This provision applies only to firms and associations of persons. Hindu undivided family is neither a firm nor an association of persons. It is a separate entity by itself. That is made clear by Section 3 of the Indian Income Tax Act, 1922 which classifies the assessee under the heads individuals. Hindu undivided families, companies, local authorities, firms and other associations of persons. . . . . . . . . If Hindu undivided family is to be considered as an association of persons, there was no point in making separate provision for the assessment of Hindu undivided family. This conclusion is strengthened by Section 25-A of the Indian Income Tax Act, 1922 which provides for the assessment of Hindu undivided family after its partition.
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Madras High Court
Arpit Jhanwar vs Kamlesh Jain Rep. By Its on 7 June, 2012
COMMON ORDER A Hindu Undivided Family" - (HUF) is an Association of Individuals; so it is a company in terms of Section 141 of the Negotiable Instruments Act and thus, every member of the HUF is vicariously liable for punishment for the offence under Section 138 of the Negotiable Instruments Act committed by the Kartha of the HUF. This is precisely the stand of the complainant, in these cases, which is seriously refuted by the accused. This question is the basis for the instant petitions.
2. In all these cases, besides the fact that the petitioner and respondent are one and the same, since common grounds have been raised, these petitions have been heard together and they are disposed of by means of this common order.
3. The respondent instituted prosecution in all these cases alleging that the petitioner along with the other accused committed offence punishable under Section 138 of the Negotiable Instruments Act (hereinafter referred to as the Act). The petitioner is the second accused in all these cases.
4. According to the case of the complainant, there is a Hindu Undivided Family known as Prahladray I.Jhanwar HUF in which the first accused is the Kartha and the petitioner herein is a member. According to the further allegations, the first accused, in the capacity of the Kartha of the HUF, entered into an agency agreement with the respondent on 30.06.2009. In respect of the said agency, the HUF became liable to pay a sum of Rs.85 lakhs. In discharge of the said liability of the HUF, the first accused issued the cheques in question to the respondent. All the cheques were presented for collection and they were returned unpaid as sufficient fund was not available in the account. Thereafter, the respondent issued legal notices and since the demand for payment was not complied with, he instituted the above private complaints in C.C.Nos.2633, 2634, 2635, 2639, 2638, 2636, 2637, 2640, 2628, 2629, 2630, 2631 and 2632 of 2011 before the learned II Metropolitan Magistrate, Egmore, Chennai. It is alleged in the complaints that the petitioner being a member of the HUF is also liable for punishment under Section 138 of the Act. He has come up with the instant Criminal Original Petitions seeking to quash these cases so far as he is concerned.
5. As I have outlined at the first paragraph of this judgement, it is the contention of the petitioner that a HUF is not a company in terms of Section 141 of the Act and therefore, the petitioner though a member of the HUF, is not liable to be prosecuted for an offence committed by the Kartha of the HUF.
6. But it is the contention of the respondent that a HUF is an Association of Individuals in terms of Section 141 of the Act and therefore, the HUF as well as every member of the HUF who is responsible for the HUF, shall be deemed to be guilty of the offence. The learned counsel for the respondent has placed reliance on the judgement of the Andhra Pradesh High Court in Jagadish Rai Agarwal and Ors v State of Andhra Pradesh and Ors (II (2005) BC 497), about which, I will make reference at the appropriate stage of this judgement.
7. Now, let us have a close look into Section 138 of the Negotiable Instruments Act which proceeds as follows:-
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 provisions of this Act, be punished with imprisonment for a term which may extend to two year, or with fine which may extend to twice the amount of the cheque, or with both:
... ... ... ... ... ... ... ..."
[Emphasis supplied] However, the term person employed in Section 138 of the Act has not been defined in the Act. So, we have to seek recourse to the General Clauses Act. In Section 3(42) of the General Clauses Act, 1897, the term person is defined as follows:-
3 (42) person shall include any company or association or body of individuals, whether incorporated or not;
8. This provision is precisely in pari materia to Section 11 of IPC. The definition of the term 'person' made both in Section 3(42) of The General Clauses Act and Section 11 of IPC is not exhaustive. It is hardly a definition. It is undoubtedly inclusive. The indication of the intention of the Legislature is to give wider sense so as to mean not only natural persons but to include artificial or juridical persons also, provided, such artificial or juridical person is a legal entity. For instance, an idol is a juridical person capable of owning property and is, therefore, a "person". But, a proprietary concern is not a legal entity and so, it is not a person in terms of Section 11 of IPC. Similarly, a Hindu Undivided Family is a legal entity capable of owning property and, therefore, undoubtedly, such a HUF is a person as defined in Section 3 (42) of The General Clauses Act and Section 11 of IPC. Therefore, for an offence committed by a HUF punishable under Section 138 of The Negotiable Instruments Act, the HUF can be prosecuted and punished. But, at the same time, since, the HUF is an artificial person, sentence of imprisonment can not be imposed on the HUF. [vide the judgement of a Constitution Bench of the Hon'ble Supreme Court in Standard Chartered Bank v. Directorate of Enforcement, (2005) 4 SCC 530].
