Crl. Misc. No.M-14352 of 2009 [1] IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. Crl. Misc. No. M-14352 of 2009 Date of Decision: August 18, 2010 Apex Health Care Private Limited and others …..Petitioners Vs. M/s Alchemist Hospitals Limited …..Respondent CORAM: HON’BLE MR. JUSTICE M.M.S. BEDI. -.- Present:- Mr. R.S. Cheema, Senior Advocate with Ms. Tanu Bedi, Advocate for the petitioners. Mr. Sanjeev Sharma, Senior Advocate with Mr. Vikram Sharda, Advocate for the respondent. -.- M.M.S. BEDI, J. The present petition has been preferred by nine petitioners invoking the inherent jurisdiction of this Court under Section 482 Cr.P.C. for quashing of the order dated February 13, 2009, annexure P-1 passed by the Court of Judicial Magistrate Ist Class, Panchkula, summoning the Crl. Misc. No.M-14352 of 2009 [2] petitioners under Section 138 of the Negotiable Instruments Act, 1881, (hereinafter referred to as ‘the Act’) and for quashing of the criminal complaint No.40 of February 13, 2009 titled ‘Alchemist Hospitals Limited Vs. Apex Health Care Private Ltd. Etc., annexure P-2. The grounds for quashing as raised by Mr.R.S.Cheema, assisted by Ms.Tanu Bedi are that the complaint has been filed with ulterior object and malafide intention to harass the petitioners; the allegations in the complaint arise out of a Memorandum of Understanding (MOU) and are essentially contractual matters, which are purely civil in nature arising out of the contractual relationship and resultant commercial transaction having been given colour of a criminal offence; the reading of the complaint would make out that no offence has been committed by the petitioners; petitioner No.1 had, in advance advised the complainant- respondent that they had issued instructions to their bankers to stop payment of the cheque and that such stoppage of payment would not be deemed to be an offence under Section 138 of the Act; the respondent has willfully concealed the fact that reply had been sent by the petitioners to the legal notice under Section 138 of the Act; the contents of MOU, which has been appended with the complaint clearly depicts that there has neither been any material deviation nor any misrepresentation on the part of the petitioners regarding the terms and conditions of the MOU or any controversial action made by the petitioners or its shareholders which would give a right to the respondent to terminate the MOU between the parties or to seek refund of the advance consideration by encashing the cheque; all the petitioners are neither the Crl. Misc. No.M-14352 of 2009 [3] signatories of the cheque nor they are incharge of and responsible to the company for the conduct of business of the Company, as such continuation of proceedings against the petitioners is illegal. Reliance was also placed on provisions of Section 202 Cr.P.C. to contend that no report was obtained by the summoning Court as petitioner No.1 Company is situated in New Delhi and the other petitioners are also residents of New Delhi, whereas the summoning Court exercising jurisdiction is situated in Panchkula (State of Haryana). Brief facts, which are relevant for adjudication of the present petition in reference to the contents of the complaint and the material placed on the record, are to the effect that the respondent- complainant has filed a complaint under Section 138 of the Act claiming that in terms of MOU dated August 23, 2008, a sum of Rs.2 crores was paid as advance sale consideration by the complainant- respondent Company to accused No.1 vide cheque No. 66952 dated August 23, 2008 drawn on ICICI Bank, Panchkula Branch, as petitioner No.1 company and all its shareholders were desirous of selling their 100% equity in petitioner No.1 Company and the complainant being a potential buyer was desirous of expanding and developing its hospital business regarding which MOU dated August 23, 2008 was entered into between the respondent and the petitioners. It was agreed between the complainant- respondent and petitioner No.1 Company that on termination of the MOU in terms of Article 12 and/ or in the event, the proposed transaction is not consummated due to any material deviation and/ or misrepresentation on the part of petitioner No.1or its shareholders, Crl. Misc. No.M-14352 of 2009 [4] the petitioners agreed to refund the advance of Rs.2 crores paid under the MOU. The petitioners had issued a post dated cheque of Rs.2 crores bearing Cheque No.452057 favouring “Alchemist Hospitals Limited” drawn on Punjab and Sind Bank, Panchkuian Road, New Delhi. The respondent- complainant, as per the averments in the complaint, conducted a legal and accounting due diligence in accordance with the terms of MOU pursuant to which the petitioners were requested to furnish certain clarifications/ information to the complainant by communication dated November 18,2008 and again by communication dated