IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated: 21.12.2009 Coram The Honourable Mr. JUSTICE K.MOHAN RAM Crl.O.P.No.20009 of 2003 1. M/s. B.V.V.Paper Industries Limited Rep. By its Chairman & having its Administrative Office at Swaminathapuram Udumalpet 642 113 2. B.V.Sathyanarayanamoorthy Chairman, B.V.V.Paper Industries Limited, Permanently residing at, Pedhapatna Agraharam, Manepalli Post, Razole Taluk, East Godavari District, Andhra Pradesh 3. B.V.V.S.S.Krishna Prasad, 148-D Palani Road Udumalpet 642 128 4. Sumathi K.Prasad 148-D Palani Road, Udumalpet 642 128 ... Petitioners / Accused 1 to 4 -Vs.- R.Balasundaram Proprietor, R.Balasundaram Waste Paper Mart No.39, Ponniammal Koil Street Kottur, Chennai 600 085 ... Respondent / Complainant Criminal Original Petition filed under Section 482 of the Criminal Procedure Code to call for the records in C.C.No.1171 of 2003 on the file of the IX Metropolitan Magistrate Court, Saidapet, Chennai and quash the complaint. For Petitioners : Mr. K.M.Santhanagopalan For Respondent : Mr. K.R.Ramesh Kumar - - - https://hcservices.ecourts.gov.in/hcservices/ O R D E R The petitioners in the above Criminal Original Petition are the accused in C.C.No.1171 of 2003 on the file of the learned IX Metropolitan Magistrate, Saidapet, Chennai, wherein they are facing trial for the alleged offence under Section 138 of the Negotiable Instruments Act (hereinafter referred to as "the Act"). 2.In the complaint filed by the respondent against the petitioners herein it is alleged as follows:- Towards the amounts due in respect of supply of waste paper by the respondent to the first petitioner company certain amounts were due from the first accused and to settle that liability the first accused issued cheques bearing Nos.702179, dated 01.11.2009 for Rs.8,00,000/- and 702180, dated 02.11.2002 for Rs.8,50,000/- in favour of the respondent, but the said cheques were signed by the third accused, who is the Managing Director of the first accused Company. When the said cheques were presented for encashment, the same were returned for the reason "Insufficient Funds". After complying with the statutory requirements, the complaint was filed and the same was taken on file and being aggrieved by that, the above quash petition has been filed. 3. Heard the learned counsel on either side. 4. Learned counsel for the petitioners submitted that the second accused / second petitioner herein has died on 09.07.2009 and as such the prosecution as against him has abated. 5. Learned counsel for the petitioners submitted that since the first accused company became sick, a reference was made under Section 15 (1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) (hereinafter referred to as "the SICA") after a detailed consideration of facts, by proceedings of the Board for Industrial and Financial Reconstruction (BIFR), dated 09.05.2001, the company was declared as a sick industrial company under Section 3 (1) (O) of the SICA ; the Industrial Development Bank of India, Chennai, was appointed as the Operating Agency under Section 17 (3) of the SICA. By order dated 01.10.1997, the following order was passed:- "The Bench directed the company/promoters u/s 22A of the Act not to dispose of any fixed or current assets of the company without the consent of the BIFR. However, if the unit is running, the current assets can be drawn down to the minimum extent required for day to day operations of which proper accounts would be maintained". Therefore, according to the learned Senior Counsel for the petitioners, no payment can be made by the company or its Directors to anyone including the respondent towards the debt or liability because of the express ban order of the BIFR under Section 22A of https://hcservices.ecourts.gov.in/hcservices/ the SICA. He further submitted that the cause of action for launching a prosecution under Section 138 of the Act arises and culminates in an offence only in case of non-payment of the amount of the cheque within fifteen days of the date of receipt of the notice of dishonour; in case the SICA provides a bar to make such payment or makes it obligatory to take express permission of the Board or the appellate authority then in the former case no prosecution under Section 138 of the Act lies and in the latter case no such prosecution is maintainable without the express permission of the Board or the appellate authority, as the case may be. He further submitted that even assuming without admitting the facts set-out in the complaint as true, yet the failure to make the payment towards the cheques by the company and / or Directors is for reasons beyond their control; in such factual background, it will be unfair to compel the petitioners herein to face the criminal trial. He further submitted that in the complaint in paragraph 8 it is stated as follows:- "8) The Complainant submits that the Fourth Accused is the Director of the First Accused and involved herself in the day to day affairs and the management of the industry and taking the decision in the financial aspects." According to the learned counsel for the petitioners, the aforesaid averments in the complaint are not sufficient to attract the provisions contained under Section 141 of the Act and to array the fourth accused / fourth petitioner herein as an accused in the case. According to the learned counsel, in the absence of specific averments in the complaint as to the part and role played by the fourth accused in the transaction between the complainant and the first accused company, it cannot be alleged that the fourth petitioner is incharge of and responsible for the conduct of the business of the company; therefore, the complaint as far as the fourth petitioner is concerned, is liable to be quashed. In support of the aforesaid contentions, the learned counsel relied upon a decision of the Apex Court reported in AIR 2000 SUPREME COURT 954 = (2000) 2 Supreme Court Cases 745 (Kusum Ingots and Alloys Ltd. v. Pennar Peterson Securities Ltd.) wherein in paragraph 19 it is laid down as under:- "19. .... 