M/S. R. J. Rishikaran Projects Private Limited v. Mr. P. Prasad

Karnataka HC27 Jun 2025WP/46234/2019

Case brief

AI extract

What is this about?

Quashing petition under Section 482 Cr.P.C against Section 138 NI Act proceedings (stop payment of security cheques for water proofing contract conditional on Joint Warranty Bond) rejected; civil nature of dispute and arbitration award no bar to prosecution; Section 141 NI Act nominal-Director defence is triable; MSME Council recourse noted; Gunmala Sales, Sri Krishna Agencies, SMS Pharmaceuticals, S.P. Mani engaged; N.Gopala Krishna referred; Karnataka HC, 27 June 2025, J.M. Khazi J.

What did the court decide?

Although the dispute between the parties is civil in nature as far as recovery of dues is concerned, the dishonour of cheques attracts criminal liability under Section 138 of the N.I Act. ¶¶83

M/S. R. J. Rishikaran Projects Private Limited… — Insolvency and Bankruptcy | Karnataka HC (2025)

What the court decided

AI extract

Outcome

Dismissed

¶¶112

Issue for consideration

Whether the Section 138 NI Act criminal proceedings in C.C.No.17072/2019 are maintainable and can be quashed on the ground that the dispute between the parties is civil in nature, the cheques were given as security pending rectification and Joint Warranty Bond, and the respondent has already secured an arbitration award. +1 more

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Court's answer

Although the dispute between the parties is civil in nature as far as recovery of dues is concerned, the dishonour of cheques attracts criminal liability under Section 138 of the N.I Act.

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Ratio / Principle

Whether the act of the complainant in presenting the security cheques before carrying out the rectification work and filing the Joint Warranty Bond was justified is a matter to be decided at the trial, not in this proceeding.

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Key takeaways

Adopting the Supreme Court's ruling in Sri Krishna Agencies, the respondent's recourse to arbitration (an award having been passed) is no bar to simultaneous continuation of criminal proceedings where the two arise from separate causes of action; hence the prior arbitration award does not render the Section 138 complaint unmaintainable.ratio¶¶83
Under Section 141 of the N.I Act, every person who, at the time the offence was committed, was in charge of and responsible for the conduct of the company's business is deemed guilty along with the company; under the first proviso, the burden lies on such person to establish that the offence was committed without his knowledge or that he exercised all due diligence to prevent it. This being the accused's defence, it is required to be established at the trial, and such disputed facts cannot be decided in a petition under Section 482 Cr.P.C or a writ petition.ratio¶¶101

Detailed headnote1 paragraphs

High Court of Karnataka (J.M. Khazi J., 27.06.2025) rejected a writ petition under Section 482 Cr.P.C by accused Nos.1 to 5 — a private company and four of its directors — seeking quashing of criminal proceedings C.C.No.17072/2019 (offence under Section 138 NI Act) pending before the XX ACMM, Bengaluru. Held: although the dispute over recovery of dues is civil in nature, dishonour of cheques attracts criminal liability under Section 138; whether the complainant was entitled to present cheques given as security before carrying out rectification work and executing the Joint Warranty Bond is a matter for trial; and the respondent's recourse to arbitration (an award having been passed) is no bar to simultaneous criminal proceedings where the causes of action differ. Under Section 141 NI Act, the burden cast by the first proviso on a director/officer to show that the offence was committed without his knowledge or that he exercised all due diligence is a defence to be established at trial, not decidable in a Section 482 petition or writ petition. The complaint's specific averments that accused Nos.2 to 5 were whole-time Directors in charge of day-to-day affairs satisfied the standards in Gunmala and SMS Pharmaceuticals, leaving accused Nos.4 and 5 (contended to be nominal Directors) to prove their defence at trial.

