(Indira Banerjee and J.K. Maheshwari, JJ.)
K. Kesava ________________________________________ Petitioner;
v.
M.K. Veerendra Babu ______________________________ Respondent.
Special Leave Petition (Crl.) No. 10092 of 2019, decided on November 29, 2021
The Order of the court was delivered by
Order
1. This Special Leave Petition is against a judgment and order dated 13th September 2019 passed by the High Court of Karnataka at Bengaluru, dismissing the Criminal Revision Petition No. 1407 of 2018 filed by the Petitioner, whereby the Petitioner had challenged a judgment and order dated 10th December 2018 passed by the 55th Additional City Civil and Sessions Judge, Bengaluru (CCH-56) dismissing Criminal Appeal No. 318 of 2013 filed by the Petitioner and confirming the judgment and order of conviction and penalization of the Petitioner under Section 138 of the Negotiable Instruments Act 1881, hereinafter referred to as the “NI Act” passed by the XV Additional Chief Metropolitan Magistrate, Bangalore City, in C.C. No. 31506 of 2011 on 12th June 2013.
2. The Petitioner is the Chairman-cum-Managing Director of M/s. Maxworth Realty Ltd., a company within the meaning of the Companies Act, 2013, and hereinafter referred to as “Maxworth”. Maxworth carries on business in real estate. Maxworth, represented by the Petitioner, along with one Thippaiah entered into an agreement with the Respondent, hereinafter referred to as the “Complainant” for sale of land at Tindlu Village, Kundana Hobli, Devanahalli Taluk in the Bangalore Rural District in Karnataka, owned by the said Thippaiah.
3. The sale agreement was reduced to writing and duly registered. Pursuant to the said registered sale agreement, the complainant paid advance consideration. In terms of the aforesaid registered agreement, the said Thippaiah was required to execute and register the sale deed which he failed to do.
4. The complainant filed a private complaint and also initiated a civil suit after which Maxworth represented by the petitioner, Thippaiah and the complainant executed a Deed of Settlement dated 4.6.2011, settling all disputes. The complainant agreed to relinquish his claims under the registered sale agreement, and withdraw all proceedings, upon payment of Rs. 2,00,00,000/-.
5. Pursuant to the aforesaid Deed of Settlement, Maxworth, represented by the Petitioner, paid a sum of Rs. 25,00,000/- in cash on 4th June 2011 and a sum of Rs. 1,75,00,000/- in cheques, signed by the Petitioner, to the Complainant, as per the particulars given below:
“(i) Cheque dated 19.6.2011 bearing No. 551668 drawn on Bank of Baroda K.G. Road Branch, Bangalore for Rs. 25,00,000/- (Rupees Twenty Five Lakhs only).
(ii) Cheque dated 4.7.2011, bearing No. 551669, drawn on Bank of Baroda, K.G. Road Branch Bangalore for Rs. 50,00,000/- (Rupees Fifty Lakhs only).
(iii) Cheque dated 4.8.2011, bearing No. 551670, drawn on Bank of Baroda, K.G. Road Branch, Bangalore for Rs. 1,00,00,000/- (Rupees One Crore only).”
6. The Complainant presented the aforesaid cheques to the bank for payment. The cheques were, however, dishonoured for want of funds. Sections 138, 139, 141 and 142 of the NI Act, relevant to this case, are set out hereinbelow:—
“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 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 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.
Explanation.—For the purposes of this section, “debt or other liability” means a legally enforceable debt or other liability.
139. Presumption in favour of holder.—It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque, of the nature referred to in Section 138 for the discharge, in whole or in part, of any debt or other liability.
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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 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.
142. Cognizance of offences.— [(1)] Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),—
(a) no court shall take cognizance of any offence punishable under Section 138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the cheque;
(b) such complaint is made within one month of the date on which the cause of action arises under clause (c) of the proviso to Section 138:
Provided that the cognizance of a complaint may be taken by the court after the prescribed period, if the complainant satisfies the court that he had sufficient cause for not making a complaint within such period.
