CRLP/2634/2010 of Sri Shivashankar Taparia, Vs The State of Andhra Pradesh, on 30 December 2011

Issues

COMMON ORDER:

Common question of law arises for consideration in these threecriminal petitions.

The petitioner/A4 is accused of offence punishable underSection 138/141 of the Negotiable Instruments Act (in short ‘the Act’)along with A1 to A3. A2 to A4 are directors of A1 company. There isno dispute of the fact that A4 is one of the directors of A1 and that A1had drawn the dishonored cheques in question in favour of the secondrespondent/complainant. It is contended by the petitioner’s counselthat since no notice under Section 138 (b) is served on A4, A4 cannotbe mulcted with criminal liability in these cases. It is contended thatservice of notice by the complainant to the petitioner/A4 demandingthe amount covered by the dishonored cheques and failure of thepetitioner to make payment thereof within the prescribed time will bringthe liability on the petitioner and that without service of notice nocriminal liability can be attached to A4.

On the other hand, it is contended by the second respondent’scounsel that Section 138 (b) of the Act contemplates issue of notice inwriting to the drawer of cheque only and that liability of A4 arises inview of Section 141 of the Act by which in case the offence wascommitted by a company, every person who was incharge of and was responsible for the conduct of business of the company becomesliable along with the company. In these cases, the dishonoredcheques were drawn on account of A1 company and they were signedby A2 as Director/Managing Director. The notices under Section 138(b) of the Act were issued to A1 to A3 and not to A4. It is contended forthe second respondent that service of notice under Section 138 (b) ismandatory to A1 company only and there is no legal requirement forservice of notice to any of the directors of the company as drawer of thecheque was only the company. The second respondent’s counselplaced reliance on two precedents rendered by this court.

In SURAJ THEATRE vs. KAKARLA BHORATHE[[1]]this Court held that no notice is necessary as prescribed in the case of liabilityarising out of Section 141 of the Act. Relevant reasoning and findingof this court therein are to the following effect:

“Thus the liability of the persons incharge of thecompany with regard to the dishonour of the chequeissued on behalf of the company is fastened by virtue ofSec.141 of the Act. The notice contemplated underSection 138(b) is the notice to be issued to the drawer ofthe cheque only but not to others.

It is significant to note that Sec.141 of theNegotiable Instruments Act does not prescribe that noticeneed be given to the persons who are incharge andresponsible for the conduct of the business with regard tothe dishonour of the cheque issued on behalf of the

Conclusion

company before filing of the complaint, in view of the factas they were incharge of the day to day business of thefirm, as the notice was received on behalf of the firm orthe company with regard to the issuance and dishonourof the cheque and also demanding the payment of thesaid amount payable under the cheque and necessarilyfollows that they are fully aware and must haveknowledge of the said aspects and hence, deemed to beguilty of the said offence and liable to be proceededagainst and punished accordingly. Therefore, in theaforesaid circumstances, the Legislature in its wisdomhas not prescribed the issuance of individual notice to allthe partners or the persons who are incharge of the dayto day conduct of the business of the firm or company, asthe case may be, before filing the complaint as providedunder Section 138 of the Negotiable Instruments Actrelating to issue of notice to the drawer of the cheque. Ithink it is difficult to accept the contention of the learnedcounsel for the petitioner that complaint is notmaintainable as no individual notices were issued to thepartners or persons incharge and responsible for theconduct of the day to day business of the company or thefirm. The explanation appended to Sec.141 of the Actclearly shows that the company means any bodycorporate and includes a firm or other association ofindividuals and a ‘Director’ in relation to a firm means apartner in the firm. Therefore, it follows, in view of theforegoing discussion that no individual notices need begiven to all the partners who are incharge andresponsible for the conduct of the day to day business ofthe firm before filing a complaint with regard to thedishonour of cheque issued on behalf of the firm particularly when a notice contemplated under Section138(b) of the Act was complied with. The same viewwas taken by the Delhi High Court in a decisionSmt.Renu Vohra V. Shreyans Paper Mills Limited,1993(2) Crimes 1145 and also by the Punjab andHaryana High Court in a decision Anita v.Anilk Mehra,1996(1) Crimes 412.”

In K.Pannir Selvam Vs. M.M.T.C.Limited, New Delhi[[2]]this Court again took the same view and held as follows:

“Reading together the provisions in Sections 138and 141 of the Negotiable Instruments Act, it would beclear that while Section 141 of the NegotiableInstruments Act creates the basis for liability against theemployees of the Company if the requirements under thesaid Section are satisfied, there is no contemplation ofnotice to be issued in respect of such employees whoseliability is based on Section 141 of the NegotiableInstruments Act. As observed above, the requirement ofSection 138(b) of the Act is that notice should be sent tothe drawer of the cheque and not to all the persons whocan be deemed to be liable apart from the drawer of thecheque by virtue of the provisions in Section 141 of theAct.

Thus, in this case, the contention that theprosecution of the petitioner, A-6 is bad for want of noticeto him separately cannot be countenanced.”

