Punjab-Haryana High Court
Apex Health Care Private Limited And ... vs M/S Alchemist Hospitals Limited on 18 August, 2010
Author: M.M.S. Bedi
Bench: M.M.S. Bedi
Crl. Misc. No.M-14352 of 2009 [1]
IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH.
Crl. Misc. No. M-14352 of 2009
Date of Decision: August 18, 2010
Apex Health Care Private Limited and others
.....Petitioners
Vs.
M/s Alchemist Hospitals Limited
.....Respondent
CORAM: HON'BLE MR. JUSTICE M.M.S. BEDI.
-.-
Present:- Mr. R.S. Cheema, Senior Advocate with
Ms. Tanu Bedi, Advocate
for the petitioners.
Mr. Sanjeev Sharma, Senior Advocate with
Mr. Vikram Sharda, Advocate
for the respondent.
-.-
M.M.S. BEDI, J.
The present petition has been preferred by nine petitioners invoking the inherent jurisdiction of this Court under Section 482 Cr.P.C. for quashing of the order dated February 13, 2009, annexure P-1 passed by the Court of Judicial Magistrate Ist Class, Panchkula, summoning the Crl. Misc. No.M-14352 of 2009 [2] petitioners under Section 138 of the Negotiable Instruments Act, 1881, (hereinafter referred to as 'the Act') and for quashing of the criminal complaint No.40 of February 13, 2009 titled 'Alchemist Hospitals Limited Vs. Apex Health Care Private Ltd. Etc., annexure P-2.
The grounds for quashing as raised by Mr.R.S.Cheema, assisted by Ms.Tanu Bedi are that the complaint has been filed with ulterior object and malafide intention to harass the petitioners; the allegations in the complaint arise out of a Memorandum of Understanding (MOU) and are essentially contractual matters, which are purely civil in nature arising out of the contractual relationship and resultant commercial transaction having been given colour of a criminal offence; the reading of the complaint would make out that no offence has been committed by the petitioners; petitioner No.1 had, in advance advised the complainant- respondent that they had issued instructions to their bankers to stop payment of the cheque and that such stoppage of payment would not be deemed to be an offence under Section 138 of the Act; the respondent has willfully concealed the fact that reply had been sent by the petitioners to the legal notice under Section 138 of the Act; the contents of MOU, which has been appended with the complaint clearly depicts that there has neither been any material deviation nor any misrepresentation on the part of the petitioners regarding the terms and conditions of the MOU or any controversial action made by the petitioners or its shareholders which would give a right to the respondent to terminate the MOU between the parties or to seek refund of the advance consideration by encashing the cheque; all the petitioners are neither the Crl. Misc. No.M-14352 of 2009 [3] signatories of the cheque nor they are incharge of and responsible to the company for the conduct of business of the Company, as such continuation of proceedings against the petitioners is illegal. Reliance was also placed on provisions of Section 202 Cr.P.C. to contend that no report was obtained by the summoning Court as petitioner No.1 Company is situated in New Delhi and the other petitioners are also residents of New Delhi, whereas the summoning Court exercising jurisdiction is situated in Panchkula (State of Haryana).
Brief facts, which are relevant for adjudication of the present petition in reference to the contents of the complaint and the material placed on the record, are to the effect that the respondent- complainant has filed a complaint under Section 138 of the Act claiming that in terms of MOU dated August 23, 2008, a sum of Rs.2 crores was paid as advance sale consideration by the complainant- respondent Company to accused No.1 vide cheque No. 66952 dated August 23, 2008 drawn on ICICI Bank, Panchkula Branch, as petitioner No.1 company and all its shareholders were desirous of selling their 100% equity in petitioner No.1 Company and the complainant being a potential buyer was desirous of expanding and developing its hospital business regarding which MOU dated August 23, 2008 was entered into between the respondent and the petitioners. It was agreed between the complainant- respondent and petitioner No.1 Company that on termination of the MOU in terms of Article 12 and/ or in the event, the proposed transaction is not consummated due to any material deviation and/ or misrepresentation on the part of petitioner No.1or its shareholders, Crl. Misc. No.M-14352 of 2009 [4] the petitioners agreed to refund the advance of Rs.2 crores paid under the MOU. The petitioners had issued a post dated cheque of Rs.2 crores bearing Cheque No.452057 favouring "Alchemist Hospitals Limited" drawn on Punjab and Sind Bank, Panchkuian Road, New Delhi. The respondent- complainant, as per the averments in the complaint, conducted a legal and accounting due diligence in accordance with the terms of MOU pursuant to which the petitioners were requested to furnish certain clarifications/ information to the complainant by communication dated November 18,2008 and again by communication dated November 26, 2008. The complainant made several futile attempts to convince the petitioners to extend the term of MOU so as to facilitate the resolution of outstanding issues that had arisen from the legal and accounting due diligence and thereafter execute the share purchase agreement. The petitioners were also informed that failing the execution of an extension agreement, the advance of Rs.2 crores would have to be refunded to the complainant in accordance with the term of the MOU. Since the term of MOU was not extended, the advance of sum of Rs.2 crores became due and payable to the complainant on November 30, 2008. The complainant has made a reference to a notice dated December 9, 2008 received by it on behalf of the petitioners stating that the petitioners had forfeited the sum of Rs.2 crores and had issued the necessary instructions to their bank to stop payment of the cheque of Rs.2 crores issued in favour of the complainant in accordance with the terms of MOU. Despite the said communication the complainant- respondent verily believed that in the given facts and circumstances the cheque of Rs.2 crores which had become Crl. Misc. No.M-14352 of 2009 [5] due and payable to the complainant would be honoured by the petitioners. Accordingly, the said cheque was deposited by the complainant with its bankers at Panchkula on December 23, 2010. The complainant was informed by its bank that the cheque had been dishonoured on account of stop payment instructions that have been issued by the petitioners. As per the compliant, the cheque was signed by authorized signatories for and on behalf of petitioner Company being Mr.S.P. Khurana and Mr.O.P. Manchanda, petitioners No.2 and 3, as the persons incharge of and responsible for the day to day management and affairs of the accused petitioner No.1 Company. The averments regarding the other petitioners i.e. petitioners No.4 to 9 are as follows:-
"In fact, apart form the aforesaid signatories, the other directors Dr.Ganesh Kumar Mani, Dr.K.K. Sethi, Dr. (Mrs.) Manju Mani, Shri Anup Soni, Shri A.S. Sawa and Dr.(Mrs.) Neelam Sethi (accused No.4 to 9) were also present at the time of handing over of the cheque. These persons had assured the representatives of M/s Alchemist Hospital Limited (complainant) that on termination of the MOU, the aforesaid cheque would be honoured."
