(Prayer: This Writ Petition is filed Under Articles 226 and 227 of the Constitution of India read with Section 482 of Cr.P.C., praying to call for Lower Court records in C.C.No.9809/2022 pending on the file of the Hon’ble Court of the Ld. Xxi Addl. Chief Metropolitan Magistrate at Bengaluru with respect to the petitioners.
This Writ Petition is filed under Articles 226 and 227 of the Constitution of India read with Section 482 of Cr.P.C., praying to call for Lower Court Records in C.C.No.9809/2022 pending on the file of the Hon’ble Court of the Ld. Xxi Addl. Chief Metropolitan Magistrate at Bengaluru.)
1. The petitioners are before this Court calling in question proceedings in C.C.No.9809 of 2022 pending before the XXI Additional Chief Metropolitan Magistrate at Bengaluru and consequently to quash the complaint that led to registration of Crime in the aforementioned criminal case instituted for offences punishable under Section 138 of the Negotiable Instruments Act, 1881 (‘the Act’ for short).
2. Accused No.1/1st petitioner - OMR Investments LLP (for short ‘the Firm or Company’) is a limited liability partnership firm engaged inter alia in the business of construction and development of real estate. Accused No.3/Petitioner No.2 is a partner of petitioner No.1/Firm and accused No.7/petitioner No.3 is one of the authorized signatories of petitioner No.1/Firm. The petitioners in the companion petition i.e., W.P.No.8227 of 2022 are accused Nos. 2, 5 and 6. Therefore, accused 1, 2, 3, 5, 6 and 7 are before this Court barring accused No.4. The complainant/respondent is common in both these petitions. Both these cases arise out of C.C.No.9809 of 2022 which arose out of the complaint in P.C.R.No.5711 of 2022 registered by the complainant. It is, therefore, both these cases are taken up together and considered in this order.
3. Shorn of unnecessary details, facts in brief that are germane for consideration of the lis, are as follows:
The 1st petitioner/Firm is a limited liability Company and the other petitioners are connected with the affairs of the Company in the capacity of either Directors or signatories of the partnership firm or signatories to the instruments involved in the transaction. It is the case of the complainant that a proposal was given that Embassy Company would execute a memorandum of understanding and a co-development agreement in respect of property development of an immovable property belonging to Embassy Company situated in the Special Economic Zone and a request was made to the complainant to reinvest the amounts that he would receive by sale of the aforesaid
equity shares in the project for which the complainant would become the absolute owner. It appears, that a meeting of the Board of Directors of the Embassy Company was held on 21.10.2016 and the proposal given by the Embassy Company to the complainant was discussed and the result of the discussion was execution of a share purchase agreement between the Company and the complainant regarding sale of equity shares of the complainant in M/s Mac Charles (I) Limited for the very amount that is arrived at in the share purchase agreement. The amount was received by the complainant to his account.
4. Once the amount was received from the sale of equity shares of M/s Mac Charles (I) Limited, the Embassy Company came up with the property development scheme that was evolved by the Company after the approval of the Board. A draft Memorandum of Understanding, draft construction agreement, a draft co-development agreement and a draft lease deed were all approved by the Board of Embassy Company and the said Company also represented to the complainant that the said immovable property situated in the special economic zone needed necessary approvals from the Ministry of Commerce, Government of India and further necessary approvals to co-opt the complainant as a co-developer of the said immovable property. In furtherance of this agreement, certain transactions took place between the parties and subsequently on 6-12-2016, two supplementary documents styled as loan agreements were entered into between accused No.1’s firm represented by accused Nos.2 and 3 and the complainant for a sum of Rs.490/- crores which was to be invested in the property development scheme. Accused No.2 is said to have executed a deed of guarantee in favour of the complainant guaranteeing the entire transaction and being bound by the said transaction.
5. The complainant claims that based on all the above assurances and promises given by the Embassy Company, the complainant transferred the amount afore- quoted in three installments. Since the amount was legally transferred by the complainant to accused No.1’s firm and later by the firm to the Embassy Company as Inter- Corporate Debt, accused No.2 before the promoter Director of the Embassy Company and Managing Partner of the Firm represented to the complainant that reversal or refund of the amount that the complainant had paid had to take place only through the 1st accused/Firm and the 2nd accused suggested drafting a fresh supplementary document styled as loan agreement which would be executed by the Firm favouring the complainant for refund of Rs.390/- crores and would also refund Rs.10/- crores in due course to the complainant in installments.
6. The loan agreement was executed between the Firm, the complainant and the authorized signatory accused No.7. In terms of the agreement, accused had agreed to repay the said amount with interest within 12 months and the 2nd accused also executed a fresh deed of guarantee in favour of the complainant along with post dated cheques for Rs.390/- crores favouring the complainant. The details of the post-dated cheques issued are a part of the complaint. They vary from 5-11-2021 and 31-05-2022. When time arose for presentation of these cheques and were presented, all of them were dishonoured for ‘want of sufficient funds’. The complainant took up legal proceedings by causing legal notices upon the accused, after the accused replied to the same, complainant registers a crime invoking Section 200 of the Cr.P.C. in P.C.R.No.5711 of 2022. This is the broad skeleton of transaction between the parties, as is pleaded in the complaint. Further intricate narration of details of transactions between the parties would not be necessary at this juncture, for consideration of the issues that are brought up by the accused before this Court.
7. A private complaint was registered through a Special Power of Attorney holder of the complainant as the complainant resides in Dubai and is 80 years old. The complainant was examined by the learned Magistrate on 24-03-2022 by receiving his affidavit as a sworn statement, takes note of 75 documents Exs.P1 to P75, marks them and posts the matter for orders, takes cognizance of the offence on 24-03-2022 and issues summons. It is this order of the learned Magistrate that drives the petitioners/accused to this court in both these petitions.
8. Heard the learned senior counsel Sri Sreenivasa Raghavan V., appearing for the petitioners and the learned counsel Sri Satyanand, B.S, representing the respondent.
9. The learned senior counsel would urge the following four legal contentions:
(i) The complaint itself was not maintainable as it is filed by a Power of Attorney holder who does not narrate in the complaint that he is completely aware of the facts of the case. Entertainment of such complaint filed by the Power of Attorney holder notwithstanding this fact, runs counter to the judgment of the Apex Court in the case of A.C.NARAYANAN v. STATE OF MAHARASHTRA – (2014) 11 SCC 790.
(ii) The order of the learned Magistrate taking cognizance under Section 190 of the Cr.P.C. suffers from procedural infirmity as the learned Magistrate records the sworn statement and then takes cognizance. The procedure, according to the learned senior counsel, is taking of cognizance should precede recording of sworn statement and not the other way round. It is his submission that cart cannot be put before the horse.
(iii) The post-dated cheques were not issued in furtherance of legally enforceable or recoverable debt. They were issued as security for the loan or in furtherance of the agreement.
(iv) Few of the accused are in no way connected with the transaction as one is the Chairman of the Company and two others are Directors of the Company. Barring signatories to the cheques, none can be proceeded against in terms of law.
He would contend that without entering into facts of the case at hand, these four legal submissions would be enough for this Court to quash the entire proceedings, lock-stock and barrel. The aforesaid submissions are his sheet anchor.
10. On the other hand, Sri B.S. Satyanand representing the respondent/complainant urges the following contentions:
(i) That the Power of Attorney clearly narrates the circumstances of its execution. There was no infirmity in such execution. The complaint narrates about the execution of the Power of Attorney and the Power of Attorney itself was a document appended to the complaint. Therefore, the contention of the learned senior counsel is contrary to the facts.
(ii) The cheques were issued not as security but as repayment or refund in installments as was agreed in the loan agreement. Even if they are issued as security it would attract Section 138 of the Act.
(iii) The order of the learned Magistrate recording sworn statement and then taking cognizance though has happened on the same day, at best, can be an irregularity which would not vitiate the proceedings.
(iv) The Directors or the signatories of the cheques which concern the transaction cannot feign ignorance as it is a transaction of close to Rs.400/- crores in favour of the complainant and submits that it is a matter for trial as there would be seriously disputed questions of fact.
11. I have given my anxious consideration to the submissions made by the respective learned counsel appearing for the parties and in furtherance whereof, the following issues would arise for my consideration:
(i) Whether the complaint filed by the special Power of Attorney holder of the complainant was maintainable in the teeth of the facts in the case at hand?
(ii) Whether the order taking cognizance is vitiated on account of it not being preceded with recording of sworn statement?
(iii) Whether the cheques issued as security as contended would come within the ambit of Section 138 of the Act?
(iv) Whether the Chairman or Directors of the Company can be hauled into these proceedings involved in a transaction of mammoth proportion?
(i) Whether the complaint filed by the special Power of Attorney holder of the complainant was maintainable in the teeth of the facts in the case at hand?
