IN THE COURT OF SH. APOORV SARVARIA, CIVIL JUDGEI, NEW DELHI DISTRICT, NEW DELHI C.C. No: 912/11 Unique Case ID No. [ENTITY] Limited Registered Office At: Hansalya, 15, Barakhamba Road, New Delhi110001. Complainant Versus 1. M/s. [ENTITY] Through: Director Registered office at: F/10/1, MIDC, Navapura Road, Tarapur, Boisar, Distt. Thane401506 Mumbai. 2. [ENTITY], Director M/s. [ENTITY] F/10/1, MIDC, Navapura Road, Tarapur, Boisar, Distt. Thane401506 Mumbai. Also At: 2602 Oberoi Garden, Thakur Village, Kandivali (E), Mumabi400101. 3. Ms. [ENTITY], Director M/s. [ENTITY] F/10/1, MIDC, Navapura Road, Tarapur, Boisar, Distt. Thane401506 Mumbai. Also At: 2602 Oberoi Garden, Thakur Village, Kandivali (E), Mumabi400101. [CASE NUMBER] [ENTITY] v. [ENTITY] & Ors. Page 1 of 16 4. [ENTITY], Director M/s. [ENTITY] F/10/1, MIDC, Navapura Road, Tarapur, Boisar, Distt. Thane401506 Mumbai. Also At: 2602 Oberoi Garden, Thakur Village, Kandivali (E), Mumabi400101. Accused COMPLAINT UNDER [SECTION] READ WITH [SECTION] OF THE [ACT] Date of Institution: 21.05.2010 Date of Reserving Order: 23.05.2014 Date of Judgment: 30.05.2014 JUDGMENT
Brief facts
1. The brief facts of the present complaint filed U/[SECTION] of the [ACT] (hereinafter referred to as "[ACT]") are that the complainant [ENTITY] is stated to be wholly owned Government of India undertaking and is a company incorporated under the [ACT] having its registered office at New Delhi. The complainant is stated to have provided financial facilities to the accused company.
2. Accused no.1 company [ENTITY] is stated to be in the business of manufacture, supply and export of MS and GI wires. Accused no.2 Sh. [ENTITY], accused no.3 Ms. [ENTITY] and accused no.4 Sh. [ENTITY] are stated to be the Directors of accused no.1 company and are stated to be responsible for conduct of day to day affairs of accused no.1 company. The accused no.2 and 3 are also stated to be the signatories of cheque in question.
3. Background facts are that accused no.1 company had approached the complainant through accused no.2 for grant of facility and assistance for import of 5050 MT (+/ 5%) and 1350 MT (+/5%) of prime hot rolled wire rods from the Rizhao Steel Wires Company Ltd. and Ever Gain International Corporation, Honkong (foreign supplier).
4. The complainant and accused no.1 company entered into Associateship Agreements dated 18.03.2008 and 03.04.2008 for import of goods from the foreign supplier. In pursuance of the Associateship Agreements and on receipt of indent, margin money and post dated cheques, [ENTITY] imported goods from foreign supplier by opening two letters of credit dated 19.03.2008 and 09.04.2008. The accused no.1 company and [ENTITY] entered into two High Seas Sale Agreements dated 13.05.2008 and 26.06.2008. The goods were purchased by accused no.1 company from [ENTITY] in accordance with the terms of the Associateship Agreements and the High Seas Sales Agreements. 4938.676 MT of goods were imported by [ENTITY] and purchased by accused no.1 under [CASE NUMBER] dated 19.03.2008 worth USD 4,370,728.27. 1372.633 MT of goods were imported by [ENTITY] under [CASE NUMBER] dated 09.04.2008 worth USD 1,365,769.84. Undated cheques were given to complainant to secure the payment and the accused had given an undertaking in support of the cheques. Possession of goods was granted to accused no.1 company by [ENTITY]. It is stated that payment against the two letters of credit has been made by [ENTITY] to the foreign suppliers on 10.02.2009 and 22.05.2009 respectively. It is also stated that [ENTITY] is also entitled to interest @ 13.5 % per annum on the outstanding amount.
