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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 ..... wed 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 decisions of this Court and High Courts explaining the true purport of Section 141 of the NI Act. However, the debate on Section 141 of the NI Act is never ending. The present litigation is also one in which we have been called upon to look into Section 141 of the NI Act. FACTUAL MATRIX 4. The facts of this case are plain and simple. The appellant herein (original complainant) is engaged in the business of milk and milk products. The respondent herein is one of the partners of a Partnership Firm running in the name of Sira Marketing Services. The firm used to purchase milk and milk products from the appellant/complainant on credit basis. The appellant has to recover an amount of Rs. 10,71,434.60/( Rs. Ten Lakh Sevent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th 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 statutory notice issued to the respondent as well as in the body of the complaint, there are specific averments that the accused Nos. 02 and 03 respectively, being the partners of the partnership firms, are incharge and responsible for the daytoday affairs of the firm. He pointed out there are specific averments made in the complaint that the partners which include the respondent herein are regularly looking after and actively taking part in the daytoday business of the firm. He further pointed out that there is a specific averment that in order to discharge the liability, the original accused No. 02 had issued the cheque within the knowledge and consent of the respondent herein. It is argued that if the substance of the allegation made in the compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 lability are a departure from the usual principles of criminal law and that a clear case should be spelt out and the accused person should be made aware of the case alleged against him or her. The learned counsel would submit that this would therefore necessarily require averments in addition to the statement that the accused is incharge of and responsible for the affairs of the company/firm. 13. The learned counsel appearing for the respondent in support of her aforesaid submissions has placed strong reliance on the following decisions: (i) Gunmala Sales Pvt. Ltd. v. Anu Mehta & Ors, reported in (2015) 1 SCC 103; (ii) National Small Industries Corporation v. Harmeet Singh Paintal & Anr., reported in (2010) 3 SCC 330; (iii) Sunita Palita & Others v. M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur 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 the above said cheque for collection on 20.07.2017 through HDFC Bank Ltd., Sathy Road Branch, Erode and the same was returned as "Funds Insufficient" on 21.07.2017. Without sufficient funds in your account, you have issued the above said cheque. You issued the above said cheque assuring payment on presentation of the same. At the time of issuing the said cheque, you represented that you are having an account in which you will have sufficient amount in your account. But you purposely allowed the same to be dishonoured with an intention to cheat and defraud our client. Therefore, you have committed an offence punishable U/S 138 of the Negotiable Instruments Act. You are hereby called upon to pay the above said amount of Rs.10,00,000/due under the above said cheque dated 05.05.2017 within is days from the date of receipt of this notice. Please note that on your failure to make the payment within the abovementioned time, legal action will be taken against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for collection on 20.07.2017 through HDFC Bank Ltd., Sathy Road Branch, Erode and the same was returned as "Funds Insufficient" on 21.07.2017. Without sufficient funds in their account accused have issued the above said cheque. The accused issued the above said cheque assuring payment on presentation of the same. At the time of issuing the said cheque, the accused represented that they are having an account in which they will have sufficient amount in their account. But the accused purposely allowed the same to be dishonoured with an intention to cheat and defraud the complainant. Therefore, the accused have committed an offence punishable u/s 138 of the Negotiable Instruments Act. Thereupon the complainant issued a lawyer notice on 14.08.2017 to the accused calling upon them to pay the above said sum of Rs.10,00,000/due under the said cheque dated 05.05.2017 within 15 days from the date of receipt of this notice. The accused received the above said notice on 16.08.2017. But they failed to pay the above said cheque amount within 15 days. Hence the accused has committed an offence punishable u/s 138 r/w. 142 of Negotiable Instruments Act 1881 as amended by Act 55 of2002. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requirements of Section 141 of the Negotiable Instruments Act. 3. Heard Mr. K. Kannan, learned counsel for the petitioner and Mr. M. Guruprasad, learned counsel for the respondent. 4. Insofar as the first issue that is raised by the petitioner, the same cannot be gone into by this Court and it is a factual issue which can be decided only in the course of trial. 5. Insofar as the second issue is concerned, it will be beneficial to extract the relevant portion from the complaint filed by the respondent hereunder: "The accused No. 1 is a Partnership Firm, the accused No.2 and 3 are Partners and incharge and responsible for the daytoday affairs of the accused No. 1, the accused No.2 and 3 are regularly looking after and actively taking part in the daytoday business of the accused No. 1. The complainant is doing business 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 138. Dishonour of cheque for insufficiency, etc. of funds in the account.