TaxTMI 
TaxTMI 
2024 (12) TMI 1231
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.......................................... 16 B. SUBMISSIONS ON BEHALF OF THE APPELLANT / COMPLAINANT ............................................................................................................................... 19 C. SUBMISSIONS ON BEHALF OF THE RESPONDENT / ACCUSED ........ 20 D. ANALYSIS ........................................................................................................... 22 i. Section 138 of the NI Act .................................................................................. 22 ii. Whether authorized signatory of a company falls within the ambit of the expression "drawer"? ......................................................................................... 29 iii. Meaning of the expression "on an account maintained by him" used in Section 138 of the NI Act ............................................................................................... 34 iv. Scope of the expression "any debt or other liability" appearing in Section 138 of the NI Act .......................................................................................................... 40 v. Section 141 of the NI Act .....................................
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....the accused issued a cheque of Rs. 8,45,000/- for the purpose of discharging his debt towards the complainant. e. However, the said cheque was signed by him in his capacity as a Director of Shilabati Hospital Pvt. Ltd. and was drawn upon the bank account maintained in the name of the hospital. f. There is a stamp of Shilabati Hospital Pvt. Ltd. on the cheque and beneath the signature of the accused there is a stamp of the Director. g. It is not in dispute that the cheque in question came to be dishonoured for want of sufficient funds. h. In such circumstances, the complainant issued a statutory notice to the accused under Section 138 of the NI Act dated 14.08.2006 calling upon him to make the payment within 15 days of the receipt of the notice. 6. The statutory notice referred to above is reproduced herein below: " DATE: 14/8/2006 To Sri Paresh Manna C/o SHILABATI HOSPITAL PVT. LTD. P.O. CHATAL, Distt. Peschim Midnapur Dear Sir, Under the instructions of my client Sri Bijay Kumar Moni son of Sri Mursrimohan Nond, resident of Raghunathpur, P.O./P.S. Raghunathpur, Distt. Purulia. I do hereby serve you this notice to the following effect. That my client....
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....cts of this case are little peculiar, we deem it necessary to reproduce the entire complaint as under: "In the Court of the A.C.J.M. at Raghunathpur, District Purulia. Complaint Case No. 39 of 2006. Bijoy Kumar Moni son of Sri Murari Mohan Moni, resident of Raghunathpur, P.O. & P.S. Raghunathpur, Dist. Purulia. ...Complainant -Versus- Paresh Manna son of not known c/o. Shilabati Hospital SLP(Crl.) No. 13133 of 2024 Page 7 of 59 Pvt. Ltd., P.O. Chatal, P.S. Ghatal, District East Midnapur. ...Accused Person Offence committed: U/s. 138 of Negotiable Instrument Act, 1881. Date of occurrence: Since August, 2006 onwards. Name of witnesses: 1. Sri Ashoke Mondal s/o. Naba Kumar Mondal, Manager of U.B.I Raghunathpur Branch, Dist. Purulia. 2. Sanjoy Ganguly s/o. Late Dhirendranath Ganguly. 3. Shyamapada Kumbhakar, s/o. Late Gopal Chandra Kumbhakar both of Raghunathpur, P.O. & P.S. Raghunathpur, Dist. Purulia. The humble petition on behalf of the complainant Most respectfully showeth: 1. That the complainant hails from a very respectable family of Raghunathpun, District Purulia and he has been engaged in construction enterprise and considering his cred....
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.... complainant arranged for the sum on the promise of the accused to repay the entire sum very shortly. 7. That the complainant accordingly paid Rs. 1,45,000/- to the accused in presence of Witnesses Nos. 2 and 3 in the early part of March, 2006. 8. That the accused thereafter started avoiding the complainant. However, on 28.04.2006 the accused in discharge of his existing debt and liabilities issued in favour of the complainant at Raghunathpur a cheque bearing No. 997309 for Rs. 8,45,000/- (Eight Lac forty five thousand) on his A/C maintained in Chartered Bank, N.S. Road Kolkata. However the accused while handing over the said cheque requested the complainant not to present the same for encashment before third week of July, 2006. 9. That the complainant as per the instructions of the accused presented the Cheque No. 997309 dated 28.4.2006 for encashment on 22.07.2006 through his Banker U.B.I. Raghunathpur Branch. The said cheque bounced and the complainant received back the cheque along with unpaid item nemo, of standard chartered Bank dated 27.7.06 through his Banker on 03.08.2006 with the note "Insufficient funds. 10. That the complainant thereupon through his Lawyer S....
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.... the aforesaid Question No. 11, the accused replied that he had issued the cheque as a security towards a loan transaction. 13. The Question No. 21 in the further statement of the accused reads thus: "21) Qus:- P.W.1 Sri Bijoy Kumar Moni, further stated during in his evidence that, you have prevailed upon the complainant by gaining his confidence took Rs.8,45,000/- and thereafter issued cheque no. 997309 to him with the knowledge that there is no sufficient fund in the account. What do you have to say about his statement?" 14. To the aforesaid question, the answer of the accused was that the cheque was issued by the company as a security towards some mortgage. 15. Upon appreciation of the oral as well as documentary evidence, the Trial Court vide Judgment and Order dated 19.07.2017 held the accused guilty of the offence punishable under Section 138 of the NI Act. The operative part of the order passed by the Trial Court reads thus: "That the convict Paresh Manna is sentenced to suffer simple Imprisonment for one year. The convict is further sentenced to pay compensation amounting to Rs. 10,00,000 (Ten lakhs only) to the complainant namely Bijoy Kumar Moni within two months ....
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.... that the said cheque was issued from the company as security of mortgage. But again to the utter surprise in course of trial no document of any mortgage was produced by him to establish the fact that the cheque bearing no. 997309 was issued in discharging the liability as security and the company was liable also for that ground. The appellant tried to shift the onus upon the respondent/complainant, but he could not succeed to that effect. In my considered opinion I am constrained to take into account the plea of the accused that the company was also the accused of that case ad thus the ruling relied upon by the accused/ appellant do not render any support to the contention of him. In this regard I would like to refer the observation of Hon'ble Apex Court as reported in 2010 AIR SCW 4616 and as relied upon by the side of respondent. It has been observed by Hon'ble Apex Court that: "Negotiable Instruments Act (26 of 1881), S. 138- Dishonour of cheque Complaint- Tenable only against drawer of cheque- Cheque drawn by employee of appellant-company on his personal account- Even if it be for discharging dues of appellant- company and its Directors-Appellant-company and its Dir....
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....ly noticed or admitted or established by legal evidence to the satisfaction of the tribunal. Presumptions literally means 'taking as true without examination or proof...." (2009) 2 SCC 513. To disprove the presumption, the accused should bring on record such facts and circumstances, upon consideration of which, the Court may either believe that the consideration and the debt did not exist or there non existence was so probable that a prudent man would under the circumstances of the case, act upon the plea that they did not exist. Something which is probable has to be brought on record for getting the burden of proof shifted to the complainant. In the present case in hand the appellant at the time of adducing evidence as DW 1, denied the fact of taking the cheque amount of Rs. 7,00,000/- and liquid cash of Rs. 1,45,000/- totaling Rs. 8,45,000/- In his personal capacity, but by producing D.W 2, the branch manager of UBI, Raghunathpur branch, he tilted the entire case in support of the prosecution/complainant as because said DW 2 admitted on going through the documents (Exbt. C and Exbt. D) that on 28.02.06 a sum of Rs. 7,00,000/- was debited to the appellant and that was th....
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....inable. It observed that although the complainant was entitled to the benefit of the presumption under Section 139 of the NI Act as the accused had failed in rebutting the presumption cast upon him, yet in the absence of compliance with the requirements necessary for the applicability of vicarious liability as provided under Section 141, the accused could not have been convicted as a sole accused in the absence of the company being arraigned as an accused and convicted as the principal offender first. The observations made by the High Court are reproduced hereinbelow: "27. The Company is neither a party nor was any notice served upon the Company of which the petitioner as director issued the cheque. 28. The petitioner is the sole accused/opposite party in the complaint case, having signed the cheque as Director of the company, for and on its behalf. xxx xxx xxx 30. The facts in the present case is very similar to the case, in Himanshu vs. B. Shivamurthy & Anr. (Supra). xxx xxx xxx 31. In the present case:- a) The company has not been made an accused nor was any notice served upon the company, though the cheque was issued on behalf of the company. b) The petit....
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....he accused and the complainant. The company was not at all in picture. He submitted that there is nothing on record to indicate that the accused had borrowed the amount for the company or on behalf of the company. 25. He submitted that although the cheque in question might have been issued by the accused containing a stamp of the hospital on it and signed by him in his capacity as a Director of the company, yet the said cheque was issued in discharge of his personal debt. 26. He further submitted that even before the Trial Court, it was not the defence of the accused that he had issued the cheque to discharge the debt of the company. He led no evidence worth the name in this regard. On the contrary, his defence was that the cheque was issued by way of a security towards a loan transaction and the same had been misused by the complainant. 27. In such circumstances, referred to above, the learned counsel prayed that there being merit in his appeal, the same be allowed and the impugned judgment and order passed by the High Court be set aside. C. SUBMISSIONS ON BEHALF OF THE RESPONDENT / ACCUSED 28. On the other hand, Mr. Gaurav Kejriwal the learned counsel appearing for the accu....
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....34. Section 138 of the NI Act reads as under: "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: 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 ca....
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.... the Standard Chartered Bank. Hence, the question that falls for our determination is whether the accused could be said to be covered by the expression "account maintained by him" as it appears in Section 138 of the NI Act. In other words, could it be said that the accused was "maintaining" the bank account upon which the dishonoured cheque had been drawn. 37. Section 6 of the NI Act inter alia defines a "cheque" as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. Section 7 defines the "drawer" as the maker of a bill of exchange or cheque and "drawee" as the person thereby directed to pay. Sections 30 and 31 of the NI Act respectively define the liability of the drawer and the drawee of a cheque as follows: "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 of the drawer in his hands properly applicable to the payment of such cheq....
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....heque. 14. In the instant case, the cheque which had been dishonoured may have been issued by Respondent 11 for discharging the dues of Appellant 1 Company and its Directors to Respondent 1 Company and the respondent Company may have a good case against Appellant 1 Company for recovery of its dues before other fora, but it would not be sufficient to attract the provisions of Section 138 of the 1881 Act. The appellant Company and its Directors cannot be made liable under Section 138 of the 1881 Act for a default committed by Respondent 11. An action in respect of a criminal or a quasi-criminal provision has to be strictly construed in keeping with the provisions alleged to have been violated. The proceedings in such matters are in personam and cannot be used to foist an offence on some other person, who under the statute was not liable for the commission of such offence." (Emphasis supplied) 41. In Jugesh Sehgal v. Shamsher Singh Gogi reported in (2009) 14 SCC 683, this Court emphasised on the importance of the dishonoured cheque having been drawn by the accused person on an account held in his name for the offence to be made out and held thus: "22. As already noted herein....
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....tion 143A of the NI Act and the authorised signatory of a company cannot be said to be the drawer of the cheque. The relevant observations made by the Court are reproduced hereinbelow: "13. The appellant has challenged the judgment and order of the High Court dated March 29, 2023 as well as the relied upon judgment and order dated March 8, 2023. The present appeal is filed assailing the correctness of these orders vis-a-vis the larger question of law, as framed by the High Court: "Whether the signatory of the cheque, authorised by the 'company', is the 'drawer' and whether such signatory could be directed to pay interim compensation in terms of section 143A of the Negotiable Instruments Act, 1881 leaving aside the company?" xxx xxx xxx 28. The High Court's interpretation of section 7 of the Negotiable Instruments Act, 1881 accurately identified the "drawer" as the individual who issues the cheque. This interpretation is fundamental to understanding the obligations and liabilities under section 138 of the Negotiable Instruments Act, 1881, which makes it clear that the drawer must ensure sufficient funds in their account at the time the cheque is presented. The appella....
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....ssue of commission of an offence under Section 138 of the NI Act by a company, the Court observed that Section 138 only contemplates the drawer of the cheque to be responsible for the commission of the offence. It is only by virtue of Section 141 that certain persons other than the drawer of the cheque can be made liable for the offence in cases where the offence under Section 138 is committed by a company and not an individual person. The Court, in the facts of the case before it, further held that the identity of the drawer of the cheque was apparent from the cheque itself and thus it was not open to the payee/complainant to seek impleadment of the company, that is, the drawer of the cheque, at a belated stage by filing an impleadment application when it had instituted the complaint only against the authorised signatory who had signed the cheque on behalf of the company. The Court also held that the offence under Section 138 is person specific and in the absence of applicability of the principles of the Code of Criminal Procedure, 1973, the magistrate cannot take cognizance of the complaint unless it is made against the drawer of the cheque, as it is only the drawer who can be an....
