Case Note & Summary
The dispute arose out of a loan‑cum‑hypothecation agreement dated 24‑1‑2008 between IDEB Projects Pvt. Ltd. (borrower) and L & T Finance Limited (lender). In partial discharge of the liability, three cheques totalling Rs 12,65,883 were issued. On presentation, the cheques were dishonoured. After issuing a statutory demand notice dated 30‑3‑2009 from its corporate office at Bandra, Mumbai, the lender filed multiple complaints under section 138 of the Negotiable Instruments Act, 1881, before the Metropolitan Magistrate, 12th Court, Bandra, Mumbai. The Magistrate issued process against the borrower company and its directors. The directors (including some non‑executive and alternate directors) challenged the order of issuance of process by way of criminal writ petitions and applications before the Bombay High Court, raising several grounds. They contended that the entire cause of action arose in Bangalore—the cheques were drawn there, the borrower’s bank was located there, and the loan agreement’s schedule pointed to Bangalore—hence the Mumbai court lacked territorial jurisdiction. They further argued that the complaint merely reproduced the language of section 141 of the NI Act without attributing any specific role to them; that the Magistrate failed to hold the mandatory inquiry under section 202 of the Code of Criminal Procedure, 1973, since the accused resided outside Mumbai; that the verification statement under section 200 CrPC was recorded in a cyclostyled format and was thus invalid; that alternate directors cannot be prosecuted alongside original directors; and that their resignation from the company prior to the dishonour should exonerate them. The complainant countered by relying on clause 3.2 of the loan agreement, which stipulated that all payments were to be made at the lender’s corporate office in Mumbai. It also pointed to the averments in paragraphs 2 and 7 of the complaint, which stated that the directors were in charge of and responsible for the conduct of the company’s business. The court, after analysing the submissions, dismissed all petitions and applications. It held that the agreement clause, coupled with the location of the corporate office and issuance of notice from Mumbai, conferred jurisdiction on the Bandra court, distinguishing the Supreme Court’s decision in Harman Electronics. On section 141, the court found the averments sufficient to proceed against the directors; at the stage of issuance of process, specific acts need not be detailed. Regarding section 202 CrPC, it observed that while an inquiry might be advisable, its omission did not vitiate the order when the magistrate had before him the verification and documents; the accused could later seek discharge. The cyclostyled verification was held to comply with the substance of section 200. The plea regarding alternate directors and resignation was rejected as matters to be raised at trial. Consequently, the order issuing process was upheld, with liberty to the accused to apply for discharge before the trial court.
Headnote
A) Criminal Law - Negotiable Instruments Act - Territorial Jurisdiction in Cheque Dishonour Cases - Negotiable Instruments Act, 1881, Sections 138, 142; Code of Criminal Procedure, 1973 - The question was whether the Mumbai court had jurisdiction when the cheques were drawn at Bangalore, the borrower's bank was at Bangalore, but the loan agreement stipulated payment at the lender's corporate office in Mumbai. The court held that the agreement clause fixing the place of payment and the fact that the statutory notice was issued from Mumbai gave the Mumbai court jurisdiction, distinguishing Harman Electronics. (Paras 8-12) B) Company Law - Vicarious Liability of Directors - Sufficiency of Averments under Section 141 - Negotiable Instruments Act, 1881, Section 141 - The complaint must contain averments that the accused directors were in charge of and responsible for the conduct of the business. Here, the complaint in paragraphs 2 and 7 contained such averments; specific role not required at this stage. (Paras 13-14) C) Criminal Procedure - Postponement of Issue of Process - Mandate of Inquiry under Section 202 - Code of Criminal Procedure, 1973, Section 202 - The court held that where the accused reside outside the court's jurisdiction, an inquiry is mandatory. However, the court found that since the company had an office within the jurisdiction, and the magistrate had examined the complaint and verification, the omission was not fatal. The accused could apply for discharge later. (Paras 15-16) D) Criminal Procedure - Verification Statement - Section 200 Compliance - Code of Criminal Procedure, 1973, Section 200 - The objection that the verification was in a cyclostyled format was rejected, as the substance of the statement was there and it did not vitiate the order. (Para 17) E) Company Law - Alternate Director - Simultaneous Prosecution - Companies Act, 1956 - The court held that whether alternate directors can be prosecuted depends on their involvement; at the stage of process, simultaneous prosecution of original and alternate directors is permissible if they were in charge. (Para 18) F) Criminal Law - Resignation of Directors - Defence to be Raised at Trial - Negotiable Instruments Act, 1881, Section 141 - The plea of resignation and filing of Form 32 is a matter of evidence that can be considered at trial, not a ground to quash the process. (Para 19)
Issue of Consideration
Whether the Metropolitan Magistrate at Bandra had territorial jurisdiction to entertain complaints under section 138 of the Negotiable Instruments Act when the cheques were drawn and the borrower's bank was at Bangalore; whether the complaint contained sufficient averments to attract vicarious liability of directors under section 141; whether non-compliance with section 202 CrPC mandating inquiry when accused resides outside jurisdiction vitiates the order of issuance of process; whether recording of verification in a cyclostyled format violates section 200 CrPC; whether alternate directors can be simultaneously prosecuted with original directors; and whether resignation of directors absolves them from prosecution under section 138/141.
Final Decision
Dismissed the criminal writ petitions and applications, upholding the order of issuance of process by the Metropolitan Magistrate. The court held that the Bandra court had jurisdiction based on the agreement clause fixing the place of payment at the corporate office in Mumbai and issuance of notice from there. The complaint contained sufficient averments against the directors under section 141. The alleged non-compliance with section 202 CrPC did not vitiate the order, as the magistrate had examined the complaint and verification. The cyclostyled verification was accepted. The issues regarding alternate directors and resignation were deemed matters for trial. The accused were granted liberty to apply for discharge before the trial court.
Law Points
- Territorial jurisdiction under section 138 NI Act determined by place of payment as per agreement
- not just where cheque drawn
- averments under section 141 need only show directors were in charge of conduct of business
- specific role not mandatory at issuance of process stage
- inquiry under section 202 CrPC mandatory only if accused resides outside jurisdiction
- but failure not fatal if other material supports
- cyclostyled verification not ground to quash if substance present
- alternate director and original director can be prosecuted together if facts show involvement
- resignation of directors a defence at trial
- not for quashing process.
