2019 (4) TMI 577 - SC - Indian Laws

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

The Supreme Court allowed the appeal, setting aside the High Court's order quashing proceedings under Sections 138 and 141 of the Negotiable Instruments ... Quashing power under Section 482 Cr.P.C. - offence under Section 138 of the Negotiable Instruments Act - liability of company directors for offences under the Negotiable Instruments Act - requirement of specific averment that director was in charge and responsible for conduct of company - prima facie case and unimpeachable evidence standard in quashing petitions - abuse of process of courtQuashing power under Section 482 Cr.P.C. - requirement of specific averment that director was in charge and responsible for conduct of company - prima facie case and unimpeachable evidence standard in quashing petitions - offence under Section 138 of the Negotiable Instruments Act - liability of company directors for offences under the Negotiable Instruments Act - Whether the High Court was justified in quashing proceedings against the directors under its inherent writ jurisdiction when the complaint contained specific averments that the directors were in charge of and responsible for the conduct of the company and no unimpeachable evidence was produced to show otherwise. - HELD THAT: - The Court held that in proceedings under Section 138 read with Section 141 of the Negotiable Instruments Act a complaint must specifically aver that the director was in charge of and responsible for the conduct of the company's business at the relevant time. While the question whether a director was in charge is ultimately a question of fact, the High Court exercising jurisdiction under Section 482 Cr.P.C. should quash criminal proceedings only where the material on record demonstrates, by unimpeachable evidence, that the director could never have been in charge or responsible for the company's affairs and that continuing proceedings would amount to an abuse of process. Applying this standard, the Court found that the complaint in the present case contained specific averments that the respondents actively participated in day-to-day affairs and acted in active connivance with other accused in issuing cheques and directing 'stop payment'. The respondents did not place on record any unimpeachable evidence to show that continuing the proceedings would be an abuse of process. Consequently, the High Court was not justified in allowing the quashing petitions and setting aside the trial court's cognizance order. [Paras 9, 10, 11]The High Court's order quashing the proceedings against the directors is set aside and the trial court's cognizance order is restored.Final Conclusion: Appeals allowed; impugned High Court order dated 22.09.2017 is set aside and the trial court's order is restored. No opinion expressed on merits; trial court directed to expedite trial and decide the matter on merits in accordance with law. 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.