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Judgment
ORDER
The Revision Petition has been filed to set aside the Judgment of the Appellate Court made in C.A.No.33 of 2022 on the file of the learned Additional District and Sessions Judge at Tiruvannamalai dated 10.01.2023, confirming the conviction and sentence passed by the learned Judicial Magistrate, Fast Track Court (Magisterial Level) Tiruvannamalai, Tiruvannamalai District in CC.No.217 of 2019 for the offence u/s.138 of the Negotiable Instruments Act.
The petitioner is the accused and the respondent is the complainant.
The case of the petitioner is that he and the respondent are known to each other and the petitioner was doing a tea shop and sweet stall business inside the Tiruvannamalai Central Bus Stand. For the development of his business, the petitioner had borrowed a sum of Rs.10,00,000/- (Rupees ten lakhs only) from the respondent on 10.12.2018 and had agreed to repay the same, whenever the respondent made a demand. For which, the petitioner had issued a cheque drawn on the Bank of Baroda, Tiruvannamalai branch bearing cheque No.000103 dated 28.05.2019 for a sum of Rs.10,00,000/- in favour of the respondent.
According to the petitioner, the respondent had presented the said cheque for collection through his banker, viz., City Union Bank, Tiruvannamalai, on 29.05.2019. As contemplated under Section 138 of the Negotiable Instruments Act, the respondent issued a legal notice on 18.06.2019 to the petitioner and the said notice was not received by the petitioner and the same was returned on 26.06.2019. Therefore, the respondent filed a private complaint before the learned Judicial Magistrate and the same was taken on file as C.C.No.217 of 2019. On the side of the respondent, he was examined as PW1 and five documents were marked as Exs.P.1 to P.5. On the side of the petitioner, no witness was examined and no document was marked. Ex.P1 is the original cheque dated 28.05.2019, issued by the Bank of Baroda, Tiruvannamalai branch for a sum of Rs.10,00,000/-, Ex.P2 is the return memo dated 29.05.2019 issued by City Union Bank, Tiruvannamalai. Ex.P3 is the copy of the legal notice dated 18.06.2019. Ex.P4 is the returned postal cover dated 22.06.2019 and Ex.P.5 is the Insolvency Petition in I.P.No.3 of 2019 filed by the petitioner before the learned Principal Subordinate Judge, Tirunavannamalai dated 15.04.2019. The trial Court after evaluating the evidence of PW1 viz., the respondent herein and evaluating the exhibits marked in support of the respondent, convicted the petitioner and sentenced him to undergo 6 months of simple imprisonment and directed him to pay compensation of Rs.10 lakhs, which is due, being the cheque amount as contemplated under Section 357(3) of Cr.P.C and in default, the petitioner was directed to undergo two months of simple imprisonment.
The learned counsel appearing for the petitioner primarily contended that since the insolvency proceedings were initiated at the instance of the petitioner herein, no case could be taken up for trial by the courts below and the conviction which has been passed against the petitioner which was confirmed by the Appellate Court had ignored the factum of the insolvency proceedings that were initiated by the petitioner under the Insolvency Act.
The learned counsel for the petitioner had vehemently contended that the courts below had miserably failed to understand the scope of the Insolvency Act.