- Where any cheque drawn by a person 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 that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may be extended to two years, or with 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) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave committed an offence when the cheque drawn by him is returned unpaid on the prescribed grounds. The conditions precedent and the conditions subsequent to constitute the offence are drawing of a cheque on the account maintained by the drawer with a banker, presentation of the cheque within the prescribed period, making of a demand by the payee by giving a notice in writing within the prescribed period and failure of the drawer to pay within the prescribed period. Upon fulfilment of these requirements, the commission of the offence which may be called the offence of 'dishonour of cheque' is complete. If the drawer is a company, the offence is primarily committed by the company. By virtue of the provisions of subsection (1) of Section 141, the guilt for the offence and the liability to be prosecuted and punished shall be extended to every person who, at the time the offence was committed, was in charge of and was responsible to the company for the conduct of its business; irrespective of whether such person is a director, manager, secretary or other officer of the company. It would be for such responsible person, in order to be exonerated in terms of the first proviso, to prove th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and would shift upon the accused to prove that he was ignorant or diligent, if that be his defence; whereas under subsection (2) the prosecution would be required to allege and prove the consent, connivance or neglect and holding of the office by the accused. There is nothing to suggest that the same person cannot be made to face the prosecution either under subsection (1) or subsection (2) or both. A director or manager can be arraigned and proved to be guilty as the person in charge of and responsible to the company as well as the director of the company who, as such, might have consented to, connived at or been negligent in respect of the offence of dishonour of cheque, be logically deduced that a person can be arraigned in a complaint as the accused along with the company if it prima facie appears that he was in charge of and responsible to the company for the conduct of its business, although he may or may not be or may not have continued to be a director or other officer of the company, as mentioned in subsection (2). It would be sufficient if the complaint indicates that such person has been arraigned on the basis of averments which disclose him or her to be the person in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under Section 138 can be said to have been committed by the company. It is common place that an offence means an aggregate of facts or omissions which are punishable by law and, therefore, can consist of several parts, each part being committed at different time and place involving different persons. The provisions of Section 138 would require a series of acts of commission and omission to happen before the offence of, what may be loosely called "dishonour of cheque" can be constituted for the purpose of prosecution and punishment. It is held by the Supreme Court in K. Bhaskaran v. Sankaran Vaidhyan Balan, (1999) 7 SCC 510, that: " 14. The offence under Section 138 of the Act can be completed only with the concatenation of a number of acts. The following are the acts which are components of the said offence: (1) drawing of the cheque, (2) presentation of the cheque to the bank, (3) returning the cheque unpaid by the drawee bank, (4) giving notice in writing to the drawer of the cheque demanding payment of the cheque amount, (5) failure of the drawer to make payment within 15 days of the receipt of the notice." 30. Different persons can be incharge of the company when each of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficiency of funds. A complaint under Section 138 of the NI Act was filed. While the BSNL held the directors liable, the appellant, a chairman in the company contended that he being a nominated chairman and holding an Honorary post in the Company, was never assigned with any of the company's financial or other business activities. He was the Chairman for name sake and was never entrusted with any job or business or constituted a signing authority. Resolving the issue of when the liability could be fastened, this Court said: "In the case on hand, reading the complaint as a whole, it is clear that the allegations in the complaint are that at the time at which the two dishonoured cheques were issued by the company, the appellant and another were the Directors of the company and were in charge of the affairs of the company. It is not proper to split hairs in reading the complaint so as to come to a conclusion that the allegations as a whole are not sufficient to show that at the relevant point of time the appellant and the other are not alleged to be persons incharge of the affairs of the company. Obviously, the complaint refers to the point of time when the two cheques were issued, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legations made in the complaint fulfill the requirements of Section 141 , the complaint has to proceed and is required to be tried with. It is also true that in construing a complaint a hypertechnical approach should not be adopted so as to quash the same. The laudable object of preventing bouncing of cheques and sustaining the credibility of commercial transactions resulting in enactment of Sections 138 and 141 has to be borne in mind. These provisions create a statutory presumption of dishonesty exposing a person to criminal liability if payment is not made within statutory period even after issue of notice. It is also true that the power of quashing is required to be exercised very sparingly and where, read as a whole, factual foundation for the offence has been laid in the complaint, it should not be quashed. All the same, it is also to be remembered that it is the duty of the Court to discharge the accused if taking everything stated in the complaint as correct and construing the allegations made therein liberally in favour of the complainant, the ingredients of the offence are altogether lacking." [Emphasis supplied] 33. Thus, the legal principles discernible from the af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 138 and punished accordingly." Who is liable? Vicarious liability: 35. This Court in Assistant Commissioner, AssessmentII, Bangalore