Delhi District Court
Sainik Foods Pvt Ltd vs Indian Sugar Manufacturing Company Ltd on 19 August, 2023
Sainik Foods Pvt. Ltd. v. Indian Sugar Manufacturing Company Ltd.
CC No. 6788/2017
IN THE COURT OF MS. TWINKLE CHAWLA: MM-05, SOUTH-EAST
DISTRICT, SAKET COURTS COMPLEX: NEW DELHI
Sainik Foods Pvt. Ltd. v. Indian Sugar Manufacturing Company Ltd.
CC No. 6788/2017
U/s 138 Negotiable Instruments Act, 1881
1. CIS number : DLSE020075492017
2. Name of the Complainant : Sainik Foods Pvt. Ltd., through AR Sh.
Arun Kumar.
Later name changed to: Sainik Industries
Pvt. Ltd.
3. Name of the Accused, : • Accused No. 1: Indian Sugar
parentage & residential Manufacturing Company Ltd.
address
• Accused No. 2: Sh. Ranjeet
Babanrao Shinde, Chairman/CMD,
Indian Sugar Manufacturing
Company Ltd.
• Accused No. 3: Sh. Ranjeet Sharad
Borawake, Managing
Director/General Manager, Indian
Sugar Manufacturing Company Ltd.
4. Offence complained of or : U/s 138 of Negotiable Instruments Act,
proved 1881
5. Plea of the Accused : Pleaded not guilty and claimed trial
6. Final Judgment/order : • Accused No. 1: Indian Sugar
Manufacturing Company Ltd. -
Proceedings in abeyance till
moratorium is in effect, as per IBC.
Page 1 of 26
Sainik Foods Pvt. Ltd. v. Indian Sugar Manufacturing Company Ltd.
CC No. 6788/2017
• Accused No. 2: Sh. Ranjeet
Babanrao Shinde - CONVICTED
• Accused No. 3: Sh. Ranjeet Sharad
Borawake - CONVICTED
7. Date of judgment/order : 19.08.2023
JUDGMENT
1. The Complainant has filed the present complaint under Section 138/142 of Negotiable Instruments Act, 1881 ("NI Act") against the Accused persons on the averments that the Complainant and Accused No. 1 Company had entered into a sugar supply agreement dated 28.07.2016; pursuant to which the Complainant had transferred Rs. 10,00,00,000/- to the Accused No. 1 Company, by way of RTGS, as part advance consideration. The Accused No. 1 Company was required to supply 5200 MT of sugar to the Complainant, by 20.11.2016; and latest by 28.02.2017. However, the Accused No. 1 company supplied only 1942.9 MT of sugar and failed to fulfill the conditions of the supply agreement dated 28.07.2016. The Complainant has submitted that by 31.01.2017, an amount of Rs. 8,39,13,581/-, became due and outstanding from the Accused No. 1 Company, in terms of the agreement; and by 28.02.2017, the amount of liability increased to Rs. 10,62,89,858/-.
2. As per the Complainant, at the time of the said agreement, the Accused No. 1 Company had given certain cheques to the Complainant, which includes the Page 2 of 26 Sainik Foods Pvt. Ltd. v. Indian Sugar Manufacturing Company Ltd. CC No. 6788/2017 cheque bearing no. 052455, dt. 08.03.2017, amounting to Rs. 5,00,00,000/-, drawn on Syndicate Bank, Chadchan Branch, Bijapur-586205, Karnataka in favour of the Complainant ('Cheque in question'); to cover the circumstance where the Accused No. 1 Company is unable to meet the terms of the supply agreement. Hence, the case of the Complainant is that the Cheque in question has been issued in discharge of liability; and that the said Cheque in question was signed by Accused No. 2 and Accused No. 3, on behalf of Accused No. 1 Company, being the persons in charge of the day-to-day affairs of the Accused No. 1 Company.
3. Upon presentment, the Cheque in question was returned unpaid on the ground of funds insufficient vide return memo dated 14.03.2017.
4. The Complainant sent the legal demand notice dated 05.04.2017 through speed post at the address of all the Accused persons. However, the amount was not paid. Hence, despite the service of the legal demand notice, the Accused failed to make the payment within the stipulated period and the Complainant filed the present complaint.
5. After taking pre-summoning evidence, the Accused persons were ordered to be summoned in this case for commission of offence under Section 138 of NI Act vide order dated 06.12.2017.
