Saturday, 11 June 2016

Whether prosecution for dishonour of cheque can be quashed against company on ground that notice was issued to one of it's director?

In the instant case, the
notice of dishonour was sent to the registered office of the company
and was received by petitioner no.2 who is the director and alter ego of
the company being the human agency who represented the company
throughout the transaction which is the subject matter in the instant
prosecution. In (1999) 4 SCC 197 [Orissa State Ware Housing
Corporation Vs. Commissioner of Income Tax] the Apex Court was
dealing with a fiscal statute and held that the court must ascribe
natural and ordinary meaning to the words used by the legislature and
not substitute its own observation in place of legislative intent.
As in the factual matrix, I find that the legislative intent of
making the drawer of the cheque, that is, the juristic entity aware of its
dishonour by way of a notice in writing is well achieved by giving notice
to its alter ego and human agency, namely, the petitioner no.2, I am ofthe view that ratio of the aforesaid decision has no manner of
application in the instant case.
In view of the aforesaid discussion I hold that the petitioner no.1
company had sufficient notice of dishonor of the cheques and had
failed to make payment within the stipulated time and the impugned
prosecutions are not liable to be quashed on such score.
In The High Court at Calcutta
Criminal Revisional Jurisdiction
Present :
The Hon’ble Justice Joymalya Bagchi
 C.R.R. 2306 of 2015
 with
 C.R.A.N. 3420 of 2015
 M/s. Gena Marketing Pvt. Ltd. and Anr.
 Vs.
 Somnath Guin
 Citation:2016 ALLMR(CRI)JOURNAL247

Proceedings in C.R. 854 of 2010 and C.R. 853 of 2010 pending
in the court of the learned Judicial Magistrate, 5th Court at Paschim
Medinipur under Sections 138/141 of the Negotiable Instruments Act,
1881 have been assailed on the plea that the notice issued underSection 138(b) of the Negotiable Instruments Act, 1881 was defective
in law.
The factual matrix giving rise to the impugned prosecutions are
to the effect cheques were drawn by the petitioner company through
its director/authorized signatory, Vijay Kumar Kanoria. The cheques
upon being presented for payment were returned unpaid with the
endorsement “insufficient fund in your account”. Thereupon the
opposite party issued notices under Section 138(b) addressing it to
Vijay Kumar Kanoria, son of Govind Prosad Kanoria, authorised
signatory of Gena Marketing Pvt. Ltd. at the registered office of the
company In spite of receipt of such notices, no payment was made and
the impugned prosecutions were lodged. For the sake of adjudication,
one of such notices sent under Section 138(b) of the Negotiable
Instruments Act, 1881 is set out herein below :-
 Date : 26.07.2010
To
Sri Vijoy Kumar Kanoria
Son of Govind Prosad Kanoria
Authroised signatory of
Gena Marketing Pvt. Ltd.
27A, Waterloo Street
Kolkata – 700 069.
Sub: Dishonour of cheque bearing cheque no.
272223
of State Bank of India, Esplanade, 9B, Esplanade
Row Street, Calcutta, West Bengal – 700 069
dated 30.6.2010 amounting to Rs. 3,50,00,000/-
My Client : Somnath Guin son of Sri Jamini
Kanta Guin, Rajmata Bhawan, Burrabazar,
Medinipur Town, District : Pachim Medinipur.
Sir,
“Under instructions from and on behalf of my
client above named, this is to inform you that thecheque amounting to Rs. 3,50,00,000/- under
reference has been deposited by my client to his
Banker, Axis Bank Ltd., Kharagpur Branch on
8.7.2010, however, my client’s banker through the
letter dated 12th July, 2010 as served upon my client
informed him that the said cheque has been
dishonoured due to ‘insufficient fund in your account’.
By this notice/letter I do hereby request you to
make payment of the said amount of Rs.
3,50,00,000/- to my client within 15 (fifteen) days
from the date of receipt of the instant notice/letter,
failing which my client may be compelled to take
appropriate steps under the provisions of law against
you before the appropriate forum without any further
reference to you.”
Thanking you,
 Yours faithfully,
 (Pingal Bhattaharyya)
 Advocate
Mr. Bhattacharjee, learned advocate appearing for the
petitioners submitted that the notice under Section 138(b) of the
Negotiable Instruments Act, 1881 is to be issued upon the drawer of
the cheque. Admittedly, the petitioner no.1/company is the drawer of
the cheque and notice being issued in the name of the petitioner no.2
does not comply with the aforesaid requirement of law. Hence the
impugned prosecutions are liable to be quashed on such score.
