Delhi High Court - Orders
Mr Pradeep Aggarwal vs M/S Catmoss Retail Pvt Ltd And Ors on 9 November, 2021
Author: Anu Malhotra
Bench: Anu Malhotra
$~21, 22, 23 & 24
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ CRL.L.P. 137/2021 & CRL.M.A. 17491/2021
MR PRADEEP AGGARWAL ..... Petitioner
Through: Mr.Ankit Jain, Mr.Abhay Pratap
Singh & Ms.Mohina Anand,
Advocates.
versus
M/S CATMOSS RETAIL PVT LTD AND ORS. ..... Respondent
Through:
+ CRL.L.P. 138/2021 & CRL.M.A. 17492/2021
MR PRADEEP AGGARWAL HUF ..... Petitioner
Through: Mr.Ankit Jain, Mr.Abhay Pratap
Singh & Ms.Mohina Anand,
Advocates.
versus
M/S CATMOSS RETAIL PVT. LTD. ..... Respondent
Through:
+ CRL.L.P. 139/2021 & CRL.M.A. 17493/2021
MR PRADEEP AGGARWAL HUF ..... Petitioner
Through: Mr.Ankit Jain, Mr.Abhay Pratap
Singh & Ms.Mohina Anand,
Advocates.
versus
M/S CATMOSS RETAIL PVT. LTD. ..... Respondent
Through
Signature
Not Verified
Digitally Signed
By:SUMIT GHAI
Signing
Date:09.11.2021
18:10:17
This file is
digitally signed by
PS to HMJ ANU
MALHOTRA.
+ CRL.L.P. 140/2021 & CRL.M.A. 17494/2021
MR PRADEEP AGGARWAL ..... Petitioner
Through: Mr.Ankit Jain, Mr.Abhay Pratap
Singh & Ms.Mohina Anand,
Advocates.
versus
M/S CATMOSS RETAIL PVT LTD AND ORS. ..... Respondent
Through
CORAM:
HON'BLE MS. JUSTICE ANU MALHOTRA
ORDER
% 09.11.2021 (Physical Hearing) CRL.M.A.17491/2021 (Ex.) CRL.M.A.17492/2021 (Ex.) CRL.M.A.17493/2021 (Ex.) CRL.M.A. 17494/2021 (Ex.) Exemptions allowed subject to all just exceptions. The applications stand disposed of.
CRL.L.P. 137/2021 CRL.L.P. 138/2021 CRL.L.P. 139/2021 CRL.L.P. 140/2021The petitioners, vide the present petition assail the impugned order dated 16.03.2020 of the Court of the learned MM, East, KKD in CC Nos.47612/2016, 46759/16, 51977/16 and 46966/16, whereby the complaints filed by the petitioners herein under Section 138 of the Negotiable Instruments Act, 1881 (hereinafter referred to as NI Act, 1881) were held to be not maintainable with accused persons having been Signature Not Verified Digitally Signed By:SUMIT GHAI Signing Date:09.11.2021 18:10:17 This file is digitally signed by PS to HMJ ANU MALHOTRA.
discharged in view of the factum that the cheques in question in each of the said complaint cases were presented for encashment after the winding up of the company named M/s Catmoss Retail Pvt. Ltd. of which the Managing Director and Directors thereof were arrayed as other accused, in as much as, the said company was wound up on 27.03.2014 and the cheques in question in the said complaint cases bearing cheque no.563591 dated 29/09/2014, 563592 dated 29/12/2014 subject matter of CC N0.47612/16, cheque in question bearing no. 563589 dated 29/12/2014 subject matter of CC No.46759/16, cheque in question bearing no. 563587 dated 29/09/14 and 563588 dated 29/12/2014 subject matter of CC no. 51977/16 and cheque in question bearing no. 563585 dated 29/12/2014 subject matter of CC No. 46966/16 were dishonoured on 08/12/14, 30/12/2014, 30/12/2014, 08/12/2014, 30.12.2014 and 30/12/2014 respectively.
Vide the impugned order, the learned Trial Court has placed reliance on observations of this Court in "M.L Gupta and Anr. Vs. CEAT Financial Services Ltd." 136 (2007) DLT 308 with specific observations therein to the effect:-
""16. Thus, what is emphasized is that actual offence has to be committed by the company and then alone the Directors can become liable for the offence. When the company goes into liquidation and the cheque is presented thereafter, it cannot be said that the company has committed the offence as it is because of legal bar that it is precluded from making the payment. Once dishonour of the cheque by the Bank and failure to make payment of amount by the company is beyond its control, the Directors (who are in fact ex-Directors) can also not be held liable. Sustenance for this proposition can be drawn from another judgment of the Supreme Court in the case of Kusum Ingots & Alloys Ltd., etc. v. Pennar Peterson Securities Ltd., [2000] 100 Company Cases 755 (SC). That was a case where Signature Not Verified Digitally Signed By:SUMIT GHAI Signing Date:09.11.2021 18:10:17 This file is digitally signed by PS to HMJ ANU MALHOTRA.
reference in respect of the company was pending before the Board of Industrial and Financial Reconstruction (for short „BIFR‟) under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). The Court held that mere registering the reference would not be sufficient to bar the proceedings under Section 138 of the N.I. Act even by virtue of Section 22 of SICA as Section 22 which provided that no proceedings would be instituted against the company related to only to civil proceedings and does not include criminal proceedings. However, the Court further held that position would be different if order is passed by the BIFR under Section 22A of SICA restraining the company or its Directors from disposing of the assets of the company. Following observations would be relevant for our purposes:
"19. The question that remains to be considered is whether Section 22A of SICA affects a criminal case for an offence under Section 138, NI Act. In the said section provision is made enabling the Board to make an order in writing to direct the sick industrial company not to dispose of, except with the consent of the Board, any of its assets--(a) during the period of preparation or consideration of the scheme under Section 18; and (b) during the period beginning with the recording of opinion by the Board for winding up of the company under Sub- section (1) of Section 20 and up to commencement of the proceedings relating to the winding up before the concerned High Court. This exercise of the power by the Board is conditioned by the prescription that the Board is of the opinion that such a direction is necessary in the interest of the sick industrial company or its creditors or shareholders or in the public interest. In a case in which the BIFR has submitted its report declaring a company as „sick‟ and has also issued a direction under Section 22A restraining the company or its directors not to dispose of any of its assets except with consent of the Board then the contention raised on behalf of the appellants that a criminal case for the alleged offence under Section 138, NI Act cannot be instituted during the period in which the restraint order passed by the BIFR remains operative cannot be rejected outright. Whether the contention can be Signature Not Verified Digitally Signed By:SUMIT GHAI Signing Date:09.11.2021 18:10:17 This file is digitally signed by PS to HMJ ANU MALHOTRA.
accepted or not will depend on the facts and circumstances of the case. Take for instance, before the date on which the cheque was drawn or before expiry of the statutory period of 15 days after notice, a restraint order of the BIFR under Section 22A was passed against the company then it cannot be said that the offence under Section 138, NI Act was completed. In such a case it may reasonably be said that the dishonouring of the cheque by the bank and failure to make payment of the amount by the company and/or its Directors is for reasons beyond the control of the accused. It may also be contended that the amount claimed by the complainant is not recoverable from the assets of the company in view of the ban order passed by the BIFR. In such circumstances it would be unjust and unfair and against the intent and purpose of the statute to hold that the Directors should be compelled to face trial in a criminal case".
17. Therefore, such a complaint would not be maintainable when the cheque is presented after the company has already been ordered to be wound up.", thus, holding that the said complaints were not maintainable.
On behalf of the petitioners, reliance is also sought to be placed on the verdict of the Hon'ble Supreme Court in Re: Expeditious Trial of Cases Under Section 138 of N.I. Act, 1881, 2021 SCC OnLine SC 325 with it having been submitted to the effect that it has been categorically laid down therein vide paragraph 21 by the Hon'ble Supreme Court that the verdicts in "Adalat Prasad Vs. Rooplal Jindal" (2004) 7 SCC 338 and "Subramanium Sethuraman Vs. State of Maharashtra" (2004) 13 SCC 324, would not warrant any reconsideration and that the Trial Court cannot be conferred with inherent power either to review or recall its orders of issuance of process in terms of Section 138 of the NI Act, 1881 after having taken cognizance thereof.