6. Accused No. 2 & 3 appeared and were released on bail on 15.09.2018. On Page 3 of 26 Sainik Foods Pvt. Ltd. v. Indian Sugar Manufacturing Company Ltd. CC No. 6788/2017 finding a prima facie case, notice U/s 251 of the Criminal Procedure Code, 1973 ("CrPC") was served upon Accused No. 1, Accused No. 2 and Accused No. 3 on 19.01.2019 to which they pleaded not guilty and opted to contest after disclosing the following defence:
"That the cheque in question was issued as a security cheque and not towards any liability in presenti. There was no crystallized liability on the date the cheque was issued. There was no business transaction which had commenced on the date of handing over of the cheque."
7. Vide order dated 26.03.2019, opportunity was granted to the Accused to cross examine the Complainant. The Complainant/CW1 tendered his post- summoning evidence affidavit, Ex. CW1/A and also proved following documents:
Ex. CW1/1: Certified true copy of the resolution passed at the meeting of the board of directors of Sainik Foods Pvt. Ltd.
Ex. CW1/2: Original cheque bearing No. 052455, dt.
08.03.2017, amounting to Rs.
5,00,00,000/-.
Ex. CW1/3: Original return memo dated 14.03.2017.
Ex. CW1/4: Copy of legal demand notice dated
05.04.2017.
Ex. CW1/5: Postal and courier receipts in respect of
legal demand notice.
Ex. CW1/6: Postal and courier receipts in respect of
Page 4 of 26
Sainik Foods Pvt. Ltd. v. Indian Sugar Manufacturing Company Ltd. CC No. 6788/2017 legal demand notice.
Ex. CW1/7: Postal and courier receipts in respect of
legal demand notice.
Ex. CW1/8: Internet generated tracking reports in
respect of legal demand notice.
Ex. CW1/9: Internet generated tracking reports in
respect of legal demand notice.
Ex. CW1/10: Internet generated tracking reports in
respect of legal demand notice.
Ex. CW1/11: Certificate of incorporation.
Ex. CW1/12: Copy of board resolution dt. 29.08.2019.
Ex. CW1/13 Supply agreement between the
(OSR): Complainant and the Accused dt.
28.07.2016, regarding the supply of sugar.
Ex. CW1/14 Copy of the bank statement of the
(Colly): Complainant dt. 29.07.2016 and
02.08.2016.
Ex. CW1/15: Copy of print out of the NCDEX site
reflecting the price of sugar as on
30.01.2017.
Ex. CW1/16: Copy of notice dt. 31.01.2017
Ex. CW1/17: Reply of notice dt. 27.02.2017
8. Complainant Evidence was closed on the submission of the Ld. Counsel for the Complainant on 20.09.2021.
9. Thereafter, Accused No. 1 Company through its AR Sh. Amarsingh Madhukar; Accused No. 2 and Accused No. 3 were examined under Section 313 of CrPC on 10.11.2021 for explaining the circumstances appearing against them in the Complainant's evidence. They denied the Complainant's case and pleaded false implication in the present case and opted to lead evidence in Page 5 of 26 Sainik Foods Pvt. Ltd. v. Indian Sugar Manufacturing Company Ltd. CC No. 6788/2017
their defence.
10.As part of Defence Evidence, the Accused No. 2 Sh. Ranjeet Babanrao Shinde, Chairman/CMD, Indian Sugar Manufacturing Company Ltd. examined himself as DW-1. DW-1 brought on record copy of Equity Pledge Agreement dt. 28.07.2016, Mark A.
11.Thereafter, Defence Evidence was closed by way of separate statement of counsel for the Accused on 18.05.2022.
12.I have heard Ld. Counsel for the parties and have perused the case file along with the written submissions filed by the parties carefully and meticulously.