November 26, 2008. The complainant made several futile attempts to convince the petitioners to extend the term of MOU so as to facilitate the resolution of outstanding issues that had arisen from the legal and accounting due diligence and thereafter execute the share purchase agreement. The petitioners were also informed that failing the execution of an extension agreement, the advance of Rs.2 crores would have to be refunded to the complainant in accordance with the term of the MOU. Since the term of MOU was not extended, the advance of sum of Rs.2 crores became due and payable to the complainant on November 30, 2008. The complainant has made a reference to a notice dated December 9, 2008 received by it on behalf of the petitioners stating that the petitioners had forfeited the sum of Rs.2 crores and had issued the necessary instructions to their bank to stop payment of the cheque of Rs.2 crores issued in favour of the complainant in accordance with the terms of MOU. Despite the said communication the complainant- respondent verily believed that in the given facts and circumstances the cheque of Rs.2 crores which had become Crl. Misc. No.M-14352 of 2009 [5] due and payable to the complainant would be honoured by the petitioners. Accordingly, the said cheque was deposited by the complainant with its bankers at Panchkula on December 23, 2010. The complainant was informed by its bank that the cheque had been dishonoured on account of stop payment instructions that have been issued by the petitioners. As per the compliant, the cheque was signed by authorized signatories for and on behalf of petitioner Company being Mr.S.P. Khurana and Mr.O.P. Manchanda, petitioners No.2 and 3, as the persons incharge of and responsible for the day to day management and affairs of the accused petitioner No.1 Company. The averments regarding the other petitioners i.e. petitioners No.4 to 9 are as follows:- “In fact, apart form the aforesaid signatories, the other directors Dr.Ganesh Kumar Mani, Dr.K.K. Sethi, Dr. (Mrs.) Manju Mani, Shri Anup Soni, Shri A.S. Sawa and Dr.(Mrs.) Neelam Sethi (accused No.4 to 9) were also present at the time of handing over of the cheque. These persons had assured the representatives of M/s Alchemist Hospital Limited (complainant) that on termination of the MOU, the aforesaid cheque would be honoured.” It has been averred in the compliant that the abovesaid persons are also responsible for day to day management and affairs of accused Company and that they were also involved in the negotiations prior to the execution of the MOU and were well aware of the circumstances pertaining to the issuance of the cheque of Rs.2 crores to the complainant- Crl. Misc. No.M-14352 of 2009 [6] respondent. The complainant- respondent claimed that as the cheque was dishonoured on presentation on account of ‘insufficiency of funds’, all the petitioners who have been arrayed as accused, would be liable to be prosecuted under Section 138 of the Act as the cheque dated November 30, 2008 for a sum of Rs.2 crores was dishonoured with the remarks “payment stopped by drawer” vide memo dated December 26, 2008 and the same was returned by the bank of the complainant; complainant- respondent having sent registered legal notice dated January 23, 2009 to the petitioners as the accused- petitioners having not paid any money towards the cheque amount within 15 days after the expiry of the period of the notice, as such they were liable to trial and punishment. The trial Court on the basis of the preliminary evidence issued summoning order against the petitioners vide annexure P-1 vide order dated 13.2.2009. Sh.R.S.Cheema, has vehemently urged that the summoning order which seriously prejudice the right of liberty of the petitioners has been casually passed without even perusing the contents of the MOU between the parties. It was argued that the petitioners had entered into MOU dated August 23, 2008 with the respondent- complainant and the respondent had inter-alia agreed to purchase 9460000 fully paid up equity shares of petitioner No.1 Company for a agreed consideration of Rs.40 crores. As per the terms of clause 2.1 of said MOU, the parties were required to execute a share purchase agreement for implementing the proposed transaction of sale and purchase of shares within 3 months. The Crl. Misc. No.M-14352 of 2009 [7] respondent- complainant was required to complete a legal corporate, taxation and business due diligence of petitioner No.1. The complainant- respondent made an advance payment of Rs.2 crores to petitioner No.1. The due diligence was carried out to the complete satisfaction of the complainant and as a gesture of goodwill even provisional balance sheet was provided to the complainant, the petitioners had even asked the respondent to provide them with their latest balance sheet so as to ascertain their financial status and also their