Raj Paul Oswal S/O Lachmandas Oswal vs State Of Gujarat
2025 Latest Caselaw 4948 Guj

Gujarat High Court

Raj Paul Oswal S/O Lachmandas Oswal vs State Of Gujarat on 20 June, 2025

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                        R/SCR.A/10144/2019                                     CAV JUDGMENT DATED: 20/06/2025

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                                                                            Reserved On   : 13/06/2025
                                                                            Pronounced On : 20/06/2025

                                    IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

                         R/SPECIAL CRIMINAL APPLICATION (QUASHING) NO. 10144 of 2019


                       FOR APPROVAL AND SIGNATURE:


                       HONOURABLE MR. JUSTICE J. C. DOSHI

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                                   Approved for Reporting                     Yes            No

                       ==========================================================
                                    RAJ PAUL OSWAL S/O LACHMANDAS OSWAL & ANR.
                                                        Versus
                                              STATE OF GUJARAT & ANR.
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                       Appearance:
                       MR MANISH M KAUSHIK(5048) for the Applicant(s) No. 1,2
                       NOTICE SERVED BY DS for the Respondent(s) No. 2
                       MR CHINTAN DAVE, ADDL. PUBLIC PROSECUTOR for the Respondent(s)
                       No. 1
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                         CORAM:HONOURABLE MR. JUSTICE J. C. DOSHI


                                                           CAV JUDGMENT

1. Rule. Learned APP waives service of rule for the respondent State.

2. By way of this application under Section 482 of the Code of Criminal Procedure, 1973 (hereinafter referred to as "the Code"), the petitioners have prayed for quashing and setting aside proceedings of Criminal Case No.5849 of 2019 pending before the learned CJM, Ahmedabad Rural at Mirzapur qua the

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petitioners herein.

3. Brief facts taken out from the pleadings are as under:-

3.1 The Complainant is A Partnership Firm, engaged in the business/trading/Supplies of Raw Cotton Bales and is managing the said business from the address mentioned in the present cause title and the same comes within jurisdiction of this Hon'ble Court.

3.2 The Opponent/Accused No. 1 is a company incorporated under Companies Act, 1996 and is engaged in the business of Spinning, Weaving and Finishing of textiles and manages its business from the address mentioned in the present cause title and Accused No. 2 and 3 are the Director of the Accused No. 1.

Accused No.2 and 3 are in charge of and responsible to the Accused No.1 for operations, management and conduct of its business. It is stated that, Accused No.2 and 3 are concerned with the day-to-day functioning of the running of the business of Accused No.1 Company, hence are responsible and liable for the offence committed by Accused No.1. and such offence was committed with their knowledge and connivance. The Accused had not exercised due diligence to prevent the commission of said offence. The offence so committed by the Accused No. 1 Company has been committed with the knowledge, consent or connivance of such Accused no. 2 and Accused No.3, jointly as well as severally.

3.3 The Complainant and accused are having business relationship since considerably long time and are engaged in

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business ansaction and for that, the accused had placed purchase order for Cotton Bales, 90 in Number from the Complainant. The Complainant had accepted and complied with purchase order and has supplied the said materials, which was duly received by the accused/Respondents in proper condition.

3.4 The invoice bearing No. 398 dated 07.11.2014 for the payment in lieu of the aforementioned sale of goods have been raised for Rs.13,53,381/- (Rupees Thirteen Lakh Fifty Three Thousand Three Eighty One Only) by the complainant Firm and the Burdon/liabilities towards Opponents/Respondents against the invoice bearing No. 398 dated 07.11.2014 for the aforesaid commercial transaction.

3.5 The accused is liable to pay Rs.13,53,381/- (Rupees Thirteen Lakh Fifty Three Thousand Three Eighty One Only) for the aforementioned purchase as per the books of account maintained by the complainant Firm and that the accused had issued cheques in the favour of the Complainant Firm which the Complainant Firm is holding in due course.

