IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated:-7.08.2009 Coram:- The Hon'ble Mr. Justice R.REGUPATHI Crl.O.P. No.28359 of 2002 and Crl.M.P. No.11786 of 2002 1. Dalbir Singh, Chairman and Managing Director, Central Bank of India, Central Office, Chandramukhi, Nariman Point, Mumbai-400 021. 2. George Thomas, Assistant General Manager, Central Bank of India, Regional Office, PB No.377, Raheja Complex III Floor, 834, Anna Salai, Chennai-2. ... Petitioners vs. 1. IndusInd Bank Ltd., 3, Village Road, Nungambakkam, Chennai-34, rep. By its Chief Manager M.Satyamurthi. 2. The Branch Manager, Central Bank of India, Royapettah Branch, 220 Peters Road, Chennai-14. 3. V. Pattabiraman, Former Branch Manager, Central Bank of India, Royapettah Branch, 220 Peters Road, Chennai-14. 4. C.N.Chandrasekar, Authorised Signatory, Central Bank of India, Royapettah Branch, 220 Peters Rd., Chennai-14. 5. B.Selvaraj, Authorised Signatory, Central Bank of India, https://hcservices.ecourts.gov.in/hcservices/ Mandaveli Branch, St. Mary's Road, Chennai-28. ... Respondents Petition under Section 482 of the Code of Criminal Procedure to call for the records in C.C. No.8457 of 2002 on the file of XIV Metropolitan Magistrate's Court, Egmore,Chennai. For petitioner : Mr.T.R.Mani, Senior Counsel for Mr.T.M.Hariharan For respondent-1 : Mr.R.Subramanian For respondent-2 : Mr.P.Soundarapandian For respondent-3 : Ms.P.V.Rajeswari For respondent-4 : Ms.Aruna Ganesh For respondent-5 : Dr.S.Padma O R D E R The petitioners herein, who are A-2 and A-6 in the case taken as C.C. No.8457 of 2002 on file by the XIV Metropolitan Magistrate, Egmore, Chennai, for an offence punishable under Section 138 of the Negotiable Instruments Act, seek to quash the said proceedings. 2. At the outset, it is represented by both the parties that the first petitioner herein has been given up as accused in the case before the learned Magistrate and an endorsement also made to that effect by the complainant. Therefore, this Court has to decide the case only in respect of the 2nd petitioner/A6 treating him as the sole petitioner in this Criminal Original Petition. 3. The averments and allegations projected in the complaint before the trial court are, in brief, as follows:- The complainant viz., IndusInd Bank Ltd., Nungambakkam, Chennai, received a set of Bills from the beneficiary drawn under Letter of Credit No.25/7, dated 24.01.2002, issued by A1/R2 herein favouring M/s.Maharaja Timber Traders, No.168 Sydenhams Road, Park Town, Chennai-600003. As per usual and accepted banking practice, prior to negotiation, the complainant presented the original documents drawn under the aforesaid letter of credit to A1 and obtained a categorical confirmation to the effect that the Bills were in order and requested A1 to specify the date on which payment would be made to the complainant. Apart from that, an Executive of the complainant-Bank had personally visited A1 on 25.01.2002, pursuant to which, on the same day, a letter was issued by A1 whereby it was confirmed that the documents submitted by the complainant under the Letter of Credit, issued by A1, were in order and therefore, payment could be made in respect of the said Bill on the due date ie., 25.04.2002. Subsequent to the categorical written confirmation and declaration dated 25.01.2002, the complainant had discounted the bills drawn under the letter of credit. While so, on 25.04.2002, A1 had honoured the commitment by issuing a Bankers cheque from its Royapettah Branch bearing No.013635 dated https://hcservices.ecourts.gov.in/hcservices/ 25.04.2002 in favour of the complainant duly signed by the 4th and 5th accused for Rs.56,27,862. According to the complainant, when the said cheque was forwarded for clearance, the cheque was returned unpaid by the accused Bank on 26.04.2002 with an endorsement 'payment stopped'. The first accused, having issued the Banker's Cheque; the 3rd accused, having issued the Letter of Credit; A4 and A5 having signed the cheque and A2& A6 being the Controlling Authorities of A1 and involved in the affairs of the first accused, are jointly and severally liable for dishonour of the Banker's cheque in question; thus, they have committed offences punishable under Sections 138(b), 141 and 142 of the Negotiable Instruments Act (NI Act). 