Thursday, 10 July 2014

Whether arraigning of a company as an accused is imperative for prosecution under S138 of NI Act?

In view of our aforesaid analysis, we arrive at the irresistible conclusion that for maintaining the prosecution Under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the drag-net on the touchstone of vicarious liability as the same has been stipulated in the provision itself. We say so on the basis of the ratio laid down in C.V. Parekh which is a three-Judge Bench decision. Thus, the view expressed in Sheoratan Agarwal does not correctly lay down the law and, accordingly, is hereby overruled. The decision in Anil Hada is overruled with the qualifier as stated in para 51. The decision in Modi Distillery has to be treated to be restricted to its own facts as has been explained by us hereinabove.
The Apex Court observed that only the drawer of the cheque falls within the ambit of Section 138 of the Negotiable Instrument Act whether the same is human being or a body corporate or even a firm.


REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO.1364 OF 2014
(arising out of SLP(Crl.) No.7039 of 2007)
Anil Gupta
... APPELLANT
VERSUS
Star India Pvt. Ltd. & Anr.
... RESPONDENTS
J U D G M E N T
SUDHANSU JYOTI MUKHOPADHAYA,J.
Dated;JULY 07, 2014.

Leave granted.
2.
This
appeal
is
directed
against
the
judgment
dated
13th
August, 2007 passed by the High Court of Delhi at New Delhi in
Criminal
Miscellaneous
Case
No.2380
of
2004.
By
the
impugned
judgment, the High Court held that the complaint under Section 138
read with Section 141 of the Negotiable Instruments Act, 1881
(hereinafter referred to as the, ‘Act’) was barred by limitation
and quashed the summon order against respondent no.2-Visionaries
Media
Network
(hereinafter
referred
to
as
the,
‘Company’).
It
further held that the dispute qua the appellant (petitioner no.2
before High Court) is within limitation and affirmed the summon
order against the appellant.
3.
The factual matrix of the case is as follows:

A subscription agreement was entered into between respondent
nos.1
and
2
whereby
respondent
no.2-Company
was
appointed
as
distributor of Star Channels and collecting subscription fee for
the
same.
On
27.12.2003,
respondent
no.2-Company
issued
three
cheques bearing nos.790913, 790912 and 790911 for Rs.6,00,000/-,
Rs.5,00,000/- and Rs.5,00,000/- respectively drawn on the Indian
Overseas Bank, Gandhi Nagar, Jammu. The aforesaid three cheques
were
presented
before
the
Indian
Overseas
Bank,
Gandhi
Nagar,
Jammu and were dishonoured on 6.01.2004. Respondent No.1 served
notice on respondent no.2-Company with a demand notice separately
for all the three cheques. Respondent no.2-Company replied to the
said notice on 20.01.2004 informed respondent no.1 that payments
were stopped because of their inability to stop the piracy due to
which the cable operators did not make payments.
Thereafter,
respondent
no.1
issued
second
notice
dated
28.01.2004 on the appellant based on the same facts and based on
the
same
cheques.
memo
of
dishonor
in
respect
of
the
aforesaid
three
Respondent no.1 also issued a corrigendum of the same
date to the said notice. The appellant submitted reply to the said
notice on 3.02.2004.
4. Respondent no.1 filed a Criminal Complaint under Sections 138
and 141
respondent
of
the
no,1
Act
on
concealed
17.03.2004.
the
material
According
fact
of
to
appellant,
having
earlier
issued notice dated 14.1.2004 with regard to the aforesaid three

