2025 (9) TMI 326 - HC - Indian Laws

Arraignment without impleading firm inconsistent with vicarious liability under Section 141 NI Act; defect curable, amendment allowed

Himanshu Versus TCNS Clothing Co. Ltd.

Himanshu Versus TCNS Clothing Co. Ltd. - 2025:DHC:7593 ISSUES PRESENTED AND CONSIDERED 1. Whether a complaint under Section 138 read with Section 142 of the Negotiable Instruments Act, instituted against an individual described as sole proprietor, but alleging dishonour of cheques drawn for a partnership concern, is maintainable without impleading the partnership firm. 2. Whether non-impleadment of the firm (or incorrect description of the nature of the business entity) in such a complaint is a curable infirmity permitting amendment at a post-summoning stage, or whether it is fatal and warrants quashing of the criminal proceedings. 3. Whether a statutory notice under Section 138 of the Negotiable Instruments Act is vitiated by apparent typographical errors in date or by being addressed to an individual rather than the firm, when there is contemporaneous electronic communication and acknowledgement. 4. Whether the High Court should exercise its inherent jurisdiction under Section 482 CrPC to quash proceedings where prima facie material suggests the accused was not concerned with issuance of the cheques or where a legal lacuna goes to the root of the matter. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Maintainability of complaint against an individual without impleading the partnership firm Legal framework: Section 138 NI Act creates an offence for dishonour of cheques; vicarious liability provisions (analogous statutory provisions) make individuals liable only where the principal juristic person (company/firm) is shown to have committed the offence and vicarious liability is invoked. Penal liability attracts strict construction. Precedent treatment: The Court relied on binding apex jurisprudence establishing that where vicarious liability is invoked, the principal juristic person must be arraigned as the primary accused; decisions permitting prosecution of officers without impleading the company are treated as incorrect to the extent they conflict with the larger Bench ratio. Earlier authorities that allowed formal correction in limited facts were acknowledged as restricted or curative in nature. Interpretation and reasoning: The Court held that imposition of vicarious liability under provisions akin to Section 141 requires that the company/firm must be shown to have committed the offence; only then can persons in charge be fastened with vicarious liability. The complaint before the Magistrate described the accused as sole proprietor while available material indicated a partnership and signatures on the cheques by another partner. Importantly, the present complaint did not invoke the vicarious-liability provision. Thus, arraignment of the individual in his personal capacity without impleading the firm is prima facie inconsistent with the settled legal position. Ratio vs. Obiter: Ratio - Principal juristic entity must be arraigned where vicarious liability is sought to be fastened; penal provisions to be strictly construed. Obiter - factual remarks on representation in agreement and signature allocation are case-specific observations. Conclusions: The complaint as framed against the individual without impleading the firm was prima facie inconsistent with the controlling principle that the firm must be the principal accused when vicarious liability is implicated. However, the defect could be considered for amendment depending on curability (see Issue 2). Issue 2 - Curability of non-impleadment / incorrect description and permissibility of amendment post-summons Legal framework: There is no specific CrPC provision for amendment of complaint; however, courts have recognised that curable, formal infirmities may be rectified to advance justice, provided no prejudice is caused to the accused and the nature of the offence is not altered. Factors include whether cognizance has been taken, stage of proceedings, and whether amendment changes substratum of allegations. Precedent treatment: The Court surveyed authorities holding (a) curable defects can be remedied by formal amendment without causing prejudice; (b) but vicarious liability cannot be imposed absent arraignment of the principal in general, unless factual matrix permits formal cure. Earlier High Court and Supreme Court pronouncements permitting amendment in limited factual settings were treated as good law where defects were formal or caused by the complainant's reasonable difficulty; conflicting precedents allowing prosecution of officers without impleading the juristic person were distinguished/overruled to the extent inconsistent with the larger Bench view. Interpretation and reasoning: Applying the criteria for amendment, the Court noted that although cognizance had been taken, effective trial had not commenced: summons remained largely unserved, warrants were issued but often unexecuted, and the accused had not faced trial, evidence, or cross-examination. The proposed amendment to implead the firm was a correction of description that would not change the essential nature or substratum of allegations (dishonour of cheques). Permitting amendment would not prejudice the accused at that stage; refusal would stifle proceedings on technicality and frustrate statute's object. Ratio vs. Obiter: Ratio - Where the defect is formal/curable, the court may permit amendment even post-cognizance so long as it does not alter the nature of the complaint or prejudice accused, particularly when trial has not progressed beyond the stage of process issuance. Obiter - application of prejudice assessment to the specific factual timeline of service/warrants in this case. Conclusions: Non-impleadment of the firm is a curable defect in the present factual matrix. The complainant is permitted to apply to amend the complaint to implead the necessary parties and correct the memo of parties; the Trial Court should consider such application within the constraints imposed by the Court (see directions and costs). Issue 3 - Validity of statutory notice where typographical errors or addressing to individual occur, with contemporaneous electronic service and acknowledgement Legal framework: Section 138 requires service of statutory notice; compliance is a condition precedent for prosecution. Notice must reasonably comply with requirements but courts recognise typographical mistakes may be innocuous if substance and intent are clear and notice reaches addressee. Precedent treatment: Authorities emphasize strictness in compliance but permit consideration of substance over form where defects are typographical and the notice has actually reached/addressee has acknowledged. Earlier apex decisions stressing compliance with proviso and effective service were discussed as guiding principles. Interpretation and reasoning: The Court analysed the notice that bore an erroneous year (typographical error) while recording dishonour dates in December of that year; contemporaneous email transmission to firm addresses and an email acknowledgment by the individual were on record. The Court concluded the date error to be typographical and not fatal; service by email to addresses associated with the firm and acknowledgement indicated effective service of statutory notice on the relevant entity. Ratio vs. Obiter: Ratio - A typographical error in the date of the statutory notice is not necessarily fatal where the return memos and contextual facts demonstrate the intended timeframe and the notice was effectively communicated and acknowledged. Obiter - reliance on specific email addresses and reply as evidentiary support is fact-specific. Conclusions: The statutory notice's typographical date error did not vitiate the notice in the present case; electronic service and acknowledgment satisfied the substantive requirement of effective communication for the purpose of Section 138. Issue 4 - Exercise of inherent jurisdiction to quash proceedings Legal framework: High Courts may exercise inherent jurisdiction under Section 482 CrPC to quash criminal proceedings where unimpeachable material shows accused were not concerned with the offence or where a legal lacuna goes to the root of the matter. Precedent treatment: The Court reiterated established tests for quashing: whether there is material demonstrating absence of culpability, or a legal flaw so fundamental that it defeats the very basis of prosecution; distinguished those situations from curable/formal defects where amendment is appropriate. Interpretation and reasoning: Applying the test, the Court found no unimpeachable material demonstrating the accused had no nexus with issuance of the cheques; nor was there a legal lacuna going to the root that mandated quashing. Rather, the primary defect was one of description/non-impleadment which was curable. Given the stage of proceedings and absence of prejudice from amendment, quashing was not warranted. Ratio vs. Obiter: Ratio - Quashing under inherent jurisdiction is warranted only where material shows absence of concern with issuance of cheques or where legal defect is fundamental and incurable; formal or curable defects should be remedied by amendment. Obiter - balancing of equities by imposing compensatory costs given delay attributable to complainant. Conclusions: The Court declined to quash the complaint; instead it permitted the complainant to move to amend the complaint within two months and directed payment of compensatory costs to balance equities. The petition for quashing was dismissed subject to these directions.