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G. L. MODI VERSUS XEDD FINANCE AND INVESTMENTS PVT. , LTD

    Decided On, 22 December 1997

    At, High Court of Andhra Pradesh

    By, THE HONOURABLE MR. JUSTICE A. HANUMANTHU

    For the Appearing Parties: M.Ravindra Nath Reddy, Pratap Narayan Sanghi, Advocates.



Judgment Text

A. HANUMANTHU, J.


( 1 ) THESE two petitions have been filed under Section 482 Cr. PC to quash the proceedings in CC No. 1095/96 and CC No. 17/97 respectively on the file of V Metropolitan Magistrate, Hyderabad.


( 2 ) THE petitioners herein arc A7 and A4 respectively in both the cases and the 1st respondent herein is the complainant and respondents 2 to 6 are the other accused in the said cases.


( 3 ) AS the parties are the same and the point involved in both the petitions is the same, these petitions are being disposed of by a common order.


( 4 ) THE 1st respondent herein is a Limited Company and it manufactures the equipments relating to Telecommunications and allied activities. The 1st respondent filed the complaint in CC No. 1095/96 against these petitioners and respondents 2 to 6 herein for the offence punishable under Section 138 of the Negotiable Instruments Act (hereinafter called as Act ). It is alleged in the complaint that during the course of business, the 1st accused company represented by other accused borrowed a sum of Rs. 37. 78 lakhs as Inter Corporate Deposit from the complainant and in discharge of that debt together with interest thereon, the 1st accused company represented by A2 who is its Managing Director, issued the cheque bearing No. 262804, dated 8-10-1996 for Rs. 4646380 drawn on Union Bank of India, Sawkarpet branch, Madras. The complainant deposited the said cheque for realisation in its Banker, State Bank of Hyderabad, Industrial Finance, Branch, Panjagutta, on 28-10-96, but the said cheque was dishonoured due to "insufficiency of funds" in the account and the same was informed to the complainant by its Banker through the debt voucher dated 13-11-96 which was issued basing on the memorandum, dated 28-10-96 issued by the Union Bank of India, Sawkarpet, Madras. Thereafter, legal notice, dated 14-11-96 was issued to all the accused calling upon them to repay the outstanding amount of Rs. 46,46,380. 00with interest at the rate of 26% per annum within 15 day of receipt of the said legal notice. The said notice was served on all the accused on 18-11-96. The 1st accused issued reply notice, dated 20-11-96 and the said reply notice was received by the Counsel for the complainant on 30-11-1996. Thereafter, the complaint has been filed on 5-12-96, The learned Magistrate took the case on file and issued the process for the appearance of the petitioners and other accused. The petition in Crl. P. No. 3584/97 has been filed to quash the proceedings in CC No. 1095/96 against the petitioners herein.


( 5 ) THE 1st respondent in Criminal Petition No. 3585/97 filed the complaint in CC No. 17/97 against the petitioners and respondents 2 to 7 for the offence under Section 138 of the Act alleging that the 1st accused, company represented by other accused, borrowed a sum of Rs. 20,00,000. 00as Inter Corporate Deposit from the complainant and in discharge of that debt,, the 2nd accused representing the 1st accused-company issued the cheque bearing No. 262804, dated 15-10-1996 for a sum of Rs. 24,20,000. 00towards the principal and interest drawn on Union Bank of India, Sawkarpet branch, Madras. The said cheque was presented by the complainant in its Bank. e. , State Bank of Hyderabad, Industrial Finance, Panjagutta, Hyderabad on 26-10-96, but the said cheque was dishonoured due to insufficiency of funds in the account of the accused, and the same was informed to the complainant by its branch through debt voucher dated 13-11-96 which was based on the memorandum dated 28-10-96 issued by Union Bank of India, Sawkarpet branch, Madras. Thereafter, the complainant got a legal notice, dated 14-11-96 issued to all the accused calling upon them to repay the outstanding amount of Rs. 24,20,000. 00 with interest at the rate 24% per anum within 15 days of receipt of said legal notice. The said notice was served on all the accused on 18-11-96. The 1st accused alone issued a reply, dated 20-11-96 and the said reply was received by the complainant on 30-11-96. Thereafter, the complainant filed a case on 5-12-1996 and the same was taken on file by the Magistrate as CC No. 17/97 and issued process for appearance of all the accused. Challenging the said proceedings, the petitioners who are A7 and A4 respectively have come up with this petition No. 3585/97.


