Crl.M.C.No.7316/2022

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR. JUSTICE A. BADHARUDEEN THURSDAY, THE 8[TH] DAY OF DECEMBER 2022 / 17TH AGRAHAYANA, 1944 CRL.MC NO. 7316 OF 2022** **AGAINST THE ORDER DATED 23.06.2022 IN CMP 49/2022 IN C.C.NO.2661/2015, C.C.NO.2662/2015 & C.C.NO.2663/2015 OF JUDICIAL FIRST CLASS MAGISTRATE COURT, TRIPUNITHURA PETITIONERS/ACCUSED 2 TO 4:** 1 JACOB SAMSON, AGED 65 YEARS S/O.SAMSON JACOB RESIDING AT TC.95/1580(3), NANDANAM, PADINJATTIL LANE, MEDICAL COLLEGE P.O., THIRUVANANTHAPURM, PIN – 695011. 2 JOHN JACOB AGED 38 YEARS S/O.JACOB SAMSON, RESIDING AT FLAT NO.9A, SAMSON & SONS YELLOW SAPHIRE APARTMENTS, TKD ROAD, MUTTADA P.O., THIRUVANANTHAPURAM, PIN – 695025. 3 SAMUEL JACOB, AGED 32 YEARS S/O.JACOB SAMSON, RESIDING AT TC.95/1580(3), NANDANAM, PADINJATTIL LANE, MEDICAL COLLEGE P.O., THIRUVANANTHAPURM, PIN – 695011. BY ADVS. P.MARTIN JOSE P.PRIJITH THOMAS P.KURUVILLA AJAY BEN JOSE MANJUNATH MENON R.GITHESH SACHIN JACOB AMBAT ANNA LINDA V.J HARIKRISHNAN S. S.SREEKUMAR (SR.) Crl.M.C.No.7316/2022 2 ## **RESPONDENTS/STATE & COMPLAINANT:** 1 STATE OF KERALA, REPRESENTED BY THE PUBLIC PROSECUTOR HIGH COURT OF KERALA, ERNAKULAM, PIN – 682031. 2 SAJEEV C.S., S/O SUBRAMANIAN NAMBOOTHIRI, RESIDING AT CHEMPAKANALLOOR, MANGANAM P.O., KOTTAYAM, PIN – 686018. BY ADVS. S.Shanavas Khan Shahul Hameed S.INDU(K/002856/1999) SENIRO PUBLIC PROSECUTOR SRI.RENJIT GEORGE THIS CRIMINAL MISC. CASE HAVING BEEN FINALLY HEARD ON29.11.2022, THE COURT ON 08.12.2022 PASSED THE FOLLOWING: Crl.M.C.No.7316/2022 3 ## _**A. BADHARUDEEN, J.**_ ================================ _Crl.M.C No.7316 of 2022_ ================================ _Dated this the 8[th] day of December, 2022_ ## _**O R D E R**_ This is a petition filed under Section 482 of the Code of Criminal Procedure (hereinafter referred to as `Cr.P.C' for short) and the petitioners herein are accused 2 to 4 in C.C.Nos.2661, 2662 and 2663 of 2015 on the file of the Judicial Magistrate First Class Court, Tripunithura. They impugn order dated 23.06.2022 in C.M.P.No.49/2022. The respondents herein are the State of Kerala as well as the complainant in the above cases. 2. Heard the learned counsel for the petitioners as well as the learned counsel appearing for the 1[st] respondent and the learned Public Prosecutor. 3. Parties in this case shall be referred to as `complainant' Crl.M.C.No.7316/2022 4 and `accused', with reference to their status before the court below. 4. In this matter, the petitioners seek to set aside AnnexureVII order. 5. Short facts: The complainant is a doctor practicing in Dubai. Accused No.1 is a private limited company. Accused Nos.2 to 4 are the Chairman, Managing Director and Director of the company respectively. The complainant entered into an agreement for sale and construction with the 1[st] accused company represented by the other accused, on 10.10.2014. In terms of the said agreement, the accused agreed for construction of 2500 sq.ft 4 BHK villa in 12.98 cents of land comprised in Survey No.461/8-2 situated in Block No.34 of Krarkkulam village in respect of plot No.7 in Vazhayila Project of the accused company. Accordingly, the complainant paid Rs.30 lakh to the accused on 10.10.2014 as first installment. Thereafter due to some financial constraints, the complainant had to withdraw from the said agreement and project Crl.M.C.No.7316/2022 5 and the said matter had been informed to the accused also. Even though some alternative arrangements were proposed by the accused company, the complainant was not agreeable for the same. Then the complainant demanded back the money. Consequently, the accused issued a cheque dated 10.05.2015 for Rs.10 lakh, signed by 2 of the Directors of the 1[st] accused for and on behalf of the 