cheques
and
Metropolitan
by
misleading
Magistrate
the
in
Court
Complaint
got
summons
No.698
of
issued
2001
to
by
the
appellant and respondent no.2-Company.
5.
Thereafter,
filed
Criminal
respondent
no.2-Company
Miscellaneous
Petition
and
appellant
No.2380
of
jointly
2004
under
Section 482 of the Criminal Procedure Code, 1973 before the High
Court of Delhi at New Delhi for quashing the aforesaid criminal
complaint filed by respondent no.1. In its reply, respondent no.1
taken the plea that first notice dated 14.01.2004 was not a notice
under Section 138 of the Act. It was contended on behalf of the
appellant
that
he
was
only
vicariously
liable
on
behalf
of
respondent no.2-Company. Learned counsel for the appellant placed
reliance on decisions of this Court in support of his claim.
6.
The High Court by impugned judgment while recording the stand
taken by respondent no.1 that letter dated 14.01.2004 constituted
a
valid
notice
under
Section
138
of
the
Act
and
hence
the
complaint based on second notice against respondent no.2-Company
was not maintainable and quashed the summon issued by the Trial
Court
against
respondent
no.2-Company.
However,
so
far
as
appellant is concerned, the High Court relying on decision of this
Court in Anil Hada v. Indian Acrylic Ltd., (2000) 1 SCC 1, held
that the proceeding against the Director can be issued even in
absence of the Company being impleaded, The High Court further
held that the summoning order was valid since the first notice was

not addressed to the appellant and the second notice which was
also
addressed
to
the
appellant
was
issued
within
time
and.
therefore, criminal complaint filed by respondent no.1 against the
appellant on the basis of the said notice is maintainable.
7.
Learned
counsel
appearing
on
behalf
of
the
appellant
contended that the order of the High Court is contrary to the law
in as much as this is not a case where proceedings were initiated
against
the
proceedings
Managing
are
Director
instituted
alone.
against
the
On
the
contrary,
company/accused
and
the
its
Managing Director. In the event of the company/accused being let
off, the same cannot continue against the Managing Director who
admittedly is only vicariously liable.
8.
Anil
It is further submitted that even as per law laid down in
Handa’s
case,
the
Director
of
a
company/accused
is
only
liable vicariously and upon his showing that the principal accused
is not liable he cannot be held guilty.
9.
On the other hand, according to counsel for the respondents,
the issue is no longer res integra as held by the High Court.
10.
Section 138 of the Act deals with dishonor of cheque for
insufficiency etc. as follows:
“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
arrangement made with that 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 extend 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 of the said amount of money by giving a
notice in writing, to the drawer of the cheque,
within thirty days of the receipt of information by
him from the bank regarding the return of the
cheque as unpaid; and
(c) the drawer of such cheque fails to make the
payment of the said amount of money to the payee
or, as the case may be, to the holder in due course
of the cheque within fifteen days of the receipt of
the said notice.”
From
the
aforesaid
provision,
it
is
clear
that
only
the
drawer of the cheque falls within the ambit of Section 138 of the
Act whether human being or a body corporate or even a firm.
11.
The guilt for offence under Section 138 will be deemed to be
upon other persons connected with the Company in view of Section
141 of the Act, which reads as follows:

“141. Offences by companies.—(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.
(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 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.”
12.
Similar question was raised and considered by two Judge Bench
of this Court in Anil Hada v. India Acrylic Ltd. (2000) 1 SCC 1.
This Court held:
“12. Thus when the drawer of the cheque who falls
within the ambit of Section 138 of the Act is a
human being or a body corporate or even firm,
prosecution proceedings can be initiated against
such drawer. In this context the phrase “as well
as” used 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 accused can show that the
company has not committed the offence, though such
company is not made an accused, and hence the
prosecuted accused is not liable to be punished.
The provisions do not contain a condition that
prosecution of the company is sine qua non for
prosecution of the other persons who fall within
the second and the third categories mentioned
above. No doubt a finding that the offence was
committed by the company is sine qua non for
convicting those other persons. But if a company is
not prosecuted due to any legal snag or otherwise,
the other prosecuted persons cannot, on that score
alone, escape from the penal liability created
through the legal fiction envisaged in Section 141
of the Act.”
“21. We, therefore, hold that even if the
prosecution proceedings against the Company were
not taken or could not be continued, it is no bar
for proceeding against the other persons falling
within the purview of sub-sections (1) and (2) of
Section 141 of the Act. In the light of the
aforesaid view we do not consider it necessary to
deal with the remaining question whether winding-up
order of a company would render the company non-
existent.”

