In a complaint alleging Company of committing an offence of dishonor of cheque, whether notice under Section 138 of the Act is mandatorily required to be sent to the directors of a Company before a complaint could be filed against such directors along with the Company was the question before the Court.
The notice under Section 138 is required to be given to “the drawer” of the cheque so as to give the drawer an opportunity to make the payment and escape the penal consequences. No other person is contemplated by Section 138 as being entitled to be issued such notice. The plain language of Section 138 is very clear and leaves no room for any doubt or ambiguity. There is nothing in Section 138 which may even remotely suggest issuance of notice to anyone other than the drawer.
Section 141 states that if the person committing an offence under Section 138 is a Company, every director of such Company who was in charge of and responsible to that Company for conduct of its business shall also be deemed to be guilty. The reason for creating vicarious liability is plainly that a juristic entity i.e. a Company would be run by living persons who are in charge of its affairs and who guide the actions of that Company and that if such juristic entity is guilty, those who were so responsible for its affairs and who guided actions of such juristic entity must be held responsible and ought to be proceeded against. Section 141 again does not lay down any requirement that in such eventuality the directors must individually be issued separate notices under Section 138. The persons who are in charge of the affairs of the Company and running its affairs must naturally be aware of the notice of demand under Section 138 of the Act issued to such Company. It is precisely for this reason that no notice is additionally contemplated to be given to such directors. The opportunity to the ‘drawer’ Company is considered good enough for those who are in charge of the affairs of such Company. If it is their case that the offence was committed without their knowledge or that they had exercised due diligence to prevent such commission, it would be a matter of defence to be considered at the appropriate stage in the trial and certainly not at the stage of notice under Section 138.
Section 138 of the Act does not admit of any necessity or scope for reading into it the requirement that the directors of the Company in question must also be issued individual notices under Section 138 of the Act. Such directors who are in charge of affairs of the Company and responsible for the affairs of the Company would be aware of the receipt of notice by the Company under Section 138. Therefore neither on literal construction nor on the touch stone of purposive construction such requirement could or ought to be read into Section 138 of the Act.
Reportable
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO.1220 of 2009
KIRSHNA TEXPORT &
CAPITAL MARKETS LTD.
Versus
ILA A. AGRAWAL & ORS.
Uday Umesh Lalit, J.
Dated;May 06, 2015
This appeal by Special Leave is directed against the order dated 6.5.2008
passed by the High Court of Judicature at Bombay rejecting Criminal
Application No. 2174 of 2007 preferred by the appellant for leave to appeal.
2.
On 14.09.1996 a notice under Section 138 of the ‘Negotiable
Instruments Act, 1881’(hereinafter referred to as “the Act”) was issued on
behalf of the appellant to M/S Indo French Bio Tech Enterprises Ltd (‘the
Company’ for short).
The notice stated that a cheque bearing No. 364776
dated 8.9.1996 drawn by the Company on Dena Bank, New Marine Lines,
Mumbai in favour of the appellant was returned on 10.9.1996 with
Page 1
2
endorsement “funds insufficient”. The notice therefore called upon the
addressee to make the payment of the cheque amount within 15 days of the
receipt of such notice. No reply was sent to the aforesaid notice dated
14.9.1996.
3.
The appellant thereafter filed Complaint Case No. 243/S/1996 before the
Additional Chief Metropolitan Magistrate, 5th Court at Dadar, Mumbai against
the Company, Mr. K.J. Bodiwala, the Chairman and Managing Director of the
Company and 11 other directors including respondents 1 and 2. In so far as the
directors are concerned, it was averred that they were in-charge of the business
of the Company and its day to day affairs and were liable.
During the
pendency of said complaint case, the process issued against Accused Nos. 3 to
5, 7, 9 to 13 was recalled and due to the death of Mr. Bodiwala the proceedings
as against him also abated, which left the Company and the present
respondents 1 and 2 namely Ms. Ila A. Agrawal and Mr. Prafulla Ranadive,
Accused Nos. 6 and 8 respectively in the array of accused.
