REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NOS.  1413-1414 OF 2011  (Arising out of S.L.P.(Crl.) Nos.1830-1831 of 2009)

Anil Sachar &Anr. .....Appellants

        Versus

M/s. Shree Nath Spinners P.Ltd.   & Ors. etc. …..Respondents

J U D G M E N T

ANIL R. DAVE, J.

1. Leave granted.

2. Being  aggrieved  by  the  common  Judgment  delivered  in  Criminal  Appeal  

Nos.379-MA of 2007 and 381-MA of 2007 dated 16th December, 2008 by the High  

Court of Punjab and Haryana at Chandigarh, the original complainants have filed  

these appeals.  By virtue of the aforestated judgment and  order,  the High Court has  

confirmed the Orders dated 4th May, 2007 passed in Criminal Complaint Nos. 46 and  

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99 of 1999 by the Judicial Magistrate, First Class, Ludhiana whereby the accused in  

the aforestated complaints had been acquitted of the charges levelled against them.

3. The facts leading to the present litigation in a nut shell are as under:

4. On 23rd February, 1999, Respondent no.4 - Munish Jain, a Director of M/s.  

A.T.  Overseas  Ltd.  had given in all  four cheques  for different amounts  to Anil  

Sachar,   partner  of  M/s.  Rati  Woolen  Mills  who  are  appellant  Nos.  1  and  2  

respectively.  According to the case of the complainants, the said cheques were given  

to M/s. Rati Woolen Mills,  of which appellant no.1 is a partner,   in consideration of  

supply of  goods to M/s. Shree Nath Spinners Pvt. Ltd.

5. The aforestated cheques, which had been given by Munish Jain as Director of  

M/s. A.T. Overseas Ltd.,  had not been honoured and due to dishonour of the said  

cheques, the complainant, namely, Anil Sachar,  as a partner of M/s. Rati Woolen  

Mills  had  issued  notice  as  required  under  the  provisions  of  Section  138  of  the  

Negotiable Instruments Act  (hereinafter referred to as ‘the Act’).  In spite of the said  

notice,  the  complainant  was  not  paid  the  amount  covered  under  the  aforestated  

cheques and, therefore,  complaints had been filed against the present respondents.

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6. The case of the present respondents before the trial court as well as before the  

High Court was that the dispute was of a civil nature and with an oblique motive it  

was given a colour of criminal litigation.  The said reply had been given especially in  

view of the fact that the complaint  had also been filed making out a case against the  

accused under the provisions of Sections 406 & 420 of the Indian Penal Code.

7. The case  of  the complainants   was that  M/s.  A.T.  Overseas  Ltd.  is  a  sister  

concern of  M/s.  Shree  Nath Spinners  Pvt.  Ltd.  and the aforestated cheques were  

given  by  Munish  Jain  towards  dues  of  M/s.  Shree  Nath  Spinners  Pvt.  Ltd.  as  a  

Director of M/s. A.T. Overseas Ltd. After considering the evidence adduced and the  

arguments made before the trial court, the trial court acquitted the accused for the  

reason that the goods had been supplied by the complainants to M/s.  Shree Nath  

Spinners Pvt. Ltd. and the cheques had not been given by M/s. Shree Nath Spinners  

Pvt. Ltd. but they had been  given by M/s. A.T. Overseas Ltd.   As M/s. Shree Nath  

Spinners Pvt. Ltd. and M/s. A.T. Overseas Ltd. are two different legal entities and as  

there  was  nothing  on  record  to  show  that  the  cheques  were  given  by  M/s.  A.T.  

Overseas Ltd. in consideration of goods supplied by the complainants to M/s. Shree  

Nath Spinners Pvt. Ltd., the conclusion was that there was no liability of M/s. A.T.  

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Overseas Ltd. and, therefore, dishonour of the aforestated cheques would not make  

signatory of the cheques from the account of M/s. A.T. Overseas Ltd.  liable under  

the provisions of the Act.

8. Being aggrieved by the orders passed by the learned Judicial Magistrate, First  

Class, Ludhiana, dated 4th May, 2007,  criminal appeals were filed before the High  

Court  of  Punjab  and  Haryana  at  Chandigarh,  but  the  said  appeals  have  been  

dismissed and, therefore, the original complainants have approached this Court by  

way of these appeals.

9. It may be noted here that during the pendency of the proceedings,  Mohinder  

Jain,   accused/respondent  no.3 expired and, therefore,   deleted from the array of  

parties.