(c) no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under Section 138.
(2) The offence under Section 138 shall be inquired into and tried only by a court within whose local jurisdiction,—
(a) if the cheque is delivered for collection through an account, the branch of the bank where the payee or holder in due course, as the case may be, maintains the account, is situated; or
(b) if the cheque is presented for payment by the payee or holder in due course, otherwise through an account, the branch of the drawee bank where the drawer maintains the account, is situated.
Explanation.— For the purposes of clause (a), where a cheque is delivered for collection at any branch of the bank of the payee or holder in due course, then, the cheque shall be deemed to have been delivered to the branch of the bank in which the payee or holder in due course, as the case may be, maintains the account.
7. The Complainant issued a notice dated 12th August 2011 under Section 138(b) of the NI Act, intimating the Petitioner, being the Chairman-cum-Managing Director of Maxworth, of dishonour of the cheques in question and demanding payment of the amount of the cheques. The notice appears to have been addressed to the Petitioner in his capacity as Chairman-cum-Managing Director of Maxworth.
8. The relevant portion of the said notice is extracted hereinbelow:
“5. My client represents that, as per the understandings and as per terms of the settlement, on the date of the signing the Deed of Settlement, the second of you the first party/settlor have paid a sum of Rs. 25,00,000/- (Rs. Twenty five lakhs only) in cash and for the balance amount of Rs. 1,75,00,000/- (Rs. One crores seventy five lakhs only) you have issued three Post Dated Cheque as detailed below and of the cheques drawn on Bank of Baroda, K.G. Road Branch at Bangalore
| Sl. No. | Cheque No. | Date | Amount |
| 1. | 551668 | 19.06.2011 | 25,00,000/- |
| 2. | 551669 | 04.07.2011 | 50,00,000/- |
| 3. | 551670 | 04.08.2011 | 1,00,00,000/- |
These cheques were given by the second of you to my client for due discharge of your legal liability under the said deed of Settlement dated 04.06.2011 which was duly and validly entered into between my client and both of you. At that point of time both of you assured that all the cheques would be honored and paid on the respective dates. The first of you, also assured my client that arrangements would be made by both of you for the encashment of cheques on the due dates.
6. My client represents that he remitted the said cheques so received to his SB Accounts in the Canara Bank, Devanahalli Branch for collection, but to his surprise all the three cheques have been returned unpaid by the Bank of Baroda with the endorsement “OPENING BALANCE INSUFFICIENT”. The first two cheques have been returned to my client to 17th of July 2011 and the third cheque has been returned to my client on 09-08-2011, from his Bank i.e., Canara Bank, Devanahalli Branch. Thus, all the three cheques issued by the second of you have been returned unpaid.
7. You may please note that, you having issued the cheques for discharge of your legal liability and having allowed the same to be returned unpaid by your Bankers, by not making arrangements for the payments thereon you have committed an offence under Section 138 of the Negotiable Instruments Act and also under the provisions of IPC and exposed yourself for punishment as provided thereunder.
8. You may please note that, by this notice under section 138 of the Negotiable Instruments Act you are hereby called upon to pay up the amount of Rs. 1,75,00,00/- (Rupee One Crore Seventy Five Lakhs only) within fifteen days from the date of receipt of this notice by you, failing which my client will have no option but to initiate necessary legal proceedings both in the criminal court and also in civil court for action being taken against you per law and for recovery of the amount in due.”
9. By a letter dated 26th August, 2011, the Petitioner replied to the said notice, inter alia, contending:
“5. Regarding Para No. 5: It is true that as per the understandings and as per terms of the said settlement, on the date of the signing the Deed of Settlement our client as the First Party/Settlor has paid a sum of Rs. 25,00,000/- (Rs. Twenty Five Lakhs only) by way of cash and for the balance amount of Rs. 1,75,00,000/- (Rs. One Crore Seventy Five Lakhs) issued three post dated cheques as detailed in your notice and all the cheques were drawn on Bank of Baroda, K.G. Road Branch, Bangalore. Our client further represents that on receipt of cash payment of Rs. 25,00,000/- your client had promised to withdraw complaint and criminal cases filed against Mr. Thippaiah and our client.
