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TMI Blog2022 (9) TMI 846X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of this Court in the case of Ashutosh Ashok Parasrampuriya [ 2021 (10) TMI 431 - SUPREME COURT ] is that the High Court should not interfere under Section 482 of the Code at the instance of an accused unless it comes across some unimpeachable and incontrovertible evidence to indicate that the Director/partner of a firm could not have been concerned with the issuance of cheques. This Court clarified that in a given case despite the presence of basic averments, the High Court may conclude that no case is made out against the particular Director/ partner provided the Director/partner is able to adduce some unimpeachable and incontrovertible evidence beyond suspicion and doubt. In the case on hand, it is found that the clear and specific averments not only in the complaint but also in the statutory notice issued to the respondent. There are specific averments that the cheque was issued with the consent of the respondent herein and within her knowledge. This was sufficient to put the respondent herein to trial for the alleged offence. It is said so because the case of the respondent that at the time of issuance of the cheque or at the time of the commission of the offence, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Adv. Mr. T.Mahendran, Adv. Mr. Raghunatha Sethupathy B., Adv. Ms. Ishita Choudhury, Adv. Ms. Jhanvi Dubey, Adv. Mr. Bharathi Mohan M., Adv. Ms. Priya R., Adv. Mr. S.S.B. Pandian, Adv. Mr. K. Paari Vendhan, AOR JUDGMENT J.B. PARDIWALA, J. 1. Leave granted. 2. This appeal is at the instance of the original complainant of a complaint filed under Section 138 of the Negotiable Instruments Act, 1881 (for short, the NI Act ) and is directed against the order passed by the High Court of Madras dated 16.02.2021 in the Criminal Original Petition No. 1063 of 2021 filed by the respondent herein (accused no.03) under Section 482 of the Code of Criminal Procedure (for short, the Code ), whereby the High Court allowed the application and quashed the criminal proceedings initiated against the respondent herein in the court of the Judicial Magistrate Fast Track Court No.II, Erode. 3. There are some legal issues with a never ending debate. The debate on such legal issues goes on and on despite there being plethora of case law on the subject. The NI Act by now is almost three decades old. Section 141 of the NI Act is on the statute past more than three decades. There are various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant point of time was incharge and responsible for the conduct of the business of the firm. The High Court took the view that the complaint can be prosecuted as against the respondent herein only if the allegations made in the complaint fulfils the requirements of Section 141 of the NI Act. The High Court took the view that merely by reciting the words used under Section 141 of the NI Act in the complaint no vicarious liability can be fastened on the partner of the firm. 6. In such circumstances above, the High Court allowed the application filed by respondent herein and terminated the proceedings as far as the respondent is concerned. 7. In view of the aforesaid, the appellant (original complainant) is here before this Court with the present appeal. Submissions on behalf of the Appellant 8. The learned counsel, Mr. E.R. Kumar appearing for the appellant vehemently submitted that the High Court committed a serious error in passing the impugned Order quashing the proceedings against the respondent herein. He would submit that the entire premise on which the High Court proceeded could be termed as erroneous in law. The learned counsel would submit that in the statuto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ein as one of the partners of the firm, could not have been concerned with the issuance of the cheque in question. 11. In such circumstances referred above, the learned counsel appearing for the appellant prays that there being merit in his appeal, the same may be allowed and the impugned order passed by the High Court may be quashed. Submissions on behalf of the Respondent: 12. Ms. Hari Priya Padmanabhan, the learned counsel appearing for the respondent (accused) on the other hand has vehemently opposed the present appeal submitting that no error, not to speak of any error of law, could be said to have been committed by the High Court in passing the impugned order. She would submit that mere bald averments in the complaint are not sufficient to fasten the vicarious lability on the partner of the firm as envisaged under Section 141 of the NI Act. The learned counsel would submit that the case on hand is squarely covered by the decision of this Court in the case of SMS Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89. Relying on the said decision of this Court, the learned counsel would submit that the deeming fiction creating criminal lability and vicarious labil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the daytoday affairs of You No. 1, you No.2 and 3 are regularly looking after and actively taking part in the daytoday business of You No.1. Our client is doing business in Milk and Milk Products: You used to purchase Milk and Milk Products from our client on credit basis. Our client is maintaining true and correct accounts. As per accounts maintained by our client you have to pay a balance of Rs. 10,71,434.60 to our client. In order to discharge the part of the said balance amount and liability you No.2 on behalf of you No.1 and with the knowledge and consent of you No.3 issued the following cheque which is drawn on TamilNad Mercantile Bank Ltd., Thiruvanmiyur Branch, Chennai41. S.No. Cheque Date Cheque No. Cheque Amount 1. 