The above observations of this court further demonstrate thatnot only this Court but also the Delhi High court as well as the Punjab & Haryana High Court took the same view as that of this Court. Therefore, failure to give notice to A4 under Section 138(b) of the Actis in no way fatal to the complainant’s case.

It is further contended by the petitioner’s counsel that in order tomulct the director of the company with liability, the complaint shouldcontain the required allegations as contemplated under Section 141 ofthe Act and also should contain averments as to how and in whatmanner that particular director of the company had participation in thetransaction and as to how he was incharge of day to day business ofthe company.

In S.M.S. PHARMACEUTICALS vs. NEETA BHALLA[[3]]theSupreme Court held that liability of a director must be determined onthe date on which the offence was committed. The Supreme Courtpointed out that the complaint petition had to be read in its entirety andin case the same would show that the person was actively associatedin the matter of obtaining loan, signing cheques and other affairs of thecompany, then it would lead to the relevant conclusion.

In N.K.WAHI vs. SEKHAR SINGH[[4]]the Supreme Court heldthat for launching prosecution against a director, there must be specificallegation in the complaint as to the part played by him in thetransaction and that the allegations should be clear and unambiguous as to how the director was incharge of and responsible for conduct of the business of the company.

In NATIONAL SMALL INDUSTRIES CORPORATION LIMITED

vs.ARBIT SINGH PAINTAL[[5]]the Supreme Court laid down the following principles relating to liability of directors under Section 141 ofthe Act:

“ i) The primary responsibility is on the complainant to makespecific averments as are required under the law in thecomplaint so as to make the accused vicariously liable. For fastening the criminal liability, there is nopresumption that every Director knows about thetransaction.

ii)Section 141 does not make all the Directors liable forthe offence. The Criminal liability can be fastened onlyon those who, at the time of the commission of theoffence, were in charge of and were responsible for theconduct of the business of the company.

iii)

Vicarious liability can be inferred against a companyregistered or incorporated under the Companies Act,1956 only if the requisite statements, which are requiredto be averred in the complaint/petition, are made so as tomake accused therein vicariously liable for offencecommitted by company along with averments in thepetition containing that accused were incharge of andresponsible for the business of the company and byvirtue of their position they are liable to be proceededwith.

iv)Vicarious liability on the part of a person must bepleaded and proved and not inferred.

v)

If accused is Managing Director or Joint ManagingDirector then it is not necessary to make specificaverment in the complaint and by virtue of their positionthey are liable to be proceeded with.

vi)If accused is a Director or an Officer of a company whosigned the cheques on behalf of the company then also itis not necessary to make specific averment in complaint.

vii)The person sought to be made liable should beincharge of and responsible for the conduct of thebusiness of the company at the relevant time. This hasto be averred as a fact as there is no deemed liability of aDirector in such cases.”

It is contended that since the complainant was not aware that A4was one of the directors of the company by the time of issue of notice,no notice was given to A4 also; and in such a case it cannot be saidthat A4 was incharge of and was responsible to the affairs of thecompany. Relevant allegations in the respective complaints are to theeffect that A1 being a private limited company and A2 to A4 beingdirectors and involved in the day to day affairs of the company are alljointly responsible and liable for the dishonored cheque and that thecheque was issued with the knowledge of A2 to A4. The secondrespondent’s counsel further pointed out that as per ground No. IV ofthe grounds in the criminal petition, it was stated for the petitioner thatas per the mandate given to the Cosmos Cooperative Bank, all thecheques of the company shall be signed by two directors including thepetitioner and the cheque in question was not signed by the petitionerand it was signed by only one director and as such no offence iscommitted by the petitioner/A4 under the Act. The bank did notdishonor the cheque as the cheque was not in accordance with themandate given by the company. The cheques were dishonored with an endorsement “exceeds arrangements”. Therefore, irrespective ofthe mandate given to the bank by the company, it is an admitted fact onthe part of A4 that A4 is one of the authorized signatories of thecheques on behalf of the company. Therefore, at this stage it dies notlie in the mouth of the petitioner/A4 to contend that A4 cannot bemulted with criminal liability by invoking Section 141 of the Act. Inspite of it, this Court leaves the question open to the trial Court todecide liability of A4 having regard to the evidence to be let in by boththe parties during trial in the lower Court. Suffice it to say that thisCourt does not find any reasons to exercise its power under Section482 Cr.P.C. to interdict trial in these cases in the lower Court insofar aspetitioner/A4 is concerned.

In the result, all the criminal petitions are dismissed.

____________________________

SAMUDRALA GOVINDARAJULU, J.

30[th ]December 2011Note: L.R.Copy marked.B/o. Rns [1]1998 Crl.L.J.431998 Crl.L.J.43

[2]2000 Crl.L.J.10022000 Crl.L.J.1002

[3]2004 SCC 702004 SCC 70

[4](2007) 9 Supreme Court Cases 481(2007) 9 Supreme Court Cases 481

[5](15.02.2010 – SC)(15.02.2010 – SC)