1 MNM IN THE HIGH COURT OF JUDICATURE AT BOMBAY CRIMINAL REVISION APPLICATION NO.405 OF 2009 M/s.Sanquelim Investments Pvt. Ltd. & Anr. ...Applicants Vs. Dr.Mohan Bhave State & Anr. ...Respondents Mr.P.H.H.Ponda, i/b. Aarkey Legal, Advocate for the Applicants MR. Y.M.Chaudhary, Advocate for the Respondent Mrs.A.A.Mane, A.P.P for the State CORAM: SMT.ROSHAN DALVI, J. DATED: 19TH DECEMBER, 2009 ORAL JUDGMENT. 1.This Civil Revision Application challenges the order of the learned Metropolitan Magistrate, 44th Court, Andheri, Mumbai in C.C.No.376/SS/2005 dated 12th June 2007 convicting the applicants of offence punishable under Section 138 read with Section 141 of the Negotiable Instruments Act and sentencing applicant No. 1 (accused No.1) to pay fine of Rs.5000/- and applicant No.2 (accused No.4) to simple imprisonment for one year and to pay compensation of Rs.5,50,000/- and in default 2 to suffer simple imprisonment for 3 months. The applicants have also challenged the judgment of the learned Sessions Judge, Greater Bombay upholding and confirming the said sentence on 23rd June 2009. The initial complaint under Section 138 read with Section 141 of the Negotiable Instruments Act came to be filed by the respondent No.1 (complainant) herein inter alia against the applicants herein (the accused company) upon a dishonoured cheque of Rs.5,00,000/- issued by the accused company on 29th July 2000. 2.The parties had entered into certain agreement with regard to sale of shares of one Zuari Finance Limited, which is a sister concern of the accused company, which were agreed to be purchased by the accused company from the complainant. 3.A letter dated 31st July 2000 came to be written by the accused company to the complainant showing that they agreed to purchase from the company 50,000 shares of Zuari Finance Limited at the rate of Rs.12/- per share. 4.In the letter dated 7th August 2000 to the complainant the accused company confirmed that they received the share certificates and transfer deeds duly filled-in and completed, as per the list attached to that letter. 3 5.By a letter dated 9th August 2000 to the complainant the accused company claims to have forwarded a cheque dated 10th September 2000 for Rs.6 lakhs towards sale of 50,000 shares of Zuari Finance Limited. 6.It may be mentioned that these letters, which are not denied by the accused, show the discussions, agreement and transaction, with regard to sale of shares alone. 7.By a letter dated 14th August 2000 to the complainant the accused company referred to discussions had with the complainant regarding a short term loan of Rs.5 lakhs to the complainant on the terms agreed by the complainant and the accused company. The accused company referred to a cheque of Rs.5 lakhs bearing No. 107376 drawn on Union Bank of India being issued to the complainant for that purpose. It regretted to inform the complainant that the short term loan was not possible and hence the amount could not be released to the complainant. It notified the complainant that the bank had been informed to stop payment and requested the complaintant to return the cheque dated 29th July 2000. 8.The complainant, however, presented the cheque for payment on 17th August 2000. It was dishonoured on 18th 4 August 2000. The complainant was intimated of the dishonour by the bank on 19th August 2000. 9.The complainant issued notice of dishonour upon the accused company and its Directors on 23rd August 2000. The notice came to be replied by the accused company on 16th September 2000. The criminal complaint came to be filed accordingly. 10.It is seen that the issue of the cheque by the accused company is not denied. Consequently the consideration that passed thereunder for discharge of the liability of the accused company under the transaction that transpired between the parties is statutorily presumed under Section 139 of the Negotiable Instruments Act. It is for the accused to rebut that presumption. 11.It is the case of the complainant that the parties had agreed for the sale of shares of Zuari Finance Limited to the accused company. The price of the shares, the number of the shares as well as the factum of the sale came to be incorporated in the letter dated 31st July 2000. The documents required to be executed and the time for the completion of the transaction was also mentioned in the letter dated 31st July 2000. That letter represents the complete transaction between the parties. That letter was acted upon by the complainant. 5 The complainant sent the share certificates and the transfer deeds as agreed. The accused company made part payment of Rs.5 lakhs towards the agreed consideration of Rs.6 lakhs (50,000 shares @ Rs.12/- per share) for the transaction set out in the letter dated 31st July 2000. The company also confirmed receipt of the documents relating to the transfer of shares from the complainant. The transfer was effectuated on 7th August 2000. The complainant has relied upon xerox copies of share certificates with the necessary endorsement showing transfer from the name of the complainant to the name of the accused company under the seal of the accused company signed by the same person who had signed against the seal of the transfer in favour of the complainant a year earlier. 12.It is further the complainant s case that despite the transaction having been effectuated by 7th August 2000, on 9th August 2000 the accused company sent another letter stating that they were forwarding another cheque of Rs.6 lakhs in respect of the transfer of 50,000 shares @ Rs.12/- per share. Though the letter mentioned that the cheque was enclosed, no cheque was enclosed with the said letter. 