It has been averred in the compliant that the abovesaid persons are also responsible for day to day management and affairs of accused Company and that they were also involved in the negotiations prior to the execution of the MOU and were well aware of the circumstances pertaining to the issuance of the cheque of Rs.2 crores to the complainant- Crl. Misc. No.M-14352 of 2009 [6] respondent. The complainant- respondent claimed that as the cheque was dishonoured on presentation on account of 'insufficiency of funds', all the petitioners who have been arrayed as accused, would be liable to be prosecuted under Section 138 of the Act as the cheque dated November 30, 2008 for a sum of Rs.2 crores was dishonoured with the remarks "payment stopped by drawer" vide memo dated December 26, 2008 and the same was returned by the bank of the complainant; complainant- respondent having sent registered legal notice dated January 23, 2009 to the petitioners as the accused- petitioners having not paid any money towards the cheque amount within 15 days after the expiry of the period of the notice, as such they were liable to trial and punishment.
The trial Court on the basis of the preliminary evidence issued summoning order against the petitioners vide annexure P-1 vide order dated 13.2.2009.
Sh.R.S.Cheema, has vehemently urged that the summoning order which seriously prejudice the right of liberty of the petitioners has been casually passed without even perusing the contents of the MOU between the parties. It was argued that the petitioners had entered into MOU dated August 23, 2008 with the respondent- complainant and the respondent had inter-alia agreed to purchase 9460000 fully paid up equity shares of petitioner No.1 Company for a agreed consideration of Rs.40 crores. As per the terms of clause 2.1 of said MOU, the parties were required to execute a share purchase agreement for implementing the proposed transaction of sale and purchase of shares within 3 months. The Crl. Misc. No.M-14352 of 2009 [7] respondent- complainant was required to complete a legal corporate, taxation and business due diligence of petitioner No.1. The complainant- respondent made an advance payment of Rs.2 crores to petitioner No.1. The due diligence was carried out to the complete satisfaction of the complainant and as a gesture of goodwill even provisional balance sheet was provided to the complainant, the petitioners had even asked the respondent to provide them with their latest balance sheet so as to ascertain their financial status and also their Memorandum of Article of Association but these were not provided. Vide a notice dated November 18, 2008 sent through e-mail, annexure P-4A, the complainant- respondent had sought clarification from the petitioners regarding his capitalization of certain expenses in the fixed assets, outstanding debts for more than one year, certain expenses heads not taken in the latest financial statement and regulatory compliance and licensing matters. The query-wise response was given by the petitioners through ex-mail dated November 20, 2008. It was informed by the petitioners that the share purchase agreement would be drafted and forwarded so that the contract should be concluded within the stipulated time frame. As the petitioners received no further response and the MOU was to expire on November 22, 2008, as such the petitioner sent an e-mail annexure P-6, intimating the complainant that period stipulated in MOU expired on November 22, 2008 and the complainant was requested to complete the transaction on payment of Rs.40 crores immediately but e-mail dated November 24, 2008 was not responded to by the complainant- respondent. Respondent- complainant had apparently changed its mind Crl. Misc. No.M-14352 of 2009 [8] with regard to the acquisition of petitioner No.1 Company, as such the petitioners were within their rights under clause 3.4 to terminate MOU and forfeit a sum of Rs.2 crores. In the exercise of said right, petitioner No.1 issued stop payment instructions with regard to the cheque dated November 30, 2008 in the sum of Rs.2 crores. A legal notice had been issued to the complainant that in the event the processed transaction is not concluded after conclusion of the process of the due diligence and because of change in the decision for not acquiring the Apex Health Care Private Ltd., MOU would be terminated and a sum of Rs.2 crores would be forfeited. By the legal notice, the petitioners had informed the complainant that instructions for stop payment has been issued to the bankers and in case the cheque was presented, it would not be deemed to be an offence under Section 138 of the Act. Copy of the legal notice dated December 9, 2008 has been placed on record as annexure P-8. In reply to the legal notice, annexure P-9 dated January 15, 2009, the petitioners were informed by the complainant that the cheque of Rs.2 crores had been presented and dishonoured on account of stop payment instructions. Vide another notice annexure P-10 dated January 22, 2009, in continuation of previous notice annexure P-8, the petitioners called upon the respondent- complainant to pay a sum of Rs.3,29,87,480/- as damages and expenses. In the notice received by the petitioners under Section 138 of the Act, annexure P-11, the petitioners had, in their reply annexure P-12 dated February 6, 2009 clarified and highlighted that the complainant- respondent had no right to claim a sum of Rs.2 crores and that the petitioners had never given an assurance that the Crl. Misc. No.M-14352 of 2009 [9] cheque would be honoured. It was further argued that petitioners No.4 to 9 were never present at the time of handing over of the cheque. Petitioners No.4 to 9 were not vicariously liable for the criminal offence as they were neither incharge of nor were responsible to the company for the conduct of the business of the company. He has placed reliance on National Small Industries Corporation Ltd. Vs. Harmeet Singh Paintal and another, 2010 (2) RCR (Crl.) 122 (Crl. Appeal No.320-326 of 2010, decided on February 15, 2010), wherein it has been laid down that it is not sufficient to make a bald cursory statement in a complaint that the Directors arrayed as accused are incharge of and responsible to the Company for the conduct of the business of the Company without anything more as to the role of the Director. The complainant spell out as to how and in what manner respondent was incharge of or was responsible to the accused Company for the conduct of its business. A company may have a number of Directors and to make any or all the directors as accused in a complaint merely on the basis of a statement that they are incharge of and responsible for the conduct of business of the Company without anything more is not a sufficient or adequate fulfillment of the requirement under Section 141 of the Act. It should be specifically averred as to how and in what manner the Directors were responsible for the conduct of the business of the Company. The Hon'ble Supreme Court had considered the following judgments:-
"1. SMS Pharmaceuticals Vs. Neeta Bhalla and another, (2005) 8 SCC 89;Crl. Misc. No.M-14352 of 2009 [10]
2. Sabitha Ramamurthy Vs. R.B.S. Channabasavaradhya, (2006) 10 SCC 581;
3. Saroj Kumar Poddar Vs. State (NCT of Delhi), (2007) 3 SCC 693;
4. N.K. Wahi Vs. Shekhar Singh and others;
(2007) 9 SCC 481;
