T.O. Souriyar Vs. State of Kerala - Thus, it could be safely concluded that the offence of cheating envisaged under Indian Penal Code would be attracted in those cases of dishonour of cheques due to closure of account where the mens rea, that is, the fraudulent or dishonest intention of the drawer at the time of issuance of the cheque, to deceive the payee, is established from the facts and circumstances of the case.

  HC Kerala (30.11.2023) in T.O. Souriyar Vs. State of Kerala [Crl.R.P No.441 of 2005, Neutral Citation - 2023/KER/75601] held that.

• If it is shown that the 1st respondent was not having any intention at all to return the amount and that the cheque was issued only as a ploy to deceive the revision petitioner, the element of cheating, as envisaged under Section 415 IPC would be clearly brought out in the case on hand.

• The distinction lies on the pertinent question as to the mens rea of the drawer to deceive the payee at the time when he issues the cheque, pretending it to be one drawn on a valid and live account maintained by him. True that the evidence in such cases shall be meticulously analysed to ascertain whether the drawer was having the intention, right from the very beginning, to defeat the attempt of the payee to encash the cheque which he had issued ostensibly to make payment of the amount covered by it.

• Thus, it could be safely concluded that the offence of cheating envisaged under Indian Penal Code would be attracted in those cases of dishonour of cheques due to closure of account where the mens rea, that is, the fraudulent or dishonest intention of the drawer at the time of issuance of the cheque, to deceive the payee, is established from the facts and circumstances of the case.

Excerpts of the Order;    

Whether the offence of cheating punishable under Section 417 I.P.C or Section 420 I.P.C is attracted if a person, after voluntarily closing his account, issues a cheque towards the discharge of a pecuniary liability, leading to the inevitable consequence of its dishonour on the ground ‘account closed’? It is the above question, which is to be resolved in this revision petition.

# 2. The facts, in conspectus, necessary for the disposal of this petition are as follows : The revision petitioner is the de facto complainant, and the 1 st respondent is the accused, in C.C.No.561/1999 of Judicial First Class Magistrate Court-I, Aluva, a case instituted on Police Report in respect of the offence under Section 420 I.P.C. Offering a job for the son of the revision petitioner at Appollo Tyres, the 1st respondent is said to have obtained an amount of Rs.50,000/- from the revision petitioner on 07.10.1997. When the revision petitioner demanded repayment of the above amount after the failure of the 1st respondent to arrange a job to his son as agreed, the 1st respondent is said to have issued a cheque on 25.04.1998, bearing the same date, for an amount of Rs.50,000/- to the revision petitioner. When the cheque was presented for collection, it was dishonoured stating the reason that the 1st respondent had closed the account in which the above cheque has been drawn, as early as 13.01.1998. A complaint preferred by the revision petitioner before the Judicial First Class Magistrate-I, Aluva, alleging the commission of the offence under Section 420 IPC against 1st respondent, was forwarded to the Police under Section 156 (3) Cr.P.C., leading to the registration of Crime No.927/1998 by the Aluva Police. After the completion of the investigation, the Assistant Sub-Inspector of Police, Aluva filed final report before the Judicial First Class Magistrate-I, Aluva, alleging the commission of offence under Section 420 IPC. 

# 3. In the trial that followed five witnesses were examined from the part of the prosecution as PW1 to PW5, and five documents marked as Exts.P1 to P5. The 1st respondent also tendered evidence as DW1, and brought on record four documents, which are marked as Exts.D1 to D4. The learned Magistrate, after evaluation of evidence and hearing both sides, found the 1st respondent guilty of commission of Section 420 IPC and convicted him. He was accordingly, awarded a sentence of simple imprisonment for one year with a direction to pay compensation of Rs.50,000/- to the revision petitioner under Sec.357(3) Cr.P.C with a default clause of simple imprisonment for three months. 

# 4. However, in the appeal preferred by the 1st respondent before the Additional Sessions Court, North Paravur as Crl.Appeal No.96/2003, the learned Additional Sessions Judge found that the offence under Sec.420 IPC is not attracted in the facts and circumstances of the case. Accordingly, the 1st respondent was acquitted of the above charge by setting aside the conviction and sentence imposed by the learned Magistrate. Aggrieved by the above judgment of the Additional Sessions Court, North Paravur, the de facto complainant is here with this revision petition. 

# 5. In spite of service of notice, the 1st respondent did not care to appear in these proceedings or to advance arguments. 

# 6. Heard the learned counsel for the revision petitioner and the learned Public Prosecutor representing the 2 nd respondent – State of Kerala. 

# 7. Sec.415 of the Indian Penal Code reads as follows : “Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to "cheat". Explanation.—A dishonest concealment of facts is a deception within the meaning of this section.” 