Memorandum of Article of Association but these were not provided. Vide a notice dated November 18, 2008 sent through e-mail, annexure P-4A, the complainant- respondent had sought clarification from the petitioners regarding his capitalization of certain expenses in the fixed assets, outstanding debts for more than one year, certain expenses heads not taken in the latest financial statement and regulatory compliance and licensing matters. The query-wise response was given by the petitioners through ex-mail dated November 20, 2008. It was informed by the petitioners that the share purchase agreement would be drafted and forwarded so that the contract should be concluded within the stipulated time frame. As the petitioners received no further response and the MOU was to expire on November 22, 2008, as such the petitioner sent an e-mail annexure P-6, intimating the complainant that period stipulated in MOU expired on November 22, 2008 and the complainant was requested to complete the transaction on payment of Rs.40 crores immediately but e-mail dated November 24, 2008 was not responded to by the complainant- respondent. Respondent- complainant had apparently changed its mind Crl. Misc. No.M-14352 of 2009 [8] with regard to the acquisition of petitioner No.1 Company, as such the petitioners were within their rights under clause 3.4 to terminate MOU and forfeit a sum of Rs.2 crores. In the exercise of said right, petitioner No.1 issued stop payment instructions with regard to the cheque dated November 30, 2008 in the sum of Rs.2 crores. A legal notice had been issued to the complainant that in the event the processed transaction is not concluded after conclusion of the process of the due diligence and because of change in the decision for not acquiring the Apex Health Care Private Ltd., MOU would be terminated and a sum of Rs.2 crores would be forfeited. By the legal notice, the petitioners had informed the complainant that instructions for stop payment has been issued to the bankers and in case the cheque was presented, it would not be deemed to be an offence under Section 138 of the Act. Copy of the legal notice dated December 9, 2008 has been placed on record as annexure P-8. In reply to the legal notice, annexure P-9 dated January 15, 2009, the petitioners were informed by the complainant that the cheque of Rs.2 crores had been presented and dishonoured on account of stop payment instructions. Vide another notice annexure P-10 dated January 22, 2009, in continuation of previous notice annexure P-8, the petitioners called upon the respondent- complainant to pay a sum of Rs.3,29,87,480/- as damages and expenses. In the notice received by the petitioners under Section 138 of the Act, annexure P-11, the petitioners had, in their reply annexure P-12 dated February 6, 2009 clarified and highlighted that the complainant- respondent had no right to claim a sum of Rs.2 crores and that the petitioners had never given an assurance that the Crl. Misc. No.M-14352 of 2009 [9] cheque would be honoured. It was further argued that petitioners No.4 to 9 were never present at the time of handing over of the cheque. Petitioners No.4 to 9 were not vicariously liable for the criminal offence as they were neither incharge of nor were responsible to the company for the conduct of the business of the company. He has placed reliance on National Small Industries Corporation Ltd. Vs. Harmeet Singh Paintal and another, 2010 (2) RCR (Crl.) 122 (Crl. Appeal No.320-326 of 2010, decided on February 15, 2010), wherein it has been laid down that it is not sufficient to make a bald cursory statement in a complaint that the Directors arrayed as accused are incharge of and responsible to the Company for the conduct of the business of the Company without anything more as to the role of the Director. The complainant spell out as to how and in what manner respondent was incharge of or was responsible to the accused Company for the conduct of its business. A company may have a number of Directors and to make any or all the directors as accused in a complaint merely on the basis of a statement that they are incharge of and responsible for the conduct of business of the Company without anything more is not a sufficient or adequate fulfillment of the requirement under Section 141 of the Act. It should be specifically averred as to how and in what manner the Directors were responsible for the conduct of the business of the Company. The Hon’ble Supreme Court had considered the following judgments:- “1. SMS Pharmaceuticals Vs. Neeta Bhalla and another, (2005) 8 SCC 89; Crl. Misc. No.M-14352 of 2009 [10] 2. Sabitha Ramamurthy Vs. R.B.S. Channabasavaradhya, (2006) 10 SCC 581; 3. Saroj Kumar Poddar Vs. State (NCT of Delhi), (2007) 3 SCC 693; 4. N.K. Wahi Vs. Shekhar Singh and others; (2007) 9 SCC 481; 5. Ramraj Singh Vs. State of M.P. and another (2009) 6 SCC 