2024 (6) TMI 1316 - HC - Indian Laws

Directors escape Section 138 liability as complaint fails to prove knowledge of cheque issuance under Section 141

The Bombay HC allowed an application to quash a complaint under Section 138 of the Negotiable Instruments Act filed against directors. The court held that ... Dishonour of cheque - Funds Insufficient - existence of legal liability or not - cheques were issued during the pendency of Insolvency Resolution Professional proceeding - vicarious liability of Director (Ex-Director) or not - liability without pointing out actual role and knowledge of issuing the cheque for the alleged liability to pay the amount of dishonoured cheque. The first ground of objection of this application is that under Section 14 of the IBC Act there is order of the NCLT Chandigarh and therefore no criminal liability of the applicants arise - HELD THAT:- In view of the law laid down in P. Mohanraj and others Vs. M/s. Shah Brohters Ispat Pvt. Ltd. [2021 (3) TMI 94 - SUPREME COURT] Section 14 of the IBC applies to the corporate debtor and it is not applicable to the natural person. From the proceeding under Section 138 of the N.I. Act they are not exonerated from criminal liability. Thus, these applicants, who are natural persons cannot be benefited by the said order of NCLT. and Section 14 of the IBC. The argument of learned Senior Counsel Shri R.N. Dhorde for applicants is not acceptable in this regard. The second ground for quashing complaint is absence of knowledge of issuing of cheque - HELD THAT:- It is admitted fact that applicants have not signed any of cheques in question. The statutory notices were not send to them after dishonour of cheques - It is necessary to plead the knowledge of all these applicants which is require as per first proviso of Section 141 of the N.I. Act. Their specific status and role is not specified in the complaint. Their liability to pay that amount under dishonoured cheque is not establishing from the averments in the complaint. It is not established from any document or conduct that disputed cheques were signed with their knowledge. Therefore, all the applicants cannot be held liable and deemed to be guilty as per Section 141 of the N.I. Act. This is a fit case to exercise inherent power under Section 482 of the Criminal Procedure Code to stop the abuse of the process of the Court and to secure ends of justice. Therefore, the argument of Senior Counsel for the respondent Shri R.S. Deshmukh is not acceptable in this regard. The application for quashing of the said complaint deserves to be allowed - Application allowed. Issues Involved:1. Application of Section 14 of the Insolvency and Bankruptcy Code (IBC) to natural persons.2. Knowledge and role of the applicants in issuing the dishonoured cheques.3. Abuse of the process of the Court.Issue-wise Detailed Analysis:1. Application of Section 14 of the Insolvency and Bankruptcy Code (IBC) to Natural Persons:The applicants argued that the complaint should be quashed based on an order from the National Company Law Tribunal (NCLT) under Section 14 of the IBC, which imposes a moratorium on proceedings against the corporate debtor, Amtek Auto Ltd. The applicants contended that this moratorium should extend to them as well, thus absolving them of criminal liability under Section 138 of the Negotiable Instruments Act (N.I. Act).The Court, however, referred to the judgment in *P. Mohanraj & Others Vs. M/s. Shah Brothers Ispat Pvt. Ltd.*, which clarified that Section 14 of the IBC applies only to the corporate debtor and not to natural persons. The Court concluded that the applicants, being natural persons, could not benefit from the NCLT order and the moratorium under Section 14 of the IBC. Therefore, the application for quashing the complaint on this ground was not accepted.2. Knowledge and Role of the Applicants in Issuing the Dishonoured Cheques:The applicants claimed that they had no knowledge of the issuance of the cheques and that the complaint did not specify their roles or responsibilities in the day-to-day affairs of Amtek Auto Ltd. They argued that the statutory notices were not sent to them and that they did not sign any of the cheques in question.The Court examined the complaint and found that it lacked specific allegations regarding the applicants' knowledge and role in the issuance of the cheques. The complaint merely stated that the applicants were liable for the acts of Amtek Auto Ltd. without detailing their specific involvement or responsibility. The Court emphasized the necessity of pleading the knowledge of the applicants as required by the first proviso of Section 141 of the N.I. Act. Since the complaint did not establish the applicants' liability to pay the amount under the dishonoured cheques, the Court held that the applicants could not be deemed guilty under Section 141 of the N.I. Act.3. Abuse of the Process of the Court:The applicants argued that the continuation of the trial would amount to an abuse of the process of the Court. They contended that the complaint was filed with malafide intentions and that they were not involved in the day-to-day affairs of Amtek Auto Ltd.The Court agreed with the applicants, stating that continuing the trial without specific allegations and evidence against the applicants would indeed be an abuse of the process of the Court. The Court emphasized the importance of exercising its inherent power under Section 482 of the Criminal Procedure Code to prevent such abuse and to secure the ends of justice.Conclusion:The Court allowed the application for quashing the complaint, stating that it would be an abuse of the process of the Court to continue the trial against the applicants. The complaint was quashed in terms of prayer clause 'B,' and no costs were awarded.