4.
It was submitted by the appellant that separate notices to the directors
were additionally issued but at the stage of evidence it turned out that such
individual notices to the directors were with respect to dishonour of a different
cheque. The facts as found therefore were that no individual notices were given
to the directors. The Metropolitan Magistrate by his judgment and order dated
30.4.2007 convicted the Company but acquitted respondents 1 and 2 of the
Page 2
3
offence punishable under Section 138 of the Act. Relying on the judgment of
the Division Bench of Madras High Court in B. Raman & Ors. Vs. M/s.
Shasun Chemicals and Drugs Ltd. reported in 2006 Cril. L.J. Page 4552, it
was observed that statutory notice under Section 138 of the Act was required to
be issued to every Director and for non- compliance of such mandatory
requirement respondents 1 and 2 could not be proceeded against. .
5.
The appellant being aggrieved filed Criminal Application No. 2174 of
2007 in the High Court seeking leave to prefer appeal against the judgment
acquitting respondents 1 and 2. It was submitted that it was not necessary to
serve individual notice upon the directors and it was sufficient if the notice was
served on the Company. Reliance was placed on the decision of a Single Judge
of the Calcutta High Court in the case of Girish Chandra Pandey Vs.
Kanhaiyalal Chandak and Ors. reported in 1999 ALL MR (CRI) JOURNAL
3, wherein it was held that if the partnership firm failed to give the amount
within the stipulated time after receipt of notice, each partner need not be
served with a separate notice individually. So also reliance was placed on the
decision of a Single Judge of Delhi High Court in the case of Jain Associates
and Ors. Vs. Deepak Chawdhary & Co. reported in 80 (1999) DLT 654,
wherein it was laid down that Section 141 of the Act does not require that each
and every partner of the firm is required to be issued notice.
Similar view was taken by High Court of Andhra Pradesh in K. Pannir
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4
Selvan vs. MMTC and another reported in (2000) Cr. L.J. 1002 and by Delhi
High Court in Ranjit Tiwari vs. Narender Nayyar reported in 191 (2012) DLT
318.
6.
The High Court, relying on the judgment of the Division Bench of
Madras High Court B. Raman & Ors. (supra) observed that it was mandatory
to have issued separate notices to the directors. The High Court concluded
thus:-
“If the legal fiction is created by Section 141 to make
directors who are responsible for day to day affairs of the
Company, punishable under Section 138, then it is
necessary that they get an opportunity to rectify, the mistake
or clarify matters after service of notice. So before making
the complaint against the directors, notice necessarily must
be served on them. In my opinion without service of notice
to accused Nos. 6 & 8, vicarious liability of the offence
under Section 138 cannot be fixed upon them.”
7.
At this stage the decision of the Division Bench of Madras High Court in
B. Raman & others (Supra) may also be referred to. Para 2 of said decision
sets out that the matter was referred to the Division Bench as a result of
divergent views taken by Single Judges of the Court. Paras 25 and 26 of the
decision are as under:-
“25. Under Section 141 (1), the persons in charge of and
responsible to the Company shall be deemed to have
committed the offence. Under sub section (2), even the
persons, who are not stated to be in charge of and
responsible to the Company, can be prosecuted, if it is
alleged and proved that the offence has been committed
with the consent or connivance of, or is attributable to, any
Page 4
5
neglect on the part of any of those persons prosecuted. So,
these Sections would provide that when there are Directors,
who are responsible for the conduct of the business of the
Company, and when there are other officers, with whose
consent the offence has been committed, the complainant
shall make averments to the said effect. In that context, the
complainant has to start the process of getting back the
cheque amount from those persons, who represent the
Company, in order to avoid the filing of the Complaint
against them. In the said process, he has to necessarily
make a demand from those persons, who are part and parcel
of the drawer. Only when the process fails, the cause of
action, as envisaged in Section 138, would arise against
them, to enable the complainant to approach the Court,
within the stipulated time. So, the starting of the process is,
the service of notice on the persons, who represent the
Company, the drawer of the cheque.