……………….
6. Our client is the bona-fide purchaser for consideration and he is not under an obligation to pay any sum to your client. Only on believing the representations made by your client to withdraw the cases our client had made the payment on behalf of Mr. Thippaiah under the said Settlement deed. It is the duty of your client to withdraw the cases and complaints filed against our client and against Mr. Thippiah. Our client states that it is ready and willing to perform its part of the contract and calling your client to perform its part of the contract by withdrawing all the cases filed against our client and Mr. Thippaiah failing which our client will take necessary legal actions against your client.
7. That in your notice Company is not made as party. Under Section 141 of the Negotiable Instruments Act 1881 if the person committing an offence under section 138 is company, every person who, at the time the offence was committed was, in charge of and was responsible to the company for conduct of the business of the company, as well as the company shall as party. Hence your notice is bad for law also.
Therefore, you are hereby called upon to advise your client to withdraw the false notice within 15 days of receipt of this reply and to withdraw all the cases and complaints filed against our client and against Mr. Thippiah, failing which our client intends to file civil as well as criminal proceedings against your clients for illegal claims, mental agony, defamation, breach of contract and cheating etc. Inspite of this notice, if your client intends to file false claims the same will be defended at the cost of your client”.
10. The Complainant initiated criminal proceedings being PCR No. 20524 of 2011 against Maxworth and the Petitioner under Section 138 of the NI Act in the court of XV Additional Chief Metropolitan Magistrate, Bangalore City, who took cognizance of the offence against the accused, registered a case which was numbered CC No. 31506 of 2011, and issued summons to Maxworth and the Petitioner, who were respectively arrayed as Accused No. 1 and Accused No. 2.
11. The Petitioner appeared in Court on behalf of Maxworth and for himself, pleaded not guilty and claimed to be tried. Maxworth and the Petitioner, being the two accused, took the specific defence that the complaint was not maintainable since the complainant had not issued notice to Maxworth. They also contended that there was no legally recoverable debt due from the accused to the complainant.
12. By a judgment and order dated 12th June 2013, the XV Additional Chief Metropolitan Magistrate, Bangalore City, held that the ends of justice would be met if the accused were sentenced to pay a fine of Rs. 1,80,00,000/- out of which Rs. 1,79,00,000/- could be ordered to be paid to the complainant.
13. Paragraphs 21 and 22 of the said judgment are set out hereinbelow for convenience:
“As regards to the defect in issuance of the legal notice, the court is of the considered opinion that a perusal of Ex. P.17, clearly goes to show that the complainant has issued demand notice to one Thippaiah and to the accused no. 2 in the complaint. He is shown as a Chairman and Managing Director of the accused no. 1 company in the notice. The accused has neither denied the receipt of the said notice nor he has denied that he is not the Chairman and Managing Director of accused no. 1 company. When that is so, there is no necessity to issue a separate demand notice to the accused no. 1 company because the accused no. 2 who is representing the accused no. 1 company. The averments of the demand notice discloses that the notice issued to the accused no. 2 as a Chairman and Managing Director of accused no. 1 company. When that is so, the complaint is proper and maintainable and does not suffer from any infirmities. Hence the court is of the considered opinion that the complainant has proved all the ingredients of Sec. 138 of NI Act. On the other hand, the accused has failed to rebut the statutory presumption in favour of the complainant U/s 139 of NI Act. As such point no. 1 is answered in the affirmative.
22. The court is of the considered opinion that the ends of justice will be met, if the accused is sentenced to pay a fine of Rs. 1,80,00,000/- out of which an amount of Rs. 1,79,00,000/- can be ordered to be paid to the complainant as compensation if fine amount is recovered.”
14. However, the ordering portion of the judgment reads:
“23. Point No. 2 – For the aforesaid reasons, the following:
ORDER
Acting under Sec. 255(2) Cr.P.C, the accused no. 2 is convicted, for the offence punishable u/s 138 of the N.I. Act and sentenced to pay fine of Rs. 1,80,00,000/- (Rs. One Crore eighty lakhs only), in default, suffer S.I. for six months.