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.... of the steps contemplated under Section 138 of the Act before initiating prosecution. Because it is already held by this Court that failure to comply with any one of the steps contemplated under Section 138 would not provide "cause of action for prosecution". Therefore, in the context of a prosecution under Section 138, the concept of taking cognizance of the offence but not the offender is not appropriate. Unless the complaint contains all the necessary factual allegations constituting each of the ingredients of the offence under Section 138, the Court cannot take cognizance of the offence. Disclosure of the name of the person drawing the cheque is one of the factual allegations which a complaint is required to contain. Otherwise in the absence of any authority of law to investigate the offence under Section 138, there would be no person against whom a court can proceed. There cannot be a prosecution without an accused. The offence under Section 138 is person specific. Therefore, Parliament declared under Section 142 that the provisions dealing with taking cognizance contained in the CrPC should give way to the procedure prescribed under Section 142. Hence the opening of non obst....
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....ution and conviction under Section 138 of NI Act even after he resigns from the company and is no more in its employment. This certainly could not have been the intention of the legislature. Even the vicarious liability created under Section 138 of NI Act would not be attracted in respect of a Director or an employee of the Company who resigns and severs his connections with the company, unless the complainant is able to bring his case within the purview of sub-Section 2 of Section 141, by proving that the offence had been committed with his consent or connivance or was otherwise attributable to any neglect on his part. 47. We would hasten to add that the above interpretation should not in any manner be misconstrued to affix liability upon the joint account holder of an account unless the cheque is shown to have been made/drawn jointly by such joint account holder. A company vis-à-vis its authorised signatory stands on a completely different footing as compared to account holders of a joint account. In the former, it is only the company which holds an account with the banker, whereas in the latter, each joint account holder can be said to hold an account with the banker. Th....
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....record during the course of the trial which would suggest that there was some sort of an understanding between the complainant and the accused that the debt of the accused would be discharged by the Shilabati Hospital Pvt. Ltd. A perusal of the notice issued by the complainant to the accused as well as a reading of the complaint filed by the complainant before the magistrate clearly brings out that the complainant was under the impression that the cheque was drawn by the accused in personal capacity upon a bank account maintained by him with the Standard Chartered Bank. Further, the defence that the bank account upon which the cheque was drawn was held in the name of Shilabati Hospital and not in the name of the accused was taken for the first time in the appeal filed by the accused before the Sessions Court. Although it can be understood that the complainant had no occasion to believe that the cheque was drawn upon the bank account of Shilabati Hospital as the debt was one which was taken by the accused in his personal capacity, yet a bare perusal of the cheque shows that the cheque was signed by the accused in the capacity of the Director of the Shilabati Hospital Pvt. Ltd. as th....
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.... 13 SCC 148 observed thus: "15. Upon perusal of the record, we find that the complainants had established before the trial court that there was an understanding among the complainants and the accused that in consideration of supply of goods to M/s Shree Nath Spinners (P) Ltd., M/s AT Overseas Ltd. was to make the payment. The aforestated understanding was on account of the fact that Directors in both the aforestated companies were common and the aforestated companies were sister concerns. In the circumstances, it can be very well said and it has been proved that in consideration of supply of goods to M/s Shree Nath Spinners (P) Ltd., M/s AT Overseas Ltd. had made the payment. In view of the above fact, in our opinion, the trial court was not right when it came to the conclusion that there was no reason for M/s AT Overseas Ltd. to give the cheques to the complainants. xxx xxx xxx 17. The trial court materially erred while coming to a conclusion that in criminal law no presumption can be raised with regard to consideration as no goods had been supplied by the complainants to M/s AT Overseas Ltd. The trial court ought to have considered the provisions of Section 139 of the Act....
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....The abovenoted three words are of extreme significance, in particular, by reason of the user of the word "any" - the first three words suggest that in fact for whatever reason if a cheque is drawn on an account maintained by him with a banker in favour of another person for the discharge of any debt or other liability, the highlighted words if read with the first three words at the commencement of Section 138, leave no manner of doubt that for whatever reason it may be, the liability under this provision cannot be avoided in the event the same stands returned by the banker unpaid. The legislature has been careful enough to record not only discharge in whole or in part of any debt but the same includes other liability as well. This aspect of the matter has not been appreciated by the High Court, neither been dealt with or even referred to in the impugned judgment. 11. The issue as regards the coextensive liability of the guarantor and the principal debtor, in our view, is totally out of the purview of Section 138 of the Act, neither the same calls for any discussion therein. The language of the statute depicts the intent of the law-makers to the effect that wherever there is a de....
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....ion 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....
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....cused liable for the offence under Section 138. It was observed by this Court that as the cheque was drawn by the accused on an account maintained by him, the Company or any of its directors could not be made liable for the offence, even if the cheque was issued by the accused towards the discharge of the debt of the company. The relevant observations made by the Court are reproduced hereinbelow: "10. In the present case, it is an admitted fact that the drawer of the cheque was the respondent, who had drawn the cheque, bearing No. 075073 for Rs 74,200 on a bank account maintained by him towards the refund of the booking amount. Therefore, he was the drawer of the cheque. The case of the appellant, apart from being supported by the provision of Section 138 of the NI Act, also gets buttressed by the judgment in P.J. Agro Tech Ltd. v. Water Base Ltd. [(2010) 12 SCC 146 : (2010) 4 SCC (Civ) 588 : (2011) 2 SCC (Cri) 164] , where this Court has dealt with the scope of Section 138 and held that : (SCC p. 150, para 13) "13. ... it is very clear that in order to attract the provisions thereof a cheque which is dishonoured will have to be drawn by a person on an account maintained by hi....
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....ility 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." ( Emphasis supplied ) 60. Following the rationale in Aneeta Hada (supra), this Court in Anil Gupta v. Star India Private Limited and Another reported in (2014) 10 SCC 373 held that the guilt for the offence under Section 138 is only deemed upon the other persons who are connected with the Company as a consequence of Section 141 of the NI Act. Herein, since the complaint against the respondent Company was not maintainable, the High Court had quashed the summons issued by the trial court against the respondent Company. This Court opined that since the Company was not a party to t....
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.... those persons as well as the Company shall be deemed to be guilty of the offence under Section 138 of the NI Act. The relevant observations made by the Court are reproduced hereinbelow: "21. Section 141 is an exception to the normal rule that there cannot be any vicarious liability when it comes to a penal provision. The vicarious liability is attracted when the ingredients of sub-section (1) of Section 141 are satisfied. The section provides that every person who at the time the offence was committed was in charge of, and was responsible to the Company for the conduct of business of the Company, as well as the Company shall be deemed to be guilty of the offence under Section 138 of the NI Act." ( Emphasis supplied ) 62. It follows from a conspectus of the aforesaid decisions that it is the drawer Company which must be first held to be the principal offender under Section 138 of the NI Act before culpability can be extended, through a deeming fiction, to the other Directors or persons in-charge of and responsible to the Company for the conduct of its business. In the absence of the liability of the drawer Company, there would naturally be no requirement to hold the other pe....
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....ated in a legion of decisions is that it is only the drawer of the cheque who can be held liable for an offence under Section 138 of the NI Act. Further, this Court has also declared through several pronouncements on the subject that an authorised signatory acting on behalf of the principal cannot be said to be the "drawer" of the cheque "on an account maintained by him with a banker" under Section 138. 67. It is also pertinent to note that the High Court in the aforesaid decision also referred to the decision of this Court in Raghu Lakshminarayanan v. Fine Tubes reported in (2007) 5 SCC 103 wherein it was categorically held by this Court that Section 141 of the NI Act will have no application to proprietorship concerns as they are owned by individuals and do not have a separate corporate identity. However, the High Court distinguished the said decision by holding that although the signatory of a cheque issued on behalf of a proprietorship concern cannot be said to be vicariously liable under Section 141 yet he could be held liable in his capacity as the drawer of the cheque under Section 138 of the NI Act. 68. We find it difficult to approve the line of reasoning adopted by the ....
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....ction 138 of the NI Act is that for fastening criminal liability on the accused, the cheque which was dishonoured for insufficiency of funds etc., must have been drawn on an account maintained by the accused. The mere fact that the cheque signed by the accused in his capacity as a "Director" of the Company would in the normal course be honoured by the Bank to which it was presented does not satisfy the statutory requirement of Section 138 of the Act. 72. Section 138 of the Act exposes the person who has drawn the cheque and which has been returned for insufficiency of funds to criminal liability. The provision, therefore, must be construed strictly. However, such a strict construction should not result in defeating the very purpose for which the provision has been enacted as held by this Court in the case of NEPC Micon Limited and Others v. Magma Leasing Limited reported in (1999) 4 SCC 253. At the same time, the statutory provisions creating penal liability cannot be stretched too far to embrace the persons and situations patently excluded from its purview as discernible from clear and unequivocal language used in the provision. 73. Section 138 of the NI Act clearly postulates t....