TaxTMI 
TaxTMI 
2026 (3) TMI 1240
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....a Pvt. Ltd. vs. Madhuri Commodities & Ors. under Section 138 NI Act, concerning the alleged misuse of a security cheque and its dishonour. 3. Petitioner No. 1/Madhuri Commodities Private Ltd. is a Company engaged as a distributor/channel partner for Sony India Pvt. Ltd. in North West Bengal. Petitioner No. 2/Mr. Praveen Kumar Agarwal and Petitioner No. 3/Mr. Raj Kumar Agarwal are its Managing Director and the Director, respectively. 4. Respondent/M/s Sony India Pvt. Ltd. is the Principal Company/Complainant, represented by Mr. Gurmeet Singh. 5. The facts as stated in the Complaint are that on 01.12.2008, Petitioner No. 1 submitted its Know Your Customer (KYC) documentation to the Respondent to become its authorized channel partner for North West Bengal. As a precondition for the grant of distributorship, blank security cheques were furnished by the Petitioners, a fact expressly acknowledged in the Respondent's KYC checklist dated 17.12.2008. On account of outstanding Liability, the cheque of Rs. 1,22,91,473/-for encashment, was presented on 02.02.2017, which was dishonoured on 04.02.2017, for the reason "exceeds arrangement". The Respondent issued a Statutory Notice under ....
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....any subsisting debt; rather, it was provided solely as a documentary formality for distributorship and was never intended for actual payment. 12. Following dishonour, the Respondent issued a statutory Notice under Section 138 on 18.02.2017, which was received by the Petitioners on 21/22.02.2017. Simultaneously, on 27.02.2017, the Respondent terminated the Petitioners' Agency without settling their legitimate dues. 13. In response, the Petitioners instituted a Civil Suit bearing No. 49/2017 before the Court of the Ld. Civil Judge, Alipur in early March 2017, prior to the expiry of the 15-day statutory period under Section 138 and well before the filing of the Criminal Complaint. The Civil Court, recognizing the Petitioners' protectable interest in the Agency under Section 202 of the Indian Contract Act, 1872, granted an ex-parte Injunction on 04.03.2017 and later confirmed it on 18.09.2017, restraining the Respondent from appointing a new Distributor. 14. Despite these developments, the Respondent filed Complaint Case No. 4570/2017 under Sections 138 and 141 NI Act before the Chief Metropolitan Magistrate, Delhi, on 21.03.2017. The Complaint suffers from multiple legal infi....
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....he impugned summoning Order, be set aside. 23. Reply has been filed on behalf of the Respondent/Sony India Pvt. Ltd., wherein it is stated that the Petition is not only legally untenable, but also constitutes a gross abuse of the judicial process. The Petitioners have deliberately suppressed material facts and documents, misrepresented the nature of their commercial relationship with the Respondent, and falsely projected themselves as "Agents" under the Indian Contract Act, 1872, in a calculated attempt to evade their admitted financial liability. In truth, the relationship between the parties was purely that of seller and purchaser; specifically, that of a principal selling goods to an independent Distributor, and never that of Principal and Agent. 24. The Petitioners were appointed as one, amongst several distributors in the North Bengal region, with no exclusivity or control by the Respondent over their pricing, sales strategy, or downstream dealings. Critically, the Respondent never authorized the Petitioners to act on its behalf, nor did it pay any commission; instead, the Petitioners purchased goods outright and resold them at their own risk and profit, which negates an....
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.... inapplicable, as it protects only an Agent's interest in the "subject-matter of the Agency," which typically relates to immovable property or specific entrusted assets and not general inventory of movable goods purchased in a commercial transaction. The stocks held by the Petitioners, were bought outright under sale Invoices and remained their absolute property; no equitable interest in favour of the Petitioners, nor did the Respondent retain any title or control over those goods, after the sale. 31. Consequently, the termination of the Distributorship arrangement on 20.02.2017, after persistent payment defaults and non-performance, did not violate any statutory protection, and the Petitioners' invocation of Section 202 Contract Act is legally misconceived. 32. On the procedural and evidentiary front, the Respondent asserts that the Criminal Complaint under Section 138 and 141 NI Act, is fully compliant with legal requirements. Petitioner No. 2, as the signatory of the dishonoured cheque, is rightly arrayed as an accused, and Petitioner No. 3, being a Director actively involved in the Company's day-to-day affairs at the relevant time, falls squarely within the scope of vicar....
