Gujarat High Court

M/S Simtel Trading Corporation ... vs State Of Gujarat on 8 November, 2023

Bench: Sandeep N. Bhatt

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     R/CR.MA/14250/2019                           JUDGMENT DATED: 08/11/2023

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              IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

       R/CRIMINAL MISC.APPLICATION (FOR QUASHING & SET ASIDE
                     FIR/ORDER) NO. 14250 of 2019


FOR APPROVAL AND SIGNATURE:


HONOURABLE MR. JUSTICE SANDEEP N. BHATT

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1      Whether Reporters of Local Papers may be allowed
       to see the judgment ?

2      To be referred to the Reporter or not ?

3      Whether their Lordships wish to see the fair copy
       of the judgment ?

4      Whether this case involves a substantial question
       of law as to the interpretation of the Constitution
       of India or any order made thereunder ?

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                 M/S SIMTEL TRADING CORPORATION PVT. LTD.
                                   Versus
                             STATE OF GUJARAT
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Appearance:
MR. R.D.KINARIWALA(6146) for the Applicant(s) No. 1,2,3,4,5,6
MR PM DAVE(263) for the Respondent(s) No. 2
MR. P. T. CHACKO(213) for the Respondent(s) No. 3,4
MS MONALI H BHATT, APP for the Respondent(s) No. 1
VISHAL K ANANDJIWALA(7798) for the Respondent(s) No. 2
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    CORAM:HONOURABLE MR. JUSTICE SANDEEP N. BHATT

                              Date : 08/11/2023

                              ORAL JUDGMENT

1. This application is filed under Section 482 of the

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Code of Criminal Procedure, 1973 (`the Code' for short) for

quashing and setting aside the process issued by the learned

Metropolitan Magistrate (NI Act), Court No.36 at Ahmedabad

in Criminal Case No.6635 of 2019 qua the present applicants

filed under the provisions of the Negotiable Instruments Act

(`the NI Act' for short).

2. The brief facts leading to filing of this application

are such the impugned complaint is filed by the respondent

no.2 alleging that the complainant is a non-banking finance

company constituted under the Companies Act, 1956; that the

company is having its regional office at address mentioned in

the cause title of the complaint; that the complainant-

company is in the business of providing various loans. It is

further alleged in the complaint that the complainant-

company has sanctioned to the respondent no.3-accused no.1

of credit facility upto Rs.40 crores by way of channels finance

facility; that the original accused nos.2 to 4 are the directors/

guarantors of the accused no.1, accused no.5 is Managing

Director of the accused no.1; accused no.6 is the Director of

the accused no.1, accused nos.7 and 8 are the Additional

Directors of accused no.1 and accused nos.9 to 11 are the

guarantors of the accused no.1 (against whom no process is

issued yet); it is further averred in the complaint that the

accused nos.2 to 11 are responsible for the day-to-day

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business of the accused no.1; that the accused no.3 in his

capacity as director/authorized signatory of the accused no.1

has executed a channel finance agreement dated 22.2.2018

with the complainant company and thereby agreed to adhere

to and comply with all the terms and conditions of the said

agreement; that as per the terms and conditions of the

agreement, the accused no.3 has issued the cheque in favour

of the complainant towards the repayment of the said facility

for Rs.18,99,63,688/- drawn on Kotak Mahindra Bank Ltd.,

Kunnur and that when the said cheque was presented by the

complainant, it was returned dishonoured with an

endorsement `Drawer's sign not as per mandate" and that

the intimation of the dishonour of the cheque was received

by the complainant vide memo/advise dated 29.11.2018;

thereafter the demand notice was issued, however, as the

accused failed to make the payment and therefore the

complaint is filed and the process is issued against the

accused nos.1 to 8 by the learned Metropolitan Magistrate. It

is this complaint and process which are prayed to be

quashed by way of this application qua the applicants i.e.

accused nos.1 to 6 of the complaint.

3. Heard learned advocates for the parties.

4. Learned advocate Mr.Kinariwala for the applicants

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submits that the applicants herein are the original accused

nos.1 to 6 in the complaint; that the accused no.1 is a

company and accused nos.2 to 6 are directors; that the notice

is served on accused no.1, however, so far as the accused

no.2 and 3 are concerned, the notice at residential address of

the accused no.2 is returned with remarks

unclaimed/intimation; that so far as accused no.4 is

concerned, the notice is served and so far as accused nos.5 to

7 are concerned, the notice remained unserved at their

residential address. He submitted that as per Section 138 of

the NI Act since the cheque is returned with an

endorsement, the same is returned as per the endorsement

drawer sign not as per the mandate; that in absence of any

notice by the accused, there is no question of making

payment by them. Learned advocate for the applicants fairly

submitted at this stage that the accused no.3 is a signatory

of the cheque and accused no.5 managing director. He,

therefore, submitted that in absence of receipt of notice, the

applicants cannot be prosecuted further pursuant to the

impugned complaint and therefore, this application be

allowed.

