Dismissed

Kailas Nandlal Agrawal v. Dinesh Ghavarchand Khivsara and Ors.

Bombay HC17 Jan 2011WP/717/2010

Case brief

AI extract

What is this about?

This Common Order dismissed multiple criminal writ petitions questioning the issuance of criminal process under the Negotiable Instruments Act for cheque dishonour. The court held that a legally enforceable debt existed due to the sale agreement and that directors are vicariously liable under Section 141. Defences were deferred to trial.

What did the court decide?

Criminal Writ Petitions dismissed; rule discharged; interim relief vacated; operation stayed until 18th March, 2011.

Kailas Nandlal Agrawal Vs Dinesh Ghavarchand Khivsara and Ors. — Cheque Dishonour | Bombay HC (2011)

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CRI.WP NO.717/2010

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IN THE HIGH COURT OF JUDICATURE OF BOMBAY BENCH AT AURANGABAD

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`CRIMINAL`	`WRIT PETITION`	`NO.717/2010.`
`Kailas s/o Nandl` `VERSUS`	`al Agrawal`	`- PETITIONER`
`1) Dinesh Ghavar` `and others.` `CRIMINAL`	`chand Khivsara` `WITH` `WRIT PETITION`	`- RESPONDENTS` `NO.741/2010.`
`Mahavir Bansipra` `VERSUS` `1) Dinesh Ghavar` `and others.` `CRIMINAL`	`sad Sharam` `chand Khivsara` `WITH` `WRIT PETITION`	`- PETITIONER` `- RESPONDENTS` `NO.719/2010.`
`Kailas s/o Nandl` `VERSUS`	`al Agrawal`	`- PETITIONER`
`1) Pritesh Ghava` `and others.` `CRIMINAL`	`rchand Khivsar` `WITH` `WRIT PETITION`	`a` `- RESPONDENTS` `NO.740/2010.`
`Mahavir Bansipra` `VERSUS`	`sad Sharam`	`- PETITIONER`
`1) Pritesh Ghava` `and others.`	`rchand Khivsar` `WITH`	`a` `- RESPONDENTS`

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2 `CRIMINAL WRIT PETITION`	CRI.WP NO.717/2010 `NO.720/2010.`
`Kailas s/o Nandlal Agrawal` `VERSUS`	`- PETITIONER`
`1) Pritesh Ghavarchand Khivsar` `and others.` `WITH`	`a` `- RESPONDENTS`
`CRIMINAL WRIT PETITION` `Mahavir Bansiprasad Sharam`	`NO.743/2010.` `- PETITIONER`
`VERSUS`
`1) Pritesh Ghavarchand Khivsar` `and others.` `WITH`	`a` `- RESPONDENTS`
`CRIMINAL WRIT PETITION`	`NO.721/2010.`
`Kailas s/o Nandlal Agrawal`	`- PETITIONER`
`VERSUS`
`1) Adesh Ghavarchand Khivsara` `and others.` `WITH`	`- RESPONDENTS`
`CRIMINAL WRIT PETITION` `Mahavir Bansiprasad Sharam` `VERSUS`	`NO.747/2010.` `- PETITIONER`
`1) Adesh Ghavarchand Khivsara` `and others.` `WITH`	`- RESPONDENTS`
`CRIMINAL WRIT PETITION` `Kailas s/o Nandlal Agrawal` `VERSUS`	`NO.722/2010.` `- PETITIONER`
`1) Adesh Ghavarchand Khivsara` `and others.` `WITH`	`- RESPONDENTS`
`CRIMINAL WRIT PETITION`	`NO.736/2010.`
`Mahavir Bansiprasad Sharam`	`- PETITIONER`

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3 CRI.WP NO.717/2010

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`VERSUS` `1) Adesh Ghavarchand Khivsara` `and others.` `WITH`	`- RESPONDENTS`
`CRIMINAL WRIT PETITION`	`NO.724/2010.`
`Kailas s/o nandlal Agrawal`	`- PETITIONER`
`VERSUS`
`1) Dinesh Ghavarchand Khivsara` `and others.`	`- RESPONDENTS`
`WITH`
`CRIMINAL WRIT PETITION`	`NO.742/2010.`
`Mahavir Bansiprasad Sharam`	`- PETITIONER`
`VERSUS`
`1) Dinesh Ghavarchand Khivsara` `and others.`	`- RESPONDENTS`
`WITH` `CRIMINAL WRIT PETITION`	`NO.725/2010.`
`Kailas s/o Nandlal Agrawal`	`- PETITIONER`
`VERSUS`
`1) Adesh Ghavarchand Khivsara` `and others.`	`- RESPONDENTS`
`WITH` `CRIMINAL WRIT PETITION`	`NO.738/2010.`
`Mahavir Bansiprasad Sharam`	`- PETITIONER`

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CRI.WP NO.717/2010

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`VERSUS`
`1) Adesh Ghavarc` `and others.`	`hand Khivsara` `WITH`	`- RESPONDENTS`
`CRIMINAL`	`WRIT PETITION NO.`	`726/2010.`
`Kailas s/o Nandl`	`al Agrawal`	`- PETITIONER`
`VERSUS`
`1) Pritesh Ghava` `and others.`	`rchand Khivsara`	`- RESPONDENTS`
`CRIMINAL`	`WITH` `WRIT PETITION NO.`	`739/2010.`
`Mahavir Bansipra`	`sad Sharam`	`- PETITIONER`
`VERSUS`
`1) Pritesh Ghava` `and others.`	`rchand Khivsara`	`- RESPONDENTS`
`CRIMINAL`	`WRIT PETITION NO.`	`727/2010.`
`Kailas s/o Nandl`	`al Agrawal`	`- PETITIONER`
`VERSUS`
`1) Pritesh Ghava` `and others.`	`rchand Khivsara`	`- RESPONDENTS`
`CRIMINAL`	`WITH` `WRIT PETITION NO.`	`745/2010.`

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5	CRI.WP NO.717/2010
`Mahavir Bansiprasad Sharam` `VERSUS`	`- PETITIONER`
`1) Pritesh Ghavarchand Khivsar` `and others.` `CRIMINAL WRIT PETITION`	`a` `- RESPONDENTS` `NO.728/2010.`
`Kailas s/o Nandlal Agrawal` `VERSUS`	`- PETITIONER`
`1) Dinesh Ghavarchand Khivsara` `and others.` `WITH` `CRIMINAL WRIT PETITION`	`- RESPONDENTS` `NO.737/2010.`
`Mahavir Bansiprasad Sharam`	`- PETITIONER`
`VERSUS`
`1) Dinesh Ghavarchand Khivsara` `and others.` `WITH` `CRIMINAL WRIT PETITION`	`- RESPONDENTS` `NO.748/2010.`
`Mahavir Bansiprasad Sharam` `VERSUS`	`- PETITIONER`
`1) Dinesh Ghavarchand Khivsara` `and others.`	`- RESPONDENTS`
`CRIMINAL WRIT PETITION`	`NO.729/2010.`
`Kailas s/o Nandlal Agrawal` `VERSUS`	`- PETITIONER`
`1) Dinesh Ghavarchand Khivsara`

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CRI.WP NO.717/2010

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 and others.- RESPONDENTS

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CRIMINAL WRIT PETITION NO.723/2010.

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Kailas s/o Nandlal Agrawal- PETITIONER

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 VERSUS

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1) Adesh Ghavarchand Khivsara
 and others.- RESPONDENTS
WITH
CRIMINAL WRIT PETITION NO.744/2010.

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Mahavir Bansiprasad Sharma- PETITIONER

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 VERSUS

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1) Adesh Ghavarchand Khivsara
 and others. RESPONDENTS.

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*****

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Mr.AP Bhandari, Advocate for Petitioners;
Mr.CR Deshpande, Advocate for Resp.No.1.
S/Shri VH Dighe, KM Suryawanshi & NB Patil, APPs
for State.

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CORAM : K.U.CHANDIWAL, J.
DATE : 17th January, 2011.

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PER COURT :

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1)Since an identical issue is involved in
group of writ petitions, heard finally and
disposed of by this common order.

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2)Rule. Rule made returnable forthwith
with consent of the respective parties. Learned

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CRI.WP NO.717/2010

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Counsel for respective parties waive service.

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3)The issuance of process for an offence
under Section 138 of the Negotiable Instruments
Act by the learned Judicial Magistrate, First
class, Dhule, is questioned, as the orders are
confirmed by the learned Additional Sessions
Judge Dhule in respective Criminal Revision
Applications moved by the petitioners.

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4)The petitioners are Directors of Shri
Agrasen Cooperative Credit Society Ltd. Dhule
(for short, the society). An agreement of sale
dated 29.10.2007 was executed by Respondent no.1
with his two brothers as owner of the immovable
properties referred therein in favour of the
society, through its Chief Executive Officer. In
compliance to the transaction of the immovable
property of respondent no.1 in favour of
respondent no.3-society certain cheques were
issued by Chief Executive Officer. Since the
cheques on presentation were not honoured,
procedure as required under the Negotiable
Instruments Act was followed by issuing notices
to the petitioners and other respondents.
Thereafter various complaints came to be filed
before the learned JMFC, Dhule and process was
issued, which was challenged before the
Revisional Court, as stated earlier.

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CRI.WP NO.717/2010

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5)Mr.Bhandari, the learned Counsel for the
accused/petitionerspressedintoservice
following points, -

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a)Whether based on the agreement of sale, there
can be a legally enforceable debt in the frame of
Section 138 of the Negotiable Instruments Act ?

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b)Whether prosecution is permissible, when the
agreement of sale inhibits ? ;

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c)Whether in terms of the effect of Section 141
of the Negotiable Instruments Act, a Director can
be held liable for the affairs of society in
absence of any reference of resolution in the
agreement of sale, or they being not a signatory
to it or to the cheque;

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d)One of the Directors, viz. Kailas has already
resigned at the time of transaction, which has
been acknowledged by the Manager of the Bank
society and hence no liability can be fastened
against him;

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e)No resolution is produced by the complainant,
showing any validity of the transaction of
purchase of the property by respondent no.3-
society through its Manager or Chief Executive
Officer;

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CRI.WP NO.717/2010

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f)Beneficiary of the agreement was the society
and not the accused/petitioners in the capacity
as Directors.

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6)Inordertosubstantiatethe
contentions, the learned Counsel for the
petitioners placed reliance to the following
judgments, -

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(i)DCM Financial Services Ltd. Vs.
J.N.Sareen and Anr. - 2008 STPL (LE) 40253 SC =
AIR 2008 SC 2255;

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(ii)SabithaRamaamurthVs.RBS
Channabasavaradhya – 2006 STPL (LE) 37396 SC =
(2006) 10 SCC 581;

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(iii)Katta Sujatha Vs. Fertilizers and
Chemicals Travancore Limited – 2002 STPL (LE)
31603 SC = (2002) 7 SCC 655;

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(iv)KK Ahuja Vs. VK Vora and Anr. - 2009
STPL (LE) 42356 SC = 2009 (9) SCALE
87.Ramrajsingh Vs. State of M.P. and Anr. - 2009
(4) Bom.C.R. 213;

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(v)National Small Industries Corporation
Limited Vs. Harmeet Singh Paintal and Anr. -
(2010) 3 SCC 330.

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7)In the aforesaid judgments, the Hon’ble
Apex Court dealt with several situations as to
liability of Director of the Company; whether he
was incharge or managing the affairs of the

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CRI.WP NO.717/2010

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company and effect of averments or no averments.
The Apex Court in the above referred judgments
have also dealt with judgment ofS.M.S.
Pharmaceuticals Ltd. Vs. Neeta Bhalla, reported
in (2005) 8 SCC 89, wherein the Apex Court has
observed, as under, -

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“20.The liability of a Director must
be determined on the date on which
the offence is committed. Only
because Respondent 1 herein was a
party to a purported resolution
dated 15.2.1995 by itself does not
lead to an inference that she was
activelyassociatedwiththe
management of the affairs of the
Company. this Court in this case has
categorically held that there may be
a large number of Directors but some
f them may not associate themselves
in the management of the day-to-day
affairs of the Company and, thus,
are not responsible for the conduct
of the business of the company. The
averments must state that the person
who is vicariously liable for
commission of the offence of the
Company both was in charge of and
was responsible for the conduct of
the business of the Company.
Requirements laid down therein must
bereadconjointlyandnot
disjunctively. When a legal fiction
is raised, the ingredients therefor
must be satisfied.”

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8)In the matter of K.K.Ahuja, the Hon’ble
Apex court in paragraph 21 has observed as under,
-

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CRI.WP NO.717/2010

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“21.If a mere reproduction of the
wording of Section 141(1) in the
complaint is sufficient to make a
person liable to face prosecution,
virtually every officer/employee of
a company without exception could be
impleaded as accused by merely
making an averment that at the time
when the offence was committed they
were in charge of and were
responsible to the company for the
conduct and business of the company.
This would mean that if a company
had 100 branches and the cheque
issued from one branch was
dishonoured, the officers of all the
100 branches could be made accused
by simply making an allegation that
they were in charge of and were
responsible to the company for the
conduct of the business of the
company. That would be absurd and
not intended under the Act.” As the
trauma harassment and hardship of a
criminal proceedings in such cases,

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may be more serious than the
ultimate punishment, it is not
proper to subject all and sundry So
be impleaded as accused in a

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CRI.WP NO.717/2010

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complaint against a company, even
when the requirements of Section 138
read and section 141 of the Act are
not fulfilled.”