In support of his contention, the learned counsel appearing for the petitioner had relied upon the judgment of the Hon’ble Supreme Court in Rekha Sharad Ushir Vs. Sapatashrungi Mahila Nagari Sahkari Patsansta Ltd., reported in 2025 SCC OnLine SC 641, more specifically, paragraph No.11, which is extracted hereunder:
11.It is settled law that a litigant who, while filing proceedings in the court, suppresses material facts or makes a false statement, cannot seek justice from the court. The facts suppressed must be material and relevant to the controversy, which may have a bearing on the decision making. Cases of those litigants who have no regard for the truth and those who indulge in suppressing material facts need to be thrown out of the court. In paragraph 5 of the decision of this Court in the case of S.P. Chengalvaraya Naidu v. Jagannath, it is held thus:
“5.The High Court, in our view, fell into patent error. The short question before the High Court was whether in the facts and circumstances of this case, Jagannath obtained the preliminary decree by playing fraud on the court. The High Court, however, went haywire and made observations which are wholly perverse. We do not agree with the High Court that “there is no legal duty cast upon the plaintiff to come to court with a true case and prove it by true evidence”. The principle of “finality of litigation” cannot be pressed to the extent of such an absurdity that it becomes an engine of frau d in the hands of dishonest litigants. The courts of law are meant for imparting justice between the parties. One who comes to the court, must come with clean hands. We are constrained to say that more often than not, process of the court is being abused. Property-grabbers, taxevaders, bank-loan-dodgers and other unscrupulous persons from all walks of life find the court-process a convenient lever to retain the illegal gains indefinitely. We have no hesitation to say that a person, who's case is based on falsehood, has no right to approach the court. He can be summarily thrown out at any stage of the litigation.”
On reading of the ruling of the Hon’ble Apex Court, it is stated that if any fact has been suppressed, it should be material and relevant to the controversy. The Hon’ble Apex Court in the said case had relied upon the judgment in the case of S.P. Chengalvaraya Naidu v. Jagannat, wherein it has been categorically stated that if finality was taken based on the suppression, then the dishonest litigant is not entitled to any relief.
Per contra, the learned counsel appearing for the respondent contended that the trial Court had taken into consideration the insolvency proceedings which was marked as Ex.P5. Even in paragraph No.10 of the trial Court’s order the trial Court itself has referred to the pendency of I.P.No.3/2019 before the Subordinate Court, Tiruvannamalai. Therefore, the claim made by the petitioner is untenable and legally unsustainable.
The learned counsel for the respondent relied upon the following judgments:
Bharath N.Mehtha and Ors. Vs. Mansi Finance (Chennai) Ltd., and Ors. in Crl.OP.Nos.704 and 796 of 1999 dated 18.02.1999, reported in 1999 (1) CTC 687. The relevant portions are extracted hereunder:
“9.Pointing out Rule 2, Order III of the Insolvency Rules, 1958 the learned counsel for the petitioner would submit that every debtor, soon after his petition is admitted in the Insolvency court shall lodge forthwith in the Office of the Official Assignee all books, papers, etc. relating to the estate and also file a list of creditors and debtors.
10.On the strength of these provisions, the main contention of the counsel for the petitioner is that once the accused in the proceedings under Section 138 of the Negotiable Instruments Act is declared as an insolvent, by virtue of Sections 17, 18(1) and (3) and 25(1) and (3) of the Presidency Towns Insolvency Act III of 1909, the petitioner/accused is being protected from prosecution for the offence under Section 138 of the Negotiable Instruments Act, since immediately after the declaration as an insolvent, he cannot be permitted to operate the bank account, as the entire estate will be vested with the Official Assignee and as such, the prosecution against the petitioner is not maintainable.
11.The above submission, in my view on a careful scrutiny of the provisions of both the Presidency Towns Insolvency Act and the Negotiable Instruments Act, cannot be accepted for the following reasons :
12.Section 17 of the Presidency Towns Insolvency Act would merely provide that on the making of an order of adjudication, the Property of the insolvent shall be vested in the Official Assignee and there can be no suit or other legal proceedings except with the leave of the Insolvency Court. The wordings contained in this Section would make it clear that it would relate to the remedy of the creditor against the property of the insolvent in respect of that debt and the property of the insolvent shall be vested with the Official Assignees. It does not refer about the criminal proceedings which are filed before the Court praying for the penal action for the offence committed by the accused.
13.As per Section 17 of the Act, no creditor to whom the insolvent is indebted in respect of any debt shall have any remedy against the property of the insolvent in respect of the debt shall commence any suit or other legal proceedings except with the leave of the Court.