729. Mr.Cheema has also argued that dispute, if any, is civil in nature and that in view of the arbitration clause in the MOU, steps have been taken by the parties to appoint the Arbitrator and settle the controversy. On the other hand, Mr.Sanjeev Sharma, argued that merely because civil remedy is also available and having been availed of is not itself a ground to quash the proceedings under Section 138 of the Act. The civil proceedings or arbitration proceedings are meant for effecting recoveries whereas the criminal proceedings under Section 138 of the Act are based upon independent cause of action. He argued that all the pleas taken by the petitioners raise disputed questions of facts not constituting good ground for quashing of the criminal compliant in the light of the parameters laid down in State of Haryana Vs. Bhajan Lal, AIR 2004 SC 604. He argued that once a cheque is issued by a drawer, presumption under Section 139 of the Act must follow and the act of stoppage of payment will not preclude an action under Section 138 of the Act. Referring to the Crl. Misc. No.M-14352 of 2009 [11] correspondence between the petitioners and the complainant pointed out by the counsel for the petitioners, it was argued by counsel for the respondent that the petitioners are responsible for the proposed transaction under MOU not being consummated within the time frame giving rise to a right to the respondent- complainant to seek payment against the cheque. The MOU was placed before the Court and nothing had been concealed. After hearing counsel for the petitioners and going through the documents placed on record, it is apparent that there exists a commercial and mercantile relationship with each other as there exists a MOU dated August 23, 2008 between the petitioners and respondent- complainant. As per the said MOU, the petitioners were desirous of selling their 100% equity shares in Apex Health Care Pvt. Ltd. And the complainant as a potential buyer of their equity share holdings with an objective to expand and develop its business desire to purchase 94,60,000 paid up equity shares of petitioner No.1- company of face value of Rs.10 each amounting to Rs.9,46,00,000/- representing 100% of the total issue subscribed and paid up share capital of the Company (sale shares) from the shareholders alongwith all assets and properties held by the Apex Trust subject to the terms and conditions mentioned in MOU. In para 2 of the MOU, both the parties agreed within 3 months to exercise their respective best efforts to enter into share purchase agreement. Para 3 of the MOU deals with the consideration. The relevant paragraphs pertaining to consideration are 3.1, 3.2, 3.3 and 3.4 which read as follows:- “3. CONSIDERATION Crl. Misc. No.M-14352 of 2009 [12] 3.1 Subject to the terms and conditions of this MOU, Alchemist has made an offer of Rs.40,00,00,000 (Rupees forty crores) (“Sale Consideration”) to Shareholders for acquiring 100% equity shareholding held in Apex. Apex and its shareholders hereby agrees and accept the offer made by Alchemist and acknowledge receipt Rs.2,00,00,000 (Rupees two crores) towards advance sale consideration from Alchemist by cheque No.669252 dated 23.8.08 favouring “Apex Health Care Private Limited” drawn on ICICI Bank, Panchkula Branch. Upon termination of this MOU in terms of Article 12 and/ or in the event, the Proposed Transaction is not consummated due to any material deviation and/ or misrepresentation on the part of Apex or its Shareholders, Apex and its shareholders hereby agree to refund the advance of Rs.2,00,00,000 (Rupees two crores) paid under this MOU. Apex has issued a post dated cheque for Rs.2 Crores bearing No.452057 dated 30.11.2008 favouring “Alchemist Hospitals Limited” drawn on Punjab & Sind Bank, DHLI Extension Counter, Crl. Misc. No.M-14352 of 2009 [13] Panchkuian Road, New Delhi for honoring the said commitment. 3.2 The Parties hereby further agrees that on completion of satisfactory and necessary documentary financial, taxation, legal and business due diligence (s) (or any part thereof) of the Proposed Transaction and at the time of execution of Share Purchase Agreement, the advance of Rs.2,00,00,000 (rupees two crores) paid under this MOU shall be adjusted pro rata against the total Sales Consideration payable to Shareholders. The total Sale Consideration shall be payable to Apex and its Shareholders as hereunder:- Sl. No. Particulars Amount 1. 5% of the total sale consideration as advance on execution of MOU Rs.2,00,00,000 2. 85% of the total sale consideration on execution of Share Purchase Agreement but not later than November 30, 2008 Rs.34,00,00,000 Crl. Misc. No.M-14352 of 2009 [14] 3. 