2018 (3) TMI 1993 - HC - Indian Laws

Dishonour of Cheque - vicarious liability of directors of an accused drawer Company u/s 141 of the Negotiable Instruments Act - period of limitation stipulated under Section 142 of NI Act - Service of statutory demand notice - HELD THAT - A three Judge Bench of the Apex Court in the case in Aneeta Hada's case 2012 (5) TMI 83 - SUPREME COURT has held that so long as the cheque is drawn from an account maintained by the Company the offence Section 138 of the N.I. Act is committed by the drawer of the Company and so the Company being the drawer is the principal offender in such an offence and the criminal complaint alleging offence under Section 138 could be maintained validly only by arraying the accused who is the drawer of the Company as an accused and though the other directors who were responsible for the affairs of the Company as conceived in Section 148 of the N.I. Act would also be arrayed as co-accused. Therefore, in view of the law declared subsequently by a three Judge Bench in Aneeta Hada's case 2012 (5) TMI 83 - SUPREME COURT , the view earlier taken by a two Judge Bench in Anil Hada's case 1999 (11) TMI 808 - SUPREME COURT stood overruled. The Apex Court in Kirshna Texport Capital Markets Ltd.'s case 2015 (6) TMI 344 - SUPREME COURT has held that statutory demand notice on the drawer Company is mandatory where the drawer of the dishonoured cheque is a Company and that in such cases, it is not necessary to additionally issue notices to the directors/officers of the Company so long as the statutory demand notice is served on the drawer Company, etc. The revisional interdiction of this Court is imperative as the impugned judgments of the Courts below are illegal and ultra vires - the impugned judgments of both the Courts below will stand set aside and the conviction and sentence imposed on the petitioners will also stand set aside - the revision petitioners/accused No. 1 and accused No. 2 will stand acquitted for the offence punishable under Section 138 of the Negotiable Instruments Act. Criminal Revision Petition disposed off.

Summary

Issues Involved:
1. Maintainability of the complaint under Section 138 of the Negotiable Instruments Act.
2. Requirement of statutory demand notice under Section 138 proviso (b) to the drawer Company.
3. Vicarious liability of the Managing Director of the drawer Company.
4. Legality of the Trial Court’s order allowing the application under Section 319 of Cr.P.C. to array the drawer Company as an additional accused.
5. Validity of the judgments of conviction and sentence by the Trial Court and the Appellate Court.

Issue-wise Detailed Analysis:

1. Maintainability of the Complaint:
The petitioners were accused under Section 138 of the Negotiable Instruments Act based on a dishonored cheque. The complaint was initially filed against the Managing Director of the Chit Company, and later, the Chit Company was added as an additional accused. The contention was that the complaint was not maintainable since the statutory demand notice was not served on the Chit Company, which was the drawer of the cheque. Both lower courts overruled this contention, finding the complaint maintainable and convicting both accused.

2. Requirement of Statutory Demand Notice:
The statutory demand notice under Section 138 proviso (b) was issued only to the Managing Director and not to the Chit Company. It was argued that without serving the notice to the drawer Company, the complaint was not maintainable. The court referred to judgments, including Krishna Texport & Capital Markets Ltd. v. Ila A. Agrawal, which established that serving notice to the drawer Company is mandatory. The failure to serve such notice rendered the complaint invalid.

3. Vicarious Liability of the Managing Director:
The Trial Court convicted the Managing Director based on vicarious liability under Section 141 of the Negotiable Instruments Act. However, the court emphasized that vicarious liability arises only if the principal offender (the drawer Company) is validly prosecuted. Since the statutory demand notice was not served on the drawer Company, the prosecution against the Managing Director also failed.

4. Legality of the Trial Court’s Order under Section 319 of Cr.P.C.:
The complainant filed an application under Section 319 of Cr.P.C. to add the Chit Company as an additional accused, which was allowed by the Trial Court. The court noted that the application was filed long after the initial complaint and without condoning the delay. The Supreme Court in Harihara Krishnan N. v. J. Thomas held that such a procedure to array the drawer Company beyond the limitation period is illegal. Therefore, the Trial Court’s order was ultra vires.

5. Validity of the Judgments of Conviction and Sentence:
The judgments of the Trial Court and the Appellate Court were found to be illegal and ultra vires as they overlooked the mandatory requirement of serving the statutory demand notice to the drawer Company. The court held that without such notice, the prosecution could not be maintained against the drawer Company or its Managing Director. Consequently, the judgments of conviction and sentence were set aside, and the accused were acquitted.

Conclusion:
The revision petition was allowed, setting aside the judgments of conviction and sentence by the lower courts. The court emphasized the mandatory requirement of serving the statutory demand notice to the drawer Company and found the prosecution against the accused illegal due to non-compliance with this requirement. The accused were acquitted, and the case was disposed of accordingly.