14.The wordings "any suit or other legal proceedings" would be mean the suit or other legal proceedings relating to the property of the insolvent and not with reference to the personal act committed by the accused constituting the offence liable to be proceed in a criminal Court.
15.The words "suit or other legal proceedings" in Section 17(2) would mean suit or other legal proceedings against the property of the insolvent, which vests with in the Official Assignee and the remedy against which is controlled by that sub-section. Section 17(2) has no application in respect of any suit or other legal proceedings which is merely a personal actions against the insolvent. This view finds additional support from the provisions of Section 68. Section 68 deals with duty and powers of Official Assignee as to realization. Under Section 68(d), the Official Assignee can institute, defend or continue any suit or other legal proceedings relating to the property of the insolvent. ...
26.While going through the object and scope of the Act, it is clear that there are two ways in which the legislature help the cause of the aggrieved party by facilitating the application of Section 138 of the Negotiable Instruments Act to his case:
(I)Under Section 139 of the Negotiable Instruments Act, a presumption is created whereby it is presumed, unless the contrary is proved, that the holder of the cheque, i.e., the aggrieved party received the cheque for the discharge, in whole or part, of any debt or liability; and
(2)Under Section 140 of the Act, the drawer cannot take mere defence of good faith that he had no reason to believe when he issued the cheque that the cheque may be dishonoured on presentment for the reasons stated in that Section. However, honest or innocent, the drawer is said to be adequately protected by this chapter by giving time to the drawer to make the payment.
27.Under these circumstances, the drawer cannot escape from the criminal liability by putting forward the plea that he is not bound to discharge the liability mentioned in the complaint filed before the criminal court, as he was already declared as an insolvent, especially when there is a Section permitting the Court to presume that there is an existing liability and the issuance of the cheque by the accused was made towards the discharge of the said liability.
28.At the end, the learned counsel for the petitioners would submit by filing a note before this Court that if the principle laid down in the Legal Maxim lex non cogit ad impossibilia is applied and by virtue of the effect of adjudication under Section 17 of the P.T.I. Act., an insolvent after his adjudication cannot commit the offence under Section 138 of the said Act as amended by Act 66 of 1988.
29.According to the counsel, there is a distinction between the Debtor committing the offence under Section 138 of Negotiable Instruments Act and then adjudicated as insolvent and the debtor already became an insolvent who is said to have committed the offence under Section 138 of the said Act.
30.By virtue of this submission, the counsel for the petitioners would reiterate that the petitioners having been declared as insolvents cannot be compelled through the statutory notice to perform the impossible act, namely, giving the cheque amount. 31. The said question with reference to the impossibility of non-npayment cannot be decided by this Court under Section 482, Cr.P.C, in view of Section 139 of the Negotiable Instruments Act raising a presumption and Section 140 of the Act which does not permit the accused to take the defence of good faith. ”
In the order passed by this Court in S.Raja Rajswari Vs. M.K.Ganesh in Crl.OP.No.24981 of 2024 dated 17.10.2024, reported in MANU/TN/5719/2024, wherein the learned single Judge of this Court had following the earlier decision in Bharath N.Mehtha’s case, cited supra and held that the accused person is not entitled to protection under the Negotiable Instruments Act, in view of the institution of the Insolvency proceedings.