12. To consider the issue whether the complaint was maintainable at the hands of a Power of Attorney holder qua the contentions of the learned senior counsel that it did not contain the narration that he was completely aware of the facts, it is necessary to notice the Power of Attorney and the preamble to the complaint. The Power of Attorney executed by the complainant on 23rd February, 2022 reads as follows:
“BY THIS SPECIAL POWER OF ATTORNEY Pardhanani Chatrabhuj Bassarmal, aged about 80 years, Son of late Bassarmal Hotchand Pardhanani, residing at Flat No.1505, Al Mas Towers, Dubai, Marina, Post Box 5418, Dubai, U.A.E. Passport No.Z3580834 valid up to 14-02-2026 DO HEREBY APPOINT AND NOMINATE Shri M.S Sahadeva Reddy, Aged about 67 years Son of late M.Basi Reddy, residing at No.185, Amar Jyothi Layout, 5th Main, Domlur, Inner Ring Road, Bengaluru-560071 Aadhar No.9327 3980 9427 AS MY LAWFUL SPECIAL POWER OF ATTORNEY to do and execute the following acts and deeds on my behalf, which act of his will be duly ratified by me.
1. WHEREAS certain disputes have arisen between me and Embassy Property Development Pvt.Ltd., OMR Investments LLP and the Promoter/Director cum-Guarantor, Mr. Jitendra Virwani, the Partners and authorize signatories of OMR Investments LLP and the Senior Management personnel of Embassy Group, in view of their failure to discharge their liabilities and contractual obligations as they defaulted in the terms of the Memorandum of Understanding (MoU) and various Agreements entered into with them due to their failure and defaults in discharging contractual obligations including payment of cheques issued by them towards loan payments and interest due.
2. WHEREAS I am a resident in Dubai, aged over 80 years old and I will not be in a position to initiate proceedings against the said parties namely Embassy Property Developments Pvt.Ltd. and its sister concern namely OMR Investments LLP and its Promoter/Director cum Guarantor Mr. Vijendra Virwani who has given personal guarantee and its Partners/Directors, Assignees, Authorised Signatories, Legal Representatives, etc. in respect of their failures and defaults in discharging their contractual commitments/liabilities.
3. WHEREAS my Attorney Shri M.Sahadeva Reddy has been associated with me for the past 35 years, he is also well aware of my transactions with Embassy Property Developments Pvt.Ltd., OMR Investments LLP and others. He is also witness to the MoU and various agreements entered into between myself and Embassy Property Developments Pvt.Ltd. and its sister concern namely OMR Investments LLP.
4. BY THIS SPECIAL POWER OF ATTORNEY, I do hereby appoint my Attorney Sri M.Sahadeva Reddy as my Attorney to do the following acts and deeds.
a. To initiate proceedings both civil and criminal against the said Embassy Property Development Pvt.Ltd., OMR Investments LLP or its Promoters, Partners/ Directors, Guarantors, Successors, Assignees, Legal Representatives etc. either by way of lodging a complaint before the jurisdiction police or by filing a private complaint before the Hon’ble Magistrate or by any other means deemed fit by my attorney.
b. To initiate proceedings and appear and act in my name and on my behalf in all Civil, Criminal, Arbitration Tribunals, National Company Law Tribunal (NCLT), NCLAT, Income Tax Tribunals or Appellant Courts or Tribunals or any other office of Government or Statutory Authority.
c. To lodge a complaint before the Income Tax Authorities and/or any Government Departments against the above said parties.
d. To engage the services of any Advocate/s/Arbitrator/s to deal with regard to any matter relating to my cases and accounts pertaining to the above-mentioned transacti9ons and/or to terminate the services of such advocate/s.
e. To sign and verify Plaint/s, Written statement/s, Petition/s, Application/s, requisition/s, Claim/s, Affidavit/s, Declaration/s, Complaint/s, Objection/s, Memorandum of Appeal/s etc. of all kinds and submit the same in such Court, Tribunal Statutory or quasi judicial body or authority and also enforce specific performance of the said agreements, contracts, etc.
f. To settle, adjust compound, compromise or submit to Arbitration all action/s, suit/s, account/s, claim/s and dispute/s between me and other person/s in respect of or pertaining to the legal proceedings after taking my approval in writing.
g. TO GENERALLY do, execute, perform any other act or acts, deed or deeds, matter and things whatsoever which in the opinion of my Attorney ought to be done, executed performed in relation to the schedule property as fully and effectually as if the principal was to be personally present.”
This Power of Attorney was appended to the complaint at the time of its presentation before the learned Magistrate. The 2nd paragraph of the complaint narrates the fact of execution of the Power of Attorney and reads as follows:
“2. That the complainant being a permanent resident of Dubai, he is not in a position to attend to the Court proceedings, as such, he has executed a Special Power of Attorney dated 22-02-2022 and sworn to before the Vice-Counsel, Consulate General of India, Dubai, UAE on 22-02-2022, in favour of his Attorney named in the cause title to this complaint. Document No.1 is the copy of the said Special Power of Attorney. The accused No.1 is a Limited Liability Partnership duly registered under the Companies Act, 2013, and accused Nos. 2 to 6 are its partners and the 7th Accused is an Authorised Signatory of the 1st Accused firm. The Accused Nos. 2 to 7, are in charge of the day-to-day affairs of the 1st Accused firm and are also responsible for the conduct of the business of the 1st Accused firm where the offence was committed by it. Further the offence is committed by the Firm with the knowledge, consent and connivance of the Accused Nos. 2 to 7 and the same is attributed to them as there was a complete neglect on their part while allowing the 1st Accused Partnership Firm to commit the offence under Section 138 of the NI Act. All the Accused persons jointly with the knowledge of each other have signed the documents in respect of the present transaction that is complained of by the complainant in this complaint.”
Document No.1 that is appended to the complaint is the Power of Attorney. A reading of the Power of Attorney in tandem with the second paragraph of the complaint (supra) would clearly indicate that the Power of Attorney holder was aware of the transaction and was fully conscious of what he was deposing and to what he is required to represent. Since the entire Power of Attorney was appended to the complaint and the complaint did mention that the Power of Attorney itself was appended, it is deemed to be treated as part and parcel of the complaint. Therefore, the contention of the learned senior counsel that the complaint itself was not maintainable, holds no water. The learned senior counsel places reliance upon the judgment in the case of A.C.NARAYANAN (supra) to contend that the complaint is in utter violation of the dictum of the Apex Court and has to be obliterated is unacceptable for the observations made hereinabove that the complaint did contain all the necessary ingredients for its maintainability. The judgment in the case of A.C.NARAYANAN is subsequently considered by a Bench of equal strength in the case of M/s TRL KROSAKI REFRACTORIES LIMITED v. M/s SMS ASIA PRIVATE LIMITED (2022 SCC OnLine SC 217). The Three Judge Bench after considering the earlier Three Judge Bench in the case of A.C.NARAYANAN has held as follows:
“13. A cumulative perusal of the facts of the instant case would indicate that the requirement as indicated in A.C. Narayanan, (supra) are in fact satisfied. Firstly, as noted above, the complaint was filed in the name of the company i.e., “the payee”, through Mr. Subhasis Kumar Das, General Manager (Accounting). The authorisation dated 23.05.2015 by the Managing Director in his favour (Annexure P- 17) discloses that Mr. Priyabrata Panda, Managing Director of the appellant company had authorised Mr. Subhasis Kumar Das, General Manager (Accounting) to institute criminal proceedings, including proceedings under the provisions of the N.I. Act and civil proceedings on behalf of the company against M/s. SMS Asia Private Limited (respondent), to represent the company and take all necessary actions in the matter in learned SDJM's Court. The specimen signature of Mr. Subhasis Kumar Das has also been attested by the Managing Director. The Managing Director apart from himself being the key managerial personnel of the appellant company, has also been delegated the power by the Board of Directors through the document dated 06.04.1998 (Annexure P-16). Through the said document the Managing Director has been delegated, in general, all powers necessary for the management and operation of the company and it has been specified among others, to exercise the power relating to important issues affecting the company's land and property. Through the said document, the Managing Director is also empowered to delegate where necessary and to the extent required, any of the powers delegated to him, to his subordinate officers. The above noted documents would disclose that the complaint under Section 138 NI Act was filed on behalf of the “payee” company with due authorisation.
14. The next aspect on which the High Court has interfered is on accepting the contention that there is no averment in the complaint as to whether the General Manager (Accounting) had any knowledge about the transaction or he was a witness to the transaction. On the said aspect it is noted that the transaction between the parties is based on the agreement dated 18.07.2014 (Annexure P-1). The said document depicts, below the signature of the executives representing the appellant and the respondent company, a witness each from either side have appended their signatures. The witness on behalf of the appellant company is none other than Mr. Subhasis Kumar Das who was at that point in time, designated as General Manager (Commercial). Further, the document for reconciliation of account spanning the period from 01.04.2011 to 30.09.2014, as carried out on 28.10.2014, depicts that the same was attested by the representatives of both the companies. The appellant company is represented by Mr. Subhasis Kumar Das. That apart, when the cheques were dishonoured, it was Mr. Subhasis Kumar Das, General Manager (Accounting) who had issued the notices (Annexure P-11, 12-13) on behalf of the appellant company, to the respondent company. The said documents would indicate that the person who had knowledge of the transaction and was witness to it, has been authorized and has instituted the complaint on behalf of the company.
