However, the fact that the law requires a company or a corporate body to carry on its affairs in a particular manner and the question whether the proceedings have been instituted and is prosecuted in conformity with such requirements, is a question of law that should be satisfied as a matter of course and ought not to depend upon whether an objection has been raised or a 'plea' taken, if you will. The infirmity if noticed should be cured. It certainly cannot be ignored as being a mere technicality that would not vitiate the proceedings.
Section 291 of the Companies Act, 1956, did embody the principle that subject to the specific exceptions mentioned, the directors of the company, as its governing body, are entitled to exercise all the powers of the company. In the instant case on hand, it is noticed by the lower appellate court that the Articles of Association of the company, did confer the power on the Directors to sue or defend any proceedings on behalf of the company. A delegation of such power can only be by a resolution of the Board of Directors. Hence, a letter of authorization or a Power of Attorney executed by the Chairman or other officer of the company, without a delegation of the power to institute such proceedings having emanated from the Board of Directors, would invalidate any proceedings brought without the necessary authority. This lack of authority could have been supplied even before the appellate court when the issue arose for consideration, as has been observed by the apex court in MMTC's case as well in the case ofUnited Bank of India v. Naresh Kumar (1996) 6 SCC 660. In other words even on a presumption, that in the face of a letter of authorization and a power of attorney having been executed, authorizing the concerned person to file and prosecute the complaint, that there was an implied authorization by the Board, it ought to have been formally ratified, when the same was questioned before the courts below.
This court has consistently held that for any person to represent and tender evidence in a court of law on behalf of a company, ought to be authorized under the Articles of Association of the company or by a separate resolution by the Board of Directors.
Karnataka High Court
George Joseph vs Hmt (International) Limited on 28 October, 2014
Citation; 2015 CRLJ(NOC)473KAR This Criminal Revision Petition is filed under Section 397 read with 401 of the Code of Criminal Procedure, 1973, by the advocate for the petitioners praying to set aside the judgment and order dated 15.12.2012 passed by the Presiding Officer, Fast Track Court-II, Bangalore in Criminal Appeal No.381/2003 confirming the judgment and order dated 17.6.2003 passed by the XV Additional Chief Metropolitan Magistrate, Bangalore, in C.C.No.20138/1997. This Criminal Revision Petition having been heard and reserved on 16.10.2014 and coming on for pronouncement of Orders this day, the Court delivered the following:- 3 ORDER
The petition is admitted and considered for final disposal.
2. The present petition is filed by the accused before the trial court. It transpires that M/s HMT (International) Limited, a public limited company, incorporated under the Companies Act, 1956, had filed a complaint as on 30.12.1996, against one M/s Nucor Wires Limited, Bangalore and its 7 directors, alleging that they had committed an offence punishable under Section 138 of the Negotiable Instruments Act, 1881, (Hereinafter referred to as the 'NI Act', for brevity) on the dishonour of a cheque for a sum of Rs.35 lakh, dated 31.10.1996.
It was the case of the complainant that it had advanced a sum of Rs.80.00 lakh to the accused in terms of an agreement dated 22.2.1996. On the failure of the accused to comply with the obligations under the contract, the complainant is said to have recalled the balance advance repayable after adjusting certain amounts payable under the terms of the agreement. The said amount claimed by the complainant was not disputed by the accused. The accused is said to have issued a cheque for an amount of Rs.35 lakh, which when presented by the complainant for encashment, was returned with an endorsement by the banker of the accused, that the funds in the account of the accused were insufficient.
3. The respondent having issued a notice of demand in terms of Section 138 of the NI Act, the petitioners are said to have replied contending that the cheque in question had only been issued as security and was not in discharge of any ascertained liability. A complaint was thus filed by the respondent, represented by its General Manager, one M.S.Zahed, who was said to have been duly authorized by the Chairman of the Board of Directors of the respondent company. However, the said General Manager was said to have been substituted by one M.R Jayaram, who was said to have been duly authorized to represent the respondent company under a Power of Attorney, executed in his favour by the Chairman.
It is found that the respondent had made a demand for payment of the money due even after filing of the complaint and that the petitioners had made a partial payment of Rs.4.50 lakh, thereby admitting the liability.
In any event, the trial court had found the petitioners to be guilty and convicted them for the offence punishable under Section 138 of the NI Act and had sentenced them to pay a fine of Rs.70 lakh.
An appeal having been filed against the judgment of the trial court, the same was dismissed. The present petition is filed in the above back ground.
The judgments of the courts below are challenged primarily on the ground that the complaint on behalf of a company was prosecuted by a person who was not duly authorized to do so. Though it was shown that the person who had prosecuted the complaint was said to have been actingunder a Power of Attorney executed by the Chairman of the Board of Directors of the respondent company, it is sought to be urged that he was not authorized to represent the company in the manner known to law and therefore, the proceedings stood vitiated. It is contended that the petitioners had brought this aspect to the attention of both the courts below, but the said contention has been negated off-hand and hence, the learned counsel would draw attention to several authorities to contend that the petition would have to allowed on that limited ground without having to enter upon the other contentions raised.
4. The learned counsel for the respondent, on the other hand, emphasizes the following aspects in justifying the judgments of the courts below :
That the petitioners cannot rely on the Articles of Association and this Court cannot look into the same, as the same was not marked either by way of confrontation through CW-1 or in defence evidence.
Further, the question of a valid authorization to file a complaint arises only if the accused had taken a specific plea, in support of which reliance is placed on the decision of this Court in the case of Sarathi Leasing Finance Limited v. B. Narayana Shetty 2006(3) Kar. L.J.397. Hence, that there is nothing on record to show that the accused had taken a specific plea regarding authorization in the present case.
It is further stated that at Para-23 of the impugned judgment, the learned Magistrate has given a clear finding that the accused have not raised a plea regarding the authorization of the complainant's representatives by putting any suggestion in the cross-examination of PW-1. Therefore, the decision of the learned Magistrate is in conformity with the law laid in Sarathi Leasing Finance Limited, supra.
Reliance is placed on a decision of the Bombay High Court in the case of Credential Finance Limited v. State of Maharashtra and others, 1999 Crl.L.J. 1032; the decisions of the Supreme Court in the cases of Vishwa Mitter v. O.P.Poddar and others, (1983)4 SCC 701; M.M.T.C. Limited and another v. Medchl Chemicals and Pharma (Private) Limited and another, (2002)1 SCC 234 and United Bank of India v. Naresh Kumar and others, (1997)90 Company Cases 329, for the proposition that, neither the Negotiable Instruments Act nor the Companies Act imposes a pre-condition that there has to be an authorization, that too, in the form of a Board Resolution in favour of any person filing a complaint on behalf of the company and that criminal law can be set in motion by any person by filing a complaint and therefore, any officer of a company can file the complaint so long as the circumstances disclose that he is acting for and on behalf of the company and his actions are binding on the company.
Further, it is contended that the evidence and circumstances clearly indicate that the complainant's representatives were duly authorised to represent the complainant in the proceedings. Ex.P-1 and P-26 are the power of attorney and the letter of authorization authorizing the representative to file and prosecute the complaint.
That based on the evidence on record, the learned Magistrate has given a clear finding that the actions of the complainant's representatives are binding on the complainant company.
Further, that the judgments cited by the petitioners' counsel are either not applicable or do not lay down the correct legal position or are per incuriam and not binding on this Court. That the judgment relied upon by the petitioners' counsel reported in (2011) 11 SCC 524, does not lay down any law and in any event is not applicable to the facts of the case, as the question as to whether the person who signed the complaint in that case was a Director or not itself was in doubt. Further, that the said judgment did not approve the decision in AIR 1991 Del 25 as submitted by the petitioners. In any event, since the said decision was passed without noting the earlier decision of the Supreme Court reported in (1997) 90 Company Cases 329, it is per incuriam and not binding under Article 141 of the Constitution of India as held by the Supreme Court in AIR 2011 SC 312.
It is further contended that in view of the judgment reported in (1997) 90 Company Cases 329, the judgment relied upon by the petitioners in AIR 1991 Del 25 is no longer good law. The decision cited by the petitioners and reported in 2014 (14) Kar LJ 449, ILR 2014 Karnataka 2168 should not be interpreted as laying down the law as regards board resolution being a prerequisite to institute and prosecute a case when the complainant is a company. Further, the facts in the above cases are clearly distinguishable from the facts of the present case and in the light of the law laid down in 2006 (3) Kar.L.J 397, (1983) 4 SCC 701, (1997) 90 Company Cases 329 and (2002) 1 SCC 234, the same are not binding on this Court.
In ILR 2014 Karnataka 2168, this Court while rejecting the argument advanced by the appellant who was relying on a decision of the Supreme Court in (2009) 1 SCC 407, held that the said case law was not applicable to their case for the sole reason that it pertains to a complaint filed on behalf of a Government Company or Statutory Corporation, and its representative was a public servant.
Further, the judgment of the Supreme Court in (2009) 1 SCC 407 squarely applies to the facts of the present case. The complainant is a subsidiary of HMT Limited which is a Government Company and the complainant's officers being public servants as defined under Section 21(12) of the Indian Penal Code read with Section 617 of the Companies Act read with PW-1's statement in the cross-examination at page 4 of the deposition, which fact is undisputed, all actions taken by the complainant's officers in their official capacity are binding on the complainant company and therefore it has to be presumed that they are duly authorised in these proceedings.
Further, it is contended that without prejudice to the contention that the Articles of Association cannot be looked into, Ex.P-1 and Ex.P-26 have been signed by the Chairman of the complainant company, who is the head of the company as also the Board of Directors and therefore it can be presumed that there was proper authorization in view of Article 1 read withArticle 98(h) and 98(v) of the Articles of Association of the Company.
The learned counsel for the respondent further submits that the term used in Article 98 is 'Directors' and not 'Board of Directors' and therefore every Director including the Chairman has the power referred to under Article 98(h) and the same can be sub-delegated under Article 98(v).
That Section 142 requires a complaint under Section 138 to be filed by the payee of the cheque and the present complaint was in fact filed in the name of the company which is the payee of the cheque in question and not in the name of any officer of the complaint company, in his personal capacity.
5. In the light of the above contentions the points that arise for considerations are :
"1. Whether the complaint, for an offence punishable under Section 138 of the NI Act, filed on behalf of the respondent, a public limited company, could be presented and prosecuted by a Power of Attorney holder, appointed by the Chairman of the Board of Directors ?'
2. Whether it was necessary that the Board of Directors specifically authorize the execution of such a Power of Attorney, by a resolution ?"
6. In answer to the first point raised, it may be said following the view expressed in MMTC Ltd . v. Medchl Chemicals and Pharma Limited, (2002) 1 SCC 234, ( relying on Vishwa Mitter v. OP Poddar, ( 1983) 4 SCC 701 ) , anyone can set the criminal law in motion by filing a complaint of facts constituting an offence before a Magistrate entitled to take cognizance. No court can decline to take cognizance on the sole ground that the complainant was not competent to file the complaint. However, if any special statute prescribes offences and makes any special provision for taking cognizance of such offences under the statute, then the complainant requesting the Magistrate to take cognizance of the offence must satisfy the eligibility criterion prescribed by the statute. The only eligibility criteria prescribed by Section 142 of the NI Act is that the complaint must be by the payee or the holder in due course. That criteria is satisfied in the present case on hand, as the complaint is in the name and on behalf of the respondent company.
It is further opined (following Associated Cement Company Limited v. Keshvanand, ( 1998) 1 SCC 687) that a complainant must be a corporeal person who is capable of making a physical appearance in the court. If a complaint is made in the name of an incorporeal person (like a company or a corporation) it is necessary that a natural person represent such a juristic person in court. The court looks upon the natural person to be the complainant for all practical purposes. No magistrate shall insist that the particular person whose statement was taken on oath at the first instance, alone can continue to represent the company till the end of the proceedings. There may be occasions when different persons can represent the company. It would be open for the de jure complainant company to seek permission of the court for sending any other person to represent the company in court. Thus even presuming that initially there was no authority, still the company can at any stage, rectify that defect .
Therefore, the question whether a person is competent and authorised to represent an incorporeal body such as a company or a corporation, in filing or presenting the complaint, would not normally be gone into in the court taking cognizance of a complaint, if the complaint is on behalf of the payee or the holder in due course of the cheque in question.
However, should the question be raised by the court in the course of the proceedings or is an objection raised by the accused, the complainant is bound to satisfy the court that the person prosecuting the complaint is competent and duly authorized by the incorporeal complainant to represent it. The contention that the question would be material only if there is a plea raised by the accused to that effect, is apparently taken drawing inspiration from the observation made by this court in the case of Sarathi Leasing Finance v. B.Narayana Shetty, 2006 (3) Kar.L.J 397. In that case, it was found as a fact that the complaint had been filed by the Managing Director of the complainant company, and that he was duly authorized under the Articles of Association to do so. Hence, the question whether the accused had raised a 'plea' in that regard did not arise at all and the observation was clearly obiter dicta, which is unwittingly and unnecessarily emphasized in the head note, to the report, by the concerned editor. Further, in the present case on hand, as can be seen from the judgments of the trial court and the appellate court, the question has been raised by the accused and PW-1 has been cross-examined on this aspect.
However, the fact that the law requires a company or a corporate body to carry on its affairs in a particular manner and the question whether the proceedings have been instituted and is prosecuted in conformity with such requirements, is a question of law that should be satisfied as a matter of course and ought not to depend upon whether an objection has been raised or a 'plea' taken, if you will. The infirmity if noticed should be cured. It certainly cannot be ignored as being a mere technicality that would not vitiate the proceedings.
Section 291 of the Companies Act, 1956, did embody the principle that subject to the specific exceptions mentioned, the directors of the company, as its governing body, are entitled to exercise all the powers of the company. In the instant case on hand, it is noticed by the lower appellate court that the Articles of Association of the company, did confer the power on the Directors to sue or defend any proceedings on behalf of the company. A delegation of such power can only be by a resolution of the Board of Directors. Hence, a letter of authorization or a Power of Attorney executed by the Chairman or other officer of the company, without a delegation of the power to institute such proceedings having emanated from the Board of Directors, would invalidate any proceedings brought without the necessary authority. This lack of authority could have been supplied even before the appellate court when the issue arose for consideration, as has been observed by the apex court in MMTC's case as well in the case ofUnited Bank of India v. Naresh Kumar (1996) 6 SCC 660. In other words even on a presumption, that in the face of a letter of authorization and a power of attorney having been executed, authorizing the concerned person to file and prosecute the complaint, that there was an implied authorization by the Board, it ought to have been formally ratified, when the same was questioned before the courts below.
This court has consistently held that for any person to represent and tender evidence in a court of law on behalf of a company, ought to be authorized under the Articles of Association of the company or by a separate resolution by the Board of Directors.
See : Menon Ventures, Bangalore v Birla 3M Limited, Bangalore, (2005 (5) Kar. L.J.448) ;Director, Maruti Feeds and Farms Private Limited, Dharwad v. Basanna Pattekar (2007 (5) Kar. L.J.310) and Om Shakthi Scheduled Castes and Scheduled Tribes and Minority Credit Co-operative Society Limited v M. Venkatesh (2008(2) Kar. L.J. 486; National Small Industries Corporation Limited v Harmeet Singh Paintal and another [(2010)3 SCC 330] ).
In the result, the proceedings are held to be vitiated for want of authority to prosecute the complaint on behalf of the Company by the Power of Attorney holder.
The petition is allowed and the accused are acquitted. The fine amount if any paid by the accused shall be refunded .
Sd/-
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