2014 (1) TMI 580 - SC - Companies Law

Quashing of proceeding u/s 482 Cr.P.C. - Proceedings initiated u/s 138 of the Negotiable instruments Act - Absence of basic ingredients of offence punishable under Sections 138 - High Court refused to quash proceeding - whether an authorised signatory of a company would be liable for prosecution under Section 138 of the Negotiable Instruments Act, 1881 without the company being arraigned as an accused - Held that - words as well as the company appearing in the Section make it absolutely unmistakably clear that when the company can be prosecuted, then only the persons mentioned in the other categories could be vicariously liable for the offence subject to the averments in the petition and proof thereof - for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the dragnet on the touchstone of vicarious liability as the same has been stipulated in the provision itself. Cheque has been issued on behalf of M/s. Som Distilleries & Breweries Limited and the appellants are Managing Director and Directors of another company, namely, M/s. Som Distilleries Limited, having no connection with the company issued the cheque - Decided in favour of appellant.

Summary

Issues:
Appeal against Order of High Court dismissing petition under Section 482 Cr.P.C. to quash proceedings under Section 138 and 141 of Negotiable Instruments Act, 1881.

Analysis:
The appellants contended that the complaint lacked basic ingredients of the offence under Sections 138 and 141 of the Negotiable Instruments Act, 1881. They argued that as Directors of M/s. Som Distilleries Limited, they were not responsible for the cheque issued by M/s. Som Distilleries & Breweries Limited, a separate legal entity. The High Court acknowledged the submission but refused to quash the proceedings under Section 482 Cr.P.C., stating that the complaint had adequate averments. The Court held that factual appraisal was required, and the trial court could address the issue.

The appellants emphasized that the cheque in question was issued by M/s. Som Distilleries & Breweries Limited, a distinct legal entity from M/s. Som Distilleries Limited. They presented certificates from the Bank of India to support this claim. They highlighted a previous case where a similar issue was resolved in favor of Som Distilleries Limited, leading to the quashing of the complaint. The respondents did not refute these statements.

Referring to the 'Anita Hada Versus Godfather Travels and Tours Private Limited' case, the Supreme Court clarified the interpretation of Sections 138 and 141 of the Negotiable Instruments Act. The Court emphasized that for prosecution under Section 141, the company must be arraigned as an accused. Vicarious liability applies only when the company is prosecuted. In the present cases, as the cheque was issued by a different company, M/s. Som Distilleries & Breweries Limited, and the appellants were associated with M/s. Som Distilleries Limited, the Court intervened and quashed the proceedings against the appellants.

In conclusion, the Supreme Court allowed the appeals, setting aside the High Court's order and quashing the proceedings against the appellants in both cases. The Court emphasized the importance of maintaining the distinction between separate legal entities and clarified the requirements for prosecution under Section 141 of the Negotiable Instruments Act.