TaxTMI 
TaxTMI 
2000 (2) TMI 724
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.... being disposed of by this judgment. 3. The factual positions about which there is no dispute may be stated thus: Post-dated cheques were issued on behalf of the company in favour of the complainant in course of business of the company. When the complainant presented the cheques in the bank they were returned without payment. Then the complainant issued notice to the company and/or its Directors stating the facts of dishonour of the cheques and demanding payment. Since no payment was made within the period of 15 days stipulated under the Act the payee filed complaint against the company and/or its Directors alleging inter alia that they had committed an offence under section 138. Before the cheques were presented in the bank or after the bank declined to honour the cheques the drawer company was declared sick under the provisions of the SICA by the Board of Industrial & Financial Reconstruction ('BIFR'). On receipt of the summons from the Court in the criminal case registered on the basis of the complaint the accused company and/or its directors filed petitions under section 482 of the Code of Criminal Procedure or under article 227 of the Constitution seeking quashing of the co....
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....e for insufficiency, etc. of funds in the account-Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both : Provided that nothing contained in this section shall apply unless- (a )the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier; (b)the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a ....
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....'director', in relation to a firm, means a partner in the firm." 8. It is relevant to note here that Chapter XVII of the Act in which the aforementioned sections are included was inserted in the Act with effect from 1-4-1989 by Act 66 of 1988. The object of bringing section 138 on statute is to inculcate faith in the efficacy of banking operations and credibility in transacting business on negotiable instruments-see : Electronics Trade & Technology Development Corpn. Ltd. v. Indian Technologists & Engineers (Electronics) P. Ltd. [1996] (2) SCC 739. 9. Coming to the provisions of the SICA sections 22 and 22A which are relevant for appreciating the questions raised in the case, are quoted hereunder : "22. Suspension of legal proceedings, contracts etc.-(1) Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or the memorandum and articles of as....
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....not exceed seven years in the aggregate. (4) Any declaration made under sub-section (3) with respect to a sick industrial company shall have effect notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law, the memorandum and articles of association of the company or any instrument having effect under the said Act or other law or any agreement or any decree or order of a court, tribunal, officer or other authority or of any submission, settlement or standing order and accordingly,- (a )any remedy for the enforcement of any right, privilege, obligation and liability suspended or modified by such declaration, and all proceedings relating thereto pending before any court, tribunal, officer or other authority shall remain stayed or be continued subject to such declaration; and (b)on the declaration ceasing to have effect- (i )any right, privilege, obligation or liability so remaining suspended or modified, shall become revived and enforceable as if the declaration had never been made; and (ii)any proceeding so remaining stayed shall be proceeded with, subject to the provisions of any law which may then be in force, from the stage which h....
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....ed an offence. In the explanation to the section clarification is made that the phrase debt or other liability means a legally enforceable debt or other liability. 12. Section 141 is a provision specifically dealing with the offences by companies. Therein it is laid down, inter alia, that if the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. Under the proviso to sub-section (1) it is laid down that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence. 13. Sub-section (2) of the section makes any director/manager/secretary or other officer of the company in connivance or any neglect on the part of whom, an offence under the Act has been committed by the company, such director/manager/secretary ....
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....eeding under section 22(1) alone is not sufficient to get absolved from the liability under section 138. 16. A contention was raised on behalf of the appellants that if the criminal case is proceeded with and the appellants are convicted and sentenced to fine then it will be necessary to realise the amount of fine from the assets of the company which would be impermissible in view of the provisions of section 22. We have no hesitation in rejecting this contention. In fact the same contention was considered by us at length in BSI Ltd. v. Gift Holdings [Criminal Appeal No. 847 of 1999] and it was repelled. In our considered view the contention is premature and farfetched as the occasion to realise fine from the accused company or its directors will arise only in case they are convicted and sentenced of fine is imposed against them. That is not a ground to hold that the criminal proceeding should be foreclosed at the threshold. 17. Another contention which was raised on behalf of the appellant in this connection is that if the Directors of the company on being convicted are arrested and kept in jail the efforts of the BIFR for reconstruction/revival of the company will not be po....