Case Note & Summary
The High Court of Karnataka heard writ petitions under Articles 226 and 227 of the Constitution of India, seeking quashing of criminal proceedings in C.C.No.9809/2022 pending before the XXI Additional Chief Metropolitan Magistrate, Bengaluru. The case arose from a private complaint filed by the respondent, an 80-year-old Dubai resident, through a special power of attorney holder. The complaint alleged that the petitioners (accused), who were partners or directors of a limited liability firm engaged in real estate development, had entered into various agreements with the complainant, including share purchase agreements and loan agreements, under which the complainant transferred funds totaling approximately Rs.490 crores. Subsequently, a loan agreement was executed for repayment of Rs.390 crores, and post-dated cheques were issued as repayment instruments. When presented, the cheques were dishonoured for insufficient funds. After statutory notices and replies, the complainant filed the complaint under Section 138 of the Negotiable Instruments Act, 1881. The Magistrate recorded the sworn statement of the power of attorney holder on 24-03-2022, marked 75 documents, took cognizance, and issued summons. The petitioners challenged the proceedings on four legal grounds: (i) the complaint was not maintainable because the power of attorney holder did not state personal knowledge of the facts, in violation of the principle laid down in A.C. Narayanan v. State of Maharashtra; (ii) the order taking cognizance suffered from a procedural infirmity as the Magistrate recorded the sworn statement before taking cognizance, whereas the proper procedure required cognizance to precede the sworn statement; (iii) the post-dated cheques were issued as security, not for a legally enforceable debt, and therefore did not attract Section 138; and (iv) some of the accused, being the Chairman and Directors, were not signatories to the cheques and hence could not be prosecuted. The respondent countered that the power of attorney clearly narrated the circumstances of its execution and was appended to the complaint, the cheques were issued for repayment and not merely as security, the procedural error was at best an irregularity not vitiating the proceedings, and the signatories and directors were deeply involved in the transaction of Rs.400 crores, making it a matter for trial. The court framed four issues corresponding to the contentions and began analyzing the first issue concerning the maintainability of the complaint by the power of attorney holder, examining the power of attorney document and the complaint. However, the provided judgment text ends mid-analysis, without recording any final decision, holding, or operative directions.
Issue of Consideration
Whether the complaint filed by the special Power of Attorney holder of the complainant was maintainable; Whether the order taking cognizance is vitiated on account of it not being preceded with recording of sworn statement; Whether the cheques issued as security would come within the ambit of Section 138 of the Act; Whether the Chairman or Directors of the Company can be hauled into these proceedings involved in a transaction of mammoth proportion
Law Points
- complaint by power of attorney holder must disclose personal knowledge
- cognizance must precede recording of sworn statement
- post-dated cheques issued as security may attract Section 138 NI Act
- directors not signatories to cheques may not be liable
Case Details
2022 LawText (KAR) (07) 22
Writ Petition No.8225/2022 (GM-RES) C/W Writ Petition No.8227/2022 (GM-RES)
Sreenivasa Raghavan V., Dylan Dominic, Satyananda B.S.
M/s OMR Investments LLP, P.R. Ramakrishnan, Rajesh Kaimal, Jitendra Virwani, Narpat Singh Choraria, Rajesh Bajaj
Pardhanani Chatrabhuj Bassarmal
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Nature of Litigation
Criminal complaint under Section 138 of the Negotiable Instruments Act, 1881 for dishonour of post-dated cheques totaling Rs.390 crores
Remedy Sought
Petitioners (accused) seeking quashing of proceedings in C.C.No.9809/2022 pending before the XXI Additional Chief Metropolitan Magistrate, Bengaluru
Filing Reason
Cheques issued by the accused towards repayment of loan amount were dishonoured for insufficient funds
Previous Decisions
The Magistrate took cognizance and issued summons on 24-03-2022
Issues
Whether the complaint filed by the special Power of Attorney holder of the complainant was maintainable?
Whether the order taking cognizance is vitiated on account of it not being preceded with recording of sworn statement?
Whether the cheques issued as security as contended would come within the ambit of Section 138 of the Act?
Whether the Chairman or Directors of the Company can be hauled into these proceedings involved in a transaction of mammoth proportion?
Submissions/Arguments
Petitioners: Complaint not maintainable as Power of Attorney holder did not narrate personal awareness of facts, contrary to A.C. Narayanan v. State of Maharashtra
Petitioners: Order taking cognizance after recording sworn statement suffers from procedural infirmity; cognizance must precede sworn statement
Petitioners: Post-dated cheques were issued as security, not for legally enforceable debt
Petitioners: Accused not signatories to cheques (Chairman, Directors) cannot be proceeded against
Respondent: Power of Attorney clearly narrates execution circumstances; complaint mentions it; no infirmity
Respondent: Cheques were issued for repayment, not security; even if security, Section 138 applies
Respondent: Recording sworn statement before cognizance is at best an irregularity, not fatal
Respondent: Directors/signatories involved in Rs.400 crore transaction; matter requires trial
Judgment Excerpts
the complaint itself was not maintainable as it is filed by a Power of Attorney holder who does not narrate in the complaint that he is completely aware of the facts of the case. Entertainment of such complaint filed by the Power of Attorney holder notwithstanding this fact, runs counter to the judgment of the Apex Court in the case of A.C.NARAYANAN v. STATE OF MAHARASHTRA – (2014) 11 SCC 790.
the order of the learned Magistrate recording sworn statement and then taking cognizance though has happened on the same day, at best, can be an irregularity which would not vitiate the proceedings.
The post-dated cheques were not issued in furtherance of legally enforceable or recoverable debt. They were issued as security for the loan or in furtherance of the agreement.
Procedural History
The complainant filed a private complaint under Section 200 Cr.P.C. through a special power of attorney holder, registered as P.C.R.No.5711/2022. On 24-03-2022, the learned Magistrate recorded the sworn statement of the power of attorney holder, received and marked 75 documents as Exs.P1 to P75, took cognizance of the offence under Section 138 of the Negotiable Instruments Act, 1881, and issued summons to the accused. The accused/petitioners filed the present writ petitions under Articles 226 and 227 of the Constitution of India read with Section 482 Cr.P.C. seeking quashing of the proceedings in C.C.No.9809/2022. The writ petitions were heard and reserved for orders on 24-06-2022, and the order was pronounced on 04-07-2022.
Acts & Sections
- Negotiable Instruments Act, 1881: 138
- Code of Criminal Procedure, 1973: 200, 190
- Constitution of India: 226, 227