10% consideration on satisfactory completion of ‘Hand holding period’, six months from the execution of Share Purchase Agreement, but not later than March 31, 2009. Rs.4,00,00,000 3.3 It is hereby agreed by the Parties that the Sale Consideration has been agreed between the parties on the basis of un-audited provisional financial statement as on 31, March 2008 of the Company, a copy of which duly authenticated by authorized Directors of the Company is annexed to this MOU as Annexure A. In the event, if there is a material deviation in the value, Alchemist shall have the right to adjust Sale Consideration accordingly. 3.4 In the event of Proposed Transaction is not consummated and or there is any misrepresentation and/or controversial action made by Company and/ or its Shareholders, notwithstanding anything contained in Article 12 Alchemist shall have the right to terminate this MOU between Parties hereto and seek refund of Crl. Misc. No.M-14352 of 2009 [15] advance consideration by encashing the aforesaid cheque. In the event the Proposed Transaction is not consummated after conclusion of the necessary documentary, financial, taxation, legal and business due diligence(s) and valuation of Company upon satisfaction of Alchemist during the period of this MOU. Any change in decision of Alchemist, thereafter, to acquire Apex due to reasons other than due to risk ascertained during due diligence of Company, Apex shall have the right to terminate this MOU between the parties hereto and to forfeit the sum of Rs.2,00,00,000/- (Rupees Two Crores) paid in terms of clause 3.1 above. Apex shall also be entitled to stop payment of the cheque mentioned in clause 3.1 as above, which shall not be deemed to constitute a criminal offence under Section 138 of the Negotiable Instrument Act.” A perusal of para 3.1 and 3.4 indicates that a sum of Rs.2 crores which is 5% of the total sale consideration was paid as advance at the time of execution of MOU. A sum of Rs.38 crores, the remaining amount of consideration was to be paid to the petitioners on execution of the sale purchase agreement on completion of the hand-holding period by November Crl. Misc. No.M-14352 of 2009 [16] 30, 2008 and by March 31, 2009. It was agreed that in case the proposed transaction is not consummated and there is any misrepresentation and/ or controversial action made by petitioners and/ or its shareholders, notwithstanding anything contained in Article 12 of MOU, the complainant shall have a right to terminate the MOU between the parties and seek refund of advance consideration of Rs.2 crores by encashing the cheque of Rs.2 crores. A joint reading of para 3.1 and 3.4 depicts that in the event of proposed transaction being not consummated due to any material deviation or misrepresentation on part of the petitioners, i.e. the Apex Company, the advance of Rs.2 crores paid under MOU to the Apex Company against a cheque of Rs.2 crores favouring complainant Alchemist Hospital Limited was to be refunded but in the event of proposed transaction being not consummated on account any misrepresentation or controversial action of the Apex Company, the respondent- complainant Alchemist Company would have a right to terminate the MOU between the parties and seek refund of the advance consideration by encashing the post-dated cheque. The petitioners claim that there has not been any misrepresentation or controversial action on part of the petitioners and there being no right vested in the complainant- Alchemist Company to seek refund of the advance consideration, the amount of advance money of Rs.2 crores shall stand forfeited. Referring to the correspondence between the Apex Company and the Alchemist Company, i.e. annexures P-4, P-5, P-6, P-7, P- 8, P-9, P-10, P-11 and P-12, it has been sought to be established by the Crl. Misc. No.M-14352 of 2009 [17] petitioners that no right has accrued to the complainant- respondent to claim a sum of Rs.2 crores against post-dated cheque and that the petitioners have rightly directed their bankers to stop the payment. On the basis of the correspondence between the parties, this Court in the exercise of inherent jurisdiction has been called upon to arrive at a conclusion whether the complainant- respondent had a right to get the refund of Rs.2 crores on account of default on part of the petitioners or on account of default on part of the complainant-Alchemist Company, the amount of Rs.2 crores stood forfeited. I have considered all the documents and the point which is sought to be adjudicated in the exercise of inherent jurisdiction under Section 482 Cr.P.C. in context to the law laid down by the Apex Court in various judgments. In the judgment of Hon’ble Supreme Court in Indian Oil Corporation Vs. NEPC India Ltd. and others, (2006) 6 SCC 736, the respondent NEPC had filed two complaints against the appellant Indian Oil Corporation in the Court of Judicial Magistrate, Coimbatore and Judicial Magistrate, Alandur, regarding a dispute having arisen pursuant to two contracts entered into between appellant Indian Oil Corporation and NEPC India