Holding

Section 22 of SICA does not bar criminal prosecution under Section 138 of the NI Act, though a pre‑existing Section 22‑A restraint order may prevent the offence from being completed.

Summary

Kusum Ingots and Alloys Ltd., a company, issued post‑dated cheques to Pennar Peterson Securities Ltd. The cheques were dishonoured, a statutory notice was sent, and the payee filed a complaint under Section 138 of the Negotiable Instruments Act. Before the 15‑day notice period expired, the company was declared "sick" by the BIFR under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. The company and its directors sought to quash the criminal proceedings, arguing that Section 22 (and 22‑A) of SICA barred any criminal action. The Supreme Court held that Section 22 of SICA only restrains recovery of money and asset disposal and does not preclude criminal prosecution under Section 138, although a restraint order under Section 22‑A issued before the cheque was drawn or before the notice period lapses could halt the offence. Consequently, the High Court's dismissal of the petitions was upheld and the criminal case may proceed. The appeals were therefore disposed of, leaving the criminal proceedings intact.

Issues considered

The applicability of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 to criminal proceedings under Section 138 of the Negotiable Instruments Act.
Whether a restraint order under Section 22‑A of SICA, issued before the cheque is drawn or before the 15‑day notice period, extinguishes the offence under Section 138.
If the declaration of a company as "sick" bars the prosecution of its directors for dishonour of cheques.

Legislation cited

Code of Criminal Procedure, 1973s. 482
Constitution of Indias. Article 227
Negotiable Instruments Act, 1881s. 138, s. 139, s. 140, s. 141
Sick Industrial Companies (Special Provisions) Act, 1985s. 22, s. 22-A

Subjects

Section 138Negotiable Instruments ActSick Industrial Companies ActBIFRcriminal liability of companiescheque dishonoursection 22 SICAsection 22-A SICAquashing criminal proceedingsdirectors' liability

Judgment

A KLSUM INGOTS AND ALLOYS LTD.
v.
PENNAR PETERSON SECURITIES LTD. AND ORS.

FEBRUARY 23, 2000

B [K.T. THOMAS AND D.P. MOHAPATRA, JJ.]

Criminal Law :

Negotiable Instruments Act, 188I :

C Section 138--lngredients of-Dishonour of cheque-Criminal proceed-
ing~~Against sick company and its directors-Maintainability of-Cheques
issued by company dishonoured-But before completion of offence under
S.138 drawer company was declared sick by BIFR under S.22 of SICA: -Held:
S.22 does not bar criminal proceedings if the ingredients of S.138 are made
D out-However, if a ban order regarding deposal of assets of the company is
passed by BIFR under S.22 of SICA before the date of drawal of cheque or
before expiry of notice period under Cl.(b) of proviso to S.I38, offence under
S.138 not completed-Hence, in such a case criminal proceedings not main-
tainable.

E Sick Industrial Companies (Special Provisions) Act, 1985: Section 22.

Scope and ambit of-Held : Does not bar payment of money by the
company or its directors to other persons for satisfaction of their legally
enforceable dues.

F Dishonour of cheque-Criminal proceeding~~Against company or its
directors-Held : S.22 deals only with proceedings for recovery of money-It
does not bar criminal proceedings against a company or its directors for
dishonour of cheque.

The appellant-company issued post dated cheques in favour of the
G respondent-complainant in course of business of the company. When the
complainant presented the cheques in the bank they were returned without
payment. Then the complainant issued notice to the compaDy and/or its
Directors stating the facts of dishonour of the cheques and demanding
payment. Since no payment was made within the period of 15 days stipu-
H lated under Clause (b) of proviso to Section l3B of the Negotiable Instru-
1120
Kl:SUM INGOTS AND ALLOYS LTD. v. PENNAR PEIBRSON SECURIT1ES LTD. 1121

ments Act, 1881, the payee filed a complaint against the company and/or A
its Directors alleging, inter a/ia, that they had committed an offence under
Section 138 of the NI Act. Before the cheques were presented in the bank
or after the bank declined to honour the cheques the drawer company was
declared sick under the provisions of the Sick Industrial Companies
(Special Provisions) Act, 1985 (SICA) by the Board of Industrial and
Financial Reconstruction (BIFR).
B

