Jammu & Kashmir High Court
M/S Grand Batteries Pvt. Ltd. And Ors. vs M/S Osaka Alloys & Steel Pvt. Ltd. on 3 November, 2018
Equivalent citations: AIRONLINE 2018 J AND K 395
Author: Sanjay Kumar Gupta
Bench: Sanjay Kumar Gupta
HIGH COURT OF JAMMU AND KASHMIR
AT JAMMU
CRR No. 77/2016, IA No. 01/2016 c/w
CRR No. 78/2016, I A No. 01/2016
CRR No. 79/2016, IA No. 01/2016
Date of order:03.11.2018
M/s Grand Batteries Pvt. Ltd. and ors. vs. M/s Osaka Alloya and Steels Pvt. Ltd.
c/w connected matter
Coram:
Hon'ble Mr. Justice Sanjay Kumar Gupta, Judge
Appearing counsel:
For Petitioner/appellant(s) : Mr. Sunil Sethi, Sr. Advocate with
Mr. Nitin Parihar, Advocate
For respondent (s) : Mr. R. P. Sharma, Advocate
i/ Whether to be reported in Yes/No
Press/Media?
ii/ Whether to be reported in Yes/No
Digest/Journal?
1. Since common questions of law and facts have arisen for consideration in
these criminal revision petitions, these were heard analogously and are
being decided by this common order.
CRR No.77/2016
2. In this criminal revision, the petitioners inter alia have assailed the validity
of order dated 04.07.2017 passed by the Munsiff, JMIC, Samba in
complaint, titled, Osaka Alloys and Steels Pvt. Ltd. Vs. Grand Batteries
and others, whereby cognizance of the complaint was taken and process
against the petitioners was issued as well as the subsequent orders passed
by the Munsiff, JMIC, Samba. The petitioners also seek quashing of
complaint under section 138 of Negotiable Instruments Act.
CRR No.78/2016
3. In this criminal revision, the petitioners inter alia have assailed the validity
of order dated 31.08.2016 passed by the Chief Judicial Magistrate, Samba
CRR No. 77 of 2016 a/w connected matters. Page 1 of 13
in complaint, titled, Osaka Alloys and Steels Pvt. Ltd. Vs. Grand Batteries
and others, whereby cognizance of the complaint was taken and process
against the petitioners was issued as well as the subsequent orders passed
by the Chief Judicial Magistrate, Samba. The petitioners also seek quashing
of complaint under Section 138 of Negotiable Instruments Act.
CRR No.79/2016
4. In this criminal revision, the petitioners inter alia have assailed the validity
of order dated 31.08.2016 passed by the Chief Judicial Magistrate, Samba
in complaint, titled, Osaka Alloys and Steels Pvt. Ltd. Vs. Grand Batteries
and others, whereby cognizance of the complaint was taken and process
against the petitioners was issued as well as the subsequent orders passed
by the Chief Judicial Magistrate, Samba. The petitioners also seek quashing
of complaint under section 138 of Negotiable Instruments Act.
5. For facility of reference, the facts in brief are taken from CRR No.77/2016.
The petitioner No. 1 is a Private Limited Company duly incorporated under
the Companies Act, 1956 and registered with the Registrar of Companies
Rajasthan. The petitioner No. 2 is one of the Directors of the petitioner No.
1-Company, whereas the petitioner Nos. 3 & 4 were also the directors of
the company but have resigned and are no more associated or dealing with
the affairs of the petitioner No. 1-Company. The petitioner No.1-Company
is manufacturer of Batteries having its industrial unit in the State of
Rajasthan. The petitioner No.1-Company in connection with manufacturing
of Batteries was requiring Lead and Lead Alloys, and accordingly came in
contact with the respondent, who is engaged in the business of
manufacturing of Lead Alloys having one of its industrial unit in the State
of Jammu and Kashmir at Industrial Growth Centre, Samba. It is contended
that after due negotiations with respect to purchase of aforesaid products
from the respondent, the petitioner No.1-Company placed a standing
CRR No. 77 of 2016 a/w connected matters. Page 2 of 13
purchase order dated 15.10.2014 with the respondent for supply of Lead
and Lead Alloy on the terms and conditions as were stipulated in the said
Standing Purchase Order. The Purchase Order issued by the petitioner No.
