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2025 (4) TMI 1312 - SC - Indian LawsDishonour of Cheque - maintainability of prosecution of the appellant for offences u/s 420 IPC without arraigning the company as an accused given the business dealings were between companies - applicability of principles of res-judictata - vicarious liability. non-application of mind. Maintainability of prosecution of the appellant for offences u/s 420 IPC without arraigning the company as an accused - HELD THAT - It is to be noted that in 138 NI Act proceedings against Tyagi he raised a specific defence that there is no outstanding debt qua 07 cheques as the amount involved therein has already been paid by separate demand drafts. Learned Magistrate in its order dated 25.10.2002 rejected the said defence by recording a finding that no request was made by Tyagi to the complainant company to return the bounded cheques to the accused company when the demand drafts were allegedly sent by the accused persons to the complainant company - It is thus apparent that the finding recorded by the jurisdictional criminal court in 138 NI Act proceedings between the parties would be binding to both the parties in any subsequent proceedings involving the same issue. Applicability of principles of res-judictata - HELD THAT - In Pritam Singh 1955 (11) TMI 35 - SUPREME COURT a three Judge Bench of this Court speaking through Natwarlal Harilal Bhagwati J. placing reliance on Sambasivam vs. Public Prosecutor Federal of Malaya decided by a Bench of Five Judges of the Judicial Committee opined that maxim res judicata is no less appliable to criminal than to civil proceedings. In the said matter accused Pritam Singh was earlier tried for an offence under the Arms Act basing recovery of a weapon from him. In the said case Pritam Singh was acquitted. In a subsequent trial the same recovery was again sought to be used by the prosecution as one of the circumstances in an offence of murder. It is absolutely clear that Tyagi cannot maintain a prosecution on the basis of allegations which were precisely his defence in the earlier proceedings wherein he was an accused. Thus the present criminal proceedings deserve to be quashed on this ground alone. In the matter of Delhi Race Club (1940) Ltd. Ors. vs. State of Uttar Pradesh Anr. 2024 (8) TMI 1200 - SUPREME COURT this Court has held that a person cannot be vicariously prosecuted especially for offences under the IPC merely on account of the fact that he holds a managerial position in a company without there being specific allegations regarding his involvement in the offence. Conclusion - i) The prosecution is barred by the principle of res judicata as the issues were conclusively decided in earlier NI Act proceedings. ii) The prosecution without arraigning the company is impermissible and violates settled legal principles governing vicarious liability. iii) The summoning order is set aside for non-application of mind. The present is a fit case for allowing the appeal to quash the impugned criminal proceedings instituted against the appellant for offences under Section 420 of the IPC - appeal allowed.
The core legal questions considered in this judgment include: (1) Whether the prosecution of the appellant for offences under Section 420 IPC can be maintained without arraigning the company as an accused, given the business dealings were between companies; (2) Whether the principle of res judicata applies to criminal proceedings, especially when the allegations in the present case mirror the defence raised and adjudicated in prior proceedings under Section 138 of the Negotiable Instruments Act, 1881 (NI Act); (3) The scope and applicability of vicarious liability under Section 141 NI Act and analogous statutory provisions for prosecuting company officers without prosecuting the company itself; (4) Whether the prosecution is manifestly frivolous or vexatious and instituted as a counterblast to earlier concluded proceedings; and (5) The adequacy of the Magistrate's summoning order in applying mind to the facts and law.
