Wanton Arraignment Of Directors In Cheque Dishonour Cases, Without Reference To Their Role, Requires To Be Deprecated & Discouraged: Delhi High Court

Observing that the wanton arraignment of directors in the cheque dishonour cases, without reference to their role, amounts to an abuse of the salutary process of criminal law, the Delhi High Court has quashed the summoning orders against the directors of a company in a case under Section 138 of the Negotiable Instruments Act, 1881.

Justice Anup Jairam Bhambhani said it appears to have become common for complainants to arraign all and sundry directors of a company as accused in a criminal complaint in relation to dishonour of cheques, with the evident intention of pressurising and arm-twisting a company into paying-up a claimed debt.

"It is necessary to articulate that a criminal complaint under section 138 of the NI Act is not, in and of itself, a money recovery proceedings, even though fine and compensation may be imposed upon conviction. The wanton arraignment of directors without reference to their role in relation to a transaction, or to the issuance or dishonour of a cheque by the company, requires to be deprecated and discouraged, since it amounts to abuse of the salutary process of criminal law," said the court.

The court was hearing the plea under Section 482 CrPC seeking quashing of summoning orders issued in 2017 by the Metropolitan Magistrate, District Courts, Saket, against the directors of Saravana Alloys Steels Pvt Ltd in seven criminal complaints under Section 138 NI Act.

The allegation in the criminal complaints was that the Magnifico Minerals Pvt Ltd had placed an oral order for the purchase of coal at its registered office in Delhi. Subsequently, the ordered goods were supplied in 2012-13, resulting in an amount of approximately Rs. 3.5 Crore becoming due and recoverable by Saravana Alloys Steels Pvt Ltd. Seven cheques of Rs. 50 Lakh, issued for the payment, were drawn on City Union Bank Ltd., Sultanpet Circle, Bangalore, and were dishonored at Canara Bank, Okhla Industrial Estate, New Delhi.

Upon not receiving the cheque amounts, the seven complaints were filed alleging the offense under Section 138 of the Negotiable Instruments Act in Bangalore and Delhi. The case was later transferred to Delhi following the change brought about by the Negotiable Instruments (Amendment) Act, 2015. The proceedings in all the complaints were transferred to the CMM, South East, Saket, New Delhi since the bank of the complainant company is situated within the local jurisdiction of the Saket court.

Observing that there are no allegations in the criminal complaints in relation to the petitioners, the court said it cannot be said that the petitioners would incur any vicarious liability alongwith the accused company merely because they were directors of the company

It further observed that in absence of any allegations against the petitioners in the criminal complaints, “the issuance of the summoning orders was evidently not informed by any application of mind, but was the outcome of a purely mechanical process.”

The court rejected the contentions of the complainant that petitioner cannot invoke the remedy under section 482 Cr.P.C. at a belated stage.

"Considering the manner in which the criminal complaints filed in the matter have been transferred to-and-from the court in Bangalore, the petitioners cannot be blamed for any undue delay in invoking the remedy under section 482 Cr.P.C,” it said.

On contention that the petition ought not to be entertained since the petitioners have an efficacious statutory remedy of filing a criminal revision petition under section 397 Cr.P.C. to challenge the summoning orders, the court said, “the existence of a statutory remedy most certainly does not detract from the invocation and exercise of the inherent powers of the High Court under section 482 Cr.P.C. ex debito justitiae”.

Justice Bhambhani further noted that it is not the complainant's case that any of the petitioners was signatory to the cheques that were dishonoured.

“Only the memorandum of parties to the criminal complaints set-out the names of the petitioners with the designation “Director‟ alongside each name,” it added.

Neither the summoning orders made by the Bangalore court nor the summoning orders made by the Delhi court contain any reference, as to any allegations against the petitioners, the bench observed.

While quashing the summoning orders, the Court said, “the summoning orders cannot be sustained in law; and the same are accordingly quashed. All proceedings arising from the summoning orders insofar as they relate to the petitioners are also set-aside.”

Case Title- Sashi Kumar NagarJi & Ors. V. M/S Magnifico Minerals Pvt Ltd & Ors.

Citation: 2023 LiveLaw (Del) 557

Appearance: Mukul Gupta, Senior Advocate with Achin Mittal, Sumit and Saurav Tomar, Advocates for petitioners

Ayush Jindal with Pankush Goyal and Anuj Kapoor, Advocates for R1

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