13.
In Aneeta Hada v. Godfather Travels and Tours Pvt. Ltd.,
(2008) 13 SCC 703, taking note of the maxim lex non cogit ad
impossibilia, two Judge Bench of this Court observed:
“54. True interpretation, in my opinion, of the
said provision would be that a company has to be
made an accused but applying the principle of lex
non cogit ad impossibilia i.e. if for some legal
snag, the company cannot be proceeded against
without obtaining sanction of a court of law or
other authority, the trial as against the other
accused may be proceeded against if the ingredients
of Section 138 as also Section 141 are otherwise
fulfilled. In such an event, it would not be a case
where the company had not been made an accused but
would be one where the company cannot be proceeded
against due to existence of a legal bar. A
distinction must be borne in mind between cases
where a company had not been made an accused and
the one where despite making it an accused, it
cannot be proceeded against because of a legal
bar.”
14.
Again the same question was considered by three Judge Bench
of this Court in Aneeta Hada v.
Godfather Travels and Tours Pvt.
Ltd. (2012) 5 SCC 661. The Court noticed the decisions in Anil
Hada (supra) case and Aneeta Hada (supra) case.
The three Judge
Bench while partly overruled the finding of Anil Hada (supra)
affirmed the decision of Aneeta Hada (supra). This Court held
“51. We have already opined that the decision in
Sheoratan Agarwal runs counter to the ratio laid
down in C.V. Parekh which is by a larger Bench and
hence, is a binding precedent. On the aforesaid
ratiocination, the decision in Anil Hada has to be
treated as not laying down the correct law as far
as it states that the Director or any other officer
can be prosecuted without impleadment of the
company. Needless to emphasise, the matter would
Page 8
9
stand on a different footing where there is some
legal impediment and the doctrine of lex non cogit
ad impossibilia gets attracted.”
“53. It is to be borne in mind that Section 141 of
the Act is concerned with the offences by the
company. It makes the other persons vicariously
liable for commission of an offence on the part of
the company. As has been stated by us earlier, the
vicarious
liability
gets
attracted
when
the
condition precedent laid down in Section 141 of the
Act stands satisfied. There can be no dispute that
as the liability is penal in nature, a strict
construction of the provision would be necessitous
and, in a way, the warrant.”
“58. Applying the doctrine of strict construction,
we are of the considered opinion 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. If a finding is
recorded against it, it would create a concavity in
its reputation. There can be situations when the
corporate reputation is affected when a Director is
indicted.
59. In view of our aforesaid analysis, we arrive at
the irresistible conclusion that for maintaining
the prosecution under Section 141 of the Act,
arraigning
of
a
company
as
an
accused
is
imperative. The other categories of offenders can
only be brought in the drag-net on the touchstone
of vicarious liability as the same has been
stipulated in the provision itself. We say so on
the basis of the ratio laid down in C.V. Parekh17
which is a three-Judge Bench decision. Thus, the
view expressed in Sheoratan Agarwal does not
correctly lay down the law and, accordingly, is
hereby overruled. The decision in Anil Hada is
overruled with the qualifier as stated in para 51.

The decision in Modi Distillery has to be treated
to be restricted to its own facts as has been
explained by us hereinabove.”
15.
In the present case, the High Court by impugned judgment
dated 13th August, 2007 held that the complaint against respondent
no.2-Company was not maintainable and quashed the summon issued by
the
Trial
Court
against
respondent
no.2-Company.
Thereby,
the
Company being not a party to the proceedings under Section 138
read with Section 141 of the Act and in view of the fact that part
of the judgment referred to by the High Court in Anil Hada (supra)
has been overruled by three Judge Bench of this Court in Aneeta
Hada (supra), we have no other option but to set aside the rest
part of the impugned judgment whereby the High Court held that the
proceedings against the appellant can be continued even in absence
of the Company.
We, accordingly,
set aside that part of the
impugned judgment dated 13th August, 2007 passed by the High Court
so far it relates to appellant and quash the summon and proceeding
pursuant to complaint case No.698 of 2001 qua the appellant.
16.
The appeal is allowed with aforesaid observation.
................................................J.
(SUDHANSU JYOTI MUKHOPADHAYA)
................................................J.
(V. GOPALA GOWDA)
NEW DELHI,
JULY 07, 2014.

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