Case: P.J.Agro Tech Limited  Vs. Water Base Limited

The Appellant No.1 herein is an agro-based company having varied interests in providing feed supplements, vaccines etc. The Appellant Nos.2 and 3 are the Managing Director and Chairperson of the Appellant No.1 Company, which is based in Hyderabad in the State of Andhra Pradesh. In order to utilize the dealer network of the Appellant No.1 Company, the Respondent No.1 Company approached the Appellants for distribution of prawn feed manufactured by it. Inasmuch as, the said venture did not turn out to be very successful, the Appellant No.1 Company took a decision to discontinue its dealings with the Respondent No.1 Company. In furtherance of the above, the Appellant Company settled all its outstandings with the Respondent No.1 Company and also gave an authorization letter to the Respondent No.1 Company to collect all other dues directly from the customers of the Appellant No.1 Company, who had bought the feed but were yet to pay the price therefor. The concerned customers were also informed about the aforesaid decision. Thereafter, on 4th October, 2001, the Appellant Company requested the Respondent No.1 Company to coordinate with one K. Balashankar Reddy, the then General Manager at Nellore, for collecting the dues Which were still outstanding. From the contents of the said letter it appears that the Respondent Company had accepted the said offer. However, in the course of making collections from the customers directly, it was found that some of its employees had conspired with the said K. Balashankar Reddy and had misappropriated some amounts of money and the same was intimated by the Respondent No.1 Company to the Appellant Company which asked the former to take action against the said Balashankar Reddy and its concerned employees.3. Subsequently, however, the Appellant and the Proforma Respondents received a notice dated 13th December, 2002, from the Respondent No.1 Company purporting to be a notice under Section 138 of the Negotiable Instruments Act, 1881, hereinafter referred to as "the 1881 Act" , wherein it was stated that a cheque issued by K. Balashankar Reddy on 25th November, 2002, drawn on the State Bank of Hyderabad, Nellore Branch, had been returned dishonoured with the endorsement "Account closed". The notice also demanded repayment of the cheque amount from the Appellants.4. On receiving the said notice, the Appellants replied to the same on 26th December, 2002, stating that they never had any account with the State Bank of Hyderabad and the cheque in question had not been issued by the Appellant No.1 Company. Apparently, there was no response to the reply sent on behalf of the Appellants and instead the Appellants were served with summons from the Court of XVIIIth Metropolitan Magistrate, Saidapet, Chennai, in Complaint Case No.1142 of 2003 based on the complaint which had been filed by the Respondent No.1 on 23rd January, 2003. The Appellants entered appearance in the aforesaid complaint case and upon obtaining copies of the complaint, they were surprised to learn that the same had been filed against the Appellants on the basis of a personal cheque issued by the Accused No.11, K. Balashankar Reddy, from out of his personal savings bank account. The said summons was challenged by the Appellants and the Proforma Respondents before the High Court on the ground that the Company did not have any account with the State Bank of Hyderabad and that the cheque had issued by K. Balashankar Reddy (Accused No.11) from out of his personal savings bank account and that none of the Directors had signed the said Cheque. It was contended that the complaint was an abuse of the process of Court and had been filed with the sole motive of extracting money from the Appellants. On 14th September, 2006, the High Court dismissed the said petition holding that the cheque which had been issued by K. Balashankar Reddy was to meet the liability of the Appellant No.1 Company and its Directors on their request and that as a result they had rightly been prosecuted under Section 138 of the 1881 Act. The said order of the High Court dismissing the Appellants petition has been challenged in the instant Appeal essentially on the ground that the High Court had erred in allowing the complaint proceedings to continue although the same were not maintainable against the Appellants and the Proforma Respondents who were not the drawers of the cheque, nor was the cheque issued from any of their banks.

Court's reasoning:
9. In the instant case, the cheque which had been dishonoured may have been issued by the Respondent No.11 for discharging the dues of the Appellant No.1 Company and its Directors to the Respondent No.1 Company and the Respondent Company may have a good case against the Appellant No.1 Company for recovery of its dues before other fora, but it would not be sufficient to attract the provisions of Section 138 of the 1881 Act. The Appellant Company and its Directors cannot be made liable under Section 138 of the 1881 Act for a default committed by the Respondent No.11. An action in respect of a criminal or a quasi-criminal provision has to be strictly construed in keeping with the provisions alleged to have been violated. The proceedings in such matters are in personam and cannot be used to foist an offence on some other person, who under the statute was not liable for the commission of such offence.