… … … …
19. Despite our conclusion that the documents available on record would on facts satisfy the requirement relating to delegation of power and also knowledge of the transaction by the person representing the Company in the instant case, it is also necessary for us to keep in perspective that though the case in A.C. Narayanan (supra) has taken the center stage of consideration, the facts involved therein were in the background of the complainant being an individual and the complaint filed was based on the power of attorney issued by the “payee” who was also an individual. In such an event, the manner in which the power was being exercised was to be explicitly stated so as to establish the right of the person prosecuting the complaint, to represent the payee i.e., the complainant. The position that would emerge when the complainant is a company or a corporate entity will have to be viewed from a different standpoint. In this regard in Samrat Shipping Co. Pvt. Ltd. v. Dolly George (2002) 9 SCC 455, while disapproving the manner in which cognizance was refused to be taken and the complaint had been dismissed by the learned Magistrate at the threshold, this Court has held as hereunder:
“3. Having heard both sides we find it difficult to support the orders challenged before us. A company can file a complaint only through human agency. The person who presented the complaint on behalf of the Company claimed that he is the authorized representative of the company. Prima-facie, the trial court should have accepted it at the time when a complaint was presented. If it is a matter of evidence when the accused disputed the authority of the said individual to present the complaint, opportunity should have been given to the complainant to prove the same, but that opportunity need be given only when the trial commences. The dismissal of the complaint at the threshold on the premise that the individual has not produced certified copy of the resolution appears to be too hasty an action. We, therefore, set aside the impugned orders and direct the trial court to proceed with the trial and dispose of it in accordance with law. Parties are directed to appear before the trial court on 31.1.2000.”
In the light of subsequent Three Judge Bench decision, considering the case of A.C.NARAYANAN and observing as afore-quoted, the first sheet anchor of the learned senior counsel is rendered unacceptable, as the complaint does satisfy the requirements of A.C.NARAYANAN as considered in TRL KROSAKI REFRACTORIES LIMITED. I hold the first issue against the petitioners to the effect that the complaint did narrate what is noted to be narrated and accordingly the complaint was maintainable.
(ii) Whether the order taking cognizance is vitiated on account of it not being preceded with recording of sworn statement?
13. The learned Magistrate accepts the sworn statement of the complainant through the affidavit and that through his counsel. This was considered to be examination of PW-1 and looks at Exs.P1 to P75, marks them and passes order on the same day, as afore-quoted, taking cognizance and issuing summons. The issue now is whether the sworn statement first being taken, then cognizance and issuing summons would amount to putting the cart before the horse and resultantly vitiating the entire proceedings on account of such procedural irregularity. The learned senior counsel has placed reliance upon judgment of this Court in the case of D.P.SHARMA v. C.R.GOWDA (1982 SCC OnLine Kar 270) to contend that if the order taking cognizance is preceded by recording of sworn statement, it is an incurable procedural irregularity. The Division Bench has held as follows:
“7. The expression “taking cognizance” has not been defined in the Code of Criminal Procedure. In its broad and literal sense, it means “taking notice of an offence” and would include the intention of initiating judicial proceedings against the offender in respect of that offence or takings steps to see whether there is any basis for initiating judicial proceedings or for other purposes. Before it can be said that any Magistrate has taken cognizance of any offence under Section 190 Cr. P.C. he must have applied his mind to the offence for the purpose of proceeding in a particular way as indicated in the subsequent provisions of Chapter-XIV. When the Magistrate applies his mind not for the above purpose but for taking action of some other kind e.g., ordering investigation under Section 156(3) or issuing a search warrant for the purpose of the investigation he cannot be said to have taken cognizance of the offence, (vide A.I.R. 1951 S.C. 207). Before a Magistrate can be said to have taken cognizance of an offence, he must have not only applied his mind to the contents of the complaint or the police report or the information presented before him, but must have done so for the purpose of proceeding under the provisions subsequent to Section 190 for bringing the offender to trial. Obviously, it is only when a Magistrate applies his mind for the purpose of proceeding under Section 200 and subsequent sections of Chapter XV of the Code or under Section 204 of Chapter XVI of the Code that it can be positively stated that he has applied his mind and, therefore, has taken cognizance. Cognizance, therefore, takes place at a point when a Magistrate first takes judicial notice of an offence. Cognizance of an offence is a step towards the exercise of jurisdiction.
8. Section 200 Cr. P.C. reads:
200. Examination of complainant.—A Magistrate taking cognizance of an offence on complaint shall examine upon oath the complainant and the witnesses present, if any, and substance of such examination shall be reduced to writing and shall be signed by the complainant and the witnesses, and also by the “Magistrate:”
(underlined by us)
9. Therefore, taking cognizance of an offenee must precede examination upon oath of the complainant. Therefore, examination of the complainant on oath without taking cognizance of an offence would definitely render the subsequent proceedings invalid”.
He would place reliance upon judgment rendered by another Co-ordinate Bench of this Court in the case of K.S. MALLIKARJUNA PRASANNA v. LEO EARTH MOVERS –ILR 1998 KAR 2605 which is to the same effect. Though the aforesaid judgments rendered by Division Bench and that of a Co-ordinate Bench do notice the fact that this procedural infirmity would cut at the root of the matter and vitiate the entire proceedings, the same do not consider the purport of Section 460 of the Cr.P.C. Section 460 of the Cr.P.C. reads as follows:
“460. Irregularities which do not vitiate proceedings.—If any Magistrate not empowered by law to do any of the following things, namely:—
(a) to issue a search-warrant under section 94;
(b) to order, under section 155, the police to investigate an offence;
(c) to hold an inquest under section 176;
(d) to issue process under section 187, for the apprehension of a person within his local jurisdiction who has committed an offence outside the limits of such jurisdiction;
(e) to take cognizance of an offence under clause (a) or clause (b) of sub-section (1) of section 190;
(f) to make over a case under sub-section (2) of section 192;
(g) to tender a pardon under section 306;
(h) to recall a case and try it himself under section 410; or
(i) to sell property under section 458 or section 459,
erroneously in good faith does that thing, his proceedings shall not be set aside merely on the ground of his not being so empowered.”
Except jurisdictional issues, Section 460 of the Cr.P.C. renders infirmities curable, as the section deals with irregularities which do not vitiate proceedings and irregularities which vitiate proceedings. Clause (e) of Section 460 deals with taking of cognizance under clause (a) or clause (b) of Sub-section (1) of Section 190 under which cognizance is taken and summons is issued in the case at hand. The effect of Section 460 is considered by the Three Judge Bench of the Apex Court in the case of PRADEEP S. WODEYAR v. STATE OF KARNATAKA (2021 SCC OnLine SC 1140) in which clause (e) of Section 460 is considered and held that such irregularities would not vitiate the proceedings. The Three Judge Bench of the Apex Court has held as follows:
“C.2 Special Court's power to take cognizance
25. The counsel for the appellant contended that the Special Court (which is a Sessions Court) is not empowered to take cognizance of offences without the case being committed to it, in view of Section 193 CrPC. Since the Magistrate did not commit the case to the Special Court before it took cognizance of the offences in the instant case, it has been contended that the order taking cognizance is vitiated. As stated in the earlier section of the judgment, Section 193 is subject to two exceptions- (a) provisions to the contrary under the CrPC; (b) provisions to the contrary under any other law.
26. Reference was made to Section 36A(1)(d) of the National Drugs and Psychotropic Substances Act 198512, Section 5 of the Prevention of Corruption Act 198813 and Section 16(1) of the National Investigation Agency Act 200814 which specifically empower the Special Court to take cognizance of offences without the accused being committed to it for trial. It was contended that since neither the Code nor the statute specifically empower the Special Court to take cognizance of the offence without committal, the exercise of power by the Special Court to take cognizance is without jurisdiction.
27. Before we address the merits of this contention, we find it imperative to refer to the judgments of this Court on the interpretation of Section 193 CrPC. The decision of a two judge Bench in Gangula Ashok v. State of AP15 arose out of a complaint lodged under the Schedule Castes and the Scheduled Tribes (Prevention of Atrocities) Act 198916 against the appellants. The police filed a charge-sheet upon investigation directly before the Sessions Court. The Sessions Court is designated as a Special Court for trial of offences under the Act. Charges were framed by the Special Judge. The High Court was moved for quashing the charges and the charge-sheet. The Single Judge held that the Special Judge had no jurisdiction to take cognizance of the offence under the Act without the case being committed to it and accordingly set aside the proceedings. The High Court directed the charge-sheet and connected papers to be returned to the police officer who was directed to present it before the JMFC for the purpose of committal and the Special Court was directed on committal to frame appropriate charges. The order of the High Court was questioned in appeal before this Court. The first issue which arose was whether the Special Judge could have taken cognizance ‘straightway without the case being committed’ by the Magistrate. The Special Court under the SC and ST Act was a Court of Sessions, having regard to Section 14 of the Act. After setting out the provision of Section 1417, Justice KT Thomas observed that the Special Court under the Act was constituted only for the ‘speedy trial’ of offences which is different from an ‘inquiry’. In this context, it was observed:
“8…So it is for trial of the offences under the Act that a particular Court of Session in each district is sought to be specified as a Special Court. Though the word “trial” is not defined either in the Code or in the Act it is clearly distinguishable from inquiry. The word “inquiry” is defined in Section 2(g) of the Code as “every inquiry, other than a trial, conducted under this Code by a Magistrate or court”. So the trial is distinct from inquiry and inquiry must always be a forerunner to the trial. The Act contemplates only the trial to be conducted by the Special Court. The added reason for specifying a Court of Session as a Special Court is to ensure speed for such trial. “Special Court” is defined in the Act as “a Court of Session specified as a Special Court in Section 14” [vide Section 2(1)(d)].”
28. After analyzing the provision of Sections 4(2) and 193 of the CrPC this Court observed that there is no express provision by which the Special Court can take cognizance of the offence without committal; nor can this be inferred. It was further observed that since the Sessions Court is placed higher in the hierarchical court structure, the legislature intentionally relieved it from performing preliminary formalities:
“10 [..] The word “expressly” which is employed in Section 193 denoting those exceptions is indicative of the legislative mandate that a Court of Session can depart from the interdict contained in the section only if it is provided differently in clear and unambiguous terms. In other words, unless it is positively and specifically provided differently no Court of Session can take cognizance of any offence directly, without the case being committed to it by a Magistrate.
11. Neither in the Code nor in the Act is there any provision whatsoever, not even by implication, that the specified Court of Session (Special Court) can take cognizance of the offence under the Act as a court of original jurisdiction without the case being committed to it by a Magistrate. If that be so, there is no reason to think that the charge-sheet or a complaint can straight away be filed before such Special Court for offences under the Act. It can be discerned from the hierarchical settings of criminal courts that the Court of Session is given a superior and special status. Hence we think that the legislature would have thoughtfully relieved the Court of Session from the work of performing all the preliminary formalities which Magistrates have to do until the case is committed to the Court of Session.”
29. Consequently, it was held that a Special Court under the SC and ST Act is essentially a court of Sessions and it cannot take cognizance of the offence without the case being committed to it by the Magistrate in accordance with the provisions of the CrPC. In other words, the complaint or a chargesheet could not straightway be laid down before the Special Court. In this backdrop, this Court upheld the view of the High Court setting aside the proceedings initiated by the Special Court.
30. In State of MP v. Bhooraji18, the appellant was convicted inter alia of an offence punishable under Section 302/149 of the IPC read with Section 3(2) of the SC and ST Act. Since the charge sheet was filed under Section 3(2) of the SC and St Act together with offences under the IPC, the appellants were tried by a Special Judge constituted under the SC and ST Act. The appellant was convicted. An appeal was filed before the High Court against the conviction. During the pendency of the appeal, this Court decided Gangula Ashok (supra). An interlocutory application was filed by the appellants seeking the trial proceedings to be quashed since the Special Court took cognizance without the case being committed to it by the Magistrate. The High Court allowed the application and directed the charge sheet and connected papers to be returned to the police who were directed to present it before the Magistrate for the purpose of committal. In appeal, this Court referred to Section 465(1) of the Code which states that no finding shall be reversed on account of irregularity unless there is a failure of justice. The Bench compared the provision on committal to the Sessions Court by the Magistrate19, before and after the enactment of the Code of 1973. Before 1973, the committal Court could examine witnesses and records before deciding to commit the case to the Court of Sessions. However, after 1973, the only examination that the Magistrate has to undertake for the exercise of the committal power is to determine whether the case is exclusively triable by the Court of Sessions. Highlighting the change in the role of the committing court after 1973, the Bench observed that the accused would achieve no ‘advantage’ by sending the case back to the Magistrate for committal:
“18. It is apposite to remember that during the period prior to the Code of Criminal Procedure, 1973, the committal court, in police charge-sheeted cases, could examine material witnesses, and such records also had to be sent over to the Court of Session along with the committal order. But after 1973, the committal court, in police charge-sheeted cases, cannot examine any witness at all. The Magistrate in such cases has only to commit the cases involving offences exclusively triable by the Court of Session. Perhaps it would have been possible for an accused to raise a contention before 1973 that skipping committal proceedings had deprived him of the opportunity to cross-examine witnesses in the committal court and that had caused prejudice to his defence. But even that is not available to an accused after 1973 in cases charge-sheeted by the police. We repeatedly asked the learned counsel for the accused to tell us what advantage the accused would secure if the case is sent back to the Magistrate's Court merely for the purpose of retransmission of the records to the Sessions Court through a committal order. We did not get any satisfactory answer to the above query put to the counsel.
31. A contention was also raised on the ground that Section 465 would only be applicable where the order has been passed by a ‘court of competent jurisdiction’, and that the Court of Sessions is not a competent court before the case is committed to it. Rejecting this argument, it was observed that the phrase “court of competent jurisdiction” denotes a validly constituted court conferred with the jurisdiction to try the offence and an irregularity in the procedure would not denude the competence of the court. The Bench further distinguished the decision in Gangula Ashok (supra) on the ground that there the trial was yet to begin as opposed to this case where the challenge was after the accused was convicted. On these reasons, the appeal was allowed.
32. In Moly v. State of Kerala20 and Vidyadharan v. State of Kerala21, the accused was convicted under the SC and ST Act and provisions of the IPC. The appeal against the conviction was dismissed by the Kerala High Court. Before this Court, it was contended that the Sessions Court could not have taken cognizance without committal by the Magistrate. Relying on Gangula Ashok (supra), it was held that the Court of Sessions could not have taken cognizance and the order of conviction was set aside.
33. In Rattiram v. State of Madhya Pradesh22, a three judge Bench of this Court dealt with a divergence of views, in Moly (supra) and Vidhyadharan (supra) on one hand, and Bhooraji (supra) on the another, on the effect of not committing an accused in terms of Section 193 of the CrPC, in cases where a chargesheet is filed under the SC and ST Act and cognizance is directly taken by the Special Judge. Justice Dipak Misra (as the learned Chief Justice then was) delivered the judgment of the three judge Bench to resolve the conflict of opinions. The Court was to decide on the issue of whether the cognizance order passed by the Special Court without committal of proceedings could be held to vitiate the proceedings after the trial is completed:
“14. The demonstrable facet of the discord is that if cognizance is directly taken by the Special Judge under the Act and an accused without assailing the same at the inception allows the trial to continue and invites a judgment of conviction, would he be permitted in law to question the same and seek quashment of the conviction on the bedrock that the trial Judge had no jurisdiction or authority to take cognizance without the case being committed to it and thereby violated the mandate enshrined under Section 193 of the Code.”
34. The Bench answered the question in the negative by holding that the trial will not be vitiated due to an irregularity in the cognizance order for the following reasons:
(i) Section 207 and Section 207A of the Code of 1898 enunciated an exhaustive procedure which was to be followed by the Magistrate before committing the case to the Court of Sessions. The CrPC of 1973 made a departure from the provisions of the erstwhile Code of 1898 under which “the accused enjoyed a substantial right prior to committal of the case” which is “indeed a vital stage”. In marked contrast, under the CrPC of 1973 the Magistrate “is only required to see whether the offences are exclusively triable by the Court of Sessions”. Noticing the clear distinction between the earlier Code of 1898 and the CrPC of 1973, the Court held that “there is sea of difference” between the two provisions and there was nothing in Section 209 of the CrPC of 1973 which would even remotely suggest that the protections as provided under the old Code have been telescoped to the existing one”. In this backdrop, the Court held that in view of the restricted role of the Magistrate in committal proceedings, absence of committal would not lead to a failure of justice;
(ii) A criminal proceeding must endeavor to conform to the principles of a ‘speedy trial’ and ‘protection of the victim of the crime’. Since the objection was not raised at the time of framing of charges but only after the conviction, the failure of justice must be proved to be overbearing compared to the right of the victim and right of speedy trial which was not proved in this case;
(iii) Moly (supra) and Vidhyadharan (supra) are per incuriam. Bhooraji (supra) has been correctly decided; and
(iv) In Gangula Ashok (supra), the trial had not commenced as compared to the other cases where the trial had completed and the accused were convicted. The accused did not wait for the trial to commence before challenging the cognizance order.