13.It is further the complainant s case that thereafter on 14th August 2000 the accused company dishonestly 6 stated that there was an agreement for a short term loan to be given by the accused company to the complainant for which the cheque dated 29th July 2000 came to be issued and that the loan was not to be granted and hence the cheque was not to be presented. The complainant presented the cheque since it was towards part consideration of the sale of the shares which was already effectuated. 14.It is the case of the accused company that the cheque was issued as and by way of short term loan to be granted to the complainant by the accused company. After the issue of the cheque the company decided not to grant the loan. Hence the accused company informed the complainant not to present the cheque and stopped its payment. The transaction relating to the sale of shares is not denied or disputed. In fact it is the case of the accused company that that is the separate transaction for which a separate cheque of Rs.6 lakhs was issued to the complainant, which the complainant has not presented for payment. 15.These two cases are required to be considered and appreciated. 16.The fact that there were discussions between the parties is admitted. The fact that there were 7 discussions for the sale of shares of the complainant is also admitted. The fact that the dishonoured cheque was issued pursuant to discussions is also admitted. Whether or not, these discussions were for the sale of shares alone or also for the grant of loan to the complainant is to be seen. 17.Unfortunately though the transfer of shares was effectuated by 9th August 2000 the cheque issued on 29th July 2000 was not deposited by the complainant in his bank account. Before its deposit on 14th August 2000 the company stopped payment of the cheque on 14th August 2000 on the ground that the loan which was to be granted to the complainant was decided not to be granted. Therefore, this defence has to be further considered. It is this defence that is material; the transaction for the sale of the shares is a separate and distinct transaction as per the case of the company. 18.The case of the accused company is that it agreed to grant a short term loan to the complainant. The accused Company is not a finance company. No documents of the loan agreed to be granted are stated to be executed by the loanee / complainant. No security for repayment of the loan is shown to be taken by the company. Only a cheque is issued and a fortnight after the issue the 8 company has changed its decision. A company acts through its Directors. The Directors are the agents of the company. The Directors act collectively on the board of the company. Consequently the company acts through its resolutions. The resolutions are passed by the Directors in the Directors Meetings. No resolution for grant of the short term loan is shown to have been passed. It is not stated whether that is the usual business of the company. 19.The witness examined on behalf of the company who was looking after the administration of the company has been extensively cross examined on this defence. The witness stated that he did not know of the practice of the company to give short term loans to individuals. He did not know to how many persons such loans were given. He did not know whether the complainant applied for the loan. He was not aware of the agreement between the company and the complainant either orally or in writing. He was not aware of the discussion in the meeting of the Board of Directors to sanction any loan to the complainant. He agreed that the Board of Directors had to pass a resolution to sanction such a loan. He did not know whether the company could sanction a loan without the board resolution. He did not know the rate of interest charged by the company on such loan or the repayment schedule for the loan. He 9 did not know whether any collateral security was obtained by the company for the loan. 20.So much for the defence of the company with regard to the admitted issue of the cheque _ that was for a loan that never was. 21.The very letter dated 14th August 2000 shows an agreement between the parties that was complete. Both the parties are bound by such an agreement. No party can resile from such an agreement. The party which resiles would be breaching the agreement. If the company, upon discussions, mutually agrees to give a loan of Rs.5 lakhs, it cannot resile from that agreement on the ground that it was not possible, if it was decided to grant the loan which decision was mutually taken after discussions had by the parties to the agreement. Hence, even if the accused Company had agreed to give a loan to the complainant for which it issued a cheque, that agreement is enforceable. The discussions had between the parties itself show that the consideration under the cheque admittedly drawn by the company represented a legally enforceable liability of the company. After those discussions if a cheque is issued it will have to be honoured, and if it is dishonoured the company would have to show how it is justified in dishonour it. That would be the defence of 10 the company in an action upon dishonour of the cheque, which was admittedly drawn and which carried the statutory presumption under Section 139 of the Negotiable Instruments Act. If upon the case of the company that there was an agreement to grant a loan, the company issued a cheque, the company must honour the cheque. The company has not shown why it is justified in dishonouring the cheque except that it is presently not possible and that the company is unable to realise the payment . Even if that is so the defence of the company for dishonour of the cheque is not made out. The company would be liable to honour the cheque already issued upon the agreement between the parties be it for loan or otherwise. The company s lack of possibility or inability to realise the funds is no ground to dishonour the cheque issued by way of fulfilling its obligations under the admittedly executed and completed contract between the parties. 