4. Learned Senior Counsel for the petitioner, in his artful endeavour to decipher the relevant provision in the NI Act to support his case, adverted to the scope of Section 138 that if a cheque is dishonoured for insufficiency of funds or that it exceeds the amount arranged to be paid from that account, the drawer is to be punished with imprisonment and therewith, outlined his position and view that the only requirement or element as per the object, to attract the provision, being "insufficiency of funds", if a cheque, in spite of sufficiency of funds in the account of the drawer, is returned unpaid due to some other reason or circumstance, the offence under Section 138 is not attracted. In the present case, there is a dispute regarding liability and the accused, a Banking Organisation, had sufficient funds and in such circumstances, having regard to the object of the provision, the offence is deemed to have been made out only in the event of insufficiency of funds. Because of the dispute regarding liability, a letter has been issued for 'stop payment' and such course was adopted due to the reason that the transaction was fraudulent. The complainant Bank itself lodged a police complaint against the persons, who committed fraud, but curiously, instead of proceeding against those persons, on the mere ground that the cheque was issued by the accused/Bank, the complainant initiated the proceedings which exercise is nothing but an abuse of process of law. In a given case, the provision of law must be interpreted in a strict sense. The accused/Bank has more than 3100 branches throughout India and if at all any loss has been caused to the complainant, the same must be recovered only from the persons who actually committed fraud. Moreover, for recovery of the money, the complainant has already initiated proceedings in O.A. No.282 of 2003 before the Debts Recovery Tribunal as against the partners of the Firm who committed fraud since direct liability is attached only to those persons. Merely because of the reason that the cheques were issued by the accused Bank acting on the documents submitted by the firm indulged in fraud, liability cannot be invariably fixed on the Banking Organisation of the petitioner. Further, no specific allegation having been made in particular as against the petitioner herein, the proceedings against him cannot be maintained since the omnibus allegations made are not sufficient to constitute the offence. https://hcservices.ecourts.gov.in/hcservices/ It is further contended that the complainant having given up one of the accused viz., A2, should have also given up A-6, who stands on the same footing with A2. Simply because of the reason that the petitioner/A6 is holding a position in the Banking Organisation, without application of mind, he is included as an accused in the case, thus, this is a fit case to quash the proceedings before the trial court insofar as the petitioner is concerned. Reiterating the submissions made, learned Senior Counsel, by referring to a Book on the Negotiable Instruments Act by Bhashyam & Adiga, contended that an offence under Section 138 NI Act is made out only in the event of 'insufficiency of funds' and in the present case, though the cheques were issued believing the transaction as bona fide and later, on coming to know about the fraudulent transaction, a letter to stop payment was issued; in such factual situation, it must be presumed that there is no debt or liability and under such circumstances, if the cheque is dishonoured, the maker of the cheque is not liable for prosecution. By drawing support from the case laws reported in 2001 (10) SCC 218 (K.P.G. Nair vs. Jindal Menthol India Limited), 2002 (7) SCC 655 (Katta Sujatha v. Fertilizers & Chemicals Travancore Limited), 2004 (7) SCC 15 (Monaben Ketanbhai Shah v. State of Gujarat) and 2007 (4) SCC 70 (S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and another), learned Senior Counsel has stated that there must be specific allegation that the accused was in charge of and was responsible to the firm for the conduct of the business of the firm and in the absence of such specific allegations, the offence is not made out. Further, a Director of a firm does not automatically become vicariously liable for the offence committed by the company and it has to be averred in the complaint that the person proceeded against was in charge of and responsible to the company for the conduct of its business. According to him, since such elements are totally absent in the case of the petitioner herein, the petition may be ordered, quashing the proceedings against him. 5. Per contra, learned counsel for the complainant submits that prima facie materials are available in the complaint to constitute the offence against the petitioner. A specific allegation has been made