5. Ramraj Singh Vs. State of M.P. and another (2009) 6 SCC 729.
Mr.Cheema has also argued that dispute, if any, is civil in nature and that in view of the arbitration clause in the MOU, steps have been taken by the parties to appoint the Arbitrator and settle the controversy.
On the other hand, Mr.Sanjeev Sharma, argued that merely because civil remedy is also available and having been availed of is not itself a ground to quash the proceedings under Section 138 of the Act. The civil proceedings or arbitration proceedings are meant for effecting recoveries whereas the criminal proceedings under Section 138 of the Act are based upon independent cause of action. He argued that all the pleas taken by the petitioners raise disputed questions of facts not constituting good ground for quashing of the criminal compliant in the light of the parameters laid down in State of Haryana Vs. Bhajan Lal, AIR 2004 SC
604. He argued that once a cheque is issued by a drawer, presumption under Section 139 of the Act must follow and the act of stoppage of payment will not preclude an action under Section 138 of the Act. Referring to the Crl. Misc. No.M-14352 of 2009 [11] correspondence between the petitioners and the complainant pointed out by the counsel for the petitioners, it was argued by counsel for the respondent that the petitioners are responsible for the proposed transaction under MOU not being consummated within the time frame giving rise to a right to the respondent- complainant to seek payment against the cheque. The MOU was placed before the Court and nothing had been concealed.
After hearing counsel for the petitioners and going through the documents placed on record, it is apparent that there exists a commercial and mercantile relationship with each other as there exists a MOU dated August 23, 2008 between the petitioners and respondent- complainant. As per the said MOU, the petitioners were desirous of selling their 100% equity shares in Apex Health Care Pvt. Ltd. And the complainant as a potential buyer of their equity share holdings with an objective to expand and develop its business desire to purchase 94,60,000 paid up equity shares of petitioner No.1- company of face value of Rs.10 each amounting to Rs.9,46,00,000/- representing 100% of the total issue subscribed and paid up share capital of the Company (sale shares) from the shareholders alongwith all assets and properties held by the Apex Trust subject to the terms and conditions mentioned in MOU. In para 2 of the MOU, both the parties agreed within 3 months to exercise their respective best efforts to enter into share purchase agreement. Para 3 of the MOU deals with the consideration. The relevant paragraphs pertaining to consideration are 3.1, 3.2, 3.3 and 3.4 which read as follows:-
"3. CONSIDERATION Crl. Misc. No.M-14352 of 2009 [12] 3.1 Subject to the terms and conditions of this MOU, Alchemist has made an offer of Rs.40,00,00,000 (Rupees forty crores) ("Sale Consideration") to Shareholders for acquiring 100% equity shareholding held in Apex. Apex and its shareholders hereby agrees and accept the offer made by Alchemist and acknowledge receipt Rs.2,00,00,000 (Rupees two crores) towards advance sale consideration from Alchemist by cheque No.669252 dated 23.8.08 favouring "Apex Health Care Private Limited" drawn on ICICI Bank, Panchkula Branch. Upon termination of this MOU in terms of Article 12 and/ or in the event, the Proposed Transaction is not consummated due to any material deviation and/ or misrepresentation on the part of Apex or its Shareholders, Apex and its shareholders hereby agree to refund the advance of Rs.2,00,00,000 (Rupees two crores) paid under this MOU. Apex has issued a post dated cheque for Rs.2 Crores bearing No.452057 dated 30.11.2008 favouring "Alchemist Hospitals Limited" drawn on Punjab & Sind Bank, DHLI Extension Counter, Crl. Misc. No.M-14352 of 2009 [13] Panchkuian Road, New Delhi for honoring the said commitment.
3.2 The Parties hereby further agrees that on
completion of satisfactory and necessary
documentary financial, taxation, legal and
business due diligence (s) (or any part thereof) of the Proposed Transaction and at the time of execution of Share Purchase Agreement, the advance of Rs.2,00,00,000 (rupees two crores) paid under this MOU shall be adjusted pro rata against the total Sales Consideration payable to Shareholders. The total Sale Consideration shall be payable to Apex and its Shareholders as hereunder:-
Sl. Particulars Amount
No.
1. 5% of the total sale consideration Rs.2,00,00,000 as advance on execution of MOU
2. 85% of the total sale Rs.34,00,00,000 consideration on execution of Share Purchase Agreement but not later than November 30, 2008 Crl. Misc. No.M-14352 of 2009 [14]
3. 10% consideration on satisfactory Rs.4,00,00,000 completion of 'Hand holding period', six months from the execution of Share Purchase Agreement, but not later than March 31, 2009.
3.3 It is hereby agreed by the Parties that the Sale Consideration has been agreed between the parties on the basis of un-audited provisional financial statement as on 31, March 2008 of the Company, a copy of which duly authenticated by authorized Directors of the Company is annexed to this MOU as Annexure A. In the event, if there is a material deviation in the value, Alchemist shall have the right to adjust Sale Consideration accordingly.
3.4 In the event of Proposed Transaction is not consummated and or there is any misrepresentation and/or controversial action made by Company and/ or its Shareholders, notwithstanding anything contained in Article 12 Alchemist shall have the right to terminate this MOU between Parties hereto and seek refund of Crl. Misc. No.M-14352 of 2009 [15] advance consideration by encashing the aforesaid cheque.
