1999 (11) TMI 808 - SC - Companies Law

When a company which committed the offence under section 138 of the Negotiable Instruments Act 1881 eludes from being prose-cuted thereof can the Directors of that company be prosecuted for that offence? Held that - Appeal dismissed. We are not impressed by the contention that section 139 would afford support to the plea that prosecution of the company is sine qua non for persecuting its directors under section 141. Even if the prosecution proceedings 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. 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.

Issues Involved:
1. Whether directors of a company can be prosecuted under Section 138 of the Negotiable Instruments Act, 1881, if the company itself is not prosecuted.
2. Interpretation of Section 141 of the Negotiable Instruments Act regarding the liability of directors.
3. The necessity of prosecuting the company to sustain a conviction against its directors.
4. The impact of Section 139 of the Negotiable Instruments Act on the presumption of liability.
5. The relevance of previous case law in determining the liability of directors without prosecuting the company.

Issue-wise Detailed Analysis:

1. Prosecution of Directors Without the Company:
The core issue is whether directors can be prosecuted under Section 138 of the Negotiable Instruments Act, 1881, when the company itself is not prosecuted. The appellant, a director of the accused company, contended that prosecution against directors is not maintainable without prosecuting the company. The High Court rejected this contention, leading to the present appeal.

2. Interpretation of Section 141:
Section 141 of the Act extends penal liability under Section 138 to persons connected with the company. It states that if a company commits an offence, every person in charge of and responsible to the company for its business, as well as the company, shall be deemed guilty. The court identified three categories of persons liable under Section 141: the company, those in charge of the business, and directors or officers whose neglect or connivance led to the offence.

3. Necessity of Prosecuting the Company:
The court clarified that while a finding that the company committed the offence is necessary to convict directors, the actual prosecution of the company is not a sine qua non (essential condition) for prosecuting directors. The court emphasized that the provisions do not mandate the company's prosecution for directors to be liable. Even if the company is not prosecuted due to legal snags or otherwise, directors cannot escape liability if it is shown that the company committed the offence.

4. Impact of Section 139:
Section 139 presumes that a cheque was issued for discharging an antecedent liability unless proven otherwise. The appellant argued that this presumption can only be rebutted by the drawer (the company). The court held that the presumption is in favor of the cheque holder and can be rebutted by any accused, not just the drawer. Thus, directors can adduce evidence to rebut the presumption even if the company is not an accused.

5. Relevance of Previous Case Law:
The court examined previous judgments, notably *State of Madras v. C.V. Parekh* and *Sheoratan Agarwal v. State of Madhya Pradesh*. In *C.V. Parekh*, it was held that the company must be shown to have contravened the law for directors to be liable. However, *Sheoratan Agarwal* clarified that directors can be prosecuted independently of the company. The court agreed with the latter interpretation, emphasizing that directors can be prosecuted even if the company is not, provided it is shown that the company committed the offence.

Conclusion:
The court concluded that prosecution of directors under Section 138 is maintainable even if the company is not prosecuted, as long as it is established that the company committed the offence. The appeals were dismissed, affirming the High Court's decision.

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