22.D.W.1 who is the officer incharge of administration of the company was shown the letter dated 14th August 2000 in his cross examination. He has not been able to identify the signature of the signatory of the said letter who is shown as the authorised signatory of the company. The letter is shown to be sent by registered post A.D. He has not been able to produce the postal 11 acknowledgment of the letter, though he took time to check the records to produce the acknowledgment card. He has been shown the envelope in which the letter was received by the complainant. He stated that he was not aware that it was sent by his company in that envelope. 23.The complainant has admittedly received the company s letter dated 14th August 2000 by post. It is therefore marked an Exhibit in evidence (See Bishwanath Rai Vs. Sachidanand Singh A 1971 SC 1949 @ 1953) this would show the mere fact that it was sent and received. It would not prove the truth of its contents (See Madhoklal Sudham A.1954 Bom. 305; Re: Mubarak Ali A 1957 SC 856; Re: Sir Mohammed Yusuf A. 1968 Bom 112 and Om Prakash Berlia Vs. Unit Trust of India A 1983 Bom 1). He has admittedly not replied to it. Much ado made about that fact in the cross examination. The complainant has stated that he has not replied to it as it was completely false. The parties were not litigants. A mere lack of reply, therefore, cannot prove the truth of the contents of the letter which have not been proved even by examination of the officer incharge of the administration of the company, D.W.1 who has even failed to identify the signature of the signatory to the letter and in view of the complete lack of any other corroborative evidence or the probabilities of the issue of the letter. 12 24.The company had sent the complainant the letter dated 14th August 2000. The company has based its entire defence to the criminal action under the dishonoured cheque based upon the letter dated 14th August 2000 in a bid to rebut the statutory presumption that arises out of the admittedly drawn and issued cheque by a Director of the company on behalf of the company for the contract admittedly entered into upon discussions by the company with the complainant. The letter bears an illegible signature. The witness examined by the company is the officer incharge of the administration of the company. That witness when shown the letter has been unable to identify the signature on the letter. He admitted that he did not know the name of the signatory who has signed as Authorised Signatory . It must be remembered that 5 days before that letter the same witness D.W.1 had signed the letter dated 9th August 2000 of the company as Accounts Department . He is, therefore, a competent witness to depose about his colleague in his company who has signed the letter 5 days thereafter. Yet he has not identified the signatory. The signatory of the letter dated 14th August 2000 has not been examined. The contents of the letter dated 14th August 2000 are, therefore, also not proved though it has been marked exhibit based upon the only fact that it was received by the complainant. 13 25.The reliance by the company upon its own letter dated 9th August 2000 stating that it was forwarding a cheque of Rs.6 lakhs towards sale of the shares and contending that the complainant did not present that cheque for payment is a needless issue with which the present case relating to the dishonour of the cheque is completely unrelated and unconcerned and has been brought up only to confuse the otherwise clear liability of the company under the cheque admittedly issued by it. The learned Judge has however, allowed evidence to be led on the issue of the letter dated 9th August 2000 allegedly forwarding the cheque of Rs.6 lakhs thereunder. The presentment of that cheque has not been shown in the evidence of the defence witness though time was granted for that purpose. The issue of a specific cheque from the counterfoil cheque book of the company has not been shown by the company in the trial or even upon this Court s query. 26.To make matters worse and to make the confusion complete, however unsuccessfully, two letters dated 9th August 2000 are sought to be produced in the trial Court and have been marked Exhibits-41 and 42 upon the evidence of D.W.1 that they were issued. Both the letters relate to the cheque for Rs.6 lakhs. It was the admitted sale price for the sale of 50,000 shares 14 of Zuari Finance Limited @ Rs.12/- per share. One letter addressed to the complainant is signed by D.W.1 himself as Accounts Department . It shows the date of the cheque without any further particulars of the cheque. It shows that the cheque is dated 10th September 2000. The witness has deposed that he has signed the letter and identified its contents. The contents of the letter marked Exhibit-41 may be taken to be proved upon the evidence of D.W.1. He has deposed that it was a computer print-out. The letter Exhibit-41 does not show the number of the cheque or the bank upon which it was drawn. 27.The other letter also dated 9th August 2000 marked exhibit-42 in evidence shows the said cheque of the said date and the said amount also containing further particulars with regard to the number and the bank upon which it was drawn. It shows that it bore No.504053 and was drawn on United Western Bank Limited, Fort, Mumbai. That cheque is not signed by D.W.1. It bears an illegible signature of Accounts Department . It does not show the name of the signatory. Though D.W.1 was in the accounts department of the same company on that day, he has not identified the signature of that letter as that of his colleague. 28.During the cross examination, D.W.1 was questioned as 15 to whether the cheque of Rs.6 lakhs was encashed by the complainant. On 5th January 2007 in his cross examination he stated that he would have to check the record. On 20th January 2007 he stated that he has forgotten to check the details and requested more time to check the records. On 23rd February 2007 he deposed that cheque bore No.107354 of Union Bank of India. The account number of the company was 55125. He deposed that the cheque was not encashed. He has not shown the documentary evidence which would prove that the cheque was issued and not encashed in the trial court. Mr. Ponda was specifically called upon to produce the bank records of the company to show that this very cheque was not encashed though other cheques in that series were encashed. Mr. Ponda again called for instructions but which have not been received and shown to Court. Strangely though the witness deposed that the relevant cheque bore No.107354 the letter dated 9th August 2000 Exhibit-42 shows that the cheque bore No.504053. Though the deposition of D.W.1 shows that the cheque was drawn on Union Bank of India, the letter dated 9th August 2000 Exhibit-42 shows that the cheque was drawn on United Western Bank Ltd., Fort Mumbai. So much for the cheque that never was. 29.The transaction took place on 31st July 2000 yet the cheque has been dated 29th July 2000. It has been 16 issued duly filled-in by the company yet the complainant has been cross examined upon its date. The complainant has stated that he does not know why the cheque was dated 29th July 2000 when the transaction between the parties for sale of shares of Zuari Finance Limited took place on 31st July 2000 after discussions between them. 30.The complainant has been cross examined upon why the cheque was not presented for payment until 17th August 2000. The complainant has clarified in his cross examination that that was because the accused told him that the company was based in Goa and it would take time to transfer the amount from Goa to Mumbai. 31.The accused have also raised dispute about the very transfer of the shares though they claim to have issued the cheque for such transfer. They contend that the transfer is not effected. Why ever would they not cause the transfer to be affected if they issued the cheque towards such transfer is completely isoteric. 32.The complainant has relied upon the effectuation of the discussions by the very sale of the shares. The complainant has produced the xerox copy of the share certificates themselves. These show the last transaction dated 7th August 2000. The company claims 17 that the shares have never been transferred though the company also claims that the cheque of Rs.6 lakhs towards the entire sale price of the shares was issued. The company has relied upon two letters between the two sister concerns being the company and Zuari Finance Limited dated 15th June 2005 and 15th July 2005. The company asked its sister concern whether the shares of the complainant were transferred to their name. Its sister concern informed the company that the shares of the complainant were not transferred. The company in which the complainant held the shares is a listed company. It would have declared dividends in the years between 2001 to 2005-2006. These letters are of the year 2005, 4 years after the complaint came to be filed and 5 years after the transaction came to be entered into. There is absolutely no circumstantial or substantial evidence showing that the complainant continued to be a member of the company and continued to enjoy the rights of the membership of the company pursuant to continuing as such member. 33.It is futile to contend that there was no transaction for transfer of shares and to merely bring on record by two letters that the shares were not transferred in favour of the accused company in view of its own letter dated 9th August 2000 sending the cheque representing the share transfer price to the complainant. 18 34.As against this the complainant has shown the strongest possible circumstance of the transaction for sale of shares between the parties being the effectuation of the transfer itself. The complainant ceased to be a member. The company became a member in its sister concern. The complainant would have thereafter no further documentary evidence to further substantiate the transaction. 35.The copies of the share certificates produced by the complainant was shown to the witness who deposed on behalf of the company D.W.1. D.W.1 was asked to identify the initials on the reverse of the share certificates showing the person who signed the share certificates on behalf of the company upon the seal of the company with regard to the last transfer of the shares from the complainant to the company. Since the company was the transferee/purchaser/buyer of the shares to become its member and to obtain membership rights under the Companies Act, 1956. The witness who is an officer in the administration of the company could not identify the initials. He was asked if the signatures were of Mr. Javkar (Mr. Javkar is stated to be the Chartered Accountant of the company). The witness stated that he required time to check up the records on 5th January 2007 when he was being cross 19 examined. On 23rd February 2007 he deposed that the share certificates and the signatures thereon were not available in the company s records and he was not aware that it bore the signature of the Sanjay Javkar on behalf of the company. 36.The original share certificates are required to be lodged by the transferee/purchaser/buyer of the shares with the company for effecting the transfer to obtain membership rights. Hence, the transferor/seller of