On receipt of the summons from the Court in a criminal case
registered on the basis of the complaint, the accused company and/or its
Directors filed petitions under Section 482 of the Criminal Procedure
Code, 1973 or under Article 127 of the Constitution seeking quashing of C
the complaint/proceeding in the criminal case, mainly on the ground that
in view of the provisions in Section 22 of SICA the criminal case instituted
against them for commission of the alleged offence under Section 138 of
the NI Act is misconceived and compelling the accused to race trial in the
case would amount to abuse of the process of the Court. The High Court
dismissed the petition. Hence this appeal. D

Disposing of the appeal, this Court

HELD : 1.1. The object of bringing Section 138 of the Negotiable
Instruments Act, 1881 on statute is to inculcate faith in the efficacy of E
banking operations and credibility in transacting business on negotiable
instruments. l 1128-H)

Electronics Trade & Technology Development Corps. Ltd. v. Indian
Technologists & Engineers (Electronics) Pvt. Ltd., [1996) 2 SCC 739, relied
on. F

1.2. The ingredients which are to be satisfied for making out a case
under Section 138 of the NI Act are :

(i) a person must have drawn a cheque on an account maintained
by him in a bank for payment of money to another person from out of that G
account for the discharge of any debt or other liability; [1131-f<')

(ii) that cheque has been presented to the bank within a period of
six months form the date on which it is drawn or within the period of its
validity whichever is earlier; [1131-G) H
1122 SUPREME COURT REPORTS (2000] I S.C.R.
A (iii) that cheque is returned by the bank unpaid, either because of
the amount of money standing to the credit of the account is insufficient
to honour the cheque or that it exceeds the amount arranged to be paid
from that account by an agreement made with the bank; [1131-H]

(iv) the payee or the holder in due course of the cheque makes a
B demand for the payment of the said amount of money by giving a notice
in writing, to the drawer of the cheque, within 15 days of the receipt of
information by him from the bank regarding the return of the cheque as
unpaid; [1132-A]

c (v) the drawer of such cheque fails to make payment of the said
amount of money to the payee or the holder in due course of the cheque
within 15 days of the receipt of the said notice. [1132-B]

1.3. If the afon:mentioned ingredients are satisfied then the person
who has drawn the cheque shall be deemed to have committed an offence.
D From the facts of this case it is clear that no exception can be taken against
the order of the Magistrate taking cognizance of the offence under Section
138 of the NI Act against the appellants. Therefore, the ingredients of
Section 138 being prima f acie established from the complaint and the
documents filed with it, the Magistrate rightly took cognizance of the
E offence and issued summons to the appellants. [1132-C-G; 1133-AJ

2.1. Section 22 of the Sick Industrial Companies (Special Provisions)
Act, 1985 (SICA) only deals with the proceedings for recovery of money or
for enforcement of any security or a guarantee in respect of any loans or
p advance granted to the company and a proceeding for winding up of the
company. The Section does not refer to any criminal proceedings. [1133-E]

BS! Ltd. v. Gift Holdings Pvt. Ltd., [2000) 2 SCC 737, relied on.

2.2. The appellant's contention that if the criminal case is proceeded
G with and the appellants are convicted and sentenced to fine then it will be
necessary to realise the amount of fine from the assets of the company
which would be impermissible in view of the provisions of Section 22 of
SICA is premature and far-fetched as the occasion to realise the fine from
the accused company or its directors will arise only in case they are
H convicted and sentence of fine is imposed against them. That is not a
KUSUM INGOTS AND ALLOYS l ID. v. PENNAR PETERSON SECURITIES LID. 1123

ground to hold that the criminal proceedings should be foreclosed at the A
threshold. (1133-G-H; 1134-A·D]

2.3. The appellant's £urther contention that i£ the Directors of the
company on being convicted are arrested and kept in jail the efforts of the
Board of Industrial and Financial Reconstruction for reconstruc·
tion/revival of the company will not be possible and in the event the very B
purpose of inquiry by the BIFR will be rendered futile is too remote and
the apprehension £ar-£etched. [1134-B]

3.1. Section 22 SICA does not create any legal impediment for
instituting and proceeding with a criminal case on the allegations of an C
offence under Section 138 of the N1 Act against a company or its Directors.
The Section only creates an embargo against disposal of assets of the
company for recovery of its debts. The purpose of such an embargo is to
preserve the assets or the company from being attached or sold for
realisation of dues of the creditors. The Section does not bar payment or D
money by the company or its directors to other persons for satisfaction of
their legally enforceable dues. [1134-D]