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NC: 2025:KHC:22847 WP No. 46234 of 2019

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HC-KAR

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 27^TH DAY OF JUNE, 2025

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BEFORE

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THE HON'BLE MS JUSTICE J.M.KHAZI WRIT PETITION NO. 46234 OF 2019 (GM-RES)

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BETWEEN:

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M/S. R. J. RISHIKARAN PROJECTS PRIVATE LIMITED A COMAPNY REGISTERED UNDER THE PROVISIONS OF THE COMPANIES ACT AND HAVING ITS REGISTERED OFFICE AT PENT HOUSE,

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R J MANOR APARTMENT,

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11/A, 80 FEET ROAD, 3RD BLOCK, KORAMANGALA, BENGALURU-560034 REPRESENTED BY ITS DIRECTOR, AND AUTHORIZED SIGNATORY, MR RATHNAKAR SHETTY

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MR RATNAKAR SHETTY

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Digitally signed by REKHA R Location: High Court of Karnataka

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S/O LATE C SANJEEV SHETTY, AGED 61 YEARS, DIRECTOR, M/S R J RISHIKARAN PROJECTS PRIVATE LIMITED, PENT HOUSE, R J MANOR APARTMENTS, NO.11/A, 80 FEET ROAD, 3RD BLOCK, KORAMANGALA, BENGALURU-560034

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MR KARAN RATHNAKAR SHETTY S/O RATHNAKAR SHETTY, AGED 30 YEARS, DIRECTOR,

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M/S R J RISHIKARAN PROJECTS PRIVATE LIMITED,

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NC: 2025:KHC:22847 WP No. 46234 of 2019

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HC-KAR

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PENT HOUSE, R J MANOR APARTMENTS, NO.11/A, 80 FEET ROAD, 3RD BLOCK, KORAMANGALA, BENGALURU-560034

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MRS RISHIKA RATHNAKAR SHETTY D/O RATHNAKAR SHETTY, AGED 25 YEARS, DIRECTOR, M/S R J RISHIKARAN PROJECTS PRIVATE LIMITED, PENT HOUSE, R J MANOR APARTMENTS, NO.11/A, 80 FEET ROAD, 3RD BLOCK, KORAMANGALA, BENGALURU-560034

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MRS. KAVITHA RATHNAKAR SHETTY W/O RATHNAKAR SHETTY, AGED 52 YEARS, DIRECTOR, M/S R J RISHIKARAN PROJECTS PRIVATE LIMITED, PENT HOUSE, R J MANOR APARTMENTS, NO.11/A, 80 FEET ROAD, 3RD BLOCK, KORAMANGALA, BENGALURU-560034

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…PETITIONERS

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(BY SRI. ASHOK PATIL, ADVOCATE)

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AND:

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MR. P. PRASAD S/O P H GURURAJA RAO, AGED ABOUT 48 YEARS, PROPRIETOR, MANOJNA ENTERPRISES, NO.178, 8TH CROSS, 14TH A MAIN, C.S.W.S. LAYOUT,

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NC: 2025:KHC:22847 WP No. 46234 of 2019

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HC-KAR

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RPC LAYOUT, VIJAYANAGAR BENGALURU-560040

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…RESPONDENT

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(BY SRI. MUJTABA H, ADVOCATE)

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THIS W.P IS FILED UNDER ARTICLES 226 & 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE PROCEEDINGS IN C.C.NO.17072/2019 ON THE FILE OF THE XX ADDL. CHIEF METROPOLITAN MAGISTRATE, BENGALURU (ANNX-A) AND ETC.,

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THIS PETITION, COMING ON FOR DICTATING ORDERS, THIS DAY, ORDER WAS MADE THEREIN AS UNDER: CORAM: HON'BLE MS JUSTICE J.M.KHAZI

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ORAL ORDER

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This petition filed under Section 482 Cr.P.C is by the

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accused Nos.1 to 5, with a prayer to quash the criminal proceedings in C.C.No.17072/2019 on the file of XX ACMM Court, Benglauru, for the offence punishable under Section 138 of the Negotiable Instruments Act ('N.I Act' for short).