05.05.2017 411618 Rs. 10,00,000/ On your request our client presented the above said cheque for collection on 13.06.2017 through HDFC Bank Ltd., Sathy Road Branch, Erode and the same was returned as Funds Insufficient on 14.06.2017. Again on your request our client presented th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness in Milk and Milk Products. The accused used to purchase Milk and Milk Products from the complainant on credit basis. The complainant is maintaining true and correct accounts. As per accounts maintained by the complainant, the accused have to pay a balance of Rs.10,71,434.60 to the complainant. In order to discharge the part of the said balance amount and liability the accused No.2 on behalf of the accused No. 1 and with the knowledge and consent of the accused No.3 issued the following cheque which is drawn on TamilNad Mercantile Bank Ltd., Thiruvanmiyur Branch, Chennai41. S.No. Cheque Date Cheque No. Cheque Amount 1. 05.05.2017 411618 Rs. 10,00,000/ - On the request of the accused the complainant presented the above said cheque for collection on 13.06.2017 through HDFC Bank Ltd., Sathy Road Branch, Erode and the same was returned as Funds Insufficient on 14.06.2017. Again, on the request of the accused the complainant presented the above said cheque for collection on 20.07.2017 through HDFC Bank Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y business of the firm; (b) In order to discharge the part liability, the accused No. 2 on behalf of the firm and with the consent and knowledge of the accused No. 3 issued the cheque drawn on the Tamilnad Mercantile Bank Ltd., Thiruvanmiyur Branch, Chennai41. 20. The aforesaid averments are not only found to be read in the complaint but in the notice too. 21. We shall now proceed to look into the impugned order passed by the High Court. The same order reads thus: This criminal original petition has been filed to quash the proceedings in STC No. 583 of 2017, pending on the file of the Judicial Magistrate Fast Track Court No.II Erode. 2. The respondent has filed a complaint under Section 138 of the Negotiable Instruments Act. The petitioner has been arrayed as A~ 3 in the complaint. This quash petition has been filed primarily on two grounds. The first ground is that the Partnership Firm was dissolved during February 2017 and the subject cheque is said to have been issued by A~2 on 05.05.2017, after the dissolution of the Partnership Firm. The 2nd ground that has been raised is that the allegations made in the complaint does not satisfy the requirements of Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntainable as against the petitioner. The law on this issue is well settled. 8. In the result, the proceedings in STC No. 583 of 2017, on the file of the Judicial Magistrate Fast Track Court No.II, Erode, is hereby quashed insofar as the petitioner is concerned. The Court below is directed to complete the proceedings in STC No.583 of 2017, against the other accused persons within a period of three months from the date of receipt of a copy of this order. 9. This criminal original petition is allowed with the above directions. Consequently, connected miscellaneous petitions are closed. 22. Thus, the plain reading of the impugned order passed by the High Court as aforesaid would indicate that the proceedings came to be quashed essentially on the ground that there was nothing to indicate that in what manner the respondent herein was incharge and responsible for the daytoday affairs of the firm so as to make her vicariously liable for the alleged offence with the aid of Section 141 of the NI Act. To put it in other words, the High Court proceeded on the footing that mere averments in the complaint as regards the role of the respondent as a partner in the firm is not suf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained in this subsection 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 subsection (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 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 that offence and shall be liable to be proceeded against and punished accordingly. Explanation - For the purposes of this Section- (a) company means any body corporate and includes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the company in the conduct of its business at the time of commission of the offence, the emphasis in subsection (2) is upon the holding of an office and consent, connivance or negligence of such officer irrespective of his or her being or not being actually in charge of and responsible to the company in the conduct of its business. Thus, the important and distinguishing feature in subsection (1) is the control of a responsible person over the affairs of the company rather than his holding of an office or his designation, while the liability under subsection (2) arises out of holding an office and consent, connivance or neglect. While all the persons covered by subsection (1) and subsection (2) are liable to be proceeded against and also punished upon the proof of their being either in charge of and responsible to the company in the conduct of its business or of their holding of the office and having been guilty of consent, connivance or neglect in the matter of commission of the offence by the company, the person covered by subsection (1) may, by virtue of the first proviso, escape only punishment if he proves that the offence was committed without his knowledge or despite his du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f vicarious liability under the provisions of Section 141 of the NI Act, this Court in P. Rajarathinam v. State of Maharashtra, (2000) 10 SCC 529, pertinently observed as under: 4. A bare reading of the provision mandates that some facts must come on the record in order to figure as to who should answer the charge ultimately. Necessarily, precharge evidence assumes importance. The complainant will have to put his side of the case as given out in the complaint and the persons summoned would have to put on the record all what is material to extricate themselves out. In any case, the crucial time would be when framing charge whereat a decision in that respect would be required to be made by the court. Presently, it appears to us premature to be resolving the conflict and the ratio deduced thereby, may turn out to be obiter. Therefore, we think that we need not resolve such conflict at present and leave it to the court concerned to pass appropriate orders at the time of framing of charge. In this manner, we dispose of these appeals. [Emphasis supplied] 29. The seminal issue raised and requires to be settled in the present case is one relating to a person liable to be p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the phrase provided that nothing contained in this subsection shall render any person liable to punishment if he proves that occurs in the first proviso. Every person who was in charge of and was responsible to the company for the conduct of its business at the time any of the components necessary for the commission of the offence occurred may be proceeded against , but may not be punished if he succeeds in proving that the offence was committed without his knowledge and despite his due diligence; the burden of proving that remaining on him. Therefore, it also has to be held that the time of commission of the offence of dishonour of cheque cannot be on the stroke of a clock or during 15 days after the demand notice has to be construed as the time when each of the acts of commission and omission essential to constitute the offence was committed. The word every points to the possibility of plurality of responsible persons at the same point of time as also to the possibility of a series of persons being in charge when the sequence of events culminating into the commission of offence by the company were taking place. As to what this relevant time is, was a question that this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents essential to complete the offence by the company happened. Borrowing again from K. Bhaskaran (supra), the court should not adopt an interpretation which helps a dishonest evader and clips an honest payee as that would defeat the very legislative measure. 32. In the aforesaid context, we may straight away proceed to look into the following observations made by this Court in the case of Monaben Ketanbhai Shah v. State of Gujarat in Criminal Appeal No. 850 of 2004 decided on 10.08.2004 reported in (2004) 7 SCC 15: Section 138 of the Act makes dishonour of the cheque an offence punishable with imprisonment or fine or both. Section 141 relates to offences by the company. It provides that 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. Thus, vicarious liability has been fastened on those who are incharge of and responsible to the company for the conduct of its bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s create a statutory presumption of dishonesty exposing a person to criminal liability if payment is not made within the statutory period even after the issue of notice. (g) The power of quashing should be exercised very sparingly and where, read as a whole, the factual foundation for the offence has been laid in the complaint, it should not be quashed. (h) The Court concerned would owe a duty to discharge the accused if taking everything stated in the complaint is correct and construing the allegations made therein liberally in favour of the complainant, the ingredients of the offence are altogether lacking. 34. The interrelationship between the Sections 138 and 141 respectively of the NI Act has been succinctly explained by this Court in SMS Pharmaceuticals v. Neeta Bhalla, AIR (2005) 3512, in the following words: It will be seen from the above provisions that Section 138 casts criminal liability punishable with imprisonment or fine or with both on a person who issues a cheque towards discharge of a debt or liability as a whole or in part and the cheque is dishonoured by the Bank on presentation. Section 141 extends such criminal liability in case of a Company to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... complaint petition, are made so as to make the accused therein vicariously liable for the offence committed by the company. Before a person can be made vicariously liable, strict compliance with the statutory requirements would be insisted. [Emphasis supplied] 37. At this stage, we should look into the decision of this Court in the case of K.K. Ahuja v. V.K. Vora, (2009) 10 SCC 48, in K.K. Ahuja (supra), wherein this Court discussed the principles of vicarious liability of the officers of a company in respect of dishonour of a cheque and held 27. The position under section 141 of the Act can be summarized thus: (i) If the accused is the Managing Director or a Joint Managing Director, it is not necessary to make an averment in the complaint that he is in charge of, and is responsible to the company, for the conduct of the business of the company. It is sufficient if an averment is made that the accused was the Managing Director or Joint Managing Director at the relevant time. This is because the prefix Managing to the word Director makes it clear that they were incharge of and are responsible to the company, for the conduct of the business of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r subsection (2) of Section 141 of the NI Act by averring in the complaint, their position and duties, in the company, and their role in regard to the issue and dishonour of the cheque, disclosing consent, connivance or negligence. 