1[st] accused. Likewise, 2 other cheques were also issued to the complainant by the accused for the very same amount of Rs.10 lakh each. On presenting these cheques for encashment, the same were dishonoured. The reason stated for dishonour of the cheques was “funds insufficient”. Although the complainant issued demand notice, the accused neither paid any amount nor sent any reply. Hence the accused have committed offence under Section 138 of the Negotiable Instruments Act. 6. It is submitted by the learned counsel for the revision petitioners that proceedings were initiated against the 1[st] accused Crl.M.C.No.7316/2022 6 under Section 9 of the Insolvency and Bankruptcy Rules, 2016 (`IBC' for short) and by the National Company Law Tribunal, Kochi Bench and on 03.11.2021 the National Company Law Tribunal had issued a moratorium prohibiting, _inter alia,_ the institution of suits or continuation of pending suits or proceedings against the Corporate Debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority. Highlighting the said fact, it was zealously argued before the trial court that the present prosecution launched against the company and its officials could not be proceeded. 7. The learned Magistrate relied on a three Bench decision of the Apex Court reported in [(2021) 6 SCC 258], _**P.Mohanraj & Ors. v. M/s.Shah Brothers Ispat Pvt. Ltd.**_ and negatived the said contention holding that the Apex Court clarified that moratorium would apply only to a corporate debtor, and the proceedings could be continued against the persons mentioned in Sec. 141(1) and (2) Crl.M.C.No.7316/2022 7 of the Negotiable Instruments Act. 8. In this matter, consequent to dishonour of cheques issued by M/s.Samson and Sons Builders and Developers Pvt. Ltd., Muttada P.O, Thiruvananthapuram, the complainant launched prosecution alleging commission of offence punishable under Section 138 of the N.I Act against the company as well as its Chairman, Managing Director and Director of the company. While so, accused Nos.1 to 4 filed CMP.No.49/2022 to stay further proceedings in all the above cases on the ground that proceedings were initiated against the 1[st] accused under Section 9 of the Insolvency and Bankruptcy Rules, 2016 (`IBC' for short) and the matter is before the National Company Law Tribunal, Kochi. The further contention was that, as on 3.11.2021, the National Company Law Tribunal had issued moratorium prohibiting, _inter alia;_ the institution of suits or continuation of pending suits or proceedings against the Corporate Debtor including execution of any judgment, Crl.M.C.No.7316/2022 8 decree or order in any court of law, tribunal, arbitration panel or other authority. Thus it was argued before the trial court that the present prosecution launched against the company and its officials could not be proceeded. 9. While arguing to upset the said finding, the learned counsel for the revision petitioners attempted to establish that the Apex Court in _**P.Mohanraj & Ors. v. M/s.Shah Brothers Ispat Pvt. Ltd.**_ 's case ( _supra_ ) not considered the impact of Section 141 of the Negotiable Instruments Act. According to the learned counsel for the petitioner, when the cheque issued by a company was dishonoured, the principal debtor is the company and the other officials are only vicariously liable. Therefore, no prosecution against the other persons, after staying the prosecution against the corporate debtor, the principal debtor, cannot be continued. 10. In this connection, the learned counsel placed 2 decisions of the Apex Court. The first decision is one reported in Crl.M.C.No.7316/2022 9 [2009 KHC 787 : 2009 (2) KLD 338 : 2009 (9) SCALE 87 : 2009 (4) KLT SN 45 : 2009 (10) SCC 48 : 2009 (151) Comp Cas 520], _**Ahuja K.K v. V.K.Vora & anr**_ . In the said decision, the Apex Court held that the criminal liability for the offence committed by a company under S.138, is fastened vicariously on the persons referred to in sub-s.