Holding

A cheque issued as security for a debt that becomes enforceable after the underlying transaction is still subject to Section 138, and the magistrate’s issuance of process was valid as he satisfied the statutory requirement of applying his mind.

Summary

The appellants, directors of a company, issued a post‑dated cheque as security for payment under a Power Supply Agreement, but the cheque was later presented and dishonoured after the company failed to pay for electricity supplied. A complaint under Section 138 of the Negotiable Instruments Act was filed, and the magistrate issued summons without postponing the process despite the appellants residing outside its jurisdiction. The Supreme Court held that once a legally enforceable debt arose from the supplied power, the cheque, even if labelled as security, was drawn to discharge that debt and therefore fell within Section 138. The magistrate had applied his mind and satisfied the requirement of sufficient ground for proceeding, so the issuance of process was valid. The court also affirmed that the directors could be held liable under Section 141 if they were in charge of the company at the time of the offence. Consequently, the appeals were dismissed.

Issues considered

The dishonour of a cheque issued as security is covered by Section 138 of the Negotiable Instruments Act.
Whether a debt must exist at the time of cheque issuance or may arise before encashment for Section 138 to apply.
Whether the magistrate was obligated under Section 202 CrPC to postpone issuance of process and conduct an inquiry when the accused resided outside its territorial jurisdiction.
The applicability of vicarious liability under Section 141 of the Negotiable Instruments Act to the directors and managing director of the company.
The propriety of the High Court’s exercise of power under Section 482 CrPC to quash the criminal complaint.

Legislation cited

Code of Criminal Procedure, 1973s. 202, s. 203, s. 204, s. 205, s. 482
Negotiable Instruments Act, 1881s. 138, s. 141

Subjects

Negotiable Instruments ActSection 138cheque dishonoursecurity chequedebt liabilityPower Supply Agreementvicarious liabilitySection 141Section 202 CrPCmagistrate discretiondirectors liabilitypost‑dated chequelegally enforceable debt

Judgment

1086 [2021]
SUPREME COURT 9 S.C.R. 1086
REPORTS [2021] 9 S.C.R.

A SUNIL TODI & ORS.
v.
STATE OF GUJARAT & ANR.
(Criminal Appeal No. 1446 of 2021)
B DECEMBER 03, 2021
[DR. DHANANJAYA Y CHANDRACHUD
AND A. S. BOPANNA, JJ.]
Negotiable Instruments Act, 1881 – ss.138, 141 – Code of
Criminal Procedure, 1973 – ss. 202, 203 and 482 – Dishonour of
C cheque issued by way of security – A Power Supply Agreement (PSA)
was entered into between the second respondent and the company
– The PSA between the parties envisaged that the second respondent
would supply power to the company of which the appellants are
directors etc. – The agreement postulated that payment for the power
D supplied would be made by means of Letter of Credit (LCs) – A
cheque post-dated 28.08.2017 in the amount of Rs.2,67,84,000/-
was issued by the company in favour of the respondent, with the
following endorsement on its reverse, “to be deposited after
confirmation only for security purpose” – The power supply had
commenced on 01.07.2016 – Though, the LCs’ were provided, they
E were allegedly not in a form acceptable to the bankers of the second
respondent – Bills were raised by the second respondent – The
company terminated its agreement with the second respondent –
Cheque issued by the company was deposited – Cheque was
dishonoured with a reason ‘payment stopped by drawer’ – Appellants
F alleged offence u/s. 138 of the N.I. Act – A criminal complaint was
filed by the second respondent – Magistrate issued summons to the
appellants – Appellants filed petitions u/s.482 of Cr.P.C. – The High
Court dismissed the petitions for quashing the complaint – Before
the Supreme Court, the appellant contended that cheque was issued
for the purpose of security and not for encashment – Held: The
G explanation to s.138 of the NI Act provides that ‘debt or any other
liability’ means a legally enforceable debt or other liability – The
term debt also includes a sum of money promised to be paid on a
future day by reason of a present obligation – A post-dated cheque
issued after the debt has been incurred would be covered by the
definition of ‘debt’ – However, if the sum payable depends on a
H
1086
SUNIL TODI & ORS. v. STATE OF GUJARAT & ANR. 1087

contingent event, then it takes the color of a debt only after the A
contingency has occurred – Therefore, in the present case, a debt
was incurred after the second respondent began supply of power
for which payment was not made because of the non-acceptance of
the LCs’ – The appellants do not dispute that prior to the termination
of the agreement, power was supplied for a period of three months
B
to the company – Once payments for electricity supply became due
in terms of the PSA, and the company failed to discharge its dues,
the second respondent was entitled in law to present the cheque for
payment – Merely labelling the cheque as a security would not
obviate its character as an instrument designed to meet a legally
enforceable debt or liability, once the supply of power had been C
provided for which there were monies due and payable – There is
no inflexible rule which precludes the drawee of a cheque issued
as security from presenting it for payment in terms of the contract.
Negotiable Instruments Act, 1881 – ss.138, 141 – Code of
Criminal Procedure, 1973 – ss. 202, 203 and 482 – Dishonour D
of cheque issued by way of security – A Power Supply Agreement
(PSA) was entered into between the second respondent and the
company – A cheque post-dated 28.08.2017 in the amount of
Rs.2,67,84,000/- was issued by the company in favour of the
respondent, with the following endorsement on its reverse, “to be
deposited after confirmation only for security purpose” – The power E
supply had commenced – Bills were raised by the second respondent
– The company terminated its agreement with the second respondent
– Cheque issued by the company was deposited – Cheque was
dishonoured with a reason ‘payment stopped by drawer’ – Appellants
alleged offence u/s. 138 of the N.I. Act – A criminal complaint was F
filed by the second respondent – Magistrate issued summons to the
appellants – The accused persons in the present case resided at
Aurangabad while the complaint u/s. 138 was filed before the
Magistrate in Mundra – The argument of the appellants is that in
these circumstances, the Magistrate was duty bound to postpone
the issuance of process and to either enquire into the case himself G
or to direct an investigation either by a police officer or by some
other person – It was further contended that the summoning order
showed non-application of mind – Held: Under Sub-Section (1) of
s.202, a Magistrate upon the receipt of a complaint of an offence
of which he/she is authorized to take cognizance is empowered to H
1088 SUPREME COURT REPORTS [2021] 9 S.C.R.

A postpone the issuance of process against the accused and either (i)
enquire into the case; or (ii) direct an investigation to be made by a
police officer or by such other person as he thinks fit – If the
Magistrate holds an inquiry himself, it is not compulsory that he
should examine witnesses and in suitable cases the Magistrate can
examine documents to be satisfied that there are sufficient grounds
B
for proceeding u/s. 202 – In the present case, the Magistrate has
adverted to: (i) The complaint; (ii) The affidavit filed by the
complainant; (iii) The evidence as per evidence list and; and (iv)
The submissions of the complainant – The order passed by the
Magistrate cannot be held to be invalid as betraying a non-
C application of mind – As it is settled that in determining the question
as to whether process is to be issued, the Magistrate has to be
satisfied whether there is sufficient ground for proceeding and not
whether there is sufficient ground for conviction.
Dismissing the appeals, the Court
D HELD: 1. In the present case, the Power Supply Agreement
(PSA) between the parties envisaged that the second respondent
would supply power to the company of which the appellants are
directors or as the case may be, managing director. The
agreement postulated that payment for the power supplied would
E be made by means of Letter of Credits (LCs). Though, the LCs’
were provided, they were allegedly not in a form acceptable to
the bankers of the second respondent. The appellants do not
dispute that prior to the termination of the agreement, power
was supplied for a period of three months to the company. In
other words, the agreement for the supply of power was acted
F upon and power was supplied to by the second respondent and
consumed by the company. [Para 23][1106-F-H]
2. The explanation to Section 138 of the NI Act provides
that ‘debt or any other liability’ means a legally enforceable debt
or other liability. The term debt also includes a sum of money
G promised to be paid on a future day by reason of a present
obligation. A post-dated cheque issued after the debt has been
incurred would be covered by the definition of ‘debt’. However,
if the sum payable depends on a contingent event, then it takes
the color of a debt only after the contingency has occurred.
H
SUNIL TODI & ORS. v. STATE OF GUJARAT & ANR. 1089

Therefore, in the present case, a debt was incurred after the A
second respondent began supply of power for which payment was
not made because of the non-acceptance of the LCs’. The issue
to be determined is whether Section 138 only covers a situation
where there is an outstanding debt at the time of the drawing of
the cheque or includes drawing of a cheque for a debt that is
B
incurred before the cheque is encashed. [Para 25][1107-B-C;
1108-A-C]
3. The object of the NI Act is to enhance the acceptability
of cheques and inculcate faith in the efficiency of negotiable
instruments for transaction of business. The purpose of the
provision would become otiose if the provision is interpreted to C
exclude cases where debt is incurred after the drawing of the
cheque but before its encashment. The true purpose of Section
138 would not be fulfilled, if ‘debt or other liability’ is interpreted
to include only a debt that exists as on the date of drawing of the
cheque. Moreover, Parliament has used the expression ‘debt or D
other liability’. The expression “or other liability’ must have a
meaning of its own, the legislature having used two distinct
phrases. The expression ‘or other liability’ has a content which
is broader than ‘a debt’ and cannot be equated with the latter. In
the present case, the cheque was issued in close proximity with
the commencement of power supply. The issuance of the cheque E
in the context of a commercial transaction must be understood in
the context of the business dealings. The issuance of the cheque
was followed close on its heels by the supply of power. To hold
that the cheque was not issued in the context of a liability which
was being assumed by the company to pay for the dues towards F
power supplied would be to produce an outcome at odds with the
business dealings. If the company were to fail to provide a
satisfactory LC and yet consume power, the cheques were capable
of being presented for the purpose of meeting the outstanding
dues. [Para 26][1108-D-H]
G
4. Once payments for electricity supply became due in
terms of the PSA, and the company failed to discharge its dues,
the second respondent was entitled in law to present the cheque
for payment. Merely labelling the cheque as a security would not
obviate its character as an instrument designed to meet a legally
H
1090 SUPREME COURT REPORTS [2021] 9 S.C.R.

