IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE M.SASIDHARAN NAMBIAR MONDAY, THE 13TH JULY 2009 / 22ND ASHADHA 1931 Crl.MC.No. 645 of 2009() ----- ------------------------ ST.288/2007 OF JUDICIAL FIRST CLASS MAGISTRATE COURT- IV, KOCHI .................. .......................................................................................... PETITIONERS: --------------------- 1. MAMMU.T.P., THUNDIPARAMBIL HOUSE, FREEDOM ROAD, KALOOR - 682 017. 2. SHAIJU.K.S, SLOKA, THANNICKAL, ELAMAKKARA - 682 026. 3. M.K. RAJAN, 28/844, CHERUPARAMBATH ROAD, KADAVANTHRA, ERNAKULAM, KOCHI-682020. BY ADVS. SRI. N.J. MATHEWS & SRI.GEORGE VARGHESE KIZHAKKAMBALAM RESPONDENTS: ---------------------- 1. JOSE SEBASTIAN, MANNAMCHERIL HOUSE, CHAKKAMPUZHA, KOTTAYAM - 686 574. 2. STATE OF KERALA, REPRESENTED BY PUBLIC PROSECUTOR, HIGH COURT OF KERALA, ERNAKULAM, KOCHI - 31. BY ADVS. SRI. K. PAUL KURIAKOSE & SRI. ANISH. K.A. FOR R1 BY SRI. AMJAD ALI PUBLIC PROSECUTOR FOR R2 THIS CRIMINAL MISC. CASE HAVING BEEN FINALLY HEARD ON 13/07/2009, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: ln M. SASIDHARAN NAMBIAR, J. ------------------------------------------ CRL.M.C.NO.645 OF 2009 ------------------------------------ Dated this the 13th day of July, 2009 O R D E R Petitioners are the accused in S.T.No. 288/2007 on the file of Judicial First Class Magistrate Court-IV, Kochi. 2. First respondent is the complainant. Learned Magistrate had took cognizance of the offence under Section 433 of the Companies Act, 1956 on the complaint alleging that the four accused including the petitioner herein committed the offence under Section 138 of the Negotiable Instruments Act. First accused is the Company, and accused 2 to 4 are the Directors of the Company. Annexure A3 complaint shows that promising good returns, Company received investment from public and towards the return of the investment made by the first respondent, a cheque dated 31.12.2005 for an amount of Rs. 2,00,000/- was issued and when it was presented for encashment it was dishonoured for the reason, 'insufficient funds' in the account and in spite of the notice sent, the amount was not paid and thereby an offence was committed under Section 138 of the Negotiable Instruments Act. The Directors of the Company filed this petition under Section 482 of the Code of Criminal Procedure. The case as against them contending CRMC.NO. 645/2009 2 that under Annexure A1 Order dated 27.9.2001, this court has already appointed a provisional liquidator for the first accused Company and the Provisional Liquidator was directed to take possession of assets of the company and under Annexure A2 order dated 27.9.2001, the Company was restrained from operating the Bank accounts and there was a direction to communicate Annexure A2 Order to all the concerned Banks and therefore from 27.9.2001, though petitioners are the Directors of the Company, they are not responsible for the business or affairs of the Company and therefore, when the cheque was presented for encashment and dishonoured or demand for payment of the amount covered by the dishonoured cheque was made or the alleged default in payment of the money was made, petitioners, are not responsible for the business of the company and therefore, under section 141 of the Negotiable Instruments Act, petitioners cannot be prosecuted and therefore, the case as against the petitioners is an abuse of process of court and it is to be quashed. 3. Learned counsel appearing for the petitioners and learned counsel appearing the first respondent were heard. 4. Learned counsel appearing for the petitioners submitted that under Section 445 (1) of the Companies Act on the making of a winding CRMC.NO. 645/2009 3 up order, it shall be the duty of the petitioners in the winding up proceedings and of the Company to file with the Registrar a certified copy of the Order within thirty days from the date of the making of the order and under Sub Section 3 of Section 445 such Order the under Section shall be deemed to be notice of discharge to the officers and employees of the Company, except when the business of the company is continued and under Section 447 of the Companies Act an Order for winding up a company shall operate in favour of all the creditors and of all the contributories of the company as if it has been made on the joint petition, of a creditor and of a contributory and therefore, as petitioners have nothing to do with the Company on the date of presentation, dishonour, on failure to pay the amount of the cheque on demand, petitioners cannot be prosecuted under Section 138 of the Negotiable Instruments Act and hence proceedings is to be quashed. 