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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 ..... 00 (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 accused. The initiation of prosecution was challenged under Section 482 of the Code of Criminal Procedure before the High Court and the High Court held that offences are made out against the appellant-Company along with the directors under Section 67 read with Section 85 of the 2000 Act and, on the said base, declined to quash the proceeding. The core issue that has emerged in these two appeals is whether the company could have been made liable for prosecution without being impleaded as an accused and whether the directors could have been prosecuted for offences punishable under the aforesaid provisions without the company being arrayed as an accused. Regard being had to the similitude of the controversy, these two appeals were linked with Criminal Appeal Nos. 838 of 2008 and 842 of 2008. 3. We have already noted that there was difference of opinion in respect of the interpretation of Sections 138 and 141 of the Act and, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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; Everest Advertising (P) Ltd. v. State, Govt. of NCT of Delhi [2007] 5 SCC 54; Saroj Kumar Poddar v. State (NCT of Delhi) [2007] 3 SCC 693; N.K. Wahi v. Shekhar Singh [2007] 9 SCC 481; and took note of the two-Judge Bench decision in Sheoratan Agarwal v. State of Madhya Pradesh [1984] 4 SCC 352 wherein the decision of the three-Judge Bench in State of Madras v. C.V. Parekh [1970] 3 SCC 491 was distinguished and expressed the view as follows: - "28. With the greatest of respect to the learned judges, it is difficult to agree therewith. The findings, if taken to its logical corollary lead us to an anomalous position. The trial court, in a given case although the company is not an accused, would have to arrive at a finding that it is guilty. Company, although a juristic person, is a separate entity. Directors may come and go. The company remains. It has its own reputation and standing in the market which is required to be maintained. Nobody, without any authority of law, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rivate 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, distinguished the decision in Anil Hada and opined that the issue decided in the said case is to be understood in the factual matrix obtaining therein as the Company could not have been prosecuted, it being under liquidation. The observations to the effect that the Company need not be prosecuted against was regarded as obiter dicta and not the ratio decidendi. Sinha J. clearly opined that the Bench was bound by the three-Judge Bench decision in S.M.S. Pharmaceuticals Ltd.'s case (supra) and C.V. Parekh's case (supra). After stating so, he observed as under: - "It is one thing to say that the complaint petition proceeded against the accused persons on the premise that the company had not committed the offence but the accused did, but it is another thing to say that although the company was the principal offender, it need not be made an accused at all. I have no doubt whatsoever in our mind that prosecution of the company is a sine qua non for prosecution of the other persons who fall within the second and thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, it is a binding precedent and cannot be viewed as an obiter dicta. Sirpurkar J. further proceeded to state that the principle of lex non cogit ad impossibilia would not apply. That apart, the learned Judge held that in the case at hand, it is yet to be decided as to whether the flaw was that of the Company or the appellant herself and it could not be made out as to whether the cheque issued by the accused was issued on behalf of the Company or to discharge her personal liability. Eventually, his Lordship referred to the allegations in the complaint which are to the effect that the two accused persons, namely, Anil Hada and Aneeta Hada, used to purchase the air tickets for their clients and they had purchased for the Company from time to time and issued cheques. The accused No. 1 used to conduct the business of the Company and she also used to purchase the tickets from the complainant. On the aforesaid foundation the learned Judge opined that the basic complaint is against the two accused persons in their individual capacity and they might be purchasing tickets for their travelling company. Being of this view, he dismissed both the appeals. 10. We have heard Mr. Muneesh Malh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 141 of the Act, is the principal offender and when it is in existence, its non-impleadment will create an incurable dent in the prosecution and further, if any punishment is inflicted or an unfavourable finding is recorded, it would affect the reputation of the company which is not countenanced in law. (e) The decision in Sheoratan Agarwal and Another (supra) has incorrectly distinguished the decision in C.V. Parekh (supra) and has also misconstrued the ratio laid down therein. That apart, in the said decision, a part of the provision contained in Section 10(1) of the Essential Commodities Act, 1955 (for brevity 'the 1955 Act') has been altogether omitted as a consequence of which a patent mistake has occurred. (f) The decision in Anil Hada (supra) has not appreciated in proper perspective the ratio decidendi in C.V. Parekh and further there is an inherent contradiction in the judgment inasmuch as at one point, it has been stated that "the payee can succeed in the case only if he succeeds in showing that the offence was actually committed by the company" but at another place, it has been ruled that "the accused can show that the company has not committed the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act in question operate in different fields having different legislative intents, objects and purposes and further deal with offences of various nature. In the case at hand, the new dimensions of economic growth development and revolutionary changes and the frequent commercial transactions by use of cheques