A enforceable debt or liability, once the supply of power had been
provided for which there were monies due and payable. There is
no inflexible rule which precludes the drawee of a cheque issued
as security from presenting it for payment in terms of the contract.
It all depends on whether a legally enforceable debt or liability
has arisen. [Para 27][1109-B-D]
B
5. Under Sub-Section (1) of Section 202, a Magistrate upon
the receipt of a complaint of an offence of which he/she is
authorized to take cognizance is empowered to postpone the
issuance of process against the accused and either (i) enquire
into the case; or (ii) direct an investigation to be made by a police
C officer or by such other person as he thinks fit. The purpose of
postponing the issuance of process for the purposes of an enquiry
or an investigation is to determine whether or not there is
sufficient ground for proceeding. However, it is mandatory for
the Magistrate to do so in a case where the accused is residing
D at a place beyond the area in which the Magistrate exercises
jurisdiction. The accused persons in the present case reside at
Aurangabad while the complaint under Section 138 was filed
before the Magistrate in Mundra. The argument of the appellants
is that in these circumstances, the Magistrate was duty bound to
postpone the issuance of process and to either enquire into the
E case himself or to direct an investigation either by a police officer
or by some other person. [Para 32][1111-E-H]
6. Section 145 of the NI Act provides that evidence of
the complainant may be given by him on affidavit, which shall
be read in evidence in an inquiry, trial or other proceeding
F notwithstanding anything contained in the CrPC. The Constitution
Bench held that Section 145 has been inserted in the Act, with
effect from 2003 with the laudable object of speeding up trials in
complaints filed under Section 138. Hence, the Court noted that
if the evidence of the complainant may be given by him on affidavit,
G there is no reason for insisting on the evidence of the witnesses
to be taken on oath. Consequently, it was held that Section 202(2)
CrPC is inapplicable to complaints under Section 138 in respect
of the examination of witnesses on oath. The Court held that the
evidence of witnesses on behalf of the complainant shall be

H
SUNIL TODI & ORS. v. STATE OF GUJARAT & ANR. 1091

permitted on affidavit. If the Magistrate holds an inquiry himself, A
it is not compulsory that he should examine witnesses and in
suitable cases the Magistrate can examine documents to be
satisfied that there are sufficient grounds for proceeding under
Section 202. [Para 38][1118-A-D]
7. In the present case, the Magistrate has adverted to: (i) B
The complaint; (ii) The affidavit filed by the complainant; (iii) The
evidence as per evidence list and; and (iv) The submissions of
the complainant. [Para 39][1118-E]
8. The order passed by the Magistrate cannot be held to
be invalid as betraying a non-application of mind. In Dy. Chief C
Controller of Imports & Exports v. Roshanlal Agarwal, this Court
has held that in determining the question as to whether process
is to be issued, the Magistrate has to be satisfied whether there
is sufficient ground for proceeding and not whether there is
sufficient ground for conviction. Whether the evidence is
adequate for supporting the conviction can only be determined D
at the trial. [Para 40][1118-F-G]
9. The High Court did not quash the complaint against the
appellants since it was prima facie established that they were
triable for dishonour of cheque. Section 141 of the NI Act
stipulates that if a company is alleged to have committed an E
offence under Section 138, then every person who ‘was in charge
of, and responsible to, the company for the conduct of the business
of the company’ shall also be deemed guilty of the offence. The
proviso provides an exception if she proves that the offence was
committed without her knowledge or that she had exercised due F
diligence. [Paras 41-42][1119-G-H; 1120-A]
10. The test to determine if the Managing Director or a
Director must be charged for the offence committed by the
Company is to determine if the conditions in Section 141 of the
NI Act have been fulfilled i.e., whether the individual was in- G
charge of and responsible for the affairs of the company during
the commission of the offence. However, the determination of
whether the conditions stipulated in Section 141 of the Act have
been fulfilled is a matter of trial. There are sufficient averments

H
1092 SUPREME COURT REPORTS [2021] 9 S.C.R.

A in the complaint to raise a prima facie case against them. It is
only at the trial that they could take recourse to the proviso to
Section 141 and not at the stage of issuance of process.
[Para 44][1122-D-E]
11. In the present case, it is evident that the principal
B grounds of challenge which have been set up on behalf of the
appellants are all matters of defence at the trial. The Magistrate
having exercised his discretion, it was not open to the High Court
to substitute its discretion. The High Court has in a carefully
considered judgment, analysed the submissions of the appellants
and for justifiable reasons has come to the conclusion that they
C are lacking in substance. [Para 45][1122-F]
HMT Watches v. MA Habida (2015) 11 SCC
776 : [2015] 3 SCR 719; Mehmood UI Rehman v. Khazir
Mohammad Tunda (2015) 12 SCC 420 : [2015] 4 SCR
841; Birla Corporation Ltd. v. Adventz Investments and
D Holdings (2019) 16 SCC 610 : [2019] 7 SCR 655;
Krishna Lal Chawla v. State of U.P (2021) 5 SCC 435
: 2021 AIR 1381; Re: Expeditious Trial of Cases under
Section 138 of N.I. Act 1881 Suo Motu Writ Petition
(Crl) No. 2 of 2020, decided on 16 April 2021; SMS
E Pharmaceuticals v. Neeta Bhalla (2005) 8 SCC
89 : [2005] 3 Suppl. SCR 371; Mainuddin Abdul Sattar
Shaikh v. Vijay D Salvi (2015) 9 SCC 622 : [2015] 6
SCR 1033 – relied on.
Indus Airways Private Limited v. Magnum Aviation
F Private Limited (2014) 12 SCC 539 : [2014] 5 SCR
56; Sampelly Satyanarayana Rao v. Indian Renewable
Energy Development Agency Limited (2016) 10 SCC
458 : [2016] 6 SCR 531; Sripati Singh v. State of
Jharkhand 2021 SCC OnLine SC 1002; Keshoram
Industries v. CWT AIR 1966 SC 1370; M/s Womb
G Laboratories Pvt Ltd v. Vijay Ahuja Criminal Appeal
Nos 1382-1383 of 2019, decided on 11 September 2019;
Vijay Dhanuka v. Najima Mamtaj (2014) 14 SCC 638 :
[2014] 4 SCR 171; Pepsi Foods Ltd. v. Special Judicial
Magistrate (1998) 5 SCC 749 : [1997] 5 Suppl. SCR
H 12; Abhijit Pawar v. Hemant Madhukar Nimbalkar
SUNIL TODI & ORS. v. STATE OF GUJARAT & ANR. 1093

(2017) 3 SCC 528 : [2016] 9 SCR 475; Dy. Chief A
Controller of Imports & Exports v. Roshanlal Agarwal
(2003) 4 SCC 139 : [2003] 2 SCR 621; Bhushan Kumar
v. State (NCT of Delhi (2012) 5 SCC 424 : [2012] 2
SCR 696; Sunil Bharati Mittal v. CBI (2015) 4 SCC
609 : [2015] 1 SCR 377 – referred to.
B
Banchharam Majumdar v. Adyanath Bhattacharjee
(1909) ILR 36 Cal 936 – referred to.
Lindey L.J in Webb v. Strention 1888 QBD 518; People
v. Arguello 1869 37 Calif 524 – referred to.
Case Law Reference C

[2014] 5 SCR 56 referred to Para 18
[2016] 6 SCR 531 referred to Para 20
[2015] 3 SCR 719 relied on Para 21
D
[2014] 4 SCR 171 referred to Para 33
[2015] 4 SCR 841 relied on Para 34
[1997] 5 Suppl. SCR 12 referred to Para 34
[2016] 9 SCR 475 referred to Para 34
E
[2019] 7 SCR 655 relied on Para 36
[2003] 2 SCR 621 referred to Para 40
[2012] 2 SCR 696 referred to Para 40
[2015] 1 SCR 377 referred to Para 42
F
[2005] 3 Suppl. SCR 371 relied on Para 43
[2015] 6 SCR 1033 relied on Para 43
CRIMINAL APPELLATE JURISDICTION : Criminal Appeal
No.1446 of 2021.
G
From the Judgment and Order dated 26.06.2019 of the High Court
of Gujarat at Ahmedabad in Special Criminal Application No.9754 of
2017.
With
Criminal Appeal No.1447 of 2021. H
1094 SUPREME COURT REPORTS [2021] 9 S.C.R.

