Negotiable Instruments Act, 1881 – s.141 and Proviso to s.138 – Maintainability of Complaint – When cheque was drawn by a person as a director of a Company – Appellant borrowed a sum of money from respondent and issued a cheque – When cheque was presented in the bank for encashment, it was returned with the endorsement that funds were insufficient – Respondent issued notice to the appellant – Upon the failure of the appellant to pay the amount due under the cheque, a complaint was instituted – Appellant filed petition u/s. 482 of the Cr.P.C. to quash the complaint – Appellant contended that cheque was issued by one of the directors of the company and that was not a cheque issued by any person in his individual capacity – Submission of appellant was rejected by the High Court and it held that company could be arraigned as an accused, and the petition was dismissed – On appeal, held: In the instant case, the record before the Court indicated that the cheque was drawn by the appellant for ‘L’ Company, as its Director – Notice of demand was served only on the appellant – Complaint was lodged only against the appellant without arraigning the company as an accused – In the absence of the company being arraigned as an accused, a complaint against the appellant was therefore not maintainable – Appellant had signed the cheque as a Director of the company and for and on its behalf – Moreover, in the absence of a notice of demand being served on the company and without compliance with the proviso to s.138, the High Court was in error in holding that the company could now be arraigned as an accused – High Court erred in rejecting the petition u/s. 482 of the Cr.P.C – Code of Criminal Procedure, 1973 – s.482.
Complainant-respondent instituted a complaint u/s.138 of the Negotiable Instruments Act, 1881 against the appellant. According to the complainant, the appellant had borrowed a sum of Rs. 4,15,000/- “for his business development” and on the same day, the appellant issued a cheque for an equivalent amount. When the cheque was presented for encashment to the Bank, it was returned with an endorsement that funds were insufficient. The complainant issued a notice to the appellant, upon the failure of the appellant to pay the amount due under the cheque, a complaint was instituted. Appellant instituted a petition u/s.482 of Cr.P.C. before the High Court, which was dismissed. Hence, the present criminal appeal.
Disposing of the appeal, the Court
HELD: 1. The judgment of the High Court has been questioned on two grounds. The appellant submits that firstly, the appellant could not be prosecuted without the company being named as an accused. The cheque was issued by the company and was signed by the appellant as its Director. Secondly, it was urged that the observation of the High Court that the company can now be proceeded against in the complaint is misconceived. Appellant also submitted that the offence under Section 138 is complete only upon the issuance of a notice of demand and the failure of payment within the prescribed period. In absence of compliance with the requirements of Section 138, it is asserted, the direction of the High Court that the company could be impleaded/arraigned at this stage is erroneous. [Para 7][996-CD]
2. The first submission on behalf of the appellant is no longer res integra. A decision of a three Judge Bench of this Court in Aneeta Hada v. Godfather Travels and Tours Private Limited governs the area of dispute. The issue which fell for consideration was whether an authorized signatory of a company would be liable for prosecution under Section 138 of the Negotiable Instruments Act, 1881 without the company being arraigned as an accused. The three Judge Bench held that applying the doctrine of strict construction, the considered opinion was that commission of offence by the company is an express condition precedent to attract the vicarious liability of others. Thus, the words “as well as the company” appearing in the section make it absolutely unmistakably clear that when the company can be prosecuted, 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. Further, the Court held that the for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. [Para 8][996-E-H; 997-AB]
Aneeta Hada v. Godfather Travels and Tours Private Limited (2012) 5 SCC 661 : [2012] 5 SCR 503 – relied on.
3. There is merit in the second submission which has been urged on behalf of the appellant as well. The proviso to Section
138 contains the pre-conditions which must be fulfilled before an offence under the provision is made out. These conditions are;
(i) presentation of the cheque to the bank within six months from the date on which it is drawn or within the period of its validity, whichever is earlier; (ii) a demand being made in writing by the payee or holder in due course by the issuance of a notice in writing to the drawer of the cheque within thirty days of the receipt of information from the bank of the return of the cheques; and (iii) the failure of the drawer to make payment of the amount of money to the payee or the holder in due course within fifteen days of the receipt of the notice. [Para 9][997-D-E]
Charanjit Pal Jindal v. L.N. Metalics (2015) 5 SCALE 16; MSR Leathers v. S. Palaniappan (2013) 1 SCC 177 : [2012] 9 SCR 165 – referred to.
4. In the present case, the record before the Court indicates that the cheque was drawn by the appellant for ‘L’ Ltd. company, as its Director. A notice of demand was served only on the appellant. The complaint was lodged only against the appellant without arraigning the company as an accused. [Para 12][998-G]
5. The provisions of Section 141 postulate that if the person committing an offence under Section 138 is a company, every person, who at the time when the offence was committed was in charge of or 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. [Para 13][998-G-H; 999-A]
6. In the absence of the company being arraigned as an accused, a complaint against the appellant was therefore not maintainable. The appellant had signed the cheque as a Director of the company and for and on its behalf. Moreover, in the absence of a notice of demand being served on the company and without compliance with the proviso to Section 138, the High Court was in error in holding that the company could now be arraigned as an accused.[Para 14][999-B]
N. Harihara Krishnan v. J. Thomas (2018) 13 SCC 663 : [2017] 9 SCR 324– referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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