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9)Shri Deshpande, learned Counsel for
Respondent No.2 (original complainant) took
recourse to the following judgments, -

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a) N.Rangachari Vs. Bharat Sanchar Nigam Ltd. AIR 2007 SC 1682;

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b) Prafulla Maheshwari Vs. State of Maharashtra 2008 (1) Mh.L.J. 844;

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c) Ruchika Enterprises Vs. Shriram Enterprises Manu/MH/1185/2007;

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d) Smt.Nagawwa Vs. Veeranna Konjalgi AIR 1976 SC 1947;

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e) Manjula Sinha Vs. State of U.P. 2007 AIR SCW 4555; and

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f)State Farm Corporation of India Vs. M/s
Nijjar Agro Foods Ltd. - AIR 2006 SC 679.

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10)Mr.Deshpande for complainant submit, the
offence under Section 138 of the Negotiable
Instruments Act, stand established, no sooner
ingredients therein are fulfilled. He read the
agreement of sale to impress that the possession
of the property was given to the society including
rights to collect rents from the tenants, this was

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CRI.WP NO.717/2010

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for the benefit of society/bank to the knowledge
and concurrence of petitioner.

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11)Having gone through the agreement of
sale, I find the cheques, signed and issued in
favour of Respondent No.2 or his brother, the
vendorof the property, areof the
Society/Respondent No.3. Pursuant to issuance of
cheque by the society, signed by the Chairman and
also by the Chief Executive Officer, the
possession of the property was parted,
consequently, it is explicit that based on the
agreement of sale, there would be a legally
enforceable debt. Even if the agreement provides
inhibition, there cannot be a legal bar in
prosecuting the matter, as any prohibition to
enforce the legally enforceable remedy, cannot be
incorporated against self interest of any person.
This is in breach of constitutional arrangement.

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12)Now, turning to the point of resignation
of Kailas, one of the Director of the society,
before the agreement itself, is a matter of
production of record, require to be proved, which
will be agitated and stressed only at the time of
evidence. If the applicant submits that he has
tendered the resignation to the Manager of the
society, competence of the Manager to accept it is
important. The law mandates, a procedure for

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CRI.WP NO.717/2010

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resignation of a Director from society which is to
be scrupulously adhered to. Simply, tendering of
resignation, without its effect, turns the
document to be a scrap paper, will not have any
adverse impact on the person, who has parted with
the immovable property, believing the transaction
for affairs of the society.

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13)The petitioner/accused had acquiesced to
the arrangement of agreement of sale since the
possession of the property was received including
rights to collect rentals from few of the tenants.
The petitioners did not respond to the statutory
notice to portray their defence and deny the
liability. If they had ambivalent feeling for the
affairs of the society, there was, as stated
above,noinjunctionagainstthe
petitioner/accused to challenge affairs of the
society and disassociate and dissuade themselves
from on-going or contemplated litigation desired
by Respondent No.2 for infraction of Section 138
of the said Act.In the complaint, it is informed
that petitioners were directors and were in charge
and in know of all the affairs of the society. The
decision to purchase property was unanimous, held
in the meeting of accused no.1. The genuineness of
resolution cannot be questioned as a defence. The
petitioners cannot obliterate and dilute their
primary responsibility to ensure that the cheques

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CRI.WP NO.717/2010

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for purchase of property are honoured.

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14)The petitioner/accused will have to
inform by evidence that there was no legally
enforceable debt/transaction or that there was no
resolution that has been passed to purchase the
property.

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15)The law on the point of issuance of
process is quite clear. If prima facie case is
made out, a process on verification of complaint
can be issued. Defences that could be raised at
the trial st age when the evidence is adduced,
need not be considered while entertaining
application, seeking discharge or seeking
quashment of the proceedings.

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16) Thecontentionthatthe

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accused/petitioners were not involved in the day-
to-day affairs of the Respondent No.3-society, is
flagrant to events, hence, prima facie, difficult
to digest as it is for the accused/petitioner to
establish that they were dormant Directors at the
material time and had no active role in the
affairs of the society. Vicarious liability that
has been spelt out in terms of Section 141 of the
Negotiable Instruments Act, cannot be put to
shelves to enjoy benefit by agreement of sale and
get relieved from the prosecution arising out of

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CRI.WP NO.717/2010

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infraction of Section 138 of the Negotiable
Instruments Act. The prosecution, in the set of
abovefacts,launchedagainstthe

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accused/petitioners cannot be said to be perverse,
requiring any interference in terms of Article 227
of Constitution of India. The writ petitions lack
merit,dismissed.Ruledischarged.The

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observations are prima facie in nature. Interim
relief vacated.

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17)Heard. Operation of the order and its

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effect is stayed up to 18th March, 2011.

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( K.U.CHANDIWAL ) JUDGE

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bdv/

Kailas Nandlal Agrawal v. Dinesh Ghavarchand Khivsara and Ors.

Case brief

What is this about?

What did the court decide?

Kailas Nandlal Agrawal v. Dinesh Ghavarchand Khivsara and Ors.

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Cases cited

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Parties & counsel

Coram

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