The other alternate submission made on behalf of the petitioners is to Signature Not Verified Digitally Signed By:SUMIT GHAI Signing Date:09.11.2021 18:10:17 This file is digitally signed by PS to HMJ ANU MALHOTRA.
the effect that the verdict relied upon by the learned Trial Court of this Court in M.L Gupta and Anr. (supra), in view of the verdict of the Hon'ble Supreme Court in "P.Mohanraj and others Vs. Shah Brothers Ispat Private Limited" (2021) 6 Supreme Court Cases 258 to the extent that it relates to liabilities of persons other than the corporate debtor, cannot be considered to be good law in view of the observations in paragraphs 101 and 102 of the said verdict, which read to the effect:-
"101. As far as the Directors/persons in management or control of the corporate debtor are concerned, Sections 138/141 proceeding against them cannot be initiated or continued without the corporate debtor--see Aneeta Hada [Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661 :
(2012) 3 SCC (Civ) 350 : (2012) 3 SCC (Cri) 241] . This is because Section 141 of the Negotiable Instruments Act speaks of persons in charge of, and responsible to the Company for the conduct of the business of the Company, as well as the Company.
The Court, therefore, in Aneeta Hada [Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661 : (2012) 3 SCC (Civ) 350 : (2012) 3 SCC (Cri) 241] held as under : (SCC pp. 686-88, paras 51, 56 & 58-59) "51. We have already opined that the decision in Sheoratan Agarwal [Sheoratan Agarwal v. State of M.P., (1984) 4 SCC 352 : 1984 SCC (Cri) 620] runs counter to the ratio laid down in C.V. Parekh [State of Madras v. C.V. Parekh, (1970) 3 SCC 491 : 1971 SCC (Cri) 97] which is by a larger Bench and hence, is a binding precedent. On the aforesaid ratiocination, the decision in Anil Hada [Anil Hada v. Indian Acrylic Ltd., (2000) 1 SCC 1 : 2001 SCC (Cri) 174] has to be treated as not laying down the correct law as far as it states that the Director or any other officer can be prosecuted without impleadment of the Company. Needless to emphasise, the matter would stand on a Signature Not Verified Digitally Signed By:SUMIT GHAI Signing Date:09.11.2021 18:10:17 This file is digitally signed by PS to HMJ ANU MALHOTRA.
different footing where there is some legal impediment and the doctrine of lex non cogit ad impossibilia gets attracted.
***
56. We have referred to the aforesaid passages only to highlight that there has to be strict observance of the provisions regard being had to the legislative intendment because it deals with penal provisions and a penalty is not to be imposed affecting the rights of persons, whether juristic entities or individuals, unless they are arrayed as accused. It is to be kept in mind that the power of punishment is vested in the legislature and that is absolute in Section 141 of the Act which clearly speaks of commission of offence by the Company. The learned counsel for the respondents have vehemently urged that the use of the term "as well as" in the section is of immense significance and, in its tentacle, it brings in the Company as well as the Director and/or other officers who are responsible for the acts of the Company and, therefore, a prosecution against the Directors or other officers is tenable even if the Company is not arraigned as an accused. The words "as well as" have to be understood in the context.
***
58. Applying the doctrine of strict construction, we are of the considered opinion that commission of offence by the Company is an express condition precedent to attract the vicarious liability of others. Thus, the words "as well as the Company" appearing in the section make it absolutely unmistakably clear that when the Company can be prosecuted, then only the persons mentioned in the other categories could be vicariously liable for the offence subject to the averments in the petition and proof thereof. One cannot be oblivious of the fact that the Company is a juristic person and it has its own respectability. If a finding is recorded against it, it would create a concavity in its reputation. There can be situations when the corporate reputation is affected when a Director is indicted.
Signature Not Verified Digitally Signed By:SUMIT GHAI Signing Date:09.11.2021 18:10:17 This file is digitally signed by PS to HMJ ANU MALHOTRA.
59. In view of our aforesaid analysis, we arrive at the irresistible conclusion that for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the dragnet on the touchstone of vicarious liability as the same has been stipulated in the provision itself. We say so on the basis of the ratio laid down in C.V. Parekh [State of Madras v. C.V. Parekh, (1970) 3 SCC 491 : 1971 SCC (Cri) 97] which is a three-Judge Bench decision. Thus, the view expressed in Sheoratan Agarwal [Sheoratan Agarwal v. State of M.P., (1984) 4 SCC 352 : 1984 SCC (Cri) 620] does not correctly lay down the law and, accordingly, is hereby overruled. The decision in Anil Hada [Anil Hada v. Indian Acrylic Ltd., (2000) 1 SCC 1 :
2001 SCC (Cri) 174] is overruled with the qualifier as stated in para 51. The decision in Modi Distillery [U.P. Pollution Control Board v. Modi Distillery, (1987) 3 SCC 684 : 1987 SCC (Cri) 632] has to be treated to be restricted to its own facts as has been explained by us hereinabove."
102. Since the corporate debtor would be covered by the moratorium provision contained in Section 14 IBC, by which continuation of Sections 138/141 proceedings against the corporate debtor and initiation of Sections 138/141 proceedings against the said debtor during the corporate insolvency resolution process are interdicted, what is stated in paras 51 and 59 in Aneeta Hada [Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661 : (2012) 3 SCC (Civ) 350 : (2012) 3 SCC (Cri) 241] would then become applicable. The legal impediment contained in Section 14 IBC would make it impossible for such proceeding to continue or be instituted against the corporate debtor. Thus, for the period of moratorium, since no Sections 138/141 proceeding can continue or be initiated against the corporate debtor because of a statutory bar, such proceedings can be initiated or continued against the persons mentioned in Sections 141(1) and (2) of the Negotiable Instruments Act. This being the case, it is clear that the moratorium provision contained in Section 14 IBC would apply Signature Not Verified Digitally Signed By:SUMIT GHAI Signing Date:09.11.2021 18:10:17 This file is digitally signed by PS to HMJ ANU MALHOTRA.
only to the corporate debtor, the natural persons mentioned in Section 141 continuing to be statutorily liable under Chapter XVII of the Negotiable Instruments Act.", with it having been submitted on behalf of the petitioners that the said principle of law has also been applied in this very verdict in observations in paragraphs 113 & 114, which read to the effect:-
"113. In this case, the two complaints dated 12-3-2018 and 14- 3-2018 under Section 138 read with Section 141 of the Negotiable Instruments Act were filed by the respondent against the corporate debtor along with persons in charge of and responsible for the conduct of business of the corporate debtor. On 14-2-2020, the adjudicating authority admitted a petition under Section 9 IBC against the corporate debtor and imposed a moratorium. The impugned interim order dated 20- 2-2020 is for the issuance of non-bailable warrants against two of the accused individuals.
114. Given our judgment in Civil Appeal No.10355 of 2018, the moratorium provision not extending to persons other than the corporate debtor, this appeal also stands dismissed.", thus, making it apparent that despite the moratorium proceedings contained in Section 14 of the IBC by which continuation of proceedings under Sections 138/141 of the NI Act, 1881 against the corporate debtors are interdicted during the corporate insolvency resolution process, nevertheless, the liability of the natural persons mentioned in Section 141 of the NI Act, 1881 would be continuing to the statutorily liable under Chapter 17 of the NI Act, 1881.
Though, at this stage, the Court is not taking into account the aspect of the trial Court having discharged the accused persons after having taking cognizance in proceedings under Section 138 of the NI Act, 1881, in as much as, it is considered appropriate that the matter is dealt with in its Signature Not Verified Digitally Signed By:SUMIT GHAI Signing Date:09.11.2021 18:10:17 This file is digitally signed by PS to HMJ ANU MALHOTRA.
entirety, this Court nevertheless considers it essential that in view of the verdict of the Hon'ble Supreme Court in P.Mohanraj and others (supra) as adverted to hereinabove, with submissions made on behalf of the petitioners that the verdict of this Court in M.L Gupta and Anr. (supra) to the extent of liabilities of natural persons in terms of the verdict of the Hon'ble Supreme Court in P.Mohanraj and others (supra) cannot relate to the natural persons qua whom the proceedings under Section 138 of the NI Act, 1881 cannot thus, be held to be interdicted, the Court considers it appropriate that the matter be placed before the Hon'ble the Chief Justice to refer the matter to a larger bench in relation to the aspect of adjudication whether the verdict in M.L Gupta and Anr. (supra) to the extent that it set asides the summoning order in toto inclusive of the summoning of the Directors of the corporate debtor qua liability under Section 138 of the NI Act, 1881 in view of the verdict of the Hon'ble Supreme Court in P.Mohanraj and others (supra) to the extent that it lays down clearly that the moratorium provision contained in Section 14 of the IBC would apply only to the corporate debtor and thus, in pari materia in view of the winding up the proceedings of the corporate debtor in the instant case, the culpability of the natural persons mentioned in Section 141 of the N.I.Act, 1881 would be a continuing liability continuing to be statutorily liable under Chapter 17 of the NI Act, 1881.
The matter be thus placed before the Hon'ble the Chief Justice for the date 29.11.2021.
ANU MALHOTRA, J NOVEMBER 9, 2021 'Neha Chopra' Signature Not Verified Digitally Signed By:SUMIT GHAI Signing Date:09.11.2021 18:10:17 This file is digitally signed by PS to HMJ ANU MALHOTRA.