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TMI Blog2012 (5) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... RIMINAL APPEAL NOs. 838 & 842 OF 2008 and 1483 & 1484 of 2009 - - - Dated:- 27-4-2012 - DALVEER BHANDARI, SUDHANSU JYOTI MUKHOPADHAYA AND DIPAK MISRA, JJ. JUDGMENT Dipak Misra, J. In Criminal Appeal Nos. 838 of 2008 and 842 of 2008, the common proposition of law that has emerged for consideration is whether an authorised signatory of a company would be liable for prosecution under Section 138 of the Negotiable Instruments Act, 1881 (for brevity 'the Act') without the company being arraigned as an accused. Be it noted, these two appeals were initially heard by a two-Judge Bench and there was difference of opinion between the two learned Judges in the interpretation of Sections 138 and 141 of the Act and, therefore, the matter has been placed before us. 2. In Criminal Appeal Nos. 1483 of 2009 and 1484 of 2009, the issue involved pertains to the interpretation of Section 85 of the Information Technology Act, 2000 (for short 'the 2000 Act') which is pari materia with Section 141 of the Act. Be it noted, a director of the appellant-Company was prosecuted under Section 292 of the Indian Penal Code and Section 67 of the 2000 Act without impleading the company as an accu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attracted. It was canvassed that once a legal fiction is created by the statutory provision against the Company as well as the person responsible for the acts of the Company, the conditions precedent engrafted under such deeming provisions are to be totally satisfied and one such condition is impleadment of the principal offender. S.B. Sinha, J. dissected the anatomy of Sections 138 and 141 of the Act and referred to the decisions in Standard Chartered Bank v. Directorate of Enforcement [2005] 4 SCC 530; Madhumilan Syntex Ltd. v. Union of India and another AIR 2007 SC 1481 : [2007] 11 SCC 297; S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Another [2005] 8 SCC 89 [3]; Sabitha Ramamurthy v. R.B.S. Channabasavaradhya [2006] 10 SCC 581; S.V. Mazumdar v. Gujarat State Fertilizer Co. Ltd. [2005] 4 SCC 173; Sarav Investment Financial Consultancy Private Limited v. Lloyds Register of Shipping Indian Office Staff Provident Fund [2007] 14 SCC 753; K. Srikanth Singh v. North East Securities Ltd. [2007] 12 SCC 788; Suryalakshmi Cotton Mills Ltd. v. Rajvir Industries Ltd. [2008]13 SCC 678; N. Rangachari v. Bharat Sanchar Nigam Ltd . [2007] 5 SCC 108; Eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fences under the general law it provides for reverse burden. The onus of proof shifts to the accused if some foundational facts are established. It is, therefore, in interpreting a statute of this nature difficult to conceive that it would be legally permissible to hold a company, the prime offender, liable for commission of an offence although it does not get an opportunity to defend itself. It is against all principles of fairness and justice. It is opposed to the Rule of Law. No statute in view of our Constitutional Scheme can be construed in such a manner so as to refuse an opportunity of being heard to a person. It would not only offend a common- sense, it may be held to be unconstitutional. Such a construction, therefore, in my opinion should be avoided. In any event in a case of this nature, the construction which may be available in invoking Essential Commodities Act, Prevention of Food Adulteration Act, which affects the Society at large may not have any application when only a private individual is involved." 6. Thereafter, the learned Judge referred to Anil Hada v. Indian Acrylic Ltd . [2000] 1 SCC 1 and R. Rajgopal v. S.S. Venkat [2001] 10 SCC 91, disting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1(2) of the Act, which deals with additional criminal liability, opined that even if the liability against the appellant is vicarious herein on account of the offence having alleged to have been committed by M/s. International Travels, it would be presumed that the appellant had also committed the offence and non-arraying of M/s. International Travels as an accused would be of no consequence. His Lordship further held that there is nothing in Standard Chartered Bank and others ( supra ), S.M.S. Pharmaceuticals Limited ( supra ), Sabitha Ramamurthy and another ( supra ), S.V. Muzumdar and others ( supra ), Sarav Investment and Financial Consultants Pvt. Ltd. and another ( supra ) and K. Srikanth Singh ( supra ) to suggest that unless the Company itself is made an accused, there cannot be prosecution of the signatory of the cheque alone. Thereafter, the learned Judge referred to the decision in Anil Hada and expressed that in the said case, the decision of C.V. Parekh ( supra ) and Sheoratan Agarwal ( supra ) had been referred to and, therefore, it is a binding precedent and cannot be viewed as an obiter dicta. Sirpurkar J. further proceeded to state that the princi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, from the fact that the individual occupies a decision making position in the corporate entity. It is patent that unless the company, the principal entity, is prosecuted as an accused, the subsidiary entity, the individual, cannot be held liable, for the language used in the provision makes the company the principal offender. ( b ) The essence of vicarious liability is inextricably intertwined with the liability of the principal offender. If both are treated separately, it would amount to causing violence to the language employed in the provision. ( c ) It is a fundamental principle of criminal law that a penal provision must receive strict construction. The deeming fiction has to be applied in its complete sense to have the full effect as the use of the language in the provision really ostracizes or gets away with the concepts like "identification", "attribution" and lifting the corporate veil and, in fact, puts the directors and the officers responsible in a deemed concept compartment on certain guided parameters. ( d ) The company, as per Section 141 of the Act, is the principal offender and when it is in existence, its non-impleadment will create an incurable dent in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh unscrupulous persons who purport to discharge their liability by issuing cheques without really intending to do so. If the legislative intendment is appositely understood and appreciated, the interpretation of the various provisions of the Act is to be made in favour of the paying-complainant. To bolster the aforesaid submission, reliance has been placed on Electronics Trade and Technology Development Corporation Ltd., Secunderabad v. Indian Technologists and Engineers (Electronics) (P) Ltd. [1996] 2 SCC 739, C.C. Alavi Haji v. Palapetty Mohammed [2007] 6 SCC 555 and Vinay Devanna Nayak v. Ryot Sewa Sahakaro Bank Ltd . [2008] 2 SCC 305 ( ii ) The reliance placed by the appellants on the decision in C.V. Parekh ( supra ) is absolutely misconceived. In the first case, the Court was considering the question of acquittal or conviction of the accused persons after considering the entire evidence led by the parties before the trial court but in the present case, the challenge has been at the threshold where summons have been issued. That apart, the 1955 Act and the Act in question operate in different fields having different legislative intents, objects and purposes an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S.S. Venkat AIR 2001 SC 2432. ( v ) There is no postulate under Section 141 of the Act that the director or the signatory of the cheque cannot be separately prosecuted unless the company is arrayed as an accused. The company, as is well-known, acts through its directors or authorised officers and they cannot seek an escape route by seeking quashment of the proceedings under Section 482 of the Code of Criminal Procedure solely on the foundation that the company has not been impleaded as an accused. The words "as well as the company" assumes significance inasmuch as the deemed liability includes both the company and the officers in-charge and hence prosecution can exclusively be maintained against the directors or officers in-charge depending on the averments made in the complaint petition. 13. The gravamen of the controversy is whether any person who has been mentioned in Sections 141(1) and 141(2) of the Act can be prosecuted without the company being impleaded as an accused. To appreciate the controversy, certain provisions need to be referred to. Section 138 of the Act, which deals with the ingredients of the offence for dishonour of the cheque and the consequent non-paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with imprisonment for a term which may extend to two years or with fine which may extend to twice the amount of the cheque or with both. The proviso to the said section postulates under what circumstances the section shall not apply. In the case at hand, we are not concerned with the said aspect. It will not be out of place to state that the main part of the provision deals with the basic ingredients and the proviso deals with certain circumstances and lays certain conditions where it will not be applicable. The emphasis has been laid on the factum that the cheque has to be drawn by a person on the account maintained by him and he must have issued the cheque in discharge of any debt or other liability. Section 7 of the Act defines 'drawer' to mean the maker of a bill of exchange or a cheque. An authorised signatory of a company becomes a drawer as he has been authorised to do so in respect of the account maintained by the company. 15. At this juncture, we may refer to Section 141 which deals with offences by companies. As the spine of the controversy rests on the said provision, it is reproduced below: - "141. Offences by companies. (1) If the person committing an offenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e which may not be allowed in a prosecution under Section 138 of the Act. Thus, there is a deemed fiction in relation to criminal liability, presumption in favour of the holder, and denial of a defence in respect of certain aspects. 18. Section 141 uses the term 'person' and refers it to a company. There is no trace of doubt that the company is a juristic person. The concept of corporate criminal liability is attracted to a corporation and company and it is so luminescent from the language employed under Section 141 of the Act. It is apposite to note that the present enactment is one where the company itself and certain categories of officers in certain circumstances are deemed to be guilty of the offence. 