3.2. In a case in which the BIFR has submitted its report declaring
a company as 'sick' and has also issued a direction under Section 22-A
restraining the company or its directors not to dispo~e of any of its asseb E
except with the consent of the Board then the contention raised on behalf
of the appellants that a criminal case for the alleged offence under Section
138 of the NI Act cannot be instituted during the period in which the
restraint order passed by the BD'R remains operative cannot be rejected
outright. Whether the contention can be accepted or not will depend on F
the facts and circumstances of the case. Where before the date on which
the cheque was drawn or before the expiry of the statutory period of 15
days after notice, a restraint order of the BIFR under Section 22-A was
passed against the company then it cannot be said that the offence under
Section 138 of the NI Act was completed. Io such a case it may reasonably
be said that the dishonouring of the cheque by the bank and failure to G
make payment of the amount by the company and/or its Directors is for
reasons beyond the control of the accused. It may also be contended that
the amount claimed by the complainant is not recoverable rrom the assets
of the company in view of the ban order passed by the BIFR. In such
circumstances it would be unjust and unfair and against the intent and H
1124 SUPREME COURT REPORTS (2000] l S.C.R.

A purpose of the statute to hold that the Directors should be compelled to
face trial in a criminal case. (1134-H; 1135-A-C]

3.3. Except in the circumstance noted above there is no good reason
for accepting the contentions raised by the appellants in favour of the
prayer for quashing tile criminal proceedings or for keeping the proceed-
B ings in abeyance. It will be open to the appellants to place relevant
materials in this regard before the Magistrate before whom the cases are
pending and the magistrate will examine the matter keeping in mind the
discussions made herein. The question whether in the facts and cir-
cumstances of a particular case, Section 138 of the NI Act is attracted or
not need not be considered, for that is a question to be considered by the
c Court at the appropriate stage of the cas~ in the light of the evidence on
record. (1135-D-E]

CRIMINAL APPELLATE JURISDICTION Criminal Appeal
Nos. 212-216 of 2000 Etc. Etc.
D
From the Judgment and Order dated 30.3.99 of the Andhra Pradesh
High Court in Cr!. R.C. Nos. 389-393 of 1999.

M.N. Rao, P. Chidambaram, T.R. Andhyarujina, Ashok H. Desai,
M.S. Genesh, A.K. Ganguli, T.L.V. Iyer, Dushyant A. Dave, U.N.
E Bhachawat, Ranjit Kumar, Ms. Anu Mohla, Pranab Kumar Mullick, P.
Nirop, Bhagwati Prasad, Pavan Kumar, Chandra Bhushan, B.P. Padhy, J.S.
Goswami, Ms. Bina Gupta, Prashyant Naik, Ms. Rekha Ray, Mrs. Urmila
Sirur, Nikhil Nayar, C.L. Sarin, Rajiv Dutta, Ms. Enakshi Kulshrestha,
Uday Kumar, Kapil Sharma, H.P. Sharma, G. Sridhar, Y. Raja Gopala
Rao, R.N. Keshwani, VJ. Francis, N.S. Tambwekar, G.B. Sathe, Nitin
F Tamswekar, Alok Sen Gupta, Ranjan Narian, Ms. Deepa Das, Ms.
Lavanya, Vivek Zutshi, S. Sukumaran, U.U. Lalit, Ms. H. Wahi, Ms. Anu
Sawhney, Ashok Gupta R. Sasiprabhu, A.P. Vinod, Manoj Prasad, Mohit
Mathur, Ms. Astha Tyagi, S. Prasad, V.A. Rana, Rajcsh Nair, E.R. Kumar,
R. Ncdumaran, Kailash Vasdev, R. Rahim, V.B. Joshi, Ms. Swc:ta Sharma,
G G. Prabhakar, Ms. T. Anamika, Krishnamurthi Swami, S.S. Rana, Mrs.
Bindra Rana, Vikrant Rana, K. Maruthi Rao, Mrs. K. Radha, D. Mehesh
Babu, P.S. Narasimha, Ms. Bharati B., P. Sridhar, V.G. Pragasam, Sanjeev
Sen, R.N. Karanjawala, Ms. Nandini Gore, Arunabh Choudhary, Manik
Karanjawala, Ramesh Singh, Naris Beerani, P.I. Jose, Jenis Francis, T.K.
Swaminathan, K.K. Gupta, J.S. Arora, Puneet, S. Sharma, Ms. Asha Jain
H Madan and Ms. Rakhi Ray for the appearing parties.
KUSUM INGOI'S AND ALLOYS L1D. >. PENN AR PElERSON SECURillES L1D. !D.P. MOHAPATRA. J. i 1125

The Judgment of the Court was delivered by A

D.P. MOHAPATRA, J. Leave granted.

