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Supreme Court of India
Anil Sachar & Anr vs M/S Shree Nath Spinners P.Ltd.& … on 19 July, 2011
Bench: Mukundakam Sharma, Anil R. Dave
                                                            1



                                                             REPORTABLE


                         IN THE SUPREME COURT OF INDIA


                      CRIMINAL APPELLATE JURISDICTION


                   CRIMINAL APPEAL NOS.  1413-1414 OF 2011 

                (Arising out of S.L.P.(Crl.) Nos.1830-1831 of 2009)




Anil Sachar &Anr.                                       .....Appellants




                                     Versus


M/s. Shree Nath Spinners P.Ltd.  

& Ors. etc.                                             .....Respondents




                     J U D G M E N T

ANIL R. DAVE, J.

1. Leave granted.

2. Being aggrieved by the common Judgment delivered in Criminal Appeal

Nos.379-MA of 2007 and 381-MA of 2007 dated 16th December, 2008 by the High

Court of Punjab and Haryana at Chandigarh, the original complainants have filed

these appeals. By virtue of the aforestated judgment and order, the High Court has

confirmed the Orders dated 4th May, 2007 passed in Criminal Complaint Nos. 46 and

2

99 of 1999 by the Judicial Magistrate, First Class, Ludhiana whereby the accused in

the aforestated complaints had been acquitted of the charges levelled against them.

3. The facts leading to the present litigation in a nut shell are as under:

4. On 23rd February, 1999, Respondent no.4 – Munish Jain, a Director of M/s.

A.T. Overseas Ltd. had given in all four cheques for different amounts to Anil

Sachar, partner of M/s. Rati Woolen Mills who are appellant Nos. 1 and 2

respectively. According to the case of the complainants, the said cheques were given

to M/s. Rati Woolen Mills, of which appellant no.1 is a partner, in consideration of

supply of goods to M/s. Shree Nath Spinners Pvt. Ltd.

5. The aforestated cheques, which had been given by Munish Jain as Director of

M/s. A.T. Overseas Ltd., had not been honoured and due to dishonour of the said

cheques, the complainant, namely, Anil Sachar, as a partner of M/s. Rati Woolen

Mills had issued notice as required under the provisions of Section 138 of the

Negotiable Instruments Act (hereinafter referred to as `the Act’). In spite of the said

notice, the complainant was not paid the amount covered under the aforestated

cheques and, therefore, complaints had been filed against the present respondents.

3

6. The case of the present respondents before the trial court as well as before the

High Court was that the dispute was of a civil nature and with an oblique motive it

was given a colour of criminal litigation. The said reply had been given especially in

view of the fact that the complaint had also been filed making out a case against the

accused under the provisions of Sections 406 & 420 of the Indian Penal Code.

7. The case of the complainants was that M/s. A.T. Overseas Ltd. is a sister

concern of M/s. Shree Nath Spinners Pvt. Ltd. and the aforestated cheques were

given by Munish Jain towards dues of M/s. Shree Nath Spinners Pvt. Ltd. as a

Director of M/s. A.T. Overseas Ltd. After considering the evidence adduced and the

arguments made before the trial court, the trial court acquitted the accused for the

reason that the goods had been supplied by the complainants to M/s. Shree Nath

Spinners Pvt. Ltd. and the cheques had not been given by M/s. Shree Nath Spinners

Pvt. Ltd. but they had been given by M/s. A.T. Overseas Ltd. As M/s. Shree Nath

Spinners Pvt. Ltd. and M/s. A.T. Overseas Ltd. are two different legal entities and as

there was nothing on record to show that the cheques were given by M/s. A.T.

Overseas Ltd. in consideration of goods supplied by the complainants to M/s. Shree

Nath Spinners Pvt. Ltd., the conclusion was that there was no liability of M/s. A.T.

4

Overseas Ltd. and, therefore, dishonour of the aforestated cheques would not make

signatory of the cheques from the account of M/s. A.T. Overseas Ltd. liable under

the provisions of the Act.

