Sunil Todi & Ors. v. State of Gujarat & Anr.

(iii) Both civil and criminal proceedings are maintainable on the same set of facts, as in this case.

11. Mr. Sidharth Luthra and Ms. Meenakshi Arora, learned senior counsel have appeared on behalf of the appellants in support of the appeals. Mr. Mohit Mathur and Ms Rebecca John, learned senior counsel have appeared on behalf of the second respondent. Ms. Aastha Mehta, learned counsel appeared on behalf of the State of Gujarat.

12. Mr. Sidharth Luthra, learned senior counsel has urged three submissions in support of the appeals:

(i) The cheques which were issued to the second respondent were intended at all material times to be a security towards payment. This is evident from the endorsement made on the reverse of the cheque in the amount of Rs.2,67,84,000/- dated 28 August 2017, and is buttressed by the stipulation under PSA that payment was to take place by means of LC. A suit has been instituted by the company against the second respondent in the court of the Civil Judge, Senior Division, RCS 15/2017 in which the defence in the written statement is that: a. There was a default by the company in the payment of electricity consumption charges from July to September 2016; and b. Though the company had issued LC to cover the dues of the electricity bills/ invoices, it had intentionally avoided to furnish them in terms of the draft LCs’ furnished by the bankers of the company. In the suit instituted by the second respondent against the company, being CS 236/2019 before the High Court of Judicature at Madras, the pleading in paragraph 8 of the plaint is that the cheques were issued by way of security:

Consequently, since the cheques have been issued by way of security and were not intended to be deposited, the institution of a complaint under Section 138 is an abuse of the process. Therefore, the invocation of the jurisdiction under Section 482 CrPC is justified;

(ii) Section 202 CrPC envisages the postponement of the issuance of process where the accused resides beyond the jurisdiction of the territory of the court. Despite the clear provisions of Section 202, no inquiry was carried out by the Magistrate; and

(iii) The summoning order shows non-application of mind inasmuch as no reasons have been adduced by the Magistrate. In this backdrop, the following sequence of events was emphasized in the course of the submissions: • 10 August 2016: issuance of LC; • 30 September 2016: complainant stopped the supply of power; • 20 October 2016: termination of the PSA by the company; • 30 June 2017: instructions issued to the bankers to stop payment; • 31 August 2017: presentation of the cheques; • 2 November 2017: complaint under Section 138 filed; • 3 November 2017: affidavit filed in support of the complaint; and • 6 November 2017: summoning order issued.

13. On the basis of the above sequence of events, it has been submitted that recourse to the filing of a complaint under Section 138 of NI Act is an abuse of the process. In the course of evaluating the submissions, the line of precedent to which a reference has been made would be considered.

14. Ms. Meenakshi Arora, learned senior counsel submitted that a clear case for the invocation of the jurisdiction under Section 482 CrPC was established for the following reasons:

(i) Though the contract was terminated on 20 October 2016 by the company, the cheques were presented to the bank only on 31 August 2017;

(ii) The fact that the cheques were issued towards security for payment is evident from the endorsement on the reverse of the cheques and from the admission in paragraph 8 of the plaint instituted by the second respondent in the High Court of Madras;

(iii) Under the terms of the PSA, payment was envisaged to be made through

(iv) A civil suit has been instituted by the second respondent for the recovery of its dues;

(v) MSEDCL has raised an additional charge which has been occasioned by the default of the second respondent; and

(vi) Apart from the bald statement that the Directors are in-charge of and responsible for the management of the company, no specific role has been ascribed to them in the plaint so as to invoke the doctrine of vicarious liability.

15. On the other hand, Mr. Mohit Mathur and Ms. Rebecca John, learned senior counsel appearing on behalf of the second respondent have submitted that:

(i) The High Court has noted in the impugned judgment that there is no dispute in regard to the liability of the company for electricity supplied during the months of August, September and October 2016;

(ii) Though the PSA envisaged that payment would be made through LC, they could not be honoured because the LC were not in a format acceptable to the Bankers of the second respondent;

(iii) The Law does not prohibit the invocation of Section 138 of the NI Act even in a situation where the cheques have been issued initially as a security;

(iv) The summoning order of the Magistrate conforms to law. The complaint was instituted on 2 November 2017 and was duly supported by an affidavit dated 3 November 2017. A summoning order is not required to furnish detailed reasons particularly in a case under Section 138 of the NI Act, having due regard to the summary nature of the proceedings; and

(v) The complaint spells out the role attributed to the Directors and prima facie at this stage, the test of vicarious liability is duly met. On the above premises, it has been submitted that there is no reason for this Court, to interfere with the judgment of the High Court since detailed reasons have been furnished by the High Court for rejecting the petitions under Section 482 of the CrPC.

16. Ms. Aastha Mehta, learned counsel for the State of Gujarat has submitted that the trial has not proceeded since 2017 due to the pendency of the proceedings before the High Court and this Court. Learned counsel urged that there is no ground to interfere with the order of the High Court.

17. The issues which arise for our consideration are as follows:

(i) Whether the dishonor 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 CrPC, ought to have postponed the issuance of process; and

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

18. The first submission which has been urged on behalf of the appellants is that a complaint under Section 138 of the NI Act would not be maintainable since the cheque of Rs 2.67 crores was issued by way of a security and, is thus not against a legally enforceable debt or liability. The appellant has placed reliance on the judgment of a two judge Bench of this Court in Indus Airways Private Limited v. Magnum Aviation Private Limited[9]. The issue in that case was whether the post-dated cheques which were issued by the appellants who were purchasers, as an advance payment in respect of purchase orders, could be considered to be in discharge of a legally enforceable debt or other liability and whether the dishonor of the cheques amounted to an offence under Section 138. The appellants had placed two purchase orders for the supply of aircraft parts with the first respondent and had issued two post-dated cheques as advance payment. The supplier received a letter from the purchasers cancelling the purchase and requesting the return of both the cheques. Following a notice by the suppliers, a complaint was instituted under Section 138 upon which cognizance was taken by the Magistrate and summons were issued. The High Court allowed a petition under Section 482 CrPC and set aside the order issuing process by construing the expression “discharge of any debt or other liability” in Section 138 holding that there must be a liability at the time of issuing the cheque10. In appeal, Justice R M Lodha writing for a two-Judge Bench allowed the appeal11 observing:

“138. Dishonour of cheque for insufficiency, etc., of funds in the account.—Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the

19. Drawing the distinction between civil and criminal liability, it was observed that if there is a breach in the condition of advance payment, it would not incur criminal liability under Section 138 of the NI Act since there is no legally enforceable debt or liability at the time when the cheque was drawn. The Court held that if at the time when a contract is entered into, the purchaser has to pay cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for 8 [a term which may be extended to two years’], or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless— (a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier; (b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice; in writing, to the drawer of the cheque, 9 [within thirty days] of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and

(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice. Explanation.—For the purposes of this section, “debt of other liability” means a legally enforceable debt or other liability.” It was held that the view taken by the Andhra Pradesh High Court in Swastik Coaters v. Deepak Bros, 1997 Cri LJ 1942 (AP), the Gujarat High Court in Shanku Concreates v. State of Gujarat, 2000 Cro LJ 1988 (Guj), the Madras High Court in Balaji Seafoods Exports v. Mac Industries, (1999) 1 CTC 6 (Mad). an advance and there was a breach of that condition, the purchaser may have to make good the loss to the seller, but this would not occasion a criminal liability under Section 138. The issuance of a cheque towards advance payment at the time of the execution of the contract would not - in the view which has adopted in Indus Airways - be considered as a subsisting liability so as to attract an offence under Section 138 upon the dishonor of the cheque.

20. A later judgment of a two judge Bench in Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Limited12 considered the decision in Indus Airways. In Sampelly, the appellant was the Director of a company which was engaged in power generation, while the respondent was a government enterprise engaged in renewable energy. The respondent agreed to advance a loan for setting up a power project and the agreement envisaged that post-dated cheques towards payment of installments of the loans would be given by way of security. The cheques having been dishonored, complaints were instituted under Section 138 which led to quashing petitions filed before the High Court. The submission which was urged before this Court was that dishonor of the post-dated cheques given by way of security did not amount to a legally enforceable debt or liability under Section 138 in presentia. This Court held, after adverting to the decision in Indus Airways that if on the date of the cheque, a liability or debt exists or the amount has become enforceable, Section 138 would stand attracted and not otherwise. The decision in Indus Airways was distinguished in Sampelly (supra) on the ground that in that case, the cheque had not been issued for discharge of a liability but as advance for a purchase order which was cancelled. On the other hand, in Sampelly, the cheque was for the repayment of a loan installment which had fallen due. The Court noted that though the deposit of cheques towards the repayment of installments was described as a security in the loan agreement, the true test was whether the cheque was in discharge of an existing enforceable debt or liability or whether it was towards an advance payment without there being a subsisting debt or liability.

21. Besides the distinguishing features which were noticed in Sampelly, there was another ground which weighed in the judgment of this Court. The Court adverted to the decision in HMT Watches v. MA Habida13 to hold that whether the cheques were given as security constitutes the defense of the accused and is a matter of trial. The extract from the decision in HMT Watches which is cited in the decision in Indus Airways is thus:

The complaint, insofar as it invoked the provisions of Section 138 of the NI Act, was accordingly restored to the Judicial Magistrate to proceed in accordance with law.

23. In the present case, the PSA between the parties envisaged that the second respondent would supply power to the company of which the appellants are directors or as the case may be, managing director. The agreement postulated that payment for the power supplied would be made by means of LCs. Though, the LCs’ were provided, they were allegedly not in a form acceptable to the bankers of the second respondent. The appellants do not dispute that prior to the termination of the agreement, power was supplied for a period of three months to the company. In other words, the agreement for the supply of power was acted upon and power was supplied to by the second respondent and consumed by the company.

24. In Sampelly and Sripati Singh, post-dated cheques were issued as a security for loan installments that were due. On the dates on which the cheques were drawn, there was an outstanding debt. In the present case, the cheques were issued on 30 June 2016. The second respondent commenced the supply of electricity immediately from the next day that is from 1 July 2016. The facts of this case are in contrast with the facts in Indus Airways. In Indus Airways, since the purchase agreement was cancelled, there was no outstanding liability incurred before the encashment of the cheque. The transaction between the parties did not go through as a result of the cancellation of the purchase orders.

25. The explanation to Section 138 of the NI Act provides that ‘debt or any other liability’ means a legally enforceable debt or other liability. The proviso to Section 138 stipulates that the cheque must be presented to the bank within a period of six months from the date on which it is drawn or within its period of validity. Therefore, a cheque given as a gift and not for the satisfaction of a debt or other liability, would not attract the penal consequences of the provision in the event of its being returned for insufficiency of funds. Aiyar’s Judicial Dictionary defines debt as follows: “Debt is a pecuniary liability. A sum payable or recoverable by action in respect of money demand.” Lindey L.J in Webb v. Strention15 defined debt as “… a sum of money which is now payable or will become payable in the future by reason of a present obligation, debitum in praesenti, solvendum in futuro.” The definition was adopted by this Court in Keshoram Industries v. CWT16. Justice Mookerjee writing for a Full Bench of the Calcutta High Court in Banchharam Majumdar v. Adyanath Bhattacharjee17 adopted the definition provided by the Supreme Court of California in People v. Arguello18: “Standing alone, the word ‘debt’ is as applicable to a sum of money which has been promised at a future day as to a sum now due and payable. If we wish to distinguish between the two, we say of the former that it is a debt owing, and of the latter that it is a debt due. In other words, debts are of two kinds: solvendum in praesenti and solvendum in future … A sum of money which is certainly and in all events payable is a debt, without regard to the fact whether it be payable now or at a future time. A sum payable upon a contingency, however, is not a debt or does not become a debt until the contingency has happened.” Thus, the 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 the debt has been incurred would be covered by the definition of ‘debt’. However, if the sum payable depends on a contingent event, then it takes the color of a debt only after the contingency has occurred. Therefore, in the present case, a debt was incurred after the second respondent began supply of power for which payment was not made because of the non-acceptance of the LCs’. The issue to be determined is whether Section 138 only covers a situation where there is an 1888 QBD 518 AIR 1966 SC 1370 (1909) ILR 36 Cal 936 1869 37 Calif 524 outstanding debt at the time of the drawing of the cheque or includes drawing of a cheque for a debt that is incurred before the cheque is encashed.

26. The object of the NI Act is to enhance the acceptability of cheques and inculcate faith in the efficiency of negotiable instruments for transaction of business. The purpose of the provision would become otiose if the provision is interpreted to exclude cases where debt is incurred after the drawing of the cheque but before its encashment. In Indus Airways, advance payments were made but since the purchase agreement was cancelled, there was no occasion of incurring any debt. The 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 the date of drawing of the cheque. Moreover, Parliament has used the expression ‘debt or other liability’. The expression “or other liability’ must have a meaning of its own, the legislature having used two distinct phrases. The expression ‘or other liability’ has a content which is broader than ‘a debt’ and cannot be equated with the latter. In the present case, the cheque was issued in close proximity with the commencement of power supply. The issuance of the cheque in the context of a commercial transaction must be understood in the context of the business dealings. The issuance of the cheque was followed close on its heels by the supply of power. To hold that the cheque was not issued in the context of a liability which was being assumed by the company to pay for the dues towards power supplied would be to produce an outcome at odds with the business dealings. If the company were to fail to provide a satisfactory LC and yet consume power, the cheques were capable of being presented for the purpose of meeting the outstanding dues.

27. According to the complainant, the LCs’ were not in a format agreed to by their bankers. The cheques which were initially towards security could not have been presented before the payments under the PSA fell due. Moreover, if the company were to discharge its liability to pay the outstanding dues under the power supply agreement through the agreed modality of an LC to the satisfaction of the second respondent’s bankers, there would be no occasion to present the cheque thereafter. In other words, once payments for electricity supply became due in terms of the PSA, and the company failed to discharge its dues, the second respondent was entitled in law to present the cheque for payment. Merely labelling the cheque as a security would not obviate its character as an instrument designed to meet a legally enforceable debt or liability, once the supply of power had been provided for which there were monies due and payable. There is no inflexible rule which precludes the drawee of a cheque issued as security from presenting it for payment in terms of the contract.. It all depends on whether a legally enforceable debt or liability has arisen.

28. At this stage, it would be instructive to note the order of a two judge Bench of this Court in M/s Womb Laboratories Pvt Ltd v. Vijay Ahuja19. In that case, the High Court had quashed proceedings initiated against the first respondent for offences punishable under Section 138 of the NI Act merely on the basis of the assertion in the complaint that “security cheques were demanded” in response to which the accused had issued three signed blank cheques with the assurance that if the amount was not returned, the cheques could be encashed. The High Criminal Appeal Nos 1382-1383 of 2019, decided on 11 September 2019 Court held that the cheques were given only by way of security and therefore not towards the discharge of a debt or liability on the basis of which the complaint was quashed. Allowing the appeal by the drawee, this Court observed:

29. The order of this Court in Womb Laboratories holds that the issue as to whether the cheques were given by way of security is a matter of defence. This line of reasoning in Womb Laboratories is on the same plane as the observations in HMT Watches, where it was held that whether a set of cheques has been given towards security or otherwise or whether there was an outstanding liability is a question of fact which has to be determined at the trial on the basis of evidence. The rationale for this is that a disputed question of this nature cannot be resolved in proceedings under Section 482 CrPC, absent evidence to be recorded at the trial.

30. The submission which has been urged on behalf of the appellants, however, is that the fact that the cheques in the present case have been issued as a security is not in dispute since it stands admitted from the pleading of the second respondent in the suit instituted before the High Court of Madras. The legal requirement which Section 138 embodies is that a cheque must be drawn by a person for the payment of money to another “for the discharge, in whole or in part, of any debt or other liability’. A cheque may be issued to facilitate a commercial transaction between the parties. Where, acting upon the underlying purpose, a commercial arrangement between the parties has fructified, as in the present case by the supply of electricity under a PSA, the presentation of the cheque upon the failure of the buyer to pay is a consequence which would be within the contemplation of the drawer. The cheque, in other words, would in such an instance mature for presentation and, in substance and in effect, is towards a legally enforceable debt or liability. This precisely is the situation in the present case which would negate the submissions of the appellants.

31. The second submission which has been urged on behalf of the appellants turns upon Section 202 CrPC, which is extracted:

32. Under Sub-Section (1) of Section 202, a Magistrate upon the receipt of a complaint of an offence of which he/she is authorized to take cognizance is empowered to postpone the issuance of process against the accused and either

(i) enquire into the case; or (ii) direct an investigation to be made by a police officer or by such other person as he thinks fit. The purpose of postponing the issuance of process for the purposes of an enquiry or an investigation is to determine whether or not there is sufficient ground for proceeding. However, it is mandatory for the Magistrate to do so in a case where the accused is residing at a place beyond the area in which the Magistrate exercises jurisdiction. The accused persons in the present case reside at Aurangabad while the complaint under Section 138 was filed before the Magistrate in Mundra. The argument of the appellants is that in these circumstances, the Magistrate was duty bound to postpone the issuance of process and to either enquire into the case himself or to direct an investigation either by a police officer or by some other person. Section 203 stipulates that if the Magistrate is of the opinion on considering the statement on oath, if any, of the complainant and of the witnesses, and the result of the enquiry or investigation if any under Section 202 that there is no sufficient ground for proceeding, he shall dismiss the complaint recording briefly his reasons for doing so. The requirement of recording reasons which is specifically incorporated in Section 203 does not find place in Section 202. Section 204 which deals with the issuance of process stipulates that if in the opinion of the Magistrate taking cognizance of an offence, there is sufficient ground for proceeding, he may issue (a) in a summons case, a summons for attendance of the accused; (b) in a warrant case, a warrant or if he thinks fit a summons for the appearance of the accused. These proceedings have been interpreted in several judgments of this Court. For the purpose of the present case, some of them form the subject matter of the submissions by the appellants and the second respondent.

33. The provisions of Section 202 which mandate the Magistrate, in a case where the accused is residing at a place beyond the area of its jurisdiction, to postpone the issuance of process so as to enquire into the case himself or direct an investigation by police officer or by another person were introduced by Act 25 of 2005 with effect from 23 June 2006. The rationale for the amendment is based on the recognition by Parliament that false complaints are filed against persons residing at far off places as an instrument of harassment. In Vijay Dhanuka v. Najima Mamtaj20, this Court dwelt on the purpose of the amendment to Section 202, observing:

34. This Court has held that the Magistrate is duty bound to apply his mind to the allegations in the complaint together with the statements which are recorded in the enquiry while determining whether there is a prima facie sufficient ground for proceeding. In Mehmood UI Rehman v. Khazir Mohammad Tunda21, this Court followed the dictum in Pepsi Foods Ltd. v. Special Judicial Magistrate22, and observed that setting the criminal law in motion against a person is a serious matter. Hence, there must be an application of mind by the Magistrate to whether the allegations in the complaint together with the statements recorded or the enquiry conducted constitute a violation of law. The Court observed: “20. The extensive reference to the case law would clearly show that cognizance of an offence on complaint is taken for the purpose of issuing process to the accused. Since it is a process of taking judicial notice of certain facts which constitute an offence, there has to be application of mind as to whether the allegations in the complaint, when considered along with the statements recorded or the inquiry conducted thereon, would constitute violation of law so as to call a person to appear before the criminal court. It is not a mechanical process or matter of course. As held by this Court in Pepsi Foods Ltd. v. Judicial Magistrate [Pepsi Foods Ltd. v. Judicial Magistrate, (1998) 5 SCC 749: 1998 SCC (Cri) 1400] to set in motion the process of criminal law against a person is a serious matter.” *** “22. The steps taken by the Magistrate under Section 190(1)(a) CrPC followed by Section 204 CrPC should reflect that the Magistrate has applied his mind to the facts and the statements and he is satisfied that there is ground for proceeding further in the matter by asking the person against whom the violation of law is alleged, to appear before the court. The satisfaction on the ground for proceeding would mean that the facts alleged in the complaint would constitute an offence, and when considered along with the statements recorded, would, prima facie, make the accused answerable before the court. No doubt, no formal order or a speaking order is required to be passed at that stage. The Code of Criminal Procedure requires speaking order to be passed under Section 203 CrPC when the complaint is dismissed and that too the reasons need to be stated only briefly. In other words, the Magistrate is not to act as a post office in taking cognizance of each and every complaint filed before him and issue process as a matter of course. There must be sufficient indication in the order passed by the Magistrate that he is satisfied that the allegations in the complaint constitute an offence and when considered along with the statements recorded and the result of inquiry or report of investigation under Section 202 CrPC, if any, the accused is answerable before the criminal court, there is ground for proceeding against the accused under Section 204 CrPC, by issuing process for appearance. The application of mind is best demonstrated by disclosure of mind on the satisfaction. If there is no such indication in a case where the Magistrate proceeds under Sections 190/204 CrPC, the High Court under Section 482 CrPC is bound to invoke its inherent power in order to prevent abuse of the power of the criminal court. To be called to appear before the criminal court as an accused is serious matter affecting one's dignity, self-respect and image in society. Hence, the process of criminal court shall not be made a weapon of harassment.” These decisions were cited with approval in Abhijit Pawar v. Hemant Madhukar Nimbalkar23. After referring to the purpose underlying the amendment of Section 202, the Court observed: “25. … the amended provision casts an obligation on the Magistrate to apply his mind carefully and satisfy himself that the allegations in the complaint, when considered along with the statements recorded or the enquiry conducted thereon, would prima facie constitute the offence for which the complaint is filed. This requirement is emphasised by this Court in a recent judgment Mehmood Ul Rehman v. Khazir Mohammad Tunda [Mehmood Ul Rehman v. Khazir Mohammad Tunda, (2015) 12 SCC 420: (2016) 1 SCC (Cri) 124]…”

35. While noting that the requirement of conducting an enquiry or directing an investigation before issuing process is not an empty formality, the Court relied on the decision in Vijay Dhanuka which had held that the exercise by the Magistrate for the purpose of deciding whether or not there is sufficient ground for proceeding against the accused is nothing but an enquiry envisaged under Section 202 of the Code.

36. In Birla Corporation Ltd. v. Adventz Investments and Holdings24, the earlier decisions which have been referred to above were cited in the course of the judgment. The Court noted:

Hence, the Court held: “33. The order of the Magistrate summoning the accused must reflect that he has applied his mind to the facts of the case and the law applicable thereto. The application of mind has to be indicated by disclosure of mind on the satisfaction. Considering the duties on the part of the Magistrate for issuance of summons to the accused in a complaint case and that there must be sufficient indication as to the application of mind and observing that the Magistrate is not to act as a post office in taking cognizance of the complaint, in Mehmood Ul Rehman [Mehmood Ul Rehman v. Khazir Mohammad Tunda, (2015) 12 SCC 420: (2016) 1 SCC (Cri) 124]…” The above principles have been reiterated in the judgment in Krishna Lal Chawla v. State of U.P25.

37. In this backdrop, it becomes necessary now to advert to an order dated 16 April 2021 of a Constitution Bench in Re: Expeditious Trial of Cases under Section 138 of N.I. Act 188126. The Constitution Bench notes “the gargantuan pendency of complaints filed under Section 138” and the fact that the “situation has not improved as courts continue to struggle with the humongous pendency”. The court noted that there were seven major issues which arose from the responses filed by the State Governments and the Union Territories including in relation to the applicability of Section 202 of the CrPC. Section 143 of the NI Act provides that Sections 262 to 265 of the CrPC (forming a part of Chapter XXI dealing with summary trials) shall apply to all trials for offences punishable under Section 138 of the NI Act. On the scope of the inquiry under Section 202 CrPC in cases under Section 138 of the NI Act, there was a divergence of view between the High Courts. Some High Courts had held that it was mandatory for the Magistrate to conduct an inquiry under Section 202 CrPC before issuing process in complaints filed under Section 138, while there were contrary views in the other High Courts. In that context, the Court observed:

38. Section 145 of the NI Act provides that evidence of the complainant may be given by him on affidavit, which shall be read in evidence in an inquiry, trial or other proceeding notwithstanding anything contained in the CrPC. The Constitution Bench held that Section 145 has been inserted in the Act, with effect from 2003 with the laudable object of speeding up trials in complaints filed under Section 138. Hence, the Court noted that if the evidence of the complainant may be given by him on affidavit, there is no reason for insisting on the evidence of the witnesses to be taken on oath. Consequently, it was held that Section 202(2) CrPC is inapplicable to complaints under Section 138 in respect of the examination of witnesses on oath. The Court held that the evidence of witnesses on behalf of the complainant shall be permitted on affidavit. If the Magistrate holds an inquiry himself, it is not compulsory that he should examine witnesses and in suitable cases the Magistrate can examine documents to be satisfied that there are sufficient grounds for proceeding under Section 202.

39. In the present case, the Magistrate has adverted to:

(i) The complaint;

(ii) The affidavit filed by the complainant;

(iii) The evidence as per evidence list and; and

(iv) The submissions of the complainant.

40. The order passed by the Magistrate cannot be held to be invalid as betraying a non-application of mind. In Dy. Chief Controller of Imports & Exports v. Roshanlal Agarwal27, this Court has held that in determining the question as to whether process is to be issued, the Magistrate has to be satisfied whether there is sufficient ground for proceeding and not whether there is sufficient ground for conviction. Whether the evidence is adequate for supporting the conviction can only be determined at the trial. [See also in this context the decision in Bhushan Kumar v. State (NCT of Delhi)28 ].

41. The High Court did not quash the complaint against the appellants since it was prima facie established that they were triable for dishonour of cheque. Section 141 of the NI Act provides:

141. Offences by companies.—(1) If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence: [Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.] (2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation.—For the purposes of this section, — (a) “company” means anybody corporate and includes a firm or other association of individuals; and (b) “director”, in relation to a firm, means a partner in the firm.”

42. Section 141 of the NI Act stipulates that if a company is alleged to have committed an offence under Section 138, then every person who ‘was in charge of, and responsible to, the company for the conduct of the business of the company’ shall also be deemed guilty of the offence. The proviso provides an exception if she proves that the offence was committed without her knowledge or that she had exercised due diligence. In Sunil Bharati Mittal v. CBI29, a three judge Bench of this Court observed that the general rule is that criminal intent of a group of people who undertake business can be imputed to the Company but not the other way around. Only two exceptions were provided to this general rule:

(i) when the individual has perpetuated the commission of offence and there is sufficient evidence on the active role of the individual; and (ii) the statute expressly incorporates the principle of vicarious liability. Justice Sikri writing for a three-judge Bench observed:

43. In SMS Pharmaceuticals v. Neeta Bhalla30, a three judge Bench while construing the provisions of Section 141 of the Negotiable Instruments Act 1881, has noted that the position of a Managing Director or a Joint Managing Director of a company is distinct since persons occupying that position are in charge of and responsible for the conduct of the business. It was observed that though there is a general presumption that the Managing Director and Joint Managing Director are responsible for the criminal act of the company, the director will not be held liable if he was not responsible for the conduct of the company at the time of the commission of the offence. The Court observed: