TaxTMI 
TaxTMI 
2022 (9) TMI 846
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...., "the Code"), whereby the High Court allowed the application and quashed the criminal proceedings initiated against the respondent herein in the court of the Judicial Magistrate Fast Track Court No.II, Erode. 3. There are some legal issues with a never ending debate. The debate on such legal issues goes on and on despite there being plethora of case law on the subject. The NI Act by now is almost three decades old. Section 141 of the NI Act is on the statute past more than three decades. There are various decisions of this Court and High Courts explaining the true purport of Section 141 of the NI Act. However, the debate on Section 141 of the NI Act is never ending. The present litigation is also one in which we have been called upon to look into Section 141 of the NI Act. FACTUAL MATRIX 4. The facts of this case are plain and simple. The appellant herein (original complainant) is engaged in the business of milk and milk products. The respondent herein is one of the partners of a Partnership Firm running in the name of Sira Marketing Services. The firm used to purchase milk and milk products from the appellant/complainant on credit basis. The appellant has to recover an a....
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....t (original complainant) is here before this Court with the present appeal. Submissions on behalf of the Appellant 8. The learned counsel, Mr. E.R. Kumar appearing for the appellant vehemently submitted that the High Court committed a serious error in passing the impugned Order quashing the proceedings against the respondent herein. He would submit that the entire premise on which the High Court proceeded could be termed as erroneous in law. The learned counsel would submit that in the statutory notice issued to the respondent as well as in the body of the complaint, there are specific averments that the accused Nos. 02 and 03 respectively, being the partners of the partnership firms, are incharge and responsible for the daytoday affairs of the firm. He pointed out there are specific averments made in the complaint that the partners which include the respondent herein are regularly looking after and actively taking part in the daytoday business of the firm. He further pointed out that there is a specific averment that in order to discharge the liability, the original accused No. 02 had issued the cheque within the knowledge and consent of the respondent herein. It is argued t....
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....bmit that mere bald averments in the complaint are not sufficient to fasten the vicarious lability on the partner of the firm as envisaged under Section 141 of the NI Act. The learned counsel would submit that the case on hand is squarely covered by the decision of this Court in the case of SMS Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89. Relying on the said decision of this Court, the learned counsel would submit that the deeming fiction creating criminal lability and vicarious lability are a departure from the usual principles of criminal law and that a clear case should be spelt out and the accused person should be made aware of the case alleged against him or her. The learned counsel would submit that this would therefore necessarily require averments in addition to the statement that the accused is incharge of and responsible for the affairs of the company/firm. 13. The learned counsel appearing for the respondent in support of her aforesaid submissions has placed strong reliance on the following decisions: (i) Gunmala Sales Pvt. Ltd. v. Anu Mehta & Ors, reported in (2015) 1 SCC 103; (ii) National Small Industries Corporation v. Harmeet Singh Pai....
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....anmiyur Branch, Chennai41. S.No. Cheque Date Cheque No. Cheque Amount 1. 05.05.2017 411618 Rs. 10,00,000/ On your request our client presented the above said cheque for collection on 13.06.2017 through HDFC Bank Ltd., Sathy Road Branch, Erode and the same was returned as "Funds Insufficient" on 14.06.2017. Again on your request our client presented the above said cheque for collection on 20.07.2017 through HDFC Bank Ltd., Sathy Road Branch, Erode and the same was returned as "Funds Insufficient" on 21.07.2017. Without sufficient funds in your account, you have issued the above said cheque. You issued the above said cheque assuring payment on presentation of the same. At the time of issuing the said cheque, you represented that you are having an account in which you will have sufficient amount in your account. But you purposely allowed the same to be dishonoured with an intention to cheat and defraud our client. Therefore, you have committed an offence punishable U/S 138 of the Negotiable Instruments Act. You are hereby called upon to pay the above said amount of Rs.10,00,000/due under the above said cheque dated 05.05.2017 within i....
