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TMI Blog2008 (5) TMI 406X X X X Extracts X X X X X X X X Extracts X X X X ..... only on the appellant presumably on the premise that she was in charge and responsible to the company for its day-to-day affairs. 3. The High Court by reason of the impugned judgment refused to quash the proceedings, as prayed for by the appellant, holding: "This section does not say that the cheques should have been drawn for the discharge of any debt or other liability of the drawer towards the payee. Even the section 139 of the Negotiable Instruments Act, by which a legal presumption is created, the Parliament has only fixed the presumption that the cheque was issued 'for the discharge, in whole or in part, or any debt or other liability.' This would mean that the debt or other liability includes the due from any other person. It is not necessary that the debt or liability should be due from the drawer himself. It can be issued for the discharges of any other man's debt liability. Legally enforceable debt or liability would have a reference to the nature of the debt or liability and not the person against whom the debt or liability can be enforced. One has to go by the averments in the complaint. The complainant has averred that it is the petitioner who had purchased the ticke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntainable at the instance of the person in whose favour the cheque was drawn only when:- (i)the cheque was drawn by 'a person'; and (ii)the cheque was drawn on an account maintained by 'him' with a banker for payment of any amount of money to 'another person' from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of the drawer is insufficient to honour the cheque or that it exceeds the amount to be paid from that account; and (iii)in that event 'such a person' shall be deemed to have committed an offence. 7. The person referred to in the said provisions, therefore, must not only be the drawer of the cheque but should have been maintaining an account with the banker. 8. Appellant does not answer either of the descriptions of such 'the person' referred to in section 138 of the Act. Admittedly, she was only an authorised signatory and the amount with the banker was to be maintained by the Company. Cheque was drawn by the Company and not by the appellant. She did not do so on her own behalf. She issued the cheque in course of ordinary business tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iduals; and (b)'director', in relation to a firm, means a partner in the firm." [Emphasis supplied] 13. If a person, thus, has to be proceeded with as being vicariously liable for the acts of the company, the company must be made an accused. In any event, it would be a fair thing to do. Legal fiction is raised both against the Company as well as the person responsible for the acts of the Company. Unlike other statutes, this Act raises a presumption not only in terms of section 139 of the Act but also under section 118(a) thereof. Those presumptions in given cases may have to be rebutted. The accused must be given an opportunity to rebut the said presumption. An accused is entitled to be represented in a case so as to enable it to establish that allegations made against it are not correct. 14. Section 141 of the Act raises a legal fiction. Such a legal fiction can be raised only when the conditions therefor are fulfilled; one of it being that company is also prosecuted. 15. The section uses the terms "as well as the company". The company which is, thus, the principal offender must be included in the category of the accused. Here, I am not dealing with a case where an individual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e less than Rs. one lakh. 32. As the company cannot be sentenced to imprisonment, the Court cannot impose that punishment, but when imprisonment and fine is the prescribed punishment the Court can impose the punishment of fine which could be enforced against the company. Such a discretion is to be read into the section so far as the juristic person is concerned. Of course, the Court cannot exercise the same discretion as regards a natural person. Then the Court would not be passing the sentence in accordance with law. As regards company, the Court can always impose a sentence of fine and the sentence of imprisonment can be ignored as it is impossible to be carried out in respect of a company. This appears to be the intention of the Legislature and we find no difficulty in construing the statute in such a way. We do not think that there is a blanket immunity for any company from any prosecution for serious offences merely because the prosecution would ultimately entail a sentence of mandatory imprisonment. The corporate bodies, such as a firm or company undertake a series of activities that affect the life, liberty and property of the citizens. Large-scale financial irregularities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th. The conditions are intended to ensure that a person who is sought to be made vicariously liable for an offence of which the principal accused is the company, had a role to play in relation to the incriminating act and further that such a person should know what is attributed to him to make him liable. In other words, persons who had nothing to do with the matter need not be roped in. A company being a juristic person, all its deeds and functions are the result of acts of others. Therefore, officers of a company who are responsible for acts done in the name of the company are sought to be made personally liable for acts which result in criminal action being taken against the company. It makes every person who, at the time the offence was committed, was in charge of, and was responsible to the company, for the conduct of business of the company, as well as the company, liable for the offence. The proviso to the sub-section contains an escape route for persons who are able to prove that the offence was committed without their knowledge or that they had exercised all due diligence to prevent commission of the offence." (p. 101) [Emphasis supplied] 20. In Sabitha Ramamurthy v. R.B. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant was responsible for day-to-day affairs of the Company. A negotiation for obtaining financial assistance on behalf of the Company by its Directors itself was not an ingredient for the purpose of constituting an offence under section 138. Thus, vicarious liability on the Director of the company part must be pleaded and proved and not inferred. (See also Suryalakshmi Cotton Mills Ltd. v. Rajvir Industries Ltd. [2008] 1 SCALE 331). In Municipal Corpn. of Delhi v. Ram Kishan Rohtagi [1983] 1 SCC 1, the Respondent No. 1 was the manager and respondent Nos. 2 to 5 were directors of X company. Respondents were charged for offences under sections 7 and 16 of the Prevention of Food Adulteration Act, 1954 and section 482 of Criminal Procedure Code, 1973 as the Toffees manufactured by X company was found to be not conforming to the standards prescribed for toffees. On appeal, the High Court quashed the proceedings against respondents. It was held by this Court that : "So far as the Manager is concerned, we are satisfied that from the very nature of his duties it can be safely inferred that he would undoubtedly be vicariously liable for the offence; vicarious liability being an inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed in the decision in S.M.S. Pharmaceuticals Ltd. (supra) binding on us and there is no scope for redefining it in this case. Suffice it to say, that a prosecution could be launched not only against the company on behalf of which the cheque issued has been dishonoured, but it could also be initiated against every person who at the time the offence was committed, was in charge of and was responsible for the conduct of the business of the company." It was further held: "Therefore, a person in the commercial world having a transaction with a company is entitled to presume that the directors of the company are incharge of the affairs of the company. If any restrictions on their powers are placed by the memorandum or articles of the company, it is for the directors to establish it at the trial. It is in that context that section 141 provides that when the offender is a company, every person, who at the time when the offence was committed was incharge of and was responsible to the company for the conduct of the business of the company, shall also be deemed to be guilty of the offence along with the company. It appears to us that an allegation in the complaint that the named accused a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capacity is contrary to section 141 of the Act, as such, the Director cannot be made to undergo the trial in the absence of any allegation or averment in the complaint that he was incharge of the affairs of the company. The learned Sessions Judge set aside the order on the ground that section 141 had not been complied with as the said director was not impleaded as an accused. Before the High Court it was contended by the revisioner petitioner that since the cheques issued by the company were dishonoured, the prosecution against the company is perfectly maintainable under section 141 of the Act and the non-prosecution of the person in charge of the affairs of the company or other Directors in their individual capacity is no bar to maintain the prosecution against the company. Thus, the point for consideration was whether the respondent-company was liable to be prosecuted under section 138 of the Negotiable Instruments Act by virtue of section 141 of the Act in the absence of prosecution of the person incharge of the affairs or other Directors of the company? The High Court after going through section 141 opined: "The above provision makes it clear that the company as well as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able for prosecution on account of the absence of specific allegations that he is in charge of the affairs of the company or managing its affairs. The Judgments placed on behalf of the revision petitioner are only regarding the aspect whether a Director or Directors are liable to be prosecuted when there are no specific allegations that he or they were in charge of and were responsible to the company in conduct of its business. In the light of the above circumstances, I find sufficient force in the grounds of revision. The company is liable for prosecution despite non-prosecution of the Director or Directors responsible for the management of the affairs of the company or in charge of its affairs." [Emphasis supplied] 26. While saying so, I am not unmindful of views differently taken by some Benches of this Court. I would notice some of them to place on record how different Benches took different views. 27. I may, however, notice first a three-Judge Bench decision of this Court in State of Madras v. C.V. Parekh [1970] 3 SCC 491. There the company was not made an accused. The Directors of the company were acquitted. A contention was raised that the accused being liable to the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the time the contravention was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company whom for short we shall describe as the person-in-charge of the company, and (3) any director, manager, secretary or other officer of the company with whose consent or connivance or because of neglect attributable to whom the offence has been committed, whom for short we shall describe as an officer of the company. Any one or more or all of them may be prosecuted and punished. The company alone may be prosecuted. The person-in-charge only may be prosecuted. The conniving officer may individually be prosecuted. One, some or all