A decision of a three Judge Bench of this
Court in Aneeta Hada vs. Godfather Travels and Tours Private
Limited(2012) 5 SCC 661 governs the area of dispute. The issue which fell for consideration was whether an authorized
signatory of a
company would be liable for prosecution under Section 138 of
the Negotiable Instruments Act, 1881 without the company being
arraigned as an accused. The three Judge Bench held thus:-
“58. Applying the doctrine of strict
construction, we are of the considered opinion
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.”
In similar terms, the Court further held:
“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…. “
The provisions of Section 141 postulate that if the
person committing an offence under Section 138 is a company,
every person, who at the time when the offence was committed
was in charge of or 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 punished.
In the absence of the company being arraigned as an
accused, a complaint against the appellant was therefore not
maintainable. The appellant had signed the cheque as a Director
of the company and for and on its behalf. Moreover, in the
absence of a notice of demand being served on the company and
without compliance with the proviso to Section 138, the High
Court was in error in holding that the company could now be
arraigned as an accused.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 1465 OF 2009
HIMANSHU Vs B. SHIVAMURTHY
Dr. Dhananjaya Y. Chandrachud, J.
Dated:January 17, 2019.
Citation: (2019) 3 SCC 797, MANU/SC/0072/2019
A complaint under Section 138 of the Negotiable
Instruments Act, 1881 was instituted by the respondent against
the appellant. According to the complainant, the appellant had
borrowed a sum of Rs. 4,15,000/- “for his business development”
and on the same day, the appellant issued a cheque drawn on
Karnataka Bank, Hosadurga for an equivalent amount. When the
cheque was presented on 26 December 2003 for encashment to the
State Bank of Mysore, Beligere Branch, the bank returned the
cheque with an endorsement on 29 December 2003 stating that
funds were insufficient. The complainant issued a notice to the
appellant on 19 January 2004 which was served on 28 January
2004.
Upon the failure of the appellant to pay the amount due
under the cheque, a complaint was instituted.
The Civil Judge, Junior Division, Tiptur took cognizance
2
on 6 July 2004 and issued summons to the appellant.
The appellant instituted a petition under Section 482 of
the Code of Criminal Procedure, 1973 (“CrPC”) before the High
Court of Karnataka. Paragraph 6 of the petition states the
ground on which the jurisdiction of the High Court was invoked.
“6. The cheque was issued by one of the
directors of M/s Lakshmi Cement and
Industries Ltd., i.e., on behalf of said company.
The said company was public limited company and in
order to demonstrate the said fact, the accused
herewith produces copies of the memorandum and
articles of association of the company alongwith
the certification of incorporation of the company
and which are marked as ANNEXURE C1, C2 AND C3
respectively.”
In paragraph 7, the appellant averred thus:-
“7. …
The complainant approached the learned Magistrate
with a request to take cognizance against the
accused stating that the accused on 23.12.2003 had
issued a cheque in his favour and the said cheque
was bounced on 26.12.2003 on meticulously going
through the cheque dated 23.12.2005 it discloses
that the cheque was issued by one of the directors
of the company and that was not a cheque issued by
any person in his individual capacity. If that is
accepted the complaint should have been against the
company and its Directors and not against the
Accused.”
The appellant submitted that the cheque was issued by a
Director of Lakshmi Cement and Ceramics Industries Ltd., a
public limited company. In other words, the cheque was not
issued by the signatory in his personal capacity. Hence, it
was urged that the complaint ought to have been instituted
against the company and its Directors and not against the
appellant.
3
The High Court by its order dated