. There are no fixed formulae to be followed by the High Court in this regard and the exercise of this power depends upon the facts and circumstances of each

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case. The High Court at that stage does not conduct a mini trial or roving inquiry, but nothing prevents it from taking unimpeachable evidence or totally acceptable circumstances into account which may lead it to conclude that no trial is necessary qua a particular Director.

42. The principles of law and the dictum as laid in Gunmala Sales Private Limited (supra), in our opinion, still holds the field and reflects the correct position of law."

11. It is also fruitful to refer to the judgment in

case of Alka Khandu Avhad V/s Amar Syamprasad Mishra reported in (2021)4 SCC 675 equivalent citation is AIR Online 2021 SC 124, wherein it is held in

paragraphs 7,8 and 8.1 as under:

"7. On a fair reading of Section 138 of the NI Act, before a person can be prosecuted, the following conditions are required to be satisfied:

i) that the cheque is drawn by a person and on an account maintained by him with a banker;

ii) for the 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; and

iii) the said cheque is returned by the bank unpaid, either because of the amount of money standing to the credit of

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that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account. Therefore, a person who is the signatory to the cheque and the cheque is drawn by that person on an account maintained by him and the cheque has been issued for the discharge, in whole or in part, of any debt or other liability and the said cheque has been returned by the bank unpaid, such person can be said to have committed an offence. Section 138 of the NI Act does not speak about the joint liability. Even in case of a joint liability, in case of individual persons, a person other than a person who has drawn the cheque on an account maintained by him, cannot be prosecuted for the offence under Section 138 of the NI Act. A person might have been jointly liable to pay the debt, but if such a person who might have been liable to pay the debt jointly, cannot be prosecuted unless the bank account is jointly maintained and that he was a signatory to the cheque.

8. Now, so far as the case on behalf of the original complainant that the appellant herein - original accused No. 2 can be convicted with the aid of Section 141 of the NI Act is concerned, the aforesaid has no substance.

8.1 Section 141 of the NI Act is relating to the offence by companies and it cannot be made applicable to the individuals. Learned counsel appearing on behalf of the

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original complainant has submitted that "Company" means any body corporate and includes, a firm or other association of individuals and therefore in case of a joint liability of two or more persons it will fall within "other association of individuals" and therefore with the aid of Section 141 of the NI Act, the appellant who is jointly liable to pay the debt, can be prosecuted. The aforesaid cannot be accepted. Two private individuals cannot be said to be "other association of individuals". Therefore, there is no question of invoking Section 141 of the NI Act against the appellant, as the liability is the individual liability (may be a joint liabilities), but cannot be said to be the offence committed by a company or by it corporate or firm or other associations of individuals. The appellant herein is neither a Director nor a partner in any firm who has issued the cheque. Therefore, even the appellant cannot be convicted with the aid of Section 141 of the NI Act. Therefore, the High Court has committed a grave error in not quashing the complaint against the appellant for the offence punishable under Section 138 r/w Section 141 of the NI Act. The criminal complaint filed against 8 the appellant for the offence punishable under Section 138 r/w Section 141 of the NI Act, therefore, can be said to be abuse of process of law and therefore the same is required to be quashed and set aside."

12. It is also fruitful to refer to the judgment of

the Hon'ble Apex Court in the case of K. K. Ahuja vs

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V. K. Vora & Anr. Reported in (2009)10 SCC 48, wherein it is observed in paragraph 27 as under:

"27. The position under section 141 of the Act can be summarized thus :

(i) If the accused is the Managing Director or a Joint Managing Director, it is not necessary to make an averment in the complaint that he is in charge of, and is responsible to the company, for the conduct of the business of the company. It is sufficient if an averment is made that the accused was the Managing Director or Joint Managing Director at the relevant time. This is because the prefix `Managing' to the word `Director' makes it clear that they were in charge of and are responsible to the company, for the conduct of the business of the company.

(ii)In the case of a director or an officer of the company who signed the cheque on behalf of the company, there is no need to make a specific averment that he was in charge of and was responsible to the company, for the conduct of the business of the company or make any specific allegation about consent, connivance or negligence. The very fact that the dishonoured cheque was signed by him on behalf of the company, would give rise to responsibility under sub-section (2) of Section 141.

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(iii) In the case of a Director, Secretary or Manager (as defined in Sec. 2(24) of the Companies Act) or a person referred to in clauses (e) and (f) of section 5 of Companies Act, an averment in the complaint that he was in charge of, and was responsible to the company, for the conduct of the business of the company is necessary to bring the case under section 141(1). No further averment would be necessary in the complaint, though some particulars will be desirable. They can also be made liable under section 141(2) by making necessary averments relating to consent and connivance or negligence, in the complaint, to bring the matter under that sub-section.

(iv)Other Officers of a company can not be made liable under sub-section (1) of section 141. Other officers of a company can be made liable only under sub-section (2) of Section 141, be averring in the complaint their position and duties in the company and their role in regard to the issue and dishonour of the cheque, disclosing consent, connivance or negligence."

13. In the case of S.M.S.Pharmaceuticals Ltd. V/s

Neeta Bhalla reported in (2005)8 SCC 89, it is held in paragraph 19 as under:

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"19. In view of the above discussion, our answers to the questions posed in the reference are as under:

(a) It is necessary to specifically aver in a complaint under Section 141 that at the time the offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company. This averment is an essential requirement of Section 141 and has to be made in a complaint. Without this averment being made in a complaint, the requirements of Section 141 cannot be said to be satisfied."

14. It is also relevant to refer to the judgment of

the Hon'ble Apex Court in the case of Inder Mohan

Goswami and Another versus State of Uttaranchal reported in (2007) 12 SCC 1, more particularly para : 23

& 24 thereof, which read as under :

"23. This Court in a number of cases has laid down the scope and ambit of courts' powers under Sec. 482 CrPC. Every High Court has inherent power to act ex debito justitiae to do real and substantial justice, for the administration of which alone it exists, or to prevent abuse of the process of the court. Inherent power under Sec. 482 CrPC can be

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exercised:

[(i) to give effect to an order under the Code;] [(ii) to prevent abuse of the process of court, and] [(iii) to otherwise secure the ends of justice.]

24. Inherent powers under Sec. 482 CrPC though wide have to be exercised sparingly, carefully and with great caution and only when such exercise is justified by the tests specifically laid down in this section itself'. Authority of the court exists for the advancement of justice. If any abuse of the process leading to injustice is brought to the notice of the court, then the court would be justified in preventing injustice by invoking inherent powers in absence of specific provisions in the statute. Discussion of decided cases."

15. In view of above settled position of law and

after considering the facts as alleged in the complaints

and circumstances of the present case as prima facie

ingredients of Section 138 as well as Section 141 of NI

Act are not satisfied and accused is not liable, the

continuation of further proceedings pursuant to the said

complaints will cause greater hardships to the applicant

and no fruitful purpose would be served if such further

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proceedings are allowed to be continued. The Court must