13. Final arguments in the matter were fixed by Ld. Predecessor, however, thereafter, an application for change of name of the Complainant was filed, which was allowed vide order dt. 22.03.2023. Thereafter, final arguments were heard and matter was fixed for clarifications on 18.04.2023. On 18.04.2023, clarifications were heard and matter was fixed for judgment for 26.04.2023. However, the Accused persons did not appear on the said date and matter was then listed for judgment on 01.05.2023. On 01.05.2023, Ld. Counsel for the Resolution Professional of Accused No. 1 Company appeared and apprised this Court that CIRP proceedings had been initiated and admitted against Accused No. 1 Company by Ld. NCLT/Mumbai Bench, vide order dt. 23.03.2023. Accordingly, in light of the order dt. 23.03.2023 passed by Ld. Page 6 of 26 Sainik Foods Pvt. Ltd. v. Indian Sugar Manufacturing Company Ltd. CC No. 6788/2017 NCLT/Mumbai Bench and the judgment of P. Mohan Raj v. Shah Bros. Ispat Pvt. Ltd., 2021 SCC Online SC 152, passed by Hon'ble Supreme Court of India, proceedings against Accused No. 1 Company were stayed for the period of the moratorium in terms of Section 14 IBC. It is pertinent to note that as per Section 12 IBC, the process has to be completed within a period of 180 days from admission of the application, which can be extended by 90 days (upon reasons) and the maximum timeline available is 330 days. As per submissions, no resolution plan has materialised till date and the moratorium is still in effect. Opportunity was granted to the Complainant to lead any additional evidence qua Accused No. 2 & 3, if any. However, no additional evidence was led. Final arguments qua role of Accused No. 2 & 3 were heard and thereafter matter was fixed for judgment. It is to be noted that in the present case, the Accused No. 1 Company had contested the entire case on merits and the CIRP proceedings have been initiated only at the stage of final arguments.
14.A preliminary issue in the present case is whether the present matter can be proceeded with against Accused No. 2 & 3, whose liability is vicarious in nature (as per Section 141 NI Act), when the proceedings have been stayed against Accused No. 1 Company. In the judgment of the Hon'ble Supreme Court in P. Mohan Raj v. Shah Bros. Ispat Pvt. Ltd., (supra) it was clarified that the bar of moratorium does not apply to the corporate management, and is restricted to the corporate debtor only. Further, in the case of Ajay Kumar Page 7 of 26 Sainik Foods Pvt. Ltd. v. Indian Sugar Manufacturing Company Ltd. CC No. 6788/2017 Radhey Shaym Goenka v. Tourism Finance Corporation of India, Criminal Appeal No. 172 of 2023, the Hon'ble Supreme Court has further clarified that even if the company stands dissolved, the signatories/directors cannot escape their penal liability u/s 138 NI Act. Further in Anjali Rathi & Ors. v. Today Homes and Infrastructure Pvt. Ltd., LL 2021 SC 462 it was reiterated that only the corporate debtor (i.e., the company) is covered by the moratorium provision u/s 14 IBC and does not extend to the directors/management of the corporate debtor, against whom proceedings can continue. In light of this discussion, it appears that while the proceedings against Accused No. 1 Company shall remain in abeyance, until the moratorium ceases to have effect, there does not appear to be any impediment in continuing the proceedings in the instant case qua Accused No. 2 & Accused No. 3, i.e., the corporate management of Accused No. 1 Company.
Submissions of the Complainant and Accused
15.The Ld. Counsel for the Complainant has submitted that all ingredients of Section 138 NI Act are fulfilled in the present case and hence, the presumption under Section 139 NI Act arises in the favour of the Complainant, which has not been successfully rebutted by the Accused.
16.Per contra, Ld. Counsel for the Accused No. 2 and Accused No. 3 has submitted that the Accused persons deserve to be acquitted as the Accused Page 8 of 26 Sainik Foods Pvt. Ltd. v. Indian Sugar Manufacturing Company Ltd. CC No. 6788/2017 No.1 Company had already supplied sugar worth Rs. 6.76 crores and the liability of the Accused No. 1 Company, if any, was less than the amount of the Cheque in question. Hence, as per the Ld. Counsel for the Accused, the Accused has rebutted the presumption by way of preponderance of probabilities.
Legal Framework Ingredients of Section 138 NI Act:
17.The Hon'ble Supreme Court of India in Kusum Ingots & Alloys Ltd and Ors v. K Pennar Peterson Securities Ltd and Ors., (2000) 2 SCC 745 ("Kusum Ingots Case"), has clearly stipulated that "the ingredients which are to be satisfied for making out a case under the provision are:
(i) a person must have drawn a cheque on an account maintained by him in a bank for payment of a certain amount of money to another person from out of that account for the discharge of any debt or other liability;
(ii) that cheque has been presented to the bank within a period of six months1 from the date on which it is drawn or within the period of its validity whichever is earlier;
(iii) that cheque is returned by the bank unpaid, either because of the 1Reduced to three months vide RBI circular dated 4.11.2011. Page 9 of 26
Sainik Foods Pvt. Ltd. v. Indian Sugar Manufacturing Company Ltd. CC No. 6788/2017 amount of money standing to the credit of the account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with the bank;
(iv) the payee or the holder in due course of the cheque makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within 152 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
(v) the drawer of such cheque fails to make payment of the said amount of money to the payee or the holder in due course of the cheque within 15 days of the receipt of the said notice;
If the aforementioned ingredients are satisfied then the person who has drawn the cheque shall be deemed to have committed an offence."
