Quashing Of Summoning Orders: Lack Of Specific Allegations And Mechanical Process

Summary Of The Case:

The case involves a petition filed under Section 482 of the Criminal Procedure Code (CrPC) seeking the quashing of summon orders issued by the Metropolitan Magistrate. The summon orders were related to complaints filed against the petitioners under Section 138 of the Negotiable Instruments Act, 1881.

The petitioners, who are directors of a company (respondent 2), were accused of issuing cheques that were dishonored. The complainant (respondent 1) alleged that a significant amount was due and recoverable from Respondent 2. However, the court noted that the complainant did not specifically mention the involvement of the petitioners as directors of the accused company, nor did they allege any responsibility for the dishonoring of the cheques.

The court observed that it has become a common practice for complainants to include all directors of a company as accused in such cases, with the intention of pressurizing the company into paying the claimed debt. The court emphasized that a criminal complaint under Section 138 of the Negotiable Instruments Act is not solely a money recovery proceeding. It requires specific allegations regarding the insufficiency of funds or exceeding the arrangement with the bank.

The court concluded that since there were no specific allegations against the petitioners in the complaints, they could not be held vicariously liable merely as directors of the company. The summoning orders were found to be the outcome of a mechanical process without proper application of mind. Therefore, the court quashed the summoning orders and set aside all the proceedings against the petitioners arising from those orders.

   – Metropolitan Magistrate passes summon orders against the petitioners in response to complaints filed under Section 138 of the Negotiable Instruments Act.

   – Allegation: The complainant asserts that an amount of Rs. 3,74,25,537/- became due and recoverable from respondent 2 company.

   – The cheques issued by respondent 2, each amounting to Rs. 50,00,000, were returned dishonored with different remarks.

   – Multiple statutory notices were issued in relation to the dishonored cheques on different dates. The petitioners challenge the claim of receiving any statutory notice.

   – Complaints are filed under Section 138 of the Negotiable Instruments Act against the accused persons for dishonoring the cheques.

   – Summoning orders are issued by the Metropolitan Magistrate, summoning all accused persons, including the petitioners, in the complaints.

   – The petitioners filed a petition under Section 482 of the Criminal Procedure Code seeking the quashing of the summoning orders and the proceedings arising from them.

   – Anup Jairam Bhambhani, J., hears the petition and notes that the complainant fails to specifically allege the involvement of the petitioners as directors of the accused company or their responsibility for the dishonoring of the cheques.

   – The court observes a vague and sweeping allegation against all directors of the accused company but finds it insufficient to impute any criminal liability upon the petitioners.

    – Anup Jairam Bhambhani, J., quashes the summoning orders and sets aside all the proceedings against the petitioners arising from those orders.

Appellant’s Arguments:

1. Lack of Specific Allegations: The appellant (petitioners) argues that the criminal complaints filed against them under Section 138 of the Negotiable Instruments Act do not contain any specific allegations linking them to the issuance of the dishonored cheques or their responsibility for the dishonor. The appellant emphasizes that the complainant fails to mention their involvement as directors of the accused company or their role in the transactions.

2. Vicarious Liability: The appellant contends that merely being directors of the company does not automatically impose vicarious liability upon them for the alleged offenses. They argue that there is no evidence or allegation that they had any knowledge or involvement in the dishonoring of the cheques. Therefore, they should not be held liable in the absence of specific allegations against them.

3. Mechanical Process: The appellant asserts that the summoning orders were issued by the Metropolitan Magistrate without proper application of mind. They argue that it has become a common practice for complainants to include all directors of a company as accused in order to pressurize the company into paying the claimed debt. The appellant submits that the summoning orders were the result of a mechanical process rather than a careful consideration of the allegations against them.

Respondent’s Arguments:

1. Involvement of Directors: The respondent (complainant) argues that as directors of the accused company, the appellant had a role in the transactions and should be held responsible for the dishonored cheques. They contend that the memorandum of parties in the criminal complaints clearly mentions the names of the petitioners as directors, establishing their connection to the company and the transactions in question.

2. Allegations of Engagement: The respondent claims that all directors of the accused company were involved in engaging with them regarding the transaction. They argue that this vague and sweeping allegation should be sufficient to impute criminal liability upon the petitioners as directors. They assert that the complainant had a legitimate expectation that the directors of the company would fulfil their financial obligations.

3. Money Recovery Proceeding: The respondent emphasizes that the criminal complaint under Section 138 of the Negotiable Instruments Act is not solely a money recovery proceeding. They argue that while the offense involves insufficient funds or exceeding the arrangement with the bank, the dishonor of the cheques for “other reasons” raises questions about the specific reason for the dishonor. The respondent contends that this issue should have been raised during the proceedings before summoning orders were issued.

Note: The appellant refers to the petitioners who filed the petition seeking the quashing of the summoning orders, while the respondent refers to the complainant who opposes the petition.

Judgment:

In the case at hand, the court, presided over by Anup Jairam Bhambhani, J., quashed the summoning orders issued by the Metropolitan Magistrate and set aside all the proceedings arising from those orders in relation to the petitioners.

The Court Based Its Judgment On Several Key Observations And Findings:

1. Lack of specific allegations: The court noted that the criminal complaints filed against the petitioners did not contain any specific allegations linking them to the issuance of the dishonored cheques or their responsibility for the dishonor. The complainant failed to mention their involvement as directors of the accused company or their role in the transactions. Therefore, the court concluded that there were no specific allegations against the petitioners in the complaints.

2. Insufficiency of Vicarious Liability: The court emphasized that being directors of a company does not automatically impose vicarious liability upon them for the alleged offenses. Without specific allegations and evidence of their knowledge or involvement in the dishonoring of the cheques, the court held that the petitioners should not be held liable.

3. Mechanical Process: The court criticized the practice of complainants including all directors of a company as accused in order to pressurize the company into paying the claimed debt. It observed that the summoning orders were issued without proper application of mind and were the outcome of a mechanical process rather than a careful consideration of the allegations against the petitioners.

4. Lack of Application of Mind: The court pointed out that the summoning orders made by both the Bangalore Court and the Delhi Court did not contain any reference or discussion regarding the allegations against the petitioners. The court found that the summoning orders were issued without proper application of mind and solely as a result of a mechanical process.

Based on these findings, the court concluded that the summoning orders and the proceedings arising from them against the petitioners should be quashed. The court held that the petitioners, as directors, could not be held vicariously liable in the absence of specific allegations and evidence linking them to the offenses under Section 138 of the Negotiable Instruments Act.

Analysis

The court’s observation that the criminal complaints filed against the petitioners lacked specific allegations linking them to the dishonoured cheques is significant. This highlights the importance of clearly establishing the role and involvement of each accused party in the offense. Without specific allegations, it becomes difficult to hold the directors vicariously liable for the actions of the accused company.

Overall, this case emphasizes the importance of specific allegations and evidence when holding directors vicariously liable in cases related to dishonored cheques. It highlights the need for the courts to apply their minds and thoroughly examine the allegations before issuing summoning orders. The judgment provides clarity on the role of directors and the purpose of Section 138 of the Negotiable Instruments Act in ensuring fair and just proceedings.