Delhi District Court
M/S Shreeji Overseas India Pvt vs M/S Pec Limited on 28 March, 2016
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IN THE COURT OF SH. GURDEEP SINGH,
SPECIAL JUDGE (PC ACT), CBI-05 PATIALA HOUSE COURTS,
NEW DELHI.
CA. No. : 37/15
Unique Case ID no. : 02403R0258272015
1. M/s Shreeji Overseas India Pvt.
Through its Directors
118-119, Rishabh Corner
Tagore Garden, Gandhidham (Kutch)-370201
Gujarat
2. K.B. Sharma
Director
M/s Shreeji Overseas India Pvt.
Through its Directors
118-119, Rishabh Corner
Tagore Garden, Gandhidham (Kutch)-370201
Gujarat
3. Mohit Sharma
Director
M/s Shreeji Overseas India Pvt.
Through its Directors
118-119, Rishabh Corner
Tagore Garden, Gandhidham (Kutch)-370201
Gujarat ... Appellants
Vs.
M/s PEC Limited
(A Government of India Enterprise)
Hansalaya
15, Barakhamba Road
New Delhi-110 001 .... Respondent
CA No. 37/15
M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 1 of 45
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Date of Institution : 05.12.2015
Date of arguments : 26.02.2016
Date of pronouncement : 28.03.2016
ORDER
1. This joint appeal is directed against judgment and order on sentence dated 02.11.2015 and 17.11.2015, respectively for offence punishable under Section 138 of Negotiable Instruments Act, 1881 (herein referred to as "NI Act") whereby, appellants no. 2 and 3 were sentenced to undergo rigorous imprisonment for 3 months; all the appellants were sentenced to pay fine of Rs.27 crores to be paid to the complainant/ respondent within one month from the date of order on sentence, in default, to further undergo simple imprisonment for period of 3 months. However,the fine was not deposited
2. Notice of the appeal was given to respondent and trial court record was also summoned.
3. Factual matrix of the case is that a complaint under Section 138 NI Act was filed by M/s PEC Limited (herein referred to as respondent) which is a Government of India Enterprise against the company M/s Shreeji Overseas Private Limited and its directors, namely, K.B. Sharma and Mohit Sharma (herein referred to as CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 2 of 45 :: 3 ::
appellants no. 1, no. 2 and no. 3, respectively). Complaint was also filed against Smt. Priti S. Dogra, Director however, she is not made a party in the appeal, as she was acquitted by the trial court. Directors of appellant no. 1 including Smt. Priti S. Dogra were looking after its day to day affairs and were in-charge and responsible for the conduct of its business. Respondent entered into an associateship agreement dated 15.07.2008 with appellant no. 1 for import of 45000 MT of steaming non coking coal from foreign supplier on behalf of appellant no. 1. Letter of Credit (LC) was opened in favour of foreign supplier and in pursuance thereto, cargo was imported. The cargo was thereafter, sold to appellant no. 1 on high seas sale basis in accordance with the terms of associateship agreement.
4. A deed of pledge was also executed on 26.07.2008 in terms of the associateship agreement whereby, the goods sold to appellant no. 1 were pledged in favour of the respondent. Appellant no. 2 on behalf of appellant no. 1 issued cheque amounting to Rs.23 crore dated 25.10.2008 against liability towards opening of LC. The cheque was replaced by appellant by issuing another cheque dated 17.04.2009 for the same amount. On the expiry of the said cheque, it was again replaced by CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 3 of 45 :: 4 ::
issuing another cheque on 14.10.2009 for the same amount drawn on Bank of India, Gandhidham Branch, Plot no. 1, Sector-9, District Kutch, Gujarat towards the partial discharge of their liability towards the respondent. Appellant also undertook that the cheque would be honoured on its presentation.
5. The respondent became out of pocket on 27.10.2008 for a sum of Rs.19,34,43,829.50 as the appellant failed to liquidate the entire cargo and pay for the same within the usance period of 120 days. Complainant vide letter dated 15.02.2010 demanded the outstanding amount along with interest of 14% p.a. and also informed that in case the appellant failed to pay the amount then the respondent would deposit the cheque dated 14.10.2009 for its encashment.
6. However, before the respondent could present the cheque, the appellant filed the petition under Section 9 of Arbitration and Conciliation Act, 1996 before Hon'ble High Court of Delhi and sought restrain order against the respondent with respect to encashment of cheque.
During the proceedings before Hon'ble High Court, the encashment of cheque was stayed vide order dated 08.03.2010. Thereafter, Hon'ble High Court vide order dated 04.05.2010 directed the appellant to revalidate CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 4 of 45 :: 5 ::
the cheque dated 14.10.2009 and to keep it alive during the pendency of petition. Appellant then issued a fresh cheque dated 15.03.2010 in replacement of cheque dated 14.10.2009 for the same amount.
7. Thereafter, on the basis of statement made by the counsel for the appellant in the petition on 29.09.2010, Hon'ble High Court disposed of the petition with direction to appellant to deposit a sum of Rs.14 crore with Registrar General of Hon'ble High Court within four weeks and issued a fresh cheque for Rs.23 crores in the interregnum in favour of respondent. Appellant then filed the application for recalling of order which was dismissed by Single Bench of Hon'ble High Court vide order dated 10.12.2010. Appellant then preferred appeal against the order before Division Bench of Hon'ble High Court and vide order dated 11.02.2011, Hon'ble High Court directed the parties to settle the dispute amongst them by appointing an arbitrator.
Both the parties mutually consented for appointment of Retd. Justice, Sh. Mukul Mudgal as the sole Arbitrator, Delhi High Court Arbitration Centre. The arbitration proceedings are pending adjudication.