If fine amount is recovered Rs. 1,79,00,000/- (Rs. One Crore Seventy Nine lakhs only) shall be paid as compensation to the complainant U/s. 357 of Cr.P.C and Rs. 1 lakh shall go to State”.
15. The XV Additional Chief Metropolitan Magistrate, Bangalore City, sentenced the Petitioner, being the Accused No. 2, under Section 255(2) of the Cr.P.C. for offence punishable under Section 138 of the NI Act, to pay fine of Rs. 1,80,00,000/- failing which the Petitioner would have to undergo simple imprisonment for six months.
16. Maxworth and the Petitioner filed Criminal Appeal No. 318/2013 against the said judgment and order of the XV Additional Chief Metropolitan Magistrate, Bangalore City (the Trial Court), in the Court of Principal City Civil and Sessions Judge, Bangalore, hereinafter referred to as the Sessions Court, under Section 374(3) of the Code of Criminal Procedure. and deposited 20% of the total compensation amount of Rs. 36,00,000/- in compliance of an order dated 4th July 2013 passed by the Sessions Court”.
17. By a judgment and order dated 10th December 2018, the Sessions Court dismissed Criminal Appeal No. 318 of 2013 and confirmed the order of the Trial Court. Maxworth and the Petitioner filed a Criminal Revision Petition No. 1407 of 2018 in the High Court of Karnataka. The said Criminal Revision Petition has been dismissed by the judgment and order dated 13th September 2019 impugned in this Special Leave Petition.
18. As recorded by the Trial Court and affirmed by the Sessions Court and the High Court, the Petitioner had admitted having issued the three cheques for Rs. 25 Lakhs, Rs. 50 Lakhs and Rs. 1 Crore respectively. It was not in dispute that the Petitioner had issued the dishonoured cheques as Chairman-cum-Managing Director of the Company. The cheques were admittedly signed by the Petitioner as authorized signatory of Maxworth.
19. The Trial Court found that the Complainant had issued notice to the Petitioner as Chairman-cum-Managing Director of Maxworth. It could not be said that there was any infirmity in the notice. This finding was not disturbed by the Appellate Court. The Trial Court and the Session Court held that the Complainant had proved all the ingredients of Section 138 of the NI Act. On the other hand, the Petitioner had failed to rebut the statutory presumption under Section 139 of the NI Act.
20. Both the Trial court and the Sessions Court concurrently found on facts that the Complainant had proved the existence of a legally enforceable debt due to the Complainant from the Petitioner/Maxworth and that the cheques in question had been issued in discharge of the same.
21. The short question raised by the petitioner in this special petition is, whether the complaint against the Petitioner was maintainable, in the absence of notice to Maxworth. Another question sought to be raised before this Court is whether the Petitioner could have been convicted when Maxworth had been acquitted, even though there is no express order of acquittal of Maxworth. On the other hand, the judgment of the Trial Court reads, “the ends of justice will be met if the accused is sentenced to pay a fine…”.
22. In Anil Hada v. Indian Acrylic Limited1, this Court held:—
“10. Three categories of persons can be discerned from the said provision who are brought within the purview of the penal liability through the legal fiction envisaged in the section. They are: (1) the company which committed the offence, (2) everyone who was in charge of and was responsible for the business of the company, and (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.
11. Normally an offence can be committed by human beings who are natural persons. Such offence can be tried according to the procedure established by law. But there are offences which could be attributed to juristic persons also. If the drawer of a cheque happens to be a juristic person like a body corporate it can be prosecuted for the offence under Section 138 of the Act. Now there is no scope for doubt regarding that aspect in view of the clear language employed in Section 141 of the Act. In the expanded ambit of the word “company” even firms or any other associations of persons are included and as a necessary adjunct thereof a partner of the firm is treated as director of that company.
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.”
