Prosecution of directors in cheque bouncing case- SC explains when High Court can quash petition 

Prosecution of company directors in cheque bouncing case u/s 138 of NI Act. Supreme Court explains when High Court can quash petition u/s 482 of CrPC

ABCAUS Case Law Citation:
ABCAUS 2824 (2019) (03) SC

Important Case Laws Cited/relied upon by the parties
Gunamala Sales Private Limited vs. Anu Mehta and Ors., (2015) 1 SCC 103

In this case the appellant had filed Special Leave Petition (SLP) against  the order passed by the High  Court whereby it had set aside the cognizance order passed by the trial court.

The appellant was an individual who had entered into an agreement with a Infrastructure Company and invested in its project on the basis of representation of directors of the said company.

With respect to the repayment of the said money, the company issued seven cheques in favour of the appellant. The cheques were drawn on different dates by the authorised signatory, i.e., Managing Director of the said company which were however returned dishonored, on presentation with the remark “Payment stopped by Drawer”.

Thereafter, the appellant issued a legal notice to the company along with its M.D. and one director. Consequently, proceedings were initiated u/s 138 & 141 of the Negotiable Instruments Act, 1881 (`the Act’).   

During the pendency of the said complaint, the accused company and directors made an application before the High Court for the quashing of the proceedings initiated against them. The High Court quashed the proceedings against them. 

Being aggrieved, the appellant had approached the Hon’ble Supreme Court.

The Hon’ble Supreme Court opined that the High Court was not justified in quashing petitions by invoking its power under Section 482 of Cr.P.C. In a case pertaining to an offence u/s 138 and section 141 of the Act.

The Hon’ble Supreme Court observed that the law requires that the complaint must contain a specific averment that the Director was in charge of, and responsible for the conduct of the company’s business at the time when the offence was committed. The High Court, in deciding a quashing petition u/s 482, Cr.P.C., must consider whether the averment made in the complaint is sufficient or if some unimpeachable evidence has been brought on record which  leads to the conclusion that the Director could never have been in charge of and responsible for the conduct of the business of the company at the relevant time. 

The Hon’ble Supreme Court opined that while the role of a Director in a company is ultimately a question of fact, and no fixed formula can be fixed for the same.  The  High  Court  must  exercise  its  power u/s 482 of Cr.P.C and when it is convinced, from the material on record, that allowing the proceedings to continue would be an abuse of process of the Court.

The Hon’ble Supreme Court noted that in the instant case, the appellant in his complaint, specifically averred that the accused directors were actively participating in the day ­to day affairs of the company. Further, the accused were alleged to be from the same family and running the company together. The complaint also specified that all the accused, in active connivance, mischievously and intentionally issued the cheques in favor of the appellant and later issued instructions to the  Bank to “Stop Payment”. No evidence of unimpeachable quality had been brought on record by the accused directors to indicate that allowing the proceedings to continue would be an abuse of the process of the court.  

The Hon’ble Supreme Court allowed the appeals and set aside the impugned order passed by the Hon’ble High Court restoring the order of the trial court is restored.

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