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GUJARAT HIGH COURT
J.B. Pardiwala, J.
Nikhil P. Gandhi —Applicant
versus
State of Gujarat and Ors. —Respondents
Criminal Misc. Application (For Quashing & Set Aside Fir/Order) No.968 of 2014 with Criminal Misc. Application Nos.1067, 1754 and 1756 of 2014
Decided on 15.6.2016
(B) Negotiable Instruments Act, 1881—Section 138—Dishonour of cheque—By reason of Section 138 of N.I. Act, a legal fiction had been created—A legal fiction, although is required to be given full effect, yet has its own limitations—It cannot be taken recourse to for any purpose other than one mentioned in statute itself—Section 138 provides for a penal provision—A penal provision created by reason of a legal fiction must receive strict construction—Such a penal provision, enacted in terms of legal fiction drawn, would be attracted when a cheque is returned by bank unpaid—Before a proceeding thereunder is initiated, all legal requirements therefor must be complied with—Court must be satisfied that all ingredients of commission of an offence under said provision have been complied with. (Para 92)
(C) Negotiable Instruments Act, 1881—Section 138—Dishonour of cheque— Whenever a blank cheque or postdated cheque is issued, a trust is reposed that cheque will be filled in or used according to understanding or agreement between parties—If there is a prima facie reason to believe that said trust is not honoured, then continuation of prosecution under Section 138 of N.I. Act would be abuse of process of law—It is in interest of justice that parties in such cases are left to civil remedy. (Para 93)
(D) Negotiable Instruments Act, 1881—Sections 138 and 141—Dishonour of cheque—Offence by company—An authorized signatory is very much liable to be prosecuted along with company for the offence under Section 138 of N.I. Act—However, it would all depend on facts of each case—Presently, account on which cheque was drawn was not closed upon instructions issued by drawer but same was upon instructions of new management—Much before statutory notice was issued i.e. almost eight years before issue of statutory notice, drawer of cheque had ceased himself to be Managing Director of company—There could be many circumstances under which a Director of a company who drew cheque, may have to quit office—Sometimes company itself would relieve Director—In case in hand, entire management would change and a new management may take over affairs of company—Accused had not drawn cheque in question in his personal capacity but in his capacity as a Managing Director of company—Applicant held no position whatsoever of company when cause of action in fact accrued against company—There is no cogent material on record to fasten any vicarious liability so far as other accused are concerned who are Non-executive Directors including Office Bearers concerned with Accounts Department of company—Order of issuance of process under Section 138 of N.I. Act quashed. (Paras 55, 68, 70, 74, 81, 91 and 94)
(E) Judicial Discipline—Binding Precedent—A judgment cannot be read like a Statute—Construction of a judgment should be made in light of factual matrix involved therein—What is more important is to see issues involved in a given case and context wherein observations were made by Court while deciding the case—Observation made in a judgment should not be read in isolation and out of context. (Para 76)
Result: Applications allowed.
J.B. Pardiwala, J.—Since the issues raised, in all the captioned applications, are more or less the same, and the relief prayed for is also to quash the selfsame criminal case, those were heard analogously are being disposed of by this common judgment and order.
2. The facts of this case may be summarized as under:
2.1 The complainant M/s. Sharda Steel Corporation is a partnership firm registered under the Partnership Act. The complainant firm is engaged in the business of supply of Steel, Cement, etc. Shri Bharat B. Shah is one of the partners of the firm. One Shri Chimanlal B. Shah is an authorized person so far as the business of the partnership firm is concerned. Both Shri Bharat B. Shah and Shri Chimanlal B. Shah are brothers.
2.2 The Gujarat Pipavav Port Limited (original accused No.1) is a company incorporated under the Companies Act. The accused Nos.2 to 19 shown in the complaint are the Directors and other Office Bearers of the company.
2.3 Sometime in the decade of early 90’s, the company started constructing a Jetty at the Pipavav Port. An agreement was entered into between the complainant firm and the accused company for supply of Steel, Cement, etc for the purpose of the construction of the Port.
2.4 At the relevant point of time i.e. the applicant of the Criminal Miscellaneous Application No.968 of 2014, in his capacity, as the Managing Director and Vice President of the company issued a blank signed cheque in favour of the complainant firm as a security.
2.5 In the course of the business transactions, a dispute arose between the accused company and the complainant firm. The complainant firm preferred three Special Civil Suits Nos.35 of 2000, 36 of 2000 and 37 of 2000 in the Court of the Civil Judge, Senior Division, Amreli, for recovery of a certain amount raised through bills. The Civil Suits are still pending as on date. In the year 2008 with the consent of the parties, the learned Civil Judge passed an order in the Special Civil Suit No.36 of 2000 appointing M/s. Chhajed & Doshi Company, Chartered Accountants, having its Head Office at Mumbai, as a mediator for the purpose of settling the accounts.
2.6 M/s. Chhajed & Doshi Company submitted its report dated 28th April 2009, according to which, the accused company owes a sum of Rs.15,82,23,865/( Rupees Fifteen Crore Eighty Two Lac Twenty Three Thousand Eight Hundred Fifty Five only) to the complainant firm.
2.7 The complainant firm, thereafter, started demanding the amount from the accused company. There was lot of correspondence between the complainant and the accused company between 2010 and 2013 in that regard. Ultimately, the complainant thought fit to fill up the blank signed cheque, which was drawn by the then Managing Director on behalf of the company as a security. The cheque was filled up on 28th March 2013 for the amount of Rs.15,82,23,858/drawn in favour of the Sharda Steel Corporation. The complainant negotiated the cheque in question through its banker Dena Bank which was dishonoured with an endorsement of “account closed”.
2.8 The complainant, thereafter, issued a statutory notice dated 23rd April 2013, and called upon the company to make good the amount mentioned in the cheque. The drawer of the cheque, namely, Mr. Nikhil P. Gandhi (original accused No.2) gave a reply dated 6th May 2013 denying his liability. The complainant, thereafter, proceeded to file a complaint in the Court of the learned Chief Judicial Magistrate at Mahuva. The complaint came to be registered as the Criminal Inquiry Case No.20 of 2013. After recording of the verification of the complainant, the Court thought fit to order a Magisterial inquiry under Section 202 of the Code of Criminal, 1973. On completion of the Magisterial inquiry, the Chief Judicial Magistrate, Mahuva thought fit to issue process against the company and the Directors named in the complaint for the offence under Section 138 of the Negotiable Instruments Act. On process being issued, the case came t
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