18.Therefore, if the aforesaid ingredients are made out, the Accused is deemed to have committed an offence under Section 138 NI Act.
Presumption under Section 139 NI Act/Section 118 NI Act:
2 The same is now enhanced to 30 days.
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Sainik Foods Pvt. Ltd. v. Indian Sugar Manufacturing Company Ltd. CC No. 6788/2017
19.Section 139 NI Act states that:
"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"
20.Section 139 NI Act is a type of reverse onus clause, which stipulates a presumption in the favour of the Complainant as to fact of a cheque being received in discharge of a legal debt or liability.
21.Further, Section 118(a) of the NI Act, states as follows:
"Presumptions as to negotiable instruments. -- Until the contrary is proved, the following presumptions shall be made:
(a) of consideration --that every negotiable instrument was made or drawn for consideration, and that every such instrument, when it has been accepted, indorsed, negotiated or transferred, was accepted, indorsed, negotiated or transferred for consideration;"
22.The Hon'ble Supreme Court of India has in a number of judgments dealt with the combined effect of the presumptions raised under Section 139 and Section 118(a) NI Act.
23.The following proposition can be summarized on a perusal of the judgments Page 11 of 26 Sainik Foods Pvt. Ltd. v. Indian Sugar Manufacturing Company Ltd. CC No. 6788/2017 of the Hon'ble Supreme Court of India in Sunil Todi & Ors v. State of Gujarat, LL 2021 SC 706, Kalamani Tex v. P. Balasubramanian, 2021 SCC OnLine SC 75; APS Forex Services Pvt. Ltd. v. Shakti International Fashion Linkers and Ors., AIR 2020 SC 945; Rohitbhai Jivanlal Patel v. State of Gujarat and Ors., AIR 2019 SC 1876; Kumar Exports v. Sharma Carpets, (2009) 2 SCC 513 ("Kumar Exports Case"); K.N. Beena v. Muniyappan and Anr., (2001) 8 SCC 458; and Dhanvantrai Balwantrai Desai v. State of Maharashtra, 1964 Cri. LJ 437:
(a) Once the execution of cheque is admitted; Section 139 of the NI Act mandates a presumption that the cheque was for the discharge of legally enforceable debt or liability;
(b) The presumption under Section 139 is a rebuttable presumption and the onus is on the Accused to raise the probable defence. The standard of proof for rebutting the presumption is that of preponderance of probabilities;
(c) Something which is probable has to be brought on record by the Accused for getting the burden of proof shifted to the Complainant. To disprove the presumptions, the Accused should bring on record such facts and circumstances, upon consideration of which, the court may either believe that the consideration and debt did not exist or their Page 12 of 26 Sainik Foods Pvt. Ltd. v. Indian Sugar Manufacturing Company Ltd. CC No. 6788/2017
non-existence was so probable that a prudent man would under the circumstances of the case, act upon the plea that they did not exist;
(d) The words "unless the contrary is proved" which occur in Section 139, make it clear that the presumption has to be rebutted by 'proof' and not by a bare explanation which is merely plausible. A fact is said to be proved when its existence is directly established or when upon the material before it the Court finds its existence to be so probable that a reasonable man would act on the supposition that it exists. Unless, therefore, the explanation is supported by proof, the presumption created by Section 139 NI Act cannot be said to be rebutted;
(e) To rebut the presumption, it is open for the Accused to rely on evidence led by him or Accused can also rely on the materials submitted by the Complainant in order to raise a probable defence. Inference of preponderance of probabilities can be drawn not only from the materials brought on record by the parties but also by reference to the circumstances upon which they rely;
(f) That it is not necessary for the Accused to come in the witness box in support of his defence, Section 139 imposed an evidentiary burden and not a persuasive burden.
