Bharat Metal Box Co. Ltd. Vs. G.K. Strips (P.) Ltd. - Court Judgment

Excerpt:
criminal - scope of section 22 a - section 138 of negotiable instruments act, 1881, section 482 of code of criminal procedure, 1973, section 22 a of sick industrial companies (special provisions) act, 1985 and companies act, 1956 - petition filed seeking quashing of proceedings of magistrate under section 138 - whether section 22 a affects criminal case for offence under section 138 - contended that as petitioner-company declared sick company no payment could be made without consent of board for industrial and financial reconstruction (bifr) as per section 22 a - in precedents supreme court laid down that matter cannot be stayed till disposal of case before bifr - proceedings by magistrate cannot be quashed - entire matter to be judged after presenting order of bifr before magistrate - held, magistrate to reconsider matter. - cantonments act[c.a. no. 41/2006]. section 346 & cantonment fund (servants rules, 1937, rules 13, 14 & 15: [h.l. gokhale, ag. cj, p.v. hardas, naresh h. patil, r.m. borde & r.m. savant, jj] jurisdiction of school tribunal constituted under maharashtra employees of private schools (conditions of service) regulations act, (3 of 1978) held, school run by the cantonment board is a primary school and it is not a school recognised by any such board comparable to the divisional board or the state board. the school tribunal constituted under section 8 of the maharashtra act cannot entertain appeals filed under section 9 by the employees working in schools which are established and administered by the cantonment board. teacher employed in the school run by cantonment board being covered under rule 2 (f) of the cantonment fund servants rules, 1937 can file appeal under rules 13, 14 and 15 to authorities provided therein against any order imposing any penalties etc. [deolali cantonment board v usha devidas dongre, 1993 mah. lj 74; 1993 lab ic 1858 overruled]. -- maharashtra employees of private schools (conditions of service) regulations act, 1978 [act no. 3/1978]. sections 9 & 2(21): jurisdiction of school tribunal whether a school run by cantonment board is not a recognised school within the meaning of section 2(21)? - held, the act is enacted to regulate recruitments and conditions of employees in certain private schools and provisions of the act shall apply to all private schools in the state whether receiving any grant-in-aid from the state government or not. private school is defined in section 2(2) of the act as a recognised school established or administered by a management other than the government or a local authority. recognised means recognised by director, the divisional board or state board. thus as far as the first part of the definition of being recognised is concerned, it includes, as stated above, four directors, the divisional boards and four state boards. the second part of this definition which comes after the comma refers to any officer authorised by director or by any of such boards. the question to be examined is whether school run by the cantonment board could be said to be one run by any such boards. a private school has to be recognised by the state or the divisional board or by any officer authorised in that behalf. when this phrase namely: recognised by any officer authorised by the director or by any such boards, is included in the latter part of section 2(21), such boards will be of the level of the state board or the divisional board. the boards referred to in the definition of the word recognised means the boards which deal with education at levels other than that of the level at which primary schools are operating. thus for being recognised, the school has to be recognised by the board and therefore, it has to be operating at a higher level i.e., secondary level. section 2(21) of the act defines the term recognised. the last clause therein is by any of such boards. the term such is defined in oxford dictionary as of the kind or degree indicated or implied by the context. therefore, the term such board will have to mean a divisional board of or the level of divisional board or the state board. the divisional board holds the examination and issues certificates after 10th and 12th standard examinations. the state board advises the state government on policy matters, ensures uniform pattern of secondary and higher secondary education, lays down principles for determining syllabi, prescribes text books, etc. the cantonment board does not discharge any of such duties nor is there any other board or body under the cantonments act discharging any such duties. the duties of the cantonment board are laid down in section 62 and amongst others, clause (xiv) lays down the duties of establishing and maintaining or assisting primary schools only. the cantonment board is not required to enter into the area of secondary education. therefore, school run by the cantonment board is a primary school and it is not a school recognised by any such board comparable to the divisional board or the state board. that being the position, it is not possible to accept it to be a recognised school for being a private school under the act. for the reasons state above, the school tribunal constituted under section 8 of the act cannot entertain appeals filed under section 9 by the employees working in schools which are established and administered by the cantonment board. [deolali cantonment board v usha devidas dongre, 1993 mah.lj 74; 1993 lab ic 1858 overruled]. - 4. the learned counsel appearing for the 1st respondent contends that his right to prosecute for non-payment of the amount cannot be defeated by virtue of the sica proceedings and the question of quashing the proceedings does not arise. 5. adverting to the said contentions, the supreme court had an occasion to deal with section 138 of the negotiable instruments act, 1881 ('the act') and section 536(2) of the companies act, 1956 as well as section 22a of sica. in such a case it may reasonably be said that the dishonouring of the cheque by the bank and failure to make payment of the amount by the company and/or its directors is for reasons beyond the control of the accused. para 19. except in the circumstances noted above we do not find any good reason for accepting the contentions raised by the learned counsel for the appellants in favour of the prayer for quashing the criminal proceedings or for keeping the proceedings in abeyance. it is clearly mentioned in the order passed under section 22a that no payment shall be made for which permission of the authorities of bifr is required.orders.r.k. prasad, j.1. the petitioners seek quashing of the proceedings, in c.c. no. 584 of 1999 on the file of the court of v metropolitan magistrate, hyderabad invoking inherent powers.2. 