8. Being aggrieved by the orders passed by the learned Judicial Magistrate, First

Class, Ludhiana, dated 4th May, 2007, criminal appeals were filed before the High

Court of Punjab and Haryana at Chandigarh, but the said appeals have been

dismissed and, therefore, the original complainants have approached this Court by

way of these appeals.

9. It may be noted here that during the pendency of the proceedings, Mohinder

Jain, accused/respondent no.3 expired and, therefore, deleted from the array of

parties.

10. Mr. Nidhesh Gupta, learned Senior Counsel appearing for the complainants

mainly submitted that the learned Judicial Magistrate as well as the High Court

committed an error by acquitting the accused simply because the goods had been

supplied to M/s. Shree Nath Spinners Pvt. Ltd. whereas the cheques were given by

M/s. A.T. Overseas Ltd. He submitted that both the concerns, referred to

hereinabove, are sister concerns having common Directors and, therefore, the courts

5

below ought to have lifted the corporate veil so as to find out the realities. He also

submitted that Munish Jain, who had signed the aforesaid cheques was Director in

both the sister concerns viz. M/s. Shree Nath Spinners Pvt. Ltd. and M/s. A.T.

Overseas Ltd. Moreover, he submitted that once the cheques had been issued by the

accused, as per provisions of Section 139 of the Act, burden was on the accused to

show that there was no consideration. So as to substantiate his aforestated

submission, the learned counsel relied upon the Judgments delivered by this Court

in ICDS Ltd. v. B
eena Shabeer and Anr. [2002(6) SCC 426], K.K. Ahuja v. V
.K.

Vora   and   Anr.,  [2009(10)   SCC   48]     and  K.N.   Beena    v.     Muni
                                                                                     yappan   and   Anr.  


[2001(8) SCC 458].





11. For the aforestated reasons, the learned counsel strenuously submitted that the

High Court had erred in confirming the orders of acquittal because upon lifting the

corporate veil, the correct position could have been revealed and the correct position

according to the learned counsel was that the cheques had been given by a sister

concern, namely, M/s. A.T. Overseas Ltd. in consideration of the goods supplied to

M/s Shree Nath Spinners Pvt. Ltd. The learned counsel also drew our attention to

the fact that there were several inter se transactions between the above-named two

sister concerns and, therefore, the courts below ought to have believed that the

6

payment had been made by one company for another company and the courts below

ought to have believed that there was a consideration behind issuance of the

aforestated two cheques. He also draw our attention to the relevant evidence which

was adduced by the complainants to establish the aforestated facts.

12. On the other hand, the learned counsel appearing for the respondents

supported the reasons recorded by the courts below while acquitting the accused. He

mainly submitted that the cheques had been issued by M/s. A.T. Overseas Ltd. to

whom no goods had been supplied by the complainants and, therefore, there was no

consideration. In absence of any consideration, according to the learned counsel, the

accused could not have been held guilty and, therefore, the courts below rightly

acquitted the respondents. The learned counsel relied upon the judgments delivered

in Indowind Energy Ltd. v. Wescare (India) Ltd. and Anr. [2010(5) SCC 306] and in

Rahul Builders v. Arihant Fertilizers & Chemicals and Anr. [2008(2) SCC 321].

According to him, even if two companies are having common Directors, both

companies would remain different legal entities and, therefore, the submission made

on behalf of the appellants that both the companies are sister concerns and,

therefore, one company should be made liable for the dues of another company

cannot be sustained. He further submitted that there was nothing to substantiate the

7

submission that M/s. A.T. Overseas Ltd. had made payment in consideration of goods

supplied to M/s. Shree Nath Spinners Pvt. Ltd. He, therefore, submitted that the

appeals be dismissed.

13. Upon hearing the learned counsel appearing for the parties and upon perusal

of the record pertaining to the cases and the impugned judgment delivered by the

High Court confirming the order passed by the trial court and upon considering the

judgments cited by the learned counsel, we are of the view that the decision rendered

by the courts below cannot be sustained.

14. Upon perusal of the record, we find that the complainants had established

before the trial court that there was an understanding among the complainants and

the accused that in consideration of supply of goods to M/s. Shree Nath Spinners Pvt.