5. It is further stated that accused no.1 company has acknowledged its liability to [ENTITY] vide correspondence dated 07.09.2009. It is stated that as on 31.03.2010 i.e. the date of presentation of cheque, Rs. 9,94,98,634/ was payable to [ENTITY] by accused no.1 company for the aforesaid imports.
6. It is stated that cheque bearing no. 274654 dated 31.03.2010 for Rs. 50 lacs drawn on Punjab National Bank, Mumbai is one of the aforementioned cheques given in undated condition. The complainant deposited the above cheque for collection in its bank but the same returned unpaid with the remarks "Exceeds Arrangements" as per the return memo dated 31.03.2010. Thereafter, the complainant issued legal notice dated 26.04.2010 sent on 27/28.04.2010 through registered AD and UPC. The accused persons gave reply to the legal notice dated 19.05.2010. It is stated that despite service of the legal notice accused did not make the payment of the cheque amount within the prescribed period. Therefore, it is stated that the accused persons are liable for the commission of the offence U/[SECTION] of the [ACT].
Proceedings Before Court
7. The present complaint was received by way of assignment on 03.06.2010.
Summons were issued against the accused persons. Accused persons appeared and took bail. Notice of accusation was framed against the accused persons on 21.02.2012 to which accused persons pleaded not guilty and had pleaded their defence.
8. Common evidence has been led in the 20 complaints and the evidence recorded was kept in file of [CASE NUMBER].
9. In support of its case, the complainant produced CW1 Sh. [ENTITY] and tendered his evidence by way of affidavit Ex.CW1/A and relied on documents Ex.CW1/1 to Ex.CW1/32. Documents mentioned as Ex. CW1/3, Ex. CW1/5, Ex. CW1/14 to Ex. CW1/18, Ex. CW1/20, Ex. CW1/23 to Ex. CW1/32 were marked as Mark A to Mark Y. Thereafter, CW1 was crossexamined after which the complainant closed its evidence.
10.During examination conducted U/[SECTION] [ACT], the accused no.2 who was also representing accused no.1 company stated that he did not sign on the Associateship Agreements and is not aware of the two Associateship Agreements. He stated that two letter of credits were opened by complainant. He also stated that the letter dated 16.07.2009 Ex.CW1/21 was written in good faith as he knew the liability but was asking for documents to support the same. He also stated that cheque in question was given as security at the time of opening the LC and was not given in discharge of any liability. The accused no.2 admitted the receipt of legal notice and stated that he had duly replied the same. The accused no.2 further stated that Sh. [ENTITY] had somehow come out with the liability of Rs. 8.04 crores for which the post dated cheques were taken and it was thereafter agreed that accused no.1 company will pay Rs. 10 lacs per month to the complainant. He further stated that later it was agreed that LC of Rs. 2.5 crores per month would be opened and out of the money earned from that, accused no.1 would pay Rs.10 lacs against each LC. It is stated that only one LC of Rs. 2.5 Crores was opened which earned profit of Rs. 14 lacs which the accused no.1 company had returned to the complainant.
11. During examination conducted U/[SECTION] [ACT], the accused no.3 stated that she is not aware of any transaction with the complainant. She stated that whenever her husband i.e. the accused no.2 Sh. [ENTITY] was not there, she used to sign cheques after talking to him. She stated that she cannot even read in English language.
12.During examination conducted U/[SECTION] [ACT], the accused no.4 stated that he had joined accused no.1 company in March, 2008 as trainee in plant of accused no.1 and had no idea of the Associateship Agreements or letters of credit in question. He also stated that he came to know about the transaction with the complainant when his father Sh. [ENTITY] received the legal notice from the complainant.
13.In support of their defence, the accused persons have filed certified copies of the arbitral proceedings and other proceedings going on in the High Court of Delhi between the parties, after which defence evidence was closed.
Arguments of Advocates
14. Sh. [ENTITY], Ld. Advocate for the complainant relied upon decisions in [PRECEDENT], [PRECEDENT]. [PRECEDENT], [PRECEDENT], [PRECEDENT], [PRECEDENT], [PRECEDENT]. [PRECEDENT] and [ENTITY] v. Sri Mohan (2010) 11 SCC 441 in support of the complainant's contentions that the accused persons are liable for commission of the offence under [SECTION] of the [ACT].
