India: Section 138 The Negotiable Instruments Act, 1881- Bombay High Court Reiterates Position As Set Out By The Supreme Court Regarding Prosecution Of Directors

Last Updated: 25 September 2019
Article by Maneck Mulla and Rukshin Ghiara


While dealing with a writ petition for setting aside an order of the Metropolitan Magistrate Court for issuance of process against the directors of a company, the Hon'ble Bombay High Court in the case of Mr. Sahadu Dagadu Satav v/s. State of Maharashtra & Ors. (Criminal Writ Petition No. 4470 of 2017) held that in absence of a record or an evidence which may clearly indicate that the directors of the company could not have been concerned with the issuance of cheques, the Metropolitan Magistrate Court was right in passing an order for issuance of process against such directors.

The Petitioners were the Original Accused No. 4, 5, 6, 8 and 9 in Criminal Case No. 3608/SS/2016, being the directors of the Accused No. 1 ("the Company"). The Respondent No. 2 - ("Original Complainant"), had initiated proceedings under Section 138 of the Negotiable Instrument Act ('the said Act') against the Company and the Petitioners who were the directors of the Company at the time when the offence under Section 138 of the said Act was committed. A Supply Agreement was executed by and between the Company and the Original Complainant wherein it was agreed that the Original Complainant had provided to the said Company an interest free trade advance of Rs. 7,50,00,000/- . The Supply Agreement provided that if the Company failed to supply the agreed bulk litres of rectified spirits to the Original Complainant then in that case the Company agreed to refund the advance. It was agreed that the Original Complainant reserved its right to deposit the cheques furnished by the Company to secure the advance. The Company issued 8 undated cheques to secure the advance provided by the Original Complainant under the Supply Agreement. The Company failed to commence supply of rectified spirits in terms of the Supply Agreement. The Original Complainant requested the Company to replace the above cheques with fresh cheques towards the amount of the advance along with interest of Rs. 64,62,000/- Accordingly, the Company issued fresh cheques on 15th March, 2016 for an amount of Rs. 8,14,62,000/-. Thereafter, on various occasions the Accused No. 2 requested for additional time to repay the advance amount with interest. Ultimately, the Original Complainant deposited the fresh cheques with its bankers. The Cheques got dishonoured with the remarks "Funds Insufficient" on 17th August, 2017. Therefore, on 9th September, 2017 the Original Complainant addressed a legal notice to the Company. The Original Complainant then filed a Complaint under Section 138 read with Section 141 of the said Act before the Metropolitan Magistrates Court. The Metropolitan Magistrate was pleased to issue process against the Petitioners. Aggrieved by the said order passed by the Metropolitan Magistrate the Petitioners being the Original Accused No. 4, 5, 6, 8 and 9 filed the Criminal Writ Petition in the Bombay High Court.


The issue for consideration before the Hon'ble

Court was whether the impugned order of issuance of process passed by the Metropolitan Magistrate against the Petitioners was illegal and ex-facie bad in law and was required to be quashed and set aside as the Company had not made detailed averments on the role of each director.


The Contention of the Petitioner was that the verification statement of the authorized representative of the Original Complainant, nowhere alleged and averred in the complaint as to how the Petitioners were responsible for conducting the day to day affairs of the Company. The Petitioners submitted that it was not averred or alleged in the Complaint that the alleged offence was committed either with the consent or connivance of the Petitioners or that the same was attributable to any neglect on the part of the Petitioners. In the verification on oath recorded under Section 200 of the Code of Criminal Procedure, 1973 the Original Complainant had not been able to lead any evidence to show the role or part played by the Petitioners in the commission of the alleged offence or prove that the cheques were signed or drawn by the Petitioners. Nothing had been brought on record to show that the Petitioners were actually in charge and responsible for the day to day affairs of the Company. Reliance was placed on the case of Sunil Bharti Mittal v. CBI. Since, the Respondent No. 2 could not substantiate that the alleged offence was committed by the Petitioners the Metropolitan Magistrate was not authorised in law to issue any process against the Petitioners.


The Respondent No. 2 relying on the averments in the Complaint and the reasons assigned in the impugned order submitted that, the Original Complainant had followed the proper procedure in as much as notice contemplated in the procedure under the Act was given to the Petitioners and thereafter the Complaint was filed before the Magistrate. The averments in the Complaint clearly indicated full compliance of the mandate of Section 138 and 141 of the said Act and there were specific averments in the Complaint that at the relevant time of the alleged act, Petitioners were in charge of and responsible for conducting the day to day business of the Company. Reliance was placed on the cases of Gunmala Sales Pvt. Ltd. v/s Anu Mehta & Ors . Standard Chartered Bank Versus State of Maharashtra , Tamil Nadu News Print and Papers Ltd. v/s. D Karunakar & Ors. , S.M.S. Pharmaceuticals Ltd. v/s. Neeta Bhalla & Ors. .


On a perusal of the averments in the Complaint the High Court held that there were in fact averments wherein it was stated that at the time the offence was committed the Petitioners were the directors of the Company and were responsible for the day to day affairs and management of the Company, therefore liable for prosecution. The Court made observations by placing reliance on the case of Gunmala Sales Pvt. Ltd. (supra) in which it was held that on a basic averment made that a director was in charge and responsible for the day to day management of the Company when the offence was committed, the Magistrate can issue process against such Director. The High Court can refuse to quash a complaint because the complaint contains the basic averments which is sufficient to make out a case against the director. The High Court also placed reliance on the Judgment of the Supreme Court in the case of K.K. Ahuja V/s. V.K. Vora & Anr . The Court observed that the Petitioners were directors on the date of commission of the alleged offence and were responsible for the business of the Company. The Court held that since, the Petitioners had not brought on record unimpeachable, incontrovertible evidence which was beyond suspicion and doubt which would clearly indicate that the Petitioners could not have been concerned with the issuance of cheques and asking them to stand the trial would be abuse of process of Court, the Writ Petition was rejected.

Aggrieved by the Order of the Bombay High Court, the Petitioners preferred a Special Leave Petition before the Supreme Court, which was dismissed by the Supreme Court. M Mulla Associates advised the Original Complainant.


1 (2015) 4 SCC 609

2 (2015) 1 SCC 103

3 (2016) 6 SCC 62

4 (2016) 16 SCC 78

5 (2005) 8 SCC 89

6 (2009)10 SCC 48

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions