Dismissed¶62

Madhusudan Garai & Anr. v. State of West Bengal & Anr.

Calcutta HC8 Jan 2025CRR/2310/2019

Case brief

AI extract

What is this about?

Calcutta High Court, C.R.R. 2310 of 2019, Dr. Ajoy Kumar Mukherjee, J., judgment dated 08.01.2025 — Madhusudhan Garai v. State of West Bengal: criminal revision against summons in s.138 NI Act complaint (CS 29044 of 2019) dismissed; s.141 averments sufficient; security-cheque defence and sleeping-partner plea triable issues; s.20 inchoate instrument liability; simultaneous s.138 NI Act and s.13(2) SARFAESI/DRT proceedings permissible, no double recovery; s.482 CrPC quashing refused; dishonoured cheque Rs. 6,02,91,895/- against outstanding Rs. 6,60,04,570.84P.

What did the court decide?

Prayer for quashing the proceeding CS No. 29044 of 2019 rejected; CRR 2310 of 2019 dismissed and the criminal proceeding allowed to continue before the trial court. ¶62

Madhusudan Garai & Anr. Vs State of West Bengal & Anr. — Banking and Recovery | Calcutta HC (2025)

What the court decided

AI extract

Outcome

Prayer for quashing the proceeding CS No. 29044 of 2019 rejected; CRR 2310 of 2019 dismissed and the criminal proceeding allowed to continue before the trial court.

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Issue for consideration

Whether the criminal proceeding under section 138 N.I. Act can be quashed against the petitioners on the ground that they are sleeping partners and non-signatories of the cheque and that the complaint lacks the basic averments required under section 141 N.I. Act to create vicarious liability. +2 more

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Court's answer

The complaint's para 4 specifically avers that the accused partners are persons in charge of and responsible for the day-to-day functioning of the accused firm, so the requisite averments under section 141 N.I. Act are prima facie made; questions of sleeping-partner status cannot be adjudicated at this stage without trial, and the proceeding is not liable to be cancelled for non-compliance of essential averments.

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Ratio / Principle

A serious dispute exists between the parties on whether the cheque number mentioned in the sanctioned letter's security column is a collateral-security cheque or a document number; while adjudicating an application under section 482 CrPC only unimpeachable documents can be considered, section 139 N.I. Act raises a presumption in favour of the complainant, and rebuttal requires the parties to go to trial.

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Key takeaways

Even if it be presumed that the bank received a blank signed cheque, the cheque was drawn on behalf of the petitioners and constitutes an 'inchoate stamped instrument' under section 20 N.I. Act; a person who signs and delivers such instrument gives prima facie authority to the holder to complete it for any amount not exceeding the stamp, and is liable to a holder in due course for such amount.ratio¶51
A proceeding under section 138 N.I. Act is punitive for dishonour of a cheque, whereas SARFAESI proceedings are for recovery of secured dues; therefore there is no bar in law to simultaneous proceedings under the N.I. Act and the SARFAESI Act in respect of the same transaction, and the question of unjust enrichment does not arise.ratio¶54

Detailed headnote1 paragraphs

Quashing sought of complaint CS No. 29044 of 2019 under section 138 N.I. Act pending before the Judicial Magistrate, 18th Court, Calcutta, against two alleged sleeping partners of a Honda two-wheeler dealership firm that had availed Rs. 6.50 crores inventory funding from the opposite party no. 2 bank; the dishonoured cheque was for Rs. 6,02,91,895/-. Held: (i) para 4 of the complaint contains the requisite averments under section 141 N.I. Act that the partners were in charge of and responsible for the day-to-day business, and vicarious-liability questions cannot be decided without trial; (ii) a serious dispute exists whether the disputed cheque (no. 000197) was a collateral security cheque or whether the number in the sanction letter is a document number, but at the stage of an application under section 482 CrPC only unimpeachable documents may be looked at, section 139 N.I. Act raises a presumption in favour of the complainant, and rebuttal requires trial; (iii) even a blank signed cheque is an inchoate stamped instrument under section 20 N.I. Act binding the signatory to a holder in due course up to the covered amount; (iv) there is no bar to simultaneous proceedings under the N.I. Act and the SARFAESI Act for the same transaction, the former being penal and the latter a recovery mechanism, so no unjust enrichment arises. Petitioners had earlier lost a writ petition (WPA 8434(W) of 2019, disposed 24.04.2019), the bank had proceeded before the DRT and taken symbolic possession on 10.05.2019, and a Title Suit 704 of 2019 challenging the cheques was pending. Revision dismissed.