19. In Halsbury's Laws of England, Volume 11(1), in paragraph 35, it has been laid down that in general, a corporation is in the same position in relation to criminal liability as a natural person and may be convicted of common law and statutory offences including those requiring mens rea. 20. In 19 Corpus Juris Secundum, in paragraph 1358, while dealing with liability in respect of criminal prosecution, it has been stated that a corporation shall be liable for crimin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a body corporate puts forward a document knowing it to be false and intending that it should deceive. I apprehend, according to the authorities that Viscount Caldecote, L.C.J., has cited, his knowledge and intention must be imputed to the body corporate. 23. In this regard, it is profitable to refer to the decision in Iridium India Telecom Ltd. v. Motorola Inc and Ors . [2011] 1 SCC 74 wherein it has been held that in all jurisdictions across the world governed by the rule of law, companies and corporate houses can no longer claim immunity from criminal prosecution on the ground that they are not capable of possessing the necessary mens rea for commission of criminal offences. It has been observed that the legal position in England and United States has now been crystallized to leave no manner of doubt that the corporation would be liable for crimes of intent. In the said decision, the two-Judge Bench has observed thus:- "The courts in England have emphatically rejected the notion that a body corporate could not commit a criminal offence which was an outcome of an act of will needing a particular state of mind. The aforesaid notion has been rejected by adopting the doct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it.... The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs." 29. In The Bengal Immunity Co. Ltd. v. State of Bihar and others AIR 1955 SC 661, the majority in the Constitution Bench have opined that legal fictions are created only for some definite purpose. 30. In Hira H. Advani Etc. v. State of Maharashtra AIR 1971 SC 44, while dealing with a proceeding under the Customs Act, especially sub-section (4) of Section 171-A wherein an enquiry by the custom authority is referred to, and the language employed therein, namely, "to be deemed to be a judicial proceeding within the meaning of Sections 193 and 228 of the Indian Penal Code", it has been opined as follows: "It was argued that the Legislature might well have used the word "deemed" in Sub-section (4) of Section171 not in the first of the above senses but in the second, if not the third. In our view the meaning to be attached to the word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are to be satisfied. It has been ruled as follow:- "It primarily falls on the drawer company and is extended to officers of the company. The normal rule in the cases involving criminal liability is against vicarious liability, that is, no one is to be held criminally liable for an act of another. This normal rule is, however, subject to exception on account of specific provision being made in the statutes extending liability to others. Section 141 of the Act is an instance of specific provision which in case an offence under Section 138 is committed by a company, extends criminal liability for dishonor of a cheque to officers of the company. Section 141 contains conditions which have to be satisfied before the liability can be extended to officers of a company. Since the provision creates criminal liability, the conditions have to be strictly complied with. 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." After so stating, it h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be held responsible for the sale and for thus contravening the provisions of clause (5) of the Iron and Steel Control Order. This argument cannot be accepted, because it ignores the first condition for the applicability of Section 10 to the effect that the person contravening the order must be a company itself. In the present case, there is no finding either by the Magistrate or by the High Court that the sale in contravention of clause (5) of the Iron and Steel Control Order was made by the Company. In fact, the Company was not charged with the offence at all. The liability of the persons in charge of the Company only arises when the contravention is by the Company itself. Since, in this case, there is no evidence and no finding that the Company contravened clause (5) of the Iron and Steel Control Order, the two respondents could not be held responsible. The actual contravention was by Kamdar and Vallabhadas Thacker and any contravention by them would not fasten responsibility on the respondents." (emphasis supplied) The aforesaid paragraph clearly lays down that the first condition is that the company should be held to be liable; a charge has to be framed; a finding has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been distinguished despite the clear dictum that the first condition for the applicability of Section 10 of the 1955 Act is that there has to be a contravention by the company itself. In our humblest view, the said analysis of the verdict is not correct. Quite apart, the decision in C.V. Parekh ( supra ) was under Section 10(a) of the 1955 Act and rendered by a