15.On the other hand, Sh. [ENTITY], Ld. Advocate for accused persons has submitted that there was no liability when the cheques were handed over to the complainant's representatives and they were given as security. He also stated that proceeedings are already pending before the Ld. Arbitrator where the liability of the accused company is yet to be determined and that is why no offence U/[SECTION] of [ACT] is made out. He also submitted that accused no. 3 and 4 cannot be made liable U/[SECTION] of [ACT]. Ld. Advocate for accused persons relied upon decisions in [PRECEDENT], [PRECEDENT], Bhaurao Dagdu Paralkar v. State of Maharashtra 2005 Legal Eagle (SC) 622, [PRECEDENT], [PRECEDENT], [PRECEDENT], [PRECEDENT], [PRECEDENT]. [PRECEDENT], [PRECEDENT], National Small Industries Corp. Ltd. [PRECEDENT], [PRECEDENT], M/s. [PRECEDENT], decision dated 09.04.2014, [PRECEDENT] and [PRECEDENT]. This court has heard Sh. [ENTITY], Ld. Advocate for complainant and Sh. [ENTITY], Ld. Advocate for accused persons and perused the record.
Findings
16.The signatures on the cheque bearing no. 274654 dated 31.03.2010 for Rs. 50 lacs drawn on Punjab National Bank, Mumbai Ex.CW1/6 are admitted and, therefore, the execution of the cheque is not disputed. The service of legal notice has also been admitted. Hence, presumption U/[SECTION] of the [ACT] is raised.1
17. In [ENTITY] v. Sri Mohan AIR 2010 SC 1898 it was observed by the Hon'ble Supreme Court as under :
"14. In light of these extracts, we are in agreement with the respondentclaimant that the presumption mandated by 1In [ENTITY] v. Sri Mohan (2010) 11 SCC 441 the Supreme Court observed that "since the accused did admit that the signature on the cheque was his, the statutory presumption comes into play "(SCC @p. 454) [SECTION] of the Act does indeed include the existence of a legally enforceable debt or liability. To that extent, the impugned observations in [ENTITY] (supra) may not be correct. However, this does not in any way cast doubt on the correctness of the decision in that case since it was based on the specific facts and circumstances therein. As noted in the citations, this is of course in the nature of a rebuttable presumption and it is open to the accused to raise a defence wherein the existence of a legally enforceable debt or liability can be contested. However, there can be no doubt that there is an initial presumption which favours the complainant. [SECTION] of the Act is an example of a reverse onus clause that has been included in furtherance of the legislative objective of improving the credibility of negotiable instruments. While [SECTION] of the Act specifies a strong criminal remedy in relation to the dishonour of cheques, the rebuttable presumption under [SECTION] is a device to prevent undue delay in the course of litigation. However, it must be remembered that the offence made punishable by [SECTION] can be better described as a regulatory offence since the bouncing of a cheque is largely in the nature of a civil wrong whose impact is usually confined to the private parties involved in commercial transactions. In such a scenario, the test of proportionality should guide the construction and interpretation of reverse onus clauses and the accused/defendant cannot be expected to discharge an unduly high standard or proof. In the absence of compelling justifications, reverse onus clauses usually impose an evidentiary burden and not a persuasive burden. Keeping this in view, it is a settled position that when an accused has to rebut the presumption under [SECTION], the standard of proof for doing so is that of 'preponderance of probabilities'. Therefore, if the accused is able to raise a probable defence which creates doubts about the existence of a legally enforceable debt or liability, the prosecution can fail. As clarified in the citations, the accused can rely on the materials submitted by the complainant and it is conceivable that in some cases the accused may not need to adduce evidence of his/her own. " (emphasis added)
18.In view of the decision in [ENTITY] laid down by the Supreme Court, the presumption raised under [SECTION] of the [ACT] is of legally enforceable debt or liability and it is for the accused to raise a probable defence to rebut the said presumption.
