T.R. Gupta And Anr. vs Vascon on 10 August, 2007

Gauhati High Court
T.R. Gupta And Anr. vs Vascon on 10 August, 2007
Equivalent citations: 2007 CriLJ 4144, 2007 (4) GLT 187
Author: M Singh
Bench: M Singh

ORDER

M.B.K. Singh, J.

1. Since game issue is involved, Criminal Revision No. 4(K)07 and Criminal Revision No. 6(K)07, which are in between the same parties are heard jointly and being disposed of by this common judgment and order,

2. I have heard Mr. T.B. Jamir, learned Counsel appearing on behalf of the revisionists and Mr. K.L. John, learned Counsel appearing on behalf of the respondents in both the cases.

3. The revisionists are challenging the legality and the propriety of taking cognizance of the offence under Section 138 of the Negotiable Instruments Act, 1881 as against them by the Judicial Magistrate First Class, Dimapur in two complaint cases being C.R. Case No. 4/07 and C.R. Case No. 6/07 and are praying in effect for quashing the proceeding of the said two cases in so far as they are concerned.

4. The above said two complaint cases were filed by M/s. Vascon, who is the opposite party/respondent in these two revision-petitions, as against the two revisionists and two others praying for proceedings as against them for commission of the said offence under Section 138 of Negotiable Instruments Act, 1881 in connection with alleged dishonouring of cheques bearing No. 927391 dated 25-1-2007, No. 927393 dated 31-1-2007 and No. 927392 dated 17-1-2007, amounting to Rs. 8 lakhs. According to the complainant, the said cheques were drawn on the Bank of Baroda, A.T. Road, Guwahati 781 001 in his favour by Shri Surjeet Singh Sethi, who is the accused No. 4 in both the. complaint cases, as part payment of outstanding dues in connection with works for construction of an isolated Aircraft parking stand at LGBI Airport, Guwahati. Further, according to the complainant, the accused No. 1, who is one of the two revisionists through the accused No. 2, who is the other revisionist, got contract work for construction of isolated aircraft parking stand at the said airport from the Airport Authority of India in the month of March, 2006 and the accused No. 1 entered into an agreement with the accused No. 3, who is not a party in these two revision-petitions for execution of the above said construction work. It is the case of the complainant that the accused No. 4 is the authorised signatory of the accused No. 3. At the same time, the accused No. 4, under a power of attorney executed by the accused No. 1 is empowered and authorised to delegate, if need be, any authority/power given to any other person at the work site to do the needful as may be required from time to time in connection with the execution of the said contract work. Moreover, according to the complainant, in exercise of powers conferred in connection with execution of the said contract work, the accused No. 4, having no resource, sought assistance of the claimant by way of temporary loan and cash payments towards hiring charges of construction of machinery and supply of materials required in connection with the said contract work and thereby the complainant incurred an expenditure amounting to Rs. 23,20,000/- during the period from 4-11-2006 to 15-1-2007 in providing the said assistance. As per the said complaint petitions, despite getting running bills from the Airport Authority of India from time to time, the accused No. 4 never bothered to pay to the claimant and only when the claimant demanded time and again for payment of his outstanding dues telephonically/orally, the accused No. 4 issued the said cheques mentioned above in his favour. According to the claimant, payment in respect of the said cheques having been stopped by the drawer and after compliance with all the statutory conditions, the said two complaint cases were filed as against the above said four accused persons praying for taking cognizance of the said offence under Section 138 of the Negotiable Instruments Act and also for punishing the accused persons after due process.

5. As per records, in respect of complaint being C.R. Case No. 4/07, the learned Judicial Magistrate took cognizance of the said offence under Section 138 of the Negotiable Instruments Act on 27-3-2007 in connection with dishonouring of the cheques bearing No. 927391 dated 25-1-2007 and No. 927393 dated 27-1-2007 and ordered for issuance of summons to all the accused persons including the present two revisionists. In the other complaint case being C.R. Case No. 6/07, the learned Judicial Magistrate took cognizance of the same offence on 18-5-2007 in connection with dishonoring of the cheque bearing No. 927392 dated 17-1-2007 and ordered for issuance of summons to the same accused persons.

6. In these two revisions it is necessary to decide on the basis of the allegations made in the said two complaint cases, if the prosecution of the accused Nos. 1 and 2/two revisionists for the alleged commission of the said offence under Section 138 of the Negotiable Instruments Act, 1881 is liable to be interfered with and quashed or not.