3.6 The Opponent Firm maintains its Accounts in HDFC Bank, Near Manju Cinema, G.T Road, Ludhiana, Punjab-141003. Pursuant to repeated reminders and on assurance of discharge of all their liabilities given by the Opponents, the Cheque Duly signed by Director of the Opponent No. 1 Company was given to the Complainant Firm and the Complainant Firm presented the cheque before Kotak Mahindra Bank Limited branch at Sardar Patel Br. Ahmedabad-13, Gujarat [380-485- 031]. It is stated and submitted that, the Complainant Firm maintains its

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Account in Kotak Mahindra Bank Limited at Shivranjni Char Rasta, Satellite, Ahmedabad. However, the said cheque duly signed by the Director of Accused No. 1 Company Drawn in favour of the Complainant Firm to the tune of Rs. Rs.13,53,381/- against the Invoice No. 398 dated 07.11.2014 was dishonoured and returned without payment.

3.7 In addition to that, the fact of account being blocked was well within the knowledge of the accused at the time of issuing the aforementioned cheques in favour of Complainant Firm and knowing the same that the same are bound to be dishonoured in lieu of "Blocked Account", Opponents intentionally issued aforementioned cheques in order to avoid and delay the monetary liability arising out of transaction referred hereinabove. In furtherance to this act of Opponents is not only illegal but punishable under the law because the Opponents have failed to fulfil the Legal Debt/Commercial liability and liability as per the Negotiable Instrument Act, 1881 read with Amendments in the act in force.

3.8 Thus, the accused has vehemently failed to comply with the provisions of the law and had also failed to discharge his legal liability, moreover, knowing to be likely that, the cheques are bound to be dishonoured and only in order to cheat and defraud the Complainant Firm and run away from the liability arising out of the transaction mentioned hereinabove the Accused(s) had fraudulently and dishonestly induced the Complainant Company to accept the aforementioned cheques.

3.9 The Complainant Firm on the occurrence of dishonour of

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the aforementioned cheque had issued a Statutory Notice via Advocate as required u/s 138 of the Negotiable Instruments Act, 1881 on date 25.01.2019 addressing the Accused No. 1 to 3, as per the cause title, demanding discharge of liability arising out of Invoice bearing No. 398 dated 07.11.2014 to the tune of Rs. 13,53,381/- for cheque as stated above towards the legal monetary liability of the accused and 15 days time was provided to the Accused No. 1 to 3 to clear all the such Legal Debt/Commercial liabilities. It is further submitted that, said Statutory Demand/Legal Notice which was sent via Registered Post A.D. was duly served to the Accused No. 1 to 3 and the same was delivered to all Accused No. 1 to 3 on date 05.02.2019.

3.10 In reply to the said Demand Notice date 25.01.2019, the Advocate of the Accused No. 2 & 3 contended that the Accused No. 1 Company is facing Moratorium u/s 14 of the Insolvency and Bankruptcy Code, 2016 which does not have material effect over the present Complaint.

3.11 That no amount to the tune of or amount equivalent to the invoice/Commercial Liability has been realized by the Complainant Firm till date and hence, on account of the non- compliance of the statutory Demand Notice and upon failure of the Accused No. 1 to 3 for clearance of Legal Debt/Commercial dues, the Accused No. 1 to 3 have committed an offence punishable under section 138 and 142 of the Negotiable Instruments Act. Thus, Criminal Case No.5849 of 2019 is filed before learned CJM, Ahmedabad Rural at Mirzapur.

3.12 Hence, present petition to quash the proceedings of

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Criminal Case No.5849 of 2019 .

4. Though served, none remained present for the respondent No.2.

5. In essence, the petitioners, who are Directors of the company facing the prosecution u/s 138 of the NI Act, challenged the petition on the ground that the cheque in question alleged to have been issued subsequent to moratorium order passed by the NCLT, Chandigardh in CP (1B) No.136/Chd/Pb/ 2018, hence, prosecution against the petitioners is not maintainable.

6. Learned advocate Mr. Kaushik for the petitioners would submit that the cheque in question was issued on 30.11.2018, which was returned on 21.1.2019 on the ground that the account is blocked. He would further submit that in NCLT proceedings, the petitioners, who are Directors of the Oswal Spinning and Weaving Mills Ltd., have been directed to stop from working as Directors w.e.f. 30.10.2018. Therefore, it is submitted that the day on which the alleged cheque was said to have been issued by the petitioners, they were not authorized to do so. He would further submit that section 17 of the Insolvency and Bankruptcy Code, 2016 (in short "the IBC") in the present case would be attracted. It is the case where moratorium order was passed by the NCLT, which was effected from 30.10.2018, restrained the management and affairs of corporate debtor and therefore, it is not possible to issue any cheque subsequent to issuance of the moratorium order. The powers of the board of directors would be suspended in view of section 17(b) of the IBC.