39. In yet one another recent pronouncement in the case of Ashutosh Ashok Parasrampuria v. Gharrkul Industries Pvt. Ltd. reported in (2021) SCC Online SC 915, this Court after due consideration of the decisions in the case of SMS Pharmaceuticals (supra); S.K. Alagh v. State of Uttar Pradesh (2008) 5 SCC 662; Maharashtra State Electricity Distribution Co. Ltd. v. Datar Switchgear Ltd., (2010) 10 SCC 479, and GHCL Employees Stock Option Trust v. India Infoline Limited, (2013) 4 SCC 505, observed as under: In the light of the ratio in SMS Pharmaceuticals Ltd. (supra) and later judgments of which a reference has been made what is to be looked into is whether in the complaint, in addition to asserting that the appellants are the Directors of the Company and they are incharge of and responsible to the Company for the conduct of the business of the Company and if statutory compliance of Section 141 of the NI Act has been made, it may not open for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in the complaint. It may do so having come across some unimpeachable, incontrovertible evidence which is beyond suspicion or doubt or totally acceptable circumstances which may clearly indicate that the Director could not have been concerned with the issuance of cheques and asking him to stand the trial would be abuse of the process of the court. Despite the presence of basic averment, it may come to a conclusion that no case is made out against the Director. Take for instance a case of a Director suffering from a terminal illness who was bedridden at the relevant time or a Director who had resigned long before issuance of cheques. In such cases, if the High Court is convinced that prosecuting such a Director is merely an armtwisting tactics, the High Court may quash the proceedings. It bears repetition to state that to establish such case unimpeachable, incontrovertible evidence which is beyond suspicion or doubt or some totally acceptable circumstances will have to be brought to the notice of the High Court. Such cases may be few and far between but the possibility of such a case being there cannot be ruled out. In the absence of such evidence or circumstances, complaint cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erned is expected to clarify his or her stance. If the person concerned has some unimpeachable and incontrovertible material to establish that he or she has no role to play in the affairs of the company/firm, then such material should be highlighted in the reply to the notice as a foundation. If any such foundation is laid, the picture would be more clear before the eyes of the complainant. The complainant would come to know as to why the person to whom he has issued notice says that he is not responsible for the dishonour of the cheque. Had the respondent herein given appropriate reply highlighting whatever she has sought to highlight before us then probably the complainant would have undertaken further enquiry and would have tried to find out what was the legal status of the firm on the date of the commission of the offence and what was the status of the respondent in the firm. The object of notice before the filing of the complaint is not just to give a chance to the drawer of the cheque to rectify his omission to make his stance clear so far as his liability under Section 138 of the NI Act is concerned. 45. Once the necessary averments are made in the statutory notice issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company or firm, as the case may be. The other administrative matters would be within the special knowledge of the company or the firm and those who are in charge of it. In such circumstances, the complainant is expected to allege that the persons named in the complaint are in charge of the affairs of the company/firm. It is only the Directors of the company or the partners of the firm, as the case may be, who have the special knowledge about the role they had played in the company or the partners in a firm to show before the court that at the relevant point of time they were not in charge of the affairs of the company. Advertence to Sections 138 and Section 141 respectively of the NI Act shows that on the other elements of an offence under Section 138 being satisfied, the burden is on the Board of Directors or the officers in charge of the affairs of the company/partners of a firm to show that they were not liable to be convicted. The existence of any special circumstance that makes them not liable is something that is peculiarly within their knowledge and it is for them to establish at the trial to show that at the relevant time they were not in charge of the affairs of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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