Analysis Page 13 of 26 Sainik Foods Pvt. Ltd. v. Indian Sugar Manufacturing Company Ltd. CC No. 6788/2017
24.In the case at hand, it is not in dispute that the cheque in question was drawn by the Accused No. 1 Company, from its company account and was signed by Accused No. 2 and Accused No. 3, being directors of Accused No. 1 Company. Presentation of the cheque in question by the Complainant and its dishonor on grounds of funds insufficient, is also not in dispute, having been admitted by the Accused persons in statement U/s. 313 CrPC. The receipt of the legal demand notice has also been admitted by the Accused persons in statement U/s. 313 CrPC. In any event, it is seen that the address mentioned in the legal demand notice is the same address as mentioned by the Accused persons in their bail bonds. Accordingly, a presumption of due service is drawn U/s. 27 of the General Clauses Act.
25.Thus, the legal demand notice Ex. CW1/4 is held to have been duly served upon the Accused. Finally, the complaint has been filed within the limitation period. Therefore, essential ingredients (i) to (v) as stipulated by the Hon'ble Supreme Court in Kusum Ingots Case (supra), have been duly satisfied.
26. Further, as noted above, once the execution of the cheque by the Accused is proved/admitted, the presumption of the same being drawn for consideration stands attracted in terms of Section 139 NI Act. Now, in the case at hand, so far as the question of existence of basic ingredients for drawing of presumption U/s 118 (a) and 139 of the NI Act is concerned, from the aforesaid discussion, it is apparent that the Accused persons have not denied their Page 14 of 26 Sainik Foods Pvt. Ltd. v. Indian Sugar Manufacturing Company Ltd. CC No. 6788/2017 signatures on the cheque in question that has been drawn in favour of the Complainant on a bank account maintained by the Accused No. 1 Company; and hence the said presumption can be drawn. Accordingly, it is required to be presumed that the cheque in question was drawn for consideration and the holder of the cheque i.e., the Complainant received the same in discharge of an existing debt. The onus, therefore, shifts on the Accused to establish a probable defence so as to rebut such a presumption.
27.In the segment on legal framework, set out above, the legal proposition with respect to the burden of proof upon the Accused has already been discussed. Hence, it is now to be examined as to whether the Accused persons brought any material on record or pointed out glaring discrepancies in the material produced by the Complainant for dislodging the presumption which meets the standard of preponderance of probabilities.
28.The Accused persons in the present case, have taken the following line of defence with a view to rebut the presumption:
(a) The cheque in question was given as a security cheque:
29.However, even if it is considered that the cheque in question was issued as security cheque and not for repayment, it is seen that the provisions of section 138 NI Act apply with equal force. In this regard, a reference is made to the judgment of Hon'ble High Court of Delhi in Suresh Chandra Goyal v. Amit Page 15 of 26 Sainik Foods Pvt. Ltd. v. Indian Sugar Manufacturing Company Ltd. CC No. 6788/2017 Singhal, Crl. L.P, 706/2014 wherein it has been succinctly observed that:
"Section 138 of NI Act does not distinguish between a cheque issued by the debtor in discharge of an existing debt or other liability, or a cheque issued as a security cheque on the premise that on the due future date the debt which shall have crystallized by then, shall be paid. So long as there is a debt existing, in respect whereof the cheque in question is issued, in my view, the same would attract Section 138 of NI Act in case of its dishonour."
(emphasis supplied)
30.Therefore, the defence of the cheque being security cheque does not by itself rebut the presumption. Further, the Hon'ble Supreme Court in a recent judgment in the Sunil Todi Case (supra), has held that the provisions of Section 138 NI Act apply to cheques issued on advance basis as well, if at the time of presentation of the same, liability exists. It was observed that:
"The object of the NI Act is to enhance the acceptability of cheques and inculcate faith in the efficiency of negotiable instruments for transaction of business. The purpose of the provision would become otiose if the provision is interpreted to exclude cases where debt is incurred after the drawing of the cheque but before its encashment. In Indus Airways, advance payments were made but since the purchase agreement was cancelled, there was no Page 16 of 26 Sainik Foods Pvt. Ltd. v. Indian Sugar Manufacturing Company Ltd. CC No. 6788/2017 occasion of incurring any debt. The true purpose of Section 138 would not be fulfilled, if 'debt or other liability' is interpreted to include only a debt that exists as on the date of drawing of the cheque."