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He would further submit that the proceedings u/s 138 of the NI Act subsequent to passing of moratorium order for a cheque which was alleged to have been issued subsequent to moratorium order would not survive.

6.1 To buttress his submission, learned advocate Mr. Kaushik has relied upon decisions of the Hon'ble Apex Court in case of Vishnoo Mittal Vs. Shakti Trading Company, AIR 2025 SC 1741.

6.2 Upon such submission, learned advocate Mr. Kaushik requests to allow this petition.

7. Learned APP Mr. Chintan Dave, having referred few dates, prays to pass necessary orders.

8. Given facts of the case would indicates that the complainant initiated proceedings u/s 138 of the NI Act on the ground that Oswal Spinning and Weaving Mills Limited has issued cheque No.004149 for an amount of Rs.13,53,381/- drawn on HDFC Bank dated 30.11.2018 to pay outstanding debt reflecting from the books of account of the complainant and when said cheque was deposited in the bank account maintained by the complainant, it was returned unpaid on 21.1.2019 on the reason of account is blocked. The complainant having issued statutory notice, which was replied by the petitioners, filed a criminal complaint u/s 138 of the NI Act before the learned trial Court, which was registered as Criminal Case No.5849 of 2019. The learned trial Court took cognizance and issued process against the petitioners and therefore, the petitioners are before this Court.

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9. The petitioners have placed on record moratorium order passed by the NCLT dated 30.10.2018. The NCLT after discussing the aspect passed following interim resolution and direction:-

"1. Appoint Mr. Hemanshu Jetley, resident of 2746. Sector 37 C. Chandigarh 160 036, having Registration No. IBBI/IPA-001/IP-P00219/2017- 18/10457 and email address [email protected], Mobile No.9041700000 Resolution Profession; as an Interim

2. The term of appointment of Mr. Hemanshu Jetley, shall be in accordance with the provisions of Section 16(5) of the Code;

3. In terms of Section 17 of 'the Code', from the date of this appointment, the powers of the Board of Directors shall stand suspended and the management of the affairs shall vest with the Interim Resolution Professional and the officers and the managers of the 'Corporate Debtor' shall report to the Interim Resolution Professional, who shall be enjoined to exercise all the powers as are vested with Interim Resolution Professional and strictly perform all the duties as are enjoined on the Interim Resolution Professional under Section 18 and other relevant provisions of the 'Code', including taking control and custody of the assets over which the 'Corporate Debtor' has ownership rights recorded in the balance sheet of the 'Corporate Debtor' etc. as provided in Section 18 (1)

(f) of the 'Code'. The Interim Resolution Professional is directed to prepare a complete list of inventory of assets of the 'Corporate Debtor';

4. The Interim Resolution Professional shall strictly act in accordance with the 'Code', all the rules framed thereunder by the Board or the Central Government and in accordance with the 'Code of Conduct' governing his profession and as an Insolvency Professional with

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high standards of ethics and moral;

5. The Interim Resolution Professional shall cause a public announcement within three days as contemplated under Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 of the initiation of the Corporate Insolvency Resolution Process in terms of Section 13 (1) (b) of the 'Code' read with Section 15 calling for the submission of claims against 'Corporate Debtor';

6. It is hereby directed that the 'Corporate Debtor', its Directors, personnel and the persons associated with the management shall extend all cooperation to the Interim Resolution Professional in managing, the affairs of the 'Corporate Debtor' as a going concern and extend all cooperation in accessing books and records as well as assets of the 'Corporate Debtor':

7. The Interim Resolution Professional shall after collation of all the claims received against the corporate debtor and the determination of the financial position of the corporate debtor constitute a committee of creditors and shall file a report, certifying constitution of the committee to this Tribunal on or before the expiry of thirty days from the date of his appointment, and shall convene first meeting of the committee within seven days of filing the report of constitution of the committee; and

