2024 (3) TMI 1389 - HC - Indian Laws

Dishonour of cheque - conviction of the petitioner under Section 138 of the Negotiable Instruments Act, 1881 - rebuttal of presumption under Section 139 of the Negotiable Instruments Act - vicarious liability of Director of the company - HELD THAT - In a proceeding under Section 138 N.I. Act, presumption is in favour of the Holder of the cheque and that such cheque had been issued in discharge of legal debt and/or liability, unless proved otherwise/rebutted by the accused. In the present case the presumption is clearly in favour of the complainant and the petitioner has not been able to rebut the said presumption under Section 139 N.I. Act. But there is no compliance under Section 141 N.I. Act and as such the proceedings in the present case is clearly not maintainable. Conclusion - The judgment and order convicting the petitioner were set aside due to non-compliance with Section 141, despite the presumption under Section 139 being in favor of the complainant. Application disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

• Whether the conviction of the petitioner under Section 138 of the Negotiable Instruments Act, 1881, is maintainable without the company being arraigned as an accused.
• Whether the presumption under Section 139 of the Negotiable Instruments Act can be rebutted by the petitioner.
• Whether the procedural requirements under Section 141 of the Negotiable Instruments Act were complied with.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Maintainability of Conviction Without Arraigning the Company

• Relevant legal framework and precedents: Section 141 of the Negotiable Instruments Act requires that if an offence is committed by a company, the company itself must be arraigned as an accused. The Supreme Court in Himanshu vs. B. Shivamurthy & Anr. held that a complaint is not maintainable against a director alone if the company is not made an accused.
• Court's interpretation and reasoning: The court observed that the cheque was issued by the petitioner as a director of Shilabati Hospital Pvt. Ltd., and not in his personal capacity. Therefore, the absence of the company as an accused rendered the proceedings against the petitioner alone unsustainable.
• Key evidence and findings: The original cheque and related documents indicated that the cheque was signed on behalf of the company. No notice was served upon the company, and it was not made a party to the proceedings.
• Application of law to facts: The court applied the principles from Himanshu vs. B. Shivamurthy & Anr. to conclude that the complaint against the petitioner was not maintainable without the company being arraigned.
• Treatment of competing arguments: The opposite party argued that the petitioner sought monetary assistance in his personal capacity, but the court found the evidence insufficient to support this claim.
• Conclusions: The court concluded that the proceedings were not maintainable due to the non-compliance with Section 141 of the Negotiable Instruments Act.

Issue 2: Rebuttal of Presumption under Section 139

• Relevant legal framework and precedents: Section 139 of the Negotiable Instruments Act creates a presumption in favor of the holder of the cheque that it was issued for the discharge of a debt or liability. This presumption is rebuttable by the accused.
• Court's interpretation and reasoning: The court noted that the presumption under Section 139 was in favor of the complainant, and the petitioner failed to provide sufficient evidence to rebut this presumption.
• Key evidence and findings: The petitioner did not present adequate evidence to challenge the presumption that the cheque was issued for a legally enforceable debt.
• Application of law to facts: The court held that the petitioner did not successfully rebut the presumption under Section 139, as no compelling evidence was presented to prove otherwise.
• Treatment of competing arguments: The petitioner argued that the cheque was not issued in discharge of a debt, but failed to substantiate this claim with evidence.
• Conclusions: The court upheld the presumption under Section 139 in favor of the complainant, but due to procedural lapses, the proceedings were deemed not maintainable.

3. SIGNIFICANT HOLDINGS

• Preserved quotes of crucial legal reasoning: "In the absence of the company being arraigned as an accused, a complaint against the petitioner was therefore not maintainable."
• Core principles established: The necessity of arraigning the company as an accused when a cheque is issued on its behalf by a director; the presumption under Section 139 is rebuttable, but the burden lies on the accused.
• Final determinations on each issue: The judgment and order convicting the petitioner were set aside due to non-compliance with Section 141, despite the presumption under Section 139 being in favor of the complainant.

The judgment highlights the importance of procedural compliance under Sections 138 and 141 of the Negotiable Instruments Act, emphasizing that both the company and the individual must be arraigned when a cheque is issued on behalf of a company. The court also reaffirmed the rebuttable nature of the presumption under Section 139, requiring the accused to present evidence to challenge the presumption of liability.