1st respondent herein, who is the de facto complainant, is a company dealing in wholesale and retail business in steel. the 1st petitioner-company is said to be its customer. a cheque bearing no. 506485 dated 1-6-1999 for rs. 10,68,000 was drawn on a.p. mahesh co-operative urban bank ltd. towards repayment of sale consideration of the goods purchased. the cheque was presented to the bank and it was said to have been dishonoured on 28-6-1999. a legal notice dated 11-7-1999 was issued, which was sent by registered post on 12-7-1999. the accused received the said notice and acknowledged the same on 14-7-1999. thereafter, the 1st respondent presented the complaint before the learned v metropolitan magistrate, who took it on file and numbered it as c.c. 584 of 1999. aggrieved by the same the accused nos. 1 to 3, namely, the company, the managing director and the director presented this criminal petition.3. the learned counsel appearing for the petitioners has contended that the petitioner-company is a sick company and in that regard it has approached the board for industrial and financial reconstruction (bifr) and directions have been issued by the bifr under section 22a of the sick industrial companies (special provisions) act, 1985 preventing the company from paying the amount except with the consent of the bifr.4. the learned counsel appearing for the 1st respondent contends that his right to prosecute for non-payment of the amount cannot be defeated by virtue of the sica proceedings and the question of quashing the proceedings does not arise. the learned public prosecutor contends that it is not a fit case where inherent powers can be exercised and that they have to be relegated to trial.5. adverting to the said contentions, the supreme court had an occasion to deal with section 138 of the negotiable instruments act, 1881 ('the act') and section 536(2) of the companies act, 1956 as well as section 22a of sica. the supreme court has stated in pankaj mehra v. state of maharashtra air 2000 sc 1953, as follows:'21. if the payment is not ab initio void the company cannot contend that it is legally forbidden from making payment of the cheque amount when notice was issued by the payee regarding dishonour of the cheque. to circumvent this hurdle an endeavour was made by some of the appellants' counsel to show that the very issuance of a cheque would amount to disposition of property. we are unable to accept the said contention particularly in view of the definition of 'cheque' in the ni act. 'a cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.' 21a. bill of exchange is 'an instrument in writing containing an unconditional order, signed by the maker, directing certain person to pay a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument'. the cheque, therefore, can be an order on the banker to pay the amount to the holder thereof and no disposition of property would take place until the payment is made by the banker pursuant thereto. at the most, drawing of a cheque can be considered as a step towards disposition of property, but that is insufficient to amount disposition of property. 22. & 23. ** 24. thus, when a cheque is received by a holder the court has to presume that (1) it is a cheque of the nature referred to in section 138; and (2) such cheque was received for the discharge of a legally enforceable debt or liability. it is a legislative mandate that the court should proceed with the assumption that such cheque was received for the discharge of a legally enforceable debt or other liability until the drawer proves that it is not so. learned counsel contended that the burden of proof cast on the drawer of the cheque would stand discharged and the presumption would stand rebutted when it is shown that the company has been brought into winding up proceedings, as then no debt can be legally enforced against the company', (p. 1959) 6. in kusum ingots & alloys ltd. v. pennar peterson securities ltd. [2002] supreme 218 the supreme court exhaustively dealt with the applicabilityof section 22a of sica. the relevant portion at paras 18 and 19 reads as follows:'para 18. the question that remains to be considered is whether section 22a of sica affects a criminal case for an offence under section 138 ni act. in the said section provision is made enabling the board to make an order in writing to direct the sick industrial company not to dispose of, except with the consent of the board, any of its assets (a) during the period of preparation or consideration of the scheme under section 18; and (b) during the period beginning with the recording of opinion by the board for winding up of the company under sub-section (1) of section 20 and up to commencement of the proceedings relating to the winding up before the concerned high court. this exercise of the power by the board is condition by the prescription that the board is of the opinion that such a direction is necessary in the interest of the sick industrial company or its creditors or shareholders or in the public interest. in a case in which the bifr has submitted its report declaring a company as 'sick' and has also issued a direction under section 22a restraining the company or its directors not to dispose of any of its assets except with consent of the board then the contention raised on behalf of the appellants that a criminal case for the alleged offence under section 138 ni act cannot be instituted during the period in which the restraint order passed by the bifr remains operative cannot be rejected outright. whether the contention can be accepted or not will depend on the facts and circumstances of the case. take for instance, before the date on which the cheque was drawn or before expiry of the statutory period of 15 days after notice, a restraint order of the bifr under section 22a was passed against the company then it cannot be said that the offence under section 138 ni act was