10. Mr. Nidhesh Gupta, learned Senior Counsel appearing for the complainants  

mainly  submitted that  the learned Judicial  Magistrate as  well  as the High Court  

committed an error by acquitting the accused  simply because the goods had been  

supplied to M/s. Shree Nath Spinners Pvt. Ltd. whereas the cheques were given by  

M/s.  A.T.  Overseas  Ltd.   He  submitted  that  both  the  concerns,  referred  to  

hereinabove, are sister concerns having common Directors and, therefore,  the courts  

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below ought to have lifted the corporate veil so as to find out the realities.  He also  

submitted that Munish Jain, who had signed the aforesaid cheques was Director in  

both  the  sister  concerns  viz.  M/s.  Shree  Nath  Spinners  Pvt.  Ltd.  and  M/s.  A.T.  

Overseas Ltd.  Moreover, he submitted that once the cheques had been issued by the  

accused, as per provisions of Section 139 of the Act, burden was on the accused to  

show  that  there  was  no  consideration.  So  as  to  substantiate  his  aforestated  

submission,  the learned counsel relied upon the Judgments delivered by this Court  

in  ICDS Ltd.  v.    Beena Shabeer and Anr.      [2002(6) SCC 426],  K.K. Ahuja  v.    V.K.    

Vora  and Anr.,  [2009(10)  SCC 48]   and  K.N.  Beena   v.     Muniyappan and Anr.    

[2001(8) SCC 458].

11. For the aforestated reasons, the learned counsel strenuously submitted that the  

High Court had erred in confirming the orders of acquittal because upon lifting the  

corporate veil,  the correct position could have been revealed and the correct position  

according to the learned counsel  was that the cheques had been given by a sister  

concern, namely,  M/s. A.T. Overseas Ltd.  in consideration of the goods supplied to  

M/s Shree Nath Spinners Pvt. Ltd.  The learned counsel also drew our attention to  

the fact that there were several inter se transactions between the above-named two  

sister  concerns  and,  therefore,   the  courts  below ought  to  have believed that  the  

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payment had been made by one company for another company and the courts below  

ought  to  have  believed  that  there  was  a  consideration  behind  issuance  of  the  

aforestated two cheques.  He also draw our attention to the relevant evidence which  

was adduced by the complainants to establish the aforestated facts.

12. On  the  other  hand,  the  learned  counsel  appearing  for  the  respondents  

supported the reasons recorded by the courts below while acquitting the accused.  He  

mainly submitted that the cheques had been issued by M/s. A.T. Overseas Ltd. to  

whom no goods had been supplied by the complainants and, therefore, there was no  

consideration.  In absence of any consideration, according to the learned counsel, the  

accused  could  not  have  been  held  guilty  and,  therefore,  the  courts  below rightly  

acquitted the respondents.  The learned counsel relied upon the judgments delivered  

in Indowind Energy Ltd. v. Wescare (India) Ltd. and Anr. [2010(5) SCC 306]  and in  

Rahul Builders   v.  Arihant  Fertilizers  & Chemicals  and Anr. [2008(2)  SCC 321].  

According  to  him,  even  if  two  companies  are  having  common  Directors,  both  

companies would remain different legal entities and, therefore, the submission made  

on  behalf  of  the  appellants  that  both  the  companies  are  sister  concerns  and,  

therefore,  one  company  should  be  made  liable  for  the  dues  of  another  company  

cannot be sustained.  He further submitted that there was nothing to substantiate the  

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submission that M/s. A.T. Overseas Ltd. had made payment in consideration of goods  

supplied to M/s. Shree Nath Spinners Pvt. Ltd.   He, therefore, submitted that the  

appeals be dismissed.  

13. Upon hearing the learned counsel  appearing for the parties and upon perusal  

of the record pertaining to the cases and the impugned judgment delivered by the  

High Court confirming the order passed by the trial court and upon considering the  

judgments cited by the learned counsel, we are of the view that the decision rendered  

by the courts below cannot be sustained.

14. Upon perusal  of  the  record,  we find that  the  complainants  had established  

before the trial court that there was an understanding among the complainants and  

the accused that in consideration of supply of goods to M/s. Shree Nath Spinners Pvt.  

Ltd.,    M/s.  A.T.  Overseas  Ltd.  was  to  make  the  payment.    The  aforestated  

understanding  was  on  account  of  the  fact  that  directors  in  both  the  aforestated  

companies were common and the aforestated companies were sister concerns.   In the  

circumstances, it can be very well said and  it has been proved that in consideration  

of supply of goods to M/s. Shree Nath Spinners Pvt. Ltd., M/s. A.T. Overseas Ltd.  

had made the payment.  In view of the above fact,  in our opinion,  the trial court was  

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not right when it  came to the conclusion that there was no reason for M/s. A.T.  