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In support of the petition, the petitioners have contended that petitioner No.1 is reputed company. Petitioner Nos.2 and 3 are incharge of the day-to-day business of petitioner No.1 - company. Petitioner No.5 is the wife, petitioner No.4 is the daughter of petitioner No.2.

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NC: 2025:KHC:22847 WP No. 46234 of 2019

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HC-KAR

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They are not incharge of day-to-day business of petitioner

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No.1 - company.

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2.1 Petitioner No.1 - company has undertaken

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several construction projects, carrying on quality work, including water proofing of the roof to avoid leakage. The water proofing work of residential apartments by name R.J.Brooke Square at Kundalahalli, Bengaluru was carried out by petitioner No.1 - company, was entrusted to respondent under letter dated 10.09.2016. After completion of the work, respondent raised invoice for payment and the same was paid in part. As respondent did not comply with the condition of furnishing joint warranty, post dated cheques were issued by petitioner No.1/company to respondent with strict instructions to present only after he furnish the joint warranty bond. However, respondent failed to furnish the same.

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2.2 It is further contended that after some time

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the roof started leaking and dampness was noticed. Though respondent offered to rectify the same, he failed

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HC-KAR

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to do so and also failed to submit Joint Warranty Bond. In the above context, cheque for Rs.5,66,600/- dated 21.03.2019 was not honoured. However, in the light of the promise held by respondent, the said payment was made through NEFT on 30.03.2019. However, he was informed not to encash the other two cheques unless the rectification work is carried out and Joint Warranty Bond was issued. However, respondent failed to comply with the same. On his request a sum of Rs.2,00,000/- was remitted through RTGS to his account.

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2.3 On 31.05.2019, respondent visited the office of petitioner No.1/company and created nuisance. In this regard, a complaint is filed. In this background, respondent presented the two cheques for Rs.15 lakhs and Rs.22 lakhs. On account of stop payment instructions given by petitioner No.1/company, the cheques were not honoured. Respondent approached the Micro and Small Enterprises Facilitation Council ('MSME Council' for short) under the provisions of Micro Small and Medium

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NC: 2025:KHC:22847 WP No. 46234 of 2019

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HC-KAR

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Enterprises Development Act, 2006. Petitioner No.1 -

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company received intimation dated 18.06.2019 from the said Council along with a purported application said to have been filed by respondent before MSME Council, wherein respondent has made statement that demand notice is served under IBC and Section 138 of N.I. Act, which is patently false.

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2.4 However, respondent did not attend to the rectification work. Petitioner No.1 - company sent letter dated 19.06.2019 with the photographs of the walls showing leakage and patches of dampness with a request to carry out rectification work within 15 days, failing which balance amount would be forfeited. Respondent got issued legal notice dated 28.06.2019 and it is duly replied by the petitioners. With a malafide intention, petitioner Nos.4 and

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5 are shown as incharge of day-to-day business and also arraigned them as accused. In the above facts and circumstances, the prosecution of petitioners for the

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NC: 2025:KHC:22847 WP No. 46234 of 2019

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HC-KAR

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offence punishable under Section 138 of N.I. Act, is not sustainable and hence, the petition.

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In support of his arguments, learned counsel for petitioners have relied upon the decision in Gunmala Sales Private Ltd Vs. Anu Mehta and Ors. ( Gunmala )¹ .

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On the other hand learned counsel representing respondent submit that in respect of work carried out by respondent, payment were made through three cheques. Out of them one is realized. The other two cheques are dishonoured on account of stop payment instructions. In the arbitration proceedings also, an award is passed. Respondent has taken a specific plea that all the petitioners are liable and it is for the petitioners to prove that petitioner Nos.4 and 5 are not incharge and responsible for the day-to-day conduct of business of petitioner No.1/company. The contentions raised by petitioners is their defence which is to be established and

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1 (2015) 1 SCC 103

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NC: 2025:KHC:22847 WP No. 46234 of 2019

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HC-KAR

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appreciated in a full fledged trial and pray to dismiss the petition.