completed. in such a case it may reasonably be said that the dishonouring of the cheque by the bank and failure to make payment of the amount by the company and/or its directors is for reasons beyond the control of the accused. it may also be contended that the amount claimed by the complainant is not recoverable from the assets of the company in view of the ban order passed by the bifr. in such circumstances it would be unjust and unfair and against the intent and purpose of the statute to hold that the directors should be compelled to face trial in a criminal case. para 19. except in the circumstances noted above we do not find any good reason for accepting the contentions raised by the learned counsel for the appellants in favour of the prayer for quashing the criminal proceedings or for keeping the proceedings in abeyance. it will be open to the appellants to place relevant materials in this regard before the learned magistrate before whom the cases are pending and the learned magistrate will examine the matter keeping in mind the discussions made in this judgment. we make it clear that we have not considered the question whether in the facts and circumstances of a particular case section 138 ni act is attracted or not, for that is a question to be considered by the court at the appropriate stage of the case in the light of the evidence on record.' 7. the following principles emerge on a close scrutiny of both the supreme court decisions. firstly, there is no provision under the companies act prohibiting prosecution of the company for the offence under section 138 of the negotiable instruments act, secondly, the acceptance of the contention that during the operation of orders passed under section 22a of sica the criminal proceedings remain suspended has to be judged depending on the facts and circumstances of the case and in order to judge the same the factors, namely, (i) the date on which the cheque was drawn, (ii) whether any order is passed by the bifr under section 22a of sica before the expiry of the statutory period and whether the amount claimed by the complainant is not recoverable from the assets of the company in view of the ban order passed by the bifr, etc., have to be considered. thirdly the court shall also take into consideration whether the directors are compelled to face the trial in a criminal case when a restraint order is given after the expiry of 15 days notice.8. keeping in view the principles, i now deal with the facts in this case.9. this court can only look into the complaint and the documents filed along with it and the sworn statements of the witnesses if any recorded. while judging the correctness of the proceedings, it cannot look into the documents, which are not filed before the lower court. section 482 of the code of criminal procedure, 1973 debars the court to look into fresh documents, in view of the principles laid down by the supreme court in state of karnataka v. m. devendrappa [2002] (i) supreme 192. the relevant portion of the said judgment reads as follows:'the complaint has to be read as a whole. if it appears that on consideration of the allegations in the light of the statement made on oath of the complainant that the ingredients of the offence or offences are disclosed and there is no material to show that the complaint is mala fide, frivolous or vexatious, in that event there would be no justification for interference by the high court. when an information is lodged at the police station and an offence is registered, then the mala fides of the informant would be of secondary importance. it is the material collected during the investigation and evidence led in court, which decides the fate of the accused person. the allegations of mala fides against the informant are of no consequence and cannot by itself be the basis for quashing the proceedings'.10. the question of oppressive nature of the complaint when the proceedings have been issued by bifr under section 22a has to be considered by the lower court on facts. in fact, the supreme court in the judgment of kusum ingots & alloys ltd.'s case (supra), sent back the matter to the lower court for fresh consideration. the relevant portion reads as follows :'the learned magistrate before whom the cases are pending and the learned magistrate will examine the matter keeping in mind the discussionsmade in this judgment. we make it clear that we have not considered the question whether in the facts and circumstances of a particular case section 138 ni act is attracted or not, for that is a question to be considered by the court at the appropriate stage of the case in the light of the evidence on record'.11. i am of the considered view that those facts can be considered when an order dated 9-6-1999 passed by the bifr under sica is placed before the learned magistrate. the magistrate has no opportunity to consider the same at the time of filing the complaint and recording sworn statements. under any stretch of imagination, the proceedings cannot be declared as invalid on the strength of the averments contained in the complaint and also on the basis of sworn statements recorded since there is dishonour of the cheque. the petitioners are at liberty to approach the lower court to canvass the contentions raised before this court regarding applicability of section 22a of sica and also whether the offence under section 138 of the act arises.12. hence, i find there is no illegality in the order passed by the learned magistrate. the supreme court has not stated that the matter has to be stayed till the disposal of the case before the bifr, i am of the considered view that the matter cannot be postponed. it is clearly mentioned in the order passed under section 22a that no payment shall be made for which permission of the authorities of bifr is required. it is always open for the directors to seek permission before the authorities of bifr to make provision for payment of the amount. the entire matter has to be judged after presenting the order of the bifr before the magistrate. the magistrate shall reconsider the matter in the light of the observations made in the aforesaid supreme court decisions after recording of evidence.13. the criminal petition is ordered accordingly while upholding the validity of order of the learned magistrate, namely, taking cognizance of the offence under section 138.

