2019 (4) TMI 577 - SC - Indian Laws

Supreme Court sets aside High Court order in Section 138 case, stresses evidence requirements

A.R. RADHA KRISHNA Versus DASARI DEEPTHI & ORS.

The Supreme Court allowed the appeal, setting aside the High Court's order quashing proceedings under Sections 138 and 141 of the Negotiable Instruments ... Dishonor of Cheque - proceedings initiated under section 138 and 141 of the Negotiable Instruments Act, 1881 - invocation of power under section 482 of Cr.P.C. - Held that:- The High Court, in deciding a quashing petition under S. 482, Cr.P.C., must consider whether the averment made in the complaint is sufficient or if some unimpeachable evidence has been brought on record which leads to the conclusion that the Director could never have been in charge of and responsible for the conduct of the business of the company at the relevant time. While the role of a Director in a company is ultimately a question of fact, and no fixed formula can be fixed for the same, the High Court must exercise its power under S. 482, Cr.P.C. when it is convinced, from the material on record, that allowing the proceedings to continue would be an abuse of process of the Court. A perusal of the record in the present case indicates that the appellant has specifically averred in his complaint that the respondent nos. 1 and 2 were actively participating in the daytoday affairs of the accused no.1 – company. Further, the accused nos. 2 to 4 (including the respondent nos. 1 and 2 herein) are alleged to be from the same family and running the accused no.1 – company together. The complaint also specificies that all the accused, in active connivance, mischievously and intentionally issued the cheques in favor of the appellant and later issued instructions to the Bank to “Stop Payment”. No evidence of unimpeachable quality has been brought on record by the respondent nos. 1 and 2 to indicate that allowing the proceedings to continue would be an abuse of process of the court. Appeal disposed off. Issues:Appeal against quashing of proceedings under Sections 138 & 141 of the Negotiable Instruments Act, 1881 by High Court.Analysis:The Supreme Court heard an appeal against the High Court's order quashing proceedings under Sections 138 and 141 of the Negotiable Instruments Act, 1881. The case involved an investment agreement where the appellant invested in a project based on representations by respondent directors. The appellant claimed an outstanding amount, which was to be repaid but cheques issued were dishonored. Consequently, the appellant initiated proceedings under Sections 138 & 141. The respondent directors filed a petition to quash the proceedings, which the High Court allowed. The appellant appealed to the Supreme Court.The appellant argued that the High Court erred in quashing the proceedings as a prima facie case existed against the respondent directors. The appellant contended that the trial court had taken cognizance of the case based on the material on record. The appellant alleged that the accused directors intentionally issued cheques and later stopped payment. On the other hand, the respondents claimed they were non-executory directors not involved in the day-to-day business operations and offered to pay the balance amount to the appellant.The Supreme Court held that the High Court was not justified in quashing the proceedings under Section 482 of the Cr.P.C. In cases under Sections 138 and 141 of the Act, the complaint must specify that the Director was in charge of the company's business when the offense occurred. The Court emphasized that the High Court should intervene under Section 482 only if convinced that allowing the proceedings to continue would be an abuse of court process. The appellant had averred that the respondent directors were actively involved in the company's affairs, and no evidence disproving this was presented.Consequently, the Supreme Court allowed the appeal, setting aside the High Court's order and restoring that of the trial court. The Court clarified that it did not express any opinion on the case's merits but directed the trial court to expedite the trial and decide the matter impartially. The judgment highlighted the importance of specific averments in complaints and the need for evidence to support claims when invoking Section 482 of the Cr.P.C.