IMPORTANT POINT
Section 22, SICA does not create any legal impediment for instituting and proceeding with a criminal case on the allegations of an offence under Section 138 of the NI Act against a company or its Directors.

Headnote:Negotiable Instruments Act, 1881 -Sections 138 and 141-Sick Industrial Companies (Special Provisions) Act, 1985-Sections 22 and 22A-Dishonour of Cheque-Offence by company-Prosecution of company and its Directors-Company had been declared sick under SICA before expiry of 15 days period for payment of cheque amount -Complaint against company and Directors-Magistrate took cognizance of offence -Company and Directors seeking to quash proceedings on ground in view of Section 22 of SICA prosecution not maintainable -Untenable-Section 22 of SICA does not refer to criminal proceedings -Pendency of proceedings under Section 22, SICA alone not sufficient to get absolved from liability u/s 138 of N.I. Act-Section 22 of SICA does not bar payment of money by Company or its directors to other persons for satisfaction of their legally enforceable dues-In case any restraint order had already been passed u/s 22A of SICA then question of maintainability of proceedings u/s138 r/w Section 141 may arise.
       (ii) Sick Industrial Companies (Special Provisisons) Act, 1985- Sections 22 and 22A r/w Sections 138 and 141 of the Negotiable Instruments Act, 1881-Bar to suit etc.-Scope of-Section 22 of SICA does not refer to criminal proceedings -Section 22 does not create any legal impediment for instituting and proceeding with a criminal case on allegation of an offence u/s 138 of N.I. Act-If BIFR has submitted report declaring a company as sick and also issued direction u/s 22A restraining Company or its directors then question of maintainability of prosecution u/s 138 of N.I. Act would arise depending upon facts of case.
       Held : No exception can be taken against the order of the Magistrate taking cognizance of the offence under Section 138 NI Act against the appellants. Undisputedly the cheques were drawn by the appellants for payment of certain amount of money due to the complainant, from the account in the bank and the said cheques were dishonoured by the bank and the amount remained unpaid even after lapse of 15 days from the date of the notice issued by the complainant after the cheques were dishonoured. Therefore, the ingredients of Section 138 being prima facie established from the complaint and the documents filed with it, the Magistrate rightly took cognizance of the offence and issued summons to the appellents. (Para 13)
       A bare reading of the Section 22 of the SICA makes the postition clear that during pendency of an inquiry under Section 16 or during the preparation of a scheme referred to under Section 17 or during implementation of a sanctioned scheme or pendency of an appeal under Section 25, no proceedings for winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof and no suit for the recovery of money or for enforcement of any security against the industrial company or of any gurantee in respect of any loans or advance granted to the industrial company,shall lie or be proceeded with further, except with the consent of the Board or, the Appellate Authority, as the case may be. The section only deals with proceedings for recovery of money or for enforcement of any security or a gurantee in respect of any loans or advance granted to the company and a proceedings for winding up of the company. The section does not refer to any criminal proceeding. Pendency of proceeding under Section 22(1) of SICA alone is not sufficient to get absolved from the liability under Section 138 of the NI Act. (Para 14)
       The argument that if the criminal case is proceeded with and the appellants are convicted and sentenced to fine then it will be necessary to realise the amount of fine from the assets of the company which would be impermissible in view of the provisions of Section 22 of the SICA, is premature and farfetched as the occasion to realise fine from the accused company or its directors will arise only in case they are convicted and sentenced of fine is imposed against them. That is not a ground to hold that the criminal proceeding should be foreclosed at the threshold. (Para 15)
       Another contention which was raised on behalf of the appellant in this connection is that if the Directors of the company on being convicted are arrested and kept in jail the efforts of the BIFR for reconstruction/revival of the company will not be possible and in that event the very purpose of inquiry by the BIFR will be rendered futile. The contention is too remote and the apprehension far-fetched. (Para 16)
       Section 22, SICA does not create any legal impediment for instituting and proceeding with a criminal case on the allegations of an offence under Section 138 of the NI Act against a company or its Directors. The section as we read it only creates an embargo against disposal of assets of the company for recovery of its debts. The purpose of such an embargo is to preserve the assets of the company from being attached or sold for realisation of dues of the creditors. The section does not bar payment of money by the company or its directors to other persons for satisfaction of their legally enforceable dues. (Para 17)
       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 dishonoring 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 18)

Judgement Key Points

Based on the provided legal document, the key points are as follows:

Section 22 of the SICA does not create a legal barrier to initiating or proceeding with criminal cases under Section 138 of the NI Act against a company or its directors. The section primarily restricts proceedings related to recovery of debts, enforcement of security, winding-up actions, or execution against the company's assets during the pendency of certain proceedings under SICA (!) (!) .
The pendency of proceedings under Section 22 of SICA alone is insufficient to absolve a company or its directors from liability under Section 138 of the NI Act. Criminal proceedings can still be initiated and continued, as Section 22 does not explicitly prohibit such actions (!) (!) .
The section does not bar the payment of legally enforceable dues by the company or its directors. It only restrains creditors from realizing dues through certain legal actions like winding-up or attachment of assets, but does not prevent the company or its directors from making payments to satisfy legitimate liabilities (!) .
During the period when a company is declared "sick" and a restraint order under Section 22A is in place, the question of whether a criminal offence under Section 138 has been committed depends on the timing and circumstances. If the dishonoring of the cheque occurs before the restraint order or before the expiry of the statutory notice period, criminal liability may still be established. Conversely, if the offence occurs during the operation of the restraint order, it may be argued that the offence was beyond the control of the accused and that criminal proceedings may be unjustified (!) (!) .
The existence of a restraint order under Section 22A does not automatically bar criminal proceedings but requires a case-by-case examination of the facts to determine whether the offence has been committed or is affected by the proceedings under SICA. The purpose of Section 22A is to prevent asset disposal during specific periods, not to impede criminal liability for offences committed prior to or outside those periods (!) (!) .
The provisions of Section 138 of the NI Act, including the ingredients for establishing an offence and the liability of companies and their officers, remain applicable regardless of proceedings under SICA. The law presumes the existence of a debt or liability if the cheque is dishonored and the statutory conditions are met (!) (!) (!) .
The liability of company officers, such as directors or managers, is established if they were responsible for the conduct of the company's business at the time of the offence or if the offence was committed with their consent, connivance, or due to neglect. The law provides protections for officers who prove they were unaware of the offence or exercised due diligence (!) (!) .
The criminal proceedings under Section 138 of the NI Act are not automatically stayed or dismissed due to the company's declaration as "sick" under SICA, unless specific circumstances, such as a restraint order, are proven to affect the offence's occurrence or the company's ability to pay (!) (!) .
Ultimately, the decision to proceed with or stay criminal proceedings in such cases depends on the facts and circumstances, including the timing of the dishonor of the cheque, the status of proceedings under SICA, and whether the offence was committed beyond the reach of the company's assets or control at the relevant time (!) (!) .
The court emphasizes that criminal proceedings should not be prematurely quashed or stayed solely based on the company's sick status or proceedings under SICA. Instead, relevant material should be presented and examined at the appropriate stage of the trial to determine the applicability of the provisions and the merits of the case (!) .

These points summarize the legal principles and interpretations regarding the interaction between proceedings under SICA and criminal liability under Section 138 of the NI Act.

JUDGMENT

D.P. Mohapatra, J.-Leave granted.

2. The common question that arises for consideration in these appeals is whether a company and its Directiors can be proceeded against for having committed an offence under Section 138 of the Negotiable Instruments Act, 1881 (for short the NI Act ) after the company has been declared sick under the provisions of The Sick Industrial Companies (Special Provisions) Act, 1985 (for short SICA ) before the expiry of the period for payment of the cheque amount. The answer to the question depends on interpretation of Section 138 of the NI Act and its interaction with the relevent provisions of SICA. Since the relevent facts involved in all the cases are similar and a common question of law arises in all the cases they were heard together and they are being disposed of by this judgment.

3. The factual positions about which there is no dispute may be stated thus: Post-dated cheques were issued on behalf of the company in favour of the complainant in course of business of the company. When the complainant presented the cheques in the bank they were returned without payment.

Then the complainant issued notice to the company and/or its Directors stating the facts of dishonour of the cheques and demanding payment. Since no payment was made within the period of 15 days stipulated under the NI Act the payee filed complaint against the company and/or its Directors alleging inter-alia that they had committed an offence under Section 138 of the NI Act. Before the cheques were presented in the bank or after the bank declined to honour the cheques the drawer company was declared sick under the provisions of the SICA by the Board of Industrial and Financial Reconstruction (for short BIFR ). On receipt of the summons from the Court in the criminal case registered on the basis of the complaint the accused company and/or its Directors filed petitions under Section 482 of the Code of Criminal Procedure or under Article 227 of the Constitution seeking quashing of the complaint/proceeding in the criminal case, mainly on the ground that in view of the provisions in Section 22 of SICA the criminal case instituted against them for commission of the alleged offence under Section 138 NI Act is misconceived and compelling the accused to face trial in the case will amount to abuse of the process of Court. The High Court having declined to interfere in the proceeding and dismissed the petitions filed by the accused, they have filed these appeals challenging the order passed by the High Court.

4. The main thrust of the arguments of the learned counsel appearing for the appellants is that on the company being declared sick by the BIFR no steps could be taken by the complainants for realisation of the amounts said to be due to them and therefore the criminal proceeding initiated against the drawercompany and its Director on the allegation that the cheques drawn in favour of the complainant were dishonoured by the bank is misconceived and should be quashed; alternatively it is their contention that the proceedings in the criminal case should be stayed or suspended till the accused company becomes a functional and viable unit. On behalf of the appellants reliance is placed on Sections 22 and 22A of the SICA.

5. The learned counsel appearing for the respondents on the other hand contend that on the undisputed fact situation of the case a prima-facie case under section 138 of the NI Act is made out against the accused and on being satisfied about this position the learned Magistrate took cognizance of the offence and ordered issue of summons to the appellants. It is their submission that Section 22 has no application to criminal proceedings and that the said section does not bar payment of dues by the accused company or its Directors; an embargo is placed only on the creditors from realising their dues from the company by a proceeding for winding up or execution or distress. It is also the submission of learned counsel for th

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2000 Supreme(SC) 422

IMPORTANT POINTSection 22, SICA does not create any legal impediment for instituting and proceeding with a criminal case on the allegations of an offence under Section 138 of the NI Act against a company or its Directors.

Cases Referred (2)

IMPORTANT POINT
Section 22, SICA does not create any legal impediment for instituting and proceeding with a criminal case on the allegations of an offence under Section 138 of the NI Act against a company or its Directors.