three-Judge Bench and if such a view was going to be expressed, it would have been appropriate to refer the matter to a larger Bench. However, the two-Judge Bench chose it appropriate to distinguish the same on the rationale which we have reproduced hereinabove. We repeat with the deepest respect that we are unable to agree with the aforesaid view. 36. In the case of Anil Hada ( supra ), the two-Judge Bench posed the question: when a company, which committed the offence under Section 138 of the Act eludes from being prosecuted thereof, can the directors of that company be prosecuted for that offence. The Bench referred to Section 141 of the Act and expressed the view as follows: - "12. Thus when the drawer of the cheque who falls within the ambit of Section 138 of the Act is a human being or a body corporate or e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecuted person cannot, on that score alone, escape from the penal liability created through the legal fiction and this is envisaged in Section 141 of the Act. If both the paragraphs are appreciated in a studied manner, it can safely be stated that the conclusions have been arrived at regard being had to the obtaining factual matrix therein. However, it is noticeable that the Bench thereafter referred to the dictum in Sheoratan Agarwal ( supra ) and eventually held as follows: - "We, therefore, hold that even if the prosecution proceedings against the Company were not taken or could not be continued, it is no bar for proceeding against the other persons falling within the purview of sub-sections (1) and (2) of Section 141 of the Act." 37. We have already opined that the decision in Sheoratan Agarwal ( supra ) runs counter to the ratio laid down in the case of C.V. Parekh ( supra ) which is by a larger Bench and hence, is a binding precedent. On the aforesaid ratiocination, the decision in Anil Hada ( supra ) has to be treated as not laying down the correct law as far as it states that the director or any other officer can be prosecuted without impleadment of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as curable but, a pregnant one, the law laid down as regards the primary liability of the company without which no vicarious liability can be imposed has been appositely stated. 39. It is to be borne in mind that Section 141 of the Act is concerned with the offences by the company. It makes the other persons vicariously liable for commission of an offence on the part of the company. As has been stated by us earlier, the vicarious liability gets attracted when the condition precedent laid down in Section 141 of the Act stands satisfied. There can be no dispute that as the liability is penal in nature, a strict construction of the provision would be necessitous and, in a way, the warrant. 40. In this context, we may usefully refer to Section 263 of Francis Bennion's Statutory Interpretation where it is stated as follows: - "A principle of statutory interpretation embodies the policy of the law, which is in turn based on public policy. The court presumes, unless the contrary intention appears, that the legislator intended to conform to this legal policy. A principle of statutory interpretation can therefore be described as a principle of legal policy formulated as a guide to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... secuted, 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. One cannot be oblivious of the fact that the company is a juristic person and it has its own respectability. If a finding is recorded against it, it would create a concavity in its reputation. There can be situations when the corporate reputation is affected when a director is indicted. 43. In view of our aforesaid analysis, we arrive at the irresistible conclusion that 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 dragnet on the touchstone of vicarious liability as the same has been stipulated in the provision itself. We say so on the basis of the ratio laid down in C.V. Parekh ( supra ) which is a three-Judge Bench decision. Thus, the view expressed in Sheoratan Agarwal ( supra ) does not correctly lay down the law and, accordingly, is hereby overruled. The decision in Anil Hada ( supra ) is overruled with the qualifier as stated in paragraph 37. The decision in Modi Distille ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n took place without his knowledge or that he exercised all due diligence to prevent such contravention. (2) Notwithstanding anything contained in sub-section (1), where a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder has been committed by a company and it is proved that the contravention has taken place with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly." 48. Keeping in view the anatomy of the aforesaid provision, our analysis pertaining to Section 141 of the Act would squarely apply to the 2000 enactment. Thus adjudged, the director could not have been held liable for the offence under Section 85 of the 2000 Act. Resultantly, the Criminal Appeal No. 1483 of 2009 is allowed and the proceeding against the appellant is quashed. As far as the company is concerned, it was not arraigned as an accused. Ergo, the proceeding as initiated in the existing inca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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