Regarding the first issue, the legal framework centers on the principle that a company is a separate juristic entity distinct from its officers and directors. Precedents such as Aneeta Hada v. Godfather Travels & Tours (P) Ltd. establish that for prosecution under Section 141 NI Act, the company must be arraigned as an accused before its officers can be vicariously prosecuted. The Court emphasized that vicarious liability arises only if the company itself has committed the offence. The Court relied on a series of authoritative decisions including C.V. Parekh, Sharad Kumar Sanghi v. Sangita Rane, Dayle De' Souza, and Himanshu v. B. Shivamurthy, which uniformly hold that in absence of the company's prosecution, proceedings against its officers cannot be maintained. The Court found that in the present case, the company was never made an accused in the FIR or chargesheet, and no specific allegations were made against the appellant personally. The business transactions involved two companies, and payments were made by one company to another, not by Tyagi individually to Garg. Consequently, the prosecution against the appellant as Managing Director without arraigning the company was impermissible. On the second issue concerning res judicata in criminal proceedings, the Court undertook a detailed analysis of the conflicting precedents. Earlier three-Judge Bench decisions such as Pritam Singh, Bhagat Ram, and Tarachand Jain affirmed that the principle of res judicata applies equally in criminal matters, precluding prosecution on issues already adjudicated between the same parties. These cases involved final adjudications, often acquittals, barring re-litigation of the same facts. Conversely, two later two-Judge Bench decisions, Devendra and Muskan Enterprises, held that res judicata does not apply at the stage of quashing petitions under Section 482 Cr.P.C. where no final adjudication on merits had occurred. The Court reconciled these views by noting the distinction in the stage of proceedings and the binding nature of the earlier decisions. It observed that the binding precedent is that res judicata applies in criminal matters once there is a final decision on merits. Applying this principle, the Court held that the present prosecution was barred because the defence that the amounts under the 07 dishonoured cheques had been paid via demand drafts was already considered and rejected in the earlier Section 138 NI Act proceedings, in which Tyagi was convicted. The subsequent criminal proceedings initiated by Tyagi against Garg for the same cause of action amounted to a counterblast and were impermissible. In relation to the third issue on vicarious liability, the Court traced the evolution of the law under Section 141 NI Act and analogous provisions. It noted that earlier decisions like Sheoratan Agarwal and Anil Hada allowed prosecution of officers without prosecuting the company, provided the offence by the company was established. However, these were overruled by the three-Judge Bench decision in Aneeta Hada which clarified that prosecution of the company is a sine qua non for prosecuting its officers. The Court underscored that this principle preserves the separate legal personality and reputation of the company. It further relied on subsequent decisions such as Anil Gupta, Sharad Kumar Sanghi, Himanshu, and Hindustan Unilever Ltd. which reaffirmed that in absence of the company's prosecution, proceedings against its officers cannot be sustained. The Court held that the present case fell squarely within this principle, as the company was not arraigned and no findings were recorded against it. On the fourth issue, the Court examined the circumstances surrounding the registration of the FIR against Garg. It noted that the FIR was registered after the conclusion of the Section 138 NI Act proceedings in which Tyagi was convicted and the parties had compromised. The allegations in the FIR essentially mirrored the defence Tyagi had raised and lost in the earlier proceedings. The Court invoked the principle that criminal law cannot be set in motion as a matter of course and that summoning orders must reflect application of mind to facts and law. It referred to the decision in Delhi Race Club (1940) Ltd. which held that vicarious prosecution under IPC offences cannot be sustained without specific allegations against the individual accused. The Court also drew upon Iqbal @ Bala which emphasized the duty of courts to scrutinize FIRs closely when the prosecution is alleged to be frivolous or vexatious. The Court concluded that the present prosecution was a counterblast and was manifestly vexatious. Regarding the fifth issue, the Court found that the Magistrate's summoning order lacked reasoning and showed non-application of mind. The order did not address the critical question of whether the appellant could be prosecuted without the company being an accused or whether the allegations disclosed a prima facie offence against the appellant personally. The Court held that such summoning orders must demonstrate the Magistrate's careful scrutiny of the complaint and evidence, which was absent here. In conclusion, the Court held that the prosecution under Section 420 IPC against the appellant was not maintainable on multiple grounds: (i) The principle of res judicata barred prosecution on facts already adjudicated in the Section 138 NI Act proceedings; (ii) The company, being the principal accused, was not arraigned, rendering the prosecution of the appellant as its officer untenable; (iii) The prosecution was a manifestly vexatious counterblast; and (iv) The summoning order was without application of mind. Accordingly, the Court quashed the criminal proceedings and allowed the appeal. Significant holdings include the following verbatim excerpts: "The maxim 'res judicata pro veritate accipitur' is no less applicable to criminal than to civil proceedings. Here, the appellant having been acquitted at the first trial on the charge of having ammunition in his possession, the prosecution was bound to accept the correctness of that verdict and was precluded from taking any steps to challenge it at the second trial." (Para 14) "For maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the drag-net on the touchstone of vicarious liability as the same has been stipulated in the provision itself." (Para 25) "When a company has not been arraigned as a party, no proceeding can be initiated against it even where vicarious liability is fastened under certain statutes." (Para 21) "The order of the Magistrate summoning the accused must reflect that he has applied his mind to the facts of the case and the law applicable thereto... The Magistrate has to carefully scrutinise the evidence brought on record and may even himself put questions to the complainant and his witnesses to elicit answers to find out the truthfulness of the allegations or otherwise and then examine if any offence is prima facie committed by all or any of the accused." (Para 23) "Whenever an accused comes before the court invoking either the inherent powers under Section 482 CrPC or extraordinary jurisdiction under Article 226 of the Constitution to get the FIR or the criminal proceedings quashed essentially on the ground that such proceedings are manifestly frivolous or vexatious or instituted with the ulterior motive for wreaking vengeance, then in such circumstances the court owes a duty to look into the FIR with care and a little more closely." (Para 24) Core principles established include:
Final determinations:
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