8. The Interim Resolution Professional is directed to send regular progress report to this Tribunal every fortnight."

10. Undisputedly, according to case of the original complainant, the cheque in question was issued on 30.11.2018 by the authorized signatory of Oswal Spinning and Weaving Mills Limited and it was returned unpaid on 21.1.2019 for the reason 'account blocked'. The petitioners have replied to the

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statutory notice issued by the complainant and in this reply, contention of section 14 of the IBC is taken. It is also stated that since the petitioners being Directors have been suspended on the day cheque in question was issued, they cannot be prosecuted for the cheque, which was alleged to have been issued subsequent to passing of the interim moratorium. The learned trial Court without taking into consideration this aspect, issued the process against the petitioners. Shelter of section 14 of the IBC is not available to the Directors and only available to the corporate debtor. The benefit of order of moratorium would extend to the corporate debtor, but not to its Director. However, in the present case, since the cheque as per the complaint was issued on 30.11.2018 subsequent to order passed by the NCLT suspending the management of the corporate debtor and resuming the management with the IRP, issuance of cheque subsequent to resuming the management by the IRP discharging the Directors from the management of the corporate debtor attracts provisions of section 17 of the IBC.

11. Recently, the Hon'ble Apex Court in case of Vishnoo Mittal (supra), after referring to section 17 of the IBC, addressed the issue. Relevant paras are 10 to 12, reads as under:-

"10. There is another aspect to this matter. In the present case, on 25.07.2018, the moratorium was imposed and management of the corporate debtor was taken over by the interim resolution professional as per section 17 of the IBC. Here, we would also like to reproduce extracts from section 17 of the IBC which are as follows:

17. Management of affairs of corporate debtor by interim resolution professional.-

(1) From the date of appointment of

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the interim resolution professional,

(a) the management of the affairs of the corporate debtor shall vest in the interim resolution professional;

(b) the powers of the board of directors or the partners of the corporate debtor, as the case may be, shall stand suspended and be exercised by the interim resolution professional;

(c)

(d) the financial institutions maintaining accounts of the corporate debtor shall act on the instructions of the interim resolution professional in relation to such accounts and furnish all information relating to the corporate debtor available with them to the interim resolution professional

11. The bare reading of the above provision shows that the appellant did not have the capacity to fulfil the demand raised by the respondent by way of the notice issued under clause (c) of the proviso to Section 138 NI Act. When the notice was issued to the appellant, he was not in charge of the corporate debtor as he was suspended from his position as the director of the corporate debtor as soon as IRP was appointed on 25.07.2018. Therefore, the powers vested with the board of directors were to be exercised by the IRP in accordance with the provisions of IBC. All the bank accounts of the corporate debtor were operating under the instructions of the IRP, hence, it was not possible for the appellant to repay the amount in light of section 17 of the IBC. Additionally, we have been informed on behalf of the appellant that, after the imposition of the moratorium, the IRP had made a public announcement inviting the claims from the creditors of the Corporate Debtor and the respondent has filed

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a claim with the IRP.

12. Keeping in mind the above observations and distinguishing facts and circumstances of this case from that of P. Mohan Raj, we are of the considered view that the High Court ought to have quashed the case against the appellant by exercising its power under section 482 of the CrPC."

12. Applying the aforesaid ratio to the facts of the case, since on the date of issuance of the cheque, the petitioners were not in charge of the corporate debtor as they were suspended from their position as Directors on passing of the order by the NCLT on 31.10.2018, they cannot be prosecuted for the cheque, which has returned unpaid. All the bank accounts of the corporate debtor were operating under the instructions of the IRP and hence, it is not possible for the petitioners to repay the amount of the complainant in light of section 17 of the IBC. Thus, the petitioners cannot be relegated to face the trial.

13. Learned advocate Mr. Kaushik for the petitioners has places on record death certificate of the petitioner No.1 Raj Paul Oswal and according to which, he has expired on 4.5.2021. In view of above, present petition qua petitioner No.1 stands abated.

14. In view of above, present petition stands allowed qua petitioner No.2 and proceedings of Criminal Case No.5849 of 2019 pending before the learned CJM, Ahmedabad Rural at Mirzapur is hereby quashed and set aside. Rule made absolute to the aforesaid extent. Direct service is permitted.

(J. C. DOSHI,J) SHEKHAR P. BARVE