The common question that arises for consideration in these appeals
is whether a company and its Directors can be proceeded against for
B
having committed an offence under section 138 of the Negotiable Instru-
ments Act, 1881 (for short 'the NI Act') after the company has been
declared sick under the provisions of The Sick Industrial Companies
(Special Provisions) Act, 1985 (for short 'SICA') before the expiry of the
period for payment of the cheque amount. The answer to the question
depends on interpretation of section 138 of the NI Act and its interaction c
with the relevant provisions of SICA. Since the relevant facts involved in
all the cases are similar and a common question of law arises in all the
cases they were heard together and they are being disposed of by this
judgment.
D
The factual positions about which there is no dispute may be stated
thus: Post-dated cheques were issued on behalf of the company in favour
of the complainant in course of business of the company. When the
complainant presented the cheques in the bank they were returned without
payment. Then the complainant issued notice to the company and/or its
Directors stating the facts of dishonour of the cheques and demanding E
payment. Since no payment was made within the period of 15 days stipu-
lated under the NI Act the payee filed complaint against the company
and/or its Directors alleging inter-alia that they had committed an offence
under section 138 of the NI Act. Before the cheques were presented in the
bank or after the bank declined to honour the cheques the drawer company p
was declared sick under the provisions of the SICA by the Board of
Industrial and Financial Reconstruction (for short 'BIFR'). On receipt of
the summons from the Court in the criminal case registered on the basis
of the complaint the accused company and/or its Directors filed petitions
under section 482 of the Code of Criminal Procedure or under Article 227
of the Constitution seeking quashing of the complaint/proceeding in the G
criminal ease, mainly on the ground that in view of the provisions in section
22 of SICA the criminal case instituted against them for commission of the
alleged offence under section 138 NI Act is misconceived and compelling
the accused to face trial in the case will amount to abuse of the process of
Court. The High Court having declined to interfere in the proceeding and H
1126 SUPREME COURT REPORTS [2000) 1 S.C.R.
A dismissed the petitions filed by the accused, they have filed these appeals
challenging the order passed by the High Court.

The main thrust of the arguments of the learned counsel appearing
for the appellants is that on the company being declared sick by the BIFR
no steps could bt: taken by the complainants for realisation of thi: amounts
B said to be due to them and therefore the criminal proceeding initiated
against the drawer company and its Director on tht: allt:gation that the
cheques drawn in favour of the complainant were dishonoured by the bank
is misconceived and should be quashed; alternatively it is their contention
that the proceedings in the criminal case should be stayed or suspended
c till the accused company becomes a functional and viable unit. On behalf
of the appellants reliance is placed on sections 22 and 22-A of the SICA.

The learned counsel appearing for the respondents on the other
hand contend that on the undisputed fact situation of the case a prima-facie
case under section 138 of the NI Act is made out against the accused and
D on being satisfied about this position the learned magistrate took cog-
nizance of the offenct: and ordi:red issue of summons to the appdlants. It
is their submission that section 22 has no application to, criminal proceed·
ings and that the said section does not bar payment of dm:s by the accused
company or its Directors; an embargo is placed only on the creditors from
realising their dues from the company by a proceeding for winding up or
E
execution or distress. It is also the submi~sion of learned counsel for the
respondents that the criminal case cannot be said to be a proceeding for
realisation of money due from the company.

Before dealing with the rival contentions raised on behalf of the
F parties it will be convenient to note relevant provisions of the NI Act and
SICA.

