2018 (11) TMI 930 - HC - Indian Laws

Court upholds complaint against company despite notice to Managing Director only; irregularity doesn't invalidate prosecution.

DSC LTD. Versus DADA Jeetu Buildcon Pvt. Ltd.

The court dismissed the petition seeking to quash the summoning order under Section 138 of the Negotiable Instruments Act. The complaint filed against the ... Maintainability of Complaint - Service of notice - Dishonor of cheque due to insufficiency of funds - Section 138 of NI Act - whether a complaint under section 138 Negotiable Instruments Act would be maintainable, against the company, if the statutory notice under section 138 Negotiable Instruments Act, is issued only to its Managing Director and is not issued to the company which is maintaining the account from which the subject cheque is issued? Held that:- Vicarious liability is created by section 141 as the company being a juristic entity, is run by living persons who are in charge of its affairs and who guide the actions of that company and that if such company 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. 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. That is the reason that no notice is additionally contemplated to be given to such Directors. There is no 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 and would be liable without even being issued individual notices. In the present case subject cheque was issued by the company under the signatures of Mr. M.S. Narula, its Managing Director. The statutory notice is addressed and served on Mr M.S. Narula. Since the company is a legal entity and functioning only through its directors and Managing Director, service of notice on the Managing Director would be sufficient service of notice on the company - There could be no better way of serving a legal entity like a company than by serving a notice on the person who is in charge and in control of the company. The Managing Director is the key person who is in control of the affairs of the company. Statutory notice in the present case has been served on the Managing Director. There is sufficient compliance of the statutory requirements of section 138 Negotiable Instruments Act. The irregularity in filing the present complaint against the company without service of a notice in the name of the company and by serving the statutory notice on the Managing Director is a mere irregularity and is not fatal to the prosecution launched against the petitioner company - Petition dismissed. Issues Involved:1. Quashing of the summoning order dated 06.03.2013.2. Quashing of the complaint filed under Section 138 of the Negotiable Instruments Act (N.I. Act).3. Whether the complaint under Section 138 N.I. Act is maintainable when statutory notice was issued only to the Managing Director and not to the company.Detailed Analysis:Issue 1: Quashing of the summoning order dated 06.03.2013The petitioner sought the quashing of the summoning order dated 06.03.2013. The court examined the legal position and found no grounds to quash the proceedings initiated under Section 138 of the N.I. Act. The petition was accordingly dismissed.Issue 2: Quashing of the complaint filed under Section 138 of the N.I. ActThe petitioner also sought the quashing of the complaint filed under Section 138 of the N.I. Act. The respondent had filed a complaint contending that two cheques amounting to Rs. 75 lakhs issued by the petitioner were dishonoured due to 'insufficient funds.' The court held that the complaint was maintainable and dismissed the petition.Issue 3: Whether the complaint under Section 138 N.I. Act is maintainable when statutory notice was issued only to the Managing Director and not to the companyThe petitioner argued that the statutory notice was only addressed to Mr. M.S. Narula, the Managing Director, and not to DSC Ltd., and hence the complaint was not maintainable. The court referred to the Supreme Court's judgment in Krishna Texport & Capital Markets Ltd. v. Ila A. Agrawal, which clarified that the notice under Section 138 is required to be given to 'the drawer' of the cheque. The court noted that the company, being a juristic entity, functions through its directors, and service of notice on the Managing Director is sufficient service on the company.The court further referenced N. Rangachari v. BSNL, where it was held that a company acts through its directors, and knowledge of the company is deemed to be the knowledge of the directors. Therefore, serving notice on the Managing Director implies that the company is aware of the dishonour of the cheque and the demand for payment.The court concluded that the irregularity in serving the statutory notice on the Managing Director instead of the company was not fatal to the prosecution. The statutory requirements of Section 138 N.I. Act were sufficiently complied with, and the complaint against the company was maintainable.Conclusion:The court dismissed the petition, finding no grounds to quash the proceedings initiated under Section 138 of the N.I. Act. The complaint was deemed maintainable despite the statutory notice being addressed only to the Managing Director. The court emphasized that the knowledge of the Managing Director is attributed to the company, and serving notice on the Managing Director is sufficient to meet the statutory requirements.