Per contra, Mr. Sandipan Ganguly, learned advocate for the
opposite party/complainant submitted that the notice was sent to the
registered office of the company and although it bore the name of
petitioner no.2, director/authorized signatory of the company, in
effect, it was a notice to the company calling upon it to make payment
in accordance with law to avoid penal liability.
Both the parties relied on various authorities in support of their
contentions.Section 138(b) of the Negotiable Instruments Act, 1881, inter
alia, requires the payee or the holder in due course of the cheque to
give a notice in writing to the drawer of the cheque within thirty days
from the receipt of information by him from the bank regarding the
return of the cheque as unpaid.
Admittedly notices were given in writing within the stipulated
time frame demanding payment of the dishonoured cheque. The moot
issue which arises in the case is whether the notices which were
issued in the name of Vijay Kumar Kanoria, director/authorised
signatory of Gena Marketing Pvt. Ltd. would be construed to be a
notice to the company itself for the purposes of the aforesaid subsection.
The purpose of issuance of notice under Section 138(b) of the
Negotiable Instruments Act is to give a chance to the drawer to rectify
his omission [see Suman Sethi Vs. Ajay K. Churiwal And Another,
(2000) SCC (Cri) 414 (Para-9)].
Let me examine whether the notice under section 138(b) of the
Act in this case meets such requirement. Petitioner no.2 to whom the
notices were addressed is the director and authorised signatory of the
company who represented the company throughout the transaction
which is the subject-matter of the impugned prosecution. It is claimed
that he had signed the agreement from which the liability arose in
respect whereof the dishonoured cheque was issued. He is also alleged
to be the signatory of the cheque and had received the notice of
dishonour at the registered office of the company. Under such
premises, the petitioner no.2 can be safely assumed to be the alter ego
of the company. He is the principal director of the company and wasthe human agency representing the company in the transaction which
is the subject matter of prosecution. A corporate entity has to function
through a human agency and the mental state of such human agency
is attributable to the company. Hence, knowledge of petitioner no.2 of
such notice and his response thereto can be attributed to the juristic
entity as the former is nothing but the alter ego of such corporate
entity.
The principle of alter ego and attribution of intent of the human
agency, who is the alter ego of the company, upon the body corporate
itself was approved and applied in criminal jurisprudence by the Apex
Court in Iridium India Telecom Ltd. Vs. Motorola Incorporated &
Ors. (2011) 1 SCC 74 as follows:-
“55. …virtually in all jurisdictions across the world
governed by the rule of law, the companies and
corporate houses can no longer claim immunity from
criminal prosecution on the ground that they are
incapable of possessing the necessary mens rea for the
commission of criminal offences. The legal position in
England and the United States has now crystallised to
leave no manner of doubt that a corporation would be
liable for crimes of intent.”
“59. 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
doctrine 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.”
Similarly in Sunil Bharti Mittal Vs. Central Bureau of
Investigation (2015) 4 SCC 609 it has been held:“40. It is abundantly clear from the above that the
principle which is laid down is to the effect that the
criminal intent of the “alter ego” of the company, that
is the personal group of persons that guide the
business of the company, would be imputed to the
company/corporation.”
Applying the aforesaid principle in the matter of giving notice
under section 138(b) of the Act to the drawer, it can be safely
construed that a notice addressed to a director/authorised signatory of
a cheque who had represented the drawer company in the course of
the transaction resulting in the issuance of the dishonoured cheque
shall be deemed to be a notice issued upon the company itself
inasmuch as the knowledge of the said human agency of the notice
may be attributed to the body corporate itself.
It has finally been argued that the notice under section 138(b) of
the Act must be construed strictly as it forms a part of a penal
provision. Traditionally, penal provisions call for strict interpretation
but such view is increasingly yielding to a more purposive
interpretation in recent times. While interpreting the requirement of
sending a notice under section 138(b) of the Act in this perspective the
object and intention of the legislature must not be lost sight of and a
narrow pedantic approach ought not to be taken so that a defaulter
may escape penal consequences. Negotiable Instruments Act is a
legislation operating in the commercial field and section 138 thereof
was incorporated to give tooth and claw to the legislation so as to
ensure greater accountability and creditability in commercial
transactions relating to cheques. This legislative intention ought to be
the guiding principle while construing the validity of notice issued
under the aforesaid provision of law.In Standard Chartered Bank & Ors. Vs. Directorate of
Enforcement & Ors. (2005) 4 SCC 530, a Constitution Bench while
upholding purposive construction of penal statutes, inter alia, held
that –
“24. The distinction between a strict construction
and a more free one has disappeared in modern times
and now mostly the question is “what is true
construction of the statute?” A passage in Craies on
Statute Law, 7th Edn. reads to the following effect:
“The distinction between a strict and a liberal
construction has almost disappeared with regard to
all classes of statutes, so that all statutes, whether
penal or not, are now construed by substantially the
same rules. ‘All modern Acts are framed with regard
to equitable as well as legal principles.’ ‘A hundred
years ago,’ said the court in Lyons’ case, ‘statutes
were required to be perfectly precise and resort was
not had to a reasonable construction of the Act, and
thereby criminals were often allowed to escape. This
is not the present mode of construing Acts of
Parliament. They are construed now with reference to
the true meaning and real intention of the
legislature.”
