Wednesday 10 August 2016

Whether S 202 of CRPC is applicable to proceeding for dishonour of cheque?

 So far as the question of application of Section 202
Cr.P.C. is concerned, that question has already been settled by
this Court. The provisions are not applicable to the complaints
filed under Section 138 of the Negotiable Instruments Act.
IN THE HIGH COURT OF PUNJAB & HARYANA
AT CHANDIGARH
 Crl. Misc. No. M-21674 of 2013 (O&M)
 Date of decision : 17.11.2015
Kishan Lal More and another

versus
M/s. Bibby Financial Services India Pvt. Ltd. & another

CORAM:- HON'BLE MRS. JUSTICE ANITA CHAUDHRY
Citation:2016 CRLJ(NOC)213 P&H



1. Two separate petitions have been filed by the
petitioners who were Directors of M/s. Sitnem Trading and
Investment Pvt. Ltd. Company, who have been summoned in a
complaint filed under Section 138 of the Negotiable

Instruments Act. The petitioners are seeking quashing of the
summoning order and all the subsequent proceedings taken in
the complaint.
2. Vide order dated 06.11.2012, the Judicial Magistrate
Ist Class, Gurgaon had summoned the petitioners who were
stated to be the Directors of the Company. In CRM-21674-
2013, the petitioners have pleaded that they had resigned from
the Company and were neither the Executive Directors nor
Signatories to the cheques and were not responsible for the
day-to-day affairs of the Company. Some other pleas were also
raised which are not relevant at the present stage.
3. CRM-22396-2013 was preferred by the Directors
who hold the same position even till the filing of the petition.
4. Briefly touching the facts, the complainant Company
M/s. Bibby Financial Services India Pvt. Ltd. is into the business
of factoring and had granted this facility to M/s. Dujodwala
Paper Chemicals Ltd. Accordingly M/s. Dujodwala Paper
Chemicals Ltd. had intimated that there was a factoring
agreement between the complainant company. M/s. Sitnem
Trading & Investment Pvt. Ltd. confirmed and assured the
complainant Company that they shall make all payments in
respect of sale invoices raised by M/s. Dujodwala Paper
Chemicals Ltd. as per the agreement Annexure P-4 attached
with the complaint. The complainant company approached the
accused for clearance of 11 cheques, all drawn on IDBI Bank,
Mumbai which were to the tune of over Rs.2 crores. The

cheques were deposited with the complainant's banker having
an account in Standard Chartered Bank Ltd., Gurgaon. All the
cheques were returned and the cheques were dishonoured. A
legal notice dated 14.09.2012 was sent to the accused who
sent their reply. The reply and the e-mails were appended as
Annexures with the complaint. The same are not available here.
The complainant then instituted a complaint. The trial
Magistrate summoned all the accused vide its order dated
06.11.2012.
5. The petitioners have approached this Court pleading
that the Gurgaon Court had no jurisdiction, the petitioners were
not the Executive Directors, they were not responsible for the
day-to-day affairs of the Company and they have not signed
the cheques. The petitioners had resigned as Directors on
31.07.2012 and they were in no position to take any decision
on behalf of the Company and bald assertions have been made.
Lastly that only three offences could be tried together in one
trial, in view of the provisions contained in Section 219 Cr.P.C.
Plea was also taken that the requirement of Section 202 Cr.P.C.
had not been made and it was obligatory upon the Magistrate
as the petitioners were residing beyond its jurisdiction.
6. I have heard learned counsels of both the sides.
7. The submission raised on behalf of the petitioners
was that the petitioners Krishan Lal and Ketan Mahendra Shah
had resigned on 31.07.2012 and Form-32 (Annexure P-3) had
been placed on record. The submission also was that the

cheques were not signed by any of the petitioners. It was also
urged that the complainant had made a sweeping claim that
the petitioners were the Directors and responsible for the dayto-day
activities but they had not specifically assigned the
duties they were actually doing. The submission also was that
the notice had been issued on 14.09.2012 i.e. after two months
whereas notice is required to be given after one month. Lastly
the submission was that 11 cheques were dishonored but all
the cheques were joined in one complaint. Reliance was placed
upon Shankar Menon Vs. State of West Bengal 2012(3) RCR
(Criminal) 413, Rajesh M. Pamanai Vs. State of
Maharashtra and others 2012(1) RCR (Civil) 517, Sabitha
Ramamurty and another Vs. R.B.S. Channabasavaradhya
2006(4) RCR (Criminal) 296 and S.M.S. Pharmaceuticals
Ltd. Neeta Bhalla and another 2005(4) RCR (Criminal) 141.
8. The submission on behalf of the respondent was
that the complaint contains the necessary allegations and the
complainant had averred specifically that the accused were
responsible for the day-to-day act, conduct and affairs of the
business as well as acts and liabilities of M/s. Sitnam Trading
Investment Company and what more could be said and the
averments prima facie reveal that the offence under Section
138 of the Negotiable Instruments Act was made against each
and every person. It was urged that even a non-Director can be
made liable on the basis of averments made in the complaint.
It was urged that the question that some of the Directors had