In the event the Proposed Transaction is not consummated after conclusion of the necessary documentary, financial, taxation, legal and business due diligence(s) and valuation of Company upon satisfaction of Alchemist during the period of this MOU. Any change in decision of Alchemist, thereafter, to acquire Apex due to reasons other than due to risk ascertained during due diligence of Company, Apex shall have the right to terminate this MOU between the parties hereto and to forfeit the sum of Rs.2,00,00,000/- (Rupees Two Crores) paid in terms of clause 3.1 above. Apex shall also be entitled to stop payment of the cheque mentioned in clause 3.1 as above, which shall not be deemed to constitute a criminal offence under Section 138 of the Negotiable Instrument Act."
A perusal of para 3.1 and 3.4 indicates that a sum of Rs.2 crores which is 5% of the total sale consideration was paid as advance at the time of execution of MOU. A sum of Rs.38 crores, the remaining amount of consideration was to be paid to the petitioners on execution of the sale purchase agreement on completion of the hand-holding period by November Crl. Misc. No.M-14352 of 2009 [16] 30, 2008 and by March 31, 2009. It was agreed that in case the proposed transaction is not consummated and there is any misrepresentation and/ or controversial action made by petitioners and/ or its shareholders, notwithstanding anything contained in Article 12 of MOU, the complainant shall have a right to terminate the MOU between the parties and seek refund of advance consideration of Rs.2 crores by encashing the cheque of Rs.2 crores.
A joint reading of para 3.1 and 3.4 depicts that in the event of proposed transaction being not consummated due to any material deviation or misrepresentation on part of the petitioners, i.e. the Apex Company, the advance of Rs.2 crores paid under MOU to the Apex Company against a cheque of Rs.2 crores favouring complainant Alchemist Hospital Limited was to be refunded but in the event of proposed transaction being not consummated on account any misrepresentation or controversial action of the Apex Company, the respondent- complainant Alchemist Company would have a right to terminate the MOU between the parties and seek refund of the advance consideration by encashing the post-dated cheque. The petitioners claim that there has not been any misrepresentation or controversial action on part of the petitioners and there being no right vested in the complainant- Alchemist Company to seek refund of the advance consideration, the amount of advance money of Rs.2 crores shall stand forfeited. Referring to the correspondence between the Apex Company and the Alchemist Company, i.e. annexures P-4, P-5, P-6, P-7, P- 8, P-9, P-10, P-11 and P-12, it has been sought to be established by the Crl. Misc. No.M-14352 of 2009 [17] petitioners that no right has accrued to the complainant- respondent to claim a sum of Rs.2 crores against post-dated cheque and that the petitioners have rightly directed their bankers to stop the payment. On the basis of the correspondence between the parties, this Court in the exercise of inherent jurisdiction has been called upon to arrive at a conclusion whether the complainant- respondent had a right to get the refund of Rs.2 crores on account of default on part of the petitioners or on account of default on part of the complainant-Alchemist Company, the amount of Rs.2 crores stood forfeited.
I have considered all the documents and the point which is sought to be adjudicated in the exercise of inherent jurisdiction under Section 482 Cr.P.C. in context to the law laid down by the Apex Court in various judgments. In the judgment of Hon'ble Supreme Court in Indian Oil Corporation Vs. NEPC India Ltd. and others, (2006) 6 SCC 736, the respondent NEPC had filed two complaints against the appellant Indian Oil Corporation in the Court of Judicial Magistrate, Coimbatore and Judicial Magistrate, Alandur, regarding a dispute having arisen pursuant to two contracts entered into between appellant Indian Oil Corporation and NEPC India Limited and its sister concern Skyline NEPC Limited pertaining to an Act of NEPC India Committing breach of trust and theft by removal of engines of aircraft and clear the outstanding amounts worth crores to the appellant Indian Oil Corporation. The criminal complaints were challenged on two grounds i.e. (i) complaints related to purely contractual disputes of civil nature in which the Indian Oil Corporation had already sought Crl. Misc. No.M-14352 of 2009 [18] injunctive reliefs and money decrees; and (ii) even if all the allegations in the complaint are taken as true, they did not constitute any criminal offence as defined under Sections 378, 403 and 405 etc. . The High Court had by one judgment allowed the petitions accepting the second ground urged by the respondent but rejecting the first ground. The order of the High Court was challenged in the Supreme Court raising two points; (i) whether the existence or availment of civil remedy in respect of disputes arising out of the breach of contract, bars remedy under criminal law? (ii) Whether the allegations in the complaint, if accepted on face value constitute any offence under Sections 378, 403, 405, 415 or 425 IPC? The Apex Court held that High Court was justified in rejecting the contention of the respondents that the criminal proceedings should be quashed in view of pendency of several civil proceedings but had set aside the judgment of the High Court holding that the contents of the complaint alleging that NEPC had removed engines thereby making a change in the aircraft, prima facie constituted an offence under Sections 415 and 425 IPC. The principles relating to the exercise of powers under Section 482 Cr.P.C. to quash the compliant, were taken into consideration. No doubt, the Apex Court deprecated the current practice of misuse of criminal process to put undue pressure in civil disputes but observed that if the allegations contained in the complaint taken on their face value, on facts, constituted offences under penal Code, the petition under Section 482 Cr.P.C.will not be maintainable. The Apex Court had taken note of the principles laid down in following cases:- Crl. Misc. No.M-14352 of 2009 [19]