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 the BIFR under S. 22A was passed against the company then it cannot be said that the offence under S. 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. It may also be contended that the amount claimed by the complainant is not recoverable from the assets of the company in view of https://hcservices.ecourts.gov.in/hcservices/ the ban order passed by the BIFR. In such circumstances it would be unjust and unfair and against the intent and purpose of the statute to hold that the Directors should be compelled to face trial in a criminal case." By following the aforesaid decision, a learned Single Judge of this Court in the decision reported in 2001 (2) TLNJ 266 (M/s. Sivanandha Mills Ltd., vs. M/s. Tirumalai Traders and Others) has held that when there is a ban order passed by the BIFR under Section 22-A of the SICA Act is in force no criminal prosecution for an offence under Section 138 of the Act can be maintained. Learned counsel for the petitioners also relied upon a decision of the Apex Court reported in 2009 (5) SCALE 670 (Ramrajsingh vs. State of M.P. and another). In the said decision, the Apex Court has affirmed another decision of the Apex Court in the case of N.K. Wahi v. Shekhar Singh and Ors. reported in (2007 (9) SCC 481), wherein it is laid down as under:- "8. To launch a prosecution, therefore, against the alleged Directors there must be a specific allegation in the complaint as to the part played by them in the transaction. There should be clear and unambiguous allegation as to how the Directors are incharge and responsible for the conduct of the business of the company. The description should be clear. It is true that precise words from the provisions of the Act need not be reproduced and the court can always come to a conclusion in facts of each case. But still in the absence of any averment or specific evidence the net result would be that complaint would not be entertainable." 6. Countering the said submissions, the learned counsel for the respondent submitted that the transactions of supply of waste paper commenced with the respondent from May 2002; the cheques, dated 01.11.2002 for Rs.8,00,000/- and dated 02.11.2002 for Rs.8,50,000/-, were issued by the accused in favour of the respondent, on 18.12.2002, the cheques were presented and on 19.12.2002 the cheques were returned with endorsements "Insufficient Funds"; the legal notice for payment was sent on 04.01.2003 and the cause of action has arisen on 23.01.2003; admittedly the order of the BIFR under Section 22-A of the SICA was passed on 09.05.2001; the said order is not a total ban but it is a qualified order. According to the learned counsel for the respondent, in the said order, the BIFR has observed as follows:- "... However, if the unit is running, the current assets can be drawn down to the minimum extent required for day to day operations of which proper accounts would be maintained" Learned counsel for the respondent submitted that though the ban order under Section 22-A of the SICA Act came to be passed on 09.05.2001, by taking advantage of the permission granted by the https://hcservices.ecourts.gov.in/hcservices/ BIFR, as pointed out above, the petitioners were running the unit and were placing orders for purchase of raw materials with various supplies including the respondent herein and were making payments to the suppliers and as such the petitioners cannot rely upon the ban order to avoid prosecution under Section 138 of the Act. He further submitted that it cannot be contended by the petitioners that in view of the ban order under Section 22-A of the SICA, they could not deal with the assets of the company and therefore they were unable to pay the amounts covered by the cheques in question; even in the order passed under Section 22-A of the SICA, the BIFR has made it clear that if the unit is running the current assets can be drawn down to the minimum extent required for day today operations of the company of which proper accounts would be maintained; by taking advantage of the said order only, the petitioners were running the unit and were dealing with the current assets of the company and therefore, according to the learned counsel, it cannot be contended by the petitioners that in view of the ban order they could not deal with the assets of the company; when the petitioners having full knowledge about the ban order passed under Section 22-A of the SICA by the BIFR were transacting business with the suppliers including the respondent herein, they cannot be permitted to raise a contention that in view of the ban order passed by the BIFR under Section 22-A of the SICA they could not honour the demand made by the