# 8. Going by the above provision, the following particulars are required to be established for attracting the offence of cheating: 

• (i) There should be deception perpetrated upon a person by the accused. 

• (ii) By perpetrating such deception, the accused should have fraudulently or dishonestly induced the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or should have intentionally induced the person so deceived to do or omit to do anything which he would not do or omit to do, if he were not so deceived. 

• (iii) The act or omission on the part of the person so deceived should have either caused or likely to have caused damage or harm to that person in body, mind, reputation or property. 

# 9. In addition to the contingencies amounting to cheating mentioned under Sec.415 IPC, Sec.420 IPC covers a situation wherein the person who has been cheated happens 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. The punishment for such an act is imprisonment of either description for a term which may extend to seven years, and also fine. 

# 10. As far as the present case is concerned, the pertinent aspect to be looked into is whether the act of the 1st respondent receiving an amount of Rs.50,000/- from the revision petitioner upon the unfulfilled promise of arranging job to the revision petitioner’s son, and thereafter issuing a cheque for the said amount on an account which he had voluntarily closed three months prior to the date of issuance of the cheque, towards the repayment of the said amount, leading to the dishonour of the said cheque, would amount to cheating, as envisaged under Section 415 IPC. If it is shown that the 1st respondent was not having any intention at all to return the amount and that the cheque was issued only as a ploy to deceive the revision petitioner, the element of cheating, as envisaged under Section 415 IPC would be clearly brought out in the case on hand. 

# 11. A perusal of the records of this case would reveal that the petitioner had adduced evidence before the trial court that the 1st respondent had obtained an amount of Rs.50,000/- from him on 07.10.1997 upon the promise that he would arrange job for the petitioner’s son in a private establishment. It is further stated by the petitioner in his testimony as PW1 before the trial court that the 1st respondent did not arrange the job to his son as agreed, and that he demanded the money back due to the above reason. After such repeated demands, PW1 would state, the 1st respondent went to his house on 25.04.1998 and handed over Ext.P4 cheque after getting it signed, making him believe that he could encash the above cheque by presenting it before SBI, Aluva where the 1st respondent was having account. PW1 has also stated that he presented Ext.P4 cheque for collection on 19.08.1998 as instructed by the 1st respondent, but it was dishonoured for the reason that the account in which it was drawn had been closed as early as 13.01.1998. Thus it is clearly made out from the above evidence of PW1 that at the time when the 1st respondent executed and issued Ext.P4 cheque on 25.04.1998 to the petitioner towards payment of the amount mentioned in that cheque, the 1st respondent was fully aware of the fact that the said account had been closed by him three months prior to that date, and hence the said cheque would definitely be dishonoured for that reason. The above conduct of the 1st respondent would definitely amount to deception in so far as it relates to the fraudulent and dishonest inducement made by the 1st respondent to make the petitioner believe that he would be able to get back the amount of Rs.50,000/- which the 1 st respondent had obtained from him, by presenting and encashing the said cheque. 

# 12. It seems from the judgment of the appellate court that the learned Additional Sessions Judge was carried away by the impression that if a person issues a cheque after the closure of his account, in respect of an antecedent liability, and the said cheque happens to be dishonoured due to that reason, the above act of that person will not come within the purview of cheating as defined under Section 415 I.P.C. The above conclusion of the learned Additional Sessions Judge, in my view, is patently wrong. 

# 13. It is true that the dishonour of a cheque due to the closure of the account by the drawer, may attract the offence under Section 138 of the Negotiable Instruments Act in certain cases, including those cases where the person executing and issuing the cheque did not have the expectation that his account is closed, or that it is likely to be closed, before the presentation of that cheque by the payee for encashment. However, in a given case, if it is shown that a drawer of the cheque, after voluntarily closing his account, executed and issued it to the payee with the intention to see that the payee would not encash the amount covered by the cheque which he was indebted to pay, the offence of cheating defined under Section 415 I.P.C will be definitely attracted in the facts and circumstances of that case. The distinction lies on the pertinent question as to the mens rea of the drawer to deceive the payee at the time when he issues the cheque, pretending it to be one drawn on a valid and live account maintained by him. True that the evidence in such cases shall be meticulously analysed to ascertain whether the drawer was having the intention, right from the very beginning, to defeat the attempt of the payee to encash the cheque which he had issued ostensibly to make payment of the amount covered by it. 

# 14. The Hon’ble Supreme Court in Sangeetaben Mahendrabhai Patel v. State of Gujarat and Another : AIR 2012 SCC 2844 has observed that though there may be some overlapping facts in a prosecution for the offence under Section 138 of the Negotiable Instruments Act and Section 420 I.P.C in connection with the dishonour of the same cheque due to closure of the account, the ingredients of the said offences are entirely different, and subsequent prosecution under Section 420 I.P.C in respect of a case which had already been prosecuted under Section 138 of the Negotiable Instruments Act, is not barred by any statutory provisions. Paragraphs 27 and 28 of the judgment of the Hon’ble Supreme Court in the aforesaid case are extracted as follows: 

• “27. Admittedly, the appellant had been tried earlier for the offences punishable under the provisions of S. 138 NI Act and the case is sub judice before the High Court. In the instant case, he is involved under S. 406/420 read with S.114 I.P.C. In the prosecution under S.138 N.I.Act, mens rea i.e. fraudulent or dishonest intention at the time of issuance of cheque is not required to be proved. However, in the case under IPC involved herein, the issue of mens rea may be relevant. The offence punishable under S.420 I.P.C is a serious one as the sentence of 7 years can be imposed. In the case under NI Act, there is a legal presumption that the cheque had been issued for discharging the antecedent liability and that presumption can be rebutted only by the person who draws the cheque. Such a requirement is not there in the offences under IPC. In the case under NI Act, if a fine is imposed, it is to be adjusted to meet the legally enforceable liability. There cannot be such a requirement in the offences under IPC. The case under NI Act can only be initiated by filing a complaint. However, in a case under the IPC such a condition is not necessary. 

• 28. There may be some overlapping of facts in both the cases but ingredients of offences are entirely different. Thus, the subsequent case is not barred by any of the aforesaid statutory provisions.” 

# 15. Thus, it could be safely concluded that the offence of cheating envisaged under Indian Penal Code would be attracted in those cases of dishonour of cheques due to closure of account where the mens rea, that is, the fraudulent or dishonest intention of the drawer at the time of issuance of the cheque, to deceive the payee, is established from the facts and circumstances of the case. 

# 16. The same view has been expressed by the Full Bench of Andhra Pradesh High Court in OPTS Marketing Pvt.Ltd. (M/s.) and Others v. State of A.P and Others : 2001 KHC 2132 wherein, after an elaborate discussion on the case laws on this point, it has been observed in paragraph No.27 of that judgment as follows: 

• “27. In the result, we hold that (i) even after introduction of S. 138 of the Negotiable Instruments Act, prosecution under S. 420, IPC is maintainable in case of dishonour of cheques or postdated cheques issued towards payment of price of the goods purchased or hand loan taken, or in discharge of an antecedent debt or towards payment of goods supplied earlier, if the charge sheet contains an allegation that the accused had dishonest intention not to pay even at the time of issuance of the cheque, and the act of issuing the cheque, which was dishonoured, caused damage to his mind, body or reputation, (ii) private complaint or FIR alleging offence under S. 420, IPC for dishonour of cheques or postdated cheques cannot be quashed under S. 482. Cr. P.C. if the averments in the complaint show that the accused had, with a dishonest intention and to cause damage to his mind, body or reputation, issued the cheque which was not honoured. Point No. 2 is answered accordingly.” 

# 17. The observation of the learned Additional Sessions Judge about the non-applicability of Section 415 I.P.C, by relying on the decision of this Court in Surendran v. Ramachandran Nair : 1967 KLT 804 : 1967 KHC 265, appears to be erroneous since the facts and circumstances of the case discussed in the said decision are totally different from the facts and circumstances of the present case wherein the mens rea of the 1 st respondent to cheat the petitioner is clearly brought on record. So also, it is seen from the impugned judgment of the learned Additional Sessions Judge that, upon a wrong interpretation of the dictum laid down by this Court in Salim v. Thomas : 2004 (1) KLT 816, it has been concluded that, until the last unused cheque leaf is returned to the bank by the drawer, it must be held that such account holder continued the account with the bank, and hence the dishonour of the cheque involved in this case, will not constitute the offence of cheating. In fact, the said concept of presumption of account remaining live till the unused cheque leaves are surrendered to Bank, has been invoked by this Court in that decision to ensure that the drawer of a cheque cannot escape from the criminal liability of Section 138 of the Negotiable Instruments Act, by contending that the dishonour of cheque was for the reason of closure of accounts, and not due to insufficiency of funds in his account, as envisaged under the said provision. There is absolutely nothing laid down in the said decision to the effect that under no circumstances, the offence of cheating would be attracted in a case where the drawer of a cheque issues the same, after the closure of his account, with the fraudulent and dishonest intention to prevent the payee from getting the amount due from him. 

# 18. Thus, it has to be stated that the finding of the learned Additional Sessions Judge about the non-applicability of the offence of cheating in the facts and circumstances of this case, is manifestly against the settled principles of law. Needless to say that the judgment rendered by the appellate court upon the above finding, is liable to be set aside. 