Whether the cheque in question was a security cheque and not issued in discharge of legally enforceable liability?
19.The defence of the accused persons has been that the cheque in question was issued as security in the year 2008 in respect of the future opening of the two letters of credit in March and April, 2008. Further defence is that due to melt down in the market, the selling price of the goods went down and the accused no.1 company suffered losses and there was an understanding between the complainant and the accused company that it would issue two cheques one for realisable value and the other for difference between complainant's value and realisable value. Also, it was agreed that accused company will be paying instalments of Rs. 10 lacs per month for paying the liability of Rs. 8 crores and business would be revived after issuing fresh letters of credit. The other defence raised is that the civil liability of recovery of unpaid goods is to be adjudicated by arbitration in terms of agreement between the parties.
20.It has further been contended on behalf of accused persons that the cheque in question was handed over in the year 2008 and therefore, it was drawn in the year 2008 and not in the year 2010. The said contention of the accused persons is not acceptable in view of [SECTION] of the [ACT] which provides for the presumption that every negotiable instrument bearing a date was made or drawn on such date. Therefore, it has to be presumed that the cheque in question was drawn on 31.03.2010. [SECTION] of the [ACT] provides for implied authority given to the holder to fill the contents of the cheque. It clearly states that the person signing the inchoate negotiable instrument shall be liable upon such instrument, in the capacity in which he signed the same, to any holder in due course. (See also [PRECEDENT]). [SECTION] of [ACT] recognises the right of a payee to put date on the cheque if the drawer hands over incomplete negotiable instrument to him. Reading [SECTION] of the [ACT] read with [SECTION] of the [ACT], the accused company had given authority to the complainant to fill up the date and the cheque in question was drawn on the date of the cheque i.e. 31.03.2010.
21. Considering the above facts, it has to be seen whether the cheque in question was a security cheque as on the date when it was drawn i.e. 31.03.2010. During crossexamination of CW1 Sh. [ENTITY], the witness has produced the ledger account Ex.CW1/D2 of the accused company maintained by the complainant for the period 01.04.2007 to 15.08.2011. As per the ledger, as on 31.03.2010, the closing balance against the accused company was Rs. 9,01,53,269.68. The accused persons have not disputed the ledger Ex. CW1/D2 during crossexamination of the complainant witness. The goods were admitttedly supplied during the period 200809. Therefore, as on 31.03.2010, since all the goods had been delivered to the accused company much prior thereto, accused company was liable to pay the amount as agreed between the parties. Complainant has been able to prove that as on 31.03.2010, accused company was liable to pay Rs. 9,01,53,269.68. The accused have failed to prove that the accused no.1 company had no liability against the complainant as on the dates of the cheques in question i.e. on 31.03.2010 as no documentary evidence has been produced to show that the accused no.1 company had already cleared all the dues of the complaianant.
22.Therefore, as on 31.03.2010, the cheque in question no more remained as security. In [PRECEDENT], it was observed as under :
"31. A distinction has to be drawn between a cheque issued as security and a cheque issued towards discharge of a liability to pay notwithstanding that the money is by way of security for due performance of the contract. A cheque given as security is not to be encashed [sic] in presenti. It becomes enforceable if an obligation in future is not enforced. It is not tendered in discharge of a liability which has accrued.
32. Thus where a cheque forms part of a consideration under a contract it is paid towards a liability."
23. In [PRECEDENT], the High Court of Bombay has held that even if blank cheque has been given towards liability or even as security, when the liability is assessed and quantified, if the cheque is filled up and presented to the bank, the person who had drawn the cheque cannot avoid the criminal liability arising out of [SECTION] of the [ACT].
24. The reliance placed by Ld. Advocate for accused persons on the decision in [PRECEDENT] dated 07.04.2014, Supreme Court) is misplaced as in that case,the cheque was issued as an advance payment for purchase of goods and the purchase order was not carried to its logical conclusion and the goods for which purchase order was placed were not supplied. However, in the present case, the goods were already supplied to the accused no.1 company in the year 200809. Therefore, the aforesaid decision of the Supreme Court is distinguishable on material facts.