may be prosecuted. There is no statutory compulsion that the person-in-charge or an officer of the company may not be prosecuted unless he be ranged alongside the company itself. Section 10 indicates the persons who may be prosecuted where the contravention is made by the company. It does not lay down any condition that the person-in-charge or an officer of the company may not be separately prosecuted if the company itself is not prosecuted. Each or any of them may be separately prosecuted or along with the company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he market which is required to be maintained. Nobody, without any authority of law, can sentence it or find it guilty of commission of offence. Before recording a finding that it is guilty of commission of a serious offence, it may be heard. The Director who was in charge of the company at one point of time may have no interest in the company. He may not even defend the company. He need not even continue to be its Director. He may have his own score to settle in view of change in management of the company. In a situation of that nature, the company would for all intent and purport would stand convicted, although, it was not an accused and, thus, had no opportunity to defend itself. 29. Any person accused of commission of an offence, whether natural or juristic, has some rights. If it is to be found guilty of commission of an offence on the basis whereof its Directors are held liable, the procedures laid down in the Code of Criminal Procedure must be followed. In determining such an issue all relevant aspects of the matter must be kept in mind. The ground realities cannot be lost sight of. Accused persons are being convicted for commission of an offence under section 138 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus when the drawer of the cheque who falls within the ambit of section 138 is a human being or a body corporate or even firm, prosecution proceedings can be initiated against such drawer. In this context the phrase 'as well as' used in sub-section (1) of section 141 has some importance. The said phrase would embroil the persons mentioned in the first category within the tentacles of the offence on a par with the offending company. Similarly the words 'shall also' in sub-section (2) are capable of bringing the third category persons additionally within the dragnet of the offence on an equal par. The effect of reading section 141 is that when the company is the drawer of the cheque such company is the principal offender under section 138 and the remaining persons are made offenders by virtue of the legal fiction created by the Legislature as per the section. Hence the actual offence should have been committed by the company, and then alone the other two categories of persons can also become liable for the offence." (p. 245) The ratio laid down in the said case is to be understood in the factual matrix obtaining therein, namely, the company could not have been prosecuted due to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be offender and, thus, only question of proof that the Director is also liable being in charge of its affairs. 34. True interpretation, in my opinion, of the said provision would be that a company has to be made an accused but applying the principle "lex non cogit ad impossibilia", i.e., if for some legal snag, the company cannot be proceeded against without obtaining sanction of a court of law or other authority, the trial as against the other accused may be proceeded against if the ingredients of sections 138 as also 141 are otherwise fulfilled. In such an event, it would not be a case where the company had not been made an accused but would be one where the company cannot be proceeded against due to existence of a legal bar. A distinction must be borne in mind between cases where a company had not been made an accused and the one where despite making it an accused, it cannot be proceeded against because of a legal bar. 35. R. Rajgopal's case (supra) does not lay down any law. There are other statutes whose provisions is pari materia with section 141 of the Act, e.g., section 35H, Wealth-tax Act, section 14A, Employees Provident Fund and Miscellaneous Provisions Act, section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary is the knowledge of the accused that the cheque has been dishonoured so that the amount may be paid within a period of fifteen days from the date of such knowledge. 38. A learned Single Judge of the Kerala High Court in Pramod v. C.K. Velayudhan [2006] 1 JCC (NI) 62 inter alia relying on a decision of this Court in Monaben Ketanbhai Shah v. State of Gujarat [2004] 54 SCL 595 opined : "... In other words, commission of offence under section 138 of the Act by a juristic person is an inevitable legal pre-requisite or the condition precedent to proceed against a person referred to under section 141 of the Act and to hold him guilty of the said offence." It was further opined : "19. Learned counsel for petitioner placed reliance upon the decision of the High Court of Andhra Pradesh in B.S.K. Prasad v. M/s. Laxmi Vessels 2005 (1) LJ (NOC) 7 : (2004 Cri LJ 4079) (AP) in which it is held that 'as per section 138 of the Act the drawer of a dishonoured cheque only is liable for punishment'. He also cited K. Seetharam Reddy v. K. Radhika Rani [2002] 112 Comp. Cas. 204 (AP) in support of his arguments. It is held in the said decision that 'Section 138 of the Negotiable Instruments Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for an offence under section 138 of the Act. The fact that 1st respondent has a right to sue petitioner also for recovery of the debt due to him is not and cannot be a ground for making the petitioner liable for an offence under section 138 of the Act, when the dishonoured cheque was not drawn for and on behalf of that company, on an account maintained by it in a bank. Therefore the fact that A-1 who drew the dishonoured cheque happens to be a Director in the company of which petitioner is the Managing Director, for the debt allegedly due to 1st respondent from the said company, is of no consequence." 