A Sidharth Luthra, Ms. Meenakshi Arora, Sr. Advs., Debmalya C.
Banerjee, Samarjit Pattnaik, Rohan Sharma, Vikas Gogne, Kartik
Bhatnagar, Puneet Relan, Irfan Muzamil, Rahul Totala, Nicholas
Choudhury, Ujjwal Singh, Anmol, Rahul Tyagi, M/s Karanjawala & Co.,
Advs. for the Appellants.
B Mohit Mathur, Ms. Rebecca John, Sr. Advs., Aman Gupta, Ms.
Aastha Mehta, Ms. Deepanwita Priyanka, Ms. Prerna Mohapatra, Advs.
for the Respondents.
The Judgment of the Court was delivered by
DR. DHANANJAYA Y CHANDRACHUD, J.
C
1. A Single Judge of the High Court of Gujarat dismissed the
petitions under Section 482 of the Code of Criminal Procedure, 1973 1,
instituted by the appellants to quash the criminal complaint2 instituted by
the second respondent for offences punishable under Section 138 of the
Negotiable Instruments Act, 18813, and challenge an order of summons
D dated 3 November 2017 of the JMFC Mundra on the complaint. The
complaint arises from the dishonour of a cheque in the amount of
Rs.2,67,84,000/-. In the two appeals which arose from the order of the
High Court, the appellants are respectively,four Directors4 and the
Managing Director5 of a company by the name of R.L. Steels & Energy
E Limited6.
2. The background in which the controversy has arisen needs to
be noticed. On 19 December 2015, a Letter of Intent was issued by the
company to the second respondent for providing uninterrupted power
supply at the plant of the company situated at Aurangabad in Maharashtra.
F Clause (k) of the Letter of Intent envisages that all payments would be
made within sixty days through a Letter of Credit7 to be opened by the
company. On 29 April 2016, an email was addressed by the company
stating that payment security would be by cheque for an amount
equivalent to the quantum of energy to be scheduled for forty-five days.
Payments for monthly billing were to be made by LC within seven days
G 1
"CrPC”
2
CC No. 1220 of 2017
3
"NI Act”
4
SLP (Crl) 6590/ 2019
5
SLP (Crl) 6995/2019
6
"Company”
7
H "LC”
SUNIL TODI & ORS. v. STATE OF GUJARAT & ANR. 1095
[DR. DHANANJAYA Y CHANDRACHUD, J.]

of the receipt of bills. This was agreed upon in a communication dated A
30 April 2016 addressed on behalf of the second respondent. On 30
June 2016, the company addressed a communication to the second
respondent that it was issuing two cheques “only for security deposit”
and that the cheques were to be deposited “after getting confirmation
only”. The details of the cheques were :
B
Cheque No. Amount
013287 13392000/-
013286 26784000/-
3. A cheque post-dated 28 August 2017 in the amount of C
Rs.2,67,84,000/- was accordingly issued with the following endorsement
on its reverse: “to be deposited after confirmation only for security
purpose”. The power supply commenced from 1 July 2016. On 4 July
2016, the company addressed a communication to its banker, Karur Vysya
Bank, requesting to stop payment of the above two cheques. On 24 July
2016, a Power Supply Agreement8 was entered into between the second D
respondent and the company. The agreement envisages that the company
would make payment to the second respondent on the tenthday of every
calendar month by a LC. Clause 2.5.1 of the agreement stipulated thus:
“2.5.1 The Member Consumer shall on the date of execution of
this Agreement or not later than 30 (thirty) days prior to the Date E
of Commencement of Supply furnish to GENERATOR an BG/
postdated cheque of 45 days energy bill, in a form and substance
acceptable to the Generator, for an amount equal to energy charge
payable for the Contracted Capacity, from any Indian Bank
acceptable to the Generator.” F
4. The relevant terms of the Power Supply Agreement were as
follows:
(a) Letter of Credit - Under Clause 2.5, the company was
required to make payments for the power supply through
LCs’. Clause 2.6 envisages that the Company would issue G
a LC in accordance with the requirements of the second
respondent’s Bank;
(b) Payment Date and Delay Penalty– Under Clause 2.7, the
Company was required to make payment on the tenth day
8
"PSA” H
1096 SUPREME COURT REPORTS [2021] 9 S.C.R.

A of every month; in default of which a late payment charge
of fifteen per cent per annum would be payable;
(c) Default in Payments – Clause 8.2 provided that parties
would be bound by the obligations even in the case of a
dispute, unless there was a failure of payment without
B justification; and
(d) Entire Agreement – Clause 14 provided that the PSA
shall represent the entire agreement, and supersede and
extinguish any previous drafts, agreements or
understandings.
C 5. On 10 August 2016, 12 September 2016 and 27 September
2016, three LCs’ favouring the second respondent were issued by Punjab
National Bank at the behest of the company.
6. According to the complaint, the LCs’ provided by the company
were not in the format required by their bankers. The company was
D stated to have been informed of this position in an exchange of emails in
spite of which, it is alleged that it failed to provide LCs in the correct
format.
7. On 4 August 2016, the second respondent raised a provisional
bill for Rs.1,77,56,157/- for electricity supplied during the period from 1
E July 2016 to 31 July 2016. On 27 August 2016, an invoice for
Rs.1,66,48,028/- was issued for power supply during the month of July
2016. On 1 September 2016, an invoice was raised in the amount of
Rs.2,17,24,875/- for power supplied during August 2016. On 1 October
2016, an invoice was raised in the amount of Rs.2,19,18,186/- for power
F supplied during September 2016.
8. On 20 October 2016, the company terminated its agreement
with the second respondent. The cheque which was issued by the
company was deposited on 28 August 2017. On 18 September 2017, a
legal notice was issued by the second respondent to the appellants alleging
the commission of offences under Section 138 of the NI Act. It was
G
alleged in the notice that according to the ledger maintained by the second
respondent in its books of account, a sum of Rs.6,02,91,089/- remained
outstanding. The notice alleged that the appellants had issued a cheque
dated 28 August 2017 drawn on Karur Vysya Bank, Aurangabad which
had been dishonoured for the reason of ‘payment stopped by drawer’.
H A reply dated 5 October 2017, was addressed in response to the legal
SUNIL TODI & ORS. v. STATE OF GUJARAT & ANR. 1097
[DR. DHANANJAYA Y CHANDRACHUD, J.]

notice. It was stated that the cheque that was issued was only for the A
purpose of Security and not for encashment.
9. On 2 November 2017, a criminal complaint was filed by the
second respondent in the court of the Additional Chief Judicial Magistrate,
Mundra against the appellants seeking issuance of summons and
imposition of fine of Rs. 5,35,68,000. An affidavit was filed on 3 November B
2017, in support of the complaint. On 6 November 2017, the Magistrate
issued summons to the appellants. The appellants instituted petitions under
Section 482 of the CrPC for quashing of the criminal complaint.
Simultaneously, the complainant filed a Regular Civil Suit for recovery
of dues.
C
10. By the impugned judgment and order dated 24 June 2019, the
High Court has dismissed the petitions for quashing the complaint.
However, it allowed a petition for quashing filed by a nominee director
who was not in-charge of the day-to-day management of the company
and by a woman non-executive Director. The reasons that guided the
High Court for dismissing the petitionareas follows: D

(i) The issues pertaining to the issuance of cheques, non-
payment of electricity charges, issuance of LCs, among
others, are questions of fact. They will have to be decided
by the trial court;
E
(ii) The complaint appears to be genuine. The High Court cannot
exercise its jurisdiction under Section 482 CrPC unless it is
established that there was an ulterior motive behind the
initiation of criminal proceedings; and
(iii) Both civil and criminal proceedings are maintainable on the F
same set of facts, as in this case.
11. Mr. Sidharth Luthra and Ms. Meenakshi Arora, learned senior
counsel have appeared on behalf of the appellants in support of the
appeals. Mr. Mohit Mathur and Ms Rebecca John, learned senior counsel
have appeared on behalf of the second respondent. Ms. Aastha Mehta,
G
learned counsel appeared on behalf of the State of Gujarat.
12. Mr. Sidharth Luthra, learned senior counsel has urged three
submissions in support of the appeals:
(i) The cheques which were issued to the second respondent
were intended at all material times to be a security towards H
1098 SUPREME COURT REPORTS [2021] 9 S.C.R.

A payment. This is evident from the endorsement made on
the reverse of the cheque in the amount of Rs.2,67,84,000/
- dated 28 August 2017, and is buttressed by the stipulation
under PSA that payment was to take place by means of
LC. A suit has been instituted by the company against the
second respondent in the court of the Civil Judge, Senior
B
Division, RCS 15/2017 in which the defence in the written
statement is that:
a. There was a default by the company in the payment
of electricity consumption charges from July to
September 2016; and
C
b. Though the company had issued LC to cover the
dues of the electricity bills/ invoices, it had intentionally
avoided to furnish them in terms of the draft LCs’
furnished by the bankers of the company. In the suit
instituted by the second respondent against the
D company, being CS 236/2019 before the High Court
of Judicature at Madras, the pleading in paragraph 8
of the plaint is that the cheques were issued by way
of security:
“8. As agreed between the parties, the Defendant thereafter
E by its issued two cheques bearing Nos.013287 & 013286
of amount of Rs.1,33,92,000/- (One Crore Thirty Three
Lakhs and Ninety Two Thousand only) and Rs.2,67,84,000/
- (Two Crores and Sixty Seven Lakhs and Eighty Four
Thousand Only) respectively as security deposit to the
F Plaintiff on the condition that the cheques were to be
deposited after obtaining permission. The Plaintiff states
that the same was accepted, and the condition was further
incorporated under Clause 2.5.1 of the PSA. The associated
cheques are filed herewith as Plaint Document No.5 (Colly).
However, the Defendant subsequently vide letter dated
G 04.07.2016 ordered their bank to stop payment of their
cheques. The communication is filed herewith as Plaint
Document No.6.”
Consequently, since the cheques have been issued by way of
security and were not intended to be deposited, the institution of a
H complaint under Section 138 is an abuse of the process. Therefore,
SUNIL TODI & ORS. v. STATE OF GUJARAT & ANR. 1099
[DR. DHANANJAYA Y CHANDRACHUD, J.]

the invocation of the jurisdiction under Section 482 CrPC is A
justified;
(ii) Section 202 CrPC envisages the postponement of the
issuance of process where the accused resides beyond the
jurisdiction of the territory of the court. Despite the clear
provisions of Section 202, no inquiry was carried out by the B
Magistrate; and
(iii) The summoning order shows non-application of mind
inasmuch as no reasons have been adduced by the
Magistrate.
In this backdrop, the following sequence of events was emphasized C
in the course of the submissions:
• 10 August 2016 : issuance of LC;
• 30 September 2016: complainant stopped the supply of
power;
• 20 October 2016: termination of the PSA by the company; D

• 30 June 2017: instructions issued to the bankers to stop
payment;
• 31 August 2017: presentation of the cheques;
• 2 November 2017: complaint under Section 138 filed; E
• 3 November 2017: affidavit filed in support of the complaint;
and
• 6 November 2017: summoning order issued.
13. On the basis of the above sequence of events, it has been
submitted that recourse to the filing of a complaint under Section 138 of F
NI Act is an abuse of the process. In the course of evaluating the
submissions, the line of precedent to which a reference has been made
would be considered.
14. Ms. Meenakshi Arora, learned senior counsel submitted that
a clear case for the invocation of the jurisdiction under Section 482 CrPC G
was established for the following reasons:
(i) Though the contract was terminated on 20 October 2016
by the company, the cheques were presented to the bank
only on 31 August 2017;
H
1100 SUPREME COURT REPORTS [2021] 9 S.C.R.

