1 Whether Reporters of Local Papers may be allowed YES to see the judgment ?

2 To be referred to the Reporter or not ? YES 3 Whether their Lordships wish to see the fair copy NO of the judgment ?

4 Whether this case involves a substantial question NO of law as to the interpretation of the Constitution of India or any order made thereunder ?

========================================================== YARLAGADA SHIVARAMPRASAD Versus STATE OF GUJARAT ========================================================== Appearance:

original complainant instituted the proceedings under Section 138 of the NI Act before the concerned Magisterial Court, where, the Court concerned issued the process to the accused persons.

4.6 It is, further, stated that Respondent Nos. 3 / original accused No.1-Company were sick industrial units and therefore, original accused No.1-Company was registered with the Board for Industrial and Financial Reconstruction (hereinafter, 'BIFR') as BIFR No. 107 of 2015 on 13.08.2015, where, the Registrar issued notice dated 13.08.2015, restraining original accused No.1-Company from disposing of or alienating, in any manner, fixed assets of accused No.1-Company without the permission of the BIFR.

4.7 It appears that original accused No.1- Company and the petitioners, therein, then, preferred a petition under Section 482 of the Code, being Special Criminal Application No. 4344 of 2017, seeking to quash the impugned complaint. However, the Coordinate Bench of this Court (Coram: Mr. A.S. Supehia, J.) dismissed the said Page 4 of 42 Downloaded on : Sat Dec 24 12:26:01 IST 2022 R/SCR.A/1055/2022 CAV JUDGMENT DATED: 08/03/2022 petition vide order dated 18.07.2019.

4.7.1 The petitioners challenged the order dated 18.07.2019 before the Hon'ble Apex Court, by filing Special Leave Petition (Criminal) No. 8993 of 2019. However, the Hon'ble Apex Court also dismissed the same vide order dated 04.10.2019.

4.8 It may be noted that in the meantime, an application under Section 33(1)(a) of the Insolvency and Bankruptcy Code, 2016 (hereinafter, 'IB Code') for liquidation of original accused No.1-Company was filed and consequently, the National Company Law Tribunal (in brief, 'the NCLT'), Chennai, passed the order dated 24.08.2018 to liquidate original accused No.1-Company.

4.9 In the above background, the petitioners, i.e. the erstwhile directors of original accused No.1-Company, have preferred the present petitions seeking to quash and set aside the impugned complaints.

5. Learned Advocate, Mr. Hathi, assisted by learned Advocate, Mr. Nair, for the petitioners submitted that the order of liquidation of original accused No.1-Company has already been passed by the NCLT, as per the provisions of Page 5 of 42 Downloaded on : Sat Dec 24 12:26:01 IST 2022 R/SCR.A/1055/2022 CAV JUDGMENT DATED: 08/03/2022 Section 33(5) of the IB Code and therefore, the proceedings under Section 138 of the NI Act cannot be continued against original accused No.1-Company as well as the petitioners-erstwhile directors.

5.1 It was submitted that it is always open to Respondent No.2-original complainant to approach the liquidator in connection with the claim made in the complaint filed under Section 138 of the NI Act.

5.2 If, the complainant is allowed to prosecute original accused No.1-Company and its erstwhile directors, i.e. the present petitioners, under Section 138 read with Section 141 of the NI Act for recovery of the cheque amount and at the same time it is allowed to recover the money under the IC Code, the same would disturb the liquidation process and would defeat the claims of other creditors.

5.3 It was, further, submitted that the erstwhile directors of original accused No.1- Company, i.e. the present petitioners, are arraigned as accused for being vicariously liable for the act of original accused No.1-Company, as per Section 141 of the NI Act, and therefore, when the proceedings cannot be continued against original accused No.1-Company, in view of the bar Page 6 of 42 Downloaded on : Sat Dec 24 12:26:01 IST 2022 R/SCR.A/1055/2022 CAV JUDGMENT DATED: 08/03/2022 under the IB Code, present petitioners-erstwhile directors of original accused No.1-Company cannot be prosecuted with.

5.4 It was submitted, in the facts of the present case, that the petitioners-erstwhile directors of accused No.1-Company were neither in charge nor had any authority to deal with the assets of accused No.1-company under Section 22A of the Sick Industrial Companies Act, 1985 (in brief, 'SICA') and accordingly, prima facie, no offence is made out qua the present petitioners- erstwhile directors.

5.5 In support of his submissions, learned Advocate, Mr. Hathi, placed reliance on the decision of the Apex Court, rendered in the case of 'P. MOHANRAJ AND OTHERS VS. SHAH BROTHERS ISPAT PRIVATE LIMITED ', reported in (2021) 6 SCC 258, more particularly, Paragraphs-49 to 51 thereof.