1. Madhavrao Jiwajirao Scindia Vs. Sambhajirao Chandrojirao Angre, (1998) 1 SCC 692;
2. State of Haryana Vs. Bhajan Lal, 1992 Suppl.(1) (SCC) 335;
3. Rupan Deol Bajaj Vs. Kanwar Pal Singh Gill, (1995) 6 SCC 194;
4. Central Bureau of Investigation Vs.Duncans Agro Industries Ltd.; (1996) 5 SCC 591;
5. State of Bihar Vs. Rajendra Agrawalla (1996) 8 SCC 164;
6. Rajesh Bajaj Vs. State NCT of Delhi, (1999) 3 SCC 259;
7. Medchl Chemicals and Pharma (P) Ltd. Vs. Biological E. Ltd. (2000) 3 SCC 269.
8. Hridaya Ranjan Prasad Verma Vs. State of Bihar, (2000) 4 SCC 168;
9. M.Krishnan Vs. Vijay Singh, (2001) 8 SCC 645; and
10. Zandu Pharmaceutical Works Ltd. Vs. Mohd. Sharaful Haque, (2005) (1) SCC 122.
were taken into consideration and held as follows:
"Re: Point (i)
12. The principles relating to exercise of jurisdiction under Section 482 of the Code of Criminal Procedure to Crl. Misc. No.M-14352 of 2009 [20] quash complaints and criminal proceedings have been stated and reiterated by this Court in several decisions. To mention a few - Madhavrao Jiwaji Rao Scindia v. Sambhajirao Chandrojirao Angre [1988 (1) SCC 692], State of Haryana vs. Bhajan Lal [1992 Supp (1) SCC 335], Rupan Deol Bajaj vs. Kanwar Pal Singh Gill [1995 (6) SCC 194], Central Bureau of Investigation v. Duncans Agro Industries Ltd., [1996 (5) SCC 591], State of Bihar vs. Rajendra Agrawalla [1996 (8) SCC 164], Rajesh Bajaj v. State NCT of Delhi, [1999 (3) SCC 259], Medchl Chemicals & Pharma (P) Ltd. v. Biological E. Ltd. [2000 (3) SCC 269], Hridaya Ranjan Prasad Verma v. State of Bihar [2000 (4) SCC 168], M. Krishnan vs. Vijay Kumar [2001 (8) SCC 645], and Zandu Pharmaceutical Works Ltd. v. Mohd. Sharaful Haque [2005 (1) SCC 122]. The principles, relevant to our purpose are :
(i) A complaint can be quashed where the allegations made in the complaint, even if they are taken at their face value and accepted in their entirety, do not prima facie constitute any offence or make out the case alleged against the accused.
For this purpose, the complaint has to be examined as a whole, but without examining the Crl. Misc. No.M-14352 of 2009 [21] merits of the allegations. Neither a detailed inquiry nor a meticulous analysis of the material nor an assessment of the reliability or genuineness of the allegations in the complaint, is warranted while examining prayer for quashing of a complaint.
(ii) A complaint may also be quashed where it is a clear abuse of the process of the court, as when the criminal proceeding is found to have been initiated with malafides/malice for wreaking vengeance or to cause harm, or where the allegations are absurd and inherently improbable.
(iii) The power to quash shall not, however, be used to stifle or scuttle a legitimate prosecution. The power should be used sparingly and with abundant caution.
(iv) The complaint is not required to verbatim reproduce the legal ingredients of the offence alleged. If the necessary factual foundation is laid in the complaint, merely on the ground that a few ingredients have not been stated in detail, the proceedings should not be quashed. Quashing of the complaint is warranted only where the complaint is so bereft of even the basic facts Crl. Misc. No.M-14352 of 2009 [22] which are absolutely necessary for making out the offence.
(v) A given set of facts may make out : (a) purely a civil wrong; or (b) purely a criminal offence; or (c) a civil wrong as also a criminal offence. A commercial transaction or a contractual dispute, apart from furnishing a cause of action for seeking remedy in civil law, may also involve a criminal offence. As the nature and scope of a civil proceedings are different from a criminal proceeding, the mere fact that the complaint relates to a commercial transaction or breach of contract, for which a civil remedy is available or has been availed, is not by itself a ground to quash the criminal proceedings. The test is whether the allegations in the complaint disclose a criminal offence or not."
Applying the ratio of abovesaid judgment, I am of the considered opinion that even if it is presumed that the rights of the parties are governed by MOU and that the parties have also adverted to the alternative remedies available to them under Arbitration Act, the disputed question of fact regarding the cheque having been issued for any debt or existing liability or whether there did not exist any debt or liability cannot be gone into at this stage but has to be seen at the time of the trial. A similar Crl. Misc. No.M-14352 of 2009 [23] question came up before the Hon'ble Supreme Court in M.M.T.C. Ltd. and another Vs. Medchl Chemicals and Pharma (P) Ltd. and another, (2002) 1 SCC 234. In the said judgment it was held that the High Court in the exercise of powers under Section 482 Cr.P.C. cannot examine the merits of the complaint under Section 138 of the Act and could not merely because the application did not contain a specific allegation to the contrary, hold that the cheques were not issued for any debt or existing liability. It was held that the onus to prove the non-existence of a debt or liability lay on the drawer of the cheque and the said onus had to be discharged at the trial. The Apex Court re-stated the scope of interference with pending complaints in the exercise of the powers by the High Court and had set aside the order of the High Court quashing the complaint holding that the cheques had been issued as security and not for any debt or liability existing on the date of issuance. In that case the drawer had stopped the payment of the cheque. Following Modi Cements Ltd. Vs. Kuchil Kumar Nandi, (1998) 3 SCC 249, it was held that even when the cheque is dishonoured by reason of stop-payment instructions, by virtue of Section 139 the court has to presume that the cheque was received by the holder for the discharge, in whole or in part, of any debt or liability. Of course this is a rebuttable presumption. If the accused shows that in his account there were sufficient funds to clear the amount of the cheque at the time of presentation of the cheque for encashment at the drawer bank and that the stop-payment notice had been issued because of other valid causes including that there was no existing debt or liability at the time of presentation of cheque for encashment, then Crl. Misc. No.M-14352 of 2009 [24] offence under Section 138 would not be made out. Thus, High Court cannot quash a complaint on this ground.
The scope of exercise of inherent jurisdiction came up before the Apex Court on August 13, 2010 in Preeti Gupta and another Vs. State of Jharkhand and another, JT 2010 (8) SC 410. While discussing the scope under Section 482 Cr.P.C. it has been observed by the Apex Court as follows:-
"17. The powers possessed by the High Court under Section 482 of the Code are very wide and the very plenitude of the power requires great caution in its exercise. The court must be careful to see that its decision in exercise of this power is based on sound principles. The inherent power should not be exercised to stifle a legitimate prosecution but court's failing to use the power for advancement of justice can also lead to grave injustice. The High Court should normally refrain from giving a prima facie decision in a case where all the facts are incomplete and hazy; more so, when the evidence has not been collected and produced before the court and the issues involved, whether factual or legal, are of such magnitude that they cannot be seen in their true perspective without sufficient material. Of course, no hard and fast rule can be laid down in regard to cases Crl. Misc. No.M-14352 of 2009 [25] in which the High Court will exercise its extraordinary jurisdiction of quashing the proceedings at any stage."