# 19. As already stated above, the requirements of Section 415 I.P.C to constitute the offence of cheating are clearly attracted in the facts and circumstances of this case. The offence so attracted is punishable under Section 417 I.P.C with imprisonment of either description for a term which may extend to one year, or with fine, or with both. Having regard to the facts and circumstances of the case and the present stage of this litigation, which has been pending for a quarter of century, I feel that the sentence shall be limited to imprisonment till the rising of court and fine Rs.1,00,000/- (Rupees One Lakh only), out of which an amount of Rs.90,000/- (Rupees Ninety Thousand only) shall be paid as compensation to the revision petitioner under Section 357(1)(b) Cr.P.C. 

# 20. In the result, the revision stands allowed as follows: 

• (i) The judgment dated 19.10.2004 of the Additional Sessions Judge, North Paravur in Crl.Appeal No.96/2003, is hereby set aside. 

• (ii) The 1st respondent (accused in C.C.No.561/1999 of Judicial First Class Magistrate Court-I, Aluva) is found guilty of Section 417 I.P.C., and he is convicted thereunder. 

• (iii) The 1st respondent (accused in C.C.No.561/1999 of Judicial First Class Magistrate Court-I, Aluva) is sentenced to imprisonment till the rising of court and fine Rs.1,00,000/- (Rupees One Lakh only). 

• (iv) Out of the above fine of Rs.1,00,000/-, if realized, an amount of Rs.90,000/- (Rupees Ninety Thousand only) shall be paid as compensation to the petitioner (PW1 in C.C.No.561/1999) under Section 357(1)(b) Cr.P.C. 

• (v) In the event of default of payment of fine, as directed above, the 1st respondent shall undergo simple imprisonment for a term of six months. Transmit a copy of this order, along with case records, to the trial court, for expeditious enforcement of the sentence. 

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Shantilal Javerchand Jain Vs. Varsha Corporation Limited, & Anr. - Therefore, it also supports the contention of the Financial Creditor that the date of 16.12.2016, when these cheques were dishonoured, has been correctly considered as the date of default.

NCLAT (02.11.2022) in Shantilal Javerchand Jain  Vs. Varsha Corporation Limited, & Anr. [Company Appeal (AT) (Insolvency) No. 719 of 2022] held that; 

• Therefore, it also supports the contention of the Financial Creditor that the date of 16.12.2016, when these cheques were dishonoured, has been correctly considered as the date of default. 

 

Excerpts of the order;

# 1. The present appeal has been filed under section 61 of the Insolvency and Bankruptcy Code, 2016 (in short ‘IBC’) by the Appellant against the order dated 10.6.2022 in CP No. 3863/IBC/MB/2019 (hereinafter called ‘Impugned Order’) passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai)/ 

 

3 2. The Appellant is aggrieved by the Impugned Order in that the section 7 application filed by respondent No. 1 has been admitted and Corporate Insolvency Resolution Process (in short ‘CIRP’) has been initiated against the corporate debtor Varsha Corporation Limited. 

 

# 3. In brief, the Appellant’s case is that a promissory note was executed between the corporate debtor and Respondent No. 2 Mr. Rajendra Shah on 23.2.2012 for a loan of Rs.50,00,000/- (Rupees Fifty Lakhs Only) payable by the corporate debtor, and the requisite amount was given by Respondent No. 2 vide cheque no. 468828 dated 21.2.2012 drawn on Central Bank of India. The Appellant has stated that during the life of the promissory note i.e. up to 23.2.2015, there was no demand for repayment by Respondent No.2 and therefore, no default can be determined during this period. He has further stated that in accordance with Article 35 of the Schedule which includes periods of limitation in the Limitation Act, 1963, a period of limitation of three years is stipulated for a promissory note, which is payable on demand, and thus the section 7 application filed by Respondent No. 2 on 25.10.2019 was clearly barred by limitation, as it was filed after more than 7 years from the date of issue of promissory note. Lastly, he has stated that since the section 7 application has been filed beyond the limitation period, it has been incorrectly admitted by the Adjudicating Authority. 

 

# 4. We heard the Learned Counsels for both the parties in the matter and perused the record. 

 

# 5. The Learned Counsel for the Appellant has argued that the Impugned Order has been obtained by Respondent No. 2/Financial Creditor by claiming himself to be a financial creditor without attaching any financial contract to prove that the alleged debt is a financial debt as required under IBC. He has further argued that the section 7 application does not show how the alleged loan was disbursed and the date of default has been taken as 16.12.2016, even though the limitation of the promissory note was over on 23.2.2015, and in view of the fact that there is no acknowledgment of the debt by the corporate debt from 23.2.2015 up to the date of default, namely, 16.12.2016, the application under section 7 is clearly barred by limitation. 

 

# 6. The Learned Counsel for Appellant has referred to letters dated 7.6.2017 and 16.1.2017 which have been submitted by the financial creditor, to claim that these letters are of dates that are clearly beyond the period of limitation, and, therefore, they cannot be shown as acknowledgement of debt to take benefit of section 18 of the Limitation Act, 2013. He has also claimed that reliance placed on the proceedings in the application under section 138 of the Negotiable Instruments Act with respect to dishonouring of three cheques, all dated 22.10.2016, cannot be considered as acknowledgment for extension of limitation under section 19 of the Limitation Act, 1963, since the tendering of three cheques in question was done after the period of limitation had lapsed on 23.2.2015. Moreover, he has claimed, the deposit of TDS amount cannot be taken as acknowledgment of debt by the Appellant. The Learned Counsel for Appellant has lastly argued that there was no demand made within the validity period of the promissory note i.e. between 23.2.2012 and 23.2.2015 and hence the debt of Rs. 50 lakhs lent through the promissory note became time barred on 12.3.2015, and with no acknowledgment of the debt produced by Respondent No. 2 pertaining to any date before 23.2.2015 to claim extension of limitation, the section 7 application, which is clearly barred by limitation, should be rejected. 

 

# 7. The Learned Counsel for Appellant has cited the following judgments of NCLAT in support of his contention that lack of record to show disbursal of loan is a serious short-coming in section 7 application on which basis the insolvency application cannot be admitted:- 

• (i) Prayag Polytech Pvt. Ltd. v/s Gem Batteries Pvt. Ltd. (Company Appeal (AT) (Ins) No. 713 of 2019). 

• (ii) Pawan Kumar v/s. Utsav Securities Pvt. Ltd. and Anr. (Company Appeal (AT) (Ins) No. 251 of 2020). 

 

# 8. The Learned Counsel for Appellant has also cited the judgment of NCLAT in Anita Jindal Vs. M/s. Jindal Buildtech Pvt. Ltd., [CA (AT) (Insolvency) No. 512 of 2021], whereby the Hon’ble Tribunal has held that for seeking initiation of CIRP, the factual matrix of the case should be seen whether it is only with an intention for recovery of dues and not for the purpose of insolvency resolution, and if it is meant for recovery of dues, the application for CIRP initiation ought not to have been admitted. 

 

# 9. In reply, the Learned Counsel for Respondent has argued that the promissory note was executed between him and the corporate debtor for providing a loan of Rs. 50 lakhs, which was disbursed by cheque no.468828 dated 21.2.2012 drawn on the Central Bank of India. He has further argued that since the corporate debtor was paying interest @ of 15% p.a. on the amount given on loan, he had no reason to demand repayment of the amount as per the promissory note till the year 2016, when on non-receipt of timely interest payment he approached the corporate debtor for repayment of the loan amount alongwith interest. He has referred to letter dated 7.6.2016, sent to him by the corporate debtor, wherein the corporate debtor has admitted receiving a sum of Rs. 50 lakhs by cheque no. 468828 drawn on Central Bank of India with interest @ 15% p.a, and whereby the corporate debtor gave cheque no. 964293 dated 22.10.2016 for Rs.50,00,000/- drawn on the corporate debtor’s bank ‘Greater Bombay Co-operative Bank, Malad Branch, Mumbai’ towards repayment of the principal loan amount. He has also referred to two other cheques, viz. cheque no. 958801 dated 22.10.2016 for an amount of Rs.3,41,250/- and cheque no. 964332 dated 22.10.2016 for an amount of Rs.1,72,500/-, both issued by the corporate debtor for payment of interest due on the loan amount. He has further submitted that on presentation of these cheques, the Central Bank of India issued three advice notes dated 16.12.2016 dishonouring the three cheques with the statement “Account Closed”. 

 

# 10. The Learned Counsel for Respondent has urged, on the basis of the dishonour of the above-mentioned cheques, that since the corporate debtor was paying interest on the unsecured loan, which is clear from the ledger showing ‘Confirmation of Account’ for the period 1.4.2014 to 31.3.2015, and also Form 16A showing TDS deduction, that there was no default till then i.e. 16.12.2016. He has submitted that the date of default is the date of the bouncing of the cheque viz. 16.12.2016, and since the section 7 application has been filed on 25.10.2019, it is clearly within limitation of three years. He has strongly argued that even if he did not take any action for repayment of the amount in accordance with the promissory note, the fact that the disbursed amount was a loan cannot be denied, as is coming out from the letter dated 7.8.2016 of the corporate debtor. Further, he has referred to the judgment of the Metropolitan Magistrate, 20th Court, Mazgaon, Mumbai in Summary Criminal Case No. 2000868/SS/2017, in which the existence of the three cheques bearing no. 964293 for Rs. 50 lakhs, no. 958801 for Rs. 3,41,250/- and no. 964332 for Rs. 1,72,500/-, all issued on 22.10.2016 drawn on the Greater Bombay Co-operative Bank, Mumbai has been found to be correct and so affirmed by the Metropolitan Magistrate, Mumbai. 

 

# 11. The issue, therefore, that falls for consideration in this appeal is whether the loan advanced by Respondent No. 2 to the corporate debtor regarding which the promissory note has been executed is a financial debt and further whether the letter dated 7.6.2016 constitutes admission of such debt and whether the date of dishonouring of cheques i.e. 16.12.2016 is the date of default. 

 

# 12. We note that the ledger statement regarding confirmation on account of the corporate debtor for the period 1.4.2014 to 2015, which was sent by the corporate debtor to Respondent No. 2 (attached at page 97 of the appeal paperbook) clearly shows that interest on unsecured loan amount of Rs.170625/- was paid on 9.4.2014, further an amount of Rs.172500/- was paid on 20.11.2014 and an amount of Rs.341250 was paid on 20.06.2015. Therefore, it is clear, as claimed by Respondent No. 2, that the corporate debtor was paying interest in the years 2014 and 2015 on the loan amount of Rs. 50 lakhs and hence, and so it is logical that the corporate debtor did not demand repayment of the amount of the promissory note. Further, the TDS details updated on 16.7.2014 (attached at pp.99-100 of appeal paperbook) also corroborate the payment of interests by the corporate debtor to Respondent No. 2. Thus, we find the argument of Respondent No. 2 that the question of demanding payment on account of the promissory note during the existence did not arise till June, 2016 when he approached the corporate debtor for repayment of the loan amount convincing. 

 

# 13. Further, we note that within a period of three years from the date of issue of ledger confirmation of account dated 1.4.2015, the corporate debtor issued a letter dated 7.6.2016 (attached at pg. 80 of the appeal paperbook) wherein the corporate debtor has admitted that Rs. 50 lakhs given by cheque no. 468828 drawn on Central Bank of India was by way of business loan with interest @ 15% p.a. This letter also notes that cheque no. 964293 for Rs.50,00,000 has been given by Respondent No. 2 towards repayment with an assurance as follows:- “We have assured you that, when you will deposit your cheque with your bank the same will definitely be honoured and we will neither stop the payment thereof by requesting our bank nor dishonour the same for any reason whatsoever. In case we dishonour the same you will be at liberty to take legal action against us under the provision of the Negotiable Instrument Act. However, we assure you that such a stage will never come. The account of the interest will be settled subsequently.” 

 

# 14. We also note that three-cheques bearing no. 964293 dated 22.10.2016 for an amount of Rs. 50,00,000/-, cheque no. 958801 dated 22.10.2016 for an amount of Rs.3,41,250/- and cheque no. 964332 dated 27.10.2016 for an amount Rs.1,72,500/- (copies at page 81 of appeal paperbook) relating to the principal loan amount and the interest thereon were presented in the bank for realisation, when they were dishonoured and the advice notes have been sent by the Central Bank of India regarding dishonouring of the three cheques with the comments “Account Closed”. 

 

# 15. While no date of default is mentioned in the promissory note or any other document such loan agreement has been produced, we are of the view that corporate debtor’s letter dated 7.6.2016 states very clearly the existence of the loan and also the fact that on depositing the cheque with the bank of Respondent No. 2, the same will definitely be honoured and the dishonouring of cheques will be taken as default for which the financial creditor can take legal action. Thus the date 16.12.2016 has been correctly considered as the date of default by the Adjudicating Authority, which the said cheques were dishonoured. 

 

# 16. The corporate debtor has admitted the fact that a loan was taken by the corporate debtor from Respondent No. 2 (para 5 of reply dated 16.1.2017 to the notice of Respondent No. 2, attached at pp. 92-96 of the appeal paperbook). Further in the same reply, the corporate debtor has accepted that such cheques were given by the corporate debtor, but with an understanding that the same shall be deposited in the month of March, 2017. We are not inclined to accept this claim of the corporate debtor and are of the view that Respondent No. 2 deposited the cheques in accordance with date of the cheques, i.e. 22.10.2016. Therefore, it also supports the contention of the Financial Creditor that the date of 16.12.2016, when these cheques were dishonoured, has been correctly considered as the date of default. 

 

# 17. We peruse the judgment of this tribunal in the matter of Anita Jindal vs. M/s. Jindal Buildtech Pvt. Ltd. & Anr.(supra) cited by the Learned Counsel for the Appellant, to note the facts in this case, the section 7 application was dismissed since the matter related to recovery of past dues, whereas in the present case, it is a clear case of loan amount disbursed to the corporate debtor for running his enterprise, and the loan repayment is in default and therefore the section 7 route for insolvency resolution in the present case is possible. 

 

# 18. The Learned Counsel for Appellant has also referred to the order of this tribunal in the matter of Prayag Polytech Pvt. Ltd. Vs. Gem Batteries Pvt. Ltd. [Company appeal (AT) (Insolvency) No. 713 of 2019), wherein it is observed by this tribunal that Appellant has failed to show any record showing financial debt to be there, whereas in the present case the existence of a financial debt has been established without any ambiguity. Also, in the judgment in the matter of Pawan Kumar vs. Utsav Securities Pvt. Ltd. [Company Appeal (AT)(Ins) No. 251 of 2020) cited by the Learned Counsel for Respondent holds that the Adjudicating Authority is obliged to investigate the nature of the transaction and should be very cautious in admitting the Application. We note that in the present case, the Adjudicating Authority has looked at all the documents and events presented by both the parties to arrive at the conclusion that the said debt is ‘financial debt’. 

 

# 19. In view of the discussion in the aforementioned paragraphs, we are of the clear view that the Adjudicating Authority has not committed any error in admitting the section 7 application. The appeal being devoid of merit is, consequently, dismissed. 20. No order as to costs. 

 

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A.R. Asaithambhee & Anr. Vs. S. Thangavel - 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.

High Court Madras (12.01.2022) in A.R. Asaithambhee & Anr. Vs. S. Thangavel  [Crl.O.P.No.30253 of 2018 and Crl.M.P.Nos.17780 of 2018 & 5031 of 2019] held that;

• 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.

• It is immaterial that the cheque may have been filled in by any person other than the drawer, if the cheque is duly signed by the drawer. If the cheque is otherwise valid, the penal provisions of Section 138 would be attracted.

• If a signed blank cheque is voluntarily presented to a payee, towards some payment, the payee may fill up the amount and other particulars. This in itself would not invalidate the cheque. The onus would still be on the accused to prove that the cheque was not in discharge of a debt or liability by adducing evidence.”

 

Excerpts of the order;

This petition has been filed to quash the proceedings initiated by the Respondent under Section 138 of the Negotiable Instruments Act pending on the file of the Judicial Magistrate, Tiruchengode in STC No.223 of 2018.

 

# 2. The allegations in the complaint is as follows:

# 2.a. Accused No.1 is a private limited company in which the Accused No.2 (1st Petitioner herein), is the Managing Director and the Accused No.3 (2nd Petitioner herein) is a Director. Both the Petitioners are taking active part in the conduct, business and day to day affairs of 1st accused company. 1st Accused Company borrowed an amount Rs.27,00,000/- in the month of February 2016 from the complainant. However, they have postponed the repayment as told and agreed to repay. Only in the month of February 2018, when the complainant approached and insisted the accused for repayment, the 2nd and 3rd accused represented by the 1st accused company issued three cheques in question drawn on State Bank of India, Tiruchengode Branch, dated 19.04.2018, each for Rs.9 lakhs. When the cheques were presented for collection on 19.04.2018 the same were returned unpaid to the complainant as “Funds Insufficient” on 20.04.2018. After issuing statutory notice to the accused on 17.05.2018 the complaint has been filed, which was taken on file by the learned Judicial Magistrate, Tiruchengode in STC.223 of 2018. The same is sought to be quashed before this Court.

 

# 3. The Learned Counsel appearing the Petitioners submitted that said complaint filed under Section 138 of the Negotiable Instruments Act is not maintainable in the eye of law. As per the complaint, cheques were issued on 19.04.2018. It is His contention that the company is under the Corporate Insolvency Resolution Process (CIRP). On 13th June 2017 itself the National Company Law Appellate Tribunal (NCLT) passed order of Moratorium. Thereafter, `Interim Resolution Professional (IRP)` was appointed on 23.04.2018. Hence it is his contention that once the Moratorium is declared, any complaint is initiated thereafter is barred under Insolvency and Bankruptcy Code. It is his further contention that under Section 17 of the Insolvency and Bankruptcy Code, 2016 makes it very clear that the powers of the board of directors or the partners of the corporate debtor shall stand suspended and be exercised by the interim resolution professional only. Similarly, Section 33 of the Insolvency and Bankruptcy Code, 2016 makes it clear that once the order of liquidation is passed and such order shall be deemed to be a notice of discharge to the officers, employees and workmen of the corporate debtor. Therefore, it is his contention that when the cheques in question were issued on 19.04.2018, the complaint lodged thereafter, that too much after the moratorium was enforced and Resolution Professional was appointed, the prosecution under Section 138 of Negotiable Instruments Act is not maintainable and the same is liable to be quashed.