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....e amount unilaterally inscribed by the Respondent on the blank security cheque. Far from being an "afterthought," these claims were consistently communicated through email correspondence beginning December, 2016 and were formally quantified only after the Respondent abruptly terminated the Agency without settlement, thereby crystallizing the Petitioners' financial exposure. 41. The Petitioners further emphasize that the Calcutta High Court, in FMAT No. 1116 of 2017 dated 17.10.2017, while modifying the interim injunction granted by the Trial Court, expressly recognized the Petitioners' "interest" in the Agency; a finding that directly contradicts the Respondent's bald assertion that no principal-agent relationship ever existed. Although the High Court declined to affirm exclusivity or quantify the interest at the interim stage, it directed the Petitioners to return unsold stock to the Respondent, in exchange for depositing equivalent value in a Fixed Deposit Account, thereby implicitly acknowledging that the Petitioners held assets belonging to or representing the business of the Respondent. This judicial recognition negates the Respondent's attempt to characterize the relations....
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....al defects, namely: (i) Petitioner No. 3, not being the signatory of the cheque, cannot be prosecuted under Section 138; (ii) the Complaint fails to specify how both Directors were "in charge of and responsible for" the Company's day-to-day affairs, as mandated by NSIC vs. Harmeet Singh Paintal, (supra).; and (iii) the Power of Attorney holder who filed the Complaint, lacks personal knowledge of the underlying transactions and is legally incompetent to depose on behalf of the corporate Complainant, in view of Janki Vashdeo Bhojwani, (supra). 47. In view of the pending Civil adjudication of the very debt in question, and the absence of any prima facie offence, the continuation of Criminal proceedings constitutes a manifest abuse of process and warrants quashing. Submissions heard and record perused. I. Whether Security Cheque can be a Basis for Complaint under Section 138 NI Act?: 48. The first issue is whether the said cheque was a security cheque and thus, could not have been presented, unless there was an occasion for its presentment. 49. Before assessing the merits of the issue, we may refer to the law in this regard. 50. Where ....
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....ue date or if there is no other understanding or agreement between the parties to defer the payment of amount, the cheque which is issued as security would mature for presentation and the drawee of the cheque would be entitled to present the same. On such presentation, if the same is dishonoured, the consequences contemplated under Section 138 and the other provisions of the NI Act would flow." 55. Furthermore, the liability under a signed blank cheque was discussed in the case of Bir Singh vs. Mukesh Kumar, (2019) 4 SCC 197, wherein the Apex Court observed: "33. A meaningful reading of the provisions of the Negotiable Instruments Act including, in particular, Sections 20, 87 and 139, makes it amply clear that a person who signs a cheque and makes it over to the payee remains liable unless he adduces evidence to rebut the presumption that the cheque had been issued for payment of a debt or in discharge of a liability. It is immaterial that the cheque may have been filled in by any person other than the drawer, if the cheque is duly signed by the drawer. If the cheque is otherwise valid, the penal provisions of Section 138 would be attracted. 34. If a signed blank cheque....
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....execution is admitted, the statutory presumption operates in favour of the Respondent. The Petitioners' alleged counterclaims to extinguish or reduce liability, is a matter of evidence and reconciliation, which cannot be adjudicated in a petition under Article 226 or Section 482 Cr.P.C. 62. The defence that the cheque was only a "security cheque" is, therefore, not a ground for quashing at the threshold. II. Whether the Complaint is Maintainable against Managing Director/Director?: 63. The second issue is whether the Directors of the Company i.e. Petitioner No. 2/Mr. Praveen Kumar Agarwal (Managing Director) and Petitioner No. 3/Mr. Raj Kumar Agarwal (Director) are vicariously liable for the offence under Section 138 NI Act, by virtue of Section 141 thereof. 64. Section 141 NI Act provides that where the offence under Section 138 is committed by a Company, every person who at the time of the offence, was in charge of and responsible to the Company for the conduct of its business, shall also be deemed to be guilty of that offence. 65. The Apex Court, in National Small Industries Corporation Ltd., (supra), held that the Complaint must contain specific averments disclos....
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....re the Managing Director and Director respectively of Petitioner No. 1 Company, which is a private limited Company. In such a closely held corporate structure, where the Board itself comprises of only two directors, the assertion in the Complaint that both Directors were actively involved in the day-to-day affairs and financial management of the Company, cannot be said to be inherently improbable. 70. Turning to the Complaint, it states, "Accused No. 2 and 3 are Managing Director and Director, respectively and are actively involved and responsible for day-to-day business operations and management, including the financial affairs of the Accused No. 1." It is further stated that "the said cheque was issued on behalf of the Accused No. 1 due to the working relationship entered into by the Accused No. 2 and 3." These averments, read together, go beyond a mere recitation of statutory language. They specifically attribute active involvement in financial and day-to-day management to both Directors, and connect the issuance of the cheque to the working relationship established by them. 71. So far as Petitioner No. 2/Mr. Praveen Kumar Agarwal is concerned, he is both the Managing Dire....