At p. 532 of the same book, observations of Sedgwick
are quoted as under:
“The more correct version of the doctrine appears to
be that statutes of this class are to be fairly
construed and faithfully applied according to the
intent of the legislature, without unwarrantable
severity on the one hand or unjustifiable lenity on the
other, in cases of doubt the courts inclining to
mercy.”
The Court further held that even in interpretation of penal
statutes the mischief Rule or Heydon’s Rule may be resorted to:-
“36. The rule of interpretation requiring strict
construction of penal statutes does not warrant a
narrow and pedantic construction of a provision so as
to leave loopholes for the offender to escape (see
Murlidhar Meghraj Loya v. State of Maharashtra). A
penal statute has to also be so construed as to avoid
a lacuna and to suppress mischief and to advance a
remedy in the light of the rule in Heydon’s case. A
common-sense approach for solving a question ofapplicability of a penal statute is not ruled out by the
rule of strict construction. (See State of A.P. v. Bathu
Prakasa Rao and also G.P. Singh on Principles of
Statutory Interpretation, 9th Edn., 2004, Chapter 11,
Synopsis 3 at pp. 754 to 756.)”
Similarly, the Apex Court applied purposive interpretation in
defining the expression ‘dowry’ under section 304B of Indian Penal
Code. In Rajinder Singh Vs. State of Punjab (2015) 6 SCC 477, the
Court at paragraph 14 to 20 of the said report quoted with approval
the said proposition enunciated in Standard Chartered (supra) and
held that a penal statute must be given a fair, pragmatic and
commonsense interpretation so as to fulfil its object. In this
perspective, I am unable to accept the contention of the petitioners
that notice under section 138(b) of the Negotiable Instruments Act
must receive a strict and pedantic interpretation. On the other hand, a
pragmatic interpretation of such notice, which furthers the intention of
the legislature is to be adhered to.
Finally, no prejudice has been caused to the petitioners in the
instant case in the manner in which the notice was given. Admittedly,
notice was received by the petitioner no.2, that is, the alter ego of the
company who was acting on its behalf and, hence, the company ought
to be attributed with the requisite knowledge of such notices. The
knowledge of petitioner no.2 with regard to the notice of dishonor being
imputed upon the accused company, there cannot be any escape from
the conclusion that the drawer of the cheque, that is the company
itself, had sufficient notice of dishonor of the cheque as required in law
and no prejudice can be shown to have been caused to the petitioner
company on such account.The issue as to whether a notice issued upon the
director/authorized signatory of the company can be deemed to be a
valid notice under Section 138(b) of the Negotiable Instruments Act fell
for consideration Bilakchand Gyanchand Co. Vs. A. Chinnaswami
reported in (1999) 5 SCC 693 and Rajneesh Aggarwal Vs. Amit J.
Bhalla reported in (2001)1 SCC 631. In Bilakchand (supra), notice
issued upon the Managing Director/signatory was held to be a valid
notice under Section 138(b) of the Act. In Rajneesh (supra) the Apex
Court observed as follows:-
“The object of issuing notice indicating the
factum of dishonour of the cheques is to give an
opportunity to the drawer to make the payment
within 15 days, so that it will not be necessary for the
payee to proceed against in any criminal action, even
though the bank dishonoured the cheques. It is Amit
Bhalla, who had signed the cheques as the Director of
M/s. Bhalla Techtran Industries Ltd. When the notice
was issued to said Shri Amit Bhalla, M/s Bhalla
Techtran Industries Ltd., it was incumbent upon Shri
Bhalla to see that the payments are made within the
stipulated period of 15 days. It is not disputed (sic
alleged) that Shri Bhalla has not signed the cheques,
nor is it disputed (sic alleged) that Shri Bhalla was
not the Director of the company. Bearing in mind the
object of issuance of such notice, it must be held that
the notices cannot be construed in a narrow technical
way without examining the substance of the matter.