Ltd., M/s. A.T. Overseas Ltd. was to make the payment. The aforestated

understanding was on account of the fact that directors in both the aforestated

companies were common and the aforestated companies were sister concerns. In the

circumstances, it can be very well said and it has been proved that in consideration

of supply of goods to M/s. Shree Nath Spinners Pvt. Ltd., M/s. A.T. Overseas Ltd.

had made the payment. In view of the above fact, in our opinion, the trial court was

8

not right when it came to the conclusion that there was no reason for M/s. A.T.

Overseas Ltd. to give the cheques to the complainants. The aforestated facts are very

well reflected in the statement made in the complaint and in the evidence by the

complainant which have not been controverted. Paras 2 and 3 of the complaint are

reproduced herein below:

“2. That the accused had business dealings with the complainant and

supply of the goods which duly supplied by my client vide separate bills

from time to time which was duly acknowledged by the accused no. 5

Varun Jain director of the accused no. 1.

3. That in order to discharge the liability of making the payment, the

accused issued following two cheques in favour of the complainant

through their sister concern M/S A.T. Overseas Ltd. i.e. Accused No. 1

and the cheques were duly signed by Mr. Munish Jain one of its

directors”

15. The trial court materially erred while coming to a conclusion that in criminal

law no presumption can be raised with regard to consideration as no goods had

been supplied by the complainants to M/s. A.T. Overseas Ltd.. The trial court ought

to have considered provisions of Section 139 of the Act, which reads as under:-

“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 discharge, in whole or in

part, of any debt or other liability.”

9

16. According to the provisions of the aforestated section, there is a presumption

with regard to consideration when a cheque has been paid by the drawer of the

cheque. In the instant case, M/s. A.T. Overseas Ltd. paid the cheque which had

been duly signed by one of its Directors, namely, Munish Jain. Munish Jain is also a

Director in M/s. Shree Nath Spinners Pvt. Ltd.. As stated hereinabove, both are sister

concerns having common Directors. Extracts of books of accounts had been

produced before the trial court so as to show that both the companies were having

several transactions and the companies used to pay on behalf of each other to other

parties or their creditors. The above fact strengthens the presumption to the effect

that M/s. A.T. Overseas Ltd. had paid the cheques to the complainants, which had

been signed by Munish Jain, in consideration of goods supplies to M/s Shree Nath

Spinners Pvt. Ltd. Of course, the presumption referred to in Section 139 is

rebuttable. In the instant case, no effort was made by Munish Jain or any of the

Directors of M/s. A.T. Overseas Ltd. for rebuttal of the aforestated presumption and,

therefore, the presumption must go in favour of the holder of the cheques.

Unfortunately, the trial court did not consider the above facts and came to the

conclusion that there was no consideration for the cheques which had been given by

M/s. A.T. Overseas Ltd. to the complainants.

1

17. It is true that a limited company is a separate legal entity and its directors are

different legal persons. In spite of the aforestated legal position, in view of the

provisions of Section 139 of the Act and the understanding which had been arrived

at among the complainants and the accused, one can safely come to a conclusion

that the cheques signed by Munish Jain had been given by M/s. A.T. Overseas Ltd. to

the complainants in discharge of a debt or a liability, which had been incurred by

M/s Shree Nath Spinners Pvt. Ltd.

18. We may also refer to the judgment delivered by this Court in the case of

ICDS Ltd. (supra). In the said judgment this Court has referred to the nature of

liability which is incurred by the one who is a drawer of the cheque. If the cheque is

given towards any liability or debt which might have been incurred even by someone

else, the person who is a drawer of the cheque can be made liable under Section 138

of the Act. The relevant observation made in the aforestated judgment is as under:

” The words “any cheque” and “other liability” occurring in Section 138

are the two key expressions which stand as clarifying the legislative

intent so as to bring the factual context within the ambit of the provisions

of the statute. These expressions leave no manner of doubt that for

whatever reason it may be, the liability under Section 138 cannot be

avoided in the event the cheque stands returned by the banker unpaid.

Any contra-interpretation would defeat the intent of the legislature. The

High Court got carried away by the issue of guarantee and guarantor’s

liability and thus has overlooked the true intent and purport of Section

138 of the Act.