In State of Andhra Pradesh Vs. Gaurishetty Mahesh and others delivered on July 15, 2010, in Crl. Appeal No. 1252 of 2010 lays down that while exercising jurisdiction under Section 482 Cr.P.C., the High Court would not ordinarily embark upon an enquiry whether the evidence in question is reliable or not or whether on a reasonable appreciation of it, accusation would not be sustained. That it is the function of the trial Judge/ Court. It is true that Court should be circumspect and judicious in exercising discretion and should take all relevant facts and circumstances into consideration before issuing process, other wise, it would be an instrument in the hands of a private complainant to unleash vendetta to harass any person needlessly. At the same time, Section 482 is not an instrument handed over to an accused to short-circuit a prosecution and brings about its closure without full-fledged enquiry. Though High Court may exercise its power relating to cognizable offences to prevent abuse of process of any Court or otherwise to secure the ends of justice, the power should be exercised sparingly. For example, where the allegations made in the FIR or complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out a case against the accused or allegations in the FIR do not disclose a cognizable offence or do not disclose commission of any offence and make out a case against the accused or where there is express legal bar provided in any of Crl. Misc. No.M-14352 of 2009 [26] the provisions of the Code or in any other enactment under which a criminal proceeding is initiated or sufficient material to show that the criminal proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accused due to private and personal grudge, the High Court may step in. Though the powers possessed by the High Court under Section 482 are wide, however, such power requires care/caution in its exercise. The interference must be on sound principles and the inherent power should not be exercised to stifle a legitimate prosecution. We make it clear that if the allegations set out in the complaint do not constitute the offence of which cognizance has been taken by the Magistrate, it is open to the High Court to quash the same in exercise of inherent powers under Section 482.
In Goa Plast (P) Ltd. Vs. Chico Ursula D'souza, (2004) 2 SCC 235, the Apex Court had considered the object behind the enactment of Sections 138 and 139 of the Act as follows:-
"Proper and smooth functioning of all business transactions, particularly, of cheques as instruments, primarily depends upon the integrity and honesty of the parties. In our country, in a large number of commercial Crl. Misc. No.M-14352 of 2009 [27] transactions, it was noted that the cheques were issued even merely as a device not only to stall but even to defraud the creditors. The sanctity and credibility of issuance of cheques in commercial transactions was eroded to a large extent. Cheques were issued for payment of admitted liability but the drawer used to dishonor the said liability by issuing instructions to the bank for stop payment. Undoubtedly, dishonour of a cheque by the Bank causes incalculable loss, injury and inconvenience to the payee and the entire credibility of the business transactions within and outside the country suffers a serious setback. To avoid the aforesaid and to create an element of credibility and dependability, Sections 138 and 139 were enacted which provide a criminal remedy of penalty if the ingredients of the sections are satisfied. The remedy available in a Civil Court is a long-drawn matter and an unscrupulous drawer normally takes various pleas to defeat the genuine claim of the payee."
The Apex Court in the said judgment has set aside the acquittal in proceedings under Section 138 of the Act. The trial Court in the said case had acquitted the accused on the basis of a letter sent by the accused presuming that the accused has rebutted the statutory presumption under Section 139 of the Act. The Apex Court had set aside the acquittal order Crl. Misc. No.M-14352 of 2009 [28] passed by the Courts below holding that the letter of an accused instructing stop payment is not sufficient enough to rebut the presumption under Section 139 of the Act.
In view of the above discussion, this Court is of the opinion that though the inherent powers of this Court under Section 482 Cr.P.C. are very wide but the exercise of said powers requires great caution and care. The inherent power cannot be exercised to stifle a legitimate prosecution and give a prima facie decision where the facts are incomplete and hazy and where the evidence had not yet been collected and produced before the Court. Whether the factual and legal disputes are of such magnitude that they cannot be seen in their true perspective without sufficient material, it would not be prudent to quash the proceedings under Section 482 Cr.P.C. unless and until the parameters laid down in catena of judgments i.e. starting from Madhavrao Jiwajirao Scindia's case (supra), Bhajan Lal's case (supra), Zandu Pharmaceutical Works case (supra) to Preeti Gupta's case (supra), are made out for exercising inherent powers under Section 482 Cr.P.C. The inherent powers under Section 482 Cr.P.C. cannot be put in a straight jacket formula and no hard and fast rule has been laid down in regard to the cases in which the High Court has to exercise extraordinary jurisdiction of quashing of proceedings. The inherent powers under Section 482 Cr.P.C. are required to be exercised taking into consideration the facts and circumstances of each case with sole objective to prevent the abuse of process of the Court and to achieve the interests of justice. Applying the ratio of the judgments in all the abovesaid cases Crl. Misc. No.M-14352 of 2009 [29] referred to hereinbefore to the facts of the present case, the question whether the petitioner Apex Company did not have any liability on the day of issuance of post-dated cheque or that it had validly issued instructions to stop the payment of the cheque or whether the proposed transaction between the parties was not consummated on account of material deviation and/ or misrepresentation on part of the petitioners; or it was on account of any such act on part of the respondent- complainant resulting in the forfeiture of their right to seek refund of the advance consideration by encashing the cheques, cannot be determined on the basis of the allegations and counter- allegations of the petitioners and the respondent-complainant. The said exercise has to be taken up by the trial Court while determining whether the cheque in dispute had been issued to discharge any liability by the petitioners to the respondent- complainant. It will also be required for the trial Court to determine the factor of due diligence affecting the rights of the litigating parties. Section 139 of the Act lays down 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. The rebutable presumption attached to the cheque can be rebutted by the documents which have been produced by the petitioners before this Court. It is settled principles of law that though the High Court at the initial stage of trial would not ordinarily appreciate the defence of an accused although it appears to be plausible for the exercise of inherent jurisdiction to quash criminal proceedings and would not ordinarily enter into a disputed question of fact. It is also a Crl. Misc. No.M-14352 of 2009 [30] settled principle of law that the document of unimpeachable character can be taken into consideration for the purpose of finding out whether the continuance of criminal