Dismissed

Ashoka Multiyarns Mill Pvt. Ltd., Kolkata and Others v. Satnam Trading Company through Prop. Gurdeep Singh a. Rajpal and Anr.

Bombay HC24 Nov 2021WP/1060/2018

Case brief

AI extract

What is this about?

This court dismissed a writ petition seeking to quash proceedings under Section 138 of the Negotiable Instruments Act. The court held that insolvency moratorium applies only to the corporate debtor, not individual directors. The petitioners failed to prove non-involvement in business affairs, and the consent terms were not fulfilled.

What did the court decide?

The writ petition is dismissed, and the impugned order of the trial court issuing process is upheld.

Ashoka Multiyarns Mill Pvt. Ltd., Kolkata and… — Insolvency and Bankruptcy | Bombay HC (2021)

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(1)

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criwp1060.18

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
BENCH AT AURANGABAD

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923 CRIMINAL WRIT PETITION NO.1060 OF 2018 WITH APPLN/455/2019 IN WP/1060/2018

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ASHOKA MULTIYARNS MILL PVT. LTD., KOLKATA AND OTHERS VERSUS SATNAM TRADING COMPANY THROUGH PROP. GURDEEP SINGH A.RAJPAL AND ANR

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Mr. S. U. Chaudhari, Advocate for the petitioner
Mr. Rahul R. Totala, Advocate h/f Mr. R. A. Karwa,
Advocate for the respondent No.1

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Mrs. R. P. Gaur, APP for the respondent/State

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CORAM:N. R. BORKAR, J.

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DATE:24-11-2021

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P. C.

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. This writ petition takes an exception to
the order dated 17-03-2017 passed by the learned
Magistrate, Aurangabad in SCC No. 1252 of 2017. By
the order impugned the learned Magistrate has issued
the process against the present petitioners and the
respondent No.2 for the offence punishable under
Section 138 of the Negotiable Instrument Act.

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2. The respondent No. 1 herein had filed the
complaint case on 27-07-2013 against the present

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petitioners and the respondent No. 2 for the offence
punishable under Section 138 of the N. I. Act.

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3. According to the respondent No.1 the
petitioner No.1 is company incorporated under the
Companies Act. The petitioner Nos. 2 to 4 and the
respondent No. 2 are its Directors. According to the
respondent No.1, the petitioner No. 1 company issued
cheque for the sum of Rs. 46,55,159/- towards the
payment of the amount due and outstanding in respect
of goods supplied. According to the respondent No.1
said cheque was presented for encashment, however it
was dishonored and returned unpaid by the banker of
the accused. The statutory demand notice was issued
and as the petitioners failed to make the payment

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the complaint case came to be filed for the
aforementioned offence. It appears that
simultaneously, the respondent No.1 herein had filed
the company petition No. 11 of 2014 for winding-up
the petitioner No.1/ company before the Rajasthan
High Court on the ground that the it failed to pay
sum of Rs. 52,29,365/- together with interest @ 18%
p.a. Consent terms were filed in the said company
petition.

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4.It appears that thereafter in the year
2017, the Union Bank of India initiated insolvency
proceeding against the present petitioners
No.1/company under Section 7 of the Insolvency and
Bankruptcy Code.

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5.Learned counsel for the petitioners submits
that in view of the consent terms the proceedings
under Section 138 of the N. I. Act needs to be
quashed. It is further submitted that in view of
initiation of insolvency proceedings, the complaint
case cannot be allowed to proceed. It is further
submitted that the trial court has issued the
process against the petitioners and the respondent
No. 2 only under Section 138 of the N. I. Act and no
process is issued under Section 141 of the said Act.
In the alternative, it is submitted that the
petitioner No. 2 was the Managing Director of the
petitioner No. 1 company and the petitioner Nos. 3
and 4 were merely Directors and they were not in-
charge of day-to-day affairs of the petitioner No.1
company nor they were responsible for conduct of the
business. It is submitted that in view of this,
issuance of process as against the petitioner Nos. 3
and 4 needs to be quashed and set aside. It is

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further submitted that even otherwise in view of the
Judgment of the Hon’ble Supreme Court in the case of
Aparna A. Shah Vs Sheth Developers Pvt. Ltd. only
the drawer of the cheque can be prosecuted under
Section 138 of the N. I. Act.

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6.On the other hand learned counsel for the
respondent No. 1 submits that there is specific
clause in consent terms that respondent No.1 shall
not proceed with the complaint case, if amount of
Rs. 46,62,643/- is paid. It is submitted that the
said amount is not paid. As regards other
contentions the learned counsel for the respondent
No.1 submitred that there are specific averments in
the complaint that the petitioner Nos. 2 to 4 and
the respondent No. 2 were in-charge of the day-to-
day affairs of the company and were responsible for
conduct of business of the company. It is submitted
that the order impugned, in absence of any material
to contrary cannot be quashed against the petitioner
Nos. 3 and 4. In support of the submission the
learned counsel has relied upon the judgment of the
Hon’ble Supreme Court in the case ofAshutosh Ashok
Parasrampuriya and another Vs Gharrkul Industries
Pvt. Ltd. And others reported in 2021 SCC Online SC

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915.

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7.As regards the submission that due to
initiation of insolvency proceeding, the proceedings
under Section 138 cannot be allowed to proceed, the
learned counsel for the respondent No.1 submits that
the said position is no more res-integra in view of
the judgment of the Hon’ble Supreme Court in the
case ofP. Mohanraj and others Vs Shah Brothers
Ispat Pvt. Ltd. Reported in (2021)6 SCC 258.

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8.It is not the case of the petitioners that
pursuant to consent terms, they have paid amount of
Rs.46,62,643/- to the respondent No.1. In view of
clause 7 of the consent terms the contention that
complaint case filed by the respondent No.1 needs to
be quashed in view of consent terms is rejected.

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9.In the complaint, the respondent No. 1 has
made following averments in para Nos. 2 and 7 which
read thus:

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2.That accused No. 1 is a company incorporated under
the companies act and accused No.2 is the authorised
signatory to the impugned cheque, whereas accused Nos. 3

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to 5 are Directors of the company. Accused No.2 to 5
were/are in charge of day to day affairs of the company and
are also jointly and severally responsible to the accused
No.1 company for conduct of the business of the company
at all material times and more particularly when the offence
is committed.

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7.That the impugned A/c cheque is signed by
Accused No. 2 as authorised signatory on the behalf of
accused No. 1 company. As per the record available with the
register of company accused No. 2 to 5 where in charge of
the day to day affair of the accused Ni. 1 company and
were/are responsible to the accused No. 1 company for the
conduct of its business at all material time and particularly
at the time when the above cheque was issue and when the
cheque in question is dishonoured and when the offence is
committed.

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10.The Hon’ble Supreme Court in the case of
Ashutosh Parasrampuriya (supra) has held:

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19.(a) It is necessary to specifically aver in a
complaint under Section 141 that at the time the offence
was committed, the person accused was in charge of, and

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responsible for the conduct of business of the company. This
averment is an essential requirement of Section 141 and has
to be made in a complaint. Without this averment being
made in a complaint, the requirements of Section 141
cannot be said to be satisfied.

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(b)The answer to the question posed in sub-para (b) has
to be in the negative. Merely being a director of a company
is not sufficient to make the person liable under Section 141
of the Act. A director in a company cannot be deemed to be
in charge of and responsible to the company for the conduct
of its business. The requirement of Section 141 is that the
person sought to be made liable should be in charge of an
responsible for the conduct of the business of the company
at the relevant time. This has to be averred as a fact as there
is no deemed liability of a director in such cases.

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(c)The answer to question (c) has to be in the
affirmative. The question notes that the managing director
or joint managing director would be admittedly in charge of
the company and responsible to the company for the
conduct of its business. When that is so, holders of such
positions in a company become liable under Section 141 of
the Act. By virtue of the office they hold as managing

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director or joint managing director, these persons are in
charge of and responsible for the conduct of business of the
company. Therefore, they get covered under Section 141. So
far as the signatory of a cheque which is dishonoured is
concerned, he is clearly responsible for the incriminating act
and will be covered under sub-section (2) of Section 141.

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.There are specific averments in the
complaint that petitioner Nos. 3 and 4 were incharge
of day-to-day affairs of the company and were
responsible for the conduct of the business of the
company. No material is placed on record on behalf
of the petitioner Nos. 3 and 4 to show that they
were not incharge of day-to-day affairs of the
company. In absence of such material the petitioner
Nos. 3 and 4 who were admittedly Directors of the
company cannot be exonerated at this stage.

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11.As regards the contention that the trial
court has issued the process only for the offence
under Section 138 and not under Section 141, suffice
it to say that Section 141 is not distinct offence.
The order of issuance of process against the
petitioner therefore, cannot be quashed on that
ground.

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12.As regards the contention that the
proceeding under Section 138 cannot be allowed to
continue in view of initiation of insolvency
proceedings. The Hon’ble Supreme Court in the case
of P. Mohanraj and others (supra) has held :

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102.Since the corporate debtor would be covered by the
moratorium provision contained in Section 14 IBC, by
which continuation of Sections 138/141 proceedings
against the corporate debtor and initiation of Sections
138/141 proceedings against the said debtor during the
corporate insolvency resolution process are interdicted,
what is stated in paras 51 and 59 in Anneta Hada would
then become applicable. The legal impediment contained in
Section 14 IBC would make it impossible for such
proceeding to continue or be instituted against the
corporate debtor. Thus, for the period of moratorium, since
no Sections 138/141 proceeding can continue or be
initiated against the corporate debtor because of a statutory
bar, such proceedings can be initiated or continued against
the persons mentioned in Sections 141(1) and (2) of the
Negotiable Instruments Act. This being the case, it is clear
that the moratorium provision contained in Section 14 IBC
would apply only to the corporate debtor, the natural

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persons mentioned in Section 141 continuing to be
statutorily liable under Chapter XVII of the Negotiable
Instrument Act.

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104.Resultantly, the civil appeal is allowed and the
judgment under appeal is set aside. However, the Sections
138/141 proceedings in this case will continue both against
the company as well as the appellants for the reason given
by us in paras 101 and 102 above as well as the fact that
the insolvency resolution process does not involve a new
management taking over. We may also note that the
moratorium period has come to an end in this case.

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13.During the pendency of the present petition
an application came to be moved seeking
transposition of petitioner No.1 company as
respondent No.3 on the ground that as the National
Company Law Tribunal has ordered that petitioner
No.1 company be liquidated and appointed the
Liquidator. If this is so then, in view of the para
102 of P. Mohanraj’s case as moratorium period is
over, no interference is called for in the order
impugned even to the extent of petitioner No.1. The
petition is dismissed.

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(11) criwp1060.18 14. The application for amendment is also rejected.

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[ N. R. BORKAR, J. ]

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VishalK/criwp1060.18

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Ashoka Multiyarns Mill Pvt. Ltd., Kolkata and Others v. Satnam Trading Company through Prop. Gurdeep Singh a. Rajpal and Anr.

Case brief

What is this about?

What did the court decide?

Ashoka Multiyarns Mill Pvt. Ltd., Kolkata and Others v. Satnam Trading Company through Prop. Gurdeep Singh a. Rajpal and Anr.

Case brief

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What did the court decide?

What the court decided

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