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....6.2017 through HDFC Bank Ltd., Sathy Road Branch, Erode and the same was returned as "Funds Insufficient" on 14.06.2017. Again, on the request of the accused the complainant presented the above said cheque for collection on 20.07.2017 through HDFC Bank Ltd., Sathy Road Branch, Erode and the same was returned as "Funds Insufficient" on 21.07.2017. Without sufficient funds in their account accused have issued the above said cheque. The accused issued the above said cheque assuring payment on presentation of the same. At the time of issuing the said cheque, the accused represented that they are having an account in which they will have sufficient amount in their account. But the accused purposely allowed the same to be dishonoured with an intention to cheat and defraud the complainant. Therefore, the accused have committed an offence punishable u/s 138 of the Negotiable Instruments Act. Thereupon the complainant issued a lawyer notice on 14.08.2017 to the accused calling upon them to pay the above said sum of Rs.10,00,000/due under the said cheque dated 05.05.2017 within 15 days from the date of receipt of this notice. The accused received the above said notice on 16....
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....tnership Firm was dissolved during February 2017 and the subject cheque is said to have been issued by A~2 on 05.05.2017, after the dissolution of the Partnership Firm. The 2nd ground that has been raised is that the allegations made in the complaint does not satisfy the requirements of Section 141 of the Negotiable Instruments Act. 3. Heard Mr. K. Kannan, learned counsel for the petitioner and Mr. M. Guruprasad, learned counsel for the respondent. 4. Insofar as the first issue that is raised by the petitioner, the same cannot be gone into by this Court and it is a factual issue which can be decided only in the course of trial. 5. Insofar as the second issue is concerned, it will be beneficial to extract the relevant portion from the complaint filed by the respondent hereunder: "The accused No. 1 is a Partnership Firm, the accused No.2 and 3 are Partners and incharge and responsible for the daytoday affairs of the accused No. 1, the accused No.2 and 3 are regularly looking after and actively taking part in the daytoday business of the accused No. 1. The complainant is doing business in Milk and Milk Products. The accused used to purchase....
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....t it in other words, the High Court proceeded on the footing that mere averments in the complaint as regards the role of the respondent as a partner in the firm is not sufficient. Analysing Section 141 of the Negotiable Instrument Act, 1881 23. The provisions of Section 138 and Section 141 resply of the NI Act read as under: " Section 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 be extended to two years, or with fine which may extend to twice the amount of the cheque or with both: ....
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....ilty 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." 24. Evidently, the gist of Section 138 is that the drawer of the cheque shall be deemed to have committed an offence when the cheque drawn by him is returned unpaid on the prescribed grounds. The conditions precedent and the conditions subsequent to constitute the offence are drawing of a cheque on the account maintained by the drawer with a banker, presentation of the cheque within the prescribed period, making of a demand by the payee by giving a notice in writing within the prescribed period and failure of the drawer to pay within the prescribed period. Upon fulfilment of these requirements, the commission of the offence which may be called the offence of 'dishonour of cheque' is complete. If the drawer is a company, the offence is primarily committed by the company. By virtue of the provisions of subsection (1) of Section 141, the guilt for the o....
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.... the offence by the company, the person covered by subsection (1) may, by virtue of the first proviso, escape only punishment if he proves that the offence was committed without his knowledge or despite his due diligence. 27. As for the requisite evidence, the burden upon the prosecution would be discharged under subsection (1) when a person is proved to be in charge of and responsible to the company in the conduct of its business and would shift upon the accused to prove that he was ignorant or diligent, if that be his defence; whereas under subsection (2) the prosecution would be required to allege and prove the consent, connivance or neglect and holding of the office by the accused. There is nothing to suggest that the same person cannot be made to face the prosecution either under subsection (1) or subsection (2) or both. A director or manager can be arraigned and proved to be guilty as the person in charge of and responsible to the company as well as the director of the company who, as such, might have consented to, connived at or been negligent in respect of the offence of dishonour of cheque, be logically deduced that a person can be arraigned in a complaint as the accuse....