Sections 138 tu 141 uf the NI Act which are relevant for the purpose
of the case are quoted hereunder :

G "138. Dishonour of cheque for insufficiency, t:tc. of funds in the
account - Where any cheque drawn by a pt:rson on an account
maintained by him with a bankt:r for paymt:nt of any amount of
money to anotht:r person from out of that account for tht: dis-
charge, in whole or in part, of any debt or other liability, is ri:turned
H by the bank unpaid, either because of the amount of money
KU>UMINGOTS AND ALLOYS LID.'· PENNARPE:IERSON SECUR!IlES LID. (D.P. MOHAPATRA, J.11127

standing to the credit of that account is insufficient to honour the A
cheque or that it exceeds the amount arranged to be paid from
that account by an agreement made with that bank, such person
shall be deemed to have committed an offence and shall, without
pn:judice to any other provision of this Act, be punished with
imprisonment for a term which may extend to one year, or with B
fine which may extend to twice the amount of the cheque, or with
both:

Provided that nothing contained in this section shall apply un!t:ss:-

c
(a) the cheque has been presented to the bank within a period
of six months from the date on which it is drawn or within
the period of its validity, whichever is earlier;

(b) the payee or the holder in due course of the cheque, as the
case may be, makes a demand for the payment of the said D
amount of money by giving a notice in writing, to the drawer
of the eneque, within fifteen days of the receipt of information
by him from the bank n:garding the return of the cheque as
unpaid; and
E
(c) the drawer of such cheque fails to make the payment of the
said amount of money to the payee or as the case may be, to
the holder in due course of the cheque within fifteen days of
the n.:ceipt of the said notice.

Explanation : For the purpose of this section, "debt or other F
liability" means a legally enforceable debt or other liability.

139. Presumption in favour of holder - It shall be presumed, unless
the contrary is proved, that the holder of a cheque received
the cheque, of the nature referred to in Section 138 for the G
discharge, in whole or in part, of any debt or other liability.

140. Defence which may not be allowed in any prosecution under
Section 138. It shall not be a defence in a prosecution for an
offence under Section 138 that the drawer has no reason to
believe when he issued the cheque that the cheque may be H
1128 SUPREME COVRT REPORTS [2000] 1 S.C.R.

A dishonoured on presentment for the reasons stated in that
section.

141. Offences by companies (1) If the person committing an of-
fence under Section 138 is a company, every person, who at
the time the offence was committed, was in charge of, and
B was responsible to the company for the conduct of the busi-
ness 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 and punished accordingly :

Provided that nothing contained in this sub-section shall
c render any person liable to punishment if he proves that the
offence was committed without his knowledge, or that he had
exercised all due diligence to prevent the commission of such
offence.

D (2) Notwithstanding anything contained in sub-section (1);
where any offence under this Act has been committed by a
company and it is proved that the offence has been com-
mitted with the consent or connivance of, or is attributable
to, any neglect on the part of any director, manager, secretary
or other officer of the company, such director, manager,
E secretary or other officer shall also be deemed to be guilty of
that offence and shall be liable to be proceeded against and
punished accordingly.

Explanation - For the purposes of this section -
F (a) "Company" means any body corporate and includes a
firm or other association of individuals; and

(b) "director", in relation to a firm, means a partner in the
firm.
G It is relevant to note here that Chapter XVII of the NI Act in which
the aforementioned sections are included was inserted in the Act w.e.f.
1.4.1989 by Act 66 of 1988. The object of bringing Section 138 on statute
is to inculcate faith in the efficacy of banking operations and credibility in
transacting business on negotiable instruments. (See : Electronics Trade &
H Technology Development Corpn. Ltd., Secunderabad v. Indian Technologists
KUS UM INGOTS AND ALLOYS LID. '- PENNARPEfERSON SECURITIES LID. [D.P. MOHAPATRA. J.J 1129

& Engineers (Electronics) P. Ltd. And Anr., (19%] 2 SCC 739. A
Coming to the provisions of SICA sections 22 and 22-A which are
relevant for appreciating the questions raised in the case, are quoted
hereunder:

"22. Suspension of legal proceedings, contracts etc - (1) Where in B
respect of an industrial company, an inquiry under section 16 is
pending or any scheme referred to under section 17 is under
preparation or consideration or a sanctioned scheme is under
implementation or where an appeal under section 25 relating to
an industrial company is pending, then, notwithstanding anything C
contained in the Companies Act, 1956 (l of 1956), or any other
law or the memorandum and articles of association of the industrial
company or any other instrument having effect under the said Act
or other law, no proceedings for the winding up of the industrial
company or for execution, distress or the like against any of the
properties of the industrial company or for the appointment of a D
receiver in respect thereof (and no suit for the recovery of money
or for the enforcement of any security against the industrial com-
pany or of any guarantee in respect of any loans or advance granted
to the industrial company) shall lie or be proceeded with further,
except with the consent of the Board or, as the case may be, the
Appellate Authority. E
(2) Where the management of the sick industrial company is taken
over or changed (in pursuance of any scheme sanctioned under
section 18), notwithstanding anything contained in the Companies
Act, 1956 (1 of 1956), or any other law or in the memorandum and
articles of association of such company or any instrument having F
effect under the said Act or other law -

