TMI Blog2008 (5) TMI 406X X X X Extracts X X X X X X X X Extracts X X X X ..... the company issued a cheque dated 17-1-2001 for a sum of Rs. 5,10,000 in favour of respondent which was dishonoured. Respondent filed a complaint petition against the appellant under section 138 of the Negotiable Instruments Act, 1881 ( the Act for short). The Company which is a juristic person was not arrayed as an accused. The learned Magistrate took cognizance of the offence against her. Respondent had not even served any notice upon the Company in terms of section 138 of the Act. It served a notice only on the appellant presumably on the premise that she was in charge and responsible to the company for its day-to-day affairs. 3. The High Court by reason of the impugned judgment refused to quash the proceedings, as prayed for by the appellant, holding: "This section does not say that the cheques should have been drawn for the discharge of any debt or other liability of the drawer towards the payee. Even the section 139 of the Negotiable Instruments Act, by which a legal presumption is created, the Parliament has only fixed the presumption that the cheque was issued for the discharge, in whole or in part, or any debt or other liability. This would mean that the debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and ( c )the drawer of such cheque fails to make the payment of the said amount of money to the payee or as the case may be, to the holder in due course of the cheque within fifteen days of the receipt of the said notice." 6. A complaint petition may be maintainable at the instance of the person in whose favour the cheque was drawn only when: ( i )the cheque was drawn by a person ; and ( ii )the cheque was drawn on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of the drawer is insufficient to honour the cheque or that it exceeds the amount to be paid from that account; and ( iii )in that event such a person shall be deemed to have committed an offence. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation. For the purposes of this section, ( a ) company means any body corporate and includes a firm or other association of individuals; and ( b ) director , in relation to a firm, means a partner in the firm." [Emphasis supplied] 13. If a person, thus, has to be proceeded with as being vicariously liable for the acts of the company, the company must be made an accused. In any event, it would be a fair thing to do. Legal fiction is raised both against the Company as well as the person responsible for the acts of the Company. Unlike other statutes, this Act raises a presumption not only in terms of section 139 of the Act but also under section 118( a ) thereof. Those presumptions in given cases may have to be rebutted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of section 18; section 18A; clause ( a ) of sub-section (1) of section 19; sub-section (2) of section 44, for which the minimum sentence of six months imprisonment is prescribed, are serious offences and if committed would have serious financial consequences affecting the economy of the country. All those offences could be committed by company or corporate bodies.We do not think that the legislative intent is not to prosecute the companies for these serious offences, if these offences involve the amount or value of more than Rs. one lakh, and that they could be prosecuted only when the offences involve an amount or value less than Rs. one lakh . 32. As the company cannot be sentenced to imprisonment, the Court cannot impose that punishment, but when imprisonment and fine is the prescribed punishment the Court can impose the punishment of fine which could be enforced against the company. Such a discretion is to be read into the section so far as the juristic person is concerned. Of course, the Court cannot exercise the same discretion as regards a natural person. Then the Court would not be passing the sentence in accordance with law. As regards company, the Court can always i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93 wherein it was opined that criminal liability on account of dishonour of cheque primarily falls on the drawer company and is extended to the officers of the company. Analysing section 141 of the Act, the Bench observed: "... Section 141 of the Act is an instance of specific provision which in case an offence under section 138 is committed by a company, extends criminal liability for dishonour of a cheque to officers of the company. Section 141 contains conditions which have to be satisfied before the liability can be extended to officers of a company. Since the provision creates criminal liability, the conditions have to be strictly complied with. The conditions are intended to ensure that a person who is sought to be made vicariously liable for an offence of which the principal accused is the company, had a role to play in relation to the incriminating act and further that such a person should know what is attributed to him to make him liable . In other words, persons who had nothing to do with the matter need not be roped in. A company being a juristic person, all its deeds and functions are the result of acts of others . Therefore, officers of a company who are responsib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no cognizance could be taken as the same does not satisfy the requirements of section 141. The High Court dismissed the petition holding the same as fact in respect thereof was required to be established before the Trial Court. In an appeal to this Court, this Court while referring inter alia to the decisions in S.M.S. Pharmaceuticals Ltd. s case ( supra ) and Sabitha Ramamurthy s case ( supra ) held that for showing a vicarious liability of a Director of a Company, it was incumbent to plead that the accused was responsible to the Company for the conduct of the business of the Company in the complaint. The allegation in the complaint petition would not give rise to an inference that the appellant was responsible for day-to-day affairs of the Company. A negotiation for obtaining financial assistance on behalf of the Company by its Directors itself was not an ingredient for the purpose of constituting an offence under section 138. Thus, vicarious liability on the Director of the company part must be pleaded and proved and not inferred. ( See also Suryalakshmi Cotton Mills Ltd. v. Rajvir Industries Ltd. [2008] 1 SCALE 331). In Municipal Corpn. of Delhi v. Ram Kishan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een that merely being described as a director in a company is not sufficient to satisfy the requirement of section 141. Even a non-director can be liable under section 141 of the Act. The averments in the complaint would also serve the purpose that the person sought to be made liable would know what is the case which is alleged against him. This will enable him to meet the case at the trial." (p. 107) 24. This position was reiterated in N. Rangachari v. Bharat Sanchar Nigam Ltd. [2007] 77 SCL 21 (SC) (Mag.), wherein this Court referring to the observations in S.M.S. Pharmaceuticals Ltd. s case ( supra ) on specific averments in the complaint itself opined that "The scope of Section 141 has been authoritatively discussed in the decision in S.M.S. Pharmaceuticals Ltd. ( supra ) binding on us and there is no scope for redefining it in this case. Suffice it to say, that a prosecution could be launched not only against the company on behalf of which the cheque issued has been dishonoured, but it could also be initiated against every person who at the time the offence was committed, was in charge of and was responsible for the conduct of the business of the company." It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aint that he was personally responsible for the day-to-day business of the accused firms, he is not liable to be prosecuted. The learned Magistrate after hearing both parties dismissed the application. The accused-company being aggrieved by the order, preferred an revision before the Sessions Court, respondent-company contended before the Sessions Court that the learned Magistrate erred in holding that a complaint can be lodged against the company through its Director without there being any specific allegation that the said Director was incharge of and was responsible to the company in the conduct of the business at the relevant point of time and that the offence was committed with his consent or connivance and the non-pleading of the Directors in their personal capacity is contrary to section 141 of the Act, as such, the Director cannot be made to undergo the trial in the absence of any allegation or averment in the complaint that he was incharge of the affairs of the company. The learned Sessions Judge set aside the order on the ground that section 141 had not been complied with as the said director was not impleaded as an accused. Before the High Court it was contended by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen cheques are issued in the name of the company, the company is invariably liable for prosecution for the offence under section 138 of the Act . Regarding the prosecution of the Directors of the company, the legal position makes it clear that the person who is in charge of and was responsible to the company in conduct of its business at the material time is also liable to be prosecuted. But, the non-prosecution of any of the Directors is no bar to prosecute the company. The revision petitioner is pleading that he is prejudiced on account of mentioning of his name as the person representing the company. The prosecution never intended to prosecute Sri Rahul Kejriwal in his individual capacity. The Courts below also made it clear that Sri Rahul Kejriwal is not personally liable for prosecution on account of the absence of specific allegations that he is in charge of the affairs of the company or managing its affairs. The Judgments placed on behalf of the revision petitioner are only regarding the aspect whether a Director or Directors are liable to be prosecuted when there are no specific allegations that he or they were in charge of and were responsible to the company in conduct of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (5) of the Iron and Steel Control Order, the two respondents could not be held responsible. The actual contravention was by Kamdar and Vallabhdas Thacker and any contravention by them would not fasten responsibility on the respondents. The acquittal of the respondents is, therefore, fully justified. The appeal fails and is dismissed ." (p. 493) [Emphasis supplied] The clear findings contained in a binding precedent were, however, sought to be explained by a two-Judge Bench of this Court in Sheoratan Agarwal v. State of Madhya Pradesh [1984] 4 SCC 352 stating : "the section appears to our mind to be plain enough. If the contravention of the order made under section 3 is by a company, the persons who may be held guilty and punished are (1) the company itself (2) every person who, at the time the contravention was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company whom for short we shall describe as the person-in-charge of the company, and (3) any director, manager, secretary or other officer of the company with whose consent or connivance