Judgment:
ORDER

S.R.K. Prasad, J.

1. The petitioners seek quashing of the proceedings, in C.C. No. 584 of 1999 on the file of the Court of V Metropolitan Magistrate, Hyderabad invoking inherent powers.

2. 1st respondent herein, who is the de facto complainant, is a company dealing in wholesale and retail business in steel. The 1st petitioner-company is said to be its customer. A cheque bearing No. 506485 dated 1-6-1999 for Rs. 10,68,000 was drawn on A.P. Mahesh Co-operative Urban Bank Ltd. towards repayment of sale consideration of the goods purchased. The cheque was presented to the bank and it was said to have been dishonoured on 28-6-1999. A legal notice dated 11-7-1999 was issued, which was sent by registered post on 12-7-1999. The accused received the said notice and acknowledged the same on 14-7-1999. Thereafter, the 1st respondent presented the complaint before the learned V Metropolitan Magistrate, who took it on file and numbered it as C.C. 584 of 1999. Aggrieved by the same the accused Nos. 1 to 3, namely, the company, the Managing Director and the Director presented this criminal petition.

3. The learned counsel appearing for the petitioners has contended that the petitioner-company is a sick company and in that regard it has approached the Board for Industrial and Financial Reconstruction (BIFR) and directions have been issued by the BIFR under Section 22A of the Sick Industrial Companies (Special Provisions) Act, 1985 preventing the company from paying the amount except with the consent of the BIFR.

4. The learned counsel appearing for the 1st respondent contends that his right to prosecute for non-payment of the amount cannot be defeated by virtue of the SICA proceedings and the question of quashing the proceedings does not arise. The learned Public Prosecutor contends that it is not a fit case where inherent powers can be exercised and that they have to be relegated to trial.

