TaxTMI 
TaxTMI 
2023 (3) TMI 431
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.... Mr. Aabad Ponda, Senior Advocate with Mr. Bhomesh Bellam, Mr. Karma Vivan i/by Mr. Jugal Kanani for the applicant in APL/1205/2022, 1207/2022, 1208/2022 & 886/2022. Mr. Jatin P. Shah with Ms. Snehankita M. Munj & Ms. Shraddha Kamble for respondent no.2 in APL/1205/ 2022, 1207/2022 & APL/886/2022. Mr. Atal Bihari Dubey with Mr. Arvind Tiwari for the petitioner in WP/1250/2022. Mr. Kunal Dalal for respondent no.1 in WP/2075/2022. Mr. Niranjan Mundargi with Ms. Keral Mehta, Ms. Anisha Nair, and Mr. Khalid Kazi i/by Vis Legis Law Practice for the petitioner in WP/2644/2022. Mr. Rajesh Kanojia with Ms. Nikita Singh i/by Res Juris for respondent no.2 in WP/2644/2022. Mr. Sukrut Mhatre i/by Jyotirmai Deshmukh for the petitioner in WP/201/2022 & WP/4128/2022. Mr. Maniram R. Gaud for the petitioner in WP/2075/2022. Ms. Priya Rita i/by Disha Karambar & Associates for respondent no.2 in WP/201/2022 & WP/1250/2022. Mr. Niranjan Mundargi with Mr. veerdhawal Deshmukh i/by Mr. Naved Askari for the petitioner in WP/3443/2022. Ms. Y.N. Katpitia with Ms. R.B. Mrolia i/by Kry Legal for respondent no.2 in WP/3443/2022. Mr. Ansh Karnawat with Mr. Paras Yadav and Mr. Vivek....
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.... is not drawn. (ii) Section 143A of the act uses the word 'drawer'. In the case of an individual's cheque, the drawer is the signatory from whose account the cheque is drawn. Similar would be a case of a company being a legal person, it is a living being who can sign the cheque, but the cheque is issued from the account of the company, and, therefore, the signatory of the cheque does not become a drawer. (iii) Under sections 30 and 31 of the act, it is the drawer of a cheque who is bound to compensate the holder in case of dishonour. The responsibility and liability for honouring the cheque is that of the drawer only. Such liability arises at the first instance to ensure that the cheque is honoured on presentation. Such responsibility and obligation to honour the cheque can only be traced to the drawer company and not to an individual authorised signatory, whether he is a director or not. If the cheque bounces, the drawer is liable to pay the payee, provided a demand notice is given to him. The requirement to have sufficient funds in the account from which the cheque is issued is only with the drawer company and not the authorised signatory. (iv) As an il....
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....ent under the said notice, no offence can be said to be committed by the drawer. Therefore, the drawer of the cheque is the principal offender who alone is liable for an offence. (x) Section 141 of the Act is incorporated in the statute to widen the dragnet of the offence under section 138, which has been committed by the drawer alone, to include other persons who are made vicariously liable, particularly when the principal offender is a company. The word 'drawer' is used in singular and plural; therefore, it is restricted to the principal offender only and not persons who fall within the dragnet of being vicariously liable either under section 141(1) or 141(2) of the act. There is no provision analogous to section 141 of the Act found in section 143A to rope in individuals. (xi) In the case of the company, the notice under proviso(b) of section 138 of the NI Act has to be issued to the drawer of the cheque, i.e. company and not to the authorised signatory of a cheque as it is the company who is liable to make payment under the cheque. Section 138 of the NI Act requires a cheque to be issued on an account maintained by the drawer in his personal capacity. (xii) Lea....
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....eque 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. (xvi)Drawing sustenance from the judgment of the Apex Court in the case of S.M.S. Pharmaceuticals Ltd. V. Neeta Bhalla, reported in (2005) 8 SCC 89, it is submitted that the liability of the signatory of the cheque or the managing directors or joint managing director would only be under section 141(2) of the NI Act which is in relation to section 138 of the NI Act, provided he has done overt the act on behalf of the company. (xvii) Relying on the judgment of the Apex in the case of Aparna A. Shah v. Sheth Developers (P) Ltd., (2013) 8 SCC 71, he submitted that the criminal liability on account of dishonour of cheque primarily falls on the drawer. If the drawer is a company, then dragnet is extended to its officers under section 141 of the NI Act. (xviii) In support of his submission, he relied on the judgments in Dashrath Rupsingh Rathod v. State of Maharashtra reported in (2014) 9 SCC 129, Major General A.S. Gauraya v. S.N. Thakur reported in (1986) 2 SCC 709, Nandkishor Prallhad Vyvhare v. Mangala W/o P....