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....framing of charge. In this manner, we dispose of these appeals." [Emphasis supplied] 29. The seminal issue raised and requires to be settled in the present case is one relating to a person liable to be proceeded against under the provisions of subsection (1) of Section 141 for being incharge of and responsible to the company "at the time the offence was committed." It would, therefore, be important to find out the "time" when the offence under Section 138 can be said to have been committed by the company. It is common place that an offence means an aggregate of facts or omissions which are punishable by law and, therefore, can consist of several parts, each part being committed at different time and place involving different persons. The provisions of Section 138 would require a series of acts of commission and omission to happen before the offence of, what may be loosely called "dishonour of cheque" can be constituted for the purpose of prosecution and punishment. It is held by the Supreme Court in K. Bhaskaran v. Sankaran Vaidhyan Balan, (1999) 7 SCC 510, that: " 14. The offence under Section 138 of the Act can be completed only with the concatenation of a nu....
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....the possibility of a series of persons being in charge when the sequence of events culminating into the commission of offence by the company were taking place. As to what this 'relevant time' is, was a question that this Court was called to answer, inter alia, in N Rangachari v. Bharati Sanchar Nigam Limited, AIR (2007) SC 1682. In this case, Data Access, a company had issued two cheques to the BSNL, which were duly presented, but were dishonoured for insufficiency of funds. A complaint under Section 138 of the NI Act was filed. While the BSNL held the directors liable, the appellant, a chairman in the company contended that he being a nominated chairman and holding an Honorary post in the Company, was never assigned with any of the company's financial or other business activities. He was the Chairman for name sake and was never entrusted with any job or business or constituted a signing authority. Resolving the issue of when the liability could be fastened, this Court said: "In the case on hand, reading the complaint as a whole, it is clear that the allegations in the complaint are that at the time at which the two dishonoured cheques were issued by the company, the appel....
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....med to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. Thus, vicarious liability has been fastened on those who are incharge of and responsible to the company for the conduct of its business. For the purpose of Section 141, a firm comes within the ambit of a company. It is not necessary to reproduce the language of Section 141 verbatim in the complaint since the complaint is required to be read as a whole. If the substance of the allegations made in the complaint fulfill the requirements of Section 141 , the complaint has to proceed and is required to be tried with. It is also true that in construing a complaint a hypertechnical approach should not be adopted so as to quash the same. The laudable object of preventing bouncing of cheques and sustaining the credibility of commercial transactions resulting in enactment of Sections 138 and 141 has to be borne in mind. These provisions create a statutory presumption of dishonesty exposing a person to criminal liability if payment is not made within statutory period even after issue of notice. It is also true that the power of quashing is required to be exercised very sparingly and where, re....
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....l liability punishable with imprisonment or fine or with both on a person who issues a cheque towards discharge of a debt or liability as a whole or in part and the cheque is dishonoured by the Bank on presentation. Section 141 extends such criminal liability in case of a Company to every person who at the time of the offence, was incharge of and was responsible for the conduct of the business of the Company. By a deeming provision contained in Section 141 of the Act, such a person is vicariously liable to be held guilty for the offence under Section 138 and punished accordingly." Who is liable? Vicarious liability: 35. This Court in Assistant Commissioner, AssessmentII, Bangalore and Ors. v. Velliappa Textiles Ltd. and Ors. AIR (2004) SC 86, introduced the concept of ego and alter ego in relation to the employee and the employer corporation. The Court elucidated this principle in the following words: " In order to trigger corporate criminal liability for the actions of the employee (who must generally be liable himself), the actoremployee who physically committed the offence must be the ego, the centre of the corporate personality, the vital organ of the body corpor....
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.... averment is made that the accused was the Managing Director or Joint Managing Director at the relevant time. This is because the prefix "Managing" to the word "Director" makes it clear that they were incharge of and are responsible to the company, for the conduct of the business of the company. (ii) In the case of a director or an officer of the company who signed the cheque on behalf of the company, there is no need to make a specific averment that he was in charge of and was responsible to the company, for the conduct of the business of the company or make any specific allegation about consent, connivance or negligence. The very fact that the dishonoured cheque was signed by him on behalf of the company, would give rise to responsibility under subsection (2) of Section 141. (iii) In the case of a Director, Secretary or Manager (as defined in Section 2(24) of the Companies Act ) or a person referred to in clauses (e) and (f) of section 5 of Companies Act, an averment in the complaint that he was in charge of, and was responsible to the company, for the conduct of the business of the company is necessary to bring the case under section 141(1 ) of the Act. No furt....