at paragraph No.20 of the complaint to the effect that the petitioner herein/A6 is the controlling authority over the affairs of the first accused and that the accused are jointly and severally liable for dishonour of the cheque in question. Several documents were annexed along with the complaint to substantiate that the essential ingredients to attract Section 138 of the Act are present and also to fix the responsibility on the petitioner in his capacity as Assistant General Manager of the accused Bank. A criminal complaint has been given against the firm and its partners who played fraud and the subject matter and allegations therein are different. The object behind introduction of Section 138 of the Act is to inculcate faith in the efficacy of banking operations and credibility in transacting business on https://hcservices.ecourts.gov.in/hcservices/ negotiable instruments and that being so, if a cheque is issued to clear certain liability, there is a presumption always in favour of the complainant that the cheque is regarding the discharge of the liability and it is for the accused to prove the contrary and to rebut such presumption and the accused could do so only by adducing evidence during the course of trial. In support of his submission, learned counsel relied on a decision of the Apex Court in Modi Cements Ltd. v. Kuchil Kumar Nandi (AIR 1998 SC 1057), wherein, it has been held that merely because the drawer issues a notice to the drawee or to the Bank for stoppage of payment, it will not preclude an action under Section 138 of the Act by the drawee or the holder of a cheque in due course. In the present case, since prima facie materials are available to proceed against the petitioner herein/6th accused, the Criminal Original Petition may be dismissed. 6. I gave my thoughtful consideration to the arguments advanced on either side having regard to the materials available on record. The complainant received a set of Bills from the beneficiary drawn under a letter of credit issued by the first accused. After verification of the documents and receiving confirmation, the first accused issued the cheque, dated 25.04.2002, in favour of the complainant signed by A4 and A5 and the cheque, on presentment, was returned on the next day ie., 26.04.2002, with an endorsement 'payment stopped'. Section 138 of the NI Act is a Penal Statute and it creates strict liability and therefore if an instrument is issued with a view to discharge a debt or liability and returned by the Bank with endorsements refer to drawer, exceeds arrangement, instruction for stoppage of payment and alike usual endorsement, the provision can be invoked and that being the legal position, I am unable to appreciate the contention of the learned Senior Counsel that the operation of the provision is only in an area where insufficiency of funds is the case. Further, on a close perusal of the complaint, prima facie allegations are available in particular against the petitioner herein. Though it is stated that the accused is a Banking Organisation and the petitioner is an official of such Organisation, the relevant aspect that requires to be taken into consideration at the time of taking cognizance is the question of liability, issuance of cheque and dishonour of the same. Though it has been seriously contended that the accused Bank got sufficient funds and since there is doubt regarding liability, the letter to stop payment came to be issued, I am of the view that such aspect/defence is a matter to be canvassed during the course of trial by adducing materials in support thereof. In respect of the communications sought to be relied on through additional typed set of papers, again, I am of the view that the same cannot be looked into by this Court while exercising inherent powers to quash the proceedings, for, such disputed materials may have to be produced during the course of trial. Merely because of the reason that a letter to stop payment has been issued, it cannot be https://hcservices.ecourts.gov.in/hcservices/ contended that the offence is not made out. In the above circumstances, I do not find any valid ground or reason to quash the proceedings and therefore, the petition is liable to be dismissed. 7. In the result, the Criminal Original Petition is dismissed. Connected Miscellaneous Petition is closed. Sd/- Asst.Registrar /true copy/ Sub Asst.Registrar JI. To XIV Metropolitan Magistrate,, Chennai. +1 cc to Mr.T.M.Hariharan, Advocate, SR.No.36779 Crl.O.P.No.28359/2002 SR {CO} TP/20.8.2009. https://hcservices.ecourts.gov.in/hcservices/