(a) it shall not be lawful for the shareholders of such company or
· any other person to nominate or appoint any person to be a
director of the company;
G
(b) no resolution passed at any meeting of the shareholders of such
company shall be given effect to unless approved by the Board.

(3) (Where an inquiry under section 16 is pending or any scheme
referred to in section 17 is under preparation or during the period) H
1130 SLPREME COL:RT RHORTS 12000] 1 S.C.R.
A or consider ,1tion of any scheme und;;;r section 18 or where any such
scheme is ;anctioned thereunder, for due implementation of the
scheme, the Board may by order dcdart: with n;spect to the sick
industrial company concern<:d that the operation of all or any of
the contracts, assuranct:s of property, agreements, settlements,
awards, standing orders or other instruments in force, to which
B such sick industrial company is a party or which may be applicable
to such sick industrial company immcdiatdy bdore the date of
such order, shall remain suspcnded or that all or any of the rights,
privileges, obligations and liabilities acnuing or arising tht:reunder
before the said date, shall remain suspended or shall be enforce-
able with such adoptiom, and in such mannt:r as may be specified
c by the Board :

Provided that such declaration shall not be made for a period
i:xceeding two years which may be extended by one year at a time
so, howe\ t::r, that the total period shall not exceed seven years in
the aggregatt:.
D
(4) Any dt:claration made under sub-section (3) with respect to a
sick industrial company shall have effect notwithstanding anything
contained in the Companies Act, 1956 91 of 1956, or any other
law, the memorandum and articles of association of the company
E or any instrument having effect under the said Act or other law or
any agreement or any decree or order of a court, tribunal, officer
of other authority or of any submission, sett!ement or standing
order and accordingly ·

(a) any remedy for the enforcement of any right, privilege, obliga-
F tion and liability suspended or modified by such declaration, and
all proceedings relating thereto pending before any court, tribunal,
officer or other authority shall remain stayed or be continued
subject to such declaration; and

(b) on the declaration ceasing to have effect -
G
(i) any right, privilege, obligation or liability so remammg
suspended or modified, shall become n:vived and enforceable as
if the declaration had never been made; and

(ii) any proceeding so remaining stayed shall be proceeded with,
H subject to the provisions of any law which may then bt: in force,
KU:->0M ]~l-iUfS AND AU.,OYS L'JD, "· .l'J:<:NNARPETERS< 'N SECT.lRfUESLAU. '.0.l'. ~CJHAPATR.A. . ~-! 1131

from the 'tage which had been reached when the proceedings A
became stayed.

(5) In computing the period of limitation for tht: enforcement of
any right, privilege, obligation or liab1lity, the period during which
it or the n:mt:dy for the enforcement thereof remains suspended
under this section shall be excluded. B

;'22-A - Direction not tu dispose of assets - The Board may, if it
is of opinion that any direction is necessary in the interest of the
sick industrial company or creditors or shan:hulders or in the
public interest, by ord(;r in writing direct the sick industrial com-
pany not tu dispose of, cxc:ept with the consent of the Board, any c
of its assets -

(a) during the period of pn:paration or consideration of the
scheme undcr section 18; and

(b) during the period beginning with the recording of opinion by D
the Board for winding up of the company under sub-section
(1) of section 20 and up to commencement of the proceedings
rdating tu the winding up before the concerned High Court.''