1-Company was for a period of one year only. It was further envisaged in
the Standing Purchase Order dated 15.10.2014 that rate of each
consignment will be discussed and then proforma invoice will be raised by
the respondent at the agreed rate of payment.
6. The significant condition of the Standing Purchase Order dated 15.10.2014
after due negotiation with the respondent was that the petitioner No.1 will
provide to the respondent security cheques so that the respondent could
start and complete the production and at the time of dispatch, payment was
required to be made through RTGS/LC. It is also indicated in the said
Standing Purchase Order that use of security cheques will be invalid and
illegal. It is further contended that the petitioner No.1-Company has
provided as many as 27 cheques of different amounts from time to time as
security notwithstanding the fact that it has made all the payments from
time to time commensurate to the supplies made by the respondent. That
the respondent with dishonest intention and in order to blackmail the
petitioner-Company started executing threats to the petitioner Nos.2 to 4
that respondent will present security cheques given by the petitioner No.1-
Company and on getting the same dishonoured, the petitioners will be
roped into criminal liabilities. It is further contended that the respondent in
utter breach and contravention of the Standing Purchase Order dated
15.10.2014, presented three such security cheques bearing Nos. 077884
dated 28.04.2016; 077885 dated 09.04.2016; and 077887 dated 09.05.2016
all amounting to Rs. 2,50,000/- and drawn on Punjab National Bank,
Beawar Ajmer. On presentation of the cheques, the same were dishonoured
and the respondent after issuance of notice, service of which was never
effected upon any of the petitioners, has filed the complaint under section
CRR No. 77 of 2016 a/w connected matters. Page 3 of 13
138 of the Negotiable Instrument Act. The Court of Munsiff, JMIC, Samba
on presentation of the complaint, took cognizance and issued process
against the petitioner vide order dated 04.07.2016. It is contended that the
summons issued by the trial court were never served upon the petitioners
and on finding petitioners absent, the Court of Munsiff, JMIC, Samba
issued non-bailable warrants against petitioner No.2 through SSP Ajmer
Beawar, Rajasthan and petitioner Nos. 3 & 4 were directed to be informed
through registered envelop, through some reputed courier service.
Thereafter, on 08.11.2016, the petitioner No. 2 was produced before the
Court of Munsiff JMIC, Samba in execution of the warrants issued and on
his application filed, the court passed order on the same day directing
petitioner No.2 to furnish personal bond and local surety to the tune of
Rs.50,000/- with the direction to be remained present on the next date of
hearing i.e. on 08.12.2016. It is lastly contended that the respondent has
filed the complaint purely with the intention of blackmailing, harassing and
victimizing the petitioners just to extract as much money as it could and the
judicial proceedings are being abused by the respondent. In the aforesaid
factual background, the petitioners have approached this Court seeking
reliefs as stated supra.
7. The petitioners, being aggrieved of the impugned order as well as the
proceedings being conducted in the complaint, titled Osaka Alloys and
Steels Pvt. Ltd. vs. Grand Batteries and others, have challenged the same
in the instant criminal revision on the following grounds:
(a) That the impugned complaint under section 138 of Negotiable
Instruments Act, titled, Osaka Alloys and Steel Pvt. Lld. Vs. Grand Batteries
and others filed by the respondent against the petitioners is highly
motivated, aimed at harassing and blackmailing the petitioners and is a clear
abuse of process of law.
(b) That the respondent has misused the security cheques issued by the
petitioner No. 1-company, which as per the terms and conditions of the
Standing Purchase Order and Minutes of Meeting dated 16.06.2016 were
already held to be invalid. Once the respondent is signatory to an agreement
CRR No. 77 of 2016 a/w connected matters. Page 4 of 13
that the security cheques are invalid and cannot be presented, it is ex-facie
illegal and unlawful on the part of the respondent to present the cheques,
which were dishonored and without valid service of notice of demand upon
the petitioners, impugned complaint was filed, and that the manner in which
the learned Magistrate entertained the complaint and initiated proceedings
against the petitioners is highly contrary to the provisions of law.
(c) That the learned Magistrate has failed to appreciate the provisions of
Section 138 of the Negotiable Instruments Act in reference to the allegation
alleged in the complaint and could not have taken cognizance of the
complaint and issued the process.