Effect of Arbitral Proceedings on the criminal complaint
25.It is well settled that civil proceedings initiated against a person and criminal proceedings initiated under [SECTION] of the [ACT] are independent of each other. Contention has been raised on behalf of accused persons that the liability of the accused company is yet to be ascertained by Ld. Arbitral Tribunal. The said contention is without any merit as the finding of the Arbitral Tribunal on the liability of the accused company is not a requirement for ascertaining the liability of the accused company in a criminal complaint filed U/[SECTION] of [ACT]. The criminal court cannot be asked to wait for the decision of the Ld. Arbitral Tribunal to arrive at a finding on the liability of the accused no.1 company. In [PRECEDENT], after relying upon the decision in [PRECEDENT], it was observed by the High Court of Delhi as under:
"8. In the case of [PRECEDENT], the Supreme Court has held that the civil proceedings or arbitration proceedings for recovery and the criminal proceedings under [SECTION] of the [ACT] are based on independent cause of action in which making of the award may be a defense to such a complaint but to what extent the defense would be valid, would have to depend upon the facts and circumstances of each case. It was also held that mere making of the award cannot be a ground to stall or stay the proceedings initiated under [SECTION] of the [ACT]. In our considered opinion, the ratio of the aforesaid decision is squarely applicable to the facts of the present case. The subject matter of the 138 proceedings is the cheque which was dishonoured on presentation and consequent thereto the aforesaid complaint was filed on the basis of which 138 proceedings have been initiated and are pending for consideration. On the other hand, the appellant has subsequently filed a civil proceeding, but that cannot be a ground to stay the proceedings initiated and pending under [SECTION] of the [ACT] as the said two proceedings are based on independent cause of action. Therefore, there is no ground to stay the criminal proceedings of complaint case and the learned Single Judge was justified in holding accordingly. In this connection, we may also refer to another decision of this Court in [PRECEDENT]. The aforesaid decision was also rendered on similar facts where suit was filed after institution of the criminal case against plaintiff under [SECTION] of the [ACT]. In the said decision it was specifically held by a learned Single Judge of this Court that injunction sought by the plaintiff cannot be granted in view of the provisions of [SECTION] of the [ACT]. In the said case also the dishonoured cheques were the foundation of the criminal case instituted by the defendant against the plaintiff. In the light of the said facts it was held by the learned Single Judge that in a suit for declaration the court may determine the position as it stood on the date of the plaint. In the said case also the position was that the cheques were already used by the defendant much prior to the institution of the suit. Facts are almost identical and similar and, therefore, the ratio of the aforesaid decision is also squarely applicable to the facts of the present case."
26.Therefore, the contention of Ld. Advocate for accused persons that the liability of the accused company is yet to be ascertained by Ld. Arbitral Tribunal cannot be accepted in view of the settled law as referred above.
27. As already noted, the liability of the accused no.1 company as on 31 st March 2010 turns out to be Rs. 9,01,53,269.68. The accused no. 1 company has, therefore, failed to raise any probable defence. Therefore, the accused no. 1 company has failed to rebut the presumption raised U/[SECTION] of the [ACT].
28.Since there has been no rebuttal of the presumption of legally enforceable liability, there is no need to go into complainant's evidence for proving the complainant's case. Even otherwise, CW1 Sh. [ENTITY] has deposed that in pursuance of the Associateship Agreements Ex.CW1/2 (colly), High Seas Sale Agreements Ex.CW1/3 (colly), the complainant had purchased the material under [CASE NUMBER] and [CASE NUMBER] and the accused company had given the undertaking Ex.CW1/4 to pay the balance amount. The ledger Ex.CW1/D2 clearly shows the outstanding balance of Rs. 9,01,53,269.68. There is nothing coming out in the cross examination of complainant's witness which would probablise the defence raised by the accused or falsify the case of the complainant. There is also a letter dated 16.07.2009 filed on record whereby the accused no.2 had acknowledged the liability of Rs. 8.75 crores against the two LCs No. 9032 and 9041. Therefore, the complainant has been able to prove that the cheque in question was issued in discharge of partial liability from the total outstanding of Rs. 9,01,53,269.68 as on 31.03.2010. The complainant has been able to prove its case.