23. The judgment in Anil Hada (supra) was delivered by this Court on 26th June, 1999. The law declared by the Supreme Court in Anil Hada (supra) held the field at the material time when notice was issued to the petitioner under Section 138(b) of the NI Act. In Aneeta Hada v. Godfather Travels and Tours Private Limited2, decided on 27th April 2012, a three Judge Bench of this Court held that Anil Hada (supra) does not lay down the correct law as far as it stated that the Director or any other person could be prosecuted without impleadment of the company and partly overruled Anil Hada (supra). In this case, both Maxworth and the Petitioner were arrayed as accused in the complaint.
24. The judgment of this Court in State of Madras v. C. V. Parekh3, does not deal with an offence under the NI Act. What was in issue in the aforesaid case was the applicability of Section 10 of the Essential Commodities Act whereunder the person contravening an order under Section 3 of the Essential Commodities Act including an order under the Iron and Steel Control Order, 1956 must be a company itself.
25. In Aneeta Hada (supra), this Court held:—
“19. The main part of the provision can be segregated into three compartments, namely, (i) the cheque is drawn by a person, (ii) the cheque drawn on an account maintained by him with the 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 a debt or other liability, is returned unpaid, either because the amount of money standing to the credit of that account is insufficient to honour the cheque or it exceeds the amount arranged to be paid from that account by an arrangement made with the bank, and (iii) such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of the 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. The proviso to the said section postulates under what circumstances the section shall not apply. In the case at hand, we are not concerned with the said aspect. It will not be out of place to state that the main part of the provision deals with the basic ingredients and the proviso deals with certain circumstances and lays certain conditions where it will not be applicable. The emphasis has been laid on the factum that the cheque has to be drawn by a person on the account maintained by him and he must have issued the cheque in discharge of any debt or other liability.
20. Section 7 of the Act defines “drawer” to mean the maker of a bill of exchange or a cheque. An authorised signatory of a company becomes a drawer as he has been authorised to do so in respect of the account maintained by the company.
21. At this juncture, we may refer to Section 141 which deals with offences by companies. As the spine of the controversy rests on the said provision, …
22. On a reading of the said provision, it is plain as day that if a person who commits the offence under Section 138 of the Act is a company, the company as well as every person in charge of and responsible to the company for the conduct of business of the company at the time of commission of offence is deemed to be guilty of the offence. The first proviso carves out under what circumstances the criminal liability would not be fastened. Sub-section (2) enlarges the criminal liability by incorporating the concepts of connivance, negligence and consent that engulfs many categories of officers. It is worth noting that in both the provisions, there is a “deemed” concept of criminal liability.
23. Section 139 of the Act creates a presumption in favour of the holder. The said provision has to be read in conjunction with Section 118(a) which occurs in Chapter XIII of the Act that deals with special rules of evidence. Section 140 stipulates the defence which may not be allowed in a prosecution under Section 138 of the Act. Thus, there is a deemed fiction in relation to criminal liability, presumption in favour of the holder, and denial of a defence in respect of certain aspects.
24. Section 141 uses the term “person” and refers it to a company. There is no trace of doubt that the company is a juristic person. The concept of corporate criminal liability is attracted to a corporation and company and it is so luminescent from the language employed under Section 141 of the Act. It is apposite to note that the present enactment is one where the company itself and certain categories of officers in certain circumstances are deemed to be guilty of the offence.
25. In Halsbury’s Laws of England, Vol. 11(1), in Para 35, it has been laid down that in general, a corporation is in the same position in relation to criminal liability as a natural person and may be convicted of common law and statutory offences including those requiring mens rea.
26. In 19 Corpus Juris Secundum, in Para 1358, while dealing with liability in respect of criminal prosecution, it has been stated that a corporation shall be liable for criminal prosecution for crimes punishable with fine; in certain jurisdictions, a corporation cannot be convicted except as specifically provided by the statute.
