Cheque Dishonour, Section 138 of Negotiable Instruments Act, 1881, offence by Companies and validity of issuance of process by Magistrate

Cheque Dishonour, Section 138 of Negotiable Instruments Act, 1881, offence by Companies and validity of issuance of process by Magistrate - Quashing of summons issued to accused - Invalid summons in cases of cheque dishonour - CFO as accused - MD of Company as accused - Director of Company as accused - Interface of Sick Industrial Companies (Special Provisions) Act, 1985 and NI Act, 1881 - Relevance of date of issuance of cheque - Effect of Sick   Industrial   Companies (Special   Provisions)  Repeal   Act,  2003 - Grant of Relief to accused - Applicability of other laws on proceedings under S.138 of N.I. Act, 1881

It is relevant to note the impact of other laws on the proceedings in respect of S.138 of Negotiable Instruments Act, 1881. 

In case of NRC Ltd v. Fuel Corporation of India [2019] GCtR 6468 (Nagpur, Bombay), accused had challenged the issuance of process by JMFC in respect of offence under S.138 of Negotiable Instruments Act, 1881 and accused succeeded in getting the summons quashed. In this case, MD of company and CFO of Company were made accused. High Court has quashed the summons issued to the accused.

The accused contended that the company was registered with the Board for Industrial and Financial Reconstruction (BIFR) w.e.f. 03.12.2008 and was declared a sick unit on 16.07.2009 and a direction under Section 22­A of the Sick Industrial Companies (Special   Provisions)  Act,  1985  (SICA) restraining  the  company from disposing of the assets was issued.

Section  22 of SICA, 1985 only deals  with the proceedings   for   recovery   of   money   or   for   enforcement   of   any security or guarantee in respect of any loans or advance granted to the company and a proceedings for winding up of the company and there is no reference to any criminal proceedings.   If before the date on which the cheque was drawn or expiry of the statutory period of 15 days after notice, a restraint order of BIFR under Section 22A was passed against the company, then it cannot be said that the offence   under   Section   138   of   the   Act   was   completed.

Noting the fact situation of the case it was said that it cannot be said that the permission to utilize the current assets for running day­to­day operations could have permitted the accused, even if it is assumed that there were current   assets   available   to   pay   the   complainant   company,   to comply with the statutory notice. 

The   submission     that   in   view   of   the   Sick   Industrial   Companies (Special   Provisions)  Repeal   Act,  2003  coming into  force   w.e.f. 01.12.2016, the statutory disability to prosecute the accused is removed, cannot be countenanced. It was held that "the offence not complete, not because there was a statutory bar, but  because the directors of the company were prevented by reasons beyond their control from honouring the cheques."