8. On 14.03.2011, learned counsel for appellant appeared before the Hon'ble Division Bench of Hon'ble High CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 5 of 45 :: 6 ::
Court and tendered the cheque dated 10.03.2011 for Rs.23 crore drawn on Bank of India in favour of respondent which was accepted by the respondent without prejudice to their rights and contention. Hon'ble High Court in the aforesaid order specifically clarified that acceptance of the said cheque by the respondent shall not exonerate any present or previous director of appellant no. 1 from civil or criminal liability. Thereafter, the cheque was presented by respondent for echashment. However, the cheque was returned vide return memo dated 28.03.2011 for reason "Funds Insufficient".
9. It is stated that appellant no. 1 is company and appellants no. 2 and 3 and Smt. Priti S. Dogra are its directors. Appellants were informed about the dishonour of cheque however, they did not take any initiative towards the release/ making of the payment. Appellants admitted and confirmed their liability towards the respondent vide letter dated 09.12.2009 to the extent of Rs.14,98,74,312.30 though, as per the books of account of respondent, the liability is much more. The said letter was replied to by respondent in informing the appellant that their liability towards the respondent is Rs.19,41,91,636/- including withholding tax of Rs.7,47,807/- as on Rs.19,41,91,636/-.
CA No. 37/15M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 6 of 45 :: 7 ::
Appellants also admitted their liability in letter dated 17.02.2010 written to Sh. Navin Jain, Surveyor and Loss Assessor wherein, they enclosed the letter dated 17.12.2009 demanding the amount due from appellant.
10.It is further stated that respondent maintained its books of account. Details of all the monies received and outstanding dues were kept in the books account; amount of Rs.25,64,03,448.50 was outstanding as on 15.02.2011 which included interest of Rs.7,47,807/- under the subject LC. Thereafter legal notice was issued calling upon the appellants to pay the amount which was received at their registered office address and was returned with remark "Party Left". However, other notices sent through speed post were served on all the appellants on 29.04.2011. The notice was replied by the appellants through their counsel. Thereafter, the complaint was filed through authorized signatory Sh. Dinesh Kumar who was authorized vide power of attorney dated 08.09.2010.
11. In the pre-summoning evidence, complainant Sh. Dinesh Kumar was examined as CW-1. On the basis of pre-summoning evidence, appellants were summoned vide order dated 18.01.2012. Thereafter notices under CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 7 of 45 :: 8 ::
Section 251 Cr. P.C. were framed against the appellants whereby, they submitted that cheques were issued as security prior to import of material; the impugned cheque was the replaced cheque which has lapsed. Payment was due to be made after result of dispute pending before Arbitrator.
12.Thereafter, CW-1 adopted the statement in pre- summoning evidence which was tendered by way of affidavit in the post-summoning evidence. Joint statement of appellants was recorded under Section 313 Cr. P.C. It was stated that Smt. Priti S. Dogra was a sleeping director and was not the signatory of cheque nor executed any document and there is no specific submission against her. It was admitted that deed of pledge was executed as per which the goods were in possession of respondent; the goods had to be de- pledged by the respondent after receiving 100% value of quantity sought by the appellant. The cheque in question was not issued in discharge of any liability and was issued by way of security in terms of associateship agreement. It was also admitted that appellants no. 2 and 3 were the directors and in-charge of day to day affairs of appellant no. 1. They sought to lead evidence in their defence.
CA No. 37/15M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 8 of 45 :: 9 ::
13.Appellant no. 2 K.B. Sharma examined himself as DW-1 and thereafter, vide judgment and order on sentence dated 02.11.2015 and 17.11.2015, respectively, appellants were convicted. Hence, the present appeal.
14.The impugned order is assailed on the ground that cheque was given as security in terms of associateship agreement. The entire cargo was under the custody of respondent and no quantity of imported cargo could be released to the appellant without de-pledge order issued by respondent against 100% payment of the de-
pledged quantity of the cargo. Further, learned MM misinterpreted and wrongly applied the judgment passed in M/s Collage Culture & Ors. V Apparel Export Promotion Council & Anr. 2007 (4) JCC 388. It is further stated that liability is less than Rs.20 crores and the cheque was of Rs.23 crore. Further, as per Section 65B of Indian Evidence Act, the statement of account which is a computer generated record cannot be proved. However, the ground w.r.t. the non-receipt of notice was not pressed.
15.I have heard Sh. S.V. Raju, learned Sr. Advocate for appellant and Sh. Ajay Kalra, Advocate for respondent. I have also gone through the trial court record.
CA No. 37/15M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 9 of 45 :: 10 ::
16.It is submitted on behalf of the appellant that the cheque in question was for Rs.23 crore whereas, as per the statement of account, the due amount was Rs.19,34,43,829.50 which was less than the cheque amount and, therefore, the cheque was not in discharge of the liability. It is further submitted that as per the associateship agreement dated 15.07.2008 between appellant and respondent, the associate was required to pay 20% of the contract value, that is, the 15% before opening of LC and balance 5% at the time of high seas agreement as advance, which shall be adjusted against the last de-pledge order and associate will give post-dated cheque for 85% of the contract value along with legal undertaking as per the form given by respondent which comes to 105% of the contract value and, therefore, this also reflects that the cheque in question was given as security and not for existing liability. Further, to buttress his arguments with additional clause wherein, in case delivery of the pledged material is not taken, the same shall be property of the respondent and, they shall be entitled to dispose of the pledged material in the manner they deemed fit. He further submitted that as per the order of Division Bench of Hon'ble High Court, dated 14.03.2011, Hon'ble High Court has observed that cheque of Rs.23 CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 10 of 45 :: 11 ::
crore was an additional security, therefore, the cheque was not in discharge of the liability. He cited Arvind Manekala Tailor V State of Gujarat 2000 Law Suit (Guj) 251 and stated that if by the due date of cheque, there was no change in the circumstances and change of obligation between the parties whereby, the extent of debt and quantum was substantially altered and the debt, if any, of the drawer to the drawee was of a far smaller figure then, it did not represent either the entire debt or part of debt due under Section 138 N.I. Act. He also cited Indus Airways Pvt.Ltd. & Ors. V Magnum Aviation Pvt. Ltd. & Anr. The judgment of Hon'ble Supreme Court with respect to the criminal liability under Section 138 N.I. Act is not attracted in case of security cheque.