( 6 ) THE learned Counsel, for the petitioners raised the following contentions : (1) The 1st petitioner who is A7 in both the cases, ceased to be a Director of the 1st accused company with effect from 28-2-1995 and as such, he is not liable to be prosecuted, for the amount due by the company-accused. (2) There are no allegations in the complaint that these petitioners as Directors of the accused-company were also participating in the management of the company at the time of the issuance of the cheque by the 2nd accused, as Managing Director of the accused-company. (3) That the cheques in both the cases were returned on 28-10-96 with endorsement of ''insufficiency of funds'', but the complainant issued the notice only on 14-11-96 which is beyond the period of 15 days prescribed under the proviso (b) of Section 138 of the Act. (4) In the notice of demand issued, the complainant claimed for more than the amount mentioned in the dishonoured cheque and as such, it is not in accordance with law and it does not give cause of action in terms of Section 138 (c) of the Act and as there was no cause of action, no complaint can be made in accordance with Section 142 (b) of the Act.


( 7 ) THE learned Counsel for the 1st respondent-complainant submits that all the accused had been participating in the day-to-day transactions of the accused-company, that the demand notices issued on behalf of the complainant were served on all the accused including the petitioners. But, except the accused-company, none of the other accused including the petitioners gave any reply to the said demand notice, that the 1st petitioner never ceased to be Director of the Company as contended by him. It is also contended by the learned Counsel for the respondent Nol. that the dishonour of the cheques was informed to the complainant on 13-11-96 only through debt voucher issued by its bank. e. , State Bank of Hyderabad, based on the memorandum, dated 28-10-96 issued by Union Bank of India, Sawkarpet branch, Madras to which the cheque was sent for realisation and the demand notice was issued on 14-11-96 itself and thus, there is proper compliance of the provision under Section 138 of the Act. The learned Counsel for the 1st respondent further contends that if some more amount than the cheque amount is claimed in the demand notice, then that would be a superflous one and it will not invalidate the notice.


( 8 ) THE point that arise for consideration is whether the proceedings in CC No. 1095/96 and CC No. 17/97 are liable to be quashed as against these petitioners ?


( 9 ) FOR appreciation of the rival contentions of the Counsel, it is necessary to look into the Sections 138 and 142 of the Act. "138. Dishonour of cheque 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, cither 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, 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 notice, in writing, to the drawer of the cheque, within fifteen 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 142 reads as under: "142. Cognizance of offences :--Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),-- (a) no Court shall take cognizance of any offence punishable under Section 138 except upon a complaint, in writing, made by the payee, or, as the case may be, the holder in due course of the cheque; (b) such complaint is made within one month of the date on which the cause of action arises under clause (c) of the proviso to Section 138; (c) no Court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the First Class shall try any offence punishable under Section 138. "


( 10 ) IT is clear from the above provisions that to constitute an offence under Section 138 of the Act : (a) the cheque in question should have been presented to the bank within a period of six months of the date of its drawal and within the period of its validity whichever is earlier; (b) the payee or holder in due course, of such cheque should have made a demand for the payment of the said amount of money by giving a notice in writing to the drawer of the cheque within 15 days from the date of receipt of information from the bank regarding the return of the cheque unpaid; (c) the drawer of such cheque should have failed to make the payment of the said amount to the payee or the holder in due course of the cheque within 15 days of the receipt of the said notice; (d) the complaint is made within one month from the date on which the cause of action arises under clause (c) of proviso to Section 138 of the Act.


( 11 ) AS regards the first contention raised by the learned Counsel for the petitioners that the 1st petitioner who is A7 in both the cases, ceased to be a Director of the 1st accused-company with effect from 28-2-1995, the learned Counsel relied on a xerox copy of Form No. 32 of the Companies Act, 1956 relating to the particulars of appointment of Directors and Manager and the changes thereon wherein it is shown that Mr. G. L Modi is said to have resigned as Director with effect from 28-2-1995. But, this document cannot be relied upon for the reason that it has not been signed by anybody, nor it has been attested as true copy. Therefore, I am unable to agree with the said contention.


