Section 138 NI Act | Mumbai Court Convicts Pharma Company In Cheque Dishonour Case, Imposes Fine Of ₹1.83 Crore

A Magistrate Court in Mumbai has recently convicted Elder Pharmaceuticals Ltd. for the offence of dishonour of a cheque under Section 138 of the Negotiable Instruments Act, imposing a cost of Rs. 1.83 crore, which is double the cheque amount. Judge Prashant S. Ghodke observed, “Therefore, I hold that accused no. 1 had issued cheque to the complainant for discharge of legal liability and it was presented by complainant to bank and even after statutory demand notice accused failed to pay amount of cheque to the complainant.”The complainant, Director of Ankola Paper Mills Pvt. Ltd., filed a complaint against Elder Pharmaceuticals (accused-company), its Managing Director (accused no. 2), Director and company's Authorized Signatory (accused no. 3) and Chief Operating Officer (accused no. 4).The accused nos. 2 to 4 had approached Ankola Paper Mills requesting it to grant Inter Corporate Deposit for a short term financial arrangement for the business of Elder Pharmaceuticals. An agreement was reached and the Ankola agreed to give short term Inter Corporate Deposit to Elder Pharmaceuticals at the rate of 11.5% interest per annum. Through a series of transactions, Ankola gave an amount of Rs. 85 lakh to Elder Pharmaceuticals by way of Inter Corporate Deposits.Subsequently, Elder Pharmaceuticals through accused nos. 2, 3 and 4 issued a letter to the complainant company along with post dated cheque of Rs. 91,68,575.The complainant/Director of Ankola deposited the said cheque with his banker, however, it was returned unpaid with a remark 'account closed'. The complainant then received intimation regarding the dishonour of the above cheque.Thereafter, the complainant issued a demand notice to the accused calling them to pay the amount. However, even after receipt of the legal notice, the accused failed to pay the amount of the dishonoured cheque. Thus, a complaint was filed and process was issued against accused nos. 1 to 3. The complaint was dismissed against accused no. 4 and accused no. 2 expired.At the outset, the Court observed that there is a presumption under Section 139 NI Act, which provides that the Court shall presume that the cheque was issued for discharge of legal debt or liability unless contrary proved.Here, the court noted that the accused did not prove anything in order to "rebut that presumption".The Court further referred to Section 141 NI Act, which provides the complainant must prove that the director or partner of company or firm is dealing with affairs of company of its day to day business. It referred to S P Mani and Mohan Dairy vs Dr. Snehalatha Elangovan (2022 LiveLaw (SC) 772), where the Supreme Court observed that the complainant is expected to specific averments in the complaint in order to hold the Director liable under under Section 141 N.I Act.Here, it noted that the complaint company did not place anything on record to show that accused no. 3/Director was dealing with day to day business of accused company at the time of issuance of cheque. It observed, “Although accused no. 1 is under liquidation its fiction as legal entity is not come to an end, as there is nothing on the record that accused no. 1 is completely wound up. Accused no. 1 is being company is liable pay fine under Sec. 138 of NI Act and I have observed that at the time of issuance of cheque accused no. 3 was not director or dealing with day-to-day business of accused no.1 and he is entitled to be acquitted. The accused no. 1 is convicted of the offence punishable under section 138 of Negotiable Instruments Act and sentenced to pay fine double of the cheque amount ie. Exh. 64 vide section 255(2) of the Cr.P.C.”The Court thus convicted Elder Pharmaceuticals under Section 138 NI Act and imposed fine on it of double the cheque amount (Rs. 91,68,575) i.e., Rs. 1,83,37,150 crore. It directed the company to furnish personal bond and cash security of Rs. 30,000 each.The Court further acquitted the accused no. 3/Director under Section 138 NI Act. Case title: Ankola Paper Mills Pvt. Ltd vs. Elder Pharmaceuticals Ltd & Ors. (In The Court Of Judicial Magistrate (First Class), Case No. 971/SS/2016)Click Here To Read/Download Order

Section 138 NI Act | Mumbai Court Convicts Pharma Company In Cheque Dishonour Case, Imposes Fine Of ₹1.83 Crore

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Section 138 NI Act | Mumbai Court Convicts Pharma Company In Cheque Dishonour Case, Imposes Fine Of ₹1.83 Crore

Sanjana Dadmi

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