2012 (5) TMI 83 - SC - Companies Law

Liability of authorized signatory of a company to be prosecuted under Section 138 of the Negotiable Instruments Act, 1881 without the company being arraigned as an accused Held that - Section 141 of the Act operates in cases where an offence under Section 138 is committed by a company - If a person who commits offence under Section 138 of the Act, the company as well as every person in charge of and responsible to the company for the conduct of business of the company at the time of commission of offence is deemed to be guilty of the offence - the 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 - there can be no vicarious liability unless there is a prosecution against the company in favour of assessee.

Issues Involved:
1. Liability of an authorised signatory under Section 138 of the Negotiable Instruments Act, 1881 without the company being arraigned as an accused.
2. Interpretation of Section 85 of the Information Technology Act, 2000 in relation to the prosecution of a director without the company being impleaded as an accused.

Issue-wise Detailed Analysis:

1. Liability of an Authorised Signatory under Section 138 of the Negotiable Instruments Act, 1881:
The primary issue was whether an authorised signatory of a company could be prosecuted under Section 138 of the Negotiable Instruments Act, 1881, without the company itself being arraigned as an accused. The court examined the statutory provisions and previous judgments to determine the necessity of impleading the company as an accused.

Key Findings:
- Section 138 and 141 of the Act: The court noted that Section 138 pertains to the dishonour of cheques, while Section 141 deals with offences committed by companies. The latter includes a "deemed" concept of criminal liability for both the company and individuals responsible for its conduct.
- Interpretation of Legal Fiction: The court emphasized the importance of understanding the purpose and implications of the legal fiction created by Section 141. It stated that "the company as well as every person in charge of, and responsible to the company for the conduct of the business of the company, shall be deemed to be guilty of the offence."
- Precedent Analysis: The court referred to several precedents, including the three-Judge Bench decision in C.V. Parekh, which held that the company must be prosecuted for the individuals to be held vicariously liable. The court found that the decision in Sheoratan Agarwal, which allowed prosecution of individuals without the company being arraigned, was not in line with the larger Bench's ruling in C.V. Parekh.
- Conclusion: The court concluded that for maintaining the prosecution under Section 141 of the Act, arraigning the company as an accused is imperative. The decision in Sheoratan Agarwal was overruled, and the decision in Anil Hada was overruled to the extent it allowed prosecution of directors without the company being impleaded.

2. Interpretation of Section 85 of the Information Technology Act, 2000:
The issue here was whether a director could be prosecuted under Section 85 of the Information Technology Act, 2000, without the company being arraigned as an accused.

Key Findings:
- Section 85 of the 2000 Act: This section is similar to Section 141 of the Negotiable Instruments Act and deals with offences committed by companies. It states that both the company and individuals responsible for its conduct are deemed guilty of the offence.
- Application of Previous Analysis: The court applied its analysis of Section 141 of the Negotiable Instruments Act to Section 85 of the Information Technology Act. It reiterated that the company must be prosecuted for the individuals to be held vicariously liable.
- Conclusion: The court held that the director could not be held liable under Section 85 of the 2000 Act without the company being arraigned as an accused. Consequently, the proceedings against the director were quashed.

Final Judgment:
- Criminal Appeal Nos. 838 of 2008 and 842 of 2008: The proceedings initiated under Section 138 of the Negotiable Instruments Act were quashed.
- Criminal Appeal Nos. 1483 of 2009 and 1484 of 2009: The proceedings against the director and the company under Section 85 of the Information Technology Act were quashed.

The court emphasized the necessity of prosecuting the company for holding individuals vicariously liable under both the Negotiable Instruments Act and the Information Technology Act. The appeals were allowed, and the proceedings against the individuals were quashed due to the non-impleadment of the company.

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