proceedings would amount to an abuse of the process of the Court or the complaint petition was causing a mere harassment. In this context, the observations of the Apex Court in M/s Suryalakshmi Cotton Mills Ltd. Vs. M/s Rajvir Industries Ltd. and others, AIR 2008 SC 1683 (1) can be referred to. It was held in the said judgment that "Ordinarily, a defence of an accused although appears to be plausible should not be taken into consideration for exercise of inherent powers to quash criminal proceedings. The High Court at that stage would not ordinarily enter into a disputed question of fact. It, however, does not mean that documents of unimpeachable character should not be taken into consideration at any cost for the purpose of finding out as to whether continuance of the criminal proceedings would amount to an abuse of the process of Court or that the complaint petition is filed for causing mere harassment to the accused. Although it is true that in large number of disputes should ordinarily be determined only by the civil courts, criminal cases are filed only for achieving the ultimate goal namely to force the accused to pay the amount due to the complainant immediately. The Courts on the one hand should not encourage such a practice; but, on the other, cannot also travel beyond its jurisdiction to interfere with the proceeding which is otherwise genuine." No doubt the documents produced by the petitioners may be of unimpeachable character sufficient enough to rebut the presumption under Section 139 of the Act and may constitute valuable Crl. Misc. No.M-14352 of 2009 [31] defence documents but the circumstances do not warrant that High Court in this case at this stage should enter into a disputed question of fact regarding the extent of the rights of the parties arising out of MOU governing the contractual rights with an objective to find out whether the cheque presented by the respondent- complainant for encashment was merely a document of security or could be deemed to be a document to discharge the liability or part of the liability.
The next contention of learned counsel for the petitioner is that the petitioners is that all the petitioners being Directors of the Apex Health Care Pvt. Ltd. are not the persons liable under Section 141 of the Act being not incharge and responsible for the conduct of business of petitioner No.1 Company at relevant time. The summoning order passed by the trial Court without appreciation of the role of each Director is liable to be set aside and the complaint qua petitioners No.2 to 9 is an abuse of the process of the Court.
The extent of liability of all the Directors of the Company for the purpose of prosecution and conviction under Sections 138 and 141 of the Act is no more res integra in view of the law settled by the Apex Court in National Small Industries Corporation case (supra), SMS Pharmaceuticals case (supra), Sabitha Ramamurthy's case (supra), Saroj Kumar Poddar's case (supra) and K.K. Ahuja's case (supra). In all the abovesaid judgments, it has been laid down that all the persons who are Directors of the Company, cannot be made vicariously liable for a criminal offence under Section 141 of the Act by merely levelling vague allegations Crl. Misc. No.M-14352 of 2009 [32] that they were incharge of and were responsible to the Company for the conduct of the business of the Company. In order to make Directors liable for the offence committed by Company under Section 141 of the Act, there must be specific averments against the Directors showing as to how and in what manner the Directors were responsible for the conduct of the business of the Company. A company may have a number of Directors and to make any or all the Directors as accused in a complaint merely on the basis of a statement that they are incharge of and responsible for the conduct of the business of the Company without anything more is not a sufficient or adequate fulfillment of the requirements under Section 141 of the Act.
A perusal of the complaint filed by the respondent-
complainant annexure P-2 shows that the complainant- respondent has specifically mentioned in para 11 of the complaint that petitioners No.2 and 3 are the authorized signatories and they, on behalf of the Company, had issued the cheque and that they are incharge of and responsible for the day to-day management and affairs of the Company. The said averments is sufficient enough to prima facie arrive at a conclusion that petitioners No.2 and 3 were authorized signatories and that they were responsible for the conduct of the business of the Company. A Director, who has been authorized to undertake financial transactions, issue cheques and sign other documents, is certainly incharge of and responsible for the conduct of the business of a Company. There is no abuse of the process of the Court in continuation of the proceedings against petitioner No.1-Company and Crl. Misc. No.M-14352 of 2009 [33] petitioners No.2 and 3 being authorized signatories, under Section 138 of the Act.
So far as petitioners No.4 to 9 are concerned, the allegation against them is that they are also responsible for the day to-day management and affairs of petitioner No.1- Company and that they were also present at the time of handing over of the cheque. The allegation against petitioners No.4 to 9 is vague and they cannot be foisted with vicarious liability on the basis of vague allegations that they are incharge of and responsible for the conduct of business of petitioner No.1-Company. It has not been shown as to how and in what manner the said Directors are responsible for the conduct of the business of the Company. Even if it is presumed that they were present at the time of handing over of the cheque, the said vague allegations are not sufficient enough to try them for offence under Section 138 of the Act. The proceedings against petitioners No.4 to 9 are certainly an abuse of the process of the Court. The unrebutted allegations against petitioners No.4 to 9 do not constitute any offence. It will be contrary to the interest of justice, in case they are made to face the proceedings which may not ultimately end up with a finding of criminal liability against them. The proceedings against petitioners No.4 to 9 are herby quashed. The complaint against petitioners No.4 to 9, annexure P-2, the summoning order annexure P-1 and all the criminal proceedings are ordered to be quashed being not maintainable.
Learned counsel for the petitioners, Mr.Cheema has referred to the provisions of Section 202 Cr.P.C. to contend that the trial Court while Crl. Misc. No.M-14352 of 2009 [34] issuing the summoning order has not held an enquiry as such the summoning order against petitioners No.2 and 3, who are residents of New Delhi, is liable to be quashed. He has relied upon the judgment of S.K. Bhowmik Vs. S.K. Arora and another, 2007 (4) RCR (Crl.) 650, in which the scope of amended Section 202 Cr.P.C. w.e.f June 23, 2006 was considered and it was held that in a criminal complaint against an accused who resides beyond the jurisdiction of a Magistrate makes it mandatory upon the Magistrate to hold an enquiry under Section 202 Cr.P.C. (as amended) to find out whether or not there was sufficient grounds for proceedings against the accused. In the said judgment it was held that examination of complainant and witnesses as envisages under Section 200 Cr.P.C. cannot be equated or to be a substitute for the enquiry/ investigation required under Section 202 Cr.P.C.. The nature of the enquiry, required to be held under Section 202 Cr.P.C. to see is prima facie case was made out or not.