(d) That the cheques dishonored in the instant case is not a disputed
question of fact, therefore, maintainability of the impugned complaint is
highly disputed. The trial court while taking cognizance of the complaint and
issuing process against the petitioners has not recorded any satisfaction with
regard to commission of offence under the provisions of Section 138 of the NI
Act.
8. On the other hand, the respondent has filed objections, wherein it is stated
that the petitioner-company and respondent-company had business dealing
with each other. The petitioner-company had been purchasing lead Ingots
on credit from the respondent company and on account of such transaction
there was a liability in the sum of Rs. 49,44,023/- against the petitioner-
company and to discharge the liability in part, the petitioner company had
issued the cheques in question. Evidencing the transaction having been
taken place from time to time between the petitioner-company and the
respondent-company as also as to the above stated outstanding against the
petitioner-company, along with the complaint, the respondent-company has
also annexed copies of the invoices/bills and the statement of account. It is
further stated that the petitioner-company has proceeded to file the instant
misconceived petition mindful of the fact that the case sought to be
projected by the petitioners, the matter in hand would involve a question of
fact, capable of being determined only by the trial court after recording
evidence of the parties. It is also stated that to impeach cognizance having
been validly taken by the trial Court in the complaint, the petitioners have
acted totally unmindful of the mandate as envisaged under section 139 of
CRR No. 77 of 2016 a/w connected matters. Page 5 of 13
Negotiable Instruments Act, which provides for presumption in favour of
the holder.
9. Learned senior counsel for the petitioners has reiterated the grounds taken
in the revision petition, whereas counsel for the respondent has argued that
the documents which have been attached with this criminal revision petition
are pertaining to a disputed question of facts, which cannot be adjudicated
upon by this Court in a petition under Section 561-A Cr.P.C. It is argued
that this Court while exercising power under section 561-A code of
Criminal Procedure does not function as a court of trial, appeal or revision,
therefore, this disputed question of facts can well be adjudicated by the trial
court, who has power to do so.
10. I have considered the submissions made by the learned counsel for the
parties and perused the record.
11. First argument of counsel for petitioners is that petitioners no.3 and 4 have
already resigned from partnership concern, prior to filing of complaint, so
they were not concerned with the business concern. In support of this
argument counsel for petitioners has relied upon Annexure-A, i.e. the letter
written to Board of Directors of Company by petitioners 3 and 4 dated
23.03.2016 and 01/04/2016 respectively. Further counsel has argued that
for fastening the vicarious labiality of Directors of Company, complaint
should have specifically mentioned as to how directors and what manner,
they were liable. He relied upon 2017 AIR (SCW ) 2854 case titled
Ashoke Mal Bafna v Upper India Steel Mfg. & Engg. Co. Ltd., wherein
it is held as under:-
―10. To fasten vicarious liability under Section 141 of the Act on a
person, the law is well settled by this Court in a catena of cases that the
complainant should specifically show as to how and in what manner the
accused was responsible. Simply because a person is a Director of
defaulter Company, does not make him liable under the Act. Time and
again, it has been asserted by this Court that only the person who was at
CRR No. 77 of 2016 a/w connected matters. Page 6 of 13
the helm of affairs of the Company and in charge of and responsible for
the conduct of the business at the time of commission of an offence will
be liable for criminal action [See: Pooja Ravinder Devidasani v. State of
Maharashtra & ors. AIR 2015 SC 675].
11. In other words, the law laid down by this Court is that for making
a Director of a Company liable for the offences committed by the
Company under Section 141 of the Act, there must be specific averments
against the Director showing as to how and in what manner the Director
was responsible for the conduct of the business of the Company.