respondent in their legal notice issued in respect of the dishonour of the cheques in question. In support of the said contention, the learned counsel for the respondent based reliance on a Division Bench decision of this Court reported in 2005-1-L.W. (Crl.) 222 (Pentafour Products Limited, etc. v. The Union of India and Others (D.B.)) dealing with the effect of 22 (1) of the SICA on a prosecution launched under Section 138 of the Act. In the said decision, in paragraph 8, it has been observed as under:- "8. Thus, a mere perusal of section 22 (1) shows that it has nothing to do with criminal prosecution. Similarly section 22A has also nothing to do with a criminal prosecution." Learned counsel for the respondent also based reliance on a decision of the Apex Court reported in 2000 (II) CTC 548 (BSI Ltd. v. Gift Holdings Pvt. Ltd., (SC)). In the said decision, in paragraph 21, the Apex Court has laid down as under:- "21. In the above context it is pertinent to point out that Section 138 of the NI Act was introduced in 1988 when SICA was already in vogue. Even when the amplitude of the word "company" mentioned in Section 141 of the NI Act was widened through the Explanation added to the Section, Parliament did not think it necessary to exclude companies falling under Section 22 of SICA from the operation thereof. If Parliament intended to exempt sick companies from prosecution proceeding, necessary provision would have been included in Section 141 of the NI Act. More significantly, when Section 22 (1) of the SICA was amended https://hcservices.ecourts.gov.in/hcservices/ in 1994 by inserting the words ["and no suit for the recovery of money or for enforcement of any security against industrial company or of any guarantee in respect of any lands or advance granted to industrial company"] Parliament did not specifically include prosecution proceedings within the ambit of the said ban." 7. I have considered the aforesaid submissions made by the learned counsel on either side and perused the materials available on record. 8. It is not in dispute that the first accused company is a sick unit and a ban order under Section 22-A of the SICA has been passed by the BIFR on 09.05.2001. It is also not in dispute that after the said ban order passed by the BIFR, the petitioners were placing purchase orders for raw materials with various suppliers including the respondent herein and the petitioners were also making payments towards such purchases made from the respondent and other suppliers. In the course of such transactions towards the purchases of waste paper from the respondent, the above said two cheques in question came to be issued by the first accused company in favour of the respondent. The said cheques when presented for encashment were dishonoured and when the respondent issued the legal notice demanding payment covered under the cheques, the petitioners are seeking to take shelter under the ban order passed by the BIFR under Section 22- A of the SICA Act. It is no doubt true that in the decisions reported in AIR 2000 SUPREME COURT 954 = (2000) 2 Supreme Court Cases 745 (referred to supra) and 2001 (2) TLNJ 266 (referred to supra) it has been laid down that when the BIFR has passed a ban order under Section 22-A of the SICA, no prosecution for the offence under Section 138 of the Act is maintainable. But the facts of those two cases are totally different from the facts of this case. 9. In this context, it will be useful to refer to a decision of the Apex Court reported in AIR 2008 SUPREME COURT 3143 (Southern Steel Ltd. v. Jindal Vijayanagar Steel Ltd.). In the said decision, in paragraph 9, the Apex Court has observed as under:- "9. According to the High Court, admittedly the purchase orders in question were entered into and the purchases were made by the appellants with full knowledge of the proceedings that the company was declared sick under the SICA, the appellants clearly all through gave the impression to the 6 respondent company that the outstanding amount towards the purchase of the goods would be shortly cleared. The fact that the purchases were made with the clear promise to repay could not be disputed by the appellants. The Directors had in fact issued the cheques for discharging their liability with the full knowledge, would not only clearly show that there was an undisputed debt, but would also show that, right from the inception, the appellants in fact had no intention of paying the amount for the purchases made by them. The https://hcservices.ecourts.gov.in/hcservices/ intention of the appellants can be gathered by their subsequent acts, conduct and behaviour of taking a shelter under the provisions of the SICA. Hence, the appellants are not entitled to any indulgence of this court under its extraordinary jurisdiction under Article 136 of the Constitution. The appellants had lost their total credibility because of their conduct. When the appellant company was declared as sick, then without disclosing this fact the appellants ought not to have made huge purchases from the respondent company. Ultimately, the appellant company did not pay for the purchases. This clearly indicates that the appellants had no intention of making payment of the purchases made by it." If the facts of the above case is compared with the facts of the case on hand, it could be seen that the ratio laid down in the said decision can be applied to the facts of this case. In the case before the Apex Court also, the accused in that case placed purchase orders after the ban order passed under Section 22-A of the SICA, but failed to pay the amounts due towards the purchases made by the accused, but sought to take refuge under the ban order passed under Section 22-A of the SICA, but the said conduct of the accused in that case was condemned and the Apex Court came to the conclusion that in the facts and circumstances of that case the prosecution under Section 138 of the Act cannot be quashed. 