5. Adverting to the said contentions, the Supreme Court had an occasion to deal with Section 138 of the Negotiable Instruments Act, 1881 ('the Act') and Section 536(2) of the Companies Act, 1956 as well as Section 22A of SICA. The Supreme Court has stated in Pankaj Mehra v. State of Maharashtra AIR 2000 SC 1953, as follows:

'21. If the payment is not ab initio void the company cannot contend that it is legally forbidden from making payment of the cheque amount when notice was issued by the payee regarding dishonour of the cheque. To circumvent this hurdle an endeavour was made by some of the appellants' counsel to show that the very issuance of a cheque would amount to disposition of property. We are unable to accept the said contention particularly in view of the definition of 'cheque' in the NI Act. 'A Cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.'

21A. Bill of exchange is 'an instrument in writing containing an unconditional order, signed by the maker, directing certain person to pay a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument'. The cheque, therefore, can be an order on the banker to pay the amount to the holder thereof and no disposition of property would take place until the payment is made by the banker pursuant thereto. At the most, drawing of a cheque can be considered as a step towards disposition of property, but that is insufficient to amount disposition of property.

22. & 23. **

24. Thus, when a cheque is received by a holder the court has to presume that (1) it is a cheque of the nature referred to in Section 138; and (2) such cheque was received for the discharge of a legally enforceable debt or liability. It is a legislative mandate that the court should proceed with the assumption that such cheque was received for the discharge of a legally enforceable debt or other liability until the drawer proves that it is not so. Learned counsel contended that the burden of proof cast on the drawer of the cheque would stand discharged and the presumption would stand rebutted when it is shown that the company has been brought into winding up proceedings, as then no debt can be legally enforced against the company', (p. 1959)

6. In Kusum Ingots & Alloys Ltd. v. Pennar Peterson Securities Ltd. [2002] Supreme 218 the Supreme Court exhaustively dealt with the applicabilityof Section 22A of SICA. The relevant portion at paras 18 and 19 reads as follows:

'Para 18. The question that remains to be considered is whether Section 22A of SICA affects a criminal case for an offence under Section 138 NI Act. In the said section provision is made enabling the Board to make an order in writing to direct the sick industrial company not to dispose of, except with the consent of the Board, any of its assets (a) during the period of preparation or consideration of the scheme under Section 18; and (b) during the period beginning with the recording of opinion by the Board for winding up of the company under Sub-section (1) of Section 20 and up to commencement of the proceedings relating to the winding up before the concerned High Court. This exercise of the power by the Board is condition by the prescription that the Board is of the opinion that such a direction is necessary in the interest of the sick industrial company or its creditors or shareholders or in the public interest. In a case in which the BIFR has submitted its report declaring a company as 'sick' and has also issued a direction under Section 22A restraining the company or its directors not to dispose of any of its assets except with consent of the Board then the contention raised on behalf of the appellants that a criminal case for the alleged offence under Section 138 NI Act cannot be instituted during the period in which the restraint order passed by the BIFR remains operative cannot be rejected outright. Whether the contention can be accepted or not will depend on the facts and circumstances of the case. Take for instance, before the date on which the cheque was drawn or before expiry of the statutory period of 15 days after notice, a restraint order of the BIFR under Section 22A was passed against the company then it cannot be said that the offence under Section 138 NI Act was completed. In such a case it may reasonably be said that the dishonouring of the cheque by the bank and failure to make payment of the amount by the company and/or its Directors is for reasons beyond the control of the accused. It may also be contended that the amount claimed by the complainant is not recoverable from the assets of the company in view of the ban order passed by the BIFR. In such circumstances it would be unjust and unfair and against the intent and purpose of the statute to hold that the Directors should be compelled to face trial in a criminal case.

Para 19. Except in the circumstances noted above we do not find any good reason for accepting the contentions raised by the learned counsel for the appellants in favour of the prayer for quashing the criminal proceedings or for keeping the proceedings in abeyance. It will be open to the appellants to place relevant materials in this regard before the learned Magistrate before whom the cases are pending and the learned Magistrate will examine the matter keeping in mind the discussions made in this judgment. We make it clear that we have not considered the question whether in the facts and circumstances of a particular case Section 138 NI Act is attracted or not, for that is a question to be considered by the court at the appropriate stage of the case in the light of the evidence on record.'

