2016 (2) TMI 1302 - HC - Indian Laws

Dishonor of Cheque - notice issued upon the director/authorized signatory of the company - validity of notice issued under Section 138(b) of the Negotiable Instruments Act 1881 - HELD THAT - Petitioner No. 2 to whom the notices were addressed is the director and authorised signatory of the company who represented the company throughout the transaction which is the subject-matter of the impugned prosecution. It is claimed that he had signed the agreement from which the liability arose in respect whereof the dishonoured cheque was issued. He is also alleged to be the signatory of the cheque and had received the notice of dishonour at the registered office of the company. Under such premises the petitioner No. 2 can be safely assumed to be the alter ego of the company. He is the principal director of the company and was the human agency representing the company in the transaction which is the subject matter of prosecution. A corporate entity has to function through a human agency and the mental state of such human agency is attributable to the company. Hence knowledge of petitioner No. 2 of such notice and his response thereto can be attributed to the juristic entity as the former is nothing but the alter ego of such corporate entity. Negotiable Instruments Act is a legislation operating in the commercial field and section 138 thereof was incorporated to give tooth and claw to the legislation so as to ensure greater accountability and creditability in commercial transactions relating to cheques. This legislative intention ought to be the guiding principle while construing the validity of notice issued under the aforesaid provision of law - The issue as to whether a notice issued upon the director/authorized signatory of the company can be deemed to be a valid notice under Section 138(b) of the Negotiable Instruments Act fell for consideration Bilakchand Gyanchand Co. Vs. A. Chinnaswami 1999 (3) TMI 620 - SUPREME COURT and Rajneesh Aggarwal Vs. Amit J. Bhalla 2001 (1) TMI 855 - SUPREME COURT . In Bilakchand notice issued upon the Managing Director/signatory was held to be a valid notice under Section 138(b) of the Act. The petitioner No. 1 company had sufficient notice of dishonor of the cheques and had failed to make payment within the stipulated time and the impugned prosecutions are not liable to be quashed on such score - the revision petitions are dismissed.

Summary

Issues Involved:
1. Validity of notice issued under Section 138(b) of the Negotiable Instruments Act, 1881.
2. Whether the notice addressed to the director/authorized signatory of the company can be deemed as notice to the company itself.

Issue-wise Detailed Analysis:

1. Validity of notice issued under Section 138(b) of the Negotiable Instruments Act, 1881:

The proceedings under Sections 138/141 of the Negotiable Instruments Act, 1881 were challenged on the grounds that the notice issued under Section 138(b) was defective. The petitioners argued that the notice should have been issued to the drawer of the cheque, which is the petitioner company, and not to the director/authorized signatory, Vijay Kumar Kanoria. The court examined whether the notice addressed to the director/authorized signatory could be considered valid for the company. The court noted that the purpose of the notice under Section 138(b) is to give the drawer a chance to rectify the omission. The notice was sent to the registered office of the company and was received by the director/authorized signatory, who was the alter ego of the company. Therefore, the court concluded that the notice met the requirement of the law.

2. Whether the notice addressed to the director/authorized signatory of the company can be deemed as notice to the company itself:

The court analyzed whether the notice addressed to Vijay Kumar Kanoria, the director/authorized signatory, could be construed as notice to the company. The court applied the principle of alter ego, stating that the knowledge of the director/authorized signatory is attributable to the company. The court referred to the judgments in Iridium India Telecom Ltd. Vs. Motorola Incorporated & Ors. and Sunil Bharti Mittal Vs. Central Bureau of Investigation, which upheld that the criminal intent of the alter ego of the company can be imputed to the corporation. The court also cited Bilakchand Gyanchand Co. Vs. A. Chinnaswami and Rajneesh Aggarwal Vs. Amit J. Bhalla, where notices issued to the director/signatory were held valid under Section 138(b). The court rejected the petitioners' reliance on Aneeta Hada Vs. Godfather Travel & Tours Pvt. Ltd. and Krishna Texport and Capital Markets Limited Vs. Ila A. Agarwal and Ors., as these cases did not address the specific issue at hand. The court emphasized a pragmatic interpretation of the notice, aligning with the legislative intent to ensure accountability in commercial transactions.

Conclusion:

The court held that the petitioner company had sufficient notice of the dishonor of the cheques and failed to make payment within the stipulated time. Therefore, the impugned prosecutions were not liable to be quashed. Both revision petitions were dismissed, and the trial court was directed to proceed with the case expeditiously.