(1) of S.141 by virtue of a legal fiction. Penal statutes are to be construed strictly. Penal statutes providing constructive vicarious liability should be construed much more strictly. When conditions are prescribed for extending such constructive criminal liability to others, Courts will insist upon strict literal compliance. There is no question of inferential or implied compliance. Therefore, a specific averment complying with the requirements of S.141 is imperative. As pointed out in _**K.Srikanth Singh v. North East Securities Ltd.**_ , 2007 (12) SCC 788, the mere fact that at some point of time, an officer of a company had played some role in the financial affairs of the Crl.M.C.No.7316/2022 10 company, will not be sufficient to attract the constructive liability under S.141 of the Act. This legal position is not in dispute. 11. The 2[nd] decision is also another 2 Bench decision of the Apex Court reported in [2022 (3) KHC 593 : 2022 KHC OnLine 6517 : 2022 (3) KLT 373 : 2022 SCC OnLine SC 579 : AIR 2022 SC 2258], _**Dilip Hariramani v. Bank of Baroda**_ , wherein it was held that the provisions of Section 141 impose vicarious liability by deeming fiction which presupposes and requires the commission of the offence by the company or firm. Therefore, unless the company or firm has committed the offence as a principal accused, the persons mentioned in sub-section (1) or (2) would not be liable and convicted as vicariously liable. S.141 of the NI Act extends vicarious criminal liability to officers associated with the company or firm when one of the twin requirements of Section 141 has been satisfied, which person(s) then, by deeming fiction, is made vicariously liable and punished. However, such vicarious liability Crl.M.C.No.7316/2022 11 arises only when the company or firm commits the offence as the primary offender. 12. The learned counsel for the 2[nd] respondent/the complainant fervently argued that in _**P.Mohanraj & Ors. v. M/s.Shah Brothers Ispat Pvt. Ltd.**_ 's case ( _supra_ ), the Apex Court categorically held that moratorium under Section 14 would apply in respect of Section 138/141 of the N.I Act in relation to corporate debtor alone and the proceedings against the other persons can go on. Therefore, the learned Magistrate rightly stayed proceedings against the 1[st] accused, while allowing continuance of trial against the other accused/petitioners. In para.101 and 102 of _**P. Mohanraj & Ors. v. M/s.Shah Brothers Ispat Pvt. Ltd.**_ 's case ( _supra_ ) the Apex Court held the legal position as under: _“101: As far as the Directors/persons in management or control of the corporate debtor are concerned, a Sections138/141 proceeding against them cannot be initiated or continued without the corporate debtor—see [(2012) 5 SCC 661 : (2012) 3 SCC (Civ) 351 : (2012) 3 SCC (Cri) 241],_ _**Aneeta Hada v. Godfather Travels & Tours (P) Ltd.** This is because_ Crl.M.C.No.7316/2022 12 _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** held as under: (SCC pp.686-88, paras 51, 56 & 58-59)_ _“51. We have already opined that the decision [(1984) 4 SCC 352 : 1984 SCC (Cri) 620],_ _**Sheoratan Agarwal v. State of M.P** runs counter to the ratio laid down in [(1970) 3 SCC 491 : 1971 SCC (Cri) 97],_ _**State of Madras v. C.V.Parekh** which is by a larger Bench and hence, is a binding precedent. On the aforesaid ratiocination, the decision in [(2000) 1 SCC 1 : 2001 SCC (Cri) 174],_ _**Anil Hada v. Indian Acrylic Ltd.