2021 Supreme(SC) 767

SUPREME COURT OF INDIA
(From the High Court of Gujarat at Ahmedabad)
DHANANJAYA Y.CHANDRACHUD, A.S.BOPANNA, JJ.
Sunil Todi & Ors. - Appellants
Versus
State of Gujarat & Anr. - Respondents
Criminal Appeal No.1446, 1447 of 2021
Decided on : 03-12-2021

IMPORTANT POINTS
(1) Dishonour of cheque – A post-dated cheque issued after debt has been incurred would be covered by definition of ‘debt’ – However, if sum payable depends on a contingent event, then it takes colour of a debt only after contingency has occurred.
(2) Section 202(2), Cr.P.C. is inapplicable to complaints under Section 138 in respect of examination of witnesses on oath – Evidence of witnesses on behalf of complainant shall be permitted on affidavit.
(3) Dishonour of cheque – Offence by Company – Test to determine if Managing Director or a Director must be charged for offence committed by Company is to determine if conditions in Section 141 of NI Act have been fulfilled.

Headnote:

(A) Negotiable Instruments Act, 1881 – Sections 138 and 141 – Dishonour of cheque – Offence by Company – Liability emanated from Power Supply Agreement – Agreement for supply of power was acted upon and power was supplied to by second respondent and consumed by company – Term debt also includes a sum of money promised to be paid on a future day by reason of a present obligation – A post-dated cheque issued after debt has been incurred would be covered by definition of ‘debt’ – However, if sum payable depends on a contingent event, then it takes colour of a debt only after contingency has occurred – In present case, a debt was incurred after second respondent began supply of power for which payment was not made because of non-acceptance of LCs – Object of NI Act is to enhance acceptability of cheques and inculcate faith in efficiency of negotiable instruments for transaction of business – Purpose of the provision would become otiose if the provision is interpreted to exclude cases where debt is incurred after drawing of cheque but before its encashment – True purpose of Section 138 would not be fulfilled, if ‘debt or other liability’ is interpreted to include only a debt that exists as on date of drawing of the cheque – Expression ‘or other liability’ has a content which is broader than ‘a debt’ and cannot be equated with latter – In present case, cheque was issued in close proximity with commencement of power supply – Issuance of cheque in context of a commercial transaction must be understood in context of business dealings – Issuance of cheque was followed close on its heels by supply of power – To hold that cheque was not issued in context of a liability which was being assumed by company to pay for dues towards power supplied would be to produce an outcome at odds with business dealings – If company were to fail to provide a satisfactory LC and yet consume power, cheques were capable of being presented for the purpose of meeting outstanding dues. (Paras 23, 25 and 26)

(B) Criminal Procedure Code, 1973 – Section 202 – Negotiable Instruments Act, 1881 – Sections 138 and 145 – Dishonour of cheque – Issue as to whether cheques were given by way of security is a matter of defence – A disputed question of this nature cannot be resolved in proceedings under Section 482 Cr.P.C., absent evidence to be recorded at the trial – A cheque may be issued to facilitate a commercial transaction between the parties – Such cheque would be towards a legally enforceable debt or liability – Magistrate is duty bound to apply his mind to allegations in complaint together with statements which are recorded in enquiry while determining whether there is a prima facie sufficient ground for proceeding – Section 202(2), Cr.P.C. is inapplicable to complaints under Section 138 in respect of examination of witnesses on oath – Evidence of witnesses on behalf of complainant shall be permitted on affidavit – If Magistrate holds an inquiry himself, it is not compulsory that he should examine witnesses and in suitable cases Magistrate can examine documents to be satisfied that there are sufficient grounds for proceeding under Section 202 – In present case, order passed by Magistrate cannot be held to be invalid as betraying a non-application of mind – Whether evidence is adequate for supporting conviction can only be determined at trial. (Paras 29, 34, 38, 39 and 40)

(C) Negotiable Instruments Act, 1881 – Sections 138 and 141 – Criminal Procedure Code, 1973 – Section 482 – Dishonour of cheque – Offence by Company – Liability emanated from Power Supply Agreement – High Court did not quash complaint against appellants since it was prima facie established that they were triable for dishonour of cheque – Test to determine if Managing Director or a Director must be charged for offence committed by Company is to determine if conditions in Section 141 of NI Act have been fulfilled i.e., whether individual was in-charge of and responsible for affairs of company during commission of offence – However, determination of whether conditions stipulated in Section 141 of N.I. Act have been fulfilled is a matter of trial – There are sufficient averments in complaint to raise a prima facie case against them – It is only at trial that they could take recourse to proviso to Section 141 and not at stage of issuance of process – Appeals dismissed. (Paras 41, 44 and 46)

Facts of the case:

Single Judge of the High Court of Gujarat dismissed the petitions under Section 482 of the Code of Criminal Procedure, 1973, instituted by appellants to quash the criminal complaint instituted by the second respondent for offences punishable under Section 138 of Negotiable Instruments Act, 1881, and challenge an order of summons dated 3rd November 2017 of JMFC Mundra on the complaint. The complaint arises from the dishonour of a cheque in amount of Rs.2,67,84,000/-. In the two appeals which arose from the order of High Court, the appellants are respectively, four Directors and the Managing Director of a company. By impugned judgment and order dated 24th June 2019, High Court has dismissed petitions for quashing the complaint. However, it allowed a petition for quashing filed by a nominee director who was not in-charge of day-to-day management of the company and by a woman non-executive Director.

Issues which arise for consideration are:

(i) Whether the dishonour of a cheque furnished as a ‘security’ is covered under the provisions of Section 138 of the NI Act;

(ii) Whether the Magistrate, in view of Section 202 Cr.P.C., ought to have postponed the issuance of process; and

(iii) Whether a prima facie case of vicarious liability is made out against appellants.

Findings of Court:

Principal grounds of challenge which have been set up on behalf of the appellants are all matters of defence at the trial. The Magistrate having exercised his discretion, it was not open to High Court to substitute its discretion. The High Court has in a carefully considered judgment, analysed the submissions of the appellants and for justifiable reasons has come to the conclusion that they are lacking in substance.

Result : Appeals dismissed.