On a reading of the pruvi;ions of Section 138 NI Act it is clear that E
the ingredients which are tu be satisfied for making out a case under the
provision arc :

(i) a person must have drawn a cheque on an account maintained
by him in a bank for payment of a certain amount of money
to another person from out of that account for the discharge F
of any debt or other liability;

(ii) that chcqut: has bt:en pn:sented to the bank within a period
of six months from the date on which it is drawn or within
the period of its validity whichever is earlier;
G
(iii) that cheque is returned by the bank :.mpaid, either because
of the amount of money standing tu the credit of the account
is insufficient to honour the cheque or that it exci.:cds the
amount arranged to be paid from that account by an agn:e-
ment made with the bank; H
1132 SUPREME COURT REPORTS (2000j 1 S.C.R.
A (iv) the payee or the holder in due course of the cheque makes
a demand for the payment of the said amount of money by
giving a notice in writing, to the drawer of the cheque, within
15 days of the receipt of information by him from the bank
regarding the return of the cheque as unpaid;

B (v) the drawer of such cheque fails to make payment of the said
amount of money to the payee or the holder in due course
of the cheque within 15 days of the receipt of the said notice;

If the aforementioned ingredients are satisfied then the person who
c has drawn the cheque shall be deemed to have committed an offence. In
the explanation to the section clarification is made that the phrase "debt
or other liability" means a legally enforceabk debt or other liability.

Section 141 NI Act is a provision specifically dealing with the offen-
ces by companies. Therein it is laid down, inter alia, that if the person
D committing an offence under section 138 NI Act is a company, every person
who, at the time the offence was committed, was in charge of, and was
responsible to the company for the conduct of the 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 and punished accordingly. Under
E the proviso to sub-section (1) it is laid down that nothing contained in this
sub-section shall rendered any person liable to punishment if he proves
that the offence was committed without his knowledge, or that he had
exercised all due diligence to prevent the commission of such offence.

Sub-section (2) of the Section makes any director/manager/secretary
F or other officer of the company in connivance or any neglect on the part
of whom, an offence under the Act has been committed by the Company,
such director/manager/secretary or other officer is deemed to be guilty of
that offence and shall be liable to be proceeded against and punished
accordingly.
G From the facts of the case alleged by the complainant gist of which
has been noted earlier the position is clear that no exception can be taken
against the order of the Magistrate taking cognizance of the offence under
section 138 NI Act against the appellants. Undisputedly the cheques were
drawn by the appellants for payment of certain amount of money due to
H the complainant, from the account in the bank and the said cheques were
KUSUM INGIYJS AND ALLOYS LID.'- PENNARPETuRSON SECURl11ES !.1D. (D.P. MOHAPAfRA, J.j 1133

dishonoured by the bank and the amount remained unpaid even after lapse A
of 15 days from the date of the notice issued by the complainant after the
cheques were dishonoured. Therefore, the ingredients of section 138 being
prim a f acie established from the complaint and the documents filed with
it, the Magistrate rightly took cognizance of the offence and issued sum-
mons to the appellants.
B
The next question for consideration is whether under the provisions
of the SICA there was any legal impediment for payment of the amount
for which the cheques were drawn and for that reason the appellants
cannot be taken to have committed an offence under section 138 NI Act.
A bare reading of the section 22 of the SI CA makes the position clear that C
during pendency of an inquiry under section 16 or during the preparation
of a scheme referred to under section 17 or during implementation of a
sanctioned scheme or pendency of an appeal under section 25, no proceed-
ings for winding up of the industrial company or for execution, distress or
the like against any of the properties of the industrial company or for the D
appointment of a receiver in respect thereof and no suit for the recovery
of money or for enforcement of any security against the industrial company
or of any guarantee in respect of any loans or advance granted to the
industrial company, shall lie or be proceeded with further, except with the
consent of the Board or, the Appellate Authority, as the case may be. The
section only deals with proceedings for n:covery of money or for enforce- E
ment of any security or a guarantee in respect of any loans or advance
granted to the company and a proceedings for winding up of the company.
The section does not refer to any criminal proceeding. In M/s. B.S./. Ltd.
& Anr. v. Gift Holdings Pvt. Ltd., Criminal Appeal No. 847 of (1999) we
held that pendency of proceeding under Section 22(1) of SICA alone is not F
sufficient to get absolved from the liability under Section 138 of the NI Act.

A contention was raised on behalf of the appellants that if the
criminal case is proceeded with and the appellants are convicted and
sentenced to fine then it will be necessary to realise the amount of fine
from the assets of the company which would be impermissible in view of G
the provisions of section 22 of the SICA. We have no hesitation in rejecting
this contention. In fact the same contention was considered by us at length
in M/s. BS/ Ltd. v. Gift Holdings, (Criminal Appeal No. 847 of 1999) and
it was repelled. In our considered view the contention is premature and
far-fetched as the occasion to realise fine from the accused company or its H
1134 SCPREMF COVRT RFPORTS [20COJ l S.C.R.

