2022 (8) TMI 871 - HC - Indian Laws

Court affirms validity of complaints under Section 138 of Negotiable Instruments Act

The court upheld the validity of the complaints under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881, finding them legitimate ... Dishonor of Cheque - discharge of legally enforceable debt - leave of the Court under section 446 of the Companies Act - whether the impleadment of Official Liquidator is necessary in a complaint for the offence punishable under section 138 of the Act, 1881, where it is alleged that the company in liquidation has committed the said offence? - HELD THAT:- In the facts of the case, if the submission on behalf of the applicants is readily acceded to, then M/s. Rangara would get a long leash to avoid the liability by taking undue advantage of its own default. M/s. Rangara, it can be fairly assumed, entered into consent terms in the Company Petition to wriggle out of the consequences which would have otherwise ensued in the Company Petition. M/s. Rangara committed default in compliance with the undertakings in the consent terms. Undoubtedly the consent terms provided for the consequence of the winding up petition being allowed in the event of any default. But that stipulation appears to be in the nature of a dyke against the default. In such a situation, to accede to the submission on behalf of the applicants, would amount to playing into the hands of a party who succeeds in avoiding the liability under the original proceedings as well as the one incurred under the consent terms. In a case of this nature, a distinction is necessarily required to be made between a winding up order passed after weighing of all the options, especially after recording satisfaction under sub section (2) of section 440 of the Companies Act, 1956 and an order of winding-up, which is invited, by executing consent terms. It is trite, an order of winding-up on merits manifests a judicial exercise upon recording a satisfaction that having regard to the interest of the creditors or contributors or both, winding-up is imperative. In all the complaints, the process was issued in the year 2016-17. Trial has commenced. Two of the complaints are at the stage of recording the cross examination of the complainant’s witnesses. At this juncture and in the light of the facts which have emerged, inherent jurisdiction to indict the complaints need not be exercised - application dismissed. Issues Involved:1. Validity of the complaints under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881.2. Allegations of suppression of facts by the complainant.3. Procedural irregularities in the issuance of process.4. Impact of the winding-up order on the prosecution under Section 138 of the Negotiable Instruments Act, 1881.5. Necessity of impleading the Official Liquidator in the complaints.Issue-wise Detailed Analysis:1. Validity of the complaints under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881:The applicants challenged the orders issuing process against them for offences under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881. The complaints were lodged due to the dishonour of cheques issued by M/s. Rangara Industries Private Limited (in liquidation) to M/s. Surajbhan Rajkumar Private Limited, as per the consent terms agreed upon during the winding-up proceedings. The court found that the complaints were valid as the cheques were issued in discharge of a legally enforceable debt incurred before the company was wound up.2. Allegations of suppression of facts by the complainant:The applicants argued that the complainant suppressed the fact that M/s. Rangara automatically stood wound up upon default in payment as per the consent terms. The court noted that the complainant did not suppress any material facts and that the winding-up order did not absolve the company or its directors from liability under Section 138 of the Negotiable Instruments Act, 1881.3. Procedural irregularities in the issuance of process:The applicants contended that in one of the complaints (CC No. 645/SS/2016), the process was issued before recording the verification statement of the complainant. The court examined the records and found that the verification statement was recorded on the same day the process was issued, indicating an inadvertent mistake in recording the date of the order. Thus, the alleged procedural irregularity was non-existent.4. Impact of the winding-up order on the prosecution under Section 138 of the Negotiable Instruments Act, 1881:The applicants argued that once the company was wound up, prosecution under Section 138 was legally untenable. However, the court referred to precedents, including the Supreme Court judgments in Kusum Ingots & Alloys Ltd. vs. Pennar Peterson Securities Ltd. and Pankaj Mehra vs. State of Maharashtra, which clarified that the liability under Section 138 persists despite the winding-up order. The court emphasized that the winding-up order does not render the debt unenforceable and that the company's failure to pay the cheque amount constitutes an offence under Section 138.5. Necessity of impleading the Official Liquidator in the complaints:The applicants claimed that without impleading the Official Liquidator, the complaints were not maintainable. The court referred to the Division Bench judgment in Indorama Synthetics (I) Limited vs. State of Maharashtra, which held that criminal complaints under Section 138 of the Negotiable Instruments Act, 1881, do not require the leave of the Company Court under Section 446 of the Companies Act, 1956. Thus, the impleadment of the Official Liquidator was not necessary.Conclusion:The court dismissed the applications, finding no merit in the applicants' contentions. It clarified that the observations were confined to the determination of the prayer to quash the complaints and that the learned Magistrate should decide the complaints on their merits, including considering the defence based on the consequences of the winding-up order. The rule was discharged with no costs.