IN THE HIGH COURT OF JUDICATURE OF ANDHRAPRADESH AT HYDERABAD HONOURABLE SRI JUSTICE SAMUDRALA GOVINDARAJULU CRIMINAL APPEAL Nos.2483 & 2484 of 2004 DATE: 19.08.2011 CRIMINAL APPEAL No.2483 of 2004 Between: M/s.North East Securities Ltd., …… Petitioner And Richline Pharma Ltd., and others …..Respondents CRIMINAL APPEAL No.2484 of 2004 Between: M/s.North East Securities Ltd., …… Petitioner And Richline Pharma Ltd., and others …..Respondents HONOURABLE SRI JUSTICE SAMUDRALA GOVINDARAJULU CRIMINAL APPEAL No.2483 & 2484 of 2004 COMMON JUDGMENT: These two appeals are filed by the complainant against two judgments of acquittal dated 01.04.2004 passed by the lower Court in C.C.Nos.976 and 977 of 1998 of the offences punishable under Section 138 of the Negotiable Instruments Act (in short, the Act). 2) A-1 is the Company represented by A-2 who is the Managing Director. A-3 is stated to be one of the directors of A-1. These two criminal complaints were based on dishonour of four cheques drawn by A-1 in favour of the complainant for want of sufficient funds. After issuing the required statutory notices under Section 138(b) of the Act, the complainant filed two complaints in the lower Court against A-1 to A-3. The notices were received by A-1, but were returned unserved in so far as A-2 and A-3 are concerned. 3) The main ground on which both the complaints were dismissed recording acquittal of the accused is that B.I.F.R passed an order under Section 22-A of Sick Industrial Companies (Special Provisions) Act, 1985 (in short, SICA) restraining disposal of assets held by A-1 company. The lower Court based its conclusion on Kusum Ingots & Alloys Ltd. V. Pennar Peterson Securities Ltd.[1] of the Supreme Court. Relevant observation of the Supreme Court therein is to the following affect: “19. The question that remains to be considered is whether Section 22-A of SICA affects a criminal case for an offence under Section 138 N.I.Act. In the said section provision is made enabling the Board to make an order in writing to direct the sick industrial company not to dispose of, except with the consent of the Board, any of its assets – (a) during the period of preparation or consideration of the scheme under Section 18; and (b) during the period beginning with the recording of opinion by the Board for winding up of the company under sub- section (1) of Section 20 and up to commencement of the proceedings relating to the winding up before the High Court concerned. This exercise of the power by the Board is conditioned by the prescription that the Board is of the opinion that such a direction is necessary in the interest of the sick industrial company or its creditors or shareholders or in the public interest. In a case in which BIFR has submitted its report declaring a company as “sick” and has also issued a direction under Section 22-A restraining the company or its directors not to dispose of any of it assets except with consent of the Board then the contention raised on behalf of the appellants that a criminal case for the alleged offence under Section 138 NI Act cannot be instituted during the period in which the restraint order passed by BIFR remains operative cannot be rejected outright. Whether the contention can be accepted or not will depend on the facts and circumstances of the case. Take for instance, before the date on which the cheque was drawn or before expiry of the statutory period of 15 days after notice, a restraint order of BIFR under Section 22-A was passed against the Company then it cannot be said that the offence under Section 138 NI Act was completed. In such a case it may reasonably be said that the dishonouring of the cheque by the bank and failure to make payment of the amount by the Company and/or its Directors is for reasons beyond the control of the accused.” 4) In this case, BIFR passed order under Section 22-A of SICA on 05.08.1998. The statutory notice under Section 138(b) of the Act was given by the complainant to the accused on 04.08.1998 and it was received by A-1 on 08.08.1998. The offence under Section 138 of the Act arises only when the debtor fails to pay the demanded amount within 15 days of the statutory notice. Till then there is no commission of offence by any of the accused under Section 138 of the Act. But even before committing the offences under Section 138 of the Act, order of BIFR under Section 22-A intervened and prevented the accused from raising funds from out of the assets of A-1 company for making over the demanded amounts. Though it was held to be not a ground for quashing the complaints, the Supreme Court categorically held that the order under Section 22-A of SICA is a ground of defence for the accused for not complying with the notice of demand of payment of the amounts covered by the dishonoured cheques. The accused were for reasons beyond their control, not able to meet the demand covered by the notices. It is a valid defence for the accused in a lis under Section 138 of the Act. 5) Further, there is no valid allegation against A-3 as per Section 141 of the Act to the affect that A-3 was responsible for the company and for the conduct of its business. In the absence of such allegation coupled with proof thereof, A-3 cannot be mulcted with criminal liability under Section 138 of the Act, he being a non signatory to the dishonoured cheques. 6) Since on both the above grounds, the complainants/appellants are bound to fail in both these appeals, I do not propose to consider and decide other aspects of the case. 7) In the result, both the appeals are dismissed. _______________________________ SAMUDRALA GOVINDARAJULU, J August 19, 2011 ksh [1] (2000)2 Supreme Court Cases 745