12. Turning to the case on hand, admittedly the cheques dated
28.12.2004 were issued while the appellant was Director of the Company
with validity for a period of six months but during that period they were
not presented for realisation at the bank. The appellant has resigned as
Director w.e.f. 02.01.2006 and the fact of his resignation has been
furnished by Form 32 to the Registrar of Companies on 24.03.2006 in
conformity with the rules. Thereafter, the appellant had played no role
in the activities of the default Company. This fact remains substantiated
with the Statement filed by the default Company on 20.02.2006 with the
Registrar of Companies that in an advertisement of the Company
seeking deposits (Annexure P3), only the names of three Directors of the
Company were shown as involved in the working of the Company and
the name of appellant was not therein. Indisputably, therefore, the
cheques bounced on 24.08.2006 due to insufficient funds were neither
issued by the appellant nor the appellant was involved in the day to day
affairs of the Company.‖
12. I have considered this aspect of the matter. Section 141 of N.I. Act reads as
under:-
―141 Offences by companies. --
(1) If the person committing an offence under section 138 is a company,
every person who, at the time the offence was committed, was in charge of,
and was responsible to the company for the conduct of the business of the
company, as well as the company, shall be deemed to be guilty of the
offence and shall be liable to be proceeded against and punished
accordingly: Provided that nothing contained in this sub-section shall
render any person liable to punishment if he proves that the offence was
committed without his knowledge, or that he had exercised all due
diligence to prevent the commission of such offence: 22 [Provided further
that where a person is nominated as a Director of a company by virtue of
his holding any office or employment in the Central Government or State
Government or a financial corporation owned or controlled by the Central
Government or the State Government, as the case may be, he shall not be
liable for prosecution under this Chapter.]
(2) Notwithstanding anything contained in sub-section (1), where any
offence under this Act has been committed by a company and it is proved
that the offence has been committed with the consent or connivance of, or
CRR No. 77 of 2016 a/w connected matters. Page 7 of 13
is attributable to, any neglect on the part of, any director, manager,
secretary or other officer of the company, such director, manager,
secretary or other officer shall also be deemed to be guilty of that offence
and shall be liable to be proceeded against and punished accordingly.
Explanation.-- For the purposes of this section,--
(a) ―company‖ means anybody corporate and includes a firm or other
association of individuals; and
(b) ―director‖, in relation to a firm, means a partner in the firm.‖
13. Perusal of this section would reveal that every person who at the time the
offence was committed, was in charge of, and was responsible to the
company for the conduct of the business of the company, as well as the
company, shall be deemed to be guilty of the offence and shall be liable to
be proceeded against and punished accordingly; further if any such person
proves that offence was committed without his knowledge, then he shall be
punished, so this is a rebuttable fact and burden lies upon the person, who
states that the offence was committed without his knowledge. Its proviso
also provides that where any offence under this Act has been committed by
a company and it is proved that the offence has been committed with the
consent or connivance of, or is attributable to, any neglect on the part of,
any director, manager, secretary or other officer of the company, such
director, manager, secretary or other officer shall also be deemed to be
guilty of that offence and shall be liable to be proceeded against and
punished accordingly.
14. In present case, bare perusal of para no.6 of complaint it is evident that
there is specific mention that accused Nos.2-4 are directors of company and
are in control of affairs of said company. The defence taken that they were
not directors at the time of offence, is a fact which they have to prove
before court below. The law cited above is not applicable, because in that
case there was specific proof of resignation of Director as per Form 32 sent
to Registrar of Companies. But in present case, there are only self written
letter by petitioners which were sent to boards of directors of firm, without
any Form 32 of Company Act. So these simple letters are not admissible.
CRR No. 77 of 2016 a/w connected matters. Page 8 of 13
15. Next argument of counsel for petitioners is that cheques in questions were
issued, when there was no liability and were issued during purchase order.
Further it has been argued that cheques were issued as security and have
been misused. He has relied upon Annexure-E i.e. agreement/minutes of
meeting allegedly executed between parties, wherein it is held that all the
old security cheques, which have already been held with complainant shall
be deemed invalid. Whereas counsel for complainant has rebutted this
argument and has said that these are facts which are to be proved by
petitioners before court below.
16. I have considered this aspect of the matter also. First from the perusal of
Annexure-E, it is evident that this agreement was subject to conditions that
all previous liability has to be cleared; which as per counsel for
complainant has not been cleared.
17. Section 139 of N.I. Act reads under.
―139. Presumption in favour of holder.--It shall be presumed, unless the
contrary is proved, that the holder of a cheque received the cheque of the
nature referred to in section 138 for the discharge, in whole or in part, of
any debt or other liability.