9. At this juncture, it needs to be noted that for an offence committed by an artificial / juridical person, unless it is specifically provided in the statute, every individual who is a component of the artificial or juridical person cannot be held vicariously liable for punishment; it is only the artificial or juridical person who is liable for punishment. A company incorporated under The Companies Act is a person. To create such vicarious liability for the persons in charge of the day to day affairs of the company along with the company, the Legislature has made Section 141 of the Act, which reads as follows:-
141. Offences by companies. If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and proceeded against 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 purpose 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."
10. In the instant cases, as we have already seen, the complainant wants to rope in a member of the HUF by taking recourse to Section 141 of the Negotiable Instruments Act. In other words, according to him, a HUF is a company as defined in Section 141 of the Act. He claims that a HUF is an "Association of Individuals" as expressed in the explanation (a) to Section 141 of the Act
11. The explanation (a) to Section 141 of the Act, would go to indicate that it is indisputably an inclusive definition. The use of the word includes would normally indicate the intention of the legislature to enlarge the meaning of the word used in the statute. As has been held by the Honble Supreme Court in Ramanlal Bhailal Patel v. State of Gujarat (2008 (5) SCC 449), consequently, the word must be construed as comprehending not only such things which they signify according to their natural import, but also those things which the interpretation clause declares that they shall include. Thus, where a definition uses the word includes, as contrasted from means, the word defined not only bears its ordinary, popular and natural meaning, but in addition also bears the extended statutory meaning. In para 24, the Hon'ble Supreme Court has held as follows:-
24. The ordinary, popular and natural meaning of the word person is a specific individual human being. But in law the word person has a slightly different connotation and refers to any entity that is recognised by law as having the rights and duties of a human being. Salmond defines person as any being whom the law regards as capable of rights and duties or as a being, whether human or not, of which rights and duties are the attributes (Jurisprudence, 12th Edn., p. 299). Thus the word person, in law, unless otherwise intended, refers not only to a natural person (male or female human being), but also any legal person (that is an entity that is recognised by law as having or capable of having rights and duties). The General Clauses Act thus defines a person as including a corporation or an association of persons or a body of individuals whether incorporated or not. The said general legal definition is, however, either modified or restricted or expanded in different statutes with reference to the object of the enactment or the context in which it is used. For instance, the definition of the word person in the Income Tax Act, is very wide and includes an individual, a Hindu Undivided Family, a company, a firm, an association of persons or body of individuals whether incorporated or not, a local authority and every other artificial juridical person. At the other extreme is the Citizenship Act, Section 2(f) of which reads thus: Person does not include any company or association or body of individuals whether incorporated or not. Similarly, the definition under Section 2(g) of the Representation of People Act, 1950, is person does not include a body of persons.
12. In South Gujarat Roofing Tiles Manufactures Association and another v. The State of Gujarat and another , (1976) 4 SCC 601, the Hon'ble Supreme Court has held that "though the word "include" is generally used in interpretation clauses as a word of enlargement, in some cases the context might suggest a different intention". When the liberty of the subject is involved having penal consequences, then, the word 'include' should receive strict interpretation and not liberal interpretation. Therefore, it should be interpreted having reference to the context of the Act. Admittedly, the term company includes an Association of Individuals. Had it been the intention of the Parliament to bring in a HUF within the meaning of the term company, as it has been done in the other enactments, like The Income Tax Act, it would have specifically included the same in express terms in this Act also. The very fact that it has not been done so would only reflect the intention of the Parliament not to include a HUF as a company in terms of Section 141 of the Act.
13. with this back ground, now, we have to analyse as to whether the expression Association of Individuals as explained in Section 141 of the Act will include a HUF so as to be called as a company in terms of Section 141 of the Act.
14. A similar question arose for consideration before the Honble Supreme Court in ITO v. Ram Prasad, ((1973) 3 SCC 25, at page 29). That was a case where the question arose for consideration before the Honble Supreme Court was as to whether the HUF is an Association of Persons in terms of the provisions of the Income Tax Act, 1922. Speaking for the three Judge Bench, Justice K.S.Hegde took note of the definition of the term person as found in Section 2(17) of the Income Tax Act, wherein it states that the term persons includes a HUF. In view of the specific inclusion of HUF within the definition of the term persons, the Honble Supreme Court in paragraph No.10 has held as follows:-
10. This provision applies only to firms and associations of persons. Hindu undivided family is neither a firm nor an association of persons. It is a separate entity by itself. That is made clear by Section 3 of the Indian Income Tax Act, 1922 which classifies the assessee under the heads individuals. Hindu undivided families, companies, local authorities, firms and other associations of persons. . . . . . . . . If Hindu undivided family is to be considered as an association of persons, there was no point in making separate provision for the assessment of Hindu undivided family. This conclusion is strengthened by Section 25-A of the Indian Income Tax Act, 1922 which provides for the assessment of Hindu undivided family after its partition.
15. Again, more or less, a similar question arose for consideration before the Honble Supreme Court in Ramanlal Bhailal Patel v. State of Gujarat (cited supra). That was a case relating to Gujarat Agricultural Lands Ceiling Act, 1960. In the said Act, the term person is defined in Section 2(21) of the Act which states that a person includes a joint family. Section 2(16) of Gujarat Agricultural Lands Ceiling Act defines the term joint family meaning thereby a Undivided Hindu Family and in the case of other persons a group or unit the members of which by custom or usage are joint in estate or residence. After having made a comparison of the General Clauses Act and Section 2 (21) and (16) of the Gujarat Agricultural Lands Ceiling Act, the Honble Supreme Court has held as follows:-
The inclusive definition of person in the Ceiling Act, in the absence of any exclusion, would have the same meaning assigned to the word in the General Clauses Act, and in addition, a joint family as defined. Thus, the word person in the Ceiling Act will, unless the context otherwise requires, refer to:
(i) a natural human being;
(ii) any legal entity which is capable of possessing rights and duties, including any company or association of persons or body of individuals (whether incorporated or not); and
(iii) a Hindu Undivided Family or any other group or unit of persons, the members of which by custom or usage, are joint in estate and residence.
16. Thus, in the above judgements, since there is a specific inclusion of HUF into the meaning of the term person, the Honble Supreme Court held that a HUF is a person for the purpose of the above enactments. As we have already seen, there is no such specific inclusion of the HUF in the definition of the term company in the Negotiable Instruments Act.
17. In the same judgement, nextly, the Honble Supreme Court had to consider the question as to whether the co-owners are together a person.
29. Normally, where a group of persons have not become co-owners by their own volition with a common purpose, they cannot be considered as a person. When the children of the owner of a property succeed to his property by testamentary succession or inherit by operation of law, they become co-owners, but the co-ownership is not by volition of parties nor do they have any common purpose. Each can act in regard to his/her share, on his/her own, without any right or obligation towards the other owners. The legal heirs though co-owners, do not automatically become an association of persons/body of individuals. When different persons buy undivided shares in a plot of land and engage a common developer to construct an apartment building, with individual ownership in regard to respective apartment and joint ownership of common areas, the co-owners of the plot of land, do not become an association of persons/body of individuals, in the absence of a deeming provision in a statute or an agreement. Similarly, when two or more persons merely purchase a property, under a common sale deed, without any agreement to have a common or joint venture, they will not become an association of persons/body of individuals. Mere purchase under a common deed without anything more, will not convert a co-ownership into a joint enterprise. Thus when there are ten co-owners of a property, they are ten persons and not a body of individuals to be treated as a single person. But if the co-owners proceed further and enter into an arrangement or agreement to have a joint enterprise or venture to produce a common result for their benefit, then the co-owners may answer the definition of a person.
(Emphasis supplied)
18. This dictum laid down by the Honble Supreme Court categorically answers the question involved in the instant cases. As we have seen, as per Section 141 of the Act, the term company includes an Association of Individuals. Here, the term Association of Individuals means, as has been held by the Honble Supreme Court, a group of persons who have become co-owners by their own volition with a common purpose. If the co-ownership is not by volition nor do they have any common purpose then, the co-owners will not constitute an Association of Individuals in terms of Section 141 of the Act. In a HUF, the members do not become co-owners by their own volition and there is also no common purpose in their co-ownership. As has been held by the Honble Supreme Court, each member of the HUF can act in regard to his or her share without any request or obligation to the other owners. They do not automatically become an Association of persons/body of individuals. Thus, the law laid down by the Honble Supreme Court squarely applies to the Negotiable Instruments Act, for the purpose of understanding the definition of the term company and thus, a HUF can not be a company in terms of Section 141 of the Act.
19. But, the learned counsel for the petitioner has relied on a judgement of the Andhra Pradesh High Court in Jagadish Rai Agarwal and Ors v State of Andhra Pradesh and Ors (cited supra) wherein a quite contrary view has been taken. This is a case relating to Negotiable Instruments Act. While considering the same question, the Andhra Pradesh High Court has held as follows:-
... Since the dishonoured cheque was issued by the 1st petitioner as Kartha of the HUF, petitioners 2 to 4, being the sons of 1st petitioner and member of HUF, in view of the explanation of Section 141 of the Act, like directors of a company, can be made liable for the offence under Section 138 of the Act.
20. The Bombay High Court has also taken such a view in The Dadasaheb Rawal Co-op v. Ramesh (2009(2)Mh.L.J). In that case, while dealing with a case under the Negotiable Instruments Act relating to a HUF business, in paragraph No.9 of the judgment, the Bombay High Court has held as follows:-
9.A plain reading of the expression company as used in sub-clause (a) of the Explanation is that it is inclusive of any body corporate or other association of individuals. The term association of individuals will include club, trust, HUF business, etc. It shall have to be construed ejusdem generis along with other expressions company or firm. Therefore, a joint family business must be deemed as a juristic person like a company or firm. When it is specifically alleged that the respondent Nos.1 and 2 are the joint proprietors/owners of the business of M/s New Sheetal Traders, which is a joint family business of themselves and their son Sheetal, prima facie, they are covered under section 141 of the Negotiable Instruments Act in view of the Explanation appended thereto.
21. With respect, I am unable to persuade myself to agree with the views expressed by the Bombay High Court and the Andhra Pradesh High Court, in view of my foregoing discussions and the law laid down by the Honble Supreme Court in Ramanlal Bhailal Patel v. State of Gujarat case (cited supra).
22. A learned Single Judge of this Court in Mrs.Gayathri v. S.R.Jayaraman (2009 (3) MWN (cr.) DCC 128) had an occasion to consider the same question. In paragraph No.10 of the said judgement, the learned Judge has framed the following question:
The pertinent question that arises here is whether an Hindu Undivided Family comes under the definition of Company found in Section 141 of the Negotiable Instruments Act, 1881, and has held as follows:-
10.As per section 141, if the person committing an offence punishable under Section 138 happens to be a company then, every person, who at the time of commission of offence was in charge of and responsible to the company for the conduct of its business, as well as the Company shall be deemed to have committed the offence. Sub-Clause (2) of the Section provides that a director of the Company, even if he does not come under the category of persons liable under sub-clause (1) shall be deemed to have committed the offence, if it is proved that the offence has been committed with his consent or connivance or is attributable to neglect on his part. As per the Explanation appended to Section 141, partners are equated to a Company and its Directors. The definition of Company includes the companies incorporated, partnership firms and other association of individuals. The pertinent question that arises here is whether an Hindu Undivided Family comes under the definition of Company found in Section 141 of the Negotiable Instruments Act, 1881.
23. Before the learned Judge, the judgement of the Andhra Pradesh High Court in Sri Jagadish Rai Agarwal and Others Vs. State of Andhra Pradesh and Others (cited supra) was cited. Having referred to the same, the learned Judge has observed as follows:-
with due respect to the Honble Single Judge of the Andhra Pradesh High Court, this Court is not able to accept such a blanket proposition without a qualification that such cheque should have been issued in respect of an account maintained in the name of the HUF in order to hold the members of the HUF responsible for the dishonour of such cheque equating them with a Director of a company.
24. A close reading of the said judgement of the learned Single Judge of this Court would go to show that the entire gamut of the argument was that since the cheques were not issued in respect of an account maintained by the HUF, a member of the HUF cannot be held responsible under Section 141 of the Act. Thus, the learned Judge had no occasion to examine the basic question as to whether a HUF is a company in terms of Section 141 of the Act. The learned Judge, eventually, quashed the complaint against a member of the HUF since, the cheque had not been issued in respect of an account maintained in the name of the HUF. Thus the said judgement is not on the question which is precisely before this Court now for consideration.
25. In view of the foregoing discussions, I hold that a HUF will not constitute an Association of Individuals as per the term company explained in Section 141 of the Act and so, in the instant cases, the petitioner who is stated to be only a member of the HUF shall not be vicariously liable for the offence allegedly committed by the Kartha of the HUF. In view of the above, the prosecutions in these cases against the petitioner are liable to be quashed.
26. In the result, these Criminal Original Petitions are allowed and the cases in C.C.Nos.2633, 2634, 2635, 2639, 2638, 2636, 2637, 2640, 2628, 2629, 2630, 2631 and 2632 of 2011 on the file of II Metropolitan Magistrate, Egmore, Chennai are quashed insofar as the petitioner herein/the second accused alone is concerned. The Trial Court may proceed with the trial of these cases as against the first accused. Consequently, connected miscellaneous petitions are closed.
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