40. In Girish Saxena v. Praveen Kumar Jain [2007] 2 JCC (NI) 220, a learned Single Judge of the Delhi High Court opined : ". . . It is settled law that only drawer of the cheque can be prosecuted under section 138 of the Negotiable Instruments Act on the cheque getting dishonoured. Since the petitioner was neither the drawer of the cheque nor it is alleged that he was partner or proprietor of firm when cheque got dishonoured or he was the person responsible for non-payment of cheque amount, no offence under section 138 of Negotiable Instruments Act can be made out against the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cheque of that account. Therefore, there will be a clear liability if the appellant used the cheque which she had the authority to use and that too for discharging the debt. It must be pointed out at this juncture that the words in section 138 of the Act are "any debt" or "other liability". In this case since M/s. Intel Travels was maintaining the account and the appellant had the authority to operate the same, the conditions will be satisfied even if it was given for the discharge of the liability of the appellant. 5. Even if it is presumed that the account was meant to be maintained by the company, since the appellant was authorized signatory, it will have to be presumed that she had the authority to operate the account. Again even if it is presumed that the cheque was issued by the company, that will make no difference as the appellant has put her signatures on the cheque which signature she was authorized to put. This is apart from the fact that as yet no evidence is led for proving as to whose debt was sought to be discharged by the cheques which were dishonoured. 6. The legal fiction created by the Legislature under section 138 of the Act is to be found via section 141 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at unless the company itself is made an accused, the person responsible for running the same, in the present case, the signatory of the cheque, cannot be joined as an accused. Even in Sabitha Ramamurthy's case (supra) such precise observations are not to be found. 10. In the present case it is yet to be decided as to whether the liability was that of the company or the appellant herself. It could be personal liability of the appellant herself for discharging her debt for which she might have misused the cheque-book of the company. Even under such circumstances the offence against her could be complete is not known at this stage since no evidence has been led in this regard. Therefore, the inference that the liability was that of the company and she was merely vicariously liable would, therefore, be a premature finding. On the other hand even if she has misused the cheque-book to discharge her own liability, taking advantage of her authorization to put the signatures on the cheque-book of M/s. Intel Travels, she still would be liable to be proceeded against and it would be a question between herself and the company whether she has committed any offence vis-a-vis the company also. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td.'s case (supra) or the decision in N.K. Wahi's case (supra). 14. In the decision in Anil Hada's case (supra), it so happened that the company itself was in liquidation and the Division Bench of this Court was considering the question as to whether the signatory to the cheque could be proceeded against. The expressions in paragraph 12 of this judgment are apposite. The words used in section 141(1) of the Act as also the words 'shall also' used in sub-section (2) of section 141 had been held to bring the third category of persons additionally within the dragnet of the offence on an equal path. The words 'company need not be proceeded against' cannot be held as obiter dicta. Further there is nothing conflicting in the aforesaid two judgments in the Anil Hada's case (supra) and SMS Pharmaceuticals Ltd.'s case (supra). On the other hand a reading of the judgment in Anil Hada's case (supra) would suggest that the court therein considered the law laid down in C.V. Parekh's case (supra) wherein the analogous provisions under section 7 of the Essential Commodities Act read with section 10 of that Act fell for consideration. There also the private limited company was not included as an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esponsible for the business of the company. 16. Even the law laid down in Raghu Lakshminarayanan's case (supra ), would not be apposite. In that case the question was whether the persons in the second category, as in the present case, could be prosecuted in the absence of the company. 17. The principle "lex non cogit ad impossibilia" would not apply here, because of the language of section 141 of the Act and the present appellant would be completely liable since the cheques signed by her were bounced. 18. Since the decision in Sheoratan Agarwal's case (supra) has already been considered by the Division Bench of this Court and relied upon in the decision in Anil Hada's case (supra) it need not be considered afresh. 19. Lastly, since this question was already covered by Anil Hada's case (supra) the appellant would be liable to be prosecuted even when M/s. Intel Travel had not been joined as an accused. It is in the light of decision in Anil Hada's case (supra) that subsequent decisions in Bilakchand Gyanchand Co.'s case (supra) and Rajneesh Aggarwal's case (supra) would have to be read. The other cases referred to, one of Kerala High Court in Pramod's case ( supra) and Monaben Ke ..... X X X X Extracts X X X X X X X X Extracts X X X X
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