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32. We have referred to the aforesaid authorities to highlight that the company can have criminal liability and further, if a group of persons that guide the business of the companies have the criminal intent, that would be imputed to the body corporate. In this backdrop, Section 141 of the Act has to be understood. The said provision clearly stipulates that when a person which is a company commits an offence, then certain categories of persons in charge as well as the company would be deemed to be liable for the offences under Section 138. Thus, the statutory intendment is absolutely plain. As is perceptible, the provision makes the functionaries and the companies to be liable and that is by deeming fiction. A deeming fiction has its own signification.
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39. The word “deemed” used in Section 141 of the Act applies to the company and the persons responsible for the acts of the company. It crystallises the corporate criminal liability and vicarious liability of a person who is in charge of the company. What averments should be required to make a person vicariously liable has been dealt with in S.M.S. Pharmaceuticals Ltd. [(2005) 8 SCC 89 : 2005 SCC (Cri) 1975] In the said case, it has been opined that the criminal liability on account of dishonour of cheque primarily falls on the drawee (sic drawer) company and is extended to the officers of the company and as there is a specific provision extending the liability to the officers, the conditions incorporated in Section 141 are to be satisfied.
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49. On a reading of both the paragraphs from Anil Hada case [(2000) 1 SCC 1 : 2001 SCC (Cri) 174], it is evincible that the two-Judge Bench expressed the view that 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 and, thereafter, proceeded to state that if the company is not prosecuted due to legal snag or otherwise, the prosecuted person cannot, on that score alone, escape from the penal liability created through the legal fiction and this is envisaged in Section 141 of the Act. If both the paragraphs are appreciated in a studied manner, it can safely be stated that the conclusions have been arrived at regard being had to the obtaining factual matrix therein.
50. However, it is noticeable that the Bench thereafter referred to the dictum in Sheoratan Agarwal [(1984) 4 SCC 352 : 1984 SCC (Cri) 620] and eventually held as follows : (Anil Hada case [(2000) 1 SCC 1 : 2001 SCC (Cri) 174], SCC p. 10, para 21)
“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.”
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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. Parekh [(1970) 3 SCC 491 : 1971 SCC (Cri) 97] which is a three-Judge Bench decision. Thus, the view expressed in Sheoratan Agarwal [(1984) 4 SCC 352 : 1984 SCC (Cri) 620] does not correctly lay down the law and, accordingly, is hereby overruled. The decision in Anil Hada [(2000) 1 SCC 1 : 2001 SCC (Cri) 174] is overruled with the qualifier as stated in para 51. The decision in Modi Distillery [(1987) 3 SCC 684 : 1987 SCC (Cri) 632] has to be treated to be restricted to its own facts as has been explained by us hereinabove.”
26. In Aneeta Hada (supra), the core issue was whether the company could have been made liable for prosecution without being impleaded as an accused and whether Directors could have been prosecuted for offence punishable under the aforesaid provisions without the company being arraigned as an accused. In this case, both Maxworth and the Petitioner were arraigned as accused Nos. 1 and 2 respectively in the criminal complaint. The judgment in Aneeta Hada (supra) is not attracted in this case.
27. In Krishna Texport and Capital Markets Ltd. v. Ila A. Agrawal4, this Court held:
“16. Section 141 states that if the person committing an offence under Section 138 is a company, every Director of such company who was in charge of and responsible to that company for conduct of its business shall also be deemed to be guilty. The reason for creating vicarious liability is plainly that a juristic entity i.e. a company would be run by living persons who are in charge of its affairs and who guide the actions of that company and that if such juristic entity is guilty, those who were so responsible for its affairs and who guided actions of such juristic entity must be held responsible and ought to be proceeded against. Section 141 again does not lay down any requirement that in such eventuality the Directors must individually be issued separate notices under Section 138. 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. The opportunity to the “drawer” company is considered good enough for those who are in charge of the affairs of such company. If it is their case that the offence was committed without their knowledge or that they had exercised due diligence to prevent such commission, it would be a matter of defence to be considered at the appropriate stage in the trial and certainly not at the stage of notice under Section 138.