Overseas Ltd. to give the cheques to the complainants.  The aforestated facts are very  

well  reflected in the statement made in the complaint  and in the evidence by the  

complainant which have not been controverted.  Paras 2 and 3 of the complaint are  

reproduced herein below:

“2. That the accused had business dealings with the complainant and  supply  of the goods which duly supplied by my client vide separate bills  from time to time which was duly acknowledged by the accused no. 5  Varun Jain director of the accused no. 1.

3. That in order to discharge the liability of making the payment, the  accused  issued  following  two  cheques  in  favour  of  the   complainant  through their sister concern M/S A.T. Overseas Ltd. i.e. Accused No. 1  and  the  cheques  were  duly  signed  by  Mr.  Munish  Jain  one  of  its  directors”

15. The trial court materially erred while coming to a conclusion  that in criminal  

law  no  presumption can be  raised with regard to consideration  as no  goods had  

been supplied by the  complainants to M/s. A.T. Overseas Ltd..  The trial court ought  

to have considered provisions of  Section 139 of the Act, which reads as under:-

“139.  Presumption in favour of holder – It shall be presumed, unless the  contrary is proved,  that the holder of a cheque received the cheque of  the nature referred to in Section 138  for the discharge,  in whole or in  part, of any debt or other liability.”   

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16. According to the provisions of the aforestated section,  there is a presumption  

with regard to consideration  when a cheque has been paid by the drawer of the  

cheque.  In the instant case,  M/s. A.T. Overseas Ltd.  paid the cheque which had  

been duly signed by one of its Directors, namely,  Munish Jain.   Munish Jain is also a  

Director in M/s. Shree Nath Spinners Pvt. Ltd.. As stated hereinabove, both are sister  

concerns  having  common  Directors.     Extracts  of  books  of  accounts  had  been  

produced before the trial court so as to show that both the companies were having  

several transactions and the companies used to pay on behalf of each other to other  

parties or their creditors.    The above fact strengthens the  presumption  to the effect  

that  M/s. A.T. Overseas Ltd. had paid the cheques to the complainants, which had  

been signed by Munish Jain, in consideration of goods supplies to M/s Shree Nath  

Spinners  Pvt.  Ltd.    Of  course,  the  presumption  referred  to  in  Section  139  is  

rebuttable.    In the instant case,  no  effort was made by Munish Jain or any of the   

Directors of M/s. A.T. Overseas Ltd. for rebuttal of the aforestated presumption and,  

therefore,  the  presumption  must  go  in  favour  of   the  holder  of  the  cheques.  

Unfortunately,  the  trial  court  did  not  consider  the  above facts  and  came  to  the  

conclusion that  there was no consideration for the cheques which had been given by  

M/s. A.T. Overseas Ltd. to the complainants.   

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17. It is true that a limited company is a separate legal entity  and its directors are  

different legal persons.   In spite of  the aforestated legal position,  in view of the  

provisions of Section 139  of the Act and the understanding which had been arrived  

at among the  complainants and the accused,  one can safely come to a conclusion  

that the cheques signed by Munish Jain had been given by M/s. A.T. Overseas Ltd. to  

the complainants in discharge of  a debt or  a liability,  which had been incurred by  

M/s Shree Nath Spinners Pvt. Ltd.

18. We may  also  refer  to  the  judgment  delivered  by  this  Court  in  the  case  of  

ICDS Ltd. (supra).   In the said judgment this Court has referred to the nature of  

liability which is incurred by the one who is a drawer of the cheque.   If the cheque is   

given towards any liability or debt which might have been incurred even by someone  

else,  the person who is a drawer of the cheque can be made liable under Section 138  

of the Act.   The relevant observation made in the aforestated judgment is as under:

“ The words “any cheque” and “other liability” occurring in Section 138  are  the  two key  expressions  which  stand  as  clarifying  the  legislative  intent so as to bring the factual context within the ambit of the provisions  of  the  statute.   These  expressions  leave  no  manner  of  doubt  that  for  whatever  reason  it  may  be,  the  liability  under Section 138  cannot  be  avoided in the event the cheque stands returned by the banker unpaid.  Any contra-interpretation would defeat  the intent of the legislature.  The  High Court got carried away by the issue of guarantee and guarantor’s  liability and thus has overlooked the true intent and purport of  Section  138 of the Act.  ……

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The language, however, has been rather specific as regard the intent of  the legislature.  The commencement of the section stands with the words  “where  any  cheque”.    The  above  noted  three  words  are  of  extreme  significance,  in particular,  by reason of the user of the word “any” -  the first three words suggest that in fact for whatever reason if a cheque  is drawn on an account maintained by him with a banker in favour of  another  person  for  the  discharge  of  any  debt  or  other  liability,   the  highlighted  words  if  read  with  the  first  three  words  at  the  commencement  of  Section  138,   leave  no   manner  of  doubt  that  for  whatever reason it may be, the liability under this provision cannot be  avoided in the event the same stands returned by the banker unpaid. The  legislature has been careful enough to record not only discharge in whole  or in part of any debt but the same includes other liability as well.   This   aspect of the matter has not been appreciated by the High Court, neither  been dealt with or even referred to in the impugned judgment.”   

19. Looking to the facts of the case and law on the subject,  we are  of the view that  

all the four cheques referred to in both the complaints are presumed to have  been  

given  for consideration.    The presumption under Section 139 of the Act has not   

been rebutted by the accused and, therefore,  we are of the view that the trial court  

wrongly acquitted the accused by taking a view  that there was no consideration for  

which the cheques were given by Munish Jain to the complainants.  The aforesaid  

incorrect view was wrongly confirmed by the High Court.   We, therefore, set aside  

the acquittal order and convict accused Munish Jain under Section 138 of the Act.

20. In view of  the aforestated facts  and legal position, in our opinion, the accused  

ought to have been held guilty,  especially accused no. 4, Munish Jain who had signed  

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all  the  cheques  for  M/s  A.T.  Overseas  Ltd.    We,   therefore,  hold  Munish Jain,  

accused no. 4 and respondent no. 4 herein, in both the cases  guilty of the offence  

under Section 138 of the Act.  

21. Accused Munish Jain was acquitted by the trial court and the High Court has  

confirmed the acquittal,  which is  being set  aside  by this  Court  by allowing these  

appeals.  In the circumstances, as per the provisions of Section 235(2) of the Criminal   

Procedure Code, this Court will have to give an opportunity of being heard to him on  

the question of sentence.  We, therefore, adjourn the case to 2.8.2011 for hearing the  

accused Manish Jain on the question of sentence.  If on that day he fails to appear  

before this Court, we shall hear his counsel on the question of sentence.

………………................................J.                                                                 (Dr. MUKUNDAKAM SHARMA)

                          ……...........................................J.                                                                        (ANIL R. DAVE) New Delhi 19th July,  2011.

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IN THE SUPREME COURT OF INDIA           REPORTABLE

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NOS.  1413-1414 OF 2011  

Anil Sachar &Anr. .....Appellants

        Versus

M/s. Shree Nath Spinners P.Ltd.   & Ors. Etc.          .....Respondents

O R D E R  

We  have  heard  the  learned  counsel  appearing  for  the  parties  on  the  

question  of  sentence.    Having  gone  through  the  records,  we  find  that  Mr.  

Munish Jain, against whom the notice was issued on the question of sentence has  

died.  Accordingly, so far he is concerned, the matter stands abated.  

There is yet one more accused in the case, apart from the company, who  

was also impleaded as a party in the present proceedings.  The said Director of  

the company is Mr. Varun Jain.   

We  have  heard  the  learned  counsel  appearing  for  the  parties  on  the  

question of sentence.  Considering the provisions of Section 138 of the Negotiable  

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Instruments  Act,  we  consider  that  imposition  of  fine  of  an  amount  of  Rs.  

10,00,000/- (Rupees ten lacs only) would meet the ends of justice in the present  

case.  Considering the facts and circumstances of the case, we, therefore, impose  

a fine of Rs. 10,00,000/- (Rupees ten lacs only) on the respondent payable to the  

appellants/complainants by way of compensation.  

At this stage, the counsel appearing for the respondent has handed over  

drafts amounting to Rs. 10,00,000/-, payable to the appellants/complainants, to  

the  counsel  appearing  for  the  appellants/complainants,  who receives  the  said  

amount which is imposed as fine and payable to the appellants.  Fine having been  

paid and received brings the litigation to an end.   

In that view of the matter, nothing further survives in these appeals, which  

stand disposed of.

.........................................................J (Dr. MUKUNDAKAM SHARMA)

.......................................................J (ANIL R. DAVE)

NEW DELHI AUGUST 17, 2011

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