A (ii) The fact that the cheques were issued towards security for
payment is evident from the endorsement on the reverse of
the cheques and from the admission in paragraph 8 of the
plaint instituted by the second respondent in the High Court
of Madras;
B (iii) Under the terms of the PSA, payment was envisaged to be
made through LC and not by cheque;
(iv) A civil suit has been instituted by the second respondent for
the recovery of its dues;
(v) MSEDCL has raised an additional charge which has been
C occasioned by the default of the second respondent; and
(vi) Apart from the bald statement that the Directors are in-
charge of and responsible for the management of the
company, no specific role has been ascribed to them in the
plaint so as to invoke the doctrine of vicarious liability.
D
15. On the other hand, Mr. Mohit Mathur and Ms. Rebecca John,
learned senior counsel appearing on behalf of the second respondent
have submitted that:
(i) The High Court has noted in the impugned judgment that
there is no dispute in regard to the liability of the company
E
for electricity supplied during the months of August,
September and October 2016;
(ii) Though the PSA envisaged that payment would be made
through LC, they could not be honoured because the LC
were not in a format acceptable to the Bankers of the second
F
respondent;
(iii) The Law does not prohibit the invocation of Section 138 of
the NI Act even in a situation where the cheques have
been issued initially as a security;
G (iv) The summoning order of the Magistrate conforms to law.
The complaint was instituted on 2 November 2017 and was
duly supported by an affidavit dated 3 November 2017. A
summoning order is not required to furnish detailed reasons
particularly in a case under Section 138 of the NI Act, having
due regard to the summary nature of the proceedings; and
H
SUNIL TODI & ORS. v. STATE OF GUJARAT & ANR. 1101
[DR. DHANANJAYA Y CHANDRACHUD, J.]

(v) The complaint spells out the role attributed to the Directors A
and prima facie at this stage, the test of vicarious liability is
duly met.
On the above premises, it has been submitted that there is no
reason for this Court, to interfere with the judgment of the High Court
since detailed reasons have been furnished by the High Court for rejecting B
the petitions under Section 482 of the CrPC.
16. Ms. Aastha Mehta, learned counsel for the State of Gujarat
has submitted that the trial has not proceeded since 2017 due to the
pendency of the proceedings before the High Court and this Court.
Learned counsel urged that there is no ground to interfere with the order C
of the High Court.
17. The issues which arise for our consideration are as follows:
(i) Whether the dishonor of a cheque furnished as a ‘security’
is covered under the provisions of Section 138 of the NI
Act; D
(ii) Whether the Magistrate, in view of Section 202 CrPC, ought
to have postponed the issuance of process; and
(iii) Whether a prima facie case of vicarious liability is made
out against the appellants.
E
18. The first submission which has been urged on behalf of the
appellants is that a complaint under Section 138 of the NI Act would not
be maintainable since the cheque of Rs 2.67 crores was issued by way
of a security and,is thus not against a legally enforceable debt or liability.
The appellant has placed reliance on the judgment of a two judge Bench
F
of this Court in Indus Airways Private Limited v. Magnum Aviation
Private Limited9.The issue in that case was whether the post-dated
cheques which were issued by the appellants who were purchasers, as
an advance payment in respect of purchase orders, could be considered
to be in discharge of a legally enforceable debt or other liability and
whether the dishonor of the cheques amounted to an offence under G
Section 138. The appellants had placed two purchase orders for the
supply of aircraft parts with the first respondent and had issued two
post-dated cheques as advance payment. The supplier received a letter
from the purchasers cancelling the purchase and requesting the return
9
(2014) 12 SCC 539 H
1102 SUPREME COURT REPORTS [2021] 9 S.C.R.

A of both the cheques. Following a notice by the suppliers, a complaint
was instituted under Section 138 upon which cognizance was taken by
the Magistrate and summons were issued. The High Court allowed a
petition under Section 482 CrPC and set aside the order issuing process
by construing the expression “discharge of any debt or other liability” in
Section 138 holding that there must be a liability at the time of issuing the
B
cheque 10. In appeal, Justice R M Lodha writing for a two-Judge
Benchallowed the appeal11 observing:
“9. The Explanation appended to Section 138 explains the meaning
of the expression “debt or other liability” for the purpose of Section
138. This expression means a legally enforceable debt or other
C liability. Section 138 treats dishonoured cheque as an offence, if
the cheque has been issued in discharge of any debt or other
liability. The Explanation leaves no manner of doubt that to attract
an offence under Section 138, there should be a legally enforceable
debt or other liability subsisting on the date of drawal of the cheque.
D In other words, drawal of the cheque in discharge of an existing
10
"138. Dishonour of cheque for insufficiency, etc., of funds in the account.—
Where any cheque drawn by a person on an account maintained by him with a banker
for payment of any amount of money to another person from out of that account for
the discharge, in whole or in part, of any debt or other liability, is returned by the bank
unpaid, either because of the amount of money standing to the credit of that account is
E insufficient to honour the 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 prejudice to any other provision of this Act, be
punished with imprisonment for 8 [a term which may be extended to two years’], or
with fine which may extend to twice the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply unless—
(a) the cheque has been presented to the bank within a period of six months from the
F 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 amount of money by giving a notice; in writing, to
the drawer of the cheque, 9 [within thirty days] of the receipt of information by him
from the bank regarding the return of the cheque as unpaid; and
(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
G fifteen days of the receipt of the said notice.
Explanation.—For the purposes of this section, “debt of other liability” means a
legally enforceable debt or other liability.”
11
It was held that the view taken by the Andhra Pradesh High Court in Swastik
Coaters v. Deepak Bros, 1997 Cri LJ 1942 (AP), the Gujarat High Court in Shanku
Concreates v. State of Gujarat, 2000 Cro LJ 1988 (Guj), the Madras High Court in
Balaji Seafoods Exports v. Mac Industries, (1999) 1 CTC 6 (Mad).
H
SUNIL TODI & ORS. v. STATE OF GUJARAT & ANR. 1103
[DR. DHANANJAYA Y CHANDRACHUD, J.]

or past adjudicated liability is sine qua non for bringing an offence A
under Section 138. If a cheque is issued as an advance payment
for purchase of the goods and for any reason purchase order is
not carried to its logical conclusion either because of its cancellation
or otherwise, and material or goods for which purchase order
was placed is not supplied, in our considered view, the cheque
B
cannot be held to have been drawn for an existing debt or liability.
The payment by cheque in the nature of advance payment indicates
that at the time of drawal of cheque, there was no existing liability.”
19. Drawing the distinction between civil and criminal liability, it
was observed that if there is a breach in the condition of advance payment,
it would not incur criminal liability under Section 138 of the NI Act since C
there is no legally enforceable debt or liability at the time when the cheque
was drawn.The Court held that if at the time when a contract is entered
into, the purchaser has to pay an advance and there was a breach of
that condition, the purchaser may have to make good the loss to the
seller, but this would not occasion a criminal liability under Section 138. D
The issuance of a cheque towards advance payment at the time of the
execution of the contract would not - in the view which has adopted in
Indus Airways - be considered as a subsisting liability so as to attract
an offence under Section 138 upon the dishonor of the cheque.
20. A later judgment of a two judge Bench in Sampelly E
Satyanarayana Rao v. Indian Renewable Energy Development
Agency Limited12 considered the decision in Indus Airways. In
Sampelly, the appellant was the Director of a company which was
engaged in power generation, while the respondent was a government
enterprise engaged in renewable energy. The respondent agreed to
advance a loan for setting up a power project and the agreement envisaged F
that post-dated cheques towards payment of installments of the loans
would be given by way of security. The cheques having been dishonored,
complaints were instituted under Section 138 which led to quashing
petitions filed before the High Court. The submission which was urged
before this Court was that dishonor of the post-dated cheques given by G
way of security did not amount to a legally enforceable debt or liability
under Section 138 in presentia. This Court held, after adverting to the
decision in Indus Airways that if on the date of the cheque, a liability or
debt exists or the amount has become enforceable, Section 138 would
12
(2016) 10 SCC 458 H
1104 SUPREME COURT REPORTS [2021] 9 S.C.R.