are to be taken note of. Further, Section 141 creates liability for punishment of offences under Section 138 and it is a deemed liability whereas the criminal liability created for an offence under Section 7 of the 1955 Act is not a deemed offence. (iii) After the amendment of the Act, the unscrupulous drawers had endeavoured hard to seek many an escape route to avoid the criminal liability but this Court with appropriate interpretative process has discouraged the innovative pleas of such accused persons who had issued cheques as the purpose is to eradicate mischief in the commercial world. To buttress the aforesaid submission, heavy reliance has been placed on D. Vinod Shivappa v. Nanda Belliappa AIR 2006 SC 2179, M/s. Modi Cement Ltd. v. Shri Kuchil Kumar Nandi AIR 1998 SC 1057, Goaplast Pvt. Shri Ltd. v. Chico Ursula D'souza and Anr. AIR 2003 SC 2035, NEPC Micon Ltd and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dishonour of the cheque and the consequent non-payment of the amount due thereon, reads as follows: - "138. Dishonour of cheque for insufficiency, etc, of funds in the account - Where any cheque drawn by a person on account maintained by him with a banker for the 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 that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an arrangement made with the bank, such person shall be deemed to have committed an offence and shall without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may be extended to two years, or with a fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless - (a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier, (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies. - (1) If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and 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 accordingly; Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence: Provided further that where a person is nominated as a Director of a Company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter. (2) Notwithstanding anything contained in sub-section (1), where any offence under this Act, has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion shall be liable for criminal prosecution for crimes punishable with fine; in certain jurisdictions, a corporation cannot be convicted except as specifically provided by statute. 21. In H.L. Bolton (Engineering) Co. Ltd. v. T.J. Graham & Sons Ltd. [1956] 3 All E.R. 624 Lord Denning, while dealing with the liability of a company, in his inimitable style, has expressed that a company may in many ways be likened to a human body. It has a brain and nerve centre which controls what it does. It also has hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of the company, and control what it does. The state of mind of these managers is the state of mind of the company and is treated by the law as such. In certain cases, where the law requires personal fault as a condition of liability in tort, the fault of the manager will be the personal fault of the company. The learned Law Lord referred to Lord Haldane's speech in Lennard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... octrine of attribution and imputation. In other words, the criminal intent of the "alter ego" of the company/body corporate i.e. the person or group of persons that guide the business of the company, would be imputed to the corporation." 24. In Standard Charted Bank (supra), the majority has laid down the view that there is no dispute that a company is liable to be prosecuted and punished for criminal offences. Although there are earlier authorities to the fact that the corporation cannot commit a crime, the generally accepted modern rule is that a corporation may be subject to indictment and other criminal process although the criminal act may be committed through its agent. It has also been observed that there is no immunity to the companies from prosecution merely because the prosecution is in respect of offences for which the punishment is mandatory imprisonment and fine. 25. We have referred to the aforesaid authorities to highlight that the company can have criminal liability and further, if a group of persons that guide the business of the companies have the criminal intent, that would be imputed to the body corporate. In this backdrop, Section 141 of the Act has to be und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which it is used." 31. In State of Tamil Nadu v. Arooran Sugars Ltd. AIR 1997 SC 1815, the Constitution Bench, while dealing with the deeming provision in a statute, ruled that the role of a provision in a statute creating legal fiction is well settled. Reference was made to The Chief Inspector of Mines v. Lala Karam Chand Thapar Etc. AIR 1961 SC 838, J.K. Cotton Spinning and Weaving Mills Ltd. v. Union of India AIR 1988 SC 191, M. Venugopal v. Divisional Manager, Life Insurance Corporation of India [1994] 2 SCC 323 and Harish Tandon v. Addl. District Magistrate, Allahabad [1995] 1 SCC 537 and eventually, it was held that when a statute creates a legal fiction saying that something shall be deemed to have been done which in fact and truth has not been done, the Court has to examine and ascertain as to for what purpose and between which persons such a statutory fiction is to be resorted to and thereafter, the courts have to give full effect to such a statutory fiction and it has to be carried to its logical conclusion. 32. From the aforesaid pronouncements, the principle that can be culled out is that it is the bounden duty of the court to ascertain for what purpose the legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be seen that it operates in cases where an offence under Section 138 is committed by a company. In paragraph 19 of the judgment, it has been clearly held as follows: - "There is almost unanimous judicial opinion that necessary averments ought to be contained in a complaint before a person can be subjected to criminal process. A liability under Section 141 of the Act is sought to be fastened vicariously on a person connected with a Company, the principal accused being the company itself. It is a departure from the rule in criminal law against vicarious liability." 