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18. In our view, Section 138 of the Act does not admit of any necessity or scope for reading into it the requirement that the Directors of the Company in question must also be issued individual notices under Section 138 of the Act. Such Directors who are in charge of affairs of the Company and responsible for the affairs of the Company would be aware of the receipt of notice by the Company under Section 138. Therefore, neither on literal construction nor on the touchstone of purposive construction such requirement could or ought to be read into Section 138 of the Act.”
28. The High Court rightly found the Managing Director is a person entrusted with substantial power of management of the affairs of the Company. Notice on Managing Director would imply that the company was made aware of the dishonour of the cheque and of the demand of the payment of dishonour of cheque as contemplated under Section 138 of the NI Act.
29. In Rangappa v. Sri Mohan5, this Court held that once the cheque relates to the account of the accused and he accepts and admits the signatures on the said cheque, the initial presumption as contemplated under Section 139 of the NI Act has to be raised by the Court in favour of the complainant. The presumption is mandatory presumption and not a general presumption. Of course, the accused might rebut the presumption. However, the accused would necessarily be expected to have a plausible difference capable of being accepted by the Court.
30. The judgment in Himanshu v. B. Shivamurthy6 relied upon by the Petitioner is clearly distinguishable on facts in that the complaint had only been filed against the Director of the public Limited company who had signed the cheque and not against the company. In this Case, as observed above, Maxworth was named in the complaint and was arraigned as accused. Notice had been served on the Petitioner in his capacity as Chairman-cum-Managing Director of Maxworth, at the registered office of Maxworth.
31. In Himanshu v. B. Shivamurthy (supra), this Court held:—
“6. The judgment of the High Court has been questioned on two grounds. The learned counsel appearing on behalf of 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. The learned counsel 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.
7. 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 & Tours (P) Ltd. [Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661 : (2012) 3 SCC (Civ) 350 : (2012) 3 SCC (Cri) 241] governs the area of dispute. The issue which fell for consideration was whether an authorised 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 thus : (SCC p. 688, para 58)
“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.”
In similar terms, the Court further held : (SCC p. 688, para 59)
“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.”
32. There can be no doubt that once hearing is concluded judgment should be pronounced without delay. Unexplained and negligent delay is deprecable. However, the judgment of this Court in Anil Rai v. State of Bihar7 is not an authority for the proposition that a judgment is liable to be set aside on ground alone of delay even if the judgment is otherwise sustainable in law. Long delay gives the parties the right to mention the matter for early hearing. The parties might even approach the High Court with a prayer for withdrawal of the case, which has not been done in this case.
33. As observed above, it is not in dispute that the Petitioner was in charge of the company, Maxworth, as its Chairman-cum-Managing Director and responsible for conduct of its business. Admittedly, the petitioner, as Chairman-cum-Managing Director of Maxworth, had all along, been representing Maxworth in its business transactions, and in particular, its transactions with the complainant. The deed of settlement pursuant to which, payments were made, had been executed by Maxworth through the petitioner. Payments had been made by Maxworth through the petitioner. The cheques were signed by the petitioner, who was the authorised signatory of Maxworth. Under Section 20 of the Companies Act, 2013, document, which would include notice, is required to be served on the company or an officer of the company at the registered office of the company. From the language and tenor of the notice under Section 138(b) of the NI Act, and the language and tenor of the reply to the said notice, it is patently clear that the said notice was intended to be and understood as a notice to the Company, Maxworth, through the petitioner, its Chairman-cum-Managing Director. The notice was, in effect and substance, a notice to Maxworth through the petitioner as also to the petitioner.
34. This Court is not inclined to set aside the conviction on the hyper-technical ground that the Petitioner has not been served with two separate copies of the same notice, shown separately to be addressed to the company through him and to the petitioner.
35. For the reasons discussed above, the Special Leave petition is dismissed.
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1 (2000) 1 SCC 1
2 (2012) 5 SCC 661
3 1970 (3) SCC 491
4 (2015) 8 SCC 28
5 (2010) 11 SCC 441
6 (2019) 3 SCC 797
7 (2001) 7 SCC 318