26. The object of the notice is to give a chance to the
drawer of the cheque to rectify his omission and also to
protect an honest drawer. Service of notice of demand in
Clause (b) of the proviso to Section 138 is a condition
precedent for filing a complaint under Section 138. By
sending a notice to the Company as well as the persons in
charge of and responsible fore the conduct of the business
of the company, he can make a demand, asking them to pay
the amount. Some may reply that they are not in charge of
and responsible for the conduct of the business of the
Company. Some may reply that they are not connected with
the Company in any way and some may rectify the
omission, by making efforts to pay the amount to the payee,
in the name of the Company, in that event, the complainant
may either drop the action of filing the Complainant or, in
the event of non-payment of the cheque amount, he may
choose the persons, who are really responsible fore the
commission of offence and, then, initiate prosecution
against them.”
8.
It was submitted by Mr. Ajit Anekar, learned Advocate for the appellant
that Section 138 does not contemplate issuance of separate notices to the
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6
directors and that no such requirement ought to be read into said Section. Mr.
Shree Prakash Sinha and Mr. Ashok Bhatia, learned Advocates appearing for
respondents relied upon the decision of the Division Bench of Madras High
Court in B. Raman & others (Supra). It was submitted that though the issue
whether such separate notices are mandatorily required to be given to the
Directors had not squarely arisen, paras 10 & 11 of the decision of this Court in
N.K. Wahi v Shekhar Singh1 did speak of such notices. We quote said paras 10
& 11:-
“10. In order to bring application of Section 138 the complaint
must show:
1 That Cheque was issued;
2. The same was presented;
3. It was dishonored on presentation;
4. A notice in terms of the provisions was served on the person
sought to be made liable;
5. Despite service of notice, neither any payment was made nor
other obligations, if any, were complied with within fifteen
days from the date of receipt of the notice.
11. Section 141 of the Act in terms postulates constructive
liability of the Directors of the company or other persons
responsible for its conduct or the business of the company.”
9.
The question, therefore, is whether notice under Section 138 of the Act is
mandatorily required to be sent to the directors of a Company before a
complaint could be filed against such directors along with the Company. At
the outset we must consider whether the decision of this Court in N.K. Wahi
(supra) had considered and concluded that it is obligatory to issue separate
1
(2007)9 SCC 481
Page 6
7
notices to the Directors in addition to the Company, before initiating any
proceedings against them. We have perused the decision and find that no such
issue had arisen for consideration in that case. We, therefore, proceed to
consider the question. Before we deal with the matter, Sections 138 and 141
of the Act may be quoted:-
“138. Dishonour of cheque for insufficiency, etc., of
funds in the accounts
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:
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 induce course of the cheque, as
the case may be, makes a demand for the payment of the
said amount of money by giving a notice, in writing, to the
drawer, of the cheque, “within thirty days” of the receipt of
information by him from the bank regarding the return of
the cheques as unpaid, and
(c) The drawer of such cheque fails to make the payment of
the said amount of money to the payee or, as the case may
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8
be, to the holder in due course of the cheque, within fifteen
days of the receipt of the said notice.
Explanation: For the purpose of this section, “debt or other
liability” means a legally enforceable debt or other liability.
141. Offences by companies- (1) 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 attribute
to, any neglect on the part of, any director, Manager,
secretary, or other office 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
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9
(b) “Director”, in relating to a firm, means a partner in the
firm.”
The expression “drawer” used in Section 138 has to be understood in the
light of the definition in Section 7 of the Act which is to the following effect :-
“..The maker of a bill of exchange or cheque is called the
“drawer”; the person thereby directed to pay is called the
‘drawee.”
10.
Since the High Court has read into Section 138 of the Act the
requirement that separate notices ought to be given to the directors, without
which they cannot be made vicariously liable, the principles concerning
interpretative function of the Court may be adverted to. In Kanai Lal Sur v.
Paramnidhi Sadhukhan2 it was observed,
“In support of his argument Mr. Chatterjee has naturally relied on
the observations made by Barons of the Exchequer in Heydon’s
case. Indeed these observations have been so frequently cited
with approval by courts administering provisions of welfare
enactments that they have now attained the status of a classic on
the subject and their validity cannot be challenged. However, in
applying these observations to the provisions of any statute, it
must always be borne in mind that the first and primary rule of
construction is that the intention of the Legislature must be found
in the words used by the Legislature itself. If the words used are
capable of one construction only then it would not be open to the
courts to adopt any other hypothetical construction on the ground
that such hypothetical construction is more consistent with the
alleged object and policy of the Act. The words used in the
material provisions of the statute must be interpreted in their plain
grammatical meaning and it is only when such words are capable
of two constructions that the question of giving effect to the policy
or object of the Act can legitimately arise. When the material
words are capable of two constructions, one of which is likely to
defeat or impair the policy of the Act whilst the other construction
2
(1958) SCR 360
Page 9
10
is likely to assist the achievement of the said policy, then the
courts would prefer to adopt the latter construction. It is only in
such cases that it becomes relevant to consider the mischief and
defect which the, Act purports to remedy and correct.”
11.
In Nasiruddin and others v. Sita Ram Agarwal3 this Court stated the law
in the following terms:
“37. The court’s jurisdiction to interpret a statute can be invoked
when the same is ambiguous. It is well known that in a given case
the court can iron out the fabric but it cannot change the texture of
the fabric. It cannot enlarge the scope of legislation or intention
when the language of the provision is plain and unambiguous. It
cannot add or subtract words to a statute or read something into it
which is not there. It cannot rewrite or recast legislation. It is also
necessary to determine that there exists a presumption that the
legislature has not used any superfluous words. It is well settled
that the real intention of the legislation must be gathered from the
language used.........”
12.
In Nathi Devi v. Radha Devi Gupta4 a Constitution Bench of this Court
was called upon to consider, inter alia, whether the expression, “where the
landlord is a widow and the premises let out by her, or by her husband, are
required by her for her own residence” appearing in Section 14-D of the Delhi
Rent Control Act would include every widow so as to entitle her to obtain
immediate possession of the premises owned by her. While holding that the
benefit under Section 14-D is available only to a widow, where premises are let
out by her or by her husband, this Court repelled the contention that a widow
3
4
(2003) 2 SCC 577
(2003) 2 SCC 577
Page 10
11
who had acquired tenanted premises by sale or transfer could also invoke the
provisions of Section 14-D.
During the course of its decision this Court
observed:
“The interpretative function of the court is to discover the
true legislative intent. It is trite that in interpreting a statute
the court must, if the words are clear, plain, unambiguous
and reasonably susceptible to only one meaning, give to the
words that meaning, irrespective of the consequences. Those
words must be expounded in their natural and ordinary
sense. When the language is plain and unambiguous and
admits of only one meaning, no question of construction of
statute arises, for the Act speaks for itself. Courts are not
concerned with the policy involved or that the results are
injurious or otherwise, which may follow from giving effect to
the language used. If the words used are capable of one
construction only then it would not be open to the courts to
adopt any other hypothetical construction on the ground that
such construction is more consistent with the alleged object
and policy of the Act. In considering whether there is
ambiguity, the court must look at the statute as a whole and
consider the appropriateness of the meaning in a particular
context
avoiding
absurdity
and
inconsistencies
or
unreasonableness
which
may
render
the
statute
unconstitutional.”
13.
With these principles in mind, we now consider the provisions in
question. According to Section 138, where any cheque drawn by a person on
an account maintained by him is returned by the Bank unpaid for reasons
mentioned in said Section such person shall be deemed to have committed an
offence.
The proviso to the Section stipulates three conditions on the
satisfaction of which the offence is said to be completed. The proviso inter alia
obliges the payee to make a demand for the payment of said amount of money
by giving a notice in writing to “the drawer of the cheque” and if “the drawer
Page 11
12
of the cheque” fails to make the payment of the said amount within 15 days of
the receipt of said notice, the stages stipulated in the proviso stand fulfilled.
The notice under Section 138 is required to be given to “the drawer” of the
cheque so as to give the drawer an opportunity to make the payment and
escape the penal consequences. No other person is contemplated by Section
138 as being entitled to be issued such notice. The plain language of Section
138 is very clear and leaves no room for any doubt or ambiguity. There is
nothing in Section 138 which may even remotely suggest issuance of notice to
anyone other than the drawer.
14.
Section 141 states that if the person committing an offence under Section
138 is a Company, every director of such Company who was in charge of and
responsible to that Company for conduct of its business shall also be deemed to
be guilty. The reason for creating vicarious liability is plainly that a juristic
entity i.e. a Company would be run by living persons who are in charge of its
affairs and who guide the actions of that Company and that if such juristic
entity is guilty, those who were so responsible for its affairs and who guided
actions of such juristic entity must be held responsible and ought to be
proceeded against. Section 141 again does not lay down any requirement that
in such eventuality the directors must individually be issued separate notices
under Section 138.
The persons who are in charge of the affairs of the
Company and running its affairs must naturally be aware of the notice of
Page 12
13
demand under Section 138 of the Act issued to such Company. It is precisely
for this reason that no notice is additionally contemplated to be given to such
directors.
The opportunity to the ‘drawer’ Company is considered good
enough for those who are in charge of the affairs of such Company. If it is their
case that the offence was committed without their knowledge or that they had
exercised due diligence to prevent such commission, it would be a matter of
defence to be considered at the appropriate stage in the trial and certainly not at
the stage of notice under Section 138.
15.
If the requirement that such individual notices to the directors must
additionally be given is read into the concerned provisions, it will not only be
against the plain meaning and construction of the provision but will make the
remedy under Section 138 wholly cumbersome. In a given case the ordinary
lapse or negligence on part of the Company could easily be rectified and
amends could be made upon receipt of a notice under Section 138 by the
Company. It would be unnecessary at that point to issue notices to all the
directors, whose names the payee may not even be aware of at that stage.
Under Second proviso to Section 138, the notice of demand has to be made
within 30 days of the dishonour of cheque and the third proviso gives 15 days
time to the drawer to make the payment of the amount and escape the penal
consequences. Under clause (a) of Section 142, the complaint must be filed
within one month of the date on which the cause of action arises under the
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third proviso to Section 138. Thus a complaint can be filed within the
aggregate period of seventy five days from the dishonour, by which time a
complainant can gather requisite information as regards names and other
details as to who were in charge of and how they were responsible for the
affairs of the Company. But if we accept the logic that has weighed with the
High Court in the present case, such period gets reduced to 30 days only.
Furthermore, unlike proviso to clause (b) of Section 142 of the Act, such
period is non-extendable. The summary remedy created for the benefit of a
drawee of a dishonoured cheque will thus be rendered completely cumbersome
and capable of getting frustrated.
16.
In our view, Section 138 of the Act does not admit of any necessity or
scope for reading into it the requirement that the directors of the Company in
question must also be issued individual notices under Section 138 of the Act.
Such directors who are in charge of affairs of the Company and responsible for
the affairs of the Company would be aware of the receipt of notice by the
Company under Section 138. Therefore neither on literal construction nor on
the touch stone of purposive construction such requirement could or ought to
be read into Section 138 of the Act. Consequently this appeal must succeed.
The order passed by the High Court is set aside. Since the matter was at the
stage of considering application for leave to appeal and the merits of the matter
were not considered by the High Court, we remit the matter to the High Court
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15
for fresh consideration which may be decided as early as possible. Concluding
so, we must record that the decision of the Division Bench of the Madras High
Court in B. Raman & Ors. Vs. M/s. Shasun Chemicals and Drugs Ltd.
(supra) was incorrect and it stands overruled. The appeal is allowed in these
terms.
............................J
(Pinaki Chandra Ghose)
............................J
(Uday Umesh Lalit)
New Delhi,
May 06, 2015
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