Appeal against Hon’ble High Court judgments
2. These seven appeals arise from identical judgment(s) and order(s) of the High Court of Judicature at Bombay (for short the High Court), dated 5.10.2023, passed on separate petitions, under Article 227 of the Constitution of India, impugning revisional court order(s) emanating from separate complaint(s) filed by the appellant against the respondent(s) under Section 138 of the Negotiable Instruments Act, 1881. As common questions of law and fact arise for our consideration, between same set of parties, these appeals were heard together and are being decided by a common order.
Factual matrix
3. Appellant is the original complainant who had lodged separate complaints, under Section 138 read with Section 141 of N.I. Act, against L.D. Textile Industries (for short the accused company – first respondent) and four others (other respondents) in respect of dishonour of cheques issued by the accused company. Details of those cheques with reference to corresponding SLP (Crl.) No. and complaint number(s) are given in the table below:
“Tabular columns)
Whether the amount not repaid all the day to day business in-charge persons are liable to be punished under section 138 N.I Act
4. Allegations in each complaint, inter alia, are: (a) that the accused company, towards part payment for supplies made by the complainant, issued cheque(s) in favour of the complainant; (b) those cheque(s) were deposited for collection but they returned for “insufficient funds” in the drawer’s account; (c) complainant thereafter served notice on all the accused calling upon them to pay to the complainant the cheque amount; (d) despite service of notice, the amount was not paid; and (e) therefore, the accused company including respondents 2 to 5, who were in-charge of and responsible for day-to-day business affairs of the accused company, are liable to be punished for offence punishable under Section 138 read with Section 141 of N.I. Act.
5. Based on the complaint and the affidavit filed in support thereof, the accused were summoned by Magistrate concerned.
Accused petitioned the magistrate to recall the processes issued against them since the company was declared SICK
6. On being summoned, the accused applied to the learned Magistrate to recall the processes issued against them and prayed that proceedings against them be dropped and they be discharged. In their application, it was claimed that the accused company was not only declared ‘SICK’ by the Board of Industrial and Financial Reconstruction under the provisions of Sick Industrial Companies (Special Provisions) Act, 19853 but it was restrained from disposing of any of its assets without the consent of BIFR. In such circumstances, when a legal embargo was imposed on disposal of its assets, it could not have responded to the demand notice. Therefore, proceedings qua them, under Section 138 of N.I. Act, were not sustainable. In support of its plea, the accused relied on a decision of this Court in M/s. Kusum Ingots & Alloys Ltd. vs. M/s. Pennar Peterson Securities Ltd. and others.
Sessions court allowed revision but Hon’ble High Court dismissed the Criminal Writ petition
7. The learned Magistrate dismissed the application seeking recall of the processes. Against which, the accused filed a revision before the Court of Session. The revisional court allowed the revision and set aside the order of the learned Magistrate thereby discharging the accused of offences punishable under Section 138 read with Sections 141 and 142 of N.I. Act. Aggrieved by orders of the revisional court, appellant filed Criminal Writ Petition Nos.767, 768, 769, 770, 776, 777 and 779 of 2005 before the High Court of Judicature at Bombay, which came to be dismissed by impugned order(s) dated 5.10.2023.
Hence this appeal
8. Aggrieved therewith, these appeals have been filed.
Analysis/ Discussion
13. We have considered the submissions and have perused the materials on record.
Law raises a presumption that every negotiable instrument bearing a date was made or drawn on such date
14. Before we address the rival submissions, it would be apposite to notice the allegations which are common in all the complaints. In all complaints, it is alleged that cheques were issued in 2001 against supplies made to the accused company. No doubt, a plea has been raised on behalf of accused that those were post-dated cheques. However, the law raises a presumption that every negotiable instrument bearing a date was made or drawn on such date. In such circumstances, to rebut the said presumption, evidence would have to be led. Therefore, at this stage, while dealing with validity of the processes issued, based on complaint allegations and affidavit filed in support thereof, in absence of any evidence led by the accused, it would not be permissible to pre-judge the issue and record a finding that cheque was post-dated.
Whether cheques were issued for running day-to-day operations of the company to be addressed in the trial
18. In the instant case, according to the complaint allegations, the complainant company had made supplies and in lieu thereof the cheques in question were issued. In such circumstances, in our view, as there would be a presumption regarding the date on which those cheques were issued, the question as to whether those cheques were issued for running day-to-day operations of the company is an issue, which would have to be addressed on the basis of evidence led in trial.