or because of neglect attributable to whom the offence has been commit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the company itself. Since, in this case, there is no evidence and no finding that the company contravened clause 5 of the Iron Steel (Control) Order, the two respondents could not be held responsible. The actual contravention was by Kamdar and Vallabhdas Thacker and any contravention by them would not fasten responsibility on the respondents." (p. 354) 28. With the greatest of respect to the learned judges, it is difficult to agree therewith. The findings, if taken to its logical corollary lead us to an anomalous position. The trial court, in a given case although the company is not an accused, would have to arrive at a finding that it is guilty. Company, although a juristic person, is a separate entity. Directors may come and go. The company remains. It has its own reputation and standing in the market which is required to be maintained. Nobody, without any authority of law, can sentence it or find it guilty of commission of offence. Before recording a finding that it is guilty of commission of a serious offence, it may be heard. The Director who was in charge of the company at one point of time may have no interest in the company. He may not even defend the company. He ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstruing the mean-ing of the term "as well as" held that it would mean the persons mentioned in the first category within the dragnet of the offence on a par with the offending company. 31. In Anil Hada s case ( supra ), the company was under liquidation. A question arose as to whether permission of the Company Court was necessary to continue prosecution against the company. The court did not go into the said question. In that case, the Magistrate accepted the contention raised on behalf of the accused-company that the winding up had been ordered by the court and hence no prosecution proceeding could be continued against the accused-company. The said proposition of law in a situation of this nature must be understood in the factual matrix involved in the matter. In the peculiar factual matrix involved therein, it was opined: "10. Thus when the drawer of the cheque who falls within the ambit of section 138 is a human being or a body corporate or even firm, prosecution proceedings can be initiated against such drawer. In this context the phrase as well as used in sub-section (1) of section 141 has some importance. The said phrase would embroil the persons mentioned in the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. It opined: "It is of some significance to note that in view of the said description of Director , other than a person who comes within the purview thereof, nobody else can be prosecuted by way of his vicarious liability in such a capacity. If the offence has not been committed by a Company, the question of there being a Director or his being vicariously liable, therefore, would not arise. Appellant herein categorically contended that accused No. 1 was a proprietary concern of the accused No. 2 and he was merely an employee thereof. If accused No. 1 was not a Company within the meaning of section 141 of the Negotiable Instruments Act, the question of an employee being preceded against in terms thereof would not arise." [Emphasis supplied] Indisputably, all the decisions of this Court in no uncertain terms says - company at the first instance should be proved to be offender and, thus, only question of proof that the Director is also liable being in charge of its affairs. 34. True interpretation, in my opinion, of the said provision would be that a company has to be made an accused but applying the principle "lex non cogit ad impossibilia", i.e., if for some legal snag, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to be in charge of, and responsible to, the company for the conduct of its business that person will be liable to be proceeded against and punished for the commission of the offence. Where, however, no person has been so nominated, every person who at the time of the commission of the offence was in charge of, and responsible to, the company for the conduct of its business shall be proceeded against and punished for the said crime. ..." (p. 556) 36. I may notice that in some of the decisions of this Court a liberal interpretation of notice had been advocated to suggest that a notice served upon a managing director of the company or a director of the company shall satisfy the requirements of law. [ See Bilakchand Gyanchand Co. v. A. Chinnaswami JT 1999 (10) SC 236 and Rajneesh Aggarwal v. Amit J. Bhalla [2001] 34 SCL 875 (SC). 37. The said decisions proceeded on the premise that what is necessary is the knowledge of the accused that the cheque has been dishonoured so that the amount may be paid within a period of fifteen days from the date of such knowledge. 