7. The objects and the reasons clause of the bill, which introduced Chapter XVII of the Negotiable Instruments Act, 1881 show that the new chapter was incorporated specifically to “enhance the acceptability of cheques in settlement of liabilities by making the drawer liable for penalties in case of bouncing of cheques due to insufficiency of funds in the accounts or for the reason that it exceeds the arrangements made by the drawer, with adequate safeguards to prevent harassment of honest drawers.” In respect of dishonouring of cheques the criminal remedy provided in the said Chapter XVII of the said Act is an additional remedy provided over and above the civil remedy available to the payee or holder in due course in the said Act. It is however, to be noted that the remedy available in a Civil Court is a long drawn matter. The provisions of Section 138 and Section 141 of the said Act are relevant for making a correct decision on the point involved in these two revisions. They are reproduced herein below:

138. Dishonouring 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 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 as the case may be, to holder in clue course of the cheque within fifteen days of the receipt of the said notice.

Explanation.- For the purposes of this section, “debt or other liability” means a legally enforceable debt or other liability.

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.

Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not. be liable for prosecution under this Chapter.

(2) Notwithstanding any thing 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 anybody corporate and includes a firm or other association of individuals; and

(b) “director,” in relation to a firm, means a partner in the firm.

8. As per provisions of Section 138 of the said Act, in respect of dishonour of cheque for insufficiency of funds etc. in the account, the person liable is the person who has drawn the cheque on an account maintained by him and he shall be punishable as per terms of the section. Thus the person who issues the cheque is liable to be proceeded and punished under Section 138 of the said Act when the terms and conditions of the section are satisfied.

9. Under the provisions of Section 141 of the said Act, in a case where a company commits the offence under Section 138 of the Act, every person who at the Lime when the offence was committed was incharge of and was responsible to the company for the conduct of the business of the company shall be deemed to be guilty of the offence and liable to be proceeded against and punished accordingly. Thus, a person other than the company can be proceeded against under the said provision only if that person was incharge of and was responsible to the company for the conduct of its business at the relevant time. Any other person who is a Director or a Manager or a Secretary or an officer of the company with whose connivance or consent or due to whose negligence the company has committed the offence can be proceeded against under the provisions of Section 141 of the Act.

10. As per allegations made in the two complaint cases, the accused No. 4 signed the said cheques as an authorised signatory of the accused No. 3 on an account maintained by the latter. The said cheques were drawn on the Bank of Baroda, A.T. Road, Guwahati in favour of the claimant. There is no allegation to the effect that the accused Nos. 1 and 2 were in charge of and were responsible for the conduct of the business of the said company i.e. the accused No. 3 at the relevant time. There is also no allegation to the effect that the accused Nos. 1 and 2 conspired with or abetted the accused Nos. 3 and 4 in respect of the alleged commission of the offence under Section 138 of the Act. On the basis of the complaints, it is ascertained that the accused No. 1 is an entity quite distinct and separate from accused No. 3. There is also no averments in the said complaint to the effect that the accused Nos. 1 and 2 conspired with the other accused for commission of the alleged offence under Section 138 of the Act. No averments regarding connivance and negligence on the part of the accused Nos. 1 and 2 leading to the commission of the said offence is also found in the two complaints. In the facts and circumstances, in the absence of the requisite statements which are required to be averred in the complaint petitions, no proceedings for making the accused Nos. 1 and 2 vicariously liable is to be made in respect of the act of the accused No. 4 purportedly done on behalf of the accused No. 3. In respect of an offence alleged to have been committed by or on behalf of the company before making any other persons vicariously liable for the offence, strict compliance with requirements mentioned under Section 141 of the Act; is to be insisted. Every person connected with the company shall not fall within the ambit of Section 141 of the Act. It is also necessary that in order to bring a case within Section 141 of the Act, the complainant must disclose the essential facts which make the person liable. Without an averment being made in the complaint, the requirements of Section 141 cannot be said to be satisfied.

11. In Savitha Ramamurthy v. R.V.S. Channavasa Varadhya , the Apex Court held to the effect that there should be averments/ clear statement of facts in the complaint petition itself as well as in the statement given under Section 200 of the Criminal Procedure Code so as to enable the Court to arrive at a prima facie opinion about the vicarious liability of the concerned accused. At paragraph 7, the Apex Court held:

A bare perusal of the complaint petition demonstrates that the statutory requirements contained in Section 141 of the Negotiable Instruments Act have not been complied with. It may be true that it is not necessary for the complainant to specifically reproduce the wording of the section but what is required is a clear statement of facts so as to enable the Court: to arrive at a prima facie opinion that the accused are vicariously liable. Section 141 raises legal fiction. By reason of the said provision, a person although is not personally liable for commission of such an offence would be vicariously liable thereof. Such vicarious liability can be inferred so far as company registration or incorporated under the Company’s Act, 1956 is concerned only if the requisite statements, which are required to be averred in the corn-plaint petition are made so as to make the accused therein vicariously liable for the offence committed by the company. Before a person can be made vicariously liable, strict compliance with the statutory requirements would be insisted. Not only the averments made in para 7 of the company’s petition do not meet the said statutory requirements, the sworn statement of the witness made by the son of the respondent herein does not contain any statement that the appellants were in-charge of the business of the company. In a case where the Court is required to issue summons which would put the accused to some sort of harassment, the Court should insist strict compliance with the statutory requirements. In terms of Section 200, Cr. P.C., the complainant is bound to make statements on oath as to how the offence has been committed and how the accused persons are responsible therefor. In the event, ultimately, the prosecution is found to be frivolous or otherwise mala fide the Court may direct registration of the case against the complainants for mala fide prosecution of the accused. The accused would also be entitled to file a suit for damages. The relevant provisions of the Cr. P.C. are required to be construed from the aforementioned point of view.

12. In the above referred case, the Apex Court referred to its earlier decision : Monaben Ketanbhai Shah v. State of Gujarat ; Katta Sujatha v. Fertilizers and Chemicals Travancore Ltd. and S.M.S. Pharmaceuticals Ltd. v. Neeta Balla .

The above mentioned last case i.e. S.M.S. Pharmaceuticals Ltd. (supra) is a decision of three-Judge Bench of the Apex Court. While dealing with Section 138 and Section 141 of the Act, the Apex Court held at para 4:

In the present case, we are concerned with criminal liability on account of dishonour of a cheque. It primarily falls on the drawer company and is extended to officers of the company. The normal rule in the cases involving criminal liability is against vicarious liability, that is, no one is to be held criminally liable for an act of another. This normal rule is, however, subject to exception on account of specific provision being made in the statutes extending liability to others. Section 141 of the Act is an instance of specific provision which in case of an offence under Section 18 is committed by a company, extends criminal liability for dishonour of a cheque to officers of the company. Section 141 contains conditions which have to be satisfied before the liability can be extended to officers of a company. Since the provision creates criminal liability, the conditions have to be strictly complied with. The conditions are intended to ensure that a person who is sought to be made vicariously liable for an offence of which the principal accused is the company, had a role to play in relation to the incriminating act and further that such a person should know what is attributed to him to make him liable. In other words, persons who had nothing to do with he matter need not be roped in. A company being a juristic person, all its deeds and functions are the result of acts of others. Therefore, officers of a company who are responsible for acts done in the name of the company are sought to be made personally liable for acts which result in criminal action being taken against the company. It makes every person who, at the time the offence was committed, was in-charge of, and was responsible to the company for the conduct of business of the company, as well as the company, liable for the offence. The proviso to the sub-section contains an escape route for persons who are liable to prove that the offence was committed without their knowledge or that they had exercised all due diligence to prevent commission of the offence.

13. In the above three-Judge Bench decision, the Apex Court referred to various decisions including State of Haryana v. Brij Lal Mittal ; K.P.G. Nair v. Jindal Menthol India Ltd. ; Katta Sujatha v. Fertilizers and Chemicals Travancore Ltd. ; Monaben Ketanbhai Shah v. State of Gujarat and held at paragraphs 18 and 19:

18. To sum up, there is almost unanimous judicial opinion that necessary averments ought to be contained in a complaint before a person can be subjected to criminal process. A liability under Section 141 of the Act is sought to be fastened vicariously on a person connected with a company, the principal accused being the company itself. It is a departure from the rule in criminal law against vicarious liability. A clear case should be spelled out in the complaint against the person sought to be made liable. Section 141 of the Act contains the requirements for making a person liable under the said provision. That the respondent falls within the parameters of Section 141 has to be spelled out. A complaint has to be examined by the Magistrate in he first instance on the basis of averments contained therein. If the Magistrate is satisfied that there are averments which bring the case within Section 141, he would issue the process. We have seen that merely being described as a director in a company is not sufficient to satisfy the requirement of Section 141. Even a non-director can be liable under Section 141 of the Act. The averments in the complaint would also serve the purpose that the person sought to be made liable would know what is the case which is alleged against him. This will enable him to meet the case at the trial.