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In support of his arguments, learned counsel for

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respondent has relied upon the following decisions: (i) Sri Krishna Agencies Vs. State of Andhra Pradesh and Anr.( Sri Krishna Agencies )²

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(ii) Mr.N.Gopala Krishna and Ors. Vs. M/s Telematics4U Services ( N.Gopala Krishna )³

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(iii) S.P.Mani and Mohan Dairy Vs. Dr.Snehalatha Elangoven ( S.P.Mani )⁴

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Heard arguments and perused the record.

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Thus, petitioners and more particularly, accused

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Nos.4 and 5 are seeking discharge on the ground that the dispute between the parties is civil in nature. The complainant failed to execute the work according to the standards required to be maintained. As a result of which,

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the roof started leaking. Therefore, complainant was not

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2 (2009) 1 SCC 69

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3 Crl.P.No.6881/2018 Dt. 28.02.2019

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4 2022 SCC Online SC 1238

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9 - NC: 2025:KHC:22847 WP No. 46234 of 2019

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HC-KAR

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supposed to present the cheques, which were given by way of security till the rectification was carried out and Joint Warranty Bond was issued. Already Arbitration award is secured by the respondent and as such the complaint is not maintainable. They have also taken up a defence that accused Nos.4 and 5 are nominal Directors. They are not in charge and responsible for the conduct of business of the company and therefore, complaint against them is not maintainable.

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The dispute between the parties is civil in nature so far as recovery of the dues are concerned. At the same time the dishonour of cheques attract criminal liability under Section 138 of N.I Act. Whether the act of complainant presenting the cheques before carrying out rectification work and filing the Joint Warranty Bond is a matter to be decided at the trial. In Sri Krishna Agencies , referred to supra, the Hon'ble Supreme Court held that the fact that the complainant has already taken recourse to Arbitration proceedings, can be no bar to

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HC-KAR

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simultaneous continuation of criminal proceedings and a civil proceedings, if the two arise from separate causes of action.

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So far as the contention of the accused person

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that accused Nos.4 and 5 are only nominal Directors and they are not in charge and responsible for the day-to-day conduct of business is concerned, Section 141 of the N.I Act, which deals with the offences by companies, makes it clear that every person, who at the time the offence was committed, was in charge of and was responsible for the company for the conduct of 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 him and punished accordingly.

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However, the first proviso state that such person would not be liable if he is able to establish that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission

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11 -

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NC: 2025:KHC:22847 WP No. 46234 of 2019

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HC-KAR

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of such offence. Therefore, the burden is on the said

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person to prove the above aspect.

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The second proviso exempt the nominated Director 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 or State Government, as the case may be. Further subsection (2) also enable the complainant to prosecute any other Director, Manager, Secretary or other officer of the company, when he is able to establish that the offence is committed with the consent or convince of or any negligence attributable on the part of such Director, Manager, secretary or other officer of the company.

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Thus, the plain reading of Section 141 makes it clear that in addition the signatories to the cheque, Managing Directors and/or Joint Managing Directors, not only the person who is in charge of and responsible to the company for the conduct of business is made liable, but

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12 -

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NC: 2025:KHC:22847 WP No. 46234 of 2019

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HC-KAR

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also all those Director, Manager, Secretary, or other officer of the company with whose consent or convince or negligence attributable to them, the offence was committed. Of course, as per first proviso to Section 141(1) burden is placed on any such Director, Manager, Secretary or any other officer to establish that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence.

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This being a defence of any of the accused, it is required to be established at the trial. These disputed facts cannot be decided in a petition under Section 482 C.P.C or a Writ Petition. Of course, as held by the Hon'ble Supreme Court in SMS Pharmaceuticals Vs. Neeta Bhalla ( SMS Pharmaceuticals )⁵ , it is for the complainant to specifically aver in the complaint that particular accused was in charge and responsible for the conduct of the business.