38. A learned Single Judge of the Kerala High Court in Pramod v. C.K. Velayudhan [2006] 1 JCC (NI) 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nishment. If the person that committed the offence under section 138 of the Act is a company the Directors and the person-in-charge of the affairs of the company, who lookafter the day to day affairs of that company, apart from the company, would also be liable for the said offence, by virtue of section 141 of the Act. As stated earlier there is no scope for invoking section 141 of the Act because the dishonoured cheque was not issued for and on behalf of a company. Since petitioner, admittedly, did not draw the dishonoured cheque on an account maintained by him in a bank, and since there is no scope for invoking section 141 of the Act to rope in the petitioner as Managing Director of a company of which A-1 is the Director, merely because A-1 is said to have given the dishonoured cheque in partial or full settlement of a debt due to 1st respondent from a company of which petitioner is the Managing Director, petitioner cannot be made liable for an offence under section 138 of the Act. The fact that 1st respondent has a right to sue petitioner also for recovery of the debt due to him is not and cannot be a ground for making the petitioner liable for an offence under section 138 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the offence under section 138 of the Negotiable Instruments Act (hereinafter referred to as "the Act") will be complete at least against her. That is the clear import of the language of section 138 of the Act and her act is squarely covered under the said section. The High Court had correctly relied on section 139 of the Act. We accept that finding of the High Court. It is true that for a proper complaint under section 138 of the Act, the cheque must have been drawn by a person and secondly the account must be maintained by "such person" and it should have been given for payment of amount of money to another person from out of that account for the discharge of any debt or other liability and when such cheque is returned by the bank unpaid because of the insufficient funds to honour the cheque. Then such person would be liable under section 138 of the Act. In the present case, the account was being maintained by "Intel Travels" and the appellant had the authority to sign the cheque of that account. Therefore, there will be a clear liability if the appellant used the cheque which she had the authority to use and that too for discharging the debt. It must be pointed out at this junct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the appellant is vicarious herein on account of the offence having allegedly been committed by M/s. Intel Travels, it would have to be presumed that the appellant had also committed the offence. However, though M/s. Intel Travels has not been joined as an accused, that would be of no consequences. 8. There can be no quarrel against the proposition that a company can be proceeded against in the criminal proceeding even where the imposition of sentence is provided for. That law is laid down in Standard Chartered Bank s case ( supra ). However, there is nothing in that judgment to suggest that there cannot be a prosecution of the signatory alone in the absence of the company like Intel Travels in this case. 9. It is true that in S.M.S. Pharmaceuticals Ltd. s case ( supra ) a vicarious liability has been found against the person responsible for running the company where the principal accused is the company. However, it is nowhere laid down in S.M.S. Pharmaceuticals Ltd. s case ( supra ) that unless the company itself is made an accused, the person responsible for running the same, in the present case, the signatory of the cheque, cannot be joined as an accused. Even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tel Travels and also Anil Hada who has also been described as Director of the company. It is then specifically suggested in the complaint that the accused persons used to purchase the air-tickets for their clients and that they had purchased the air-tickets from the complainant from time to time and issued the cheques worth Rs. 5,10,000 and Rs. 4,21,000. It is specifically stated that Accused No. 1 also used to conduct the business of her company and she also used to purchase the tickets from the complainant. The basic complaint, therefore, is against two accused persons in their individual capacity, though they might be purchasing the tickets for their travelling company. However, merely because of that fact one cannot reach at a conclusion that in the absence of M/s. Intel Travels the two accused persons and more particularly the appellant herein who was the signatory to the cheque and whose cheque was bounced cannot be prosecuted. That could not be the import of the decision in Everest Advertising (P.) Ltd. s case ( supra ), S.M.S. Pharmaceuticals Ltd. s case ( supra ) or the decision in N.K. Wahi s case ( supra ). 14. In the decision in Anil Hada s case ( supra ), i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings against the company were not taken or could not be continued, it is no bar for proceeding against the other persons falling within the purview of sub-sections (1) and (2) of section 141 of the Act . In the light of the aforesaid view we do not consider it necessary to deal with the remaining question whether winding-up order of a company would render the company non-existent." (p. 248) [Emphasis supplied] It will, therefore, be seen that the question as to whether the persons like accused alone in the absence of the company having been made accused could be proceeded against or not had directly fallen for consideration and it cannot be said that any observations in Anil Hada s case ( supra ) by any chance could be viewed as obiter. This is a binding precedent. 15. The ratio laid down in Anil Hada s case ( supra ) was applicable to the factual matrix thereof which is identical here. The question has been directly decided that the prosecution of the company is not a sine qua non for the prosecution of the other persons who fall within the second and third categories, namely, those who were incharge and responsible for the business of the company. 16. Even the law ..... X X X X Extracts X X X X X X X X Extracts X X X X
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