35. It may be noted that Section 14 of the SC and ST Act has been substituted by Act 1 of 2016 with effect from 26 January 2016. The proviso to Section 14(1), following the amendment, stipulates that the Special Court shall have the power to directly take cognizance of offences under the Act. Recently, a Division Bench of this Court in Shantaben Bhurabhai Bhuriya v. Anand Athabhai Chaudhari23 interpreted the proviso to Section 14 of the SC and ST Act. In that case, FIR was filed for offences punishable under the SC/ST Act and provisions of the Penal Code. The Judicial Magistrate took cognizance of the offences and issued process under Section 204 and then committed the case to the Special Court. An application was filed before the High Court seeking to quash the FIR and summons order. It was contended that in view of the proviso to Section 14 of the SC and ST Act, the Magistrate had no power to take cognizance of offences under the Act. The High Court allowed the application and quashed the proceedings on the ground that the proviso to Section 14 ousts the jurisdiction of the Magistrate to take cognizance. On appeal, a two judge bench of this Court set aside the judgment of the High Court by holding that the proviso to Section 14 of the SC and ST Act does not oust the power of the Magistrate to take cognizance, but it provides the power to take cognizance to the Special Court in addition to the Magistrate,. While reversing the judgment of the High Court, Justice M R Shah, speaking for the two judge Bench, observed:
(i) Section 14 does not take away the jurisdiction of the Magistrate to take cognizance and commit the case to the Special Court for trial. The words used in amended Section 14 are “Court so established or specified shall have power to directly take cognizance of the offences under this Court”. The word, ‘only’ is missing; and
(ii) In view of the provisions of Section 460 CrPC, the act of the Magistrate in taking cognizance could at the highest be held to be irregular and would not vitiate the proceedings.
42. Chapter XXXV of the CrPC is titled Irregular Proceedings”. Section 46026 on the one hand provides for those irregularities if any, on the part of a Magistrate which do not vitiate proceedings. Section 46127, on the other hand, contains a list of proceedings by the Magistrate who is not empowered by law in this behalf, which would vitiate the proceedings. Clause (e) of Section 460 relates to the taking of cognizance of an offence under clause (a) or clause (b) of sub- section (1) of Section 190 CrPC. Clause (a) of section 190(1) refers to the receipt of a complaint of facts constituting an offence and clause (b) refers to a police report of the facts. Consequently, where a Magistrate who is not empowered by law takes cognizance of an offence either under clause (a) or clause (b) of Section 190(1) erroneously though in good faith, the proceedings will not be set aside merely on the ground that the Magistrate was not so empowered. In other words, for vitiating the proceedings, something more than a mere lack of authority has to be established. Clause (k) of Section 461 adverts to a situation where a Magistrate who is not empowered takes cognizance of an offence under clause (c) of Section 190(1). Section 190(1)(c) empowers the Magistrate to take cognizance upon information received from a person other than a police officer or upon his own knowledge. The taking of cognizance under Section 190(1)(c) by a Magistrate who is not empowered, renders the proceedings void.”
Even otherwise, a Co-ordinate Bench of this Court, considering the very argument whether recording of sworn statement and then taking cognizance would vitiate the proceedings, has clearly held that it would not, in the case of SRI SATHYA SAI CENTRAL TRUST v. STATE OF KARNATAKA (Criminal Petition No.1422 of 2021 and connected cases decided on 22nd July 2021). The issue before the Co-ordinate Bench was as follows:
“33. Now in a situation like this, is it possible to say that the Magistrate did take cognizance, is the actual question, which is purely procedural. It requires interpretation of sections 200 to 204 of Cr.P.C. But before answering this question, it is necessary to mention here the answers given by Sri. K.G.Raghavan and Sri. Raghavendra Srivatsa to a clarification sought by me. The question put to them was, if in the context of language of Section 200 Cr.P.C., because of the presence of the word “taking”, a present participle, can it be said that the stage of taking cognizance precedes the recording of sworn statement. Sri. K.G.Raghavan replied that grammatical or literal interpretation is not permitted in criminal cases, that it is permitted only while interpreting fiscal laws and that what is required is contextual interpretation.”
The Court answers it as follows:
“54. Section 200 contains an expression, “A Magistrate taking cognizance of an offence....” If this expression is slightly modified to read it as, ‘A Magistrate having taken cognizance’, the language in section 200 can be interpreted. The word ‘taking’ is a present participle which denotes an action in progress or action not completed. On the contrary, the words ‘having taken’, a perfect participle, denote a completed action. If a question is put as to which action is in progress, the answer would obviously be the process of taking cognizance. Because the words ‘having taken’ are not used in Section 200, it is not possible to say that the stage of taking cognizance should precede examination of the complainant on oath. However, the same interpretation cannot be given to section 204. Sub section (1) of section 204, reads:“If in the opinion of Magistrate taking cognizance......”. The word “taking” though is a present participle, it does not convey the meaning that action is in progress. The reason is quite obvious. Section 204 deals with issuance of process to the accused, which stage arises only after taking cognizance. Since process cannot be issued unless cognizance is taken, the word ‘taking’ here takes the meaning action completed given a contextual interpretation.
55. Based on the above discussion, the cognizance taking procedure to be followed may be set out as follows :-
(i) After presentation of the complaint, the Magistrate must read the complaint and if he finds on the face of it, commission of an offence or offences is not disclosed, he can reject or dismiss the complaint. But the Magistrate must be slow in rejecting the complaint just on reading it because if the complaint is not properly articulated, rejection of complaint may result in causing injustice to the complainant. It is also possible that intelligent drafting may give an impression that an offence has taken place, which may not be true sometimes. Therefore it is better to examine the complainant and the witnesses if necessary.
(ii) If after reading the complaint and examining the witness (if they are present and their examination is necessary) under section 200 Cr.P.C. the Magistrate arrives at conclusion that there are sufficient grounds to proceed further, he shall take cognizance of the offence and issue process to the accused.
(iii) Even after following the procedure set out in section 200, if the Magistrate is not convinced about existence of sufficient materials to take cognizance, he may resort to hold an inquiry himself or direct investigation as contemplated under section 202.
(iv) If the Magistrate does not prima facie find materials as to constitution of any offence after examining the complainant and witnesses (if any), he can dismiss the complaint in accordance with section 203.
(v) Resorting to procedure contemplated under section 202 is not always mandatory, it may be resorted to only in the circumstances stated in section 202. That means, cognizance may be taken or the complaint may be rejected depending upon the situation even after the stage of section 200.
(vi) It is not necessary that a Magistrate must endorse ”cognizance taken” in the order sheet, but what is required is application of mind and it must be depicted in a brief order. Decision as to issuing process to the accused itself amounts to cognizance being taken.
(vii) Whenever investigating police officer files ‘B’ report, and the complainant wants to contest the ‘B’ report, the Magistrate has to follow the same procedure set out above.”
A little earlier to the afore-quoted judgment of the Co- ordinate Bench, another Co-ordinate Bench in the case of SHIVARAJ v. STATE OF KARNATAKA (Criminal Petition No.101164 of 2018 decided on 26-04-2019) has held as follows:
“15. Now the question before this Court is whether the Magistrate has to take the cognizance before posting the matter for recording the sworn statement or not and if cognizance is taken after recording the sworn statement whether it vitiates the proceedings or it is only an irregularity.
16. In the case on hand, it has to be noted that the private complaint is filed and when the complaint is filed, the learned Magistrate did not take cognizance under Section 190(a) perusing the complaint instead of also not examined the witnesses under Section 200 of Cr.P.C. but invoked Section 202 of Cr.P.C. referring the matter to the Investigating Officer under Section 156(3) of Cr.P.C. It has to be noted that Section 202 of Cr.P.C. is clear that if the offence is triable by the Sessions, there is bar to refer the matter directing the Investigating Officer to enquire into the matter and it is specific that provided that no such direction for investigation shall be made whether it appears to the Magistrate that the offence complained of is triable exclusively by the Court of Sessions. In the case on hand, the offence under Section 364 is invoked and the same is triable by the Sessions Court and there is a bar under the statute and this question has been raised before the Supreme Court whether there is a bar the Court can refer the matter to the Investigating Officer and in the judgment of the Apex Court reported in AIR 1976 SC 1672 between Devarapalli Lakshminarayana Reddy and Others Vs Narayana Reddy and Others held that referring Section 202(1) of Cr.P.C. complaint disclosing offences exclusively triable by Sessions Court – Power of Magistrate to send complaint to police for investigation under Section 156(3) – proviso does not debar Magistrate. The Apex Court held that the proviso does not debar Magistrate and hence the Apex Court held that it can be referred also under Section 156(3) Cr.P.C. even if the offence is triable by the Sessions.
17. Now, let me consider the issue with regard to the taking of cognizance of an offence and it has to be noted that the word taking of cognizance is not defined in the Court but the meaning with regard to the expression taking cognizance of an offence can be said to be taken when the Magistrate applies his mind for proceedings under Section 200 of Cr.P.C. and the same is also reiterated in the very same judgment reported in AIR 1976 SC 1672 and the same also reiterated by the Apex Court in the judgment reported in AIR 1996 SC 204 between Anil Saran Vs State of Bihar and Another, that the word cognizance has not been defined but it is settled law that the Court takes cognizance of the offence and not an offender. Hence, it is clear that taking of cognizance of the offence and not the offender.
18. The main contention of the petitioner that while issuing the process the Magistrate has taken the cognizance i.e. after recording of sworn statement of PWs.1 to 3. In the case on hand, it has to be noted that the Magistrate did not invoke Section 200 to take the cognizance immediately after filing of the complaint under Section 190(a) and in-stead of invoked Section 202 to refer the matter to the investigating officer and the Investigating officer has filed the ‘B’ report. When the ‘B’ report is filed, an opportunity is given to the complainant to file the objections, it has to be noted that the criminal procedure code does not define anything about the filing of the protest petition when the ‘B’ report is filed but the same is recognized by the Apex Court in the judgment reported in (1985) 2 SCC 537 between Bhagwant Singh Vs Commissioner of Police, and held that filing of protest petition is permissible and hence, the Magistrate has given an opportunity to file the protest petition against the ‘B’ report.
19. Now the question before this Court is whether the Court below has taken the cognizance before proceeding to record the sworn statement and the counsel in one breath contend that no cognizance is taken before proceeding to record the sworn statement of witnesses and in another breath contends that there cannot be two stage for taking cognizance twice i.e. before recording sworn statement and after recording sworn statement. It is settled law that cognizance has to be taken based on the contents of the complaint before recording the sworn statement of witnesses. The counsel appearing for the petitioner also relied upon the judgment reported in ILR 1998 Karnataka 2605 between K.S.Mallikarjuna Prasanna Vs Leo Earth Movers, and the single judge in this judgment held that cognizance should precede recording of sworn statement and taking of cognizance after the examination of the complainant is impermissible in law and it vitiates the entire proceedings. The counsel relying upon this judgment vehemently contend that taking of cognizance after the examination of complainant is impermissible in law and it vitiates the entire proceedings.
20. In keeping the principles laid down in the judgment of this Court, I also would like to refer the judgment of this Court reported in ILR 1997 Karnataka 3447 between K.S. Thimmappa Rai Vs A.R. Sadananda, wherein this Court held that Magistrate taking cognizance of the offence after recording the sworn statement of the complainant, its legality questioned and held that he is deemed to have taken cognizance. In this judgment it is held that even though the Magistrate proceeded to record the sworn statement of the complainant without recording that he has taken the cognizance of the offences, it is clearly indicative of the fact that he has decided to proceed under Chapter XV of the Code and therefore he is DEEMED to have taken cognizance of the offence. In the case on hand, it has to be noted that no explicit order has been passed that cognizance has been taken and the same is implied when the Magistrate made up his mind to proceed to record the evidence of sworn statement of the witnesses.
21. I would also like to rely upon the judgment of this Court reported in ILR 2006 Karnataka 735 between V.S. Joshi and Another Vs N.G.Bhat Chitrigi and Another, wherein it is held that complaint-cognizance of-quashing of complaint-Non mentioning in the order sheet while proceeding to record sworn statement of the witnesses, that cognizance is taken-whether fatal- should proceedings be quashed under Section 482 of Cr.P.C. on such technical grounds- held- The Magistrate need not specifically state in his order that he has taken cognizance of the offences. Taking of cognizance by the Magistrate can be inferred from the facts and other material on record. The very fact that Court below has decided to record the sworn statements after perusing the complaint itself would mean that Magistrate has applied his mind and has taken cognizance of the offences at the initial stage itself. Hence, it can be safely said that the Magistrate has applied his mind and thereafter, recorded the sworn statements of the witnesses. Thus, the subsequent observation of the Learned Magistrate at the time of passing the aforesaid order that the cognizance taken becomes redundant and shall have to ignored. Even otherwise, it may amount to taking cognizance or applying mind to the facts of the case for the second time, at the time of passing of impugned order and the same is not barred. Hence the same cannot be said to be illegal. Moreover, the order of issuing process cannot be set aside merely on such hypertechnical ground. Added to it, no prejudice is caused to the petitioners by non mentioning in the order sheet while proceeding to record sworn statements of the witnesses, that the cognizance is taken. It is not a mandate of law that the Magistrate should mention that he has taken cognizance of the offence, before recording sworn statement.
22. Having taken note of the principles laid down in the judgment, it is aptly applicable to the case on hand with regard to that there is no any order before proceeding to record the sworn statement that cognizance is taken and also the main argument of the counsel for petitioner that while issuing the process it is mentioned that cognizance is taken and it amounts to taking of the cognizance second time and this Court in the judgment has categorically held that has to be ignored and becomes redundant and even taking of cognizance by applying mind to the facts of the case for the second time at the time of passing of the impugned order and the same is not barred and further held that the same cannot be said to be illegal. Hence, it is clear that the same is not illegal and the judgment of the single bench passed in ILR 1998 Karnataka 2605, not comes to the aid of the petitioner in order to comes to the conclusion that it vitiates the entire proceedings in view of the recent judgment of this Court reported in 2006 referred supra.
23. It is further important to note that the Apex Court in the judgment reported in (2010) 7 SCC 578 in the case of Shivjee Singh Vs Nagendra Tiwary and Others, held that while incorporating the code of Criminal procedure held that Interpretation of (mandatory) provisions of effect of non-compliance-need for procedure – held that Cr.P.C. is a compendium of law relating to criminal procedure-provisions contained therein are required to be interpreted keeping in view that procedural prescriptions are meant for doing substantial justice- If violation of procedural provision does not result in denial of fair hearing or does not cause prejudice to parties, such provision has to be treated as directory notwithstanding use of the word “shall” and unless interpretation it is clear that the words are not to be on technical and procedural prescriptions are meant for doing substantial justice and the same does not cause prejudice to the parties. In the case on hand, it is also to be noted that before examining the witnesses not specifically mentioned that cognizance has been taken and subsequently while issuing the process it is mentioned as taken cognizance and in view of the judgment of this Court, it has to be redundant and the same has to be ignored. I would also like to refer the judgment reported in ILR 1994 KAR 2991 in the case of Samant Vs M/s K.G.N. Traders, held that Act of directing complaint to be registered and examining complainant on subsequent dates is taking cognizance – Further mention cognizance taken only superfluous, does not vitiate proceedings.
24. Now the question is with regard to whether non mentioning of taking the cognizance before proceeding to record the sworn statement and subsequently mentioning the taking of cognizance as invalidate the proceedings and whether it is only an irregularity.
25. I would like to refer the provisions of Section 460 of Cr.P.C. and Section 460 is with regard to irregularity which do not vitiate proceedings and hence it is clear if any Magistrate not empowered by law to take cognizance of an offence under clause (a) or clause (b) of sub-section(1) of section 190, it amounts to only irregularity which do not vitiates the proceedings. I also would like to refer Section 461 which says about the Irregularities which vitiate the proceedings. Sub section (k) of Section 461 says if any Magistrate takes cognizance of an offence under clause (c) of sub-section(1) of Section 190, then the proceedings would be vitiated. But this case does not fall under Section 461 of Cr.P.C to vitiate the proceedings.”
In the light of the very provision i.e., Section 460 of the Cr.P.C. and its interpretation by the Apex Court in the case of PRADEEP S.WODEYAR, as also, the judgments rendered by the Co-ordinate Bench of this Court, which are subsequent to the judgments relied on by the learned senior counsel, the issue that has arisen for my consideration is answered against the petitioners, holding that putting the cart before the horse, in all circumstances cannot be a panacea to the accused to contend that the entire proceedings stand vitiated. At best, it is an irregularity which would not impede fair trial to the accused or to the complainant. Hyper-technicalities in the form of irregularities cannot override substantive justice. Thus, fails the second sheet anchor.
(iii) Whether the cheques issued as security as contended would come within the ambit of Section 138 of the Act?
14. The said issue is, whether cheques issued as security, in all circumstances, can claim immunity from proceedings under Section 138 of the Act. The contention of the learned senior counsel that post-dated cheques were issued as security and the submission of the learned counsel for the respondent that they were not, is a matter for trial which would involve serious disputed questions of fact. Insofar as the argument that they are issued as a security, at this juncture, would take away the right of the complainant to contend that it is not before the trial, by producing such evidence. Cheques being issued as security or otherwise are always a matter of trial.
15. Reference being made to two judgments of the Apex Court in the case of SUNIL TODI AND OTHERS v. STATE OF GUJARAT AND ANOTHER (2021 SCC Online SC 1174) and in the case of SRIPATI SINGH v. STATE OF JHARKHAND AND ANOTHER (2021 SCC OnLine SC 1002) in the circumstances is apposite. The Apex Court in the case of SUNIL TODI (supra) has held as follows:
“29. The explanation to Section 138 of the NI Act provides that ‘debt or any other liability’ means a legally enforceable debt or other liability. The proviso to Section 138 stipulates that the cheque must be presented to the bank within a period of six months from the date on which it is drawn or within its period of validity. Therefore, a cheque given as a gift and not for the satisfaction of a debt or other liability, would not attract the penal consequences of the provision in the event of its being returned for insufficiency of funds. Aiyar's Judicial Dictionary defines debt as follows:“Debt is a pecuniary liability. A sum payable or recoverable by action in respect of money demand.” Lindey L.J in Webb v. Strention defined debt as “… a sum of money which is now payable or will become payable in the future by reason of a present obligation, debitum in praesenti, solvendum in futuro.” The definition was adopted by this Court in Keshoram Industries v. CWT. Justice Mookerjee writing for a Full Bench of the Calcutta High Court in Banchharam Majumdar v. Adyanath Bhattacharjee adopted the definition provided by the Supreme Court of California in People v. Arguello:
“Standing alone, the word ‘debt’ is as applicable to a sum of money which has been promised at a future day as to a sum now due and payable. If we wish to distinguish between the two, we say of the former that it is a debt owing, and of the latter that it is a debt due. In other words, debts are of two kinds: solvendum in praesenti and solvendum in future … A sum of money which is certainly and in all events payable is a debt, without regard to the fact whether it be payable now or at a future time. A sum payable upon a contingency, however, is not a debt or does not become a debt until the contingency has happened.”
30. Thus, the term debt also includes a sum of money promised to be paid on a future day by reason of a present obligation. A post- dated cheque issued after the debt has been incurred would be covered by the definition of ‘debt’. However, if the sum payable depends on a contingent event, then it takes the color of a debt only after the contingency has occurred. Therefore, in the present case, a debt was incurred after the second respondent began supply of power for which payment was not made because of the non- acceptance of the LCs'. The issue to be determined is whether Section 138 only covers a situation where there is an outstanding debt at the time of the drawing of the cheque or includes drawing of a cheque for a debt that is incurred before the cheque is encashed.
31. The object of the NI Act is to enhance the acceptability of cheques and inculcate faith in the efficiency of negotiable instruments for transaction of business. The purpose of the provision would become otiose if the provision is interpreted to exclude cases where debt is incurred after the drawing of the cheque but before its encashment. In Indus Airways, advance payments were made but since the purchase agreement was cancelled, there was no occasion of incurring any debt. The true purpose of Section 138 would not be fulfilled, if ‘debt or other liability’ is interpreted to include only a debt that exists as on the date of drawing of the cheque. Moreover, Parliament has used the expression ‘debt or other liability’. The expression “or other liability’ must have a meaning of its own, the legislature having used two distinct phrases. The expression ‘or other liability’ has a content which is broader than ‘a debt’ and cannot be equated with the latter. In the present case, the cheque was issued in close proximity with the commencement of power supply. The issuance of the cheque in the context of a commercial transaction must be understood in the context of the business dealings. The issuance of the cheque was followed close on its heels by the supply of power. To hold that the cheque was not issued in the context of a liability which was being assumed by the company to pay for the dues towards power supplied would be to produce an outcome at odds with the business dealings. If the company were to fail to provide a satisfactory LC and yet consume power, the cheques were capable of being presented for the purpose of meeting the outstanding dues.
34. The order of this Court in Womb Laboratories holds that the issue as to whether the cheques were given by way of security is a matter of defence. This line of reasoning in Womb Laboratories is on the same plane as the observations in HMT Watches,, where it was held that whether a set of cheques has been given towards security or otherwise or whether there was an outstanding liability is a question of fact which has to be determined at the trial on the basis of evidence. The rationale for this is that a disputed question of this nature cannot be resolved in proceedings under Section 482 CrPC, absent evidence to be recorded at the trial.
35. The submission which has been urged on behalf of the appellants, however, is that the fact that the cheques in the present case have been issued as a security is not in dispute since it stands admitted from the pleading of the second respondent in the suit instituted before the High Court of Madras. The legal requirement which Section 138 embodies is that a cheque must be drawn by a person for the payment of money to another “for the discharge, in whole or in part, of any debt or other liability’. A cheque may be issued to facilitate a commercial transaction between the parties. Where, acting upon the underlying purpose, a commercial arrangement between the parties has fructified, as in the present case by the supply of electricity under a PSA, the presentation of the cheque upon the failure of the buyer to pay is a consequence which would be within the contemplation of the drawer. The cheque, in other words, would in such an instance mature for presentation and, in substance and in effect, is towards a legally enforceable debt or liability. This precisely is the situation in the present case which would negate the submissions of the appellants.”
In a later judgment, the Apex Court in the case of SRIPATI SINGH, has held as follows:
“17. A cheque issued as security pursuant to a financial transaction cannot be considered as a worthless piece of paper under every circumstance. ‘Security’ in its true sense is the state of being safe and the security given for a loan is something given as a pledge of payment. It is given, deposited or pledged to make certain the fulfillment of an obligation to which the parties to the transaction are bound. If in a transaction, a loan is advanced and the borrower agrees to repay the amount in a specified timeframe and issues a cheque as security to secure such repayment; if the loan amount is not repaid in any other form before the due 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 N.I. Act would flow.
18. When a cheque is issued and is treated as ‘security’ towards repayment of an amount with a time period being stipulated for repayment, all that it ensures is that such cheque which is issued as ‘security’ cannot be presented prior to the loan or the installment maturing for repayment towards which such cheque is issued as security. Further, the borrower would have the option of repaying the loan amount or such financial liability in any other form and in that manner if the amount of loan due and payable has been discharged within the agreed period, the cheque issued as security cannot thereafter be presented. Therefore, the prior discharge of the loan or there being an altered situation due to which there would be understanding between the parties is a sine qua non to not present the cheque which was issued as security. These are only the defences that would be available to the drawer of the cheque in a proceedings initiated under Section 138 of the N.I. Act. Therefore, there cannot be a hard and fast rule that a cheque which is issued as security can never be presented by the drawee of the cheque. If such is the understanding a cheque would also be reduced to an ‘on demand promissory note’ and in all circumstances, it would only be a civil litigation to recover the amount, which is not the intention of the statute. When a cheque is issued even though as ‘security’ the consequence flowing there from is also known to the drawer of the cheque and in the circumstance stated above if the cheque is presented and dishonoured, the holder of the cheque/drawee would have the option of initiating the civil proceedings for recovery or the criminal proceedings for punishment in the fact situation, but in any event, it is not for the drawer of the cheque to dictate terms with regard to the nature of litigation.
19. If the above principle is kept in view, as already noted, under the loan agreement in question the respondent No. 2 though had issued the cheques as security, he had also agreed to repay the amount during June/July 2015, the cheque which was held as security was presented for realization on 20.10.2015 which is after the period agreed for repayment of the loan amount and the loan advanced had already fallen due for payment. Therefore, prima facie the cheque which was taken as security had matured for payment and the appellant was entitled to present the same. On dishonour of such cheque the consequences contemplated under the Negotiable Instruments Act had befallen on respondent No. 2. As indicated above, the respondent No. 2 may have the defence in the proceedings which will be a matter for trial. In any event, the respondent No. 2 in the fact situation cannot make a grievance with regard to the cognizance being taken by the learned Magistrate or the rejection of the petition seeking discharge at this stage.
20. In the background of the factual and legal position taken note supra, in the instant facts, the appellant cannot be non-suited for proceeding with the complaint filed under Section 138 of N.I. Act merely due to the fact that the cheques presented and dishonoured are shown to have been issued as security, as indicated in the loan agreement. In our opinion, such contention would arise only in a circumstance where the debt has not become recoverable and the cheque issued as security has not matured to be presented for recovery of the amount, if the due date agreed for payment of debt has not arrived. In the instant facts, as noted, the repayment as agreed by the respondent No. 2 is during June/July 2015. The cheque has been presented by the appellant for realisation on 20.10.2015. As on the date of presentation of the cheque for realisation the repayment of the amount as agreed under the loan agreement had matured and the amount had become due and payable. Therefore, to contend that the cheque should be held as security even after the amount had become due and payable is not sustainable. Further, on the cheques being dishonoured the appellant had got issued a legal notice dated 21.11.2015 wherein inter-alia it has been stated as follows:—
“You request to my client for loan and after accepting your word my client give you loan and advanced loan and against that you issue different cheque all together valued Rs. One crore and my client was also assured by you will clear the loan within June/July 2015 and after that on 26.10.2015 my client produce the cheque for encashment in H.D.F.C. Bank all cheque bearing No. 402771 valued Rs. 25 Lakh, 402770 valued Rs. 25 lakh, 402769 valued Rs. 50 lakh, (total rupees one crore) and above numbered cheques was returned with endorsement “In sufficient fund”. Then my client feel that you have not fulfil the assurance.”
21. The notice as issued indicates that the appellant has at the very outset after the cheque was dishonoured, intimated the respondent no. 2 that he had agreed to clear the loan by June/July 2015 after which the appellant had presented the cheque for encashment on 26.10.2015 and the assurance to repay has not been kept up.
22. In the above circumstance, the cheque though issued as security at the point when the loan was advanced, it was issued as an assurance to repay the amount after the debt becomes due for repayment. The loan was in subsistence when the cheque was issued and had become repayable during June/July 2015 and the cheque issued towards repayment was agreed to be presented thereafter. If the amount was not paid in any other mode before June/July 2015, it was incumbent on the respondent No. 2 to arrange sufficient balance in the account to honour the cheque which was to be presented subsequent to June/July 2015.
