M/S Aqua Thermocare Cooling Technologies Pvt. Ltd. v. Martin M. Lindsay and Timothy J. Fitzgerald and State of Kerala

# **`IN THE HIGH COURT OF KERALA AT ERNAKULAM`** # **`PRESENT`** ``` THE HONOURABLE MR. JUSTICE A. BADHARUDEEN WEDNESDAY, THE 10[TH] DAY OF JANUARY 2024 / 20TH POUSHA, 1945 ``` ``` CRL.MC NO. 4628 OF 2016 ``` ``` AGAINST THE PROCEEDINGS IN C.C.NO.1233 OF 2015 ON THE FILES OF THE JUDICIAL FIRST CLASS MAGISTRATE COURT-VIII, MARADU, ERNAKULAM ``` ## **`PETITIONERS/ACCUSED NOS.2 AND 3:`** - **`1 MARTIN M.LINDSAY DIRECTOR, M/S MIDDLEBY COMMERCIAL FOOD INNOVATIONS PVT. LTD., 3RD FLOOR, SLV HOUSE, PLOT NO.14, SECTOR-44, NEAR TAJ VIVANTA, GURGAON, HARYANA-122 003. (PRESENTLY MIDDLEBY CELFROST INNOVATIONS PVT. LTD., UNIT NO.SF 713-16, 7TH FLOOR JMD MEGAPOLIS, SOHNA ROAD SECTOR-48, GURGAON, HARYANA-122 018) RESIDING AT 2560N, HADDOW AVENUE, ARLINGTON HEIGHTS, ILLINOIS 60004, UNITED STATES OF AMERICA.`** ``` 2TIMOTHY J FITZGERALD DIRECTOR,M/S MIDDLEBY COMMERCIAL FOOD INNOVATIONS PVT. LTD., 3RD FLOOR, SLV HOUSE, PLOT NO.14, SECTOR-44, NEAR TAJ VIVANTA, GURGAON, HARYANA-122 003. (PRESENTLY MIDDLEBY CELFROST INNOVATIONS PVT. LTD., UNIT NO.SF 713-16, 7TH FLOOR JMD MEGAPOLIS, SOHNA ROAD SECTOR-48, GURGAON, HARYANA-122 018) RESIDING AT 62F HARBOR DRIVE, LAKE ZURICH, ILLINOIS 60047, UNITED STATE OF AMERICA. BY ADVS. DR.S.GOPAKUMARAN NAIR (SR.) SMT.V.A.HARITHA SRI.P.A.MOHAMMED SHAH SMT.MARY RESHMA GEORGE SRI.S.PRASANTH SRI.SOORAJ T.ELENJICKAL SMT.SANDHYA R.NAIR ``` ## **`RESPONDENT/COMPLAINANT & STATE:`** ``` 1M/S.AQUA THERMOCARE COOLING TECHNOLOGIES PVT. LTD. REGISTERED OFFICE AT 37/1150 A, ``` ``` Crl.M.C No. 4628 of 2016 ``` ``` 2 ``` ``` SUBHASH CHANDRA BOSE ROAD, JAWAHAR NAGAR, COCHIN-692 003 ALSO AT 29/1520, EX-PILMEN BUILDINGS, WELLINGDON ISLAND, COCHIN-682 003 REPRESENTED BY ITS MANAGING DIRECTOR, SRI. PRAVEEN S. 2STATE OF KERALA REPRESENTED BY THE PUBLIC PROSECUTOR, HIGH COURT OF KERALA, ERNAKULAM - 682 031. BY ADV SRI.C.A.RAJEEV SR PP - SRI K DENNY DEVASSY ``` ``` THIS CRIMINAL MISC. CASE HAVING COME UP FOR ADMISSION ON 10.01.2024, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: ``` ``` Crl.M.C No. 4628 of 2016 ``` ``` 3 ``` ## **“C.R”** ## **ORDER** ## **Dated this the 10[th] day of January, 2024** This is a petition filed under Section 482 of the Code of Criminal Procedure (hereinafter referred as ‘Cr.P.C’ for convenience) to quash complaint in C.C. No.1233 of 2015 on the files of the Judicial First Class Magistrate Court-VIII, Maradu, Ernakulam, on urging that the same is an abuse of the process of Court. The petitioners are accused Nos. 2 and 3 in the above case, who are citizens of United States of America. 2. I would like to refer the parties in this Crl.M.C as 'accused' and 'complainant', for convenience. 3. Heard the learned senior counsel for the accused/petitioners in detail as well as the learned Public Prosecutor appearing for the State. Though, notice issued to the 1[st] respondent/complainant, the complainant did not turn up. 4. It is submitted by the learned senior counsel ``` Crl.M.C No. 4628 of 2016 ``` ``` 4 ``` for the accused/petitioners that, the sum and substance of the complaint, which led to cognizance of offences under Sections 406 and 420 read with 34 of IPC, is presentation of cheques entrusted by the complainant as part of business dealings and consequential filing of prosecution permissible under Section 138 read with 142 of the Negotiable Instruments Act, 1881 (hereinafter referred as ‘N.I. Act’ for convenience), on dishonor of the said cheques. According to the learned senior counsel for the accused/petitioners, mere launching of prosecution, on getting cheques dishonored for want of funds, by itself, for any reason, would not constitute offences punishable under Sections 406 or 420 of IPC. If malicious prosecution of this nature is allowed to sustain, the same would be weaponized to beat the prosecution launched under the N.I. Act, by all accused. 5. Secondly, it is argued by the learned senior counsel for the accused that, even otherwise, prosecution as against the accused/petitioners, who are non-executive directors of the Company is not legally permissible. In this connection, the learned senior ``` Crl.M.C No. 4628 of 2016 ``` ``` 5 ``` counsel placed decision of the Apex Court reported in **[AIR 2022 SC 3548] Sunita Palita and Others v. Panchami Stone Quarry** and brought the attention of this Court into paragraph Nos. 29, 35, 38, 42 and 43 of the said decision. On perusal of the same, the Apex Court, referred the decision reported in **[(2014) 16 SCC** **1] Pooja Ravinder Devidasani v. State of Maharashtra and Another** , where it was held as under: “Non-executive Director is no doubt a custodian of the governance of the company but is not involved in the day-today affairs of the running of its business and only monitors the executive activity. To fasten vicarious liability Under Section 141 of the Act on a person, at the material time that person shall have been at the helm of affairs of the company, one who actively looks after the day-to-day activities of the company and is particularly responsible for the conduct of its business. Simply because a person is a Director of a company, does not make him liable under the NI Act. Every person connected with the Company will not fall into the ambit of the provision. ``` Crl.M.C No. 4628 of 2016 ``` ``` 6 ``` Time and again, it has been asserted by this Court that only those persons who were in charge of and responsible for the conduct of the business of the Company at the time of commission of an offence will be liable for criminal action. A Director, who was not in charge of and was not responsible for the conduct of the business of the Company at the relevant time, will not be liable for an offence Under Section 141 of the NI Act.” 6. In view of the above arguments, the questions arose for consideration are: 1. Whether, the learned Magistrate found sufficient materials, prima facie, while taking cognizance of offences, alleged to be committed by petitioners under Sections 406 and 420 read with 34 of IPC? 2. What are the essentials to constitute offences punishable under Sections 406 and 420 of IPC? 3. Whether a non-executive Director of a Company, who is not a custodian of the governance of the Company, not involved in the day-to-day affairs of the running of its business and only monitors the executive activity is liable to be prosecuted, in a ``` Crl.M.C No. 4628 of 2016 ``` ``` 7 ``` prosecution alleging commission of offences punishable under Section 138 of the N.I. Act? 7. While addressing the first and second questions, I have perused the sworn statement recorded by the learned Magistrate, while conducting inquiry mandated under Section 202 of Cr.P.C. Reading the sworn statement, the same is a summarized form of the averments in the complaint. The same runs on the premise that, as part of business dealings, the complainant issued advance payment by cheques worth Rs.72,91,411/- and for which, products worth Rs.33,19,153/- alone were supplied by accused No.1 Company. Thereafter, the accused defaulted in supplying the goods as agreed. However, they presented all the cheques entrusted towards advance payments for collection and on dishonor of the same, they launched prosecution alleging commission of offences punishable under Section 138 of the N.I. Act, ignoring the instructions given by the complainant not to present the above cheques. ``` 8 ``` ``` Crl.M.C No. 4628 of 2016 ``` 8. According to the complainant, the presentation of the cheques and launching of prosecution are as against the instructions given by the complainant not to present the cheques for collection and the same would amount to breach of trust and cheating. 9. On perusal of averments in the complaint along with the sworn statement, the presentation of cheques entrusted by the complainant to the 1[st] accused, as part of business deals and its presentation for collection, its dishonor, non payment of the amount covered by the cheques after issuance of legal notice and consequential launching of prosecution are the allegations mooted to allege that accused committed offences punishable under Sections 406 and 420 read with 34 of IPC. 10. Section 406 of IPC provides punishment for breach of trust defined under Section 405 of IPC. As per Section 405 of IPC, whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his ``` Crl.M.C No. 4628 of 2016 ``` ``` 9 ``` own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or wilfully suffers any other person so to do, commits "criminal breach of trust". [Explanation [1].-A person, being an employer [of an establishment whether exempted under section 17 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952), or not] who deducts the employee's contribution from the wages payable to the employee for credit to a Provident Fund or Family Pension Fund established by any law for the time being in force, shall be deemed to have been entrusted with the amount for the contribution so deducted by him and if he makes default in the payment of such contribution to the said Fund in violation of the said law, shall be deemed to have dishonestly used the amount of the said contribution in violation of a direction of law as aforesaid.] [Explanation 2.- A person, being an employer, who deducts the ``` Crl.M.C No. 4628 of 2016 ``` ``` 10 ``` employees' contribution from the wages payable to the employee for credit to the Employees' State Insurance Fund held and administered by the Employees' State Insurance Corporation established under the Employees' State Insurance Act, 1948 (34 of 1948), shall be deemed to have been entrusted with the amount of the contribution so deducted by him and if he makes default in the payment of such contribution to the said Fund in violation of the said Act, shall be deemed to have dishonestly used the amount of the said contribution in violation of a direction of law as aforesaid.] 11. Going by Section 405 of IPC, whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or wilfully suffers any other person so to do, commits "criminal breach of trust". ``` Crl.M.C No. 4628 of 2016 ``` ``` 11 ``` 12. The Apex Court, in the decisions reported in **[2002 SCC (Cri) 129] S.W. Palanitkar v. State of Bihar; [(2003) 7 SCC 399] Kailash Kumar Sanwatia v. State of Bihar,** espoused the ingredients to constitute the offence of criminal breach of trust held as under: “The ingredients in order to constitute a criminal breach of trust are: (i) entrusting a person with property or with any dominion over property, (ii) that person entrusted (a) dishonestly misappropriating or converting that property to his own use; or (b) dishonestly using or disposing of that property or wilfully suffering any other person so to do in violation (i) of any direction of law prescribing the mode in which such trust is to be discharged, (ii) of any legal contract made, touching the discharge of such trust.” 13. It was held in the decision of the Apex Court reported in **[AIR 2019 SC 1538] Satishchandra Ratanlal Shah v. State of Gujarat,** that, mere breach of contract does not constitute offence under Section 405 of IPC. ``` Crl.M.C No. 4628 of 2016 ``` ``` 12 ``` 14. Coming to Section 420 of IPC, it has been provided that, whoever cheats and thereby dishonestly induces the person deceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine. Classification of Offence.- The offence under this section is cognizable, non-bailable compoundable with permission of the Court before which any prosecution of such offence is pending and triable by Magistrate of the first class. 15. In **S.W. Palanitkar** ’s case (supra), the Apex Court considered the ingredients to constitute an offence of cheating as under: “Ingredients of section. - The ingredients of an offence of cheating are: (i) there should be fraudulent or dishonest inducement of a person by deceiving him, (ii)(a) the person so deceived should be induced to deliver any ``` Crl.M.C No. 4628 of 2016 ``` ``` 13 ``` property to any person, or to consent that any person shall retain any property; or (b) the person so deceived should be intentionally induced to do or omit to do anything which he would not do or omit if he were not so deceived; and (iii) in cases covered by (ii)(b), the act of omission should be one which causes or is likely to cause damage or harm to the person induced in body, mind, reputation or property.” 