( 12 ) AS regards the second contention that there are no averments in the complaint that these petitioners as Directors of the accused-company were participating in the day-to-day. , management of the company at the time of the commission of the offence. e. , on the date of issuance of the cheques by the 2nd accused, it is not in dispute that the cheques in question in these cases were issued by the 2nd accused as Managing Director of the 1st accused-company. A reading of Section 141 of the Act discloses that if the offence under Section 138 of the Act is committed by a company or firm, every person who was incharge and responsible for the affairs and conduct of the business of the company or firm as the case may be, at the time when the alleged offence was committed is also liable for prosecution along with the company. But, there should be averments to the effect that such a person was incharge and responsible for the affairs and conduct of the business of the company or firm. As seen from the averments in both these complaints, there are no allegations to that effect. It is simply stated that the 1st accused-company represented by the accused 2 to 7 borrowed the amount as Inter Corporate Deposit from the complainant. Except this there are no other allegations in these complaints that these petitioners were also incharge or responsible for the management and affairs of the accused-company at the time of issuance of the cheques. It has been consistently held by this Court that unless there are allegations in the complaint filed for the offence punishable under Section 138 of the Act that the Directors or partners of a company or firm are also incharge and responsible for the management of the business of the company or firm, they are not liable to be prosecuted. Vide 1997 Cr. LJ 3616 (2) 1985 (2) ALT518.


( 13 ) IN the instant case, admittedly the cheques were issued by the Managing Director of the 1st accused-company and in both the complaints, there are no specific allegations that these petitioners were incharge and responsible for the conduct of the business of the company at the time or alleged commission of offence. It is common knowledge that in a company or firm there may be sleeping partners or Directors who are admitted for the benefits only and they are not taken any interest or participate in the day-to-day business of the firm or company and they cannot be made liable for the offences committed by the Managing Partner or Managing Director. There may be civil liability on their part, but they should not be presented for criminal offences. Hence, the proceedings against these petitioners are liable to be quashed.


( 14 ) AS regards the third contention, it is a question of fact whether the complainant had the knowledge about the dishonour of the cheques on 28-10-96 as contended by the petitioners or on 13-11-96 as alleged by the complainant. It is well settled that the questions of facts cannot be decided in a proceedings under Section 482 Cr. PC. hi proceedings under Section 482 Cr. PC, this Court has to confine to the facts as alleged in the complaint by the prosecution. Truth or otherwise of the allegations made by the prosecution has to be determined only by the trial Court after full trial. Hence, I do not find any force in this contention.


( 15 ) AS regards the fourth contention. raised by the learned counsel for the petitioners, as seen from the averments in the complaint, it seems that the complainant made a demand in his demand notices for the repayment of the outstanding amount due under the cheques together with interest at the rate of 24% per annum within 15 days of the receipt of the legal notice. Simply because, the complainant demanded for interest on the outstanding amount due under the cheques in the demand notices, it cannot be said that the notices are illegal or not in conformity with law. There is no ambiguity with regard to the amounts claimed in the said notices. The learned Counsel for the petitioners relied on the decision in Gopa Devi Ojha v. Surjeet Pal and another, 1995 (11) CH. 37, and the case in Sri Prasantha Aggarwal v. Sri S. K. Rai Regional Manager, Electronics and Trade Development Corporation and another, 1997 Cal Crl. LR 104. In those cases, filed under Section 138 of the Act, the complainant while issuing the demand notice in compliance of the proviso of Section 138 of the Act demanded for the cheque amount besides interest on the cheque amount. Under those circumstances, it has been held in those decisions that as the demand in the demand notice exceeded the amount due under the cheque it is not in accordance with law and the consequent nonpayment cannot give rise to cause of action in terms of proviso (c) of Section 138 of the Act and since, there was no cause of action, no complaint can be made in accordance with

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Section 142 (b) of the Act, and consequently, the complaint was quashed. I am unable to agree with the said observations in those decisions. When there is a specific demand in the demand notice for the payment of the dishonoured cheque amount together with interest thereon, it cannot be said that notice is (sic 'not') in conformity with the proviso (b) of Section 138 of the Act and it does not invalidate (sic 'invalidates') the notice. The amount claimed towards interest would be a superflous one and the drawer of the cheque could have complied with the demand for the cheque amount alone by paying the same and refusing to pay the amount towards interest claimed in the notice. I am fortified in my opinion by the decision of Madras High Court in S. Venu v. N. C. Corporation, reported in All India Criminal Reporter 1994 (2) Madras 644, wherein it is held that if some more amount than the cheque amount is claimed in the notice, that would be a superflous and it will not validate the notice. Therefore, this contention of the petitioners also fails. ( 16 ) WHILE discussing supra, the second contention raised by the learned Counsel for the petitioners, it is held by me that the petitioners who are Directors of the 1st accused-company are not liable for prosecution for the reason that there are no allegations in the complaints that these petitioners were incharge of the management of accused-company on the date of the issuance of the cheques. Hence, the proceedings initiated against these petitioners in CC No. 1095/96 and in CC No. 17/97 are liable to quashed. Accordingly, they are quashed against these petitioners only. The cases against the other accused could'be proceeded with. ( 17 ) IN the result, both the petitioners are allowed.
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