In Dineshchand Surana Vs. UCO Bank reported in MANU/SC/0569/2026 : 2026 INSC 579, the judgment of the Hon’ble Apex Court comprising a three-Judge Bench in the case of P.Mohanraj and Ors. Vs. Shah Brothers Ispat Pvt. Ltd., reported in MANU/SC/0132/2021 has been referred. The relevant portions are extracted hereunder:
“77.As far as the Directors/persons in management or control of the corporate debtor are concerned, a Section 138/141 proceeding against them cannot be initiated or continued without the corporate debtor-see Aneeta Hada (supra). This is because Section 141 of the Negotiable Instruments Act speaks of persons in charge of, and responsible to the company for the conduct of the business of the company, as well as the company. The Court, therefore, in Aneeta Hada (supra) held as under:
51.We have already opined that the decision in Sheoratan Agarwal [ MANU/SC/0112/1984 : (1984) 4 SCC 352 : 1984 SCC (Cri.) 620] runs counter to the ratio laid down in C.V. Parekh [ MANU/SC/0195/1970 : (1970) 3 SCC 491 : 1971 SCC (Cri.) 97] which is by a larger Bench and hence, is a binding precedent. On the aforesaid ratiocination, the decision in Anil Hada [ MANU/SC/0736/1999 : (2000) 1 SCC 1 : 2001 SCC (Cri.) 174] has to be treated as not laying down the correct law as far as it states that the Director or any other officer can be prosecuted without impleadment of the company. Needless to emphasise, the matter would stand on a different footing where there is some legal impediment and the doctrine of lex non cogit ad impossibilia gets attracted.
xxx xxx xxx
56.We have referred to the aforesaid passages only to highlight that there has to be strict observance of the provisions regard being had to the legislative intendment because it deals with penal provisions and a penalty is not to be imposed affecting the rights of persons, whether juristic entities or individuals, unless they are arrayed as Accused. It is to be kept in mind that the power of punishment is vested in the legislature and that is absolute in Section 141 of the Act which clearly speaks of commission of offence by the company. The learned Counsel for the Respondents have vehemently urged that the use of the term "as well as" in the Section is of immense significance and, in its tentacle, it brings in the company as well as the Director and/or other officers who are responsible for the acts of the company and, therefore, a prosecution against the Directors or other officers is tenable even if the company is not arraigned as an Accused. The words "as well as" have to be understood in the context.
xxx xxx xxx
58.Applying the doctrine of strict construction, we are of the considered opinion that commission of offence by the company is an express condition precedent to attract the vicarious liability of others. Thus, the words "as well as the company" appearing in the Section make it absolutely unmistakably clear that when the company can be prosecuted, then only the persons mentioned in the other categories could be vicariously liable for the offence subject to the averments in the petition and proof thereof. One cannot be oblivious of the fact that the company is a juristic person and it has its own respectability. If a finding is recorded against it, it would create a concavity in its reputation. There can be situations when the corporate reputation is affected when a Director is indicted.
59.In view of our aforesaid analysis, we arrive at the irresistible conclusion that for maintaining the prosecution Under Section 141 of the Act, arraigning of a company as an Accused is imperative. The other categories of offenders can only be brought in the drag-net on the touchstone of vicarious liability as the same has been stipulated in the provision itself. We say so on the basis of the ratio laid down in C.V. Parekh [ MANU/SC/0195/1970 : (1970) 3 SCC 491 : 1971 SCC (Cri.) 97] which is a three-Judge Bench decision. Thus, the view expressed in Sheoratan Agarwal [ MANU/SC/0112/1984 : (1984) 4 SCC 352 : 1984 SCC (Cri.) 620] does not correctly lay down the law and, accordingly, is hereby overruled. The decision in Anil Hada [ MANU/SC/0736/1999 : (2000) 1 SCC 1 : 2001 SCC (Cri.) 174] is overruled with the qualifier as stated in para 51. The decision in Modi Distillery [ MANU/SC/0912/1987 : (1987) 3 SCC 684 : 1987 SCC (Cri.) 632] has to be treated to be restricted to its own facts as has been explained by us hereinabove.
