Directors in the dock when cheque bounces

A weekly selection of key court orders

Directors of companies could be dragged to magistrate's court in cheque bouncing cases if the complaint merely asserts that they were "in charge of and responsible for the conduct of the business of the company at the relevant time when the offence was committed". Whether such a bald statement would enmesh directors in criminal proceedings was the core question in the recent Supreme Court judgment in the case, Gunmala Sales Ltd vs Navkar Infra Projects Ltd. Sections 138 and 141 of the Negotiable Instruments Act make it punishable to issue a cheque without sufficient balance in the bank account. Gunmala filed a complaint against Navkar when a few cheques issued by the latter bounced. The magistrate initiated proceedings against the drawer firm and directors. They moved the Calcutta High Court, which quashed the complaint as it contained only a "bald suggestion" that the four directors were in charge of the day to day affairs of the company, with no further details to support the claim. When Gunmala appealed to the Supreme Court, it asked the high court to reconsider its judgment. According to the apex court if the accused director moves the high court to quash the complaint, the high court can refuse to accede to the request "because the complaint contains the basic averment which is sufficient to make out a case against the director." The high court can also quash the complaint if it is made as part of "arm-twisting tactics". However, it should have "unimpeachable, incontrovertible evidence which is beyond suspicion or doubt. Such cases may be few and far between." The high court, in all circumstances, must prevent abuse of judicial process. Overall, directors have the onus to show that they were not involved in the offence.

Civil disputes in criminal cloak
The Supreme Court has stated that civil disputes related to tenders should not be allowed to be cloaked as criminal cases to harass successful bidders and public servants. "The court must ensure that criminal prosecution is not used as an instrument of harassment or for seeking private vendetta or with ulterior motive to pressurise accused persons," the court stated in its judgment, Rajib Ranjan vs R Vijaykumar. In this case, the Chhattisgarh State Electricity Board invited tenders for work at Hasedeo Thermal Power Station. The offer of M/s Control Electronics India was rejected on the ground that the

plant erected by it at Patratu Thermal Power Station, Jharkhand, was not functioning well. The firm therefore moved a civil suit and failed. Then it filed a criminal complaint alleging that the authorities had conspired with the winning party and forged documents. The magistrate issued summons to the electricity board authorities. They appealed to the Jharkhand High Court for quashing the complaint on various grounds. But the high court dismissed their pleas. On appeal, the Supreme Court set aside the high court decision and quashed the complaint. It observed: "We get an uncanny feeling that the complaint with allegations are a postscript after losing the battle in civil proceedings challenging the action of the department in rejecting his tender. When he did not succeed in the said attempt, he came out with the allegations of forgery."

Element of gamble in judicial discretion
When judges differ drastically in assessing loss due to injuries in road accidents, only the persistent litigant who dares to move appeals wins a fair and just amount. In the case, Basappa vs T Ramesh, decided by the Supreme Court last fortnight, Basappa who was riding a bike was hit by a bus driven rashly by Ramesh. The motor accident claims tribunal awarded young Basappa a mere Rs 93,000 for his head injuries and surgery which left him incapacitated by 58 per cent. He could no longer do any heavy work and suffered life-time disability. He appealed to the Karnataka High Court which raised the amount to Rs 2.6 lakh and asked Reliance General Insurance to pay it. The high court felt that the medical estimate of 58 per cent disability of the youth was "exaggerated" and fixed it at 25 per cent. On further appeal, the Supreme Court raised it to Rs 6.72 lakh. It estimated his physical disability at 85 per cent and raised the interest on the compensation to 9 per cent instead of 6 per cent decided by courts below.

Tender struck down for favouritism
The Bombay High Court has struck down the award of contract to light up Aurangabad city to Elektron Lighting Systems Ltd, holding that the decision of the corporation was arbitrary. Two rival bidders for the project, Shah Investments and Polycab Wires Ltd, had challenged the selection process as they were disqualified from participating in the bids. The high court stated that the decision taken by the corporation, especially the commissioner, was "vitiated on account of non-transparency, change in the terms of the contract, showing extraordinary favour to Elektron and offering benefits without making financial assessment and above all, an extremely hasty decision by the commissioner even after receipt of orders of transfer." Though the court would normally not interfere in commercial matters, "we are of the considered opinion that in order to safeguard public interest, interference is necessary to be caused in the hasty decision taken by the corporation. Apart from the decision being hasty, it is taken without being mindful of the consequences and with a view to suit the financial interests of the chosen firm only," the judgment said.

Pharma firm told to change name
The Delhi High Court has granted injunction as sought by pharma major Sanofi India Ltd against Universal Neutraceuticals on the allegation that its trade mark and trade dress have been copied by the latter. The trademark in dispute was 'Universal', which was widely used by Sanofi for its pharmaceutical and nutraceutical products. Some trade dresses for packaging and strips were also allegedly copied by the rival firm. It was further alleged that Universal company's board of directors was constituted entirely by individuals who are spouses of the ex-employees of Sanofi. The use of the trade mark by the rival firm would confuse consumers of medical products, it was argued. On the contrary, the other firm contended that Universal was a common name in commercial market and no exclusivity could be assigned to it. The high court stated that without injunction, Sanofi will suffer irreparable loss. Therefore, Universal Neutraceuticals was prohibited from using the trade name Universal or any other deceptively similar mark till further orders. The court also asked it to change its corporate and trade name within a month.