Karnataka High Court
Menon Ventures vs Birla 3M Limited on 14 June, 2005
Equivalent citations: I(2006)BC408, [2005]127COMPCAS878(KAR), ILR2005KAR3167, 2005(5)KARLJ448, 2005 AIR - KANT. H. C. R. 1730, (2005) 33 ALLINDCAS 696 (KAR), (2005) 3 RECCRIR 832, (2005) 127 COMCAS 878, (2005) 5 KANT LJ 448, (2005) 3 RECCIVR 503, (2005) 4 ALLCRILR 212, (2005) 3 ICC 742, (2006) 1 BANKCAS 408, (2005) 3 KCCR 1914, (2005) 2 BANKJ 1032, (2005) 4 CURCRIR 345, (2005) 4 CIVLJ 507, (2005) 3 CIVILCOURTC 616, (2006) 1 BANKCLR 135
Author: K. Ramanna
Bench: K. Ramanna
ORDER K. Ramanna, J.
1. This petition is filed under Section 401 Cr.P.C. against the judgement and order of dismissal dated 4.4.2001 passed by the 13th Addl. Sessions Judge, Mayo Hall Unit, Bangalore, in Crl. A.No. 15016/ 2000 and to set aside the judgment and order of conviction dated 4.4.2001 passed by the 14th Addl. CMM, Bangalore, in CC.No. 25059/97 mainly on the ground that impugned order passed by both the trial Court as well as the learned Sessions Judge is illegal and contrary to law and the evidence on record. The Courts below have committed a serious error in law in ordering and convicting the petitioner/accused for an offence punishable under Section 138 of the Negotiable Instruments Act, as to whether the cheque admittedly issued as a collateral security would amount to a debt within the ambit of Section 138 of the Act without considering the averments of the complaint as admitted by the complainant, the petitioner accused issued cheque beraing No. 0011559 dated 22.7.1996 for Rs. 20 lakhs drawn on Vijaya Bank, Mayo Hall Branch, Bangalore, as a collateral security. Therefore, the cheque issued by the petitioner-accused is not a legally recoverable debt which is issued as a collateral secuirty and that in various transaction there is a suit pending against the petitioner filed by the respondent. Therefore, question of committing an offence under the provision of Section 138 of the N.I. Act is not at all maintainable. The respondent complainant which is a company has not represented properly in as much as Sri. N.S. Swaminathan, who is stated to be the Authorised Officer according to the cause title, has not signed the complaint, therefore, the complaint filed against the petitioner by the complainant is illegal. A Director has no power to act on behalf of the company, therefore, the complaint failed against him is not at all maintainable since no authorisation letter has been produced by the complainant to prove that he has been duly authorised to act on behalf of the company. Therefore, the judgement and the impugned order of conviction and sentence passed by the Courts below are liable to be set aside.
2. Brief facts leading to this case are that the repondent herein M/s. Birla 3M Limited filed a complaint under Section 138 of the N.I. Act on the allegation that the petitioner accused has issued a cheque for Rs. 20 lakhs and infact the respondent deposited the said cheque but the same was returned with an endorsement "funds insufficient". So, after complying with the mandatory provisions, he issued the demand notice (legal notice) to the petitioner and thereafter filed the complaint before the trial Court as the petitioner failed to repay the said amount covered under the cheque within 15 days from the date of receipt of the demand notice. In order to substantiate the case, the respondent/company examined one Mr. Swaminathan and got marked 5 documents and closed the case. Whereas, petitioner has seriously contested the matter taking all defence but has not produced any oral , or documentary evidence to substantiate its contention. Therefore, after considering the oral and documentary evidence placed on record by the parties, the trial Court found that the petitioner accused was guilty of the offences punishable under Section 138 of the N.I.Act and directed the petitioner to pay a fine of Rs. 22 lakhs and on deposit of the same, to pay a sum of Rs. 20 lakhs to the complainant as compensation. The petitioner being not satisfied with the order of conviction and sentence passed by the trial Court preferred an appeal before the 13th Addl. Sessions Judge, Mayo Hall, Bangalore, and after reappraisal of the entire evidence placed on record, the learned Sessions Judge also found that there is no perverse or illegal findings recorded by the trial Court in convicting the petitioner and dismissed the appeal. Hence, this revision.
3. I have heard the arguments of the learned counsel for the petitioner and submitted that the cheque in question issued as a collateral security and not as discharge of any legally recoverable debt, therefore the impugned order under revision is liable to be set aside. Learned Counsel for the petitioner draw the attention of this Court at Para.3 of the complaint which reads thus:-
"The Accused issued a cheque for Rs. 20,00,000/- (Rupees twenty lakhs only) bearing No. 0011559 dated 22 July 1996 drawn on Vijaya Bank, Mayo Hall Branch, Bangalore-560001 to the complainant as collateral security".