and Ors. v. Velliappa Textiles Ltd. and Ors. AIR (2004) SC 86, introduced the concept of ego and alter ego in relation to the employee and the employer corporation. The Court elucidated this principle in the following words: " In order to trigger corporate criminal liability for the actions of the employee (who must generally be liable himself), the actoremployee who physically committed the offence must be the ego, the centre of the corporate personality, the vital organ of the body corporate, the alter ego of the employer corporation or its directing mind. Since the company/corporation has no mind of its own, its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation. To this extent there are no difficulties in our law to fix criminal liability on a company. The common law tradition of alter ego or identification approach is applicable under our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... about consent, connivance or negligence. The very fact that the dishonoured cheque was signed by him on behalf of the company, would give rise to responsibility under subsection (2) of Section 141. (iii) In the case of a Director, Secretary or Manager (as defined in Section 2(24) of the Companies Act ) or a person referred to in clauses (e) and (f) of section 5 of Companies Act, an averment in the complaint that he was in charge of, and was responsible to the company, for the conduct of the business of the company is necessary to bring the case under section 141(1 ) of the Act. No further averment would be necessary in the complaint, though some particulars will be desirable. They can also be made liable under Section 141(2 ) by making necessary averments relating to consent and connivance or negligence, in the complaint, to bring the matter under that subsection. (iv) Other Officers of a company cannot be made liable under subsection (1) of Section 141. Other officers of a company can be made liable only under subsection (2) of Section 141, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e trial would be abused of process of Court. Despite the presence of basic averment, it may come to a conclusion that no case is made out against the particular Director for which there could be various reasons." [Emphasis supplied] 40. The principles discernible from the aforesaid decision of this Court in the case of Ashutosh Ashok Parasrampuriya (supra) 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. Specific Averments in the complaint: 41. In Gunmala Sales Private Limited (supra), this Court after an exhaustive review of its earlier decisions on Section 141 of the NI Act, summarized its conclusion as under: " a) Once in a complaint filed un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the exercise of this power depends upon the facts and circumstances of each case. The High Court at that stage does not conduct a mini trial or roving inquiry, but nothing prevents it from taking unimpeachable evidence or totally acceptable circumstances into account which may lead it to conclude that no trial is necessary qua a particular Director." 42. The principles of law and the dictum as laid in Gunmala Sales Private Limited (supra), in our opinion, still holds the field and reflects the correct position of law. 43. In the case on hand, we find 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. In our view, this was sufficient to put the respondent herein to trial for the alleged offence. We are saying 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, she was in no manner concerned with the firm or she was not incharge or responsible for daytoday affairs of the firm cannot be on the basis of mere bald assertio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he complainant to say in the complaint. 46. When in view of the basic averment process is issued the complaint must proceed against the Directors or partners as the case may be. But, if any Director or Partner wants the process to be quashed by filing a petition under Section 482 of the Code on the ground that only a bald averment is made in the complaint and that he is really not concerned with the issuance of the cheque, he must in order to persuade the High Court to quash the process either furnish some sterling incontrovertible material or acceptable circumstances to substantiate his contention. He must make out a case that making him stand the trial would be an abuse of process of court. He cannot get the complaint quashed merely on the ground that apart from the basic averment no particulars are given in the complaint about his role, because ordinarily the basic averment would be sufficient to send him to trial and it could be argued that his further role could be brought out in the trial. Quashing of a complaint is a serious matter. Complaint cannot be quashed for the asking. For quashing of a complaint, it must be shown that no offence is made out at all against the Direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a firm when it is specifically averred in the complaint about the status of the partners 'qua' the firm. This would make them liable to face the prosecution but it does not lead to automatic conviction. Hence, they are not adversely prejudiced if they are eventually found to be not guilty, as a necessary consequence thereof would be acquittal. d.) If any Director wants the process to be quashed by filing a petition under Section 482 of the Code on the ground that only a bald averment is made in the complaint and that he/she is really not concerned with the issuance of the cheque, he/she must in order to persuade the High Court to quash the process either furnish some sterling incontrovertible material or acceptable circumstances to substantiate his/her contention. He/she must make out a case that making him/her stand the trial would be an abuse of process of Court. 48. We reiterate the observations made by this Court almost a decade back in the case of Rallis India Ltd v. Poduru Vidya Bhusan & Ors., (2011) 13 SCC 88, as to how the High Court should exercise its power to quash the criminal proceeding when such proceeding is related to offences committed by the companies. "The wo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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