I have considered the ratio of the said judgment and I am of the opinion that the criminal complaint under Section 138 of the Act is governed by the provisions of the Negotiable Instruments Act as well as the provisions of Cr.P.C. under Sections 177, 178 and 179 Cr.P.C. for the purpose of territorial jurisdiction. Section 177 Cr.P.C. provides that every offence shall ordinarily be enquired into and tried in a Court within whose jurisdiction it was committed. Section 178 Cr.P.C. provides that if there is uncertainty as to where, among different localities, the offence would have been committed the trial can be held in a Court having jurisdiction over any Crl. Misc. No.M-14352 of 2009 [35] of those localities. Section 179 Cr.P.C. further stretches the jurisdiction of the Court holding that when an act is an offence, by reason of anything which has been done and of a consequence, which has ensued, the offence may be inquired into or tried by a Court within whose jurisdiction such act has been done or such consequence has ensued. The matter regarding jurisdiction came up before the Apex Court in K. Bhaskaran Vs. Sankaran Vaidhyan Balan and another, (1999) 7 SCC 510. The Apex Court held that the offence under Section 138 of the Act can be completed only with the concatenation of a number of acts. The following are the acts which are components of the said offence : (1) drawing of the cheque, (2) presentation of the cheque to the bank, (3) returning the cheque unpaid by the drawee bank, (4) giving notice in writing to the drawer of the cheque demanding payment of the cheque amount, (5) failure of the drawer to make payment within 15 days of the receipt of the notice. It is not necessary that all the above five acts should have been perpetrated at the same locality. It is possible that each of those five acts could be done at different localities. But a concatenation of all the above five is a sine qua non for the completion of the offence under Section 138 of the Code.
If the five different acts were done in five different localities, any one of the courts exercising jurisdiction in one of the five local areas can become the place of trial for the offence under Section 138 of the Act. In other words, the complainant can choose any one of those courts having jurisdiction over any one of the local areas within the territorial limits of which any one of those five acts was done. As the amplitude stands so Crl. Misc. No.M-14352 of 2009 [36] widened and so expansive, it is an idle exercise to raise jurisdictional question regarding the offence under Section 138 of the Act.
The objective of Section 202 Cr.P.C. was to ascertain whether grounds exist for proceeding against a person who has been arraigned as an accused in a private complaint. The Magistrate under Section 202 Cr.P.C. has got an authority to postpone the issue of process and hold an enquiry himself or direct the investigation to be made by police officer or by any such person as he thinks fit. The word "investigation" to be made by police officer, indicates that the scope of enquiry is connected with an offence which is mentioned in the complaint and could be investigated by a police officer. The offence under Section 138 of the Act is a non-cognizable offence as per Section 2 (l) Cr.P.C. in which police officer has got no authority to arrest without warrant. By necessary implication from the language used in amended Section 202 Cr.P.C., it is apparent that the provisions of Section 202 Cr.P.C. enabling a Magistrate to hold an enquiry and postpone the issuance of process is not applicable to the proceedings under Section 138 of the Act.
Taking into consideration the nature of the proceedings under Section 138 of the Act and the law laid down in K. Bhaskaran's case (supra) that the complainant can choose any one of the course having jurisdiction over any one of the local areas in which any one of the five acts i.e. drawing of the cheque; presentation of the cheque to the bank; returning the cheque unpaid by the drawee bank; giving notice in writing to the drawer of the cheque demanding payment of the cheque amount; and failure Crl. Misc. No.M-14352 of 2009 [37] of the drawer to make payment within 15 days of the receipt of the notice, the provisions of Section 202 Cr.P.C. cannot be said to be applicable in proceedings under Section 138 of the Act, otherwise it would defeat the objectives of the provisions of Section 138 of the Act. However, a Magistrate exercising powers under Section 138 of the Act can himself, while appreciating the preliminary evidence, hold an enquiry for his satisfaction regarding the prima facie commission of offence under Section 138 of the Act when the respondent/ accused is resident of different locality, keeping in mind that the list of the accused has not been unnecessarily enlarged with an oblique motive to cause harassment to the accused described as residents of distant areas but holding of an enquiry by police in every case under Section 138 of the Act under Section 202 Cr.P.C. is not the rule of law. It is not out of place to mention here that the judgment in K.Bhaskaran's case (supra) still holds the field despite a little variance in one of the five circumstances in the recent judgment by the Hon'ble Supreme Court in Harman Electronics Private Limited and another Vs. National Panasonic India Private Limited, (2009) 1 SCC 720, in which it was held that the single factor of issuance of notice under Section 138 (b) of the Act will not ipso facto tentamount to conferring a jurisdiction on the Courts of the area from where only notice has been issued. Besides this, the judgment in S.K. Bhowmik's case (supra) did not deal with a case constituting of non-cognizable offences particularly offence under Section 138 of the Act. It is held that in the light of the judgment of K.Bhaskaran's case (supra), the ratio of the judgment of S.K. Bhowmik's case (supra) is Crl. Misc. No.M-14352 of 2009 [38] not applicable in the complaint under Section 138 of the Act and the summoning order in complaint under Section 138 of the Act cannot be questioned solely on the ground of violation of provisions of section 202 Cr.P.C.
In view of the above discussion, this petition is partly allowed and partly dismissed. The petition is allowed qua petitioners No.4 to 9, however, the petition is dismissed qua petitioners No.1 to 3. The proceedings against petitioners No.1 to 3 before the trial Court under Section 138 of the Act may continue in accordance with law.
August 18, 2010 (M.M.S.BEDI) sanjay JUDGE