A stand attracted and not otherwise. The decision in Indus Airways was
distinguished in Sampelly (supra) on the ground that in that case, the
cheque had not been issued for discharge of a liability but as advance
for a purchase order which was cancelled. On the other hand, in Sampelly,
the cheque was for the repayment of a loan installment which had fallen
due. The Court noted that though the deposit of cheques towards the
B
repayment of installments was described as a security in the loan
agreement, the true test was whether the cheque was in discharge of an
existing enforceable debt or liability or whether it was towards an advance
payment without there being a subsisting debt or liability.
21. Besides the distinguishing features which were noticed in
C Sampelly, there was another ground which weighed in the judgment of
this Court. The Court adverted to the decision in HMT Watches v.
MA Habida13 to hold that whether the cheques were given as security
constitutes the defense of the accused and is a matter of trial. The extract
from the decision in HMT Watches swhich is cited in the decision in
D Indus Airways is thus:
“10. Whether the cheques were given as security or not, or
whether there was outstanding liability or not is a question of fact
which could have been determined only by the trial court after
recording evidence of the parties. In our opinion, the High Court
E should not have expressed its view on the disputed questions of
fact in a petition under Section 482 of the Code of Criminal
Procedure, to come to a conclusion that the offence is not made
out. The High Court has erred in law in going into the factual
aspects of the matter which were not admitted between the
parties.
F
22. In a more recent judgment of a two judge Bench in Sripati
Singh v. State of Jharkhand14, an order of the Magistrate taking
cognizance and issuing summons on a complaint under Section 420 IPC
and Section 138 of the NI Act was challenged before the High Court.
There was a transaction between the second respondent and the
G complainant pursuant to which the appellant had advanced sums of money.
Several cheques were handed over but they were dishonored on
presentation. The High Court allowed the petitions. An appeal was filed
before this Court. Before this Court, the appellant urged that a cheque
13
(2015) 11 SCC 776
14
H 2021 SCC OnLine SC 1002
SUNIL TODI & ORS. v. STATE OF GUJARAT & ANR. 1105
[DR. DHANANJAYA Y CHANDRACHUD, J.]

issued towards discharge of the loan and presented for recovery could A
not be construed as a security for the transaction. In appeal, this Court
noted that there were four loan agreements under which the second
respondent agreed to pay a total sum of Rs 2 crores and six cheques
were issued as security. The High Court had held that since under the
loan agreement the cheques were given by way of security, the complaint
B
could not be maintained. Justice AS Bopanna, speaking for the two judge
bench, adverted to the earlier decision in Indus Airways and the
distinguishing features which were noticed in the decision in Sampelly.
The Court held that where in the case of a loan transaction, the borrower
agrees to repay the amount in a specified time frame and issues a cheque
as a security to secure the repayment and the loan is not repaid, the C
cheque which is issued as security would mature for presentation. The
Court observed:
“17. A cheque issued as security pursuant to a financial transaction
cannot be considered as a worthless piece of paper under every
circumstance. ‘Security’ in its true sense is the state of being safe D
and the security given for a loan is something given as a pledge of
payment. It is given, deposited or pledged to make certain the
fulfilment of an obligation to which the parties to the transaction
are bound. If in a transaction, a loan is advanced and the borrower
agrees to repay the amount in a specified timeframe and issues a
cheque as security to secure such repayment; if the loan amount E
is not repaid in any other form before the due date or if there is no
other understanding or agreement between the parties to defer
the payment of amount, the cheque which is issued as security
would mature for presentation and the drawee of the cheque would
be entitled to present the same. On such presentation, if the same F
is dishonoured, the consequences contemplated under Section 138
and the other provisions of N.I. Act would flow.”
Moreover, as the Court explained:
“18. When a cheque is issued and is treated as ‘security’ towards
repayment of an amount with a time period being stipulated for G
repayment, all that it ensures is that such cheque which is issued
as ‘security’ cannot be presented prior to the loan or the instalment
maturing for repayment towards which such cheque is issued as
security. Further, the borrower would have the option of repaying
the loan amount or such financial liability in any other form and in H
1106 SUPREME COURT REPORTS [2021] 9 S.C.R.

A that manner if the amount of loan due and payable has been
discharged within the agreed period, the cheque issued as security
cannot thereafter be presented. Therefore, the prior discharge of
the loan or there being an altered situation due to which there
would be understanding between the parties is a sine qua non to
not present the cheque which was issued as security. These are
B
only the defences that would be available to the drawer of the
cheque in a proceedings initiated under Section 138 of the N.I.
Act. Therefore, there cannot be a hard and fast rule that a cheque
which is issued as security can never be presented by the drawee
of the cheque. If such is the understanding a cheque would also
C be reduced to an ‘on demand promissory note’ and in all
circumstances, it would only be a civil litigation to recover the
amount, which is not the intention of the statute. When a cheque
is issued even though as ‘security’ the consequence flowing
therefrom is also known to the drawer of the cheque and in the
circumstance stated above if the cheque is presented and
D
dishonoured, the holder of the cheque/drawee would have the
option of initiating the civil proceedings for recovery or the criminal
proceedings for punishment in the fact situation, but in any event,
it is not for the drawer of the cheque to dictate terms with regard
to the nature of litigation.”
E The complaint, insofar as it invoked the provisions of Section 138
of the NI Act, was accordingly restored to the Judicial Magistrate to
proceed in accordance with law.
23. In the present case, the PSA between the parties envisaged
that the second respondent would supply power to the company of which
F the appellants are directors or as the case may be, managing director.
The agreement postulated that payment for the power supplied would
be made by means of LCs. Though, the LCs’were provided, they were
allegedly not in a form acceptable to the bankers of the second respondent.
The appellants do not dispute that prior to the termination of the
G agreement, power was supplied for a period of three months to the
company. In other words, the agreement for the supply of power was
acted upon and power was supplied to by the second respondent and
consumed by the company.
24. In Sampelly and Sripati Singh, post-dated cheques were
H issued as a security for loan installments that were due. On the dateson
SUNIL TODI & ORS. v. STATE OF GUJARAT & ANR. 1107
[DR. DHANANJAYA Y CHANDRACHUD, J.]

whichthe cheques were drawn, there was an outstanding debt. In the A
present case, the cheques were issued on 30 June 2016. The second
respondent commenced the supply of electricity immediately from the
next day that is from 1 July 2016. The facts of this case are in contrast
with the facts in Indus Airways. In Indus Airways, since the purchase
agreement was cancelled, there was no outstanding liability incurred
B
before the encashment of the cheque. The transaction between the parties
did not go through as a result of the cancellation of the purchase orders.
25. The explanation to Section 138 of the NI Act provides that
‘debt or any other liability’ means a legally enforceable debt or other
liability. The proviso to Section 138 stipulates that the cheque must be
presented to the bank within a period of six months from the date on C
which it is drawn or within its period of validity. Therefore, a cheque
given as a gift and not for the satisfaction of a debt or other liability,
would not attract the penal consequences of the provision in the event of
its being returned for insufficiency of funds. Aiyar’s Judicial Dictionary
defines debt as follows: “Debt is a pecuniary liability. A sum payable or D
recoverable by action in respect of money demand.” Lindey L.J in Webb
v. Strention15 defined debt as “… a sum of money which is now payable
or will become payable in the future by reason of a present
obligation, debitum in praesenti, solvendum in futuro.” The definition
was adopted by this Court in Keshoram Industries v. CWT16. Justice
Mookerjee writing for a Full Bench of the Calcutta High Court in E
Banchharam Majumdar v. Adyanath Bhattacharjee17adopted the
definition provided by the Supreme Court of California in People v.
Arguello 18:
“Standing alone, the word ‘debt’ is as applicable to a sum of money
which has been promised at a future day as to a sum now due and F
payable. If we wish to distinguish between the two, we say of the
former that it is a debt owing, and of the latter that it is a debt due.
In other words, debts are of two kinds: solvendum in
praesenti and solvendum in future … A sum of money which is
certainly and in all events payable is a debt, without regard to the G
fact whether it be payable now or at a future time. A sum payable
15
1888 QBD 518
16
AIR 1966 SC 1370
17
(1909) ILR 36 Cal 936
18
1869 37 Calif 524
H
1108 SUPREME COURT REPORTS [2021] 9 S.C.R.

A upon a contingency, however, is not a debt or does not become a
debt until the contingency has happened.”
Thus, the term debt also includes a sum of money promised to be
paid on a future day by reason of a present obligation. A post-dated
cheque issued after the debt has been incurred would be covered by the
B definition of ‘debt’. However, if the sum payable depends on a contingent
event, then it takes the color of a debt only after the contingency has
occurred. Therefore, in the present case, a debt was incurred after the
second respondent began supply of power for which payment was not
made because of the non-acceptance of the LCs’. The issue to be
determined is whether Section 138 only covers a situation where there
C is an outstanding debt at the time of the drawing of the cheque or includes
drawing of a cheque for a debt that is incurred before the cheque is
encashed.
26. The object of the NI Act is to enhance the acceptability of
cheques and inculcate faith in the efficiency of negotiable instruments
D for transaction of business. The purpose of the provision would become
otiose if the provision is interpreted to exclude cases where debt is incurred
after the drawing of the cheque but before its encashment. In Indus
Airways, advance payments were made but since the purchase
agreement was cancelled, there was no occasion of incurring any debt.
E The true purpose of Section 138 would not be fulfilled, if ‘debt or other
liability’ is interpreted to include only a debt that exists as on the date of
drawing of the cheque. Moreover, Parliament has used the expression
‘debt or other liability’. The expression “or other liability’ must have a
meaning of its own, the legislature having used two distinct phrases. The
expression ‘or other liability’ has a content which is broader than ‘a
F debt’ and cannot be equated with the latter. In the present case, the
cheque was issued in close proximity with the commencement of power
supply. The issuance of the cheque in the context of a commercial
transaction must be understood in the context of the business dealings.
The issuance of the cheque was followed close on its heels by the supply
G of power. To hold that the cheque was not issued in the context of a
liability which was being assumed by the company to pay for the dues
towards power supplied would be to produce an outcome at odds with
the business dealings. If the company were to fail to provide a satisfactory
LC and yet consume power, the cheques were capable of being presented
for the purpose of meeting the outstanding dues.
H
SUNIL TODI & ORS. v. STATE OF GUJARAT & ANR. 1109
[DR. DHANANJAYA Y CHANDRACHUD, J.]