A directors will arise only in case they are convicted and sentence of fine is
imposed against them. That is not a ground to hold that the criminal
proceeding should he for<:closed at the threshold.

Another contention which was raised on behalf of the appellant in
this connection is that if the Directors of the company on being convicted
B are arrested and kept in jail the efforts of the BIFR for reconstruc-
tion/revival of the rnmpany will not be possiblt: and in that event the very
purpose of inquiry by the BIFR will be n.:ndcred futile. The contention is
too remote and the apprehension far fetched. We reject the said conten-
tion.
c
In our constdercd view section 22 SICA does not cn.:ate any legal
impediment for instituting and proceeding with a criminal case on the
allegations of an utfonce under section 138 of the NI Act against a company
or its Directors. The section as we rt:ad it only creates an t:mbargu against
disposal of assets of the company for recovery of its d..:bts. The purpose of
D
such an embargo is to preserve the assets of the company from being
attached or sold for realisation of dues of the creditors. The section docs
not bar paym<.:nt "f money hy the company or its director-; to other persons
for >atisfaction of their legally enforceable due;.

E The quL·stil1IJ that rcmains to be rnnsidcred is whdhcr sect ion 22 A
uf SICA affc:ct> a cTimina1 cast: for an ,,tfonce .mder s~ction 1:'8 ;-..1 Act.
In th.; said section prnvision is made ~nahling the BlldTd to make an order
in writing tu dircd the sick industrial company nut to .iispuse of, except
with the const:nt Df the Board, any of its assets - (a) during th..: period of
F preparation or cnnsideration of tht scheme under st:ctiun 18; and (b)
during the period beginning with the recurding of opinion by the Board for
winding up of the company under sub-section ( 1) of section 20 and up to
commencement uf the proceeding5 relating to the winding up before the
concerned High Court. This exercise of the power by the Board is condi-
tioned by the prescription that the Board is of the opinion that such a
G direction is nece,sary in the intc:re~t of the sick induMrial company or its
creditors or shareholders or in the ;mblic interest. In a case in which the
BIFR has submitted its report declaring a company as 'sick' and has also
issued a direction under section 22 A restraining the company or its
directors not tu dispose of any of its assets except with consent of the Board
H then the contention raised on bthalf of the appellants that a criminal case
KUSL'M INGITTS AND ALLOYS LID.'· PENNAR P1'""TERSON SECURillES LID. [D.P. MOHAPATRA, J.; 1135

for the alleged offence under section 138 NI Act cannot be instituted A
during the period in which the restraint order passed by the BIFR remains
operative cannot be rejected outright. Whether the contention can be
accepted or not will depend on the facts nd circumstances of the case. Take
for instance, before the date on which the cheque was drawn or before
expiry of the statutory period of 15 days after notice, a restraint order of B
the BIFR under Section 22-A was passed against the company then it
cannot be said that the offence under section 138 NI Act was completed.
In such a case it may reasonably be said that the dishonouring of the
cheque by the bank and failure to make payment of the amount by the
company and/or its Directors is for reasons beyond the control of the
accused. It may also be contended that the amount claimed by the cum- C
plainant is nut recoverable from the assets of the company in view of the
ban order passed by the BlFR. In such circumstances it would be unjust
and unfair and against the intent and purpose of the statute to hold that
the Directors should be cumpelh:d to face trial in a criminal case.

Except in the circumstances noted above we do nut find any good D
reason for accepting the contentions raised by the learned counsel for the
appellants in favour of the prayer for quashing the criminal proceedings or
for keeping the proceedings in abeyance. lt will be opt:n tu the appellants
to place relevant matt:riab in this regard before the learned Magistratt:
before whom the case:. arc pending and the learned Magistrate will ex E
amine the matter keeping in mind the discussions made in this ;udgtnent.
We make it clear that we have not considered the question whether in the
facts and circumstances of a particular case Section 138 NI Act is attracted
or nut, for that is a question tu be considered by the Court at the
appropriate stage of the case in the !ight evidence on record. The appeals
are disposed of on the terms aforesaid. F

v.s.s. Appeals disposed of.