We really fail to understand as to why the judgment
of this Court in Bilakchand Gyanchand Co. will have
no application. In that case also criminal proceedings
had been initiated against A. Chinnaswami, who was
the Managing Director of the company and the
cheques in question had been signed by him. In the
aforesaid premises, we have no hesitation to come to
the conclusion that the High Court committed error in
recording a finding that there was no notice to the
drawer of the cheque, as required under Section 138
of the Negotiable Instruments Act. In our opinion,
after the cheques were dischonoured by the bank the
payee had served due notice and yet there was failure
on the part of the accused to pay the money, who had
signed the cheques, as the Director of the company.”In response to the said authorities, Mr. Bhattacharjee has
strenuously argued that the law in this regard has undergone a sea
change after ratio in Aneeta Hada Vs. Godfather Travel & Tours
Pvt. Ltd. reported in (2012) 5 SCC 661 and Krishna Texport and
Capital Markets Limited Vs. Ila A. Agarwal and Ors. reported in
(2015)8 SCC 28.
I am unable to subscribe such contention. The issue before me
did not fall for consideration in the aforesaid cases relied on by Mr.
Bhattacharjee. In Aneeta Hada the Apex Court was concerned as to
whether prosecution of a director could be maintained in the absence
of prosecution of the accused company. The Apex Court held that the
prosecution of an accused company was sine qua non for prosecution
of a director save and except where prosecution of the company is a
legal impossibility. In Krishna Texport (supra) the issue was just the
reverse. The notice had been served on the accused company but not
on the directors. In such situation, the Apex Court while upholding
such prosecution inter alia, held as follows:
“The persons who are in charge of the affairs of the
company and running its affairs must naturally be
aware of the notice of demand under Section 138 of
the Act issued to such company. It is precisely for this
reason that no notice is additionally contemplated to
be given to such Directors.”
Hence, I am of the opinion that the aforesaid authorities relied
on by Mr. Bhattacharjee do not answer the issue raised before this
Court which has been squarely answered in Bilakchand and Rajneesh
(supra).The other authorities relied upon by Mr. Bhattacharya are not
applicable to the facts of the case. In 1991 C.Cr.LR (Cal) 171 (Dilip
Kumar Jaiswal Vs. Debapriya Banerjee) and 2005 Cri.LJ 1931
(M/s. Target Overseas Exports Pvt. Ltd. & Ors. Vs. A.M. Iqbal &
Anr.) the issue was whether notice of dishonour was required to be
given to the directors of the company when notice had been served
upon the company itself. In 2015 ACD 886 (HP) [M/s. Century Vision
Organic Farms Pvt. Ltd. Vs. Pushpa Bhanot] the Court did not
consider the ratio in Bilakchand (supra) and Rajneesh (supra). In
(2013) 2 CLT 139/(HC) [SSS Loha Marketing Pvt. Ltd. Vs. Bibby
Financial Services India Pvt. Ltd.] the Court was dealing with a
notice under section 434 of the Companies Act, which had not been
sent to the registered office of the company. In the instant case, the
notice of dishonour was sent to the registered office of the company
and was received by petitioner no.2 who is the director and alter ego of
the company being the human agency who represented the company
throughout the transaction which is the subject matter in the instant
prosecution. In (1999) 4 SCC 197 [Orissa State Ware Housing
Corporation Vs. Commissioner of Income Tax] the Apex Court was
dealing with a fiscal statute and held that the court must ascribe
natural and ordinary meaning to the words used by the legislature and
not substitute its own observation in place of legislative intent.
As in the factual matrix, I find that the legislative intent of
making the drawer of the cheque, that is, the juristic entity aware of its
dishonour by way of a notice in writing is well achieved by giving notice
to its alter ego and human agency, namely, the petitioner no.2, I am ofthe view that ratio of the aforesaid decision has no manner of
application in the instant case.
In view of the aforesaid discussion I hold that the petitioner no.1
company had sufficient notice of dishonor of the cheques and had
failed to make payment within the stipulated time and the impugned
prosecutions are not liable to be quashed on such score.
For the aforesaid reasons, both the revision petitions are
dismissed. The trial court is directed to proceed with the case in
accordance law with utmost expedition.
Let Photostat certified copy of this order be given to the parties,
if applied for, on urgent basis upon compliance of all formalities.
 (Joymalya Bagchi,
J.)
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