31.Hence, unless it is shown that no liability existed on the date of presentation of the cheque, merely by virtue of the cheque having been given as security cheque, the burden u/s 139 NI Act is not discharged.
(b) The complaint is not maintainable as the same has been filed by a non-authorised person.
32.It is submitted by Ld. Counsel for Accused persons that the board resolution filed by the Complainant company at the time of post-summoning evidence dt. 29.08.2019, is not supported by the minutes of the meeting and that it has not been shown that the person who has signed the said board resolution is or was a director of the Complainant company. However, in the present case, it is seen that a true copy of the board resolution has been filed, wherein Sh. Arun Kumar Yadav has been authorised to institute the present complaint and to give any statement before the court of law, which has been signed by one Sh. Ajay Rastogi who is described as the whole-time director of the Complainant company. Nothing contradictory has come on record in the cross examination of the AR of the Complainant. Further, a hyper-technical approach cannot be taken. Hence, on the basis of lack of filing of minutes of Page 17 of 26 Sainik Foods Pvt. Ltd. v. Indian Sugar Manufacturing Company Ltd. CC No. 6788/2017 meeting alongwith the board resolution, the presumption u/s 139 NI Act does not stand rebutted.
(c) The liability of the Accused company is less than the amount of the cheque in question.
33.It has been submitted by Ld. Counsel for Accused that the cumulative value of the cheque in question in the present complaint and in the connected case, i.e., CC No. 6787/2017 is Rs. 10,00,00,000/- and the liability of the Accused No. 1 company, if any, is not of the said amount. The fact that an agreement dt. 29.07.2016, i.e., Ex. CW1/13 was executed between the parties is not disputed. The obligation of the Accused No. 1 company to supply 5200 MT of sugar by 28.02.2017 to the Complainant is not disputed. It is also not disputed that the Accused has only been able to supply only 1942.9 MT of sugar to the Complainant by the due date, i.e., 28.02.2017. It is also not in dispute that the supply agreement Ex. CW1/13 has not been challenged by the Accused or any other party before any appropriate forum. The fact of execution of the cheque in question by the Accused company in favour of the Complainant is also undisputed. As set out above, only because the cheque has been issued with the intent of being a security cheque does not make it immune from the provisions of section 138 NI Act, if on the date of presentation of the cheque in question, liability of the Accused company existed towards the Complainant. As per the Complainant the total liability of the Accused company was Rs. 10,62,89,858/- on 28.02.2017, with Rs. 3,75,35,765/- being Page 18 of 26 Sainik Foods Pvt. Ltd. v. Indian Sugar Manufacturing Company Ltd. CC No. 6788/2017 the principal amount due towards the Complainant, for which no sugar had been supplied; Rs. 1,95,42,600/- (being the penalty at the rate of Rs. 6,000/- per MT for non-supply of the sugar by the due date to the Complainant); Rs. 2,64,19,580/- (being the difference in price between the price of sugar to set out in the agreement and the market price, incurred by the Complainant due to non-supply of sugar by the Accused); Rs. 2,11,06,008/- (being the interest at the rate of Rs. 30 per MT per day), for the non-supply of sugar; and Rs. 16,85,905/- being the interest component. Hence, as per the Complainant, the liability for the different clauses of the agreement, which is triggered by the non-supply of the sugar, is more than the cumulative value of the present cheque in question and the cheque in the connected complaint, i.e., CC No. 6787/2017. Ld. Counsel for Accused persons has submitted that even if the arguments of the Complainant are accepted, the cheque in question could not be used for the penalty clause, as the question of damages is to be decided only by a civil court. Hence, it has been submitted that a complaint u/s 138 NI Act can only lie to enforce payment under a bounced cheque if it is otherwise enforceable in civil law. Hence, as per Ld. Counsel for Accused, there is no power to enforce a penalty clause but only reasonable compensation can be granted, as per section 74 of the Indian Contract Act. Reliance in this regard is placed on the judgment of the Hon'ble Supreme Court in P. Mohan Das v. Shah Bros. Ispat Pvt. Ltd. (supra) and Fateh Chand v. Bal Kishan Das, AIR 1963 SC 1405. In this regard, it is seen that clause 2 of the supply agreement, Page 19 of 26 Sainik Foods Pvt. Ltd. v. Indian Sugar Manufacturing Company Ltd. CC No. 6788/2017 Ex. CW1/13 stipulates a penalty of Rs. 6,000/- per MT, for non- delivered/supplied sugar. It is thus a clause that operates in terrorum (i.e., a penalty clause). This is also clear from the fact that apart from the penalty clause, interest on delayed delivery is also provided in clause 5 of the agreement and there is also entitlement to the difference in the market price of the sugar and the agreed price of sugar in case of non-delivery by the due date.