18. In Kumar Exports vs. Sharma Carpets, 2009 (2) SCC 513, Supreme
Court had considered the provisions of Negotiable Instruments Act as well
Evidence Act. Referring to Section 139, Apex Court laid down the
following in paragraphs 14, 15, 18 and 19 of the judgment:
"14. Section 139 of the Act provides that it shall be presumed, unless the
contrary is proved, that the holder of a cheque received the cheque of the
nature referred to in Section 138 for the discharge, in whole or in part, of
any debt or other liability.
15. Presumptions are devices by use of which the courts are enabled and
entitled to pronounce on an issue notwithstanding that there is no evidence
or insufficient evidence. Under the Evidence Act all presumptions must
come under one or the other class of the three classes mentioned in the Act,
namely, (1) "may presume" (rebuttable), (2) "shall presume" (rebuttable),
and (3) "conclusive presumptions" (irrebuttable). The term
CRR No. 77 of 2016 a/w connected matters. Page 9 of 13
"presumption" is used to designate an inference, affirmative or
disaffirmative of the existence of a fact, conveniently called the "presumed
fact" drawn by a judicial tribunal, by a process of probable 13 reasoning
from some matter of fact, either judicially noticed or admitted or
established by legal evidence to the satisfaction of the tribunal.
Presumption literally means "taking as true without examination or
proof".
18. Applying the definition of the word "proved" in Section 3 of the
Evidence Act to the provisions of Sections 118 and 139 of the Act, it
becomes evident that in a trial under Section 138 of the Act a presumption
will have to be made that every negotiable instrument was made or drawn
for consideration and that it was executed for discharge of debt or liability
once the execution of negotiable instrument is either proved or admitted.
As soon as the complainant discharges the burden to prove that the
instrument, say a note, was executed by the accused, the rules of
presumptions under Sections 118 and 139 of the Act help him shift the
burden on the accused. The presumptions will live, exist and survive and
shall end only when the contrary is proved by the accused, that is, the
cheque was not issued for consideration and in discharge of any debt or
liability. A presumption is not in itself evidence, but only makes a prima
facie case for a party for whose benefit it exists.
19. The use of the phrase "until the contrary is proved" in Section 118 of
the Act and use of the words "unless the contrary is proved" in Section 139
of the Act read with definitions of "may presume" and "shall presume" as
given in Section 4 of the Evidence Act, makes it at once clear that
presumptions to be raised under both the provisions are rebuttable. When
a presumption is rebuttable, it only points out that the party on whom lies
the duty of going forward with evidence, on the fact presumed and when
that party has produced evidence fairly and reasonably tending to show
that the real fact is not as presumed, the purpose of the presumption is
over.‖
19. In present case, petitioner no.2 has admitted his signatures on cheques in
question, so facts relied that there was no liability and cheques were issued
during purchase order; that cheques were given as security and have been
misused, are rebuttable facts to the facts narrated in complaint, which
petitioners required to prove before court below.
20. In 2016 AIR SC 4363 in case titled Sampelly Satyanaryana Rao v.
Indian Renewable Energy Development Agency, it is held as under:-
"--------------The High Court did not accept the above contention and held:-
CRR No. 77 of 2016 a/w connected matters. Page 10 of 13
―10. In the present case when the post-dated cheques were issued,
the loan had been sanctioned and hence the same fall in the first
category that is they were cheque issued for a debt in present but
payable in future. Hence, I find no reason to quash the complaints.
However, these observations are only prima facie in nature and it
will be open for the party to prove to the contrary during trial.‖
We have heard learned counsel for the parties.
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Reference may now be made to the decision of this Court in Indus Airways Private Limited versus Magnum Aviation Private Limited [1], on which strong reliance has been placed by learned counsel for the appellant. The question therein was whether post-dated cheque issued by way of advance payment for a purchase order could be considered for discharge of legally enforceable debt. The cheque was issued by way of advance payment for the purchase order but the purchase order was cancelled and payment of the cheque was stopped. This Court held that while the purchaser may be liable for breach of the contract, when a contract provides that the purchaser has to pay in advance and cheque towards advance payment is dishonoured, it will not give rise to criminal liability under Section 138 of the Act. Issuance of cheque towards advance payment could not be considered as discharge of any subsisting liability. View to this effect of the Andhra Pradesh High Court in Swastik Coaters (P) Ltd. versus Deepak Bros.[2], Madras High Court in Balaji Seafoods Exports (India) Ltd. versus Mac Industries Ltd.[3], Gujarat High Court in Shanku Concretes (P) Ltd. versus State of Gujarat[4] and Kerala High Court in Supply House versus Ullas[5] was held to be correct view as against the view of Delhi High Court in Magnum Aviation (P) Ltd. versus State[6] and Mojj Engg. Systems Ltd. versus A.B. Sugars Ltd.[7] which was disapproved.