16. Adverting to the ingredients to constitute offences punishable under Sections 406 and 420 of IPC, the question arises for consideration is, whether after entrustment of cheques as part of business transactions with authority to present the same for encashment, can the drawer of a cheque would allege commission of offences under Sections 406 and 420 of IPC by the drawee, when prosecution was launched on dishonor of the cheques, rather than defending the case alleging absence of consideration or other relevant contentions to rebut the presumptions available in favour of the complainant as provided under Sections 118 and 139 of the N.I. Act? ``` Crl.M.C No. 4628 of 2016 ``` ``` 14 ``` 17. I have already referred the allegations in the complaint and in the sworn statement given by the complainant alleging commission of offences punishable under Sections 406 and 420 read with 34 of IPC and on no stretch of imagination it could be held that after issuing a cheque as part of business transactions with authority for the drawee to present for encashment, the drawer of the cheque retains an authority to direct not to present the cheque and if presented, as against the instructions and launches prosecution, the same would amount to breach of trust or cheating. The remedy of the drawer, who alleges want of consideration etc. is to defend the case and prove his innocence by rebutting the presumptions in favour of the complainant. At the most, the drawer can seek the relief of quashment of the complaint, if valid reasons to opt the said exercise is available. If cases of this nature is allowed to stand in the way of prosecution, launched under the Negotiable Instruments Act, the intention of the legislature would be defeated as the same would affect business deals acting on negotiable instruments instead of solid cash. ``` Crl.M.C No. 4628 of 2016 ``` ``` 15 ``` 18. Therefore, it has to be held that the learned Magistrate went wrong in taking cognizance for the offences punishable under Sections 406 and 420 read with 34 of IPC, without sufficient materials, merely on recording statement of the complainant alone, stating the reasons herein above extracted in detail. Therefore, the cognizance is bad in law and accordingly the same requires interference by exercising power under Section 482 of Cr.P.C. 19. Coming to the third question, since the law is settled by the Apex Court in **Sunita Palita** ’s case (supra) and **Pooja Ravinder Devidasani** ’s case (supra), as extracted herein above, a Non-executive Director is no doubt a custodian of the governance of the company but is not involved in the day-to-day affairs of the running of its business and only monitors the executive activity, could not be fastened under vicarious liability under Section 141 of the N.I. Act. 20. To sum up, it is held that the learned Magistrate went wrong in taking cognizance against the petitioners for the offences punishable under Sections ``` Crl.M.C No. 4628 of 2016 ``` ``` 16 ``` 406 and 420 read with 34 of IPC, without sufficient materials. Therefore, the cognizance is bad in law. Accordingly, the same requires interference by exercising power under Section 482 of Cr.P.C. In the result, this Crl.M.C. stands allowed and the case as against the petitioners/accused Nos. 2 and 3 pending as C.C. No.1233 of 2015 on the files of the Judicial First Class Magistrate Court-VIII, Maradu, Ernakulam is hereby quashed. **Sd/-** SK **A. BADHARUDEEN JUDGE** ``` Crl.M.C No. 4628 of 2016 ``` ``` 17 ``` ## **`APPENDIX OF CRL.MC 4628/2016`** ``` PETITIONERS’ ANNEXURES : ANNEXURE IA COPY OF FORM 32, RECEIPT OF FILING FORM 32 DATED 21.09.2013 AND DINS PASSPORTS OF BOTH THE PETITIONERS INCLUDING VISA PAGES. ANNEXURE IIA COPY OF THE BANK STATEMENT OF CITI BANK WITH A DEBIT ENTRY OF BOUNCED CHEQUE NO.837865 OF THE COMPLAINANT FOR RS.30,00,000/- ``` ``` ANNEXURE IIIA COMPARATIVE TABLE SHOWING THE NUMBER OF THE 17 CHEQUES TOTALING RS.24,17,662/- WITH BANK RETURN MEMOS, CORRELATING DISHONOURED CHEQUES, BANK MEMO COPIES, C FORM COPIES AND INVOICES. ``` ``` ANNEXURE IVTRUE COPIES OF THE CASE FILED BY THE COMPLAINANT BEFORE THE COMPETENT COURTS AT NEW DELHI VIZ C.C.NO.241/1/14 DATED 23.05.2014. ``` ``` ANNEXURE IV(a)TRUE COPIES OF THE CASE FILED BY C.C.NO.459/1/14 DATED 19.06.2014. ANNEXURE VA TRUE COPY OF THE IMPUGNED COMPLAINT NO. CC 1233/2015 OF JFMC - VIII, MARADU ``` ## **`RESPONDENTS' ANNEXURES : NIL`**