23. These aspects would prima-facie indicate that there was a transaction between the parties towards which a legally recoverable debt was claimed by the appellant and the cheque issued by the respondent No. 2 was presented. On such cheque being dishonoured, cause of action had arisen for issuing a notice and presenting the criminal complaint under Section 138 of N.I. Act on the payment not being made. The further defence as to whether the loan had been discharged as agreed by respondent No. 2 and in that circumstance the cheque which had been issued as security had not remained live for payment subsequent thereto etc. at best can be a defence for the respondent No. 2 to be put forth and to be established in the trial. In any event, it was not a case for the Court to either refuse to take cognizance or to discharge the respondent No. 2 in the manner it has been done by the High Court. Therefore, though a criminal complaint under Section 420 IPC was not sustainable in the facts and circumstances of the instant case, the complaint under section 138 of the N.I Act was maintainable and all contentions and the defence were to be considered during the course of the trial.”
In the light of the judgments rendered by the Apex Court (supra), the contention of the learned senior counsel that cheques were issued only as security and they are not against any legally recoverable or enforceable debt, again does not hold water, as the Apex Court clearly holds that these are disputed questions of fact and have to be tried in a full blown trial. The question of interference under Section 482 of the Cr.P.C. would not arise at the threshold. Therefore, issue No.3 that has arisen for consideration is answered against the petitioners. Thus, tumbles the third sheet anchor.
(iv) Whether the Chairman or Directors of the Company can be hauled into these proceedings involved in a transaction of mammoth proportion?
16. The contention of the learned senior counsel that the petitioners are Directors or Chairman of the Company and are not aware of the transactions and the signatories to the cheques are the only persons responsible also cannot be countenanced, as the transaction is of Rs.400/- crores. A mammoth transaction of this nature being executed without passing muster through the office bearers of the Company cannot be imagined at this juncture. The Directors or the Chairman cannot claim that they are not privy to the enormity of the transaction between the accused and the complainant as the complaint clearly narrates the role of persons involved in the transaction who are made accused in the case at hand. Therefore, it becomes a matter of trial for the petitioners to come out clean, if they are not involved in the transaction at all. It would have been an altogether different circumstance if the Directors of the Company had claimed that they have resigned from the Company and that their resignations were demonstrable by production of public documents before this Court. This is not the submission of the petitioners before this Court. By mere statement that the Directors were not involved in the transaction cannot at this juncture
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be accepted, when they are being put to trial and the contention being tested on the basis of examination or cross-examination in the trial. Reference being made to the judgment of the Apex Court in the case of ASHUTOSH ASHOK PARASRAMPURIYA AND ANOTHER v. GHARRKUL INDUSTRIES PVT.LTD. AND OTHERS (2021 SCC OnLine 915) wherein it is held as follows: “20. In this regard, taking note of the three-Judge Bench decision of this Court in S.M.S. Pharmaceuticals Ltd. (supra) would be apposite. While dealing with an offence under Section 138 of the NI Act, the Court explaining the duty of a Magistrate while issuing process and his power to dismiss a complaint under Section 203 without even issuing process observed thus:— “5. … a complaint must contain material to enable the Magistrate to make up his mind for issuing process. If this were not the requirement, consequences could be far-reaching. If a Magistrate had to issue process in every case, the burden of work before the Magistrate as well as the harassment caused to the respondents to whom process is issued would be tremendous. Even Section 204 of the Code starts with the words ‘if in the opinion of the Magistrate taking cognizance of an offence there is sufficient ground for proceeding’. The words ‘sufficient ground for proceeding’ again suggest that ground should be made out in the complaint for proceeding against the respondent. It is settled law that at the time of issuing of the process the Magistrate is required to see only the allegations in the complaint and where allegations in the complaint or the charge-sheet do not constitute an offence against a person, the complaint is liable to be dismissed.” 21. After so stating, the Court analysed Section 141 of the NI Act and after referring to certain other authorities answered a reference which reads as follows:— 19(a) It is necessary to specifically aver in a complaint under Section 141 that at the time the offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company. This averment is an essential requirement of Section 141 and has to be made in a complaint. Without this averment being made in a complaint, the requirements of Section 141 cannot be said to be satisfied. (b) The answer to the question posed in sub- para (b) has to be in the negative. Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for the conduct of its business. The requirement of Section 141 is that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a director in such cases. (c) The answer to Question (c) has to be in the affirmative. The question notes that the managing director or joint managing director would be admittedly in charge of the company and responsible to the company for the conduct of its business. When that is so, holders of such positions in a company become liable under Section 141 of the Act. By virtue of the office they hold as managing director or joint managing director, these persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 141. So far as the signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under subsection (2) of Section 141.” 22. The same principle has been reiterated in S.K. Alagh v. State of Uttar Pradesh; Maharashtra State Electricity Distribution Co. Ltd. v. Datar Switchgear Ltd. and GHCL Employees Stock Option Trust v. India Infoline Limited. 23. In the light of the ratio in S.M.S. Pharmaceuticals Ltd. (supra) and later judgments of which a reference has been made what is to be looked into is whether in the complaint, in addition to asserting that the appellants are the Directors of the Company and they are in-charge of and responsible to the Company for the conduct of the business of the Company and if statutory compliance of Section 141 of the NI Act has been made, it may not open for the High Court to interfere under Section 482 CrPC unless it comes across some unimpeachable, incontrovertible evidence which is beyond suspicion or doubt or totally acceptable circumstances which may clearly indicate that the Director could not have been concerned with the issuance of cheques and asking him to stand the trial would be abuse of process of Court. Despite the presence of basic averment, it may come to a conclusion that no case is made out against the particular Director for which there could be various reasons. 24. The issue for determination before us is whether the role of the appellants in the capacity of the Director of the defaulter company makes them vicariously liable for the activities of the defaulter Company as defined under Section 141 of the NI Act? In that perception, whether the appellant had committed the offence chargeable under Section 138 of the NI Act? 25. We are concerned in this case with Directors who are not signatories to the cheques. So far as Directors who are not the signatories to the cheques or who are not Managing Directors or Joint Managing Directors are concerned, it is clear from the conclusions drawn in the afore-stated judgment that it is necessary to aver in the complaint filed under Section 138 read with Section 141 of the NI Act that at the relevant time when the offence was committed, the Directors were in charge of and were responsible for the conduct of the business of the company. 26. This averment assumes importance because it is the basic and essential averment which persuades the Magistrate to issue process against the Director. That is why this Court in S.M.S. Pharmaceuticals Ltd. (supra) observed that the question of requirement of averments in a complaint has to be considered on the basis of provisions contained in Sections 138 and 141 of the NI Act read in the light of the powers of a Magistrate referred to in Sections 200 to 204 CrPC which recognise the Magistrate's discretion to take action in accordance with law. Thus, it is imperative that if this basic averment is missing, the Magistrate is legally justified in not issuing process. 27. In the case on hand, reading the complaint as a whole, it is clear that the allegations in the complaint are that at the time at which the cheques were issued by the Company and dishonoured by the Bank, the appellants were the Directors of the Company and were responsible for its business and all the appellants were involved in the business of the Company and were responsible for all the affairs of the Company. It may not be proper to split while reading the complaint so as to come to a conclusion that the allegations as a whole are not sufficient to fulfill the requirement of Section 141 of the NI Act. The complaint specifically refers to the point of time when the cheques were issued, their presentment, dishonour and failure to pay in spite of notice of dishonour. In the given circumstances, we have no hesitation in overruling the argument made by the learned counsel for the appellants. 28. Indisputedly, on the presentation of the cheque of Rs. 10,00,000/-(Rupees Ten Lakhs only) dated 2nd June 2012, the cheque was dishonoured due to “funds insufficient” in the account and after making due compliance, complaint was filed and after recording the statement of the complainant, proceedings were initiated by the learned Magistrate and no error has been committed by the High Court in dismissing the petition filed under Section 482 CrPC under the impugned judgment. 29. The submission of learned counsel for the appellants that they are the non-executive Directors in the light of the documentary evidence placed on record by Form No. 32 issued by the Registrar of Companies, both the appellants are shown to be the Directors of the Company, still open for the appellants to justify during course of the trial. 30. In our considered view, the High Court has rightly not interfered in exercise of its jurisdiction under Section 482 CrPC for quashing of the complaint.” (Emphasis supplied) In the light of the judgment rendered by the Apex Court in the case of ASHUTOSH ASHOK PARASRAMPURIYA and as a result of disputed questions of fact being the crux of the issue, the issue No.4 that falls for my consideration is also answered against the petitioners. Thus, crashes the fourth sheet anchor. 17. Therefore, none of the contention of the learned senior counsel appearing for the petitioners would merit any acceptance and the armory from the arsenal of the learned senior counsel by way of authorities are either inapplicable to the facts of the case or, are unacceptable. 18. For the praefatus reasons, the Writ Petitions lack merit and consequently meet their dismissal. Ordered accordingly.