27. According to the complainant, the LCs’ were not in a format A
agreed to by their bankers. The cheques which were initially towards
security could not have been presented before the payments under the
PSA fell due. Moreover, if the company were to discharge its liability to
pay the outstanding dues under the power supply agreement through the
agreed modality of an LC to the satisfaction of the second respondent’s
B
bankers, there would be no occasion to present the cheque thereafter.
In other words, once payments for electricity supply became due in
terms of the PSA, and the company failed to discharge its dues, the
second respondent was entitled in law to present the cheque for payment.
Merely labelling the cheque as a security would not obviate its character
as an instrument designed to meet a legally enforceable debt or liability, C
once the supply of power had been provided for which there were monies
due and payable. There is no inflexible rule which precludes the drawee
of a cheque issued as security from presenting it for payment in terms of
the contract. It all depends on whether a legally enforceable debt or
liability has arisen.
D
28. At this stage, it would be instructive to note the order of a two
judge Bench of this Court in M/s Womb Laboratories Pvt Ltd v.
Vijay Ahuja19. In that case, the High Court had quashed proceedings
initiated against the first respondent for offences punishable under Section
138 of the NI Act merely on the basis of the assertion in the complaint
that “security cheques were demanded” in response to which the E
accused had issued three signed blank cheques with the assurance that
if the amount was not returned, the cheques could be encashed. The
High Court held that the cheques were given only by way of security
and therefore not towards the discharge of a debt or liability on the basis
of which the complaint was quashed. Allowing the appeal by the drawee, F
this Court observed:
“5. In our opinion, the High Court has muddled the entire issue.
The averment in the complaint does indicate that the signed
cheques were handed over by the accused to the complainant.
The cheques were given by way of security, is a matter of G
defence. Further, it was not for the discharge of any debt or any
liability is also a matter of defence. The relevant facts to
countenance the defence will have to be proved - that such security
could not be treated as debt or other liability of the accused. That
19
Criminal Appeal Nos 1382-1383 of 2019, decided on 11 September 2019 H
1110 SUPREME COURT REPORTS [2021] 9 S.C.R.

A would be a triable issue. We say so because, handing over of the
cheques by way of security per se would not extricate the accused
from the discharge of liability arising from such cheques.”
29. The order of this Court in Womb Laboratories holds that
the issue as to whether the cheques were given by way of security is a
B matter of defence. This line of reasoning in Womb Laboratories is on
the same plane as the observations in HMT Watches, where it was
held that whether a set of cheques has been given towards security or
otherwise or whether there was an outstanding liability is a question of
fact which has to be determined at the trial on the basis of evidence.
The rationale for this is that a disputed question of this nature cannot be
C resolved in proceedings under Section 482 CrPC, absent evidence tobe
recorded at the trial.
30. The submission which has been urged on behalf of the
appellants, however, is that the fact that the cheques in the present case
have been issued as a security is not in dispute since it stands admitted
D from the pleading of the second respondent in the suit instituted before
the High Court of Madras. The legal requirement which Section 138
embodies is that a cheque must be drawn by a person for the payment
of money to another “for the discharge, in whole or in part, of any debt
or other liability’. A cheque may be issued to facilitate a commercial
E transaction between the parties. Where, acting upon the underlying
purpose, a commercial arrangement between the parties has fructified,
as in the present case by the supply of electricity under a PSA, the
presentation of the cheque upon the failure of the buyer to pay is a
consequence which would be within the contemplation of the drawer.
The cheque, in other words, would in such an instance mature for
F presentation and, in substance and in effect, is towards a legally
enforceable debt or liability. This precisely is the situation in the present
case which would negate the submissions of the appellants.
31. The second submission which has been urged on behalf of the
appellants turns upon Section 202 CrPC, which is extracted:
G
“202. Postponement of issue of process.—(1) Any Magistrate,
on receipt of a complaint of an offence of which he is authorised
to take cognizance or which has been made over to him under
section 192, may, if he thinks fit, 1 [and shall, in a case where the
accused is residing at a place beyond the area in which he
H exercises his jurisdiction,] postpone the issue of process against
SUNIL TODI & ORS. v. STATE OF GUJARAT & ANR. 1111
[DR. DHANANJAYA Y CHANDRACHUD, J.]

the accused, and either inquire into the case himself or direct an A
investigation to be made by a police officer or by such other person
as he thinks fit, for the purpose of deciding whether or not there is
sufficient ground for proceeding:
Provided that no such direction for investigation shall be made,—
(a) where it appears to the Magistrate that the offence complained B
of is triable exclusively by the Court of Session; or (b) where the
complaint has not been made by a Court, unless the complainant
and the witnesses present (if any) have been examined on oath
under section 200.
(2) In an inquiry under sub-section (1), the Magistrate may, if he C
thinks fit, take evidence of witnesses on oath: Provided that if it
appears to the Magistrate that the offence complained of is triable
exclusively by the Court of Session, he shall call upon the
complainant to produce all his witnesses and examine them on
oath.
D
(3) If an investigation under sub-section (1) is made by a person
not being a police officer, he shall have for that investigation all
the powers conferred by this Code on an officer in charge of a
police station except the power to arrest without warrant.”
32. Under Sub-Section (1) of Section 202, a Magistrate upon the
E
receipt of a complaint of an offence of which he/she is authorized to
take cognizance is empowered to postpone the issuance of process against
the accused and either (i) enquire into the case; or (ii) direct an
investigation to be made by a police officer or by such other person as
he thinksfit. The purpose of postponing the issuance of process for the
purposes of an enquiry or an investigation is to determine whether or not F
there is sufficient ground for proceeding. However, it is mandatory for
the Magistrate to do so in a case where the accused is residing at a
place beyond the area in which the Magistrate exercises jurisdiction.
The accused persons in the present case reside at Aurangabad while
the complaint under Section 138 was filed before the Magistrate in
G
Mundra. The argument of the appellants is that in these circumstances,
the Magistrate was duty bound to postpone the issuance of process and
to either enquire into the case himself or to direct an investigation either
by a police officer or by some other person. Section 203 stipulates that if
the Magistrate is of the opinionon considering the statement on oath, if
H
1112 SUPREME COURT REPORTS [2021] 9 S.C.R.

A any, of the complainant and of the witnesses, and the result of the enquiry
or investigation if any under Section 202 that there is no sufficient ground
for proceeding, he shall dismiss the complaint recording briefly his reasons
for doing so. The requirement of recording reasons which is specifically
incorporated in Section 203 does not find place in Section 202. Section
204 which deals with the issuance of process stipulates that if in the
B
opinion of the Magistrate taking cognizance of an offence, there is
sufficient ground for proceeding, he may issue (a) in a summons case, a
summons for attendance of the accused; (b) in a warrant case, a warrant
or if he thinks fit a summons for the appearance of the accused. These
proceedings have been interpreted in several judgments of this Court.
C For the purpose of the present case, some of them form the subject
matter of the submissions by the appellants and the second respondent.
33. The provisions of Section 202 which mandate the Magistrate,
in a case where the accused is residing at a place beyond the area of its
jurisdiction, to postpone the issuance of process so as to enquire into the
D case himself or direct an investigation by police officer or by another
person were introduced by Act 25 of 2005 with effect from 23 June
2006. The rationale for the amendment is based on the recognition by
Parliament that false complaints are filed against persons residing at far
off places as an instrument of harassment. In Vijay Dhanuka v. Najima
Mamtaj20, this Court dwelt on the purpose of the amendment to Section
E 202, observing:
“11. Section 202 of the Code, inter alia, contemplates postponement
of the issue of the process ‘in a case where the accused is residing
at a place beyond the area in which he exercises his jurisdiction’
and thereafter to either inquire into the case by himself or direct
F an investigation to be made by a police officer or by such other
person as he thinks fit. In the face of it, what needs our
determination is as to whether in a case where the accused is
residing at a place beyond the area in which the Magistrate
exercises his jurisdiction, inquiry is mandatory or not.
12. The words ‘and shall, in a case where the accused is residing
G at a place beyond the area in which he exercises his jurisdiction’
were inserted by Section 19 of the Code of Criminal Procedure
(Amendment) Act (Central Act 25 of 2005) w.e.f. 23-6-2006.
The aforesaid amendment, in the opinion of the legislature, was
essential as false complaints are filed against persons residing at
H 20
(2014) 14 SCC 638
SUNIL TODI & ORS. v. STATE OF GUJARAT & ANR. 1113
[DR. DHANANJAYA Y CHANDRACHUD, J.]

far-off places in order to harass them. The note for the amendment A
reads as follows:
‘False complaints are filed against persons residing at far-off places
simply to harass them. In order to see that innocent persons are
not harassed by unscrupulous persons, this clause seeks to amend
sub-section (1) of Section 202 to make it obligatory upon the B
Magistrate that before summoning the accused residing beyond
his jurisdiction he shall enquire into the case himself or direct
investigation to be made by a police officer or by such other person
as he thinks fit, for finding out whether or not there was sufficient
ground for proceeding against the accused.’
The use of the expression “shall” prima facie makes the inquiry C
or the investigation, as the case may be, by the Magistrate
mandatory. The word “shall” is ordinarily mandatory but
sometimes, taking into account the context or the intention, it can
be held to be directory. The use of the word “shall” in all
circumstances is not decisive. Bearing in mind the aforesaid D
principle, when we look to the intention of the legislature, we find
that it is aimed to prevent innocent persons from harassment by
unscrupulous persons from false complaints. Hence, in our opinion,
the use of the expression “shall” and the background and the
purpose for which the amendment has been brought, we have no
doubt in our mind that inquiry or the investigation, as the case may E
be, is mandatory before summons are issued against the accused
living beyond the territorial jurisdiction of the Magistrate.”
34. This Court has held that the Magistrate is duty bound to apply
his mind to the allegations in the complaint together with the statements
which are recorded in the enquiry while determining whether there is a F
prima facie sufficient ground for proceeding. In Mehmood UI
Rehman v. Khazir Mohammad Tunda21, this Court followed the
dictum in Pepsi Foods Ltd. v. Special Judicial Magistrate22, and
observed that setting the criminal law in motion against a person is a
serious matter. Hence, there must be an application of mind by the
G
Magistrate to whether the allegations in the complaint together with the
statements recorded or the enquiry conducted constitute a violation of
law. The Court observed:

21
(2015) 12 SCC 420
22
(1998) 5 SCC 749 H
1114 SUPREME COURT REPORTS [2021] 9 S.C.R.

A “20. The extensive reference to the case law would clearly show
that cognizance of an offence on complaint is taken for the purpose
of issuing process to the accused. Since it is a process of taking
judicial notice of certain facts which constitute an offence, there
has to be application of mind as to whether the allegations in the
complaint, when considered along with the statements recorded
B
or the inquiry conducted thereon, would constitute violation of
law so as to call a person to appear before the criminal court. It is
not a mechanical process or matter of course. As held by this
Court in Pepsi Foods Ltd. v. Judicial Magistrate [Pepsi Foods
Ltd. v. Judicial Magistrate, (1998) 5 SCC 749 : 1998 SCC (Cri)
C 1400] to set in motion the process of criminal law against a person
is a serious matter.”
***
“22. The steps taken by the Magistrate under Section 190(1)(a)
CrPC followed by Section 204 CrPC should reflect that the
D Magistrate has applied his mind to the facts and the statements
and he is satisfied that there is ground for proceeding further in
the matter by asking the person against whom the violation of law
is alleged, to appear before the court. The satisfaction on the
ground for proceeding would mean that the facts alleged in the
E complaint would constitute an offence, and when considered along
with the statements recorded, would, prima facie, make the
accused answerable before the court. No doubt, no formal order
or a speaking order is required to be passed at that stage. The
Code of Criminal Procedure requires speaking order to be passed
under Section 203 CrPC when the complaint is dismissed and
F that too the reasons need to be stated only briefly. In other words,
the Magistrate is not to act as a post office in taking cognizance
of each and every complaint filed before him and issue process
as a matter of course. There must be sufficient indication in the
order passed by the Magistrate that he is satisfied that the
G allegations in the complaint constitute an offence and when
considered along with the statements recorded and the result of
inquiry or report of investigation under Section 202 CrPC, if any,
the accused is answerable before the criminal court, there is ground
for proceeding against the accused under Section 204 CrPC, by
issuing process for appearance. The application of mind is best
H
SUNIL TODI & ORS. v. STATE OF GUJARAT & ANR. 1115
[DR. DHANANJAYA Y CHANDRACHUD, J.]

demonstrated by disclosure of mind on the satisfaction. If there is A
no such indication in a case where the Magistrate proceeds under
Sections 190/204 CrPC, the High Court under Section 482 CrPC
is bound to invoke its inherent power in order to prevent abuse of
the power of the criminal court. To be called to appear before the
criminal court as an accused is serious matter affecting one’s
B
dignity, self-respect and image in society. Hence, the process of
criminal court shall not be made a weapon of harassment.”
These decisions were cited with approval in Abhijit Pawar v.
Hemant Madhukar Nimbalkar 23. After referring to the purpose
underlying the amendment of Section 202, the Court observed:
C
“25. … the amended provision casts an obligation on the Magistrate
to apply his mind carefully and satisfy himself that the allegations
in the complaint, when considered along with the statements
recorded or the enquiry conducted thereon, would prima facie
constitute the offence for which the complaint is filed. This
requirement is emphasised by this Court in a recent D
judgment Mehmood Ul Rehman v. Khazir Mohammad
Tunda [Mehmood Ul Rehman v. Khazir Mohammad Tunda,
(2015) 12 SCC 420 : (2016) 1 SCC (Cri) 124]…”
35.While noting that the requirement of conducting an enquiry or
directing an investigation before issuing process is not an empty formality, E
the Court relied on the decision in Vijay Dhanuka which had held that
the exercise by the Magistrate for the purpose of deciding whether or
not there is sufficient ground for proceeding against the accused is nothing
but an enquiry envisaged under Section 202 of the Code.
36. In Birla Corporation Ltd. v. Adventz Investments and F
Holdings24, the earlier decisions which have been referred to above
were cited in the course of the judgment. The Court noted:
“26. The scope of enquiry under this section is extremely restricted
only to finding out the truth or otherwise of the allegations made
in the complaint in order to determine whether process should be G
issued or not under Section 204 CrPC or whether the complaint
should be dismissed by resorting to Section 203 CrPC on the
footing that there is no sufficient ground for proceeding on the
23
(2017) 3 SCC 528
24
(2019) 16 SCC 610 H
1116 SUPREME COURT REPORTS [2021] 9 S.C.R.

A basis of the statements of the complainant and of his witnesses, if
any. At the stage of enquiry under Section 202 CrPC, the
Magistrate is only concerned with the allegations made in the
complaint or the evidence in support of the averments in the
complaint to satisfy himself that there is sufficient ground for
proceeding against the accused.”
B
Hence, the Court held:
“33. The order of the Magistrate summoning the accused must
reflect that he has applied his mind to the facts of the case and
the law applicable thereto. The application of mind has to be
C indicated by disclosure of mind on the satisfaction. Considering
the duties on the part of the Magistrate for issuance of summons
to the accused in a complaint case and that there must be sufficient
indication as to the application of mind and observing that the
Magistrate is not to act as a post office in taking cognizance of
the complaint, in Mehmood Ul Rehman [Mehmood Ul
D Rehman v. Khazir Mohammad Tunda, (2015) 12 SCC 420 :
(2016) 1 SCC (Cri) 124]…”
The above principles have been reiterated in the judgment in
Krishna Lal Chawla v. State of U.P25.

E 37. In this backdrop, it becomes necessary now to advert to an
order dated 16 April 2021 of a Constitution Bench in Re: Expeditious
Trial of Cases under Section 138 of N.I. Act 188126. The Constitution
Bench notes “the gargantuan pendency of complaints filed under Section
138” and the fact that the “situation has not improved as courts continue
to struggle with the humongous pendency”. The court noted that there
F were seven major issues which arose from the responses filed by the
State Governments and the Union Territories including in relation to the
applicability of Section 202 of the CrPC. Section 143 of the NI Act
provides that Sections 262 to 265 of the CrPC (forming a part of Chapter
XXI dealing with summary trials) shall apply to all trials for offences
G punishable under Section 138 of the NI Act. On the scope of the inquiry
under Section 202 CrPC in cases under Section 138 of the NI Act, there
was a divergence of view between the High Courts. Some High Courts
had held that it was mandatory for the Magistrate to conduct an inquiry
25
(2021) 5 SCC 435.
26
H Suo Motu Writ Petition (Crl) No. 2 of 2020, decided on 16 April 2021
SUNIL TODI & ORS. v. STATE OF GUJARAT & ANR. 1117
[DR. DHANANJAYA Y CHANDRACHUD, J.]

under Section 202 CrPC before issuing process in complaints filed under A
Section 138, while there were contrary views in the other High Courts.
In that context, the Court observed:
“10. Section 202 of the Code confers jurisdiction on the Magistrate
to conduct an inquiry for the purpose of deciding whether sufficient
grounds justifying the issue of process are made out. The B
amendment to Section 202 of the Code with effect from
23.06.2006, vide Act 25 of 2005, made it mandatory for the
Magistrate to conduct an inquiry before issue of process, in a
case where the accused resides beyond the area of jurisdiction of
the court. (See: Vijay Dhanuka & Ors. v. Najima Mamtaj & Ors.
1 , Abhijit Pawar v. Hemant Madhukar Nimbalkar and Anr. and C
Birla Corporation Limited v. Adventz Investments and Holdings
Limited & Ors.). There has been a divergence of opinion amongst
the High Courts relating to the applicability of Section 202 in respect
of complaints filed under Section 138 of the Act. Certain cases
under Section 138 have been decided by the High Courts upholding D
the view that it is mandatory for the Magistrate to conduct an
inquiry, as provided in Section 202 of the Code, before issuance
of process in complaints filed under Section 138. Contrary views
have been expressed in some other cases. It has been held that
merely because the accused is residing outside the jurisdiction of
the court, it is not necessary for the Magistrate to postpone the E
issuance of process in each and every case. Further, it has also
been held that not conducting inquiry under Section 202 of the
Code would not vitiate the issuance of process, if requisite
satisfaction can be obtained from materials available on record.
11. The learned Amici Curiae referred to a judgment of this Court F
in K.S. Joseph v. Philips Carbon Black Ltd & Anr. where there
was a discussion about the requirement of inquiry under Section
202 of the Code in relation to complaints filed under Section 138
but the question of law was left open. In view of the judgments of
this Court in Vijay Dhanuka (supra), Abhijit Pawar (supra) and G
Birla Corporation (supra), the inquiry to be held by the Magistrate
before issuance of summons to the accused residing outside the
jurisdiction of the court cannot be dispensed with. The learned
Amici Curiae recommended that the Magistrate should come to a
conclusion after holding an inquiry that there are sufficient grounds
H
1118 SUPREME COURT REPORTS [2021] 9 S.C.R.

A to proceed against the accused. We are in agreement with the
learned Amici.”
38. Section 145 of the NI Act provides that evidence of the
complainant may be given by him on affidavit, which shall be read in
evidence in an inquiry, trial or other proceeding notwithstanding anything
B contained in the CrPC. The Constitution Bench held that Section 145
has been inserted in the Act, with effect from 2003 with the laudable
object of speeding up trials in complaints filed under Section 138. Hence,
the Court noted that if the evidence of the complainant may be given by
him on affidavit, there is no reason for insisting on the evidence of the
witnesses to be taken on oath. Consequently, it was held that Section
C 202(2) CrPC is inapplicable to complaints under Section 138 in respect
of the examination of witnesses on oath. The Court held that the evidence
of witnesses on behalf of the complainant shall be permitted on affidavit.
If the Magistrate holds an inquiry himself, it is not compulsory that he
should examine witnesses and in suitable cases the Magistrate can
D examine documents to be satisfied that there are sufficient grounds for
proceeding under Section 202.
39. In the present case, the Magistrate has adverted to:
(i) The complaint;

E (ii) The affidavit filed by the complainant;
(iii) The evidence as per evidence list and; and
(iv) The submissions of the complainant.
40. The order passed by the Magistrate cannot be held to be
invalid as betraying a non-application of mind. In Dy. Chief Controller
F
of Imports & Exports v. Roshanlal Agarwal27, this Court has held
that in determining the question as to whether process is to be issued,
the Magistrate has to be satisfied whether there is sufficient ground for
proceeding and not whether there is sufficient ground for conviction.
Whether the evidence is adequate for supporting the conviction can only
G be determined at the trial.
[See also in this context the decision in Bhushan Kumar v. State
(NCT of Delhi)28].

27
(2003) 4 SCC 139
28
H (2012) 5 SCC 424
SUNIL TODI & ORS. v. STATE OF GUJARAT & ANR. 1119
[DR. DHANANJAYA Y CHANDRACHUD, J.]

41. The High Court did not quash the complaint against the A
appellants since it was prima facie established that they were triable
for dishonour of cheque. Section 141 of the NI Act provides:
141. Offences by companies.—(1) If the person committing an
offence under section 138 is a company, every person who, at the
time the offence was committed, was in charge of, and was B
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:
Provided that nothing contained in this sub-section shall render C
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:
[Provided further that where a person is nominated as a Director
of a company by virtue of his holding any office or employment in D
the Central Government or State Government or a financial
corporation owned or controlled by the Central Government or
the State Government, as the case may be, he shall not be liable
for prosecution under this Chapter.]
(2) Notwithstanding anything contained in sub-section (1), where E
any offence under this Act has been committed by a company
and it is proved that the offence has been committed 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, secretary or other officer shall
also be deemed to be guilty of that offence and shall be liable to F
be proceeded against and punished accordingly.
Explanation.—For the purposes of this section, — (a) “company”
means anybody 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
42. Section 141 of the NI Act stipulates that if a company is alleged
to have committed an offence under Section 138, then every person
who ‘was in charge of, and responsible to, the company for the conduct
of the business of the company’ shall also be deemed guilty of the
offence. The proviso provides an exception if she proves that the offence H
1120 SUPREME COURT REPORTS [2021] 9 S.C.R.

A was committed without her knowledge or that she had exercised due
diligence. In Sunil Bharati Mittal v. CBI29, a threejudge Bench of this
Court observed that the general rule is that criminal intent of a group of
people who undertake business can be imputed to the Company but not
the other way around. Only two exceptions were provided to this general
rule: (i) when the individual has perpetuated the commission of offence
B and there is sufficient evidence on the active role of the individual; and
(ii) the statute expressly incorporates the principle of vicarious liability.
Justice Sikri writing for a three-judge Bench observed:
“43. Thus, an individual who has perpetrated the commission of
an offence on behalf of a company can be made an accused,
C along with the company, if there is sufficient evidence of his active
role coupled with criminal intent. Second situation in which he
can be implicated is in those cases where the statutory regime
itself attracts the doctrine of vicarious liability, by specifically
incorporating such a provision.
44. When the company is the offender, vicarious liability of the
D Directors cannot be imputed automatically, in the absence of any
statutory provision to this effect. One such example is Section
141 of the Negotiable Instruments Act, 1881. In Aneeta
Hada [Aneeta Hada v. Godfather Travels & Tours (P) Ltd.,
(2012) 5 SCC 661 : (2012) 3 SCC (Civ) 350 : (2012) 3 SCC (Cri)
E 241] , the Court noted that if a group of persons that guide the
business of the company have the criminal intent, that would be
imputed to the body corporate and it is in this backdrop, Section
141 of the Negotiable Instruments Act has to be understood. Such
a position is, therefore, because of statutory intendment making it
a deeming fiction. Here also, the principle of “alter ego”, was
F applied only in one direction, namely, where a group of persons
that guide the business had criminal intent, that is to be imputed to
the body corporate and not the vice versa. Otherwise, there has
to be a specific act attributed to the Director or any other person
allegedly in control and management of the company, to the effect
that such a person was responsible for the acts committed by or
G on behalf of the company.”
43. In SMS Pharmaceuticals v. Neeta Bhalla30, a three judge
Bench while construing the provisions of Section 141 of the Negotiable
Instruments Act 1881, has noted that the position of a Managing Director
29
(2015) 4 SCC 609
30
H (2005) 8 SCC 89
SUNIL TODI & ORS. v. STATE OF GUJARAT & ANR. 1121
[DR. DHANANJAYA Y CHANDRACHUD, J.]

or a Joint Managing Director of a company is distinct since persons A
occupying that position are in charge of and responsible for the conduct
of the business. It was observed that though there is a general presumption
that the Managing Director and Joint Managing Director are responsible
for the criminal act of the company, the director will not be held liable if
he was not responsible for the conduct of the company at the time of the
B
commission of the offence. The Court observed:
“9. The position of a managing director or a joint managing director
in a company may be different. These persons, as the designation
of their office suggests, are in charge of a company and are
responsible for the conduct of the business of the company. In
order to escape liability such persons may have to bring their case C
within the proviso to Section 141(1), that is, they will have to prove
that when the offence was committed they had no knowledge of
the offence or that they exercised all due diligence to prevent the
commission of the offence.
[…] D
Every person connected with the company shall not fall within
the ambit of the provision. It is only those persons who were in
charge of and responsible for the conduct of business of the
company at the time of commission of an offence, who will be
liable for criminal action. It follows from this that if a director of a E
company who was not in charge of and was not responsible for
the conduct of the business of the company at the relevant time,
will not be liable under the provision. The liability arises from
being in charge of and responsible for the conduct of
business of the company at the relevant time when the
offence was committed and not on the basis of merely F
holding a designation or office in a company. Conversely, a
person not holding any office or designation in a company may be
liable if he satisfies the main requirement of being in charge of
and responsible for the conduct of business of a company at the
relevant time.”
G
(emphasis supplied)
The same principle has been followed by a Bench of two judges
in Mainuddin Abdul Sattar Shaikh v. Vijay D Salvi31 :

31
(2015) 9 SCC 622 H
1122 SUPREME COURT REPORTS [2021] 9 S.C.R.

A “12. The respondent has adduced the argument that in the
complaint the appellant has not taken the averment that the accused
was the person in charge of and responsible for the affairs of the
Company. However, as the respondent was the Managing Director
of M/s Salvi Infrastructure (P) Ltd. and sole proprietor of M/s
Salvi Builders and Developers, there is no need of specific
B
averment on the point. This Court has held in National Small
Industries Corpn. Ltd. v. Harmeet Singh Paintal [(2010) 3 SCC
330 : (2010) 1 SCC (Civ) 677 : (2010) 2 SCC (Cri) 1113] , as
follows : (SCC p. 346, para 39)
“39. (v) If the accused is a Managing Director or a Joint Managing
C Director then it is not necessary to make specific averment in the
complaint and by virtue of their position they are liable to be
proceeded with.”
44. The test to determine if the Managing Director or a Director
must be charged for the offence committed by the Company is to
D determine if the conditions in Section 141 of the NI Act have been fulfilled
i.e., whether the individual was in-charge of and responsible for the
affairs of the company during the commission of the offence. However,
the determination of whether the conditions stipulated in Section 141 of
the MMDR Act have been fulfilled is a matter of trial. There are
sufficient averments in the complaint to raise a prima facie case against
E them. It is only at the trial that they could take recourse to the proviso to
Section 141 and not at the stage of issuance of process.
45. In the present case, it is evident that the principal grounds of
challenge which have been set up on behalf of the appellants are all
matters of defence at the trial. The Magistrate having exercised his
F discretion, it was not open to the High Court to substitute its discretion.
The High Court has in a carefully considered judgment, analysed the
submissions of the appellants and for justifiable reasons has come to the
conclusion that they are lacking in substance.
46. For the above reasons, we have come to the conclusion that
G there is no merit in the appeals. The appeals shall stand dismissed.
47. Pending applications, if any, are disposed of.

Ankit Gyan Appeals dismissed.

H