Cheque dishonour prosecution may proceed despite sick company proceedings when restraint order effects need factual examination.

Pendency of proceedings against a sick industrial company does not automatically bar prosecution for dishonour of cheque; the effect of any restraint order under the sick company legislation depends on the facts, including its timing, scope and the material before the Magistrate. Where those facts are not part of the complaint, quashing at the threshold under inherent jurisdiction is inappropriate and the issue should be examined by the trial court. Allegations that directors consented to issuance of the cheques also prevent their liability from being finally determined at the threshold, because that question must ordinarily be tested on evidence before the Magistrate.

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Issues: (i) whether proceedings under section 138 of the Negotiable Instruments Act, 1881 were liable to be quashed under section 482 of the Code of Criminal Procedure, 1973 in view of proceedings and restraint orders under the Sick Industrial Companies (Special Provisions) Act, 1985; and (ii) whether the directors could be proceeded against in the absence of a specific finding at the threshold.

Issue (i): whether proceedings under section 138 of the Negotiable Instruments Act, 1881 were liable to be quashed under section 482 of the Code of Criminal Procedure, 1973 in view of proceedings and restraint orders under the Sick Industrial Companies (Special Provisions) Act, 1985.

Analysis: A mere pendency of proceedings concerning a sick industrial company does not by itself extinguish liability under section 138. The effect of section 22 and, where applicable, section 22A of the Sick Industrial Companies (Special Provisions) Act, 1985 depends on the facts, including the timing and operative effect of any restraint order and the materials placed before the Magistrate. Since the restraint order and related facts were not part of the complaint and required factual examination, the High Court declined to terminate the prosecution at the threshold and left the matter for consideration by the trial court.

Conclusion: The plea for quashing on the basis of the sick company proceedings was rejected.

Issue (ii): whether the directors could be proceeded against in the absence of a specific finding at the threshold.

Analysis: The complaint contained allegations that all directors consented to the issuance of the cheques. In such circumstances, the question of their liability could not be conclusively decided in proceedings under section 482 of the Code of Criminal Procedure, 1973 and had to be tested on evidence before the Magistrate.

Conclusion: The challenge to the proceedings against the directors was not accepted at the threshold.

Final Conclusion: The criminal petition was not allowed, and the prosecution was permitted to proceed before the Magistrate for determination on the available material and evidence.

Ratio Decidendi: In proceedings for dishonour of cheque, the existence and effect of a sickness or restraint order under the special sick-company legislation is a factual matter that ordinarily must be examined by the trial court, and such proceedings are not liable to be quashed under inherent jurisdiction merely on that ground.

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