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....ked into is whether in the complaint, in addition to asserting that the appellants are the Directors of the Company and they are incharge of and responsible to the Company for the conduct of the business of the Company and if statutory compliance of Section 141 of the NI Act has been made, it may not open for the High Court to interfere under Section 482 CrPC unless it comes across some unimpeachable, incontrovertible evidence which is beyond suspicion or doubt or totally acceptable circumstances which may clearly indicate that the Director could not have been concerned with the issuance of cheques and asking him to stand the trial would be abused of process of Court. Despite the presence of basic averment, it may come to a conclusion that no case is made out against the particular Director for which there could be various reasons." [Emphasis supplied] 40. The principles discernible from the aforesaid decision of this Court in the case of Ashutosh Ashok Parasrampuriya (supra) is that the High Court should not interfere under Section 482 of the Code at the instance of an accused unless it comes across some unimpeachable and incontrovertible evidence to indicate that the ....
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....tible evidence which is beyond suspicion or doubt or some totally acceptable circumstances will have to be brought to the notice of the High Court. Such cases may be few and far between but the possibility of such a case being there cannot be ruled out. In the absence of such evidence or circumstances, complaint cannot be quashed; d) No restriction can be placed on the High Court's powers under Section 482 of the Code. The High Court always uses and must use this power sparingly and with great circumspection to prevent inter alia the abuse of the process of the Court. There are no fixed formulae to be followed by the High Court in this regard and the exercise of this power depends upon the facts and circumstances of each case. The High Court at that stage does not conduct a mini trial or roving inquiry, but nothing prevents it from taking unimpeachable evidence or totally acceptable circumstances into account which may lead it to conclude that no trial is necessary qua a particular Director." 42. The principles of law and the dictum as laid in Gunmala Sales Private Limited (supra), in our opinion, still holds the field and reflects the correct position of law. 43....
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.... in the firm. The object of notice before the filing of the complaint is not just to give a chance to the drawer of the cheque to rectify his omission to make his stance clear so far as his liability under Section 138 of the NI Act is concerned. 45. Once the necessary averments are made in the statutory notice issued by the complainant in regard to the vicarious liability of the partners and upon receipt of such notice, if the partner keeps quiet and does not say anything in reply to the same, then the complainant has all the reasons to believe that what he has stated in the notice has been accepted by the noticee. In such circumstances what more is expected of the complainant to say in the complaint. 46. When in view of the basic averment process is issued the complaint must proceed against the Directors or partners as the case may be. But, if any Director or Partner wants the process to be quashed by filing a petition under Section 482 of the Code on the ground that only a bald averment is made in the complaint and that he is really not concerned with the issuance of the cheque, he must in order to persuade the High Court to quash the process either furnish some sterling in....
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....the company/partners of a firm to show that they were not liable to be convicted. The existence of any special circumstance that makes them not liable is something that is peculiarly within their knowledge and it is for them to establish at the trial to show that at the relevant time they were not in charge of the affairs of the company or the firm. c.) Needless to say, the final judgement and order would depend on the evidence adduced. Criminal liability is attracted only on those, who at the time of commission of the offence, were in charge of and were responsible for the conduct of the business of the firm. But vicarious criminal liability can be inferred against the partners of a firm when it is specifically averred in the complaint about the status of the partners 'qua' the firm. This would make them liable to face the prosecution but it does not lead to automatic conviction. Hence, they are not adversely prejudiced if they are eventually found to be not guilty, as a necessary consequence thereof would be acquittal. d.) If any Director wants the process to be quashed by filing a petition under Section 482 of the Code on the ground that only a bald averment is....