17.It is further submitted on behalf of appellants that to show the liability of the company, no books of account has been produced of the relevant period. He further submitted that in absence of certificate under Section 65B of Indian Evidence Act, statement of account filed by the respondent cannot be looked into. He further submitted that as per the complaint, no vicarious liability can be fastened on appellant no. 3 as there is no evidence on record to show that he was in-charge of day to day affairs of appellant no. 1. With respect to CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 11 of 45 :: 12 ::
vicarious liability, learned counsel cited Municipal Corporation of Delhi V Ram Kishan Rohtagi 1982 Law Suit (SC)205 and National Small Industries Corp. Ltd. V Harmeet Singh Paintal 2010 Law Suit (SC)62.
18.It is further submitted on behalf of the appellant that he had examined defence witness and rebutted the presumption under Sections 139 and 118 of N.I. Act. He further submitted that the standard of proof to rebutt the presumption is not that beyond reasonable doubt, but that of preponderance of probability. He cited M.S. Narayana Menon @ Mani V State of Kerala & Anr. (2006) 6 SCC 39.
19.On the other hand, learned counsel for respondent submitted that the appellant had firmed up the order with the over-seas supplier and only thereafter, they had approached the respondent to facilitate import. The import was done on their behalf and the LC was opened. At the time of opening of LC, the liability was incurred by the respondent on behalf of the appellants. Agreement Ex.CW1/1 was entered into on 25.10.2008 and liability was admitted on 07.10.2009. The liability was admitted even in the cross-examination. He further submitted that since the objection under Section 65B Indian Evidence Act was not taken at the CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 12 of 45 :: 13 ::
time of admitting document, it cannot be raised now. He further submitted that the cheque was issued in discharge of existing liability, which was undertaken by respondent on behalf of the appellant by opening LC on their behalf. He further submitted that associateship agreement clearly mentions that the associate has firmed up the arrangement with over-seas supplier and thereafter, they approached them. The deed of pledge Ex.CW1/5 clearly mentions that the respondent had imported the coal in bulk of the value on CIF vide LC on 17.07.2008 and sold to the appellant on high seas basis as per provision of LC as well as contract dated 01.07.2008 and, therefore, it clearly shows that the property in the case had passed, the de-pledge order is only to secure the timely lifting of the material and payment to respondent. He further submitted that as regards vicarious liability of appellant no. 3, DW-1 admitted vide Ex.DW1/C-1 that Mohit Sharma, that is, appellant no. 3 had sent documents pertaining to their purchase of 45000 MT of non coking coal to respondent on behalf of company as director and, therefore, he was responsible for day to day affairs of appellant no.
3.
20.Learned counsel cited R.V.E. Venkatachala Gounder V Arulmigu Viswesaraswami & V.P. Temple & Anr., AIR CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 13 of 45 :: 14 ::
2003 SC 4548. He also cited judgment of Hon'ble Delhi High Court in Suresh Chandra Goyal V Amit Singhal, Crl. L.P. No. 706/2014 dated 14.05.2015 and submitted that cheque was not for security. He also cited Krish International Pvt. Ltd. & Ors. V State & Anr., Crl. M.C. No. 905/2012 dated 30.01.2013. Learned counsel also cited M/s Collage Culture & Ors. (supra).
21.In order to appreciate the rival contentions, it is necessary to have overview of the important documents as well as evidence led in support. Ex.CW1/3 is the associateship agreement which was entered into between respondent and appellant no. 1. the relevant averments of the said agreement are as under:
"And whereas Associate has firmed up arrangement with M/s Emirates Trading Agency L.L.C., P.O. Box 5239, Dubai U.A.E. (hereinafter called 'SUPPLIER') for supply of 45,000 MT (+/10%) of Steaming Non-Coking Coal in bulk.
And whereas PEC,on the basis of aforesaid arrangement between Associate and supplier, has signed the Sale/ Purchase Contract No. ETA/PEC/001/2008 dated 01st July, 2008, hereinafter called 'CONTRACT'), with the CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 14 of 45 :: 15 ::
supplier for supply of 45000 MT of Steaming non coking coal (called goods) at Contract price of US$ 110.418 PMT CIF FO KANDA\LA (Provisional) payable at 120 days from B/L date (interest free).
And whereas Associate has gone through the contract dated 01.07.2008 and confirms that all terms and conditions of the contract are acceptable to them and they shall abide by the same.
...
1.RESPONSIBILITIES OF ASSOCIATE:
(i) Associate will pay 20% of contract value (15% before opening L/C and balance 5% at the time of High Seas Agreement) as advance which shall be adjusted against the last De-
pledge Order. Advance will carry simple interest @ SBI Short term basis.
(ii) Associate will also give post-dated cheques for 85% of contract value along with a legal undertaking as per the format given by PEC.