5. In support of his submissions, learned advocate

Mr.Kinariwala has relied on the following citations:

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(1) Laxmi Dyechem V/s State of Gujarat, reported in 2012(13)

SCC 375.

(2) S.P.Mani V/s Mohan Dairy V/s Snehalatha Elangovan

reported in 2022(13) Scale 543.

(3) Rajeev Jain and Others V/s Ashtech Industries Pvt.Ltd.,

reported in 2023 SCC Online Del 3779.

6. Per contra, learned APP Ms.Bhatt for respondent no.1-state

has 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. He, therefore, prayed to dismiss all these

applications.

7. Learned advocate Mr.Dave appearing for

respondent no.2-complainant submitted that the applicants

herein are accused nos.1 to 6 in the impugned complaint;

that there is a basic/clear averment against each and every

accused person that they are vicariously liable in the notice

as well as in the complaint; that there is no reply to the

notice issued; that it is not the case of the applicants that

they resigned prior to the issuance of the cheques; that no

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cogent and convincing material is produced to show that they

are not vicariously liable; that huge financial assistance is

availed after execution of channel finance agreement; that

uptill now there is no repayment of financial assistance as

per agreed terms and conditions; that there is a huge loss of

public money and the application is filed to avoid the

liability regarding repayment of legally enforceable debt after

pocketing huge amount. He, therefore, submitted that these

are all points of trial and therefore this application be

dismissed.

8. In support of his submissions, learned advocate

Mr.Dave has relied on the following citations:

(1) Laxmi Dyechem V/s State of Gujarat reported in 2012(13)

SCC 375;

(2) S.P.Mani and Mohan Dairy V/s Dr.Snehalatha Elangovan reported in 2022(13) Scale, page 543;

(3) Gunmala Sales Private Ltd. Etc. V/s Navkar Infra Projects Private Limited & Etc. reported in 2015(1) SCC 103.

(4) V.S.Synthetics Through Umashankar Shyamlal Agrawal V/ s Reliance Commercial Finance Ltd., Through Authorized officer, reported in 2023 JX(Guj) 682.

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9. I have considered the submissions made by learned

advocates for the parties and perused the material placed on

record.

10. At the outset, the provisions invoked in the

impugned complaint 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 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

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(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 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

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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,

(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."

142. Cognizance of offences.--

[(1)] Notwithstanding anything contained in the Code of

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Criminal Procedure, 1973 (2 of 1974),--

(a) no court shall take cognizance of any offence punishable under section 138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the cheque;

(b) such complaint is made within one month of the date on which the cause of action arises under clause (c) of the proviso to section 138: 2 [Provided that the cognizance of a complaint may be taken by the Court after the prescribed period, if the complainant satisfies the Court that he 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

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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.]

[142A. Validation for transfer of pending cases.-- (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974) or any judgment, decree, order or direction of any court, all cases transferred to the court having jurisdiction under sub-section (2) of section 142, as amended by the Negotiable Instruments (Amendment) Ordinance, 2015 (Ord. 6 of 2015), shall be deemed to have been transferred under this Act, as if that sub-section had been in force at all material times. (2) Notwithstanding anything contained in sub-section (2) of section 142 or sub-section (1), where the payee or the holder in due course, as the case may be, has filed a complaint against the drawer of a cheque in the court having jurisdiction under sub-section (2) of section 142 or the case has been transferred to that court under sub-section (1) and such complaint is pending in that court, all subsequent complaints arising out of section 138 against the same drawer shall be filed before the same court irrespective of whether those cheques were delivered for collection or presented for payment within the territorial jurisdiction of that court.

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(3) If, on the date of the commencement of the Negotiable Instruments (Amendment) Act, 2015 (26 of 2015), more than one prosecution filed by the same payee or holder in due course, as the case may be, against the same drawer of cheques is pending before different courts, upon the said fact having been brought to the notice of the court, such court shall transfer the case to the court having jurisdiction under sub-section (2) of section 142, as amended by the Negotiable Instruments (Amendment) Ordinance, 2015 (Ord. 6 of 2015), before which the first case was filed and is pending, as if that sub-section had been in force at all material times.]

11. Now, if the facts of the present case are perused,

it transpires from the material on record and the averments

made in the complaint as well as this application that the

applicants are the company and its directors; that there is

nothing contrary coming on the record to show that they are

not responsible for the day-to-day affairs of the firm and that

they have not actively participated in the transactions with

the respondent no.2-complainant; the accused no.3 is

admittedly the signatory of the cheque in question; that the

averments made that they were not in receipt of the notice

issued by the respondent no.2 and therefore they could not

reply to the same is a disputed question of fact by the

respondent no.2. So far as the accused no.5 is concerned, he

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is the managing director of the accused no.1 company and as

held by the Hon'ble Apex Court in the case of Sunita Palita

V/s Panchami Stone Quarry, reported in 2022 SCC Online SC 945, it is not even necessary to make any averment in the complaint to the effect that he is in-charge of and is

responsible to the company for the conduct of the business of

the company. The prefix `Managing' to the word `Director'

itself makes it clear that the said Director was in-charge of

and responsible to the company for the conduct of the

business of the company. So far as the rest of the applicants

herein are concerned, there is no unimpeachable and

uncontroverted evidence produced before the Court to take a

different view that they are not responsible for the day-to-day

affairs of the company. This Court cannot conduct mini trial

or roving inquiry at the stage of exercising the powers under

Section 482 of of the Code.