resigned is a question of fact which they are disputing from the
very beginning and in the last two years, the petitioners had
not placed the certified copies of Form–32 on record and
adjournments were taken to produce the certified copies and
the petitioners cannot make the High Court a super trial Court
and there are disputed questions of facts which can only be
examined by the trial Court. It was urged that a single notice
was issued therefore the complainant had only one cause of
action. It was urged that some cheques had bounced before the
Directors had resigned (if they actually had) and the
complainant would be left with no remedy if the resignations
are made after the cheques are issued and dishonoured. It was
urged that when the facts are disputed and debatable, those
will have to be decided at the trial and the complaint cannot be
quashed nor the High Court at this stage is to consider the
defence of the accused or embark upon any inquiry in respect
of the merits of the accusations. Reliance was placed upon
Kailash Chand Jain Vs. M/s. Bibby Financial Services India
Pvt. Ltd. 2014(2) RCR (Civil) 431, M/s. SSS Loha Marketing
Pvt. Ltd. and others Vs. State of Haryana and anther
2014(3) RCR (Criminal) 782 and a judgment of this Court
in Nilesh Shah Vs. Jyoti Rani and others in CRM-M-31175-
2011, decided on 22.11.2013.
9. The controversy has arisen in the context of
prosecutions launched against officers of Companies under
Sections 138 and 141 of the Negotiable Instruments Act of
For Subsequent orders see CRM-M-22396-2013

1881 (hereinafter referred to as the "Act"). The relevant part of
the provisions are quoted as under :
"Section 138 :
Dishonour of cheque for insufficiency, etc., of funds
in the account Where any cheque drawn by a persons
on an account maintained by him with a banker for
payment of any amount of money to another persons
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 provisions of this Act,
be punished with imprisonment for a term which may
be extended to two years, 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
us 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 account of money by giving a
notice in writing, to the drawer of the cheque, within
thirty days of the receipt of information by him from
the bank regarding the return of the cheque as unpaid;
and ( c )the drawer of such cheque fails to make the
payment of the said amount of money to the payee or,

as the case may be, to the holder in due course of the
cheque, within fifteen days of the receipt of the said
notice.
Explanation: - For the purposes of this section, "debt or
other liability" means a legally enforceable debt or other
liability.
Section 141 : Offences by companies -
[1] 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:
Provided 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.
Provided [2] Notwithstanding anything contained in subsection
(1), where any offence under this Act has been
committed by a company and it is proved that the offence has
been committed with the consent or connivance of, or is
attributable to, any neglect on the part of, any director,
manager, secretary or other officer of the company, such
director, manager, secretary or other officer shall also be
deemed to be guilty of that offence and shall be liable to be
proceeded against and punished accordingly."
10. It will be seen from the above provisions that
Section 138 casts criminal liability punishable with
imprisonment or fine or with both on a person who issues a
cheque towards discharge of a debt or liability as a whole or in
part and the cheque is dishonoured by the Bank on
presentation. Section 141 extends such criminal liability in case

of a Company to every person who at the time of the offence,
was incharge of, and was responsible for the conduct of the
business of the Company. By a deeming provision contained in
Section 141 of the Act, such a person is vicariously liable to be
held guilty for the offence under Section 138 and punished
accordingly. Section 138 is the charging section creating
criminal liability in case of dishonour of a cheque and its main
ingredients are :
(i) Issuance of a cheque.
(ii) Presentation of the cheque
(iii) Dishonour of the cheque
(iv) Service of statutory notice on the person sought to be
made liable, and
(v) Non-compliance or non-payment in pursuance of the notice
within 15 days of the receipt of the notice.
11. It primarily falls on the drawer company and is
extended to officers of the Company. The normal rule in the
cases involving criminal liability is against vicarious liability,
that is, no one is to be held criminally liable for an act of
another. This normal rule is, however, subject to exception on
account of specific provision being made in statutes extending
liability to others. Section 141 of the Act is an instance of
specific provision which in case an offence under Section 138 is
committed by a Company, extends criminal liability for
dishonour of cheque to officers of the Company. Section 141
contains conditions which have to be satisfied before the
liability can be extended to officers of a company. Since the