34.The Hon'ble Supreme Court in P. Mohan Das v. Shah Bros. Ispat Pvt. Ltd. (supra); has held that: "Section 138 NI Act is really hybrid provision to enforce payment under a bounce cheque if it is otherwise enforceable in civil law", and hence, it is to be seen that whether the clause, though valid, can be enforced to its full extent under civil law, thereby creating a legally enforceable debt. Accordingly, the question to be answered is whether the Complainant, in case of non-delivery of certain quantity of sugar, is entitled to recover the entire sum named in the contract as penalty on account of the failure of the Accused No. 1 Company to fulfil the contract. This issue is governed by Section 73 and Section 74 of the Indian Contract Act, 1872.
35.Section 73 states: Compensation of loss or damage caused by breach of contract. When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Page 20 of 26
Sainik Foods Pvt. Ltd. v. Indian Sugar Manufacturing Company Ltd. CC No. 6788/2017 Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.
Compensation for failure to discharge obligation resembling those created by contract: When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.
Explanation: In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by non-performance of the contract must be taken into account.
36.Section 74 of the Indian Contract Act states: Compensation for breach of contract where penalty stipulated for. When a contract has been broken, if a sum is named in the contract as the amount be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.
37.Thus, it is a settled law that where the sum stipulated in the contract operates in terrorum it is to be construed as a penalty and in such circumstances the party complaining of the breach is entitled, to receive from the party who has Page 21 of 26 Sainik Foods Pvt. Ltd. v. Indian Sugar Manufacturing Company Ltd. CC No. 6788/2017 broken the contract reasonable compensation not exceeding the penalty amount.
38.In fact, the Hon'ble Supreme Court in Fateh Chand v. Balkishan Dass (supra) has held in respect of Section 74 of the Indian Contract Act that:
".........The section is clearly an attempt to eliminate the somewhat elaborate refinements made under the English common law in distinguishing between stipulations providing for payment of liquidated damages and stipulations in the nature of penalty. Under the common law a genuine pre-estimate of damages by mutual agreement is regarded as a stipulation naming liquidated damages and binding between the parties, a stipulation in a contract in terrorem is a penalty and the Court refuses to enforce it, awarding to the aggrieved party only reasonable compensation. The Indian Legislature has sought to cut across the web of rules and presumptions under the English common law, by enacting a uniform principle applicable to all stipulations naming amounts to be paid in case of breach, and stipulations by way of penalty...........
In assessing damages the Court has, subject to the limit of the penalty stipulated, jurisdiction to award such compensation as it deems reasonable having regard to all the circumstances of the case. Jurisdiction of the Court to award compensation in case of breach of contract is unqualified except as to the maximum stipulated, but compensation has to be reasonable, and that imposes upon the Court duty to award compensation according to settled Page 22 of 26 Sainik Foods Pvt. Ltd. v. Indian Sugar Manufacturing Company Ltd. CC No. 6788/2017 principles. The section undoubtedly says that the aggrieved party is entitled to receive compensation from the party who has broken the contract whether or not actual damage or loss is proved to have been caused by the breach. Thereby it merely dispenses with proof of "actual loss or damage"; it does not justify the award of compensation when in consequence of the breach no legal injury at all has resulted because compensation for breach of contract can be awarded to make good loss or damage which naturally arose in the usual course of things, or which the parties knew when they made the contract, to be likely to result from the breach."
39.Hence, duty not to enforce the penalty clause but only to award reasonable compensation is statutorily imposed upon the court by section 74, Indian Contract Act, 1872. Thus, in case of breach of an agreement, a party is not entitled to recover the entire amount mentioned in the agreement as penalty but only to a reasonable compensation. Accordingly, since Ex. CW1/13 provides for different clauses for interest on delayed delivery and payment of differential between the agreed price and the market price of the sugar, it appears that clause 2 is a penalty clause and the Complainant would be entitled to reasonable compensation, which will be capped at the penalty amount. Hence, to the extent of the penalty, i.e., Rs. 1,95,42,600/-, there does not appear to be a legally enforceable liability as on date of presentation of the cheque, since the question of penalty becomes subject to adjudication by a competent civil court.