19. In view of the above discussion, our answers to the questions posed in the reference are as under:

(a) It is necessary to specifically aver in a complaint under Section 141 that at the time the offence was committed, the person accused was in-charge of, and responsible for the conduct of business of the company. This averment is an essential requirement of Section 141 and has to be made in a complaint. Without this averment being made in a complaint, the requirements of Section 141 cannot be said to be satisfied.

(b) The answer to the question posed in sub-para (b) has to be in the negative. Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in-charge of and responsible to the company for the conduct of its business. The requirement of Section 141 is that the person sought to be made liable should be in-charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a director in such cases.

(c) The answer to question (c) has to be in the affirmative. The question notes that the Managing Director or joint Managing Director would be admittedly in-charge of the company and responsible to the company for the conduct of its business. When that is so, holders of such positions in a company become liable under Section 141 of the Act. By virtue of the office they hold as Managing Director or Joint Managing Director, these persons are in-charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 141. So far as the signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under Sub-section (2) of Section 141.

14. In the two complaint cases filed by the present respondent, there is neither any averments in the complaint petitions nor any statement before the learned Judicial Magistrate to the effect that the accused Nos. 1 and 2 were in charge or were responsible for the conduct of business of the accused No. 3. In the absence of any averments or any statement to the said effect, no proceeding can be allowed as against the accused Nos. 1 and 2 for making them criminally liable for the acts of the accused No. 4 done on behalf of the accused No. 3. There is nothing to show that the accused Nos. 1 and 2 were responsible for the management and conduct of the business of accused No. 3 at the relevant time. There is no allegation to the effect that the accused Nos. 1 and 2 conspired with or abetted the accused Nos. 3 and 4 in respect of the alleged offence under Section 138 of the Negotiable Instruments Act. It is already seen that the accused No. 1 is a company quite distinct and separate from the accused No. 3. When there is nothing to show that the accused Nos. 1 and 2 were in charge or were in charge of the conduct of the accused No. 3, no proceeding is to be allowed as against them for the acts done by the accused No. 4 on behalf of accused No. 3. Section 141 of the Negotiable Instruments Act will not be applicable to the accused Nos. 1 and 2 in the facts and circumstances. If the proceeding against the accused Nos. 1 and 2 is allowed to be continued on the basis of the allegations made in the two complaint petitions, that will amount to abuse of the process of the Court.

15. The learned Counsel for the respondent draws this Courts’ attention to Roitong Singpho v. Amit Goel and Anr. 2006 (Supple) CLT 771 and other cases cited therein. In the above said case the Single Bench of this Court held at para 19:

In the instant case, the firm in question is a proprietorial firm by which the petitioner is a sole proprietor. The firm has no existence without the petitioner. It is the petitioner who represents the firm. Merely because she has constituted and appointed accused No. 2 as her attorney to look after and manage the affairs of the firm including the task of opening and operating Bank Account, she cannot escape the liability of the act done by the attorney on the strength of such power of attorney executed in his favour by the petitioner to manage the affair of the proprietorial firm.

16. The facts and circumstances of the two complaint cases, in respect of which the present two revisions have been filed, are not similar to the facts and circumstance involved in Roitong Singpho (supra). In the absence of any averment of any statement showing connection and responsibility of the accused Nos. 1 and 2 in respect of management and conduct of business of the accused No. 3, they (accused Nos. 1 and 2) cannot be considered, prima facie, as vicariously liable for the act done by the accused No. 4 on behalf of accused No. 3. Accordingly, the proceeding made by the Judicial Magistrate First Class as against the accused Nos. 1 and 2 (the two revisionists) for the alleged commission of the offence under Section 138 of the Negotiable Instruments Act are illegal and as such the said proceeding are not permissible. In the result, these two revisions are allowed. The proceeding as against the two revisionists on the basis of the complaints filed by the present respondent for the alleged commission of the offence under Section 138 of the Negotiable Instruments Act are hereby quashed. This Court is not expressing any opinion regarding legality or otherwise of the proceeding in respect of the remaining accused persons in the two complaint cases. The Judicial Magistrate First Class, Dimapur may proceed with the said two complaint: cases as against the remaining accused in accordance with law.

Send the records back to the Court of Judicial Magistrate First Class, Dimapur so as to reach there on or before 23rd August, 2007.

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