10. In the case on hand also, purchase orders were placed by the petitioners on the respondent and other suppliers and in fact were making payments towards such purchases made by the petitioners and in the course of same transaction towards the amounts due to the respondent, cheques have been issued, but the same were dishonoured and the demand made by the respondent for payment of the amounts covered under the cheques were sought to be deferred by taking refuge under the ban order passed under Section 22-A of the SICA Act. These facts are similar to the facts of the case reported in AIR 2008 SUPREME COURT 3143 (referred to supra). Further, when the petitioners had taken advantage of the permission given by the BIFR to run the unit and deal with the current assets of the company and were running the unit and transacting business with its suppliers, the petitioners cannot be permitted to take refuge under the ban order passed under Section 22-A of the SICA. Only if the ban order under Section 22-A of the SICA had been passed before the arising of the cause of action for filing the complaint, then the decision of the Apex Court reported in AIR 2000 SUPREME COURT 954 = (2000) 2 Supreme Court Cases 745 (referred to supra) will apply. Admittedly, in this case, the facts are totally different. The ban order was not passed before the arising of the cause of action, but the cause of action itself has arisen after the passing of the ban order under Section 22-A of the SICA by the BIFR. Therefore, in the considered view of this Court, the contention raised by the learned counsel for the petitioners cannot be countenanced. https://hcservices.ecourts.gov.in/hcservices/ 11. It has to be pointed out that in the decision reported in 2005-1-L.W. (Crl.) 222 (referred to supra) a Division Bench of this Court has held that Section 22-A has nothing to do with a criminal prosecution, but the said decision has been rendered overlooking the decision of the Apex Court reported in AIR 2000 SUPREME COURT 954 = (2000) 2 Supreme Court Cases 745 (referred to supra). Therefore, the said decision is of no assistance to the case of the respondent. Similarly, the decision reported in 2000 (II) CTC 548 (referred to supra) only deals with the effect of an order passed under Section 22 (1) of the SICA, but the said decision has not dealt with the effect of a ban order passed under Section 22-A of SICA, on a prosecution for the offence under Section 138 of the Act, and therefore the said decision is not applicable to the facts of this case. 12. As far as the contention of the learned counsel for the petitioners in respect of the fourth petitioner is concerned, it has to be pointed out that except the averments contained in the complaint that the Fourth Accused is the Director of the First Accused and involved herself in the day to day affairs and the management of the industry and taking the decision in the financial aspects, there are no other averment to show as to how the fourth accused / fourth petitioner herein is taking part in the affairs of the company. It has not been stated in the complaint that the fourth petitioner took any part in the transaction between the first accused company and the respondent herein. As has been laid down in the decision reported in (2007 (9) SCC 481) (referred to supra) which has been affirmed by the Apex Court in 2009 (5) SCALE 670 (referred to supra) it is necessary to specifically allege in the complaint, the particular role played by the Director of a company in the transaction in question to invoke the provisions of Section 141 of the Act and array such Director as an accused. Therefore, in the considered view of this Court, the cognizance taken for the offence under Section 138 of the Act as far as the fourth petitioner herein is concerned, is bad in law. 13. For the aforesaid reasons, the above Criminal Original Petition is partly allowed and all further proceedings in C.C.No.1171 of 2003 on the file of the learned IX Metropolitan Magistrate Court, Saidapet, Chennai, as against the fourth accused / fourth petitioner herein alone, is hereby quashed. It is made clear that as far as accused 1 and 3 / petitioners 1 and 3 herein are concerned, the above Criminal Original Petition stands dismissed. Since C.C.No.1171 of 2003 is pending from the year 2003, the learned IX Metropolitan Magistrate Court, Saidapet, Chennai, is hereby directed to dispose of the same within a period of six months from the date of receipt of a copy of this order. Sd/ Asst.Registrar /true copy/ Sub Asst.Registrar https://hcservices.ecourts.gov.in/hcservices/ srk To The IX Metropolitan Magistrate Court, Saidapet, Chennai 1 cc To Mr.S.Thangavel, Advocate, SR.70435 1 cc To Mr.K.R.Ramesh Kumar, Advocate, SR.70854 Crl.O.P.No.20009 of 2003 KGK(CO) sra 05.01.2010 https://hcservices.ecourts.gov.in/hcservices/