Since the corporate debtor would be covered by the moratorium provision contained in Section 14 of the IBC, by which continuation of Section 138/141 proceedings against the corporate debtor and initiation of Section 138/141 proceedings against the said debtor during the corporate insolvency resolution process are interdicted, what is stated in paragraphs 51 and 59 in Aneeta Hada (supra) would then become applicable. The legal impediment contained in Section 14 of the IBC would make it impossible for such proceeding to continue or be instituted against the corporate debtor. Thus, for the period of moratorium, since no Section 138/141 proceeding can continue or be initiated against the corporate debtor because of a statutory bar, such proceedings can be initiated or continued against the persons mentioned in Section 141(1) and (2) of the Negotiable Instruments Act. This being the case, it is clear that the moratorium provision contained in Section 14 of the IBC would apply only to the corporate debtor, the natural persons mentioned in Section 141 continuing to be statutorily liable under Chapter XVII of the Negotiable Instruments Act.
CONCLUSION
78.In conclusion, disagreeing with the Bombay High Court and the Calcutta High Court judgments in Tayal Cotton Pvt. Ltd. v. State of Maharashtra, MANU/MH/2352/2018 : (2019) 1 Mah LJ 312 and M/s. MBL Infrastructure Ltd. v. Manik Chand Somani, CRR 3456/2018 (Calcutta High Court; decided on 16.04.2019), respectively, we hold that a Section 138/141 proceeding against a corporate debtor is covered by Section 14(1)(a) of the IBC.
79.Resultantly, the civil appeal is allowed and the judgment under appeal is set aside. However, the Section 138/141 proceedings in this case will continue both against the company as well as the Appellants for the reason given by us in paragraph 77 above as well as the fact that the insolvency resolution process does not involve a new management taking over. We may also note that the moratorium period has come to an end in this case.”
In Dineshchand Surana’s case, the Hon’ble Apex Court concluded as follows:
“210.In view of what has been pointed out hereinabove, we are of the opinion that, for a comprehensive consideration and an authoritative pronouncement after taking into account all aspects, including those dealt with hereinabove, the matter needs to be placed before Hon’ble the Chief Justice of India to constitute an appropriate three-judge Bench.
211.The three-Judge Bench constituted may refer to the following questions:
(i)Whether the provisions of Section 138 of the NI Act and the objective underlying the enactment thereof indicate that it is quasi-criminal in nature with a tilt towards the criminal in nature with a tilt towards the criminal side?
(ii)Whether the moratorium provisions under Part III of the IBC should be made applicable on the entire proceedings under Section 138 of the NI Act or only to the compensatory aspect thereof?”
The questions made by the Hon’ble Apex Court seek a reference to the three-Judge Bench.
The facts are not in dispute. Before examining the complaint raised by the respondent, let us examine the petition filed by the petitioner himself before the Sub Court, Tiruvannamalai in I.P.No.3 of 2019 to declare him as an insolvent by initiating insolvency proceedings.
The judgment relied on by the learned counsel for the respondent in Bharath N.Mehtha’s case is only with regard to suppression of material facts before the Court. As far as the present case is concerned, the non citing of the insolvency proceedings is one factum. However, in the cross examination the petitioner has admitted the pendency of insolvency proceedings and therefore, the question of seeking examination did not arise, and the suppression of material facts cannot be determined as the said fact has been emanated before the Court in the cross examination.
Though it was vehemently contended by the learned counsel appearing for the petitioner that in Dineshchand Surana’s case, where the Hon’ble Supreme Court had referred the matter to the three judge bench for a reference. It is a settled principle that till the reference is answered the law which was declared either by the Court or by the Hon’ble Supreme Court will be taken as precedent and the reference by itself will not give any shelter or protection to the petitioner to get himself absolved in the Insolvency proceedings that was initiated at the hands of the petitioner.
It is pertinent to note that the view taken in P.Mohanraj’s case as on date, is prevailing on the proposition and therefore, the reference made in the case of Dineshchand Surana’s case is of no avail to the petitioner as the law is settled with regard to the exemption that could be availed by the petitioner on account of initiating the insolvency proceedings.
In view of the same, as on date the petitioner cannot take shelter under the guise of pendency of insolvency proceedings. Therefore, the judgment passed by the trial Court, which was confirmed by the appellate Court needs no interference. Therefore, the present petition fails and the Revision is dismissed.