** 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 tex non cogit and impossibilia gets attracted._ _xxxx xxxx xxxx xxxx_ _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 dragnet 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** 's case (supra) which is a three-Judge Bench decision. Thus, the view expressed in_ _**Sheoratan Agarwal v. State of M.P** 's case (supra) does not correctly law down the law and, accordingly, is hereby overruled. The decision in_ _**Anil Hada** 's case (supra) is_ Crl.M.C.No.7316/2022 13 _overruled with the qualifier as stated in para.51. The decision in [(1987) 3 SCC 684 : 1987 SCC (Cri) 632],_ _**U.P. Pollution Control Board v. Modi Distillery** has to be treated to be restricted to its own facts as has been explained by us hereinabove._ _102. Since the corporate debtor would be covered by the moratorium provision contained in Section 14 IBC, by which continuation of Sections 138/141 proceedings against the corporate debtor and initiation of Sections 138/141 proceedings against the said debtor during the corporate insolvency resolution process are interdicted, what is stated in paras 51 and 59 in_ _**Aneeta Hada**_ would then become applicable. The legal impediment contained in Section 14 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 Sections 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 Sections 141(1) and (2) of the Negotiable Instruments Act. This being the case, it is clear that the moratorium provision contained in Section 14 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.” 13. Thus the law is well declared by the Apex Court that moratorium provision contained in Sec.14 of IBC would apply only to a corporate debtor, the natural persons mentioned in Section 141, Crl.M.C.No.7316/2022 14 continuing to be statutorily liable under Chapter XVII of the N.I Act. In view of the above legal position settled by the 3 Bench of the Apex Court, the argument advanced by the learned counsel for the petitioners cannot be accepted. Then it has to be held that the learned Magistrate rightly dismissed the application in so far as accused 2 to 4/petitioners herein, while staying the further proceedings against the corporate debtor. Therefore, the order impugned does not suffer from any legal infirmity to revisit the same by this Court. Accordingly, this petition is dismissed. _Sd/-_ ## _**(A. BADHARUDEEN, JUDGE)**_ _rtr/_ Crl.M.C.No.7316/2022 15 ## **APPENDIX OF CRL.MC 7316/2022** ## PETITIONER'S ANNEXURES |Annexure1|TRUE COPY OF C.C.NO.2661 OF 2015 FILED| |---|---| ||BY THE 2ND RESPONDENT BEFORE THE| ||JUDICIAL FIRST CLASS MAGISTRATE COURT,| ||THRIPUNITHURA.| |Annexure II|TRUE COPY OF C.C.NO.2662 OF 2015 FILED| ||BY THE 2ND RESPONDENT BEFORE THE| ||JUDICIAL FIRST CLASS MAGISTRATE COURT,| ||THRIPUNITHURA.| |Annexure III|TRUE COPY OF C.C.NO.2663 OF 2015 FILED| ||BY THE 2ND RESPONDENT BEFORE THE| ||JUDICIAL FIRST CLASS MAGISTRATE COURT,| ||THRIPUNITHURA.| |Annexure IV|TRUE COPY OF ORDER DATED 03-11-2021 IN| ||CP(IB)/05/KOB/2021 OF THE NATIONAL| ||COMPANY<br>LAW<br>TRIBUNAL,<br>KOCHI| ||BENCH,KERALA, ADMITTING THE APPLICATION| ||AND DECLARED MORATORIUM AS ENVISAGED| ||UNDER S.14(1) OF THE CODE, AND APPOINTED| ||INTERIM RESOLUTION PROFESSIONAL AS PER| ||S.16 OF THE CODE.| |Annexure V|TRUE COPY OF ORDER DATED 16-03-2022 OF| ||NCLT,<br>KOCHI<br>BENCH,<br>IN<br>I.A.| ||(IBC)NO.14(KOB)/2022<br>IN<br>CP| ||(IB)/05/KOB/2021,<br>APPOINTING| ||MR.K.PARAMESWARAN NAIR AS THE INSOLVENCY| ||RESOLUTION PROFESSIONAL.| |Annexure VI|TRUE COPY OF C.M.P.NO.49 OF 2022 FILED| ||BY THE PETITIONERS HEREIN IN ANNEXURES-| ||I, II AND III BEFORE THE JUDICIAL FIRST| ||CLASS MAGISTRATE COURT, THRIPUNITHURA.| |Annexure VII|CERTIFIED COPY OF ORDER DATED 23-06-2022| ||IN C.M.P.NO.49 OF 2022 OF THE JUDICIAL| ||FIRST<br>CLASS<br>MAGISTRATE<br>COURT,| ||THRIPUNITHURA.|