2008 (5) TMI 406 - SC - Companies Law

Whether the respondent-company was liable to be prosecuted under section 138 of the Negotiable Instruments Act by virtue of section 141 of the Act in the absence of prosecution of the person incharge of the affairs or other Directors of the company? Whether the liability was that of the company or the appellant herself? Held that - Appeal dismissed. Let the matters be placed before three-Judge Bench. The Registry is directed to place the records before the Hon ble the Chief Justice of India for appropriate orders.

Issues Involved:
1. Whether the appellant, as an authorized signatory, can be held liable under Section 138 of the Negotiable Instruments Act, 1881, when the company is not made an accused.
2. Interpretation and application of Sections 138 and 141 of the Negotiable Instruments Act, 1881.
3. The necessity of prosecuting the company for holding its officers liable under Section 141 of the Act.

Issue-Wise Detailed Analysis:

1. Liability of the Authorized Signatory Under Section 138:
The appellant, an authorized signatory of M/s. Intel Travels Ltd., issued a cheque that was dishonored. The respondent filed a complaint under Section 138 of the Negotiable Instruments Act, 1881. The High Court refused to quash the proceedings against the appellant, holding that the cheque was issued for the discharge of liability, and it is not necessary that the debt should be due from the drawer himself. The Supreme Court analyzed whether the appellant, who signed the cheque on behalf of the company, can be held liable under Section 138 without the company being an accused.

2. Interpretation and Application of Sections 138 and 141:
Section 138 stipulates that any cheque drawn by a person on an account maintained by him for the discharge of any debt or liability, which is dishonored, constitutes an offense. The Supreme Court emphasized that the drawer of the cheque must maintain the account. Since the appellant was only an authorized signatory and the account was maintained by the company, the appellant does not fit the description of "the person" under Section 138. The Court further explained that Section 141 raises a legal fiction where any person in charge of the company's affairs can be deemed guilty if the company is an offender.

3. Necessity of Prosecuting the Company:
The Supreme Court held that for a person to be vicariously liable under Section 141, the company must be made an accused. The company, being the principal offender, must be prosecuted to hold its officers responsible. This principle was reiterated through various precedents, including S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Standard Chartered Bank v. Directorate of Enforcement. The Court concluded that the prosecution of the company is a sine qua non for the prosecution of its officers.

Separate Judgments:
- Justice S.B. Sinha: Emphasized that the company must be made an accused for prosecuting its officers under Section 141. The appellant, being only an authorized signatory, cannot be held liable under Section 138 without the company being an accused.
- Justice V.S. Sirpurkar: Disagreed with Justice Sinha, stating that the appellant, as the signatory of the cheque, can be prosecuted under Section 138 even if the company is not made an accused. Justice Sirpurkar highlighted that the appellant had the authority to sign the cheque and thus, can be held liable for the dishonor of the cheque.

Conclusion:
The Supreme Court's judgment underscores the necessity of prosecuting the company to hold its officers liable under Section 141 of the Negotiable Instruments Act. The appellant, being only an authorized signatory, cannot be held liable under Section 138 without the company being an accused. The matter was referred to a three-Judge Bench due to the difference in opinion between the judges.

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