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....1, Nedungadi Bank Ltd. v. K.P. Madhavankutty and Others reported in (2000) 2 SCC 455, Chowgule and Co. Pvt. Ltd. v. union of India and Others reported in (1987) 1 SCC 730 and The Vanguard Fire and General Insurance Co. Ltd. Madras v. M/s. Fraser and Ross and Another reported in AIR (1960) SCC 971. 3. Mr. Sharan Jagtiani, learned senior advocate appearing on behalf of the complainant, made the following submissions: (i) The authorised signatory of a company becomes the drawer for the purpose of sections 138 and 143A of the NI Act as he has been authorised to do so in respect of the account maintained by the company. (ii) The Apex Court, in the case of Aneeta Hada Vs. Godfather Travels & Tours Private Limited reported in 2012 5 SCC 661 has held that the authorised signatory of a company becomes drawer as contemplated by section 7 of the NI Act. The law laid down in the case of Aneeta Hada (supra) is still a good law and has been repeatedly considered and followed in subsequent judgments by the Apex Court. When the Supreme Court has rendered a particular decision, it must be followed by the High Court and the subordinate Courts unless it is distinguished, overrule....
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....ed after the introduction of 143A and 148 of the NI Act to adopt purposive interpretation. Whenever a statute incorporates a legal fiction, that must be carried to its logical conclusion, and the court has to ensure all the facts and circumstances that are incidentally or inevitably corollary to be given effect to the fiction. (vii) Moratorium provisions contained in section 14 of the insolvency and bankruptcy code would apply only to the corporate debtor, and natural persons mentioned in section 141 of the NI Act would continue to be statutorily liable. (viii) Mr. Jagtiani, in support of his submissions, relied on the judgments in Aneeta Hada v. Godfather Travels and Tours Pvt. Ltd. reported in (2012) 5 SCC 661, N. Harihara vs J Thomas reported in (2008) 13 SCC 663, Pawan Kumar Goel v. State of U.P. and Anr. reported in (2002) SCC Online SC 1598, P. Saravana Kumar v. S.P. Vijaya Kumar reported in (2022) SCC Online Mad 1387, S.P. Mani & Mohan Dairy vs. Dr. Snehalatha Elangovan reported in (2022) SCC Online SC 1238, South Central Railway Employees Cooperative Credit Society Employees Union v. B. Yashodabai reported in (2015) 2 SCC 727, Peerless General Finance and ....
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....f the case in N. Harihara Krishnan (supra) are similar to the facts of the present case. Relying on the observations made in paragraphs Nos.10, 11.1, 11.3, 19 and 20, he submitted that the Apex Court laid down a precise ratio a person does not become a drawer merely because he signs the cheque. The word "every" in paragraph 22 of the said judgment includes any person who signs the cheque, and none of these persons become the drawer. He submitted that if the submission of the respondent is accepted to hold that the authorised signatory becomes drawer, it will run counter to the judgments of the Apex Court in the case of (i)Aneeta Hada (supra) (ii) N. Hariharu Krishnan (supra) (iii)S.M.S. Pharmaceuticals Ltd. (supra). 5. Neither section 141(1) nor 141(2) confers power on the Magistrate to pass an order of interim compensation against the person covered by Section 143A. Section 148 uses the expression 'appellant', which is different from the signatory of a cheque. A conjoint reading of sections 30 and 31 of the NI Act militates against the proposition that the authorised signatory is a drawer in the case of a company. Proceedings under section 143A are criminal in nature as....
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.... or individual, i.e., an authorised signatory, differs from a legal person. To fulfil ingredients of section 138 of the Act, the authorised signatory must personally maintain an account, and the dishonoured cheque is issued from such account. Section 141 of the act is not attracted in relation to the payment of compensation under section 143A of the NI Act. 8. Mr. Ansh Karnawat forensically made his submissions by submitting that the word drawer in section 143A has a clear and unambiguous meaning. The word 'drawer' has obtained a fixed and legal connotation over the years, which has been consistently held to include only principal offenders and not vicariously liable persons. He submitted that a purposive interpretation of the statute could be adopted only if a plain reading of the section creates an absurdity, contraction, and unworkable consequence. Amplifying the submissions, it was strenuously urged by relying on statements and objects of the Negotiable Instruments Act (Amendment Act, 2018), the objective was to make the drawer of the cheque pay interim compensation and was not the object to extend vicarious liability at the pre-trial stage. By referring to the openi....
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....or the conduct of its business. It also includes every person who is proved to have consented to or connived for the offence or to whom the offence is attributable. Absolving the authorised signatory of a company from the purview of section 148 of the NI Act will completely defeat the purpose of section 148. Placing reliance on the judgment of the Apex Court in the case of Surinder Singh Deswal @ Col. S. S. vs. Virender Gandhi reported in Criminal Appeal Nos.1936-1963 of 2019, she submitted that the Apex Court had directed the accused to deposit a minimum of 20% amount of fine and compensation awarded by the Trial Court. She submitted that if the petitioner's interpretation of section 148 is accepted, it would amply that in no case of dishonoured cheque, suspension of sentence of imprisonment can be ordered by the Appellate Court on condition of deposit and every order of suspension of a sentence need to be passed without deposit of any amount. According to her, section 148 applies to all appellants filing an appeal against conviction under section 138 of the Act. She emphasised on word 'appellant' in sub section (1) of section 148 to urge that if the legislature ....
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....llarpur Industries Limited Vs Union of India reported in 1997 AIR (Del) 1, Dilip S. Dhanukar Vs Kotak Mahindra Ltd. Reported in 2007 (6) SCC 528, Surinder Deswal V/s. Virender Gandhi (1st) reported AIR 2019 SC 2956 and G.J. Raja Vs Tejraj Surana reported in AIR 2019 SC 3817. 15. The rest of the advocates appearing in respective matters adopted submissions by Mr. Ponda and Mr. Jagtiani respectively. 16. I have given my anxious consideration to the rival submissions. 17. As the controversy revolves around the construction of the provisions contained in sections 7, 30, 31, 138, 143A and 148 of the NI Act, the relevant provisions deserve extraction as under : "7. "Drawer" "Drawee".-The maker of a bill of exchange or cheque is called the "drawer"; the person thereby directed to pay is called the "drawee". 30. Liability of drawer.-The drawer of a bill of exchange or cheque is bound in case of dishonour by the drawee or acceptor thereof, to compensate the holder, provided due notice of dishonour has been given to, or received by, the drawer as hereinafter provided. 31. Liability of drawee of cheque.-The drawee of a cheque having sufficient funds o....
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....ainst 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 ....
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....rovided that the amount payable under this sub-section shall be in addition to any interim compensation paid by the appellant under Section 143-A. (2) The amount referred to in sub-section (1) shall be deposited within sixty days from the date of the order, or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the appellant. (3) The Appellate Court may direct the release of the amount deposited by the appellant to the complainant at any time during the pendency of the appeal: Provided that if the appellant is acquitted, the Court shall direct the complainant to repay to the appellant the amount so released, with interest at the bank rate as published by the Reserve Bank of India, prevalent at the beginning of the relevant financial year, within sixty days from the date of the order, or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the complainant.]" 18. As per Section 7 of the NI Act the maker of a bill of exchange or cheque is called the "drawer;" the person thereby directed to pay is called the "drawee." Drawe....
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.... Liability arises on account of conduct, act or omission on the part of a person and not merely on account of holding an office or a position in a company. An exception to sole liability of the drawer is provided in section 141 of the Act, which makes the persons other than the drawer liable for the offence under section 138 of the said Act, but only if the drawer is a company or firm or association of individuals and in such an eventuality all such persons who at the time when the offence was committed, were in charge or responsible for the conduct of the business of such company or firm or association of individuals. The criminal liability for the offence by a company under section 138 of the Act is fastened vicariously on the persons referred to in sub-section (1) of section 141 by virtue of a legal fiction. To widen the dragnet of an offence under section 138, which is committed by the drawer only, the persons other than drawer are made vicariously liable. It is well settled that all other persons, such as signatories of the cheque, managing directors, and in-charge directors, are brought into the dragnet on the touchstone of vicarious liability under section 141 of the s....
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....ion that all the constituent parts of a statute are to be taken together to ascertain the legislative intent. Each word, phrase or sentence is to be considered in the light of the general purpose of the act itself. Words and phrases occurring in a statute are to be taken not in an isolated or detached manner dissociated from the context but are to be read together and construed in the light of the purpose and object of the act itself. The meanings of words and expressions used in an Act must take their colour from the context in which they appear. The principle that the statute must be read as a whole equally applies to different parts of the same section. 24. The language of section 143A allows for a plain interpretation to the exclusion of all other rules of interpretation. The word 'drawer' in section 143A has a clear and unambiguous meaning. The legislature's intention as to who should pay interim compensation is clear in plain and simple language in section 143A. The plain interpretation of the expression 'Drawer' in section 143A gets support from the intent and purpose of the provision and the act. The Statement of Object and Reasons of the Negotiable I....
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....ed by the company is the drawer(company). Drawer alone would have been the offender thereunder if the Act did not contain section 141. By virtue of Section 141 of the Act that penal liability under Section 138 is cast on other persons connected with the company. Therefore there is no need to interpret the word 'drawer' to include authorised signatory. 26. A reference can be made to the pronouncement of the Apex Court in Sri Ram Saba vs State of West Bengal [(2004) 11 SCC 497], the apex court held as follows: "10. It is well-settled principle of interpretation that a statute is to be interpreted on its plain reading; in the absence of any doubt or difficulty arising out of such reading of a statute defeating or frustrating the object the purpose of an enactment, it must be read and understood by its plain reading. However, in case of any difficulty or doubt arising in interpreting a provision of an enactment, courts will interpret such a provision keeping in mind the objects sought to be achieved and the purpose intended to be served by such a provision so as to advance the cause for which the enactment is brought into force. If two interpretations ar....
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.... principle stated by the Judicial Committee (of Privy Council) in H. H. Ruckmaboye v. Lullobhoy Mottichund, calling it a well-recognised principle: "15. ...it is, therefore, of considerable importance to ascertain what has been deemed to be the legal import and meaning of them, because, of it shall appear that they have long been used, in a sense which may not improperly be called technical, and have been judicially construed to have a certain meaning, and have been adopted by the legislature in that sense, long prior to the statue...the rule of construction of statutes will require, that the words in the statute should be construed according to the sense in which they had been so previously used, although that sense may vary from strict literal meaning of them..." 30. The additional principle of interpretation which supports the view that the expression 'drawer' does not include 'authorised signatory' is that when a term has achieved a technical connotation over the years of its usage, the connotation must not be disturbed. The expression 'drawer' has obtained a fixed and legal connotation over the years on account of (i) the legislature never having changed sa....
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....n law, acquired a definite and precise sence, and that, accordingly, the legislature must be taken to have intended that they should be understood in that sense. In interpreting an expression used in a legal sense, therefore, we have only to ascertain the precise connotation which it possesses in law. It has been already stated that, both under the common law and the statute law relating to sale of goods in England and in India, to constitute a transaction of sale there should be an agreement, express or implied, relating to goods to be completed by passing of title in those goods. It is of the essence of this concept that both the agreement and the sale should relate to the same subject-matter. .............." 32. According to the respondents, amended provisions of section 143-A and section 148 need to be interpreted, keeping in mind the rule of purposive interpretation. To consider said submission the rule laid down in Heydon's case which is also known as 'purposive construction needs to be noted which states that when the material words are capable of bearing two or more constructions, the most firmly established rule for the construction of such words "of all statu....
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....per the Companies Act 2013, a company has a separate legal identity. The directors and members of the company act as representatives and mutually exist in a fiduciary relationship. Directors serve as an agent and hence are not liable personally for the acts and actions of the company. However, a director can be held personally responsible if he acts beyond his powers and duties. It is so done by lifting the corporate veil. The corporate veil states that the company's identity is separate from the directors' and members' identities. However, directors can be personally liable for their acts under the Companies Act 2013 if there is a breach of fiduciary duty or an instance of fraud. A company is considered a separate legal entity, distinct and independent of the persons that constitute it. This conception is primarily understood as the veil of incorporation, a principle that separates the legal personality of a company from its members, thus affording them protection against personal liability towards the debts and obligations of the company. After the stage of recording a plea by the magistrate, such an enquiry as regards a breach of fiduciary duty or instance of f....
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....uld not vary when the same word is used at more than one place in the same statute, as otherwise, it will defeat the very object of the definitive section. The repugnancy of a definition arises only when the definition does not agree with the subject or context; any action not in conformity with the definition will not obviously make it repugnant to the subject or context of the provision containing the term defined under which such action is purported to have been taken. When the application of the definition to a term in a provision containing that term makes it unworkable and otiose, it can be said that the definition does not apply to that provision because of a contrary context. [see. Indian Immigration Trust Board of Natal v Govindaswamy, AIR 1920 PC 114, p 116; Vanguard Fire and General Insurance Co Ltd, Madras v Fraser & Ross, AIR 1960 SC 971, p 975 Special Officer and Competent Authority Urban Land Ceilings Hyderabad v PS Rao,AIR 2000 SC 843, p 844]. 37. In Central Bank of India v. Ravindra [(2002) 1 SCC 367], the question before the Constitution Bench was as to the meaning of the phrases "the principal sum adjudged" and "such principal sum" as occurring in Section 34 C....