5.6 Learned Advocate, Mr. Hathi, next placed reliance on the decision of the Apex Court in the case of 'M/S. GIMPEX PRIVATE LIMITED VS. MANOJ GOEL ', rendered in Criminal Appeal Nos. 1069-1075 of 2021 in SLP (Criminal) Nos. 7632-7638 of 2019 and more particularly, Paragraphs-27 and 28 of the said decision .

R/SCR.A/1055/2022 CAV JUDGMENT DATED: 08/03/2022 5.7 After referring to the aforesaid decisions of the Apex Court, it was submitted that the prime object of Section 138 of the NI Act is to recover the dues, which a creditor- complainant can recover by placing his claim before the liquidator of the concerned company, once, such a company is ordered to be liquidated under the provisions of the IB Code.

5.8 At this stage, it was contended that the present petitions, which are the successive quashing petitions, are maintainable in view of the decision of the Apex Court in the case of 'ANIL KHADKIWALA VS. STATE (GOVERNMENT OF NCT) AND ANOTHER ', reported in (2019) 17 SCC 294.

5.8.1 Relying on the aforesaid decision, it was submitted that the plea with regard to the effect of passing of the order of liquidation by the NCLT, on the proceedings under Section 138 of the NI Act, was not raised before this Court at the time of hearing of Special Criminal Application No. 4344 of 2017, and therefore, the present petitions are maintainable.

6. On the other hand learned APP, Mr. Dabhi, appearing for Respondent No.1-State strongly opposed these petitions and contended that the order of liquidation of original accused No.1-Company was passed by the NCLT on Page 8 of 42 Downloaded on : Sat Dec 24 12:26:01 IST 2022 R/SCR.A/1055/2022 CAV JUDGMENT DATED: 08/03/2022 24.08.2018, whereas, this Court dismissed Special Criminal Application No. 4344 of 2017 filed by the present petitioners as well as original accused No.1-company on 18.07.2019. Meaning thereby, aforesaid contention was very much available to the petitioners and therefore, the petitioners must have argued all the points available to it before this Court.

6.1 It was, further, submitted that, while dismissing the SLP filed by the petitioners, challenging the decision of this Court in the earlier round of litigation, i.e. in Special Criminal Application No. 4344 of 2017, the Hon'ble Apex Court did not interfere with the order of this Court, and therefore, the present successive petitions, filed under Section 482 of the Code, are not maintainable.

6.2 Learned APP, thereafter, submitted that even, as per the decision rendered by the Apex Court in the case of 'P. MOHANRAJ AND OTHERS' (Supra), the moratorium proceedings, as provided under Section 14 of the IB Code, would apply only to the corporate debtors and the natural persons, mentioned under Section 141 of the NI Act, would continue to be statutorily liable under the proceedings of the NI Act .

6.3 It was, therefore, submitted that the Page 9 of 42 Downloaded on : Sat Dec 24 12:26:01 IST 2022 R/SCR.A/1055/2022 CAV JUDGMENT DATED: 08/03/2022 present, successive petitions filed by the petitioners-erstwhile directors of original accused No.1-Company may not be entertained.

7. Having heard the learned Advocates for the parties and having perused the material on record, it emerges that, admittedly, these are the successive petitions filed by the petitioners-erstwhile directors of accused No.1- Company under Section 482 of the Code, read with Article 226 of the Constitution of India.

7.1 It may be noted that the earlier petition, being Special Criminal Application No. 4344 of 2017, filed by original accused No.1- company and its directors, i.e. the present petitioners, came to be dismissed by this Court vide order dated 18.07.2019. Further, the SLP filed against the said order also came to be dismissed by the Apex Court.

7.2 Now, the present petitions are filed by the petitioners-erstwhile directors of accused No.1-Company, raising the contention that, once, the order of liquidation of accused No.1-Company was passed by the NCLT, as per the provisions of the IB Code, the proceedings under Section 138 of the NI Act cannot be continued against original accused No.1-Company and its directors, i.e. the Page 10 of 42 Downloaded on : Sat Dec 24 12:26:01 IST 2022 R/SCR.A/1055/2022 CAV JUDGMENT DATED: 08/03/2022 present petitioners.

7.3 Thus, in the present petitions, this Court is required to address the two questions, which are as under;

circumstances of the present case, are maintainable?

(ii) Whether, the proceedings under Section 138 of the NI Act can be continued against the natural persons, i.e. the present petitioners-erstwhile directors of accused No.1-Company, after the passing of order of liquidation of accused No.1-Company by the NCLT?

7.4 From the material placed on record, it transpires that the original accused No.1-Company and its erstwhile directors, including the present petitioners, in the earlier round of litigation had filed Special Criminal Application No. 4344 of 2017 before this Court for quashing Page 11 of 42 Downloaded on : Sat Dec 24 12:26:01 IST 2022 R/SCR.A/1055/2022 CAV JUDGMENT DATED: 08/03/2022 and setting aside the impugned complaints, filed by Respondent No.2-original complainant under Section 138 of the NI Act.