It is further contended that in view of the clear averments and admission made by the complainant that the Court below ought not to have been convicted and sentenced this petitioner for the offences under Section 138 of the N.I.Act. It is further contended that the respondent herein filed a suit in O.S.523/98 for recovery of Rs. 7,14,6107- therefore, the cheque in question if any, issued was not for recovery of any debt but as a collateral security. Therefore, in view of the pendency of the suit filed by the respondent, the trail Court recorded the perverse and illegal findings in coming to a wrong conclusion which is liable to be satisfied. It is submitted that P.W.1 himself has admitted in his cross-examination that the cheque was issued in favour of the respondent as a collateral security.
4. In this behalf, learned counsel for the petitioner drew the attention of this Court with regard to the Law Relating to Guarantees as per the Fourth Edition written by Sri. S.N. Guptha at Page No. 748, the author has defined the "Collateral Security" thus:-
"The term 'Collateral security' has two different meanings. Firstly, it is sometimes used to described impersonal security, such as land, life policies, or stock and shares. In this sense it may be contrasted with personal security, e.g., a guarantee. Thus use of the term is more common in the USA than it is elsewhere. Secondly, collateral security means any form of security deposited by someone other than the customer himself. It is to be contrasted with direct security, which is any type of property owned by the customer and charged by him by way of security."
5. Further, learned counsel for the petitioner contended that the presumption under Section 138 of the N.I.Act are not at all available to draw adverse inference against the petitioner. The admission made if any by a party is a strongest evidence but both the Courts below misinterpreted the word 'collateral security'. The trial Court has ignored the pleadings of the respondent-company and the complaint clearly discloses that the cheque has been issued by the petitioner as a collateral security. Therefore, the petitioner herein is not liable for conviction under Section 138 of the Act. He also contended that no notice of demand was served on the petitioner. Therefore, the trial Court ought not to have entertained the complaint filed by the respondent against it. In support of all these contentions, learned counsel for the petitioner relied on a decision reported in Nathoo Lal v. Durga Prasad, wherein it has been held that "What is admitted by a party to be true must be presumed to be true unless the contrary is shown".
In case of Jitendra Singh Flora v. Ravikat Talwar, II (2001) BC 699 of Madhya Pradesh High Court, it has been held that "Dishonour of cheque/cheques not issued for Discharge of Any Debt or Liability But by way of Security No Offence Made Out."
He has further relied upon a decision in Balaji Seafoods Exports (India) ltd., and Anr. v. Mac Industries Ltd, I (1999) BC 298 of Madras High Court wherein it has been held that "Making-Acceptance or Endorsement of Promissory Note, Bill of Exchange, or Cheque Completed by Delivery. Actual or Constructive-Date when contract was entered into between parties, there was no subsisting liability or debt-Contract makes it clear that cheque to be handed over as security."
6. On the other hand, learned counsel for the respondent submitted that the evidence of P.W.1 clearly discloses that he filed a complaint on behalf of the complainant as a Director. P.W.1 is an employee in the complainant's company and he is authorised by his company to appear and give evidence on behalf of the company. Since the complaint is filed by the authorised employee then the question of production of authorisation does not arise. It is further submitted that the said cheque is issued for the purpose of which the respondent had extended advance amount to perform the contract inspite of the demand notice, the petitioner failed to give reply or repay the amount. Therefore, the petitioner has rightly filed a complaint that the cheque issued by the petitioner along with a covering letter discloses that the petitioner received Rs. 20 lakhs as advance to perform the contract. Therefore, the issuance of the cheque raised presumption and the onus of proof shifts on the petitioner accused since he has not discharged his burden then the Courts below have rightly come to the conclusion in convicting the petitioner. Even if the guarantor issued the cheque on behalf of the third party then he is liable to pay amount. So, under Section 118 of the N.I. Act, when there is admission of the complaint presumption does not shift on the accused since the petitione has not entered the witness box to rebut the evidence. Therefore, the presumption under Section 139 has been rightly drawn by the Courts below.
7. In support of his contention, learned counsel for the respondent relied on a decision reported in 2002 (SC4)-GJX-0412-SC in the case of Icds Ltd, v. Beena Shabeer and Anr., ILR 2003 Kar. 4373 wherein it has been held that "Dishonour of cheque-Complainant against guarantor Maintainability-Guarantor issuing cheque towards payment of the dues outstanting against the principal debtor (hire-purchaser of car in this case)-Cheque bouncing-In such circumstances, complaint under Section 139 against the guarantor, held maintainable Arguments based on Sections 126 and 128, Contract Act, held not relevant in this regard-Words and Phrases-"Any cheque", "Other liability "-Scope-Contract Act, 1872, Sections 126 and 128 Interpretation of Statutes-Basic rules of interpretation-Legislative intent-Taken into consideration".
He has also relied upon another decision reported in Devi Tyres v. Nawab Jan, 2001 AIR-Kant. H.C.H.C.R.2154 wherein it has been held that "Dishonour of cheque-complaint-Criminal Court cannot embark upon any enquiry that goes behind act of issuance of cheque-If cheque was alleged to be issued for some special reasons and it was not intended to be enacted or honoured-Onus of establishing the same shifts squarely to accused".
Therefore, learned counsel for the respondent submitted that the present revision petition is liable to be dismissed on the ground that there is no error, illegality or incorrect findings recorded by the trial Court in coming to the just conclusion that the petitioner herein has committed the aforesaid offences.
8. Having heard the arguments of both parties the point that arises for any consideration and decision is:-
Whether the impugned order under challenge is incorrect or illegal?
9. It an undisputed fact that the petitioner herein has issued a cheque for Rs. 20 lakhs to the complainant as collateral security and when it was presented to the bank for encashment it was returned with an endorsement "fund insufficient". Accordingly, legal notice dated 23.12.1996 was issued to the petitioner accused calling upon to pay Rs. 20 lakhs within 15 days from the date of receipt of the notice. Petitioner herein accordingly received the legal notice (demand notice) on 26.12.1996 but for the reasons best known to the petitioner neither replied nor payment was received. Therefore, respondent filed a complaint under Section 326 IPC to punish the petitioner/accused for an offence punishable under Section 138 of the N.I.Act. No doubt the petitioner herein raised all the contentions before the trail Court as well as the learned Sessions Judge without adducing oral or documentary evidence. No doubt, it is clear that the respondent herein filed a suit for recovery of Rs. 7,14,610/- by filing a suit in O.S.523/90. It is to be noted here itself that filing of a civil suit is different from that of filing of a private complaint under Section 138 of the N.I.Act. The complainant is entitled to file both private complaint for bouncing of the cheque as well as civil suit for recovery of the amount due by the accused. In the instant case, the respondent herein filed a civil suit for recovery of the said amount which has not been disputed. While analyzing the contentions raised by the petitioner before the learned Sessions Judge in Crl.A. 15016/2000 it has been held that the complaint signed by the Managing Director of the respondent/complainant, therefore, non signing of the complaint by P.W.1/Swaminathan is not fatal to case of the complainant. It is seen that P.W.1 was the authorised officer shown in the cause title and the Managing Director of the company has absolute power to prosecute and file a complaint. Ofcourse, under Section 291 of the Companies Act, there must be a resolution passed by the Board of Directors of the Company authorising the Managing Director or any other competent officer to file a suit or to prosecute in the competent Court as held by the learned Sessions Judge by relying on a decision reported in 1991 SOL Case No. 705 and . Therefore, the contention of the learned counsel for the revision petitioner does not hold good. The Managing Director under the Memorandam of Association and Articles of Association was authosied to file a complaint or suit. In the instant case, the complaint filed by the Managing Director through the authorised officer P.W.1. Therefore, there is no illegality as such committed by the trial Court or the learned Sessions Judge in coming to the just conclusion. As regards the cheque issued as collateral security is concerned the learned Sessions Judge by relying on a decision reported in 2000 SOL Case No. 845 and 1999 SOL Case No. 153 and also the provisions of Section 138 of the N.I.Act and after reappraisal of the entire evidence by the learned Sessions Judge, held that even the collateral security becomes a debt or liability on the part of the accused to perform his contract. The very issuance of the cheque presumed that it was issued for the discharge of liability in favour of the drawee in due course. Whereas, in the instant case, the trial Court and the learned Sessions Judge have recorded their findings and held that the petitioner herein committed the offence punishable under Section 138 of the N.I.Act and hence the said orders should not be interfered with. Courts below have rightly considered both factual and legal aspect in coming to the conclusion in convicting the petitioner. Therefore, it could be said that the petitioner had a business transaction with the respondent company and issued the cheque for Rs. 20 lakhs, when the cheque was presented it was returned with an endorsement "insufficient funds", therefore, the respondent got issued demand notice but the petitioner failed to repay within 15 days and the complaint came to be filed well in time and placed sufficient legal evidence to prove the offence and hence, viewed from any angle, I do not find any illegal or incorrectness in the findings recorded by the trial Court and in convicting the petitioner for the offence punishable under Section 138 of Negotiable Instruments Act.
10. Hence the petition is dismissed as devoid of merits.