SICA does not create any legal bar to file criminal case as per s. 138 N.I Act against a SICK company or its directors
20. A careful reading of the aforesaid extracts from Kusum Ingots (supra) would make it clear that Section 22 of SICA does not create any legal impediment for instituting and proceeding with a criminal case on the allegations of an offence under Section 138 of the N.I. Act against a sick company or its Directors. However, where a direction is issued by BIFR, under Section 22A of SICA, restraining the company or its Directors not to dispose of any of its assets except with consent of the Board, whether a criminal complaint for the alleged offence under Section 138 N.I. Act can be instituted during the period in which the restraint order remains operative, is a plea which would have to be considered, and whether that plea is to be accepted or not will depend on the facts and circumstances of the case.
21. In Southern Steel Ltd. and Others vs. Jindal Vijayanagar Steel Ltd. this Court had an occasion to consider whether proceedings against a company, under Sections 138 and 141 of N.I. Act, should be interdicted only because the company has been declared ‘SICK’ under SICA. In the said case, the accused-company, after being declared ‘SICK’, in lieu of purchases made from the complainant, had issued a cheque which got dishonoured. Those purchases were made holding out that goods will be paid for. On non-payment of cheque amount, despite notice, the complainant initiated criminal proceeding against the accused-company under Section 138 of N.I. Act. Aggrieved by the proceeding under Section 138 of N.I. Act, accused-company filed petition under Section 482 of the Code of Criminal Procedure, 1973. The High Court dismissed the petition. Thereafter, the accused-company approached the trial court and sought discharge, under Section 258 of Cr.P.C., by placing order passed by BIFR under Section 22A. The trial court dismissed the application. The accused, thereafter, approached the High Court. The High Court dismissed the application and refused to quash the proceedings. Aggrieved therewith, the accused approached this Court by placing reliance on Kusum Ingots (supra). Dismissing the appeal, this Court held:-
“para. 9”
22. Legal principles deducible from the decisions above, inter alia, are, (a) there is no embargo on filing a complaint under Section 138 of N.I. Act against a ‘SICK’ company; (b) even if there is a restraint order under Section 22A of SICA, the nature of the restraint order and the facts of that case would have to be considered before taking a decision whether the proceeding under Section 138 could continue or not; and, (c) the appropriate stage for taking such a decision would, ordinarily, be after parties have led their evidence.
The revisional court erred by recalling the processes and discharging the accused
23. In the instant case, the restraint order under Section 22A of SICA did not restrain the accused/company to draw on its assets to meet its day-to-day operations and, according to the complaint allegations, the cheques in question were issued to discharge the liability of the accused-company against supplies made by the complainant company. In such circumstances, the revisional court fell in error by recalling the processes and discharging the accused at the threshold of the proceeding and the High Court erred in not correcting the error so committed by wrongly relying on Kusum Ingots & Alloys Ltd. (supra).
Recall the processes was not maintainable
24. Besides above, the prayer to recall the processes was not maintainable in view of the decision of this Court in Adalat Prasad (supra), which has been affirmed by a Constitution Bench of this Court In Re: Expeditious Trial of Cases under Section 138 of NI Act, 1881 (supra).
Conclusion
25. For the foregoing reasons, the appeals are allowed. The impugned judgment(s) and order(s) of the High Court as well as of the revisional court are set aside. The proceeding(s) on the complaints of the appellant, under Section 138 read with Section 141 of N.I. Act, shall stand restored on the file of the learned Magistrate. The learned Magistrate shall now proceed in accordance with law and bring the proceedings to its logical end.
Judgments were cited or relied
- Adalat Prasad vs. Rooplal Jindal (2004) 7 SCC 338
- In Re: Expeditious Trial of Cases under Section 138 of NI Act, 1881 (2021) 16 SCC 116
- M/s. Kusum Ingots & Alloys Ltd. vs. M/s. Pennar Peterson Securities Ltd. and others. (2000) 2 SCC 745
- Southern Steel Ltd. and Others vs. Jindal Vijayanagar Steel Ltd. (2008) 5 SCC 762
Acts and Sections involved
- The Negotiable Instruments Act, 1881: Specifically, Sections 138 and 141.
- The Sick Industrial Companies (Special Provisions) Act, 1985: This act is mentioned in the context of legal principles regarding proceedings against a “SICK” company.
Party
Shree Nagani Silk Mills Pvt. Ltd. vs. L.D. Industries Ltd. & Ors – Criminal Appeal No. 3821 of 2025 – 2025 INSC 1064 – September 2, 2025 – Hon’ble Mr. Justice Manoj Misra and Hon’ble Mr. Justice Ujjal Bhuyan.