7.4.1 In the said petition, it was contended before this Court that original accused No.1- Company is a sick industrial company and its case is duly registered with BIFR. Further, as per the provisions of Section 22 and 22A of the SICA, a restraint order was passed on 13.08.2015 and therefore, the impugned complaints are required to be quashed and set aside, where, this Court considered the question, as to whether, the provisions of Section 22 of the SICA as well as the order dated 13.08.2015, passed under the SICA shall apply to the criminal cases registered under the provisions of Section 138 of the NI Act. This Court, after hearing both the sides, dismissed Special Criminal Application No. 4344 of 2017, which was filed by original accused No.1-Company vide order dated 18.07.2019.

7.5 At this stage, it is pertinent to note that before this Court dismissed Special Criminal Application No. 4344 of 2017 on 18.07.2019, the NCLT had already passed the order dated 24.08.2018, ordering liquidation of accused No.1- Company. Therefore, the contention raised by the learned Advocate, Mr. Hathi, for the petitioners Page 12 of 42 Downloaded on : Sat Dec 24 12:26:01 IST 2022 R/SCR.A/1055/2022 CAV JUDGMENT DATED: 08/03/2022 in this petition was very much available to them, while this Court was considering the submissions made by the learned Advocate for the petitioners on 18.07.2019 in earlier round of litigation.

7.5.1 It is not the case of the petitioners that the order of liquidation of accused No.1- Company is passed by the NCLT, after the order dated 18.07.2019 passed by this Court and therefore, the same cannot be treated as a change of circumstances to file a successive petition under Section 482 of the Code.

7.5.2 So far as the argument advanced by the learned Advocate, Mr. Hathi, for the applicant is concerned that the aforesaid contention was not raised before this Court in the earlier round of litigation is concerned, the fact remains that the said argument was very much available to the petitioners, when this Court dismissed Special Criminal Application No. 4344 of 2017 on 18.07.2019.

7.5.3 On the contrary, if, such a contention raised by the learned Advocate, Mr. Hathi, for the present petitioners is accepted at this stage, then, the situation may arise that even after the dismissal of this petition also, the petitioners may file another successive petition Page 13 of 42 Downloaded on : Sat Dec 24 12:26:01 IST 2022 R/SCR.A/1055/2022 CAV JUDGMENT DATED: 08/03/2022 by raising another contention that the same was not raised before this Court, at the time of disposal of the present successive petitions. Thus, practically, there would be no end of such a litigation and the petitioners would go on filing successive petitions, one after the other, by raising different contention on each occasion. This Court is, therefore, of the view that such a contention cannot be accepted, in the peculiar facts of the present case, at this stage.

7.6 In 'ANIL KHADKIWALA ' (Supra), the Hon'ble Apex Court has held that successive petition under Section 482 of the Code is maintainable, if, there is change in circumstances.

7.6.1 However, in the present case, it cannot be said that there is change in circumstance for filing the present petitions. As observed herein above, aforesaid contention was very much available to the petitioners at the time of disposal of Special Criminal Application No. 4344 of 2017, and therefore, it is to be presumed that the petitioners had taken all the contentions at the time of hearing of the earlier petition in the first round of litigation. Thus, this Court is of the view that, under the circumstances, the present, successive petitions, filed under Page 14 of 42 Downloaded on : Sat Dec 24 12:26:01 IST 2022 R/SCR.A/1055/2022 CAV JUDGMENT DATED: 08/03/2022 Section 482 of the Code, are not maintainable.

7.6.2 Thus, the answer to question No. (i) framed by this Court, as mentioned above, is essentially to be given in NEGATION.

8. Though, this Court is of the opinion that the present petitions are not maintainable, since, the learned Advocate for the petitioners has argued the matters on merit, this Court deems it fit not to dismiss the same solely on the ground of maintainability, but, to decide the same on merit as well.

8.1 In the present petitions, it is mainly contended on behalf of the petitioners that the petitioners are the erstwhile directors of accused No.1-Company, which has been ordered to be liquidated and therefore, it is always open to the complainant-Respondent No.2 to submit its claim before the liquidator and thereby, the outstanding amount can be recovered in the liquidation proceedings and in view of the provisions contained in the IB Code, the proceedings under Section 138 of the NI Act cannot be continued against accused No.1-Company and its directors, i.e. the petitioners, herein.

8.2 It was mainly contended on behalf of the Page 15 of 42 Downloaded on : Sat Dec 24 12:26:01 IST 2022 R/SCR.A/1055/2022 CAV JUDGMENT DATED: 08/03/2022 petitioners that, as held by the Apex Court in the case of ''P. MOHANRAJ AND OTHERS' (Supra), the proceedings under Section 138 can be said to be a "civil sheep" in a "criminal wolf's"

section (1) shall not exceed twenty per cent of the amount of the cheque.

