2019 (3) TMI 294 - SC - Indian Laws

Dishonor of Cheque - insufficiency of funds - repayment of borrowed amount - Section 138 of the Negotiable Instruments Act, 1881 - In the present case, the record before the Court indicates that the cheque was drawn by the appellant for Lakshmi Cement and Ceramics Industries Ltd., as its Director - A notice of demand was served only on the appellant. The complaint was lodged only against the appellant without arraigning the company as an accused - Held that - The provisions of Section 141 postulate that if the person committing an offence under Section 138 is a company, every person, who at the time when the offence was committed was in charge of or was responsible to the company for the conduct of the business of the company as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished. In the absence of the company being arraigned as an accused, a complaint against the appellant was therefore not maintainable. The appellant had signed the cheque as a Director of the company and for and on its behalf. Moreover, in the absence of a notice of demand being served on the company and without compliance with the proviso to Section 138, the High Court was in error in holding that the company could now be arraigned as an accused. The High Court was in error in rejecting the petition under Section 482 of the CrPC - appeal allowed.

Summary

Issues:
1. Jurisdiction of High Court in a petition under Section 482 of CrPC.
2. Liability of a director for prosecution under Section 138 of NI Act without the company being named as an accused.
3. Conditions precedent for an offence under Section 138 of NI Act.
4. Provisions of Section 141 regarding liability of persons in charge of a company.

Issue 1: Jurisdiction of High Court in a petition under Section 482 of CrPC

The appellant filed a petition under Section 482 of the CrPC before the High Court of Karnataka challenging the complaint instituted against them under Section 138 of the Negotiable Instruments Act, 1881. The High Court dismissed the petition, stating that the complainant's ignorance about the existence of the company did not justify the appellant's prosecution without naming the company as an accused. The High Court opined that the complainant could proceed against the company and its responsible persons separately. The appellant contended that the complaint should have been against the company and its directors, not against them individually. The Supreme Court held that the High Court erred in rejecting the petition under Section 482 of CrPC, leading to the quashing of the complaint.

Issue 2: Liability of a director for prosecution under Section 138 of NI Act without the company being named as an accused

The appellant argued that since the cheque was issued by a director of a public limited company on behalf of the company, the complaint should have been against the company and its directors, not against the appellant individually. The Supreme Court referred to precedents, including Aneeta Hada vs. Godfather Travels and Tours Private Limited, emphasizing that for maintaining a prosecution under Section 138, arraigning the company as an accused is essential. The Court reiterated that the company's commission of the offence is a prerequisite to hold others vicariously liable. As the complaint was only against the appellant without naming the company, the Court held it was not maintainable.

Issue 3: Conditions precedent for an offence under Section 138 of NI Act

The Court highlighted the pre-conditions stipulated in the proviso to Section 138, emphasizing the importance of fulfilling these conditions before an offence under the provision is established. These conditions include presenting the cheque to the bank within a specified period, issuing a written demand to the drawer of the cheque, and failure to make payment within the prescribed time. The Court referred to cases like MSR Leathers vs. S. Palaniappan and N. Harihara Krishnan vs. J. Thomas to underscore the significance of meeting these conditions for a valid offence under Section 138.

Issue 4: Provisions of Section 141 regarding liability of persons in charge of a company

The Court elucidated on Section 141, stating that if a person committing an offence under Section 138 is a company, every person in charge or responsible for the company's conduct shall be deemed guilty and liable for prosecution. Since the complaint did not arraign the company as an accused, the Court deemed the complaint against the appellant as not maintainable. The Court emphasized the need to follow the statutory provisions strictly, including serving notice of demand and involving the company if it is the entity committing the offence.

This detailed analysis of the judgment provides a comprehensive understanding of the legal issues involved and the Supreme Court's rulings on each aspect of the case.