(iii)...
(iv)...
(v)As the sale will be made by PEC at high seas, Associate shall file the bill of entry in its CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 15 of 45 :: 16 ::
name and shall arrange to clear the cargo. Associate shall pay customs duty/ charges, port handling and clearing charges, demurrages, warehousing charges and any other charges, duties/ levies etc. Associate shall furnish original Exchange Control Copy of bill of Entry to PEC immediately after clearance of cargo.
(vi)This being a sale on high seas,
consignment will be cleared directly by
Associate. The sales tax liability and issuance of certificates under the sales tax rules will be the responsibility of Associate. However, if any sales tax is levied on this transaction to PEC, Associate shall reimburse the same to PEC.
(vii)Associate has agreed to pledge the goods in favour of PEC at the cost and risk of Associate. A tripartite agreement with the warehouse owner, Associate and PEC shall be signed and Associate shall take goods only on authorization from PEC. It will be a first charge and Associate will not put any further charge with any other person. Associate will pay the rental regularly on monthly basis in advance to the warehouse owner. Should CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 16 of 45 :: 17 ::
there be any default in payment of such rentals, PEC will be at liberty to adjust the same from the payments made by Associate before taking delivery of the cargo or from any other payments made by Associate to PEC.
(viii)...
(ix)...
(x)...
(xi)...
(xii)...
(xiii)Associate will make 100% payments to PEC before issue of each De-Pledge order.
Delivery will be monitored by Govt. approved surveyors appointed by PEC against PEC's De-pledge orders.
(xiv)...
(xv)Associate will lift all the goods at least two days before the expiry of usance period, failing wit PEC will have liberty to sell the goods at the risk and cost of Associate. (xvi)PEC shall pay interest to Associate on the funds deposited to take delivery of the cargo with PEC at SBI's Short Term Deposit rates from the date PEC's account is credited to a day before making payment against the L/C CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 17 of 45 :: 18 ::
opened by the PEC. Simple interest shall be payable by PEC only if the amount remains with PEC for a minimum period of 30 days. (xvii)...
(xviii)...
(xix)In case, PEC remains out o funds due to failure of Associate in making contractual payments to PEC for any reason, Associate shall pay the same to PEC along with interest @ 14% p.a. ...
2.RESPONSIBILITIES OF PEC (A)PEC shall conclude contract with foreign supplier after realisation of advance. PEC shall open L/C on supplier if so required under the contact or place purchase order on supplier wherever required.
(B)After receipt of advance, PEC will establish Letter of Credit for 120 days usance from Bill of Lading date at the request of associate (interest free). No further roll-over of L/C shall be permitted.
(C)PEC's Trading Margin shall be 1.65% of invoice of value inclusive of L/C opening, commitment & negotiation charges.
(D)PEC shall assist associate for the smooth CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 18 of 45 :: 19 ::
execution of the contract. ...".
22.The letter of credit dated 17.07.2008 Ex.CW1/4 was issued in favour of Emirates Trading Agency, Dubai for USD 51,67,696.67.
23.Ex.CW1/5 is the Deed of Pledge which is between appellant and respondent. The relevant para of the same is quoted hereunder:
"...WHEREAS PEC has imported 46801.216 MT of Steaming (Non-Coking) Coal in bulk (herein after called "Material") for value of US$ 5,167,696.67 (US Dollars Five Million One Hundred Sixty Seven & Six Hundred Ninety Six and cent Sixty Seven only) on CIF 110.418 PMT under L/C No. 09996081M0000527 dated 17.07.2008 and sold to Shreeji Overseas I Pvt. Ltd. "On High Seas Basis" as per the provisions of High Seas Sale Contract dated 01st July, 2008.
And Whereas PEC Ltd. is the absolute owner of 46801.2016 MT Steaming (Non-Coking) Coal in bulk shipped per M.V. Coal Express by M/s ETA LLC, DUBAI, U.A.E. And Whereas the said material has been pledged CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 19 of 45 :: 20 ::
by Shreeji Overseas I Pvt. Ltd. to PEC subject to the following conditions:
1. The Buyer will store the material in custom bonded warehouse at Kandla Port.
2. That Buyer will pledge the said material to PEC, which shall have an exclusive first charge on the said material.
3.That Buyer shall not take delivery of the said material or any part thereof, from the said warehouse without the written permission of PEC.
...
7.That in case Buyer does not take the delivery of pledged material or any part thereof within predetermined schedule of PEC, it will be treated as property of PEC, and PEC shall be entitled to dispose off pledged material or any part thereof in any manner it may deem fit without any reference whatsoever to Buyer. However, this does not debar PEC from claiming the balance amount payable by Buyer to PEC. ..."
24.Ex.CW1/9 is an undertaking issued by appellant through its director. The relevant portion is quoted CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 20 of 45 :: 21 ::
hereunder:
"M/s Shreeji Overseas India Pvt. Ltd., Gandhidham and M/s PEC Limited, New Delhi have entered into an agreement for import of Non-Coking Coal in Bulk. In consideration of import of Non-Coking and in Bulk of Philippines original from M/s ETA LLC Dubai U.A.E. Through M/s PEC Limited, 8th Floor, Hansalya, 15 Barakhamba Road, New Delhi (hereinafter referred to as PEC), we undertake as follows:
...
We further confirm that we are very much aware that on the faith of the above undertakings PEC Limited, New Delhi have to give depledge order of Bright Yellow Crude Sulphur in buld vide Vessal M.V. Al Aqeela against Lc No. 527 to M/s Shreeji Overseas India Pvt. Ltd., Gandhidham and in the event of any default in honoring the said cheques PEC Limited, New Delhi are at liberty to initiate legal action proceedings under the relevant laws and enactment. .."
25.Ex.CW1/11 is the letter written by respondent to appellant. The relevant portion is reproduced CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 21 of 45 :: 22 ::
hereunder:
".... In view of the above, it is in your best interest to remit outstanding amount of 19,34,43,829.50 along with interest of 14% p.a. By 28.2.2010. In case we do receive the payment by 28th February, 2010, PEC will be constrained to deposit cheque no. 110194 dated 14.10.2009 for Rs.23,00,00,000/- and the responsibility honour the cheque lies on you in terms of legal undertaking given by you ..".
26.Ex.CW1/18 is the order dated 14.03.2011 passed by Hon'ble High Court of Delhi which is reproduced hereunder:
"Learned Counsel for the Appellant tenders a cheque dated 10.03.2011 bearing No. 233364 in favour of the Respondent/ P.E.C. Ltd., for the sum of 23 crores Mr. Narula, Counsel for the Respondent, accepts the cheque without prejudice to the rights and contentions of the Respondent in any pending litigation or proceedings before the Arbitral Tribunal. On a submission made by Mr. Narula it is confirmed by Mr. Krishan Bhagwan Sharma, Director of the Appellant CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 22 of 45 :: 23 ::
Company that the constitution of the Board of the Appellant Company has not undergone any change since October, 2010. We clarify that the acceptance by the Respondent of this cheque shall not exonerate any present or previous Director from civil or criminal liability, if any. The Appellant had approached the learned Single Judge under Section 9 of the Arbitration and Conciliation Act seeking that the earlier cheque for 23 crores should not be encashed. Counsel for the Respondent at that stage appears to have submitted that sum of 14 crores was an additional security since the Respondent does not admit that the liability of the Appellant towards it is confined only to 23 crores. We need not go into this question since the parties are already before an Arbitral Tribunal . We set aside the impugned order. The acceptance of the cheque for 23 crores shall be without prejudice to any of the rights of both the parties. ...".
27.Ex.CW1/20 is the cheque return memo. Ex.CW1/22 is CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 23 of 45 :: 24 ::
letter written by respondent to appellant which shows the amount due as "Rs.19,41,91,636.00".
28.Sh. Dinesh Kumar was examined as CW-1, who filed evidence by way of affidavit. In his cross-examination, he was asked question whether respondent is the absolute owner of coal imported to appellant as per Ex.CW1/5. He stated that physical ownership was never handed to respondent because respondent being unpaid seller, appellant no. 1 had pledged the cargo with the respondent. He was questioned that respondent company had taken cheque amount to 85% of the total value at the time of signing of associateship agreement. He replied as 'yes' and stated that whatever the contract value after deduction of margin money, percentage for balance amount, cheque is taken. Besides this, respondent company took 15% of the total contract value at the opening of LC and 5% of the total contract value at the time of high sea sales agreement. 85% of the total value was taken as post-dated cheques towards the balance amount for the contract. He also admitted that as on 31.10.2008, the balance amount due with company was Rs.19,41,91,636. He stated that at the time of presentation of cheque, the total amount due was more than Rs.23 crores. He also admitted that CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 24 of 45 :: 25 ::
respondent company had taken 85% of the total value of contract through post-dated cheques at the time of signing of associateship agreement.
29.DW-1 K.B. Sharma, that is, appellant no. 2 examined himself in defence. He testified that he approached the respondent company for import of coal in the year 2008. the respondent company entered into associateship agreement according to which, he had paid 20% margin money for the total value of the consignment and for the remaining 80% gave post-
dated security cheque till completion of entire delivery. They also entered into one more agreement, that is, de-pledge agreement in associateship agreement. According to de-pledge agreement, before taking the delivery, appellant had to pay 100% advance against the delivery order. Appellants had taken delivery of approximately 4500 mt. As per the de-pledge agreement and associateship agreement, the respondent company had the right to dispose of the imported coal after expiry of 120 days and if, there was any shortfall in payments as per contract then the balance would be recovered from the accused. The respondent company did not sell the imported coal and informed the appellants to reduce the security cheque from time to time. They had sent one statement of CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 25 of 45 :: 26 ::
account to the respondent company which they did not reconcile and did not give any confirmation on counter signature of the statement accounts. He further testified that the cheque in question was replacement of PDC security cheque given at the time of execution of above mentioned agreement.
30.In his cross-examination, DW-1 denied the suggestion that respondent company was to finance the appellant no. 1 for agreement with the foreign supplier. He volunteered that they only suggested the foreign supplier to respondent company and respondent company entered into agreement. He admitted that it was nowhere mentioned in the agreement that appellant no. 1 had only suggested the respondent company to enter into agreement with foreign supplier.
He voluntarily stated that associate agreement date was after the high seas sale purchase agreement, so associate agreement is not applicable to appoint foreign supplier on behalf of appellant. He denied that appellant no. 1 had approached the respondent company after finalizing the terms and condition of purchase of 45000 mt non-coking coal. He admitted document Ex.DW1/C-1 and identified signatures of appellant no. 3 thereon. He also identified signatures of accused no. 2 on Ex.CW1/9 (accused no. 2 is referred CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 26 of 45 :: 27 ::
to Mohit Sharma, as explained in succeeding paras). He also admitted Ex.CW1/19, that is, revalidated security cheque and identified his signatures thereon.
31.Before considering the contentions raised on behalf of appellant, it is worthwhile to consider the law as to what amounts to security cheque for which offence under Section 138 N.I. Act is not attracted. In M.S. Narayanan @ Mani's case (supra), Hon'ble Supreme Court had used the term 'security cheque' and observed that Section 138 N.I. Act is not attracted in cases of security cheques.
32.Hon'ble High Court of Delhi in Suresh Chand Goyal's case (supra) had an occasion to deal with issue of security cheque. Hon'ble High Court in the said case also considered the judgment of M.S. Narayanan's W Mani (supra). It was observed therein as under:
"...28.There is no magic in the word "security cheque", such that, the moment the accused claims that the dishonoured cheque (in respect whereof a complaint under Section 138 of the Act is preferred) was given as a "security cheque", the Magistrate would acquit the accused. The expression "security CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 27 of 45 :: 28 ::
cheque" is not a statutorily defined expression in the NI Act. The NI Act does not per se carve out an exception in respect of a 'security cheque' to say that a complaint in respect of such a cheque would not be maintainable. There can be miracle situations in which the cheque issued by the accused may be called as security cheque, or may have been issued by way of security, i.e., to provide an assurance or comfort to the drawee, that in case of failure of the primary consideration on the due date, or on the happening (or not happening) of a contingency, the security may be enforced. While in some situations, the dishonour of such a cheque may attract the penal provisions contained in Section 138 of the Act, in other it may not.
29. To elaborate on the aforesaid aspect, I may consider the different kinds of situations that the Courts have dealt with from time to time, and the manner in which the defence of "security cheque", or that the cheque was given CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 28 of 45 :: 29 ::
as a security, set up by the accused, has been dealt with.
30. ..
31. ..
32. The accused has placed reliance on M.S. Narayana Menon (supra). In this case, the cheque had been issued by the appellant - who was transacting shares with the share broker/ second respondent/ complainant. The appellant/ accused disputed the statement of account relied upon by the complainant, on the basis whereof it was claimed that the cheque amount was due and outstanding. The Supreme Court examined the nature of the transactions undertaken between the parties in the light of the evidence before it. The Supreme Court held that the complainant had not been able to explain the discrepancies in his books of accounts. The complainant did not bring on record any material to show that the parties had transactions, other than those which had been entered into CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 29 of 45 :: 30 ::
through the Cochin Stock Exchange. The Supreme Court held that the so called acknowledgment, as correct, of some of the statements of account was not enough since, admittedly, there was no acknowledgment in respect of five statements of accounts. After examining the evidence, the Supreme Court observed as follows '26. In view of the said error of record, the findings of the High Court to the effect that the appellant had not been able to substantiate his contention as regards the correctness of the accounts of Ex.P10 series must be rejected.'
33. The Supreme Court then proceeded to delve in Sections 118(i) and 139 of NI Act which raise a presumption against the drawer of a cheque. In para 52 of the judgment, the Supreme Court, inter alia, observed;
"........... The appellant clearly said that nothing is due and the cheque CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 30 of 45 :: 31 ::
was issued by way of security. The said defence has been accepted as probable. If the defence is acceptable as probable the cheque therefore cannot be held to have been issued in discharge of the debt, as for example, if a cheque is issued for security or for any other purpose the same would not come within the purview of Section 138 of the Act." (emphasis supplied)
34. The aforesaid observations made by the Supreme Court in Narayana Menon (supra) have been relied to urge than in respect of a cheque issued by way of security, a complaint under Section 138 NI Act is not maintainable.
35. The aforesaid observations have to be read in the context in which they were made. It is well settled that a judgment cannot be read like a Statute. Construction of a judgment should be made in the light of the factual matrix involved therein. What is more important is to see the issues involved in a given CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 31 of 45 :: 32 ::
case, and the context made in a judgment, it is trite, should not be red in isolation and out of context. [See Goan Real Estate & Construction Ltd. v. Union of India, (2002) 5 SCC 388]. It is the ratio of the judgment, and not every observation made in the context of the facts of a particular case under consideration of the court, which constitutes a binding precedent. The Supreme Court in P.S. Sathappan v. Andhra Bank Ltd. AIR 2004 SC 5152 held as follows:
"138. While analyzing different decisions rendered by this Court, an attempt has been made to read the judgments as should be read under the rule of precedents. A decision, it is trite, should not be read as a Statute.
139. A decision is an authority for the questions of law determined by it. While applying the ratio, the court may not pick out a word or a sentence from the judgment divorced from the context in which the said question arose for consideration. A CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 32 of 45 :: 33 ::
judgment as well-known, must be
read in its entirety and the
observations made therein should
receive consideration in the light of the questions raised before it. (See Haryana Financial Corporation and Anr. v. Jagdamba Oil Mills and Anr. [2002] SCR 621, Union of India and Ors. v. Dhanwanti Devi and Ors., (1996) 6 SCC 44, Dr. Nalini Mahajan v.
Director of Income Tax (investigation) and Ors. (2007) 257 ITR 123 (Delhi), State of UP and Anr. v. Synthetics and Chemicals Ltd. and Anr. 1991 (4) SCC 139, A-One Granites v. State of UP and Ors. , AIR 2001 SCW 848 and Bhavnagar University v. Palitana Sugar Mill (P) Ltd. and Ors. (2003) 2 SCC 111.
140. Although, decisions are galore on this point,we may refer to a recent one in State of Gujarat and Ors. v. Akhil Gujrat Pravasii V.S. Mahamandal and Ors. AIR 2004 SC 3894 wherein this court held:
"...It is trite that any observation CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 33 of 45 :: 34 ::
made during the course of reasoning in a judgment should not be read divorced from the context in which they were used."
36. The Supreme Court in Narayana Menon (supra) was not particularly dealing with issue as to whether, or no, a cheque issued for security or for any other purpose would come within the purview of Section 138 of the NI Act. The observation of the Supreme Court as extracted above cannot, therefore, be understood as laying down a general proposition that a cheque issued as security wold not come within the purview of Section 138 of the NI Act in all cases. Such reading of the judgment would go contrary to the express language used in Section 138 of the NI Act, which uses the expression, 'where any cheque ......... for payment of any amount of money ........... of any debt or other liability.........'.
37. ....
38 ....CA No. 37/15
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39. Thus, decision in Narayana Menon (supra) is of no avail, as it cannot be said to have laid down any general proposition that a complaint under Section 138 NI Act would not be maintainable in respect of a security cheque or a cheque given as a security to assure the performance of another obligation."
33.In view of the law laid down, we shall examine the contentions of learned counsel for appellant. The associateship agreement and deed of pledge are dated 15.07.2008 and 25.07.2008, respectively and the cheque was issued by the appellant in favour of respondent on 25.10.2008. High Seas Agreement takes place when goods arrives at high seas vessel. There is also no dispute that LC was opened by the respondent company in favour of the foreign suppliers and the liability was incurred by the respondent on the day when they opened the LC in favour of foreign supplier. As per the high seas sale, the deed of pledge was entered into on 06.07.2008 and the cheque was issued only thereafter. Meaning thereby that liability was not only in terms of LC opening in favour of the foreign supplier and incurring the liability on that account by CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 35 of 45 :: 36 ::
respondent, but also the receipt of the goods. As the agreement quoted above, by way of high seas agreement, the ownership of the goods was transferred in favour of the appellant and the goods were merely pledged to the respondent being unpaid seller and the cheque was issued consequent to the deed of pledge. Therefore, as on that day, there was liability existing and, therefore, it cannot be said that the cheque was issued by way of security.
34.Learned counsel has further raised the contention that the amount as per the associateship agreement was 5% above the total value of the goods. The terms of the agreement clearly mentions that there were several charges incurred in the receipt of the goods and keeping the goods in the custody of others, payable taxes, the amount was yet to be crystallized, but the liability was already in existence. It is true that the liability as per the letter dated 17.12.2009 is shown as due however, it was excluding the interest part and the interest part was further required to be added in addition to other charges that would also bring the amount more than the cheque amount.
35.It is also not in dispute that on the date of presentation of ultimate cheque, which was the replacement of the CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 36 of 45 :: 37 ::
earlier cheques, the liability was much more than cheque amount. Therefore, by the time liability could be crystallized in money terms, the same was much more than the cheque amount. Therefore, by no stretch of imagination, one can say that cheque in question was issued by way of security cheque. Therefore, as per the law laid down by our own Hon'ble High Court, the present cheque is not a security cheque in any manner.
36.Learned counsel for the appellant had cited M.S. Narayanan's W Mani (supra) had already been dealt with by the Hon'ble High Court of Delhi. Even otherwise, as per the facts of the present case, the same is not applicable.
37.Learned counsel for appellant also cited Collage Culture & Ors. (supra) upon which the trial court also relied upon. The facts of the case were that petitioner was in the business of export of garments which was regulated by Apparel Export Promotion Council and used to allot quota for export garments. As per the policy, if a firm could not exhaust quota within the stipulated time, the penalty used to be imposed. For the year 2003-04, policy stipulated that earnest money would have to be deposited in the form of security CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 37 of 45 :: 38 ::
when quota was alloted. The security was liable to be forfeited if the goods are not accepted. As per the policy, it was permissible to seek revalidated quota for the ensuing year and for which pertaining to un-utilised quota, the purchase had to be revalidated. Petitioner sought extension of quota for the year 2001 on 15.01.2001 and sought extension of time and along with the same, gave post-dated cheques as earnest money deposits. Petitioner could not fulfill the obligation to utilise unexpired quota by the extended period of time and was issued show cause notice dated 23.04.2002 as to why earnest money be not forfeited and cheque not encashed. Petitioner filed reply; finding the reply unsatisfactory, earnest money was forfeited.
Petitioner filed appeal before the Textile Commissioner challenging the order. The operation of the order was stayed. During the pendency of appeal post-dated cheques issued expired and under the direction of appellate authority, petitioner replaced the cheques towards the earnest money while the appeal was pending, the cheques were presented for encashment and they were dishonoured. Complaint under Section 138 NI Act was filed. It was not disputed that the cheques were post-dated. It was also not disputed that cheques were issued in replacement of earlier cheques which were also post-dated cheques. It was also not CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 38 of 45 :: 39 ::
disputed that cheques were issued as earnest money deposit and earnest money deposited was forfeited. It was also not in dispute that the earnest money was liable to be forfeited only if the first petitioner failed to exhaust the quota. It was observed by Hon'ble High Court that the cheque may be issued under two circumstances. Under circumstance one, it may be issued as debt in presenti, but payable in future. Under second circumstance, it may be issued for a debt which may become payable in future upon the occurrence of a contingent event. In the cited case, the debt was not in existence as the cheque was issued on a contingent event of the exporter not able to exhaust the quota. Whereas, the debt in the present case was already incurred. The respondent on their behalf had already imported the goods and the liability was already in existence. Therefore, the said judgment has been correctly applied by learned MM.
38.Coming to the second contention of learned counsel that appellant no. 3 was not in-charge and responsible for the conduct of business of appellant no. 1. In this regard, learned counsel cited Municipal Corporation of Delhi (supra). It was held in the said case that there was no clear averments that their directors were really in-charge and responsible for the conduct of business CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 39 of 45 :: 40 ::
and hence, in the absence of evidence and averments, it was held that complaint against the directors was rightly quashed.
39.Hon'ble Supreme Court has summarised the law on the subject in National Small Scale Industry (supra) which is reproduced hereunder:
"25. From the above discussion, the following principles emerge:
(i) The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every Director knows about the transaction.
(ii) Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of an were responsible for the conduct of the business of the company.
(iii) Vicarious liability can be inferred
against a company registered or
CA No. 37/15
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:: 41 ::
incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be averred in the complaint/ petition, are made so as to make accused therein vicariously liable for offence committed by company along with averments in the petition containing that accused were in-charge of an responsible for the business of the company and by virtue of their position they are liable to be proceeded with.
(iv) Vicarious liability on the part of a person must be pleaded and proved and not inferred.
(v) If accused is Managing Director or Joint Director then it is not necessary to make specific averment in the complaint and by virtue of their position they are liable to be proceeded with.
(vi) If accused is a Director or an Officer of a company who signed the cheques on behalf of the company then also it is not necessary to make specific averment in complaint.
(vii) The person sought to be made
liable should be in-charge of an
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:: 42 ::
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."
40. In the present case, there is clear averment in the complaint that appellants are responsible for the conduct of appellant no. 1, learned MM, as on the appreciation of evidence found no evidence against accused no. 4 and acquitted her on that ground. However, there is dispute as regards the appellant no. 3 is concerned. As regards whether appellant no. 3 was responsible and in-charge of day to day affairs of appellant no. 1, in the evidence of DW-1 itself, appellant no. 2 has admitted the correspondence Ex.DW1/C-1 done by appellant no. 3. He also identified signatures on cheque Ex.CW1/9 as that of accused no. 2, whereas, it should be accused no. 3 because the signatures appearing on Ex.DW1/C-1 and Ex.CW1/9 are the same, that is, of appellant no. 3, Mohit Sharma. Moreover, appellant no. 2/ DW-1 identified his signatures on revalidated cheque, Ex.CW1/19 which are different from that appearing on Ex.CW1/9. If one reads the cross-examination of DW-1 carefully, there appears to be a mistake, as DW-1 refers his signatures CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 42 of 45 :: 43 ::
on document as 'his' and the signatures of appellant no. 3 as 'signature of accused no. 2'. Accused no. 2 apparently is referred to as appellant no. 3, that is, accused no. 3, Mohit Sharma. There is also averment in the complaint and evidence to the effect that appellant no. 3 was acting on behalf of appellant no. 1. Moreover, in statement under Section 313 Cr. P.C., the same is admitted. Therefore, he was in-charge and responsible for conduct of business of appellant no. 1 and hence, is vicariously liable.
41.Coming to the other cited judgment of Indus Airways (supra). The same is not applicable to the facts of the present case. In the said case, purchase order was made and post-dated cheques for advance payment was issued. Subsequently, the purchase orders were cancelled requesting the return of the cheques. No goods were delivered. Therefore, the same is not applicable to the facts of the present case.
42.As regards the statement of account, it submitted that same is copy of the ledger print-out taken from the computer and without certificate under Section 65B Indian Evidence Act, the same cannot be proved and learned counsel cited P.V. Anvar V Bashir Ahmad (2014) 10 SCC 473. On the other hand, learned counsel CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 43 of 45 :: 44 ::
for respondent submitted that the computer print-out were taken and, thereafter, they were signed, sealed and attested by respondent. Therefore, there is no application of certificate under Section 65B Indian Evidence Act and cited R.V.E. Venkatachala Gounder (supra). It is submitted that since no objection was raised at the time of admitting the documents in evidence, it cannot be raised at the stage of appeal or final arguments. The legal position however, after P.V. Bashir's case (supra) has completely changed and makes the document not admissible in evidence, if the same does not comply with conditions of Section 65B Indian Evidence Act. Admittedly, the certificate under Section 65B Indian Evidence Act has not been filed, therefore, the same cannot be looked into. However, from the correspondence made on behalf of the respondent dated 17.12.2009, Ex.CW1/22, the amount due is mentioned as Rs.19,41,91,636/- and beneath the same, note is appended to the effect that interest accrued on delayed payment in terms of associateship agreement dated 15.07.2008 will be calculated at the time of final payment. The receipt of the said letter has not been disputed and the appellant no. 2 has although, entered into witness box, but failed to show their own statement of account to contradict the same.
The cited judgment of Hon'ble Gujarat High Court is CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 44 of 45 :: 45 ::
also not applicable to the fact as there is no substantiate decrease/ change in liability since the issuance of cheque rather liability has incresased. Therefore, the respondent has succeeded in proving that there was existing debt on the date of the cheque and also there is presumption in their favour. The appellant has failed to rebutt and disprove the same. Therefore, I am of the opinion that respondent has proved that the appellants no. 1, 2 and 3 are guilty for committing offence under Section 138 NI Act beyond reasonable doubt.
43.In view of the above finding, I find no illegality or infirmity in the order of learned MM. The conviction and sentence passed by learned MM is upheld. Therefore, the appeal is dismissed.
Trial Court Record be sent back along with the copy of this order.
Appeal file be consigned to record room.
Announced in the open court on (GURDEEP SINGH) 28th March, 2016 ADDITIONAL SESSIONS JDUGE SPECIAL JUDGE (PC ACT): CBI-05 NEW DELHI/ 28.03.2016 CA No. 37/15 M/s Shreeji Overseas Pvt. Ltd. Vs. M/s PEC Page No. 45 of 45