34. Presently, we shall deal with the ratio laid down in the case of C.V. Parekh (supra). In the said case, a three-Judge Bench was interpreting Section 10 of the 1955 Act. The respondents, C.V. Parekh and another, were active participants in the management of the company. The trial court had convicted them on the ground the goods were disposed of at a price higher than the control price by Vallabhadas Thacker with the aid of Kamdar and the same could not have taken place without the knowledge of the partners of the firm. The High Court set aside the order of conviction on the ground that there was no material on the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the contravention is by the company itself. The said decision has been distinguished in the case of Sheoratan Agarwal and another (supra). The two-Judge Bench in the said case referred to Section 10 of the 1955 Act and opined that the company alone may be prosecuted or the person in charge only may be prosecuted since 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. The two-Judge Bench further laid down that Section 10 of the 1955 Act indicates the persons who may be prosecuted where the contravention is made by the company but 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. The two-Judge Bench referred to the paragraph from C.V. Parekh (supra), which we have reproduced hereinabove, and emphasised on certain sentences therein and came to hold as follows: - "The sentences underscored by us clearly show that what was sought to be emphasised was that there should be a finding that the contravention was by the company before the accused could be convicted and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Sub-section (1) of Section 141 of the Act 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 of the Act 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. 13. If the offence was committed by a company it can be punished only if the company is prosecuted. But instead of prosecuting the company if a payee opts to prosecute only the persons falling within the second or third category the payee can succeed in the case only if he succeeds in showing that the offence was actually committed by the company. In such a prosecution the accuse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it ad impossibilia gets attracted. 38. At this juncture, we may usefully refer to the decision in U.P. Pollution Control Board v. M/s. Modi Distillery and others AIR 1988 SC 1128. In the said case, the company was not arraigned as an accused and, on that score, the High Court quashed the proceeding against the others. A two-Judge Bench of this Court observed as follows: - "Although as a pure proposition of law in the abstract the learned single Judge's view that there can be no vicarious liability of the Chairman, Vice-Chairman, Managing Director and members of the Board of Directors under sub-s.(1) or (2) of S.47 of the Act unless there was a prosecution against Messers Modi Industries Limited, the Company owning the industrial unit, can be termed as correct, the objection raised by the petitioners before the High Court ought to have been viewed not in isolation but in the conspectus of facts and events and not in vacuum. We have already pointed out that the technical flaw in the complaint is attributable to the failure of the industrial unit to furnish the requisite information called for by the Board. Furthermore, the legal infirmity is of such a nature which could be easily c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of penal statutes seems to manifest itself in four ways: in the requirement of express language for the creation of an offence; in interpreting strictly words setting out the elements of an offence; in requiring the fulfilment to the letter of statutory conditions precedent to the infliction of punishment; and in insisting on the strict observance of technical provisions concerning criminal procedure and jurisdiction." 42. We have referred to the aforesaid passages only to highlight that there has to be strict observance of the provisions regard being had to the legislative intendment because it deals with penal provisions and a penalty is not to be imposed affecting the rights of persons whether juristic entities or individuals, unless they are arrayed as accused. It is to be kept in mind that the power of punishment is vested in the legislature and that is absolute in Section 141 of the Act which clearly speaks of commission of offence by the company. The learned counsel for the respondents have vehemently urged that the use of the term "as well as" in the Section is of immense significance and, in its tentacle, it brings in the company as well as the director and/or other off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the learned counsel for the respondents relate to service of notice, instructions for stopping of payment and certain other areas covered under Section 138 of the Act. The same really do not render any aid or assistance to the case of the respondents and, therefore, we refrain ourselves from dealing with the said authorities. 45. Resultantly, the Criminal Appeal Nos. 838 of 2008 and 842 of 2008 are allowed and the proceedings initiated under Section 138 of the Act are quashed. 46. Presently, we shall advert to the other two appeals, i.e., Criminal Appeal Nos. 1483 of 2009 and 1484 of 2009 wherein the offence is under Section 67 read with Section 85 of the 2000 Act. In Criminal Appeal No. 1483 of 2009, the director of the company is the appellant and in Criminal Appeal No. 1484 of 2009, the company. Both of them have called in question the legal substantiality of the same order passed by the High Court. In the said case, the High Court followed the decision in Sheoratan Agarwal (supra) and, while dealing with the application under Section 482 of the Code of Criminal Procedure at the instance of Avnish Bajaj, the Managing Director of the company, quashed the charges under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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