provision creates criminal liability, the conditions have to be
strictly complied with. The conditions are intended to ensure
that a person who is sought to be made vicariously liable for an
offence of which the principal accused is the Company, had a
role to play in relation to the incriminating act and further that
such a person should know what is attributed to him to make
him liable. In other words, persons who had nothing to do with
the matter need not be roped in. A company being a juristic
person, all its deeds and functions are result of acts of others.
Therefore, officers of a Company who are responsible for acts
done in the name of the Company are sought to be made
personally liable for acts which result in criminal action being
taken against the Company. It makes every person who, at the
time the offence was committed, was incharge of, and was
responsible to the Company for the conduct of business of the
Company, as well as the Company, liable for the offence. The
proviso to the sub-section contains an escape route for persons
who are able to 'prove' that the offence was committed without
their knowledge or that they had exercised all due diligence to
prevent commission of the offence.
12. The position of a Managing Director or a Joint
Managing Director in a company may be different. These
persons, as the designation of their office suggests, are in
charge of a company and are responsible for the conduct of the
business of the company. In order to escape liability such
persons may have to bring their case within the proviso to

Section 141(1), that is, they will have to prove that when the
offence was committed they had no knowledge of the offence
or that they exercised all due diligence to prevent the
commission of the offence.
13. A reference to sub-section (2) of Section 141
fortifies the above reasoning because sub-section (2) envisages
direct involvement of any Director, Manager, Secretary or other
officer of a company in commission of an offence. This section
operates when in a trial it is proved that the offence has been
committed with the consent or connivance or is attributable to
neglect on the part of any of the holders of these offices in a
company. In such a case, such persons are to be held liable.
Provision has been made for Directors, Managers, Secretaries
and other officers of a company to cover them in cases of their
proved involvement.
14. The conclusion is inevitable that the liability arises
on account of conduct , act or omission on the part of a person
and not merely on account of holding an office or a position in a
company. Therefore, in order to bring a case within Section 141
of the Act the complaint must disclose the necessary facts
which make a person liable.
15. The petitioners had approached the Court primarily
on the ground that the directors had resigned from the
company. The fact is disputed by the other side. The case had
been adjourned a number of times to enable the petitioners to
place on record the certified copies of Form -32 which they

have failed to do so. Therefore, the fact is disputed and it can
only be adjudicated by the trial Court.
16. The primary responsibility is on the complainant to
make specific averments as required under law in the
complaint. The petitioners are said to be the Directors and
involved in the day-to-day activities of the Company. The
complaint spells out a clear case against the accused who have
been named. The Magistrate in the first instance on the basis of
the averments and the evidence before it has issued process.
The petitioners have not placed on record the memorandum or
articles of association to show who were the working Directors.
The directors are aware of the affairs of the company and it
would be a matter of evidence which would be led at the trial.
At the present stage, the specific allegations in the complaint
are enough.
17. In N. Rangachari Vs. BSNL, 2007(2) Law Herald
(SC) 1379, the Hon'ble Apex Court has held as under:-
 “A person normally having a business or commercial
dealing with a company, would satisfy himself about its
creditworthiness and reliability by looking at its promoters and
Board of Directors and the nature and extent of its business and its
Memorandum or Articles of Association. Other than that, he may not
be aware of the arrangements within the company in regard to its
management, daily routine, etc. Therefore, when a cheque issued to
him by the company is dishonoured, he is expected only to be aware
generally of who are incharge of the affairs of the company. It is not
reasonable to expect him to know whether he has been deprived of
his authority to do so when he actually signed the cheque. Those are
matters peculiarly within the knowledge of the company and those in
charge of its. So, all that a payee of cheque that is dishonoured can

be expected to allege to allege is that the persons named in the
complaint are in charge of its affairs. The Directors are prima facie
in that position.”
18. The Magistrate while summoning the petitioners
have categorically recorded that there is prima facie material to
issue process and the petitioners were the Directors on the
relevant date or not is a question of fact and this Court is not
inclined to go into that matter in the proceedings under Section
482 Cr.P.C.
19. So far as the question of application of Section 202
Cr.P.C. is concerned, that question has already been settled by
this Court. The provisions are not applicable to the complaints
filed under Section 138 of the Negotiable Instruments Act.
20. So far as the question of jurisdiction of the Court is
concerned, the Negotiable Instruments Ordinance 2015 has
amended the Negotiable Instruments Act and it also deals with
the pending cases and it is perhaps for this reason this issue
was not raised during the course of arguments.
21. Lastly whether one complaint could be filed against
number of cheques is an issue to be raised before the trial
Court.
22. For the aforesaid reasons both the petitions are
dismissed. The parties are directed to appear before the trial
Court on 07.12.2015.
 (ANITA CHAUDHRY)
17.11.2015 JUDGE



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