Liability of accused no. 2, 3 and 4.
29.As far as the liability of accused no.2 is concerned, one of the two Associateship Agreements Ex.CW1/2 (colly), High Seas Sale Agreements Ex.CW1/3 (colly), undertakings Ex.CW1/4 (colly) were executed by accused no.2 Sh. [ENTITY] on behalf of accused no. 1. There has been contention raised on behalf of accused no.2 that his signatures on these documents are forged and fabricated but no evidence has been lead by accused no.2 to prove that the documents bear forged and fabricated signatures of accused no.2. Therefore, accused no.2 being the Director and also having an active role in the transactions in question is vicariously liable U/[SECTION] of [ACT].
30.As far as the liability of accused no.3 is concerned, she is the Director and wife of accused no.2. She states herself to be a housewife. She is also the signatory of some of the cheques including the cheque in question. However, besides being signatory, the complainant has not averred how the accused no.2 had actively represented accused no.1 company. Merely because the accused no.2 is the signatory of the cheque would not make her vicariously liable given the fact that she has averred that she is a housewife.
31. In [PRECEDENT] at page 345, it was observed as under:
"39. From the above discussion, the following principles emerge:
i. The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every Director knows about the transaction. ii. [SECTION] does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company.
iii. Vicarious liability can be inferred against a company registered or incorporated under the [ACT] only if the requisite statements, which are required to be averred in the complaint/petition, are made so as to make the accused therein vicariously liable for offence committed by the company along with averments in the petition containing that the accused were in charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with.
iv. Vicarious liability on the part of a person must be pleaded and proved and not inferred.
v. If the accused is a Managing Director or a Joint Managing Director then it is not necessary to make specific averment in the complaint and by virtue of their position they are liable to be proceeded with.
vi. If the accused is a Director or an officer of a company who signed the cheques on behalf of the company then also it is not necessary to make specific averment in the complaint vii.The person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a Director in such cases."
32.Though the Supreme Court has in National Small Industries Corpn. Ltd observed that it is not necessary to make specific averment where the accused is signatory to the cheque, but in view of the peculiar circumstances where the accused no. 3 has stated herself to be a housewife and the complainant has not averred any active role of accused no. 3 in negotiations or other dealings, no vicarious liability of accused no.2 is made out.
33.As far as the liability of accused no.4 is concerned, admittedly, he is not signatory to either the cheques or the Associateship Agreements Ex.CW1/2 (colly), High Seas Sale Agreements Ex.CW1/3 (colly), undertaking Ex.CW1/4 (colly). Though he is one of the Directors of the accused no.1 company, no active role of accused no.4 has been shown on record in the transactions in dispute. CW1 Sh. [ENTITY] has deposed that accused no.4 joined the accused no.1 company on 05.02.2008 and he met accused no.4 in December 2009 regarding the outstanding dues against the two letters of credit in dispute which were followed in later communications with accused no.4. However, no role of accused no.4 is shown either in the performance of the agreements or payment of the money as CW1 has himself deposed that the communications with accused no.4 were later followed by letter dated 29.01.2010 of accused no.2. Therefore, accused no.4 cannot be held vicariously liable U/[SECTION] of the [ACT].
34.In view of the aforesaid reasons, the complainant has been able to prove that the cheque in question i.e. cheque bearing no. 274654 dated 31.03.2010 for Rs. 50 lacs drawn on Punjab National Bank, Mumbai was issued by accused no. 1 in discharge of partial legally recoverable liability owed to the complainant.
35. The accused no.1 and 2 are convicted for the offence punishable U/[SECTION] of the [ACT] in respect of cheque Ex.CW1/6. No liability of accused no. 3 and 4 is made out. Accused no.3 and 4 are acquitted. Bail bonds furnished on behalf of accused no.3 and 4 are cancelled and surety is discharged subject to compliance of [SECTION] [ACT] The Judgment be uploaded to www.delhidistrictcourts.nic.in.
Announced in the Open Court ([ENTITY]) on 30th May, 2014 Civil JudgeI/MM, New Delhi District New Delhi