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Crucial question to determine applicability of Section 138 of the Act is whether the cheque represents discharge of existing enforceable debt or liability or whether it represents advance payment without there being subsisting debt or liability. While approving the views of different High Courts noted earlier, this is the underlying principle as can be discerned from discussion of the said cases in the judgment of this Court. In Balaji Seafoods (supra), the High Court noted that the cheque was not handed over with the intention of discharging the subsisting liability or debt. There is, thus, no similarity in the facts of that case simply because in that case also loan was advanced. It was noticed specifically therein - as was the admitted case of the parties - that the cheque was issued as ―security‖ for the advance and was not intended to be in discharge of the liability, as in the present case. In HMT Watches Ltd. versus M.A. Abida[8], relied upon on behalf of the respondent, this Court dealt with the contention that the proceedings under Section 138 were liable to be quashed as the cheques were given as ―security‖ as per defence of the accused. Negativing the contention, this Court held :-
CRR No. 77 of 2016 a/w connected matters. Page 11 of 13―10. Having heard the learned counsel for the parties, we are of the view that the accused (Respondent 1) challenged the proceedings of criminal complaint cases before the High Court, taking factual defences. Whether the cheques were given as security or not, or whether there was outstanding liability or not is a question of fact which could have been determined only by the trial court after recording evidence of the parties. In our opinion, the High Court should not have expressed its view on the disputed questions of fact in a petition under Section 482 of the Code of Criminal Procedure, to come to a conclusion that the offence is not made out.
The High Court has erred in law in going into the factual aspects of the matter which were not admitted between the parties. The High Court further erred in observing that Section 138(b) of the NI Act stood uncomplied with, even though Respondent 1 (accused) had admitted that he replied to the notice issued by the complainant. Also, the fact, as to whether the signatory of demand notice was authorised by the complainant company or not, could not have been examined by the High Court in its jurisdiction under Section 482 of the Code of Criminal Procedure when such plea was controverted by the complainant before it.
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As is clear from the above observations of this Court, it is well settled that while dealing with a quashing petition, the Court has ordinarily to proceed on the basis of averments in the complaint. The defence of the accused cannot be considered at this stage. The court considering the prayer for quashing does not adjudicate upon a disputed question of fact. In Rangappa versus Sri Mohan[9], this Court held that once issuance of a cheque and signature thereon are admitted, presumption of a legally enforceable debt in favour of the holder of the cheque arises. It is for the accused to rebut the said presumption, though accused need not adduce his own evidence and can rely upon the material submitted by the complainant. However, mere statement of the accused may not be sufficient to rebut the said presumption. A post dated cheque is a well recognized mode of payment.
Thus, the question has to be answered in favour of the respondent and against the appellant. Dishonour of cheque in the present case being for discharge of existing liability is covered by Section 138 of the Act, as rightly held by the High Court.
Accordingly, we do not find any merit in this appeal and the same is dismissed. Since we have only gone into the question whether on admitted facts, case for quashing has not been made out, the appellant will be at liberty to contest the matter in trial court in accordance with law."CRR No. 77 of 2016 a/w connected matters. Page 12 of 13
21. In view of above law, the defence taken by petitioners is not tenable in these petitions. Further, all the documents relied by petitioners were never before the trial court at the time of taking cognizance. So these cannot be relied in these petitions for quashing/setting aside the cognizance, unless these are public documents.
22. In view of above, these revision petitions are dismissed. Stay, if any, is vacated.
( Sanjay Kumar Gupta ) Judge Jammu 03.11.2018 Karam Chand CRR No. 77 of 2016 a/w connected matters. Page 13 of 13