12. At this stage, it is also 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 particularly,

paragraphs 43, 46 and 47, which read as under:

"43. In the case on hand, we find clear and specific

averments not only in the complaint but also in the

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statutory notice issued to the respondent. There are specific

averments that the cheque was issued with the consent of

the respondent herein and within her knowledge. In our

view, this was sufficient to put the respondent herein to

trial for the alleged offence. We are saying so because the

case of the respondent that at the time of issuance of the

cheque or at the time of the commission of offence, she was

in no manner concerned wtih the firm or she was not in-

charge or responsible for day-to-day affairs of the firm

cannot be on the basis of mere bald assertion in this regard.

The same is not sufficient. To make good her case, the

respondent herein is expected to lead umimpeachable and

incontrovertible evidence. Nothing of the sort was adduced by

the respondent before the High Court to get the proceedings

quashed. The High Court had practically no legal basis to

say that the averments made in the complaint are not

sufficient to fasten the vicarious liability upon the respondent

by virtue of Section 141 of the NI Act.

46. When in view of the basic averment process is issued

the complaint must proceed against the Directors or partners

as the case may be. But if any Director or Partner wants

the process to be quashed by filing a petition under Section

482 of the Code on the ground that only a bald averment is

made in the complaint and that he is really not concerned

with the issuance of the cheque, he must in order to

persuade the High Court to quash the process either furnish

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some sterling incontrovertible material or acceptable

circumstances to substantiate his contention. He must make

out a case hat making him stand the trial woule be an

abuse of process of court. He cannot get the complaint

quashed merely on the ground that apart from the basic

averment no particulars are given in the complaint about his

role, because ordinarily the basic averment would be

sufficient to send him to trial and it could be argued that

his further role could be brought out in the trial. Quashing

of a complaint is a serious matter. Complaint cannot be

quashed for the asking. For quashing of a complaint, it must

be shown that no offence is made out at all against the

Director or Partner.

47. Our final conclusions may be summarised as under:-

a.) The primary responsibility of the complainant is to make specific averments in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no legal requirement for the complainant to show that the accused partner of the firm was aware about each and every transaction. On the other hand, the first proviso to sub-section (1) of Section 141 of the Act clearly lays down that if the accused is able to prove to the satisfaction of the Court that the offence was committed without his/her knowledge or he/she had exercised due diligence to prevent the commission of such offence, he/she will not be liable of

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punishment.

b.) The complainant is supposed to know only generally as to who were in charge of the affairs of the company or firm, as the case may be. The other administrative matters would be within the special knowledge of the company or the firm and those who are in charge of it. In such circumstances, the complainant is expected to allege that the persons named in the complaint are in charge of the affairs of the company/firm. It is only the Directors of the company or the partners of the firm, as the case may be, who have the special knowledge about the role they had played in the company or the partners in a firm to show before the court that at the relevant point of time they were not in charge of the affairs of the company. Advertence to Sections 138 and Section 141 respectively of the NI Act shows that on the other elements of an offence under Section 138 being satisfied, the burden is on the Board of Directors or the officers in charge of the affairs of the company/partners of a firm to show that they were not liable to be convicted. The existence of any special circumstance that makes them not liable is something that is peculiarly within their knowledge and it is for them to establish at the trial to show that at the relevant time they were not in charge of the affairs of the company or the firm.

c.) Needless to say, the final judgement and order would

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depend on the evidence adduced. Criminal liability is attracted only on those, who at the time of commission of the offence, were in charge of and were responsible for the conduct of the business of the firm. But vicarious criminal liability can be inferred against the partners of a firm when it is specifically averred in the complaint about the status of the partners 'qua' the firm. This would make them liable to face the prosecution but it does not lead to automatic conviction. Hence, they are not adversely prejudiced if they are eventually found to be not guilty, as a necessary consequence thereof would be acquittal.

d.) If any Director wants the process to be quashed by filing a petition under Section 482 of the Code on the ground that only a bald averment is made in the complaint and that he/she is really not concerned with the issuance of the cheque, he/she must in order to persuade the High Court to quash the process either furnish some sterling incontrovertible material or acceptable circumstances to substantiate his/her contention. He/she must make out a case that making him/her stand the trial would be an abuse of process of Court."

13. In view of above discussion as well as settled

position of law and after considering the facts as alleged in

the complaint filed under Section 138 of the NI Act and

circumstances of the present case, I am of the opinion that

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this is not a fit case to exercise the inherent powers under

Section 482 of the Code and quash the impugned complaint

qua the applicants. Let the trial Court decide all the

contentions raised by the parties after giving proper

opportunity to the parties in the proceedings of trial of the