 

# 4. Learned counsel appearing the for the defacto complainant Mr. N. Manoharan submitted that the cheques in question were issued in the year 2016. Even the Petition filed before this Court to quash the proceedings itself indicate that the cheque was issued prior to the Corporate Insolvency Resolution process. Hence, submitted that bar under Section 14 of the I & B Code, 2016 will not apply. Further it is his contention that merely because the cheque dated 19.04.2018 that itself is not deceive factor to hold that the cheque was issued later. Respondent admission in the petition itself clearly indicate that the cheques were issued in the year 2016. At any event the learned counsel submitted that this Petition has been filed by the Directors. Further it is his contention that the moratorium will apply only to the Corporate Debtor and not against the directors as per law laid down by the Honourable Apex Court. Hence, opposed quashment of the proceedings.

 

# 5. Perused the entire materials.

 

# 6. In the complaint it alleged that the present petitioners are the directors of the 1st accused company, and in charge of the day to day affairs of the company. They borrowed an amount of Rs.27,00,000/- from the complainant in the year 2016 and issued cheques in the year 2018 i.e., on 19.04.2018. When the cheques were presented for collection the same were dishonoured. Though it was stated in the complaint that the cheque was issued on 19.04.2018, the Petition filed before this Court to quash the proceedings by the Petitioners indicate that they themselves admitted the fact that the cheques were issued in the year 2016 and later complaint filed by the respondent herein. It is not in dispute that the 1st Accused namely, M/s. Summer India Textiles Mills P. Ltd., is under the Corporate Insolvency Resolution Process (CIRP). Moratorium was declared by the National Company Law Board Tribunal (NCLT) on 13.06.2017. Thereafter Resolution Professional was also appointed.

 

# 7. It is relevant to note that Section 17 (b) of the Insolvency and Bankruptcy Code, 2016, makes it very clear that once interim resolution professional is appointed, the powers of the Board of Directors or the partners of the corporate debtor shall stand suspended and be exercised by the interim resolution professional.

 

# 8. Similarly, Section 33 particularly, sub-clause (7) of Section 33 of the Code makes it very clear that when the order of liquidation is passed, it is deemed to be notice of discharge to the officers, employees and workmen of the corporate debtor, except when the business of the corporate debtor is continued during the liquidation process by the liquidator.

 

# 9. The above provisions makes it clear that the powers of the Board of Directors shall be suspended on the appointment of the Interim Resolution Professionals by the liquidator. But the question herein is whether the prosecution initiated against the company and directors is maintainable in view of the above moratorium.

 

# 10. The Apex Court in a judgment reported in P. Mohanraj and Others vs. Shah Brothers Ispat Pvt. Ltd., [2021 SCC Online SC 152] after dealing with various judgements of the Apex Court in paragraph 103 held as follows:

• “103. 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 Instrument 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.”

 

In such a view of the matter, the petitioners being the directors of the company, have to be prosecuted as per the above judgment.

 

# 11. The Apex Court in Bir Singh vs. Mukesh Kumar [Crl.A.No.230-231 of 2019 dated 06.02.2019 – Supreme Court] in paragraphs 37 and 38 has held as follows:

• “ 37. A meaningful reading of the provisions of the Negotiable Instruments Act including, in particular, Sections 20, 87 and 139, makes it amply clear that a person who signs a cheque and makes it over to the payee remains liable unless he adduces evidence to rebut the presumption that the cheque had been issued for payment of a debt or in discharge of a liability. It is immaterial that the cheque may have been filled in by any person other than the drawer, if the cheque is duly signed by the drawer. If the cheque is otherwise valid, the penal provisions of Section 138 would be attracted.

• 38. If a signed blank cheque is voluntarily presented to a payee, towards some payment, the payee may fill up the amount and other particulars. This in itself would not invalidate the cheque. The onus would still be on the accused to prove that the cheque was not in discharge of a debt or liability by adducing evidence.”

 

# 12. In such a view of the matter, when the petitioners themselves have admitted before this Court that the cheques were issued in the year 2016, merely because the different date is mentioned in the complaint, it is the matter of evidence. In such a view of the prosecution initiated by the respondent cannot be quashed. The Petition is liable to be dismissed.

 

# 13. In view of the same, the Criminal Original Petition is dismissed. Consequently connected Miscellaneous Petitions are closed.

 

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