5. Learned counsel appearing for the first respondent argued that Sub Section 2 of Section 445, on the filing of a certified copy of the winding up order, as provided Sub Section 1, the registrar shall, make a minute thereof, minute books relating to the company, and shall notify in the official Gazette that such an order has been made and unless such a notification is made, liability or responsibility of the CRMC.NO. 645/2009 4 directors would not cease and as petitioners have no case that such a notification was made, because of the Annexure A1 and A2 Order, petitioners cannot claim that they are not responsible for the liability of the company and therefore, the case cannot be quashed. Relying on the decision of this court Jose Antony Vs. Official Liquidator (1998 (2) K.L.T 176) which was approved by the Division Bench in Jose Antony Vs. Official Liquidator (2000 (1) K.L.T 705) the learned counsel argued that the Criminal Proceedings, in spite of under Section 138 of the Negotiable Instruments Act, is not affected by Section 446 of the Companies Act and in such circumstances because of the winding up proceedings, the proceedings cannot be quashed. Learned counsel also argued that the cheque was issued by the petitioners in their capacity as the directors responsible for the company at a time, when there was no winding up order and even if under Annexure A1 and A2 Orders, they could not make payment, they should have apprised the matter to the court and obtained sanction and paid that amount and on the failure they are liable for the offence under Section 138 of the Negotiable Instruments Act and therefore, the case cannot be quashed. 6. Petitioners are prosecuted in their capacity as Directors of first CRMC.NO. 645/2009 5 accused Company for the offence under Section 138 of the Negotiable Instruments Act. As rightly pointed out by learned Counsel for the petitioners, petitioners who are in their capacity as directors could be prosecuted only if they are either in charge and was responsible for the company and therefore for the conduct of the company, on the date of the commission of the offence. 7. Though complaint does not disclose when the amount was invested by the first respondent or when the dishonoured cheque was issued, a reading of the complaint establish that the cheque was issued as a post dated 31.5.2005. Even if the petitioners were responsible to the business or running of the company, on the date of the issuance of the cheque, the crucial period for consideration of the liability, offence was committed when the cheque was dishonoured for want of sufficient funds and demand was made for payment and after receipt of the notice the company failed to pay that amount. The cheque is dated 31.5.2005 almost four years after the Annexure A2 Order passed by this court appointing a provisional liquidator. Hence when the cheque was presented for encashment, petitioners were not responsible for the business or affairs of the company Annexure A2 Order establish that company was prohibited from operating the bank accounts. Therefore, CRMC.NO. 645/2009 6 when the cheque was presented for encashment, it was dishonoured and the amount covered by the dishonoured cheque was claimed the petitioners continue to be the directors that they are prevented by the court from operating the account. Hence they could not have made any amount for the company on that day. Therefore, petitioners cannot be said to be responsible for the business or the affairs of the company, when the offence was committed. If that be so, case cannot be considered under Section 138 of the Negotiable Instruments Act for that reason. 8. As pointed out by the learned counsel appearing for the petitioners Sub Section 3 of Section 445 of the Companies Act provides that an order passed under Sub Section 1 of Section 445 shall be deemed to be notice of discharge to the officers and employees of the company, except when the business of the company is continued. In Annexure A1 and A2 orders, business of the company was not allowed to be continued in spite of the order. Under Section 447 an order for winding up of a company shall operate in favour of all the creditors and of all the contributories of the company as if it has been made on the joint petition, of a creditor and of a contributory. Therefore, in view of Annexures A1 and A2 orders, petitioners cannot be prosecuted CRMC.NO. 645/2009 7 for an offence under Section 138 of the Negotiable Instruments Act. A provisional liquidator was appointed and Company was prohibited from operating the Bank accounts. Therefore, petitioners in their capacity as directors could not have paid that amount. In such circumstance, petition is allowed S.T.No. 288/2007 on the file of Judicial First Class Magistrate Court-IV, Kochi as against the petitioners/accused is quashed. M. SASIDHARAN NAMBIAR, JUDGE. ln