Posted On by &filed under High Court, Madras High Court.


Madras High Court
Anand vs S.M. Thomas on 13 October, 2000
Author: A B Khadiri
Bench: A B Khadiri


JUDGMENT

Akbar Basha Khadiri, J.

1. The accused has come forward with the instant criminal original petition to quash the proceedings in C. C. No. 11 of 1998, on the file of the learned Judicial Magistrate No. II, Nagercoil.

This Crl. O. P. has arisen in this way :

According to the complainant/respondent herein, one Jeyasingh was the managing director and Anand, the petitioner herein, was the director of a company known as Eleven Star Finance Limited. On July 3, 1997, both of them approached the complainant/respondent herein for a loan of Rs. 1,00,000 for their business. Later on July 7, 1997, they received Rs. 1,00,000 as loan. On August 7, 1997, and September 4, 1997, both the
accused before the learned judicial magistrate issued two cheques each for Rs. 50,000 towards the loan, drawn on UCO Bank, Meenakshipuram, Nagercoil. The cheques were presented by the complainant/respondent herein on December 2, 1997, through his bank. But the cheques were returned on December 3, 1997, with an endorsement “funds insufficient”. The complainant/respondent herein issued legal notices to both the accused on December 4, 1997. Both the notices were returned as “refused” on December 8, 1997, and on December 9, 1997. The complainant/ respondent herein therefore sought to prosecute the accused under Section 138 of the Negotiable Instruments Act. He preferred a complaint on January 5, 1998.

Now, Anand, the second accused who has been described as the director of Eleven Star Finance Ltd., has come forward with the instant Crl. O. P. to quash the proceedings on the following grounds :

(i) The company has not been added as an accused. Non-prosecution of the company vitiated the case.

(ii) He ceased to be the director on March 4, 1997, as he had resigned from the directorship including membership of the company,

(iii) The cheques were given only as security towards loan. There is no averment in the complaint that the cheques were given towards legally enforceable liability.

(iv) There is no averment in the complaint that the petitioner herein was in charge of and responsible for the conduct, of the firm’s business and as such he cannot be made an accused.

Heard both the sides. It would be useful to recall the provisions of Section 141 of the Negotiable Instruments Act, which recites as under :

“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.

Explanation.–For the purposes of this section,–

(a) ‘company’ means any body corporate and includes a firm, or other association of individuals ; and

(b) ‘director’, in relation to a firm, means a partner in the firm.” Regarding the first contention of the petitioner herein, learned counsel appearing on either side cited various authorities to stress their point, whether or not the company should be added as an accused and non-prosecution de hors adding the company as an accused would vitiate the proceedings.

It would be useful to refer to certain decisions :

(i) In Sheoratan Ayarwal v. State of Madhya Pradesh , while considering a case under Section 10 of the Essential Commodities Act, 1955, which is identical to the provisions of Section 141 of the Negotiable Instruments Act, the apex court has held that persons or an officer of the company can each be separately prosecuted under Sub-section (1) or (2) of Section 10 of the Essential Commodities Act, 1955, irrespective of whether the company itself is prosecuted or not, if there is contravention by the company.

(ii) In U. P. Pollution Control Board v. Modi Distillery , the apex court had to consider a similar point while dealing’ with Section 47 of the Water (Prevention and Control Pollution) Act (6 of 1974), which is identical to Section 141 of the Negotiable Instruments Act. The apex court held that unless there was prosecution of the company, there can be no prosecution of the managing director.

To be more specific, while considering identical provisions under two different Acts, namely the Essential Commodities Act and the Water (Prevention and Control of Pollution) Act, two different views were expressed by the apex court.

(iii) The decision in V. P. Pollution Control Board’s case [1988] 63 Comp Cas 77 (SC) was followed by Padmini Jesudurai J. in Krishan Bai v. Arti Press [1991] LW (Crl.) 513 ; [1994] 80 Comp Cas 750 (Mad), wherein the learned judge held that unless the company was made an accused, the person in charge of and responsible to the company for the conduct and business of the company cannot be made an accused. This view was followed by Pratap Singh J., in the decision reported in S. Krishnamoorthy v. B.S. Kesavan [1994] 80 Comp Cas 755 (Mad) ; [1994] 1 LW (Crl.) 135. That was a case where when a cheque was issued by a firm, the partner only was prosecuted. Pratap Singh J., had held that inasmuch as the offence was committed by the firm, without the firm being arrayed as accused, the petitioner (partner) alone cannot be arrayed as an accused and be proceeded with.

(iv) In A. Jafferullah v. T. Stanes and Co. Ltd. [1994] 80 Comp Cas 759 (Mad) ; [1994] 1 LW (Crl.) 262, Pratap Singh J., confirmed the earlier view expressed in Krishnamoorthy’s case [1994] 80 Comp Cas 755 (Mad). The learned judge held that of the two decisions rendered by the apex court in Sheoratan Agarwal’s case and U. P. Pollution Control Board’s case [1988] 63 Comp Cas 77 (SC) the latter decision should be followed.

(v) In Suryanarayanan v. Anghor Marine Service [1995] 1 LW (Crl.) 132 ; [1998] 94 Comp Cas 874 (Mad) when a similar question arose, Rangasamy J., has expressed the view that the company shall also be prosecuted and the partner alone cannot be prosecuted.

(vi) But, the view expressed by the apex court in Sheoratan Agarwal’s case , was followed in Alex v. Vijayan [1994] 81 Comp Cas 910 (Ker) ; [1994] 1 Crimes 505, wherein the Kerala High Court held that proceedings can be instituted under Section 138 of the Negotiable Instruments Act against the directors without impleading the company.

(v) The same view was expressed by the same court in the decision reported in M. O. H. Iqbal v. M. Uthaman [1994] 2 Crimes 72 ; [1995] 82 Comp Cas 726 (Ker). It was held by that court that when the offence is committed by a company either the company alone or the persons in charge of the business of the company alone or both of them together can be prosecuted for the offences under Section 138 of the Negotiable Instruments Act.

(vi) In N. Doraisamy v. Archana Enterprises [1995] 39 MLJ 482 ; [1999] 97 Comp Cas 129 (Mad), M. S. Janarthanam J., followed the view expressed by the apex court in Sheoratan Agarwal’s case , and held that the managing director can be prosecuted even without including the company as co-accused M. S. Janarthanam J., had also pointed out that earlier decisions rendered by this court on this point had not correctly laid down the law in the light of the decision rendered by the apex court reported in Sheoratan Agarwal’s case .

(vii) In the latest decision reported in Anil Hada v. Indian Acrylic Ltd. [2000] 99 Comp Cas 36 (SC); [2000] 1 LW (Crl.) 422, a question was posed by the apex court: When a company, which committed offence under Section 138 of the Negotiable Instruments Act, eludes from being prosecuted thereof, can the directors of that company be prosecuted for that offence ? The apex court has pointed out that the offender under Section 138 of the Negotiable Instruments Act is the drawer of the cheque, but by virtue of fiction envisaged in Section 141 of the Negotiable Instruments Act, three categories of persons can be discerned within the purview of penal liability. They are (1) the company which committed the offence ; (2) everyone who was in charge of and responsible for the business of the company ; (3) any
other person who is a director or a manager or a secretary or officer of the company, with whose connivance or due to whose neglect the company has committed the offence. Their Lordships of the apex court have stated as under in paragraph 12 (page 40 of Comp Cas) :

“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 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.”

Their Lordships have further stated in paragraph 13 as under (page 41):

“The provisions do not contain a condition that prosecution of the company is a 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.”

Their Lordships have concluded thus (page 43) :

“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.”

Referring to the decision reported in U. P. Pollution Control Board’s case [1988] 63 Comp Cas 77 (SC), their Lordships held that the observations made in this regard in that decision are obiter under the law and the point was specifically discussed in Sheoratan Agarwal’s case .

It would be thus clear than non-prosecution of the company does not vitiate the proceedings.

Regarding the second aspect, it is the contention of the petitioner that the loan was advanced on July 7, 1997 and the cheques were issued on August 7, 1997 and September 4, 1997, but he ceased to be a director on March 4, 1997 as he resigned from the directorship including the membership of the company. In support of his contention, the petitioner produced Form No. 32 and other documents kept at the office of the Registrar of Companies showing that he ceased to be so.

In Rajesh Bajaj v. State NCT of Delhi, , the apex court has held that in a petition under Section 482 of the Criminal Procedure Code, it is not permissible to adopt a strictly hypertechnical approach and “sieve the complaint through a colander of finest gauzes for testing the ingredients” of the offence alleged against the accused, as to whether the person in question was really in charge of the affairs of the company and was responsible for the affairs of the company or not, and as to what functions, he was assigned in the affairs of the company and whether those functions could be considered sufficient to hold that he was in charge of the affairs of the company, are matters which have to be gone into during the trial.

The same view has been expressed by the Andhra Pradesh High Court in K. Pannir Selvam v. M. M. T. C. Ltd. [2000] 99 Comp Cas 94 ; [2000] 2 Crimes 354, wherein it was held that minute dissection of statement in complaint could not be undertaken in quashing proceedings. The Andhra Pradesh High Court was of the view that when a plea was raised that the accused ceased to be a director, it is a matter to be decided during the trial.

The next contention of the petitioner is that the cheques were given only as security to the loan. According to learned counsel for the petitioner, there is no averment in the complaint that the cheque was given towards legally enforceable liability. It is to be pointed out that under Section 139 of the Negotiable Instruments Act, a legal presumption has to be drawn that the cheque was given towards legally enforceable liability. If the petitioner is to controvert this presumption, the burden lies upon him to prove that the cheque was given only as security towards loan. This is a question of fact which has to be gone into at the time of the trial.

Lastly, learned counsel for the petitioner submitted that there is no averment in the complaint that the petitioner was in charge of and was responsible to the company for the conduct of the business of the company and as such he cannot be made an accused. It is necessary to point out that the complaint should contain an averment that the petitioner was in charge of and responsible to the company for the conduct of the business of the company. I have gone through the copy of the complaint. Though it is not expressly stated in the complaint that the petitioner was in charge of and was responsible to the company for the conduct of the business of the company, yet, the averment would clearly indicate such fact. The petitioner is described as the director of the Eleven Star Finance Ltd. It is stated that the petitioner along with the other accused approached the complainant for the loan, that he along with the other
accused came to the complainant’s house on July 7, 1997, and received the loan, and that he and the other accused both together issued two cheques in favour of the complainant, that he is a signatory to the cheque. According to the complainant, the petitioner herein had taken part in obtaining the loan. When it comes to light that the petitioner as director was in charge of and responsible to the company for the conduct of the business of the company, a prima facie case for summoning the accused has been made out. The petitioner being the signatory of the cheque, the complaint could not be quashed at this stage on the ground that there are no averments in the complaint to the effect that he was in charge of and responsible to the company for the conduct of the business of the company. The petitioner has not made out any ground to quash the proceedings. Accordingly this criminal original petition is dismissed. Consequently, Crl. M. P. Nos. 2134 and 2135 of 1999 are also dismissed.


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