7. The following principles emerge on a close scrutiny of both the Supreme Court decisions. Firstly, there is no provision under the Companies Act prohibiting prosecution of the company for the offence under Section 138 of the Negotiable Instruments Act, secondly, the acceptance of the contention that during the operation of orders passed under Section 22A of SICA the criminal proceedings remain suspended has to be judged depending on the facts and circumstances of the case and in order to judge the same the factors, namely, (i) the date on which the cheque was drawn, (ii) whether any order is passed by the BIFR under Section 22A of SICA before the expiry of the statutory period and whether the amount claimed by the complainant is not recoverable from the assets of the company in view of the ban order passed by the BIFR, etc., have to be considered. Thirdly the Court shall also take into consideration whether the Directors are compelled to face the trial in a criminal case when a restraint order is given after the expiry of 15 days notice.

8. Keeping in view the principles, I now deal with the facts in this case.

9. This Court can only look into the complaint and the documents filed along with it and the sworn statements of the witnesses if any recorded. While judging the correctness of the proceedings, it cannot look into the documents, which are not filed before the lower court. Section 482 of the Code of Criminal Procedure, 1973 debars the Court to look into fresh documents, in view of the principles laid down by the Supreme Court in State of Karnataka v. M. Devendrappa [2002] (i) Supreme 192. The relevant portion of the said judgment reads as follows:

'The complaint has to be read as a whole. If it appears that on consideration of the allegations in the light of the statement made on oath of the complainant that the ingredients of the offence or offences are disclosed and there is no material to show that the complaint is mala fide, frivolous or vexatious, in that event there would be no justification for interference by the High Court. When an information is lodged at the police station and an offence is registered, then the mala fides of the informant would be of secondary importance. It is the material collected during the investigation and evidence led in Court, which decides the fate of the accused person. The allegations of mala fides against the informant are of no consequence and cannot by itself be the basis for quashing the proceedings'.

10. The question of oppressive nature of the complaint when the proceedings have been issued by BIFR under Section 22A has to be considered by the lower court on facts. In fact, the Supreme Court in the judgment of Kusum Ingots & Alloys Ltd.'s case (supra), sent back the matter to the lower court for fresh consideration. The relevant portion reads as follows :

'the learned Magistrate before whom the cases are pending and the learned Magistrate will examine the matter keeping in mind the discussionsmade in this judgment. We make it clear that we have not considered the question whether in the facts and circumstances of a particular case Section 138 NI Act is attracted or not, for that is a question to be considered by the court at the appropriate stage of the case in the light of the evidence on record'.

11. I am of the considered view that those facts can be considered when an order dated 9-6-1999 passed by the BIFR under SICA is placed before the learned Magistrate. The Magistrate has no opportunity to consider the same at the time of filing the complaint and recording sworn statements. Under any stretch of imagination, the proceedings cannot be declared as invalid on the strength of the averments contained in the complaint and also on the basis of sworn statements recorded since there is dishonour of the cheque. The petitioners are at liberty to approach the lower court to canvass the contentions raised before this Court regarding applicability of Section 22A of SICA and also whether the offence under Section 138 of the Act arises.

12. Hence, I find there is no illegality in the order passed by the learned Magistrate. The Supreme Court has not stated that the matter has to be stayed till the disposal of the case before the BIFR, I am of the considered view that the matter cannot be postponed. It is clearly mentioned in the order passed under Section 22A that no payment shall be made for which permission of the authorities of BIFR is required. It is always open for the Directors to seek permission before the authorities of BIFR to make provision for payment of the amount. The entire matter has to be judged after presenting the order of the BIFR before the Magistrate. The Magistrate shall reconsider the matter in the light of the observations made in the aforesaid Supreme Court decisions after recording of evidence.

13. The criminal petition is ordered accordingly while upholding the validity of order of the learned Magistrate, namely, taking cognizance of the offence under Section 138.