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IN THE HIGH COURT AT CALCUTTA CRIMINAL REVISIONAL JURISDICTION

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APPELLATE SIDE

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PRESENT:

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THE HON’BLE DR. JUSTICE AJOY KUMAR MUKHERJEE

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C.R.R. 2310 of 2019

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Sri Madhusudhan Garai & Anr. Vs.

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State of West Bengal & Anr.

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For the Petitioner : Mr. Moti Sagar Tiwary Mr. Pawan Kumar Gupta Ms. Sofia Nesar Mr. Santanu Sett Mr. Shantanu Mishra For the Opposite Party No. 2 : Mr. Diapnajan Dutt Ms. Sambrita B. Chatterjee

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Heard on : 19.12.2024 Judgment on : 08.01.2025

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Dr. Ajoy Kumar Mukherjee , J.:

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1. The petitioners herein have prayed for quashing the impugned proceeding being CS No. 29044 of 2019, initiated under section 138 of Negotiable Instrument Act (N.I. Act) which is presently pending before judicial Magistrate 18^th Court Calcutta.

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2. The petitioners are the partners of the partnership firm namely M/S Madhusuhdan Garai, who entered into a dealership agreement with Honda

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Motor Cycle and Scooter India Pvt. Ltd. Aforesaid firm proposed for financial assistance to the opposite party No.2, who sanctioned Rs.6.50 Crores on the terms and conditions mentioned in the sanctioned letter dated 24.09.2018.

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3. Petitioners further contention is that some dispute and differences arose between said firm and Honda Motor Cycle and Scooter India Pvt Ltd. and for which business of the petitioners firm were badly hampered and the petitoners suffered huge loss and damages. In the said backdrop, the said firm requested opposite party no.2 to restructure the loan limit by reducing it from Rs. 6.50 to 3.25 crores and to convert the balance 3.25 crores into a term loan for the period of three years, which was not accepted by the opposite party no.2/bank and on the contrary by issuuing a letter dated 14^th February 2019, they called upon the said firm to deposit Rs. 6,60,04,570.84P, failling which the account will be claisified as nonpermorming assest (NPA).

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4. Petitioner further contended that the firm immediately gave its reply and also apprised them regarding the dispute between the firm and Honda Motor Cycle Ltd. and they also proposed to pay 10% to 20% of the outstanding amount and further requested them to allow for making payment of the balance amount in easy installments. Thereafter the firm again issued a detailed letter on 19.02.2019 with the same prayer, but the opposite party no.2 did not consider their request made in the aforesiad two letters and on the contrary issued a letter on 2^nd March, 2019, threatening that the said firm will be declared as willful defaulter. The firm by its letter dated 13.03.2019 requested the opposite aprty no.2/bank not

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to declare them as wilful defaulter without following the Reserve Bank guideline and the firm also requested the oppoiste party no.2/bank to reschedule the payment of the bank within a reasonable and easy process and not to initiate any proceeding as they have a genuine intention to repay the loan to the opposite party no.2/bank, but the bank did not consider such request.

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5. Petitioners further contended that said firm had also given proposal to take back unsold two wheelers lying, in the custody of the said firm but the bank did not take any step so far and the unsold two wheelers worth Rs. 1 crore and odd is unnecessarily being damaged and /or depreciating in the godown of said firm. As the bank/opposite party no.2 did not consider the grievance of the firm, the petitioners herein and the firm being aggrived by the non action on the part of the bank, filed a Writ Petition before this Court being WPA no. 8434(W) of 2019, which was disposed of by this Court on 24.04.2019 on the grounds mentioned therein.

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6. Thereafter, the firm received a message from their banker that a cheque for Rs. 6,02,91,895/- has been dishonored due to insufficient fund. The firm issued a letter to the opposite party no.2/bank not to take any step for the alleged outstanding amount mentioned in the cheque, by a letter dated 13^th May, 2019. Be it also mentioned that said firm also received a notice issued by the bank on 13^th May, 2019 under section 13(2) of the SARFAESI Act, 2002 calling upon the firm to pay the sum of Rs. 6,02,91,895/-.