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5 (2009) 6 SCC 652

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HC-KAR

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In fact in S.P.Mani , referred to supra the Hon'ble Supreme Court held that the primary responsibility of the complainant is to make specific averments in the complaint, so as to make the accused vicariously liable. For fastening the criminal liability, there is no legal requirement for the complainant to show that accused partner of the firm or Director of the company as the case may be was aware of each and every transaction. On the other hand, proviso to Section 141(1) clearly lays down that if the accused is able to prove to the satisfaction of the Court that the offence was committed without his knowledge or that he had exercised due diligence to prevent the commission of the offence, he will not be liable to prosecution.

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As required in Gunmala, referred to supra, in the complaint, the complainant has specifically pleaded that accused Nos.2 to 5 are whole time Directors of accused No.1 and that they are in charge and responsible for the day-to-day affairs and conduct of business of

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14 -

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NC: 2025:KHC:22847 WP No. 46234 of 2019

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HC-KAR

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petitioner No.1 - company. Thus, the burden is on the accused persons to prove their defence at the trial and more particularly for the accused Nos.4 and 5 that they were not in charge or responsible for the conduct of the

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business or that the offence was committed without their consent or knowledge. This cannot be appreciated and decided in a writ petition.

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In the result, the petition fails and accordingly, the following:

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ORDER

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(i) Writ Petition filed by the petitioner/accused

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Nos.1 to 5 under Section 482 Cr.P.C is

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hereby rejected.

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(ii) The Registry is directed to send a copy of

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this order to the trial court through e-mail.

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Sd/(J.M.KHAZI) JUDGE

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RR List No.: 1 Sl No.: 50

Procedural history

How this case reached the court

AI extract

Order under challenge
Pending criminal proceedings in C.C.No.17072/2019 (Annexure-A) for the offence punishable under Section 138 of the Negotiable Instruments Act, sought to be quashed by the accused Nos.1 to 5.¶¶36
XX Addl. Chief Metropolitan Magistrate Court, Bengaluru
Prior proceeding
Water proofing work of R.J.Brooke Square residential apartments at Kundalahalli, Bengaluru was entrusted by petitioner No.1 company to the respondent under letter dated 10.09.2016.¶¶44
Prior proceeding
Post-dated cheques were issued by petitioner No.1 company to the respondent with strict instructions to present them only after furnishing the Joint Warranty Bond.¶¶44
Prior proceeding
Cheque for Rs.5,66,600/- dated 21.03.2019 was not honoured; the said payment was subsequently made through NEFT on 30.03.2019.¶¶49
Prior proceeding
On the respondent's request, a further sum of Rs.2,00,000/- was remitted through RTGS to his account.¶¶49
Prior proceeding
Respondent presented two cheques for Rs.15 lakhs and Rs.22 lakhs; they were dishonoured on account of stop payment instructions given by petitioner No.1 company.¶¶50
Prior proceeding
Respondent approached the Micro and Small Enterprises Facilitation Council under the Micro Small and Medium Enterprises Development Act, 2006.¶¶50
Prior proceeding
Petitioner No.1 company received intimation dated 18.06.2019 from the MSME Council along with a purported application filed by the respondent, claiming demand notices served under IBC and Section 138 NI Act.¶¶55
Prior proceeding
Petitioner No.1 company sent letter dated 19.06.2019 with photographs of leaking/damp walls requesting rectification within 15 days, failing which balance amount would be forfeited.¶¶56
Prior proceeding
Respondent got issued legal notice dated 28.06.2019, which was duly replied to by the petitioners.¶¶56
Prior proceeding
According to the respondent's counsel, arbitration proceedings between the parties concluded with an award being passed.¶¶63

M/S. R. J. Rishikaran Projects Private Limited v. Mr. P. Prasad

Case brief

What is this about?

What did the court decide?

M/S. R. J. Rishikaran Projects Private Limited v. Mr. P. Prasad

Case brief

What is this about?

What did the court decide?

What the court decided

Issues for consideration

Cases cited

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Procedural history

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