……

1

The language, however, has been rather specific as regard the intent of

the legislature. The commencement of the section stands with the words

“where any cheque”. The above noted three words are of extreme

significance, in particular, by reason of the user of the word “any” –

the first three words suggest that in fact for whatever reason if a cheque

is drawn on an account maintained by him with a banker in favour of

another person for the discharge of any debt or other liability, the

highlighted words if read with the first three words at the

commencement of Section 138, leave no manner of doubt that for

whatever reason it may be, the liability under this provision cannot be

avoided in the event the same stands returned by the banker unpaid. The

legislature has been careful enough to record not only discharge in whole

or in part of any debt but the same includes other liability as well. This

aspect of the matter has not been appreciated by the High Court, neither

been dealt with or even referred to in the impugned judgment.”

19. Looking to the facts of the case and law on the subject, we are of the view that

all the four cheques referred to in both the complaints are presumed to have been

given for consideration. The presumption under Section 139 of the Act has not

been rebutted by the accused and, therefore, we are of the view that the trial court

wrongly acquitted the accused by taking a view that there was no consideration for

which the cheques were given by Munish Jain to the complainants. The aforesaid

incorrect view was wrongly confirmed by the High Court. We, therefore, set aside

the acquittal order and convict accused Munish Jain under Section 138 of the Act.

20. In view of the aforestated facts and legal position, in our opinion, the accused

ought to have been held guilty, especially accused no. 4, Munish Jain who had signed

1

all the cheques for M/s A.T. Overseas Ltd. We, therefore, hold Munish Jain,

accused no. 4 and respondent no. 4 herein, in both the cases guilty of the offence

under Section 138 of the Act.

21. Accused Munish Jain was acquitted by the trial court and the High Court has

confirmed the acquittal, which is being set aside by this Court by allowing these

appeals. In the circumstances, as per the provisions of Section 235(2) of the Criminal

Procedure Code, this Court will have to give an opportunity of being heard to him on

the question of sentence. We, therefore, adjourn the case to 2.8.2011 for hearing the

accused Manish Jain on the question of sentence. If on that day he fails to appear

before this Court, we shall hear his counsel on the question of sentence.

…………………………………………..J.

(Dr. MUKUNDAKAM SHARMA)

………………………………………….J.

(ANIL R. DAVE)

New Delhi

19th July, 2011.

1

                     IN THE SUPREME COURT OF INDIA                                REPORTABLE


                        CRIMINAL APPELLATE JURISDICTION


                     CRIMINAL APPEAL NOS.  1413-1414 OF 2011 




Anil Sachar &Anr.                                        .....Appellants




                                     Versus


M/s. Shree Nath Spinners P.Ltd.  

& Ors. Etc.                                                .....Respondents




                                         O R D E R 


We have heard the learned counsel appearing for the parties on the

question of sentence. Having gone through the records, we find that Mr.

Munish Jain, against whom the notice was issued on the question of sentence has

died. Accordingly, so far he is concerned, the matter stands abated.

There is yet one more accused in the case, apart from the company, who

was also impleaded as a party in the present proceedings. The said Director of

the company is Mr. Varun Jain.

We have heard the learned counsel appearing for the parties on the

question of sentence. Considering the provisions of Section 138 of the Negotiable

1

Instruments Act, we consider that imposition of fine of an amount of Rs.

10,00,000/- (Rupees ten lacs only) would meet the ends of justice in the present

case. Considering the facts and circumstances of the case, we, therefore, impose

a fine of Rs. 10,00,000/- (Rupees ten lacs only) on the respondent payable to the

appellants/complainants by way of compensation.

At this stage, the counsel appearing for the respondent has handed over

drafts amounting to Rs. 10,00,000/-, payable to the appellants/complainants, to

the counsel appearing for the appellants/complainants, who receives the said

amount which is imposed as fine and payable to the appellants. Fine having been

paid and received brings the litigation to an end.

In that view of the matter, nothing further survives in these appeals, which

stand disposed of.

…………………………………………………J

(Dr. MUKUNDAKAM SHARMA)

……………………………………………….J

(ANIL R. DAVE)

NEW DELHI

AUGUST 17, 2011

***


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