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7. Being aggrieved by the aforesaid criminal proceeding initiated by the bank under section 138 of the N.I. Act, the petitioners contended that the

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petitioners are the sleeping partners of the said pertnership firm which have availed loan facility from O.P. No.2 and accused no.2 namely Sangramjit Garai who is the son of the petitioners is the signatory of the alleged cheque but he is not the petitioner herein. Petitioner no. 1 and 2 aged about 71 years and 66 years and their son aforesaid sangramjit opened said Bike Showroom over the land and property of his parents and obtained a loan in the name of the pertnership firm. It is the bank /complainant who in order to provide and secure loan has promulgated the idea of a pertnership firm keeping the petitioners as partners therein. Petitioners further contended that there is no basic averments in the complaint as required under section 141 of the N.I. Act to create vicarious liability against the petitioners.

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8. It is further aruged on behalf of the petitoiners that the complainant is not the person to be treated as “holder in due course” as the complainant/bank was entrusted with the blank cheque No. 096634 on 24.09.2018 as security for discharging its liability arising out of the agreement but the complainant has prosecuted the petitioners with the alleged issuance of chque being no. 000197 which has nothing to do with the said agreement. The disputed cheque being no.000197 had never been kept with complainant as security cheque in respect of loan agreement.

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9. He further argued that in respect of the same amount the complainant/bank has chosen to proceed before the Debt Recovery Tribunal on 10.05.2019 and the bank has already taken symbolic possession of the mortgaged property by resorting to the DRT proceeding on 10.05.2019. In fact there was no occasion to issue post dated cheque on

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10.05.2019 in favour the complainant when on the same date by issuing notice under section 13(2) of the SARFAESI Act, complainant has already taken possession of the secured assets. He further submitted that complainant is guilty of unjust enrichment and by permiting him to encash the so called cheque, the petitioners will be forced to make payment twice or more than that of which they are actually liable to pay. Since the complainant is not entitled to use the impugned cheque being no. 000197 as security deposit cheque, the continuation of the proceeding on the basis of the said cheque will be abuse of process of court. Petitioner in this context has relied upon the following judgments:-

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(i) S.M.S. Pharmaceuticals Ltd. Vs. Neeta Bhalla & Anr. reported in (2005) 8 SCC 89.

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(ii) Gunmala Sales (p) ltd. Vs. Anu Mehta. reported in (2015) 1 SCC 103.

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(iii) Ashok Shewkramani Vs. State of A.P., reported in (2023) 8 SCC 473.

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10. Mr. Dipanjan Dutt learned Counsel appearing on behalf of the opposite party submits that the accused admitted that the debt owed by the accused person to the opposite party no.2/bank as in February 2019 was to the tune of Rs. 6,60,04,570.84P and the petitioner have also admitted that the impugned cheque was a security cheque and was issued to discharge the laibilities of the accused in part. Thus it is clear that the dishonored cheque is for an amount less than the outstanding amount and upon failure on the part of the accused to act in terms of the notice under section 138(b) of the N.I.Act, the instant complaint matured for

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presentation before the court below. He further contended that though the petitoners/accused had unilaterally offered a loan restructuring proposal but the bank did not accept such proposal, nor the bank agreed to sell the unsold two wheelers to realize outstanding amount Being aggrived by the decision of the bank petitioner herein preferred Writ Application before this court. This court by its order dated 24.04.2019 passed in WP no. 8434 (W) of 2019 has repelled such contention of the accused. In view of aforesaid circumstances the bank/complainant has every right to proceed with the instant criminal proceeding and the learned Magistrate had rightly issued the process against the petitioners, where the petitioners as partners of the firm as well as the firm has been impleaded as an accused, attributing specific allegation against each of the accused, as mentioned in para 4 of the complaint. Accordingly Mr. Dutt has prayed for rejection of the petitioners prayer for quashing the impugned proceeding.

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11. I have considered submissions made by both the parties.

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12. Now on the face of the complaint and the averments made in the present Application and also from the documents filed with the same, the following facts very clearly emerges:-

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(a) The accused persons in their written reply dated 16.02.2019 stated that present outstanding balance in their IF Loan Account as of now is Rs. 650.00 Lakhs and they will be able to repay 10% to 20% of the aforesaid outstanding amount and after that they will be able to repay from their internal family source within a period of 6 years.

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(b) By another letter dated 19.02.2019 the accused persons mentioned that the outstanding loan amount is Rs. 6,60,04,507.84/-.

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(c) In reply to banks letter dated 2^nd March, 2019 the accused persons by its letter dated 13.03.2019 gave their proposal to reschedule the payment to the bank in respect of the outstanding amont of Rs. 6,60,04,507.84/-.

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(d) Being dissatisfied with the banks refusal to sell the Motor Cycles lying in the godown of the petitioners and to recover their dues therefrom, the petitioners preferred Writ Application before this Court being WP No. 8434(W) of 2019. In the said Writ Application, the petitioners sought for direction upon the bank to sell the Motor Cycles and to appropriate the proceeds thereof. In the said proceeding this Court held that apparently there are amount due and outstanding by the petitioner to the bank and the bank is entitled to recovoer its claim in accordance with law and writ court need not interefere therein nor to direct how a creditor will deal with the secured assets.

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(e) Petitioners by its letter dated 13^th May, 2019 admitted that the petitioners obtained a credit facility in the nature of inventory funding account with a limit of Rs. 6.50 crores and the petitioners agreed to liquidate the dues in a phase manner as mentioned in the sanctioned letter and the petitioner further admitted that they have also issued several cheques to the bank with a clear

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understanding that the said cheque would be hold by the bank as security and would not be presented to the bank for encashment.

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(f) In reply to the banks notice sent under section 138(b) of the N.I. Act the petitioners admitted the loan amount and made an offer to pay 10% to 20% owed by the accused to the opposite party no.2/bank and to pay the balance amount in easy installments. The petitioners also filed Title Suit no. 704 of 2019 with a prayer for declaration that the cheque no. 000917 dated 10.05.2019 amounting to Rs. 6.02,91,895/- and an undated cheque no. 000096634 are void and liable to be cancelled. In that suit also the petitioners admitted the laon amount and also contended in para 11 that they proposed to pay 10% to 20% of the abovementioned outstanding loan amount and also to pay the balance amount in easy installments.

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13. Thus having a prima facie apprisal of the aforesaid unimpeachable materials on record, it appears that the disbursement of the loan amount by the bank in favour of the petitioners are not disputed. During the course of argument ld. Counsel appearing on behalf of the petitioners submitted that the complainant/bank was esntrusted with the blank cheque no. 096634 as security cheque for discharging its liability arising out of agreement but the complainant has prosecuted the petitioner with the alleged issuance of cheque being no. 000197 which has nothing to do with the said agreement as said cheque had never been kept with the complainant as secuirty cheque in respect of loan agreement no. 83415842.

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14. I have already pointed out that the petitioners in their letter dated 13^th May, 2019 admitted that they have issued several cheques to the bank with the clear understanding that the said cheque would be held by the bank as security, without specifying as to which cheques were kept only towards security. Though the petitioners referring page 42 of the Application contended that in the sanctioned letter, in the security details column, cheque no. CO00096634 has been mentioned as coletaral security but ld. Counsel appearing on behalf of the opposite party raised vehement objection contending that the number mentioned in the said column is document number and not the cheque number as the cheque nos. usually do not exceed more than six digits. Accordingly a serious dispute has been raised by the opposite party/bank in this respect and it is settled law that while adjudicating an application under section 482 of the Code of Criminal Procedure, the documents which are unimpeachable in character can only be taken into consideration. Moreover section 139 of the N.I. Act raises presumption in favour of complainant, unless the contrary is proved. In such circumstances to rebut the presumption, if anything contrary is required to be proved by the accused, the parties are also required to go for trial.

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15. Ld. Counsel appearing on behalf of the petitioner though argued that the said cheque in respect of which the present proceeding has been initiated was a blank signed instruments. But it is very much apparent from the unimpeachable documents that the debt owed by the accused persons to the opposite party bank as on Februrary 2019 was to the tune of Rs. 6,60,04,570.84/- and the bank had recalled the loan in view of the

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default committed by the accused in repayment of the debt in terms of loan agreement. The dishonoured cheque was for Rs. 6,02,91,895/- which amount is less than the outstanding amount and upon failure of the accused to act in terms of the demand notice, the instant complaint has been lodged in respect of which the court below has issued process. Even if for the sake of argument, it can be presumed that the bank had received a blank signed cheque from the petitioners, but still it is not in dispute that the cheque was drawn on behalf of the petitioners and section 20 of the N.I. Act defines such a cheque as ‘inchoate stamped instrument’ and under section 20 when one person signs and deliver such instrument to another he thereby gives prima facie authority to the holder thereof to make or complete as the case may be upon it, a Negotiable Instrument for any amount specified therein and not exceeding amount covered by the stamp. The provision further stiupulates that the persons so signing shall be liable upon such instrument in the capacity in which he signed the same to any holder in due course for such amount.