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....istency and repugnancy." 38. Mr. Jagtiani, learned senior advocate next submitted that power to direct interim compensation is also conferred under section 141 of the NI Act, as signatory of a cheque is vicariously liable for punishment. The liability of the authorised signatory of the company for an offence under section 138 of NI Act, was the subject matter of scrutiny before the Apex Court in SMS Pharma (supra). The Apex Court after considering section 141 of NI Act held as follows: (i) ................................................ (ii) Person signing the cheque. The signatory of a cheque which is dishonoured, is clearly responsible for the act and will be covered under sub-section (2) of Section 141. Therefore, no special averment would be necessary to make him liable. (iii) .................................................. 39. The consistent view of the Apex Court while interpreting section 138 of NI Act which contains the expression 'drawer', is that person signing the cheque, i.e. signatory of a dishonoured cheque, is responsible for the act of dishonour under sub-section (2) of Section 141. The director in charge of a....
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....m compensation should not exceed 20% of the amount of the cheque. The period within which the interim compensation must be paid is stipulated in sub-section (3), while sub-section (4) deals with situations where the drawer of the cheque is acquitted. Said sub-section (4) contemplates repayment of interim compensation along with interest as stipulated. Sub-section (5) of said Section 143-A then states "the interim compensation payable under this section can be recovered as if it were a fine". The expression interim compensation is one which is "payable under this section" and would thus take within its sweep the interim compensation directed to be paid under sub-section (1) of said Section 143-A. 14. The remedy for failure to pay interim compensation as directed by the court is thus provided for by the legislature. The method and modality of recovery of interim compensation is clearly delineated by the legislature. It is well-known principle that if a statute prescribes a method or modality for exercise of power, by necessary implication, the other methods of performance are not acceptable. While relying on the decision of the Privy Council in Nazir Ahmad v. King-Emperor [N....
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....o record statements or confessions, by necessary implication, prohibited a Magistrate from giving oral evidence of the statements or confessions made to him. 17. The provision concerned nowhere contemplates that an accused who had failed to deposit interim compensation could be fastened with any other disability including denial of right to cross-examine the witnesses examined on behalf of the complainant. Any such order foreclosing the right would not be within the powers conferred upon the court and would, as a matter of fact, go well beyond the permissible exercise of power. 41. It is, therefore, not possible to accept submission of respondents that power to direct interim compensation can be traced under section 141 in addition to section 143(A) of the NI Act. 42. Now it is necessary to turn to another facet of submissions by the parties where they derive support from seemingly conflicting observations of supreme court. Mr. Ponda, learned Senior Counsel relying on the judgment in the case of N. Harihara Krishnan (supra), submitted that the said judgment is rendered after the judgment of Aneeta Hada (supra) and considers it; therefore, the subsequent judgment of&n....
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...., the law declared by the Supreme Court is binding on all the courts and therefore, even the principles enunciated by the Supreme Court, including its obiter dicta, when they are stated in clear terms, have a binding force. But when a question is neither raised nor discussed in a judgment rendered by the Supreme Court, it is difficult to deduce any principles of a binding nature from it by implication. 45. In Aneeta Hada (supra) a question liability authorised signatory terming him as 'drawer' never arose before the Supreme Court, which was never argued, which was never considered and which was never decided. In paragraph 19, 20, 58 and 59 of Aneeta Hada (Supra) it is observed as under "19.................. 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." 58. Applying the....
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....in paragraph 20 needs to be construed in the light of emphasis made paragraph 19 that cheque must be drawn by a person on the account maintained by him. Acceptance of a submission of Respondents would run contrary to the ratio of Aneeta Hada (Supra) that for maintaining prosecution against vicariously liable persons under section 141 arraigning company as an accused is imperative. 47. In N. Harihara (supra), the Apex Court was considering a case where the cheque was drawn by a private company and signed by the appellant in his capacity as the director of a company. On behalf of the appellant (authorized signatory), it was submitted that the appellant being a signatory in his capacity as a director of the company, would only be vicariously liable for the offence committed by the company. Relying on the judgment in the case of Aneeta Hada (supra), it was submitted that prosecution against the appellant (signatory) could not be successfully maintained without prosecuting the company. The Apex Court holds that the offence under section 138 of the Act is capable of being committed only by the drawer of the cheque. Commenting on a finding recorded by the High Court in the said case th....