2014 (7) TMI 1350 - HC - Indian Laws

Directors' involvement in cheque dishonour complaint upheld under Section 138

Ashutosh Ashok Parasrampuriya and Ors. Versus Gharrkul Industries Pvt. Ltd. and Ors.

The court dismissed the criminal applications seeking to quash the complaint under Section 138 of the Negotiable Instruments Act. It held that the ... Dishonor of Cheque - funds insufficient - discharge of legally enforceable debt or not - rebuttal of presumption - offence punishable under Section 138 of the Negotiable Instruments Act - HELD THAT:- It is revealed that the legal notice was issued by respondent No. 1 to all the applicants on their address and in spite of intimation given to the applicants by the Postal Department as they were not claiming the notice, the notice was returned to respondent No. 1 with endorsement 'not claimed'. It is further found averred in the complaint that all the applicants are equally responsible for the offence committed by them and they have issued the said cheque to discharge their legal liability towards respondent No. 1. There are no substance in the criminal applications as admittedly the applicants are Directors of applicant No. 1 Company and proviso to Section 141 of the Negotiable Instruments Act can come into play in favour of applicants to save themselves from the punishment, if it is proved in the trial that the offence was committed without their knowledge. The applicants, who are Directors of applicant No. 1 Company, can also save themselves from punishment if they prove that they have exercised all due diligence to prevent the commission of such offence and also cheque involved in the prosecution is issued by the applicant No. 2 without their consent. The presumption under Section 139 of the Negotiable Instruments Act is that respondent No. 1 received the said cheque towards discharge of legal liability or debt. The burden to rebut the said presumption is on the applicant No. 1 Company and it can only be rebutted during trial. The criminal applications are dismissed. Issues Involved:1. Quashing of Criminal Complaint No. 2500/2012.2. Summons issued by the Chief Judicial Magistrate, Amravati.3. Allegations under Section 138 of the Negotiable Instruments Act.4. Responsibility of Directors for the conduct of the company's business.5. Legal notice for dishonour of cheque.6. Specific averments in the complaint under Section 141 of the Negotiable Instruments Act.Issue-wise Detailed Analysis:1. Quashing of Criminal Complaint No. 2500/2012:The applicants sought to quash Criminal Complaint No. 2500/2012 filed by the respondent, arguing that the complaint and its continuance would be a gross abuse of the process of law and court. The court noted that the applicants are Directors of the company and the complaint contains specific averments that they were responsible for the conduct of the company's business. The court referenced the legal precedent set by the Apex Court in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, which requires specific averments in the complaint that the accused were in charge of and responsible for the conduct of the business at the relevant time. The court found that such averments were present in the complaint.2. Summons Issued by the Chief Judicial Magistrate, Amravati:The applicants challenged the summons issued by the Chief Judicial Magistrate, arguing that they could not be said to have committed any offence even if the complaint's averments were accepted as true. The court observed that the applicants had appeared before the Chief Judicial Magistrate and were served with copies of the complaint. The court noted that the complaint specifically mentioned that all the applicants were involved in the business of the company and responsible for its affairs, thus justifying the issuance of summons.3. Allegations under Section 138 of the Negotiable Instruments Act:The respondent alleged that the applicants issued a cheque for Rs. 10,00,000, which was dishonoured due to 'funds insufficient.' The respondent issued a legal notice demanding the cheque amount, which was refused by the applicants. The court found that the complaint contained specific averments that the cheque was issued to discharge a legal liability and that the applicants were responsible for the offence under Section 138 of the Negotiable Instruments Act.4. Responsibility of Directors for the Conduct of the Company's Business:The applicants argued that there were no specific averments in the complaint that they were responsible for the conduct of the company's business. The court referred to the judgment in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, which requires such specific averments. The court found that the complaint did contain specific averments that all the Directors were responsible for the conduct of the company's business and involved in its affairs.5. Legal Notice for Dishonour of Cheque:The applicants contended that they did not receive the mandatory legal notice regarding the dishonour of the cheque. The court noted that the respondent had issued the notice to the applicants' company address and their residential addresses by registered post, which was returned with the remark 'not claimed.' The court held that the legal notice requirement was fulfilled as the notice was duly sent and returned unclaimed.6. Specific Averments in the Complaint under Section 141 of the Negotiable Instruments Act:The court emphasized the necessity of specific averments in the complaint regarding the accused's responsibility for the conduct of the company's business. The court found that the complaint met this requirement by specifically alleging that all the Directors were responsible for the business and affairs of the company. The court referenced the Apex Court's decisions in Rallis India Limited v. Poduru Vidya Bhushan and N. Rangachari v. Bharat Sanchar Nigam Ltd., which support the need for such specific averments.Conclusion:The court concluded that the applicants, being Directors of the company, were responsible for the conduct of the company's business and that the complaint contained specific averments to this effect. The court held that the legal notice requirement was fulfilled and that the presumption under Section 139 of the Negotiable Instruments Act applied, placing the burden of rebuttal on the applicants. Consequently, the court dismissed the criminal applications, discharged the rule, and vacated the interim relief, with no order as to costs.