2005 (4) TMI 547 - SC - Companies Law

Correctness of the judgment rendered by a Single Judge of the Gujarat High Court refusing to accept the prayer by the appellants to quash the proceedings initiated on the basis of a complaint filed by the respondents alleging commission of offence in terms of Section 138 of the Negotiable Instruments Act 1881 and other connected offences questioned Held that - Under Scheme of the Act if the person committing an offence under Section 138 of the Act is a company by application of Section 141 it is deemed that every person who is in charge of and responsible to the company as well as the company are guilty of the offence. A person who proves that the offence was committed without his knowledge or that he had exercised all due diligence is exempted from becoming liable by operating of the proviso to sub-section (1). Whether or not the evidence to be led would establish the accusations is a matter for trial. It needs no reiteration that proviso to sub-section (1) of Section 141 enable the accused to prove his innocene by discharging the burden which lies on him. Therefore the High Court was justified in rejecting the petition filed by the appellants. Taking into account the fact that the cases have been pending for nearly a decade we direct that the matter be taken up on 8th of August 2005 by the trial Court. Appeal dismissed.

Summary

Issues:
Appeal against refusal to quash proceedings under Section 138 of the Negotiable Instruments Act, 1881 and other connected offences.

Analysis:
The judgment involves appeals challenging a Single Judge's decision at the Gujarat High Court to not quash proceedings based on a complaint filed under Section 138 of the Negotiable Instruments Act, 1881. The complaint alleged that the accused company did not honor cheques due to insufficient funds, even after legal notices. The accused persons, including directors and employees, were summoned to face trial for offenses under Section 138 of the Act along with Sections 420 and 114 of the Indian Penal Code. The High Court refused to drop the proceedings, stating that the issue of whether the accused persons were in charge or responsible for the company's conduct should be decided at trial, not at the threshold.

The appellants argued that the complaints did not disclose any offense, especially for those who were lawyers or professionals not directly involved in the company's business conduct. The respondents countered that the allegations fell under Section 141 of the Act, making the accused persons liable. Section 141 holds individuals in charge of a company responsible for offenses committed by the company, subject to certain conditions and exemptions.

The Court emphasized that the questions of whether the accused were in charge of the company's business and whether the deeming provision of Section 141 applied should be determined during trial. The burden of proving innocence lies with the accused, as per the provisos of Section 141. The judgment highlighted the three categories of persons covered by Section 141, emphasizing that the evidence to establish accusations should be presented at trial.

The Court upheld the High Court's decision to reject the appellants' petition, noting that the larger Bench was already considering similar issues. The judgment directed the trial Court to expedite the proceedings, emphasizing that the completion of the trial should not be delayed. The parties were instructed to cooperate, and the Court made it clear that it had not expressed any opinion on the case's merits. Ultimately, the appeals were dismissed, affirming the continuation of the trial without quashing the proceedings.

This detailed analysis of the judgment highlights the legal complexities involved in the interpretation and application of Section 141 of the Negotiable Instruments Act, emphasizing the need for evidence and trial proceedings to determine liability and innocence in cases of alleged offenses by companies and their personnel.