2017 (6) TMI 1384 - HC - Indian Laws

Dishonour of Cheque - absence of due service of statutory demand notice - vicarious liability of Director - acquittal of the accused - Section 138 and 141 of NI Act - HELD THAT - Section 141 again does not lay down any requirement that in such eventuality, the individual directors must individually be issued separate notices under Section 138 and that the persons, who are in charge of the affairs of the company and running its affairs must naturally be aware of the notice of demand under Section 138 of the Act issued to such company and that it is precisely for this reason that no notice is additionally contemplated to be given to such directors. That the opportunity to the drawer by issuing statutory demand notice is considered good enough for those who are in charge of the affairs of such company, etc., and if it is their case that the offence was committed without their knowledge or that they had exercised due diligence to prevent such commission, it would be a matter of defence to be considered at the appropriate stage, etc. Therefore, it is crystal clear that in a case, where the drawer of the dishonoured cheque is a company, then statutory demand notice should mandatorily be served on the drawer company but that separate individual notices to the individual directors and officials of the company is not mandatory. The Appellate Court cannot be found fault with in any manner in rendering the impugned view. Since the prosecution is not maintainable as against the drawer company in view of this ground, then the prosecution against the individual director would also crumble to the ground as the offence under S. 138 of the N.I. Act is essentially and primarily attracted as against the drawer of the cheque. If no offence is made out against the accused drawer company, then the question of convicting the individual Directors and officials of that company on the basis of vicarious liability under Section 141 of the N.I. Act does not arise. For these reasons, the Lower Appellate Court was fully right in holding that all the accused are entitled for acquittal. Therefore, without the basic averment in the complaint that the drawer of the dishonoured cheques in question is the company and not the individual director, it is not right and proper to convict the accused company for the above said offence. That apart, in the facts and circumstances of a case like this, even if an application for amendment of averments in the complaint had been filed, it could not have been allowed as it could have caused serious prejudice to the accused company - Going by the legal principles laid down by this Court in the decisions of this Court as in Linda John Abraham v. Business India Group Company ors. 2013 (2) TMI 572 - HIGH COURT OF KERALA , HAFSA RAHMAN T VERSUS STATE OF KERALA AND ORS. 2017 (4) TMI 1615 - KERALA HIGH COURT as well as the rulings of the Apex Court as in UP. Pollution Control Board v. M/s. Modi Distillery Ors. 1987 (8) TMI 449 - SUPREME COURT , S.R. Sukumar v. S. Sunaad Raghuram 2015 (7) TMI 1260 - SUPREME COURT , such a plea for amendment of the averments in the complaint could not have been entertained at all in the facts of this case. This is all the more so, inasmuch as in the facts of this case, any plea for such amendment was not brought forth before the issuance of summons to the accused company. This Court is constrained to uphold the view taken by the appellate sessions court that the accused persons are entitled for acquittal - Appeal dismissed.

Summary

Issues Involved:
1. Maintainability of prosecution under Section 138 of the Negotiable Instruments Act (N.I. Act) without arraigning the company as an accused.
2. Requirement of statutory demand notice to the company, the drawer of the cheque.
3. Finality and binding nature of the previous High Court order directing the complainant to array the company as an accused.
4. Validity of the complaints and notices without mentioning the company as the drawer of the cheques.

Issue-wise Detailed Analysis:

1. Maintainability of Prosecution under Section 138 of the N.I. Act:
The main contention raised by the accused was that the prosecution under Section 138 of the N.I. Act is not maintainable against the Managing Director without arraigning the company, which is the drawer of the dishonoured cheques, as an accused. The accused relied on the Supreme Court's decision in Aneeta Hada v. Godfather Travels & Tours Pvt. Ltd., which held that a complaint under Section 138 can only be maintained if the company, being the principal offender, is also arraigned as an accused. The High Court acknowledged this precedent and noted that the company was not initially arraigned as an accused, making the prosecution against the Managing Director alone unsustainable.

2. Requirement of Statutory Demand Notice to the Company:
The appellate Sessions Court acquitted the accused on the ground that no statutory demand notice was issued to the company, the drawer of the cheque, as required under Section 138(b) of the N.I. Act. The High Court affirmed this view, citing that the statutory demand notice is mandatory for maintaining a complaint under Section 138. The Court emphasized that without serving the statutory demand notice to the company, the prosecution cannot be maintained against either the company or its directors.

3. Finality and Binding Nature of Previous High Court Order:
The complainant argued that the previous High Court order, which directed the complainant to array the company as an accused, had become final and binding since it was not challenged by the company. However, the High Court clarified that this previous order did not preclude the company from raising the contention regarding the non-service of the statutory demand notice. The Court held that the previous order could not be construed as permitting the prosecution to proceed without fulfilling the mandatory requirement of serving the statutory demand notice.

4. Validity of Complaints and Notices:
The High Court observed that the complaints and statutory notices did not mention the company as the drawer of the dishonoured cheques. Instead, they indicated that the individual director was the drawer and liable for the debt. The Court noted that even after the company was arrayed as an additional accused, the complaints were not amended to reflect the correct drawer of the cheques. This lack of proper averments in the complaints further invalidated the prosecution against the company and its directors.

Conclusion:
The High Court upheld the appellate Sessions Court's judgments acquitting the accused, concluding that the prosecution was not maintainable due to the non-service of the statutory demand notice to the company and the improper framing of the complaints. The Court dismissed the criminal appeals filed by the complainant, affirming the acquittal of the accused.