R/SCR.A/1055/2022 CAV JUDGMENT DATED: 08/03/2022 (3) The interim compensation shall be paid within sixty days from the date of the order under sub-section (1), or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the drawer of the cheque.

interest at the bank rate as published by the Reserve Bank of India, prevalent at the beginning of the relevant financial year, within sixty days from the date of the order, or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the complainant.

(5) The interim compensation payable under this Section may be recovered as if it were a fine under Section 421 of the Code of Criminal Procedure, 1973 (2 of 1974).

(6) The amount of fine imposed under Section 138 or the amount of compensation awarded under Section 357 of the Code of Criminal Procedure, 1973 (2 of 1974), Page 18 of 42 Downloaded on : Sat Dec 24 12:26:01 IST 2022 R/SCR.A/1055/2022 CAV JUDGMENT DATED: 08/03/2022 shall be reduced by the amount paid or recovered as interim compensation under this Section."

clothing, as it is the interest of the victim that is sought to be protected, the larger interest of the State being subsumed in the victim alone moving a court in cheque bouncing cases, as has been seen by us in the analysis made hereinabove of Chapter XVII of the Negotiable Instruments Act ."

28 Given that the primary purpose of Section 138 of the NI Act is to ensure compensation Page 21 of 42 Downloaded on : Sat Dec 24 12:26:01 IST 2022 R/SCR.A/1055/2022 CAV JUDGMENT DATED: 08/03/2022 to the complainant, the NI Act also allows for parties to enter into a compromise, both during the pendency of the complaint and even after the conviction of the accused. The decision of this Court in Meters and Instruments (P) Ltd. v. Kanchan Mehta 22 summarises the objective of allowing compounding of an offence under Section 138 of the NI Act:

erstwhile directors of accused No.1-Company are required to be quashed and set aside.

8.6 This Court is of the view that the aforesaid contention raised by the learned Advocate, Mr. Hathi, is misconceived. If, the decision rendered by the Hon'ble Apex Court in the case of '' P. MOHANRAJ AND OTHERS ' (Supra) is carefully seen, the Apex Court, on the contrary, has specifically observed as under in Paragraphs- 101 and 102 thereof;

59. In view of our aforesaid analysis, we arrive at the irresistible conclusion that for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the drag-net on the touchstone of vicarious liability as the same has been stipulated in the provision itself. We say so on the basis of the ratio laid down in C.V. Parekh [(1970) 3 SCC 491 :

R/SCR.A/1055/2022 CAV JUDGMENT DATED: 08/03/2022 8.7 Thus, from the aforesaid observations, it is clear that moratorium provision contained under Section 14 of the IB Code would apply only to the corporate debtor and the proceedings under Chapter-XVII of the NI Act can be continued against natural persons mentioned under Section 141 of the NI Act.

8.8 At this stage, this Court would like to refer to the decision of the Apex Court in 'NAG LEATHERS PVT. LTD. VS. DYNAMIC MARKETING PARTNERSHIP ', 2021 SCC OnLine SC 1123, wherein, at Paragraphs- 7 to 11, the Apex Court observed and held as under:

8.9 Thus, the Hon'ble Apex Court also considered the observations made by the Apex Court in the earlier decision in '' P. MOHANRAJ AND OTHERS ' (Supra).

R/SCR.A/1055/2022 CAV JUDGMENT DATED: 08/03/2022 8.10 In 'M/S. GIMPEX PRIVATE LIMITED' (Supra), the Apex Court was considering the issue, as to whether, the parallel prosecution arising from a single transaction under Section 138 of the NI Act can be sustained. The relevant observations made at Paragraph-23 thereof reads thus:

8.11 In the matter before the Apex Court, the first complaint filed under Section 138 of the NI Page 36 of 42 Downloaded on : Sat Dec 24 12:26:01 IST 2022 R/SCR.A/1055/2022 CAV JUDGMENT DATED: 08/03/2022 Act was pending before the concerned Court and thereafter, the parties executed a deed of compromise to settle the matter. However, the cheques issued pursuant to such compromise were also dishonored and therefore, the second complaint under Section 138 of the NI Act came to be filed. As both the proceedings were pending simultaneously, the Hon'ble Apex Court decided the issue, as to whether, the complainant can be allowed to pursue both the cases or one of them must be quashed, where, the Hon'ble Apex Court observed and held as under;

Following the above principle, another decision of a two judge Bench in Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Ltd. 32 held:

R/SCR.A/1055/2022 CAV JUDGMENT DATED: 08/03/2022 D Conclusion 55 For the above reasons, we hereby pass the following order: