“DELHI HIGH COURT HELD THAT VAGUE AND SWEEPING ALLEGATIONS AGAINST DIRECTORS IS INSUFFICIENT TO IMPUTE ANY CRIMINAL LIBILITY AGAINST THEM IN A COMPLAINT UNDER SECTION 138 OF THE NEGOTIABLE INSTRUMENTS ACT, 1881”
IN THE HIGH COURT OF DELHI AT NEW DELHI
CRL.M.C.2480/2017 & OTHER CONNECTED MATTERS
SASHI KUMAR NAGARAJI & ORS …… PETITIONERS
VS.
M/S MAGNIFICO MINERALS PVT. LTD. & ORS ……RESPONDENTS
In this case the Respondent Company had supplied coal on the purchase order for an amount of Rs. 3, 74, 25,537/- to the Petitioners Company in which Petitioners were Directors.
An amount of Rs. 3, 74, 25,537/- became due and recoverable by Respondent from the Petitioners Company.
It was alleged in the criminal complaint by the Respondent that the cheques were issued each being of Rs. 50, 00,000 by the Petitioners Company against the amount recoverable but returned as dishonoured with different remarks.
Respondent issued multiple statutory notices in relation to the dishonoured cheques on different dates to the Petitioner Company. However, upon not receiving the cheque amounts, complaints were filed under Section 138 Negotiable Instruments Act, 1881 against all the accused. It was the contention of the Petitioners that no statutory notice was received by them.
Summons was issued on 08/03/2017 by Metropolitan Magistrate, District Courts to the accused persons in those complaints which stands impugned in the petition.
The Petitioners filed petitions under Section 482 of Criminal Procedure Code (Cr PC) before the Hon’ble High Court seeking quashing of summon orders dated 08/03/2017 passed by the Metropolitan Magistrate, District Courts, in respective complaints seeking prosecution of the petitioners under section 138 Negotiable Instruments Act, 1881.
While dealing with the case, the Hon’ble High Court noted that in the body of the criminal complaint, the complainant did not even aver that the Petitioners, or any of them, were Directors of the accused company; and if so, whether they were Directors at the relevant point of time when the offence had occurred.
It was observed that only the memorandum of parties to the criminal complaints set out the names of the Petitioners with the designation “Director” alongside each name. However there was no specific allegation made against the Petitioners that they were involved in the issuance of the cheques; nor any allegation that they were responsible for the dishonour of the cheques.
It was further noted by the High Court that there was only a vague and sweeping allegation claiming that all Directors of the accused company had engaged with the complainant in relation to the transaction, which was insufficient to impute any criminal liability upon any of the Petitioners.
Further it was also pointed out by the Hon’ble High Court that neither of the summoning orders contained any reference of specific allegations against the Petitioners.
It was remarked by the Hon’ble High Court that it appears to have become commonplace for Complainants to arraign all and sundry directors of a company as accused in a criminal complaint in relation to dishonour of cheques, with the evident intention of pressurizing and arm-twisting a company into paying-up a claimed debt.
It was held by the Hon’ble Court that it is necessary to articulate that a criminal complaint under section 138 of the NI Act is not, in and of itself, a money recovery proceeding, even though a fine and compensation may be imposed upon conviction.
It was concluded by the Hon’ble Court that insufficiency of funds in an account or the cheque amount exceeding the arrangement with the drawer’s bank is the grounds that form the gravamen of the offence contained in section 138 of the NI Act.
However, when a cheque is returned with a noting that it has been dishonoured for “other reasons”, it certainly begs the question as to what the specific reason for dishonour was. Therefore this question ought to have been raised during proceedings before summons were issued, failing which it is not even clear if the basic ingredients of the offence under section 138 are made-out in relation to a given cheque.
Thus, the Hon’ble Court while quashing held that there are no specific allegations in the criminal complaints in relation to the Petitioners, thus, it cannot be said that the Petitioners would incur any vicarious liability along with the accused company merely because they were Directors of the company.
The High Court observed that there being no allegations against the Petitioners in the criminal complaints, the issuance of the summoning orders was evidently not informed by any application of mind but was the outcome of a purely mechanical process.
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