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16. Learned Counsel for the petitioner has also taken a plea that the bank has already initiated proceeding under the SARFAESI Act and they have already taken symbolic possession of the secured assets under section 13(2) of the SARFAESI Act and the bank should not be permitted to mis utilize the cheque and to get unjust enrichment by permitting it to encash the so called cheque which will amount to force the petitioner to make payment twice or more than that of which the petitioner are actually liable to pay, but I do not find any substance in the said contention because a proceeding under section 138 of the N.I. Act is not a proceeding so called

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for realization of arrear amount or for recovery of money. Section 138 deals with punishment for dishonour of cheque for insufficiency of fund etc, whereas the object of a proceeding under the SARFAESI Act is to ensure that dues of secured creditors including banks finanical institutions are recovered from the defaulting borrower without any obstruction or without intervention of courts or tribunals. Accordingly there is no bar under the law for simultaneous proceeding both under the N.I. Act and under the SARFAESI Act in respect of the same transaction and the question of enrichment in such circumstances does not arise at all.

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17. The other limb of argument made by the petitioner that the petitioners are sleeping partners and are not signatory of the alleged cheque and their names in the firm have been included since their immovable properties were kept as mortgage to the bank or that the bank has promulgamated the idea of pertnership firm keeping the petitioners as partners therein and as such it cannot create vicarious liability against the petitioners I find that such type of questions cannot be adjudicated at this stage without trial. In the complaint it has been specifically averred in para

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4 as follows:-

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“the accused no.1 is a partnership firm and the accused no.2,3 & 4 are parterns of the accused no.1. the accused no.2 is also the authorised signatory of the dishonoured cheque. The accused no.2,3,&4 are person– in-charge and/or responsible for the day to day functioning of the accused no.1 and they are the persons carrying out functions on behalf of the accused no.1. in other words the accused no.2,3& 4 are person under whose instruction and/or whose behest the accused no.1entity function.”

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18. From the aforesaid averments made in para 4 of the complaint it is clear that the complainant have prima facie made necessary averments that the petitioners at the time of the commission of offence was in charge

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of and are responsible for the conduct of the day to day business of the partnership firm and thereby complainant has complied the requisite averments under section 141 and the proceeding is not liable to be cancelled for non compliance of essential averments to be made in the complaint.

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19. In view of aforesaid discussion, I am constrained to conclude that this is not a fit case where the proceeding can be qushed invoking jurisdiction of this court under section 482 of the Code.

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20. In such view of the matter CRR 2310 of 2019 stands dismissed.

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Urgent Xerox certified photocopies of this Judgment, if applied for, be given to the parties upon compliance of the requisite formalities.

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(Dr. AJOY KUMAR MUKHERJEE, J.)

Issues for consideration

3 issues framed by the court

AI extract

1.
Whether the criminal proceeding under section 138 N.I. Act can be quashed against the petitioners on the ground that they are sleeping partners and non-signatories of the cheque and that the complaint lacks the basic averments required under section 141 N.I. Act to create vicarious liability.¶24
The court held
The complaint's para 4 specifically avers that the accused partners are persons in charge of and responsible for the day-to-day functioning of the accused firm, so the requisite averments under section 141 N.I. Act are prima facie made; questions of sleeping-partner status cannot be adjudicated at this stage without trial, and the proceeding is not liable to be cancelled for non-compliance of essential averments.ratio¶60
2.
Whether the prosecution based on cheque no. 000197, alleged to be other than the security cheque entrusted under the loan agreement, is an abuse of the process of court warranting quashing under section 482 CrPC.¶28
The court held
A serious dispute exists between the parties on whether the cheque number mentioned in the sanctioned letter's security column is a collateral-security cheque or a document number; while adjudicating an application under section 482 CrPC only unimpeachable documents can be considered, section 139 N.I. Act raises a presumption in favour of the complainant, and rebuttal requires the parties to go to trial.ratio¶48
3.
Whether the bank, having already initiated SARFAESI proceedings and taken symbolic possession for the same dues, can simultaneously prosecute under section 138 N.I. Act, or whether permitting encashment of the cheque would result in double payment/unjust enrichment.¶52
The court held
A proceeding under section 138 N.I. Act is punitive for dishonour of a cheque, whereas SARFAESI proceedings are for recovery of secured dues; therefore there is no bar in law to simultaneous proceedings under the N.I. Act and the SARFAESI Act in respect of the same transaction, and the question of unjust enrichment does not arise.ratio¶54

Madhusudan Garai & Anr. v. State of West Bengal & Anr.

Case brief

What is this about?

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Madhusudan Garai & Anr. v. State of West Bengal & Anr.

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What the court decided

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