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Sainik Foods Pvt. Ltd. v. Indian Sugar Manufacturing Company Ltd. CC No. 6788/2017
40.However, it is seen that even after subtracting the amount of Rs. 1,95,42,600/- from the total amount due, i.e., Rs. 10,62,89,858/-, the amount of liability of the Accused towards the Complainant is more than the amount of the cheque in question in the present complaint. Hence, the Accused persons have not been able to rebut the presumption u/s 138 NI Act. It is also to be seen that while in the written submissions, Ld. Counsel for Accused has submitted that certain other cheques were also given to the Complainant, and hence the liability under the other clauses cannot be clubbed against the liability in the present cheque in question, it is seen that no such question has been put to the AR of the Complainant in the cross examination. Further it is also seen that no question has been put to the AR of the Complainant as to the computation of the total liability. With regard to the defence of the Accused that the Complainant has not been able to show that it had purchased any sugar from outside and hence the liability under clause 4 of the supply agreement does not apply, it is seen that in clause 4 of the said agreement there is no such pre- condition that the Complainant is to show that it had purchased the sugar from a third party, the only requirement is that the price of sugar has increased from the present agreed price as per the agreement and the Accused has failed to or refused to supply the sugar. However, no cross examination of the AR of the Complainant has been conducted on the point that there has been no increase in the price of sugar. In fact, in the cross examination of DW-1, he has stated that he does not know whether the Complainant company had to procure sugar Page 24 of 26 Sainik Foods Pvt. Ltd. v. Indian Sugar Manufacturing Company Ltd. CC No. 6788/2017 from elsewhere, while admitting that the Accused No. 1 Company could not supply the entire quantity, as per Ex. CW1/13. Accordingly, the defence of the Accused has not been proved by the standard of preponderance of probabilities.
41.Coming to the role of Accused No. 2 and Accused No. 3, it is noted that the cheque in question and the supply agreement, Ex. CW1/13, have been admittedly signed by Accused No. 2 and Accused No. 3 on behalf of Accused No. 1 Company. Accused No. 2 and Accused No. 3 have not raised any plea as to their non-involvement in the day-to-day affairs of the Accused No. 1 at the time of framing of notice under Section 251 CrPC, statement of Accused under Section 313 CrPC or even at the time of cross-examination of the Complainant. Further, the Accused No. 2, who was examined as DW-1 had admitted to dealing with the Complainant on behalf of Accused No. 1 company in his defence. Both Accused No. 2 and Accused No. 3 have in the notice under Section 251 CrPC and in their statement under Section 313 CrPC, admitted to dealing with the Complainant on behalf of the Accused No. 1 Company. In the case of National Small Industries Corporation Ltd. v. Harmeet Singh Paintal and Ors., (2010) 3 SCC 330, it has been held that no specific averment is required against the Accused who was the Managing Director/ Joint Managing Director of the Accused company or who is signatory of the cheque, as they by virtue of their position are vicariously liable for the offence punishable under section 138 read with 141 of the NI Page 25 of 26 Sainik Foods Pvt. Ltd. v. Indian Sugar Manufacturing Company Ltd. CC No. 6788/2017 Act. Given that the cheque in question has been signed by Accused No. 2 and Accused No. 3 and in light of the facts laid out above, all ingredients stand proved against Accused No. 2 and Accused No. 3.
Conclusion:
42. In these circumstances and in view of the above detailed discussion, this court is of the considered opinion that the Accused No. 2 & Accused No. 3 have failed to rebut the presumption under Section 139 of Negotiable Instruments Act, 1881 in favour of the Complainant and ingredients of Section 138 of Negotiable Instruments Act, 1881 are fully proved. Therefore, Accused No. 2 & Accused No. 3 are held guilty and convicted for commission of offence punishable under Section 138 r/w 141 of the Negotiable Instrument Act, 1881. Let them be heard on the quantum of sentence separately. ORDER: ACCUSED NO. 2 & ACCUSED NO. 3 CONVICTED.
Announced in Open Court (Twinkle Chawla)
MM-05, South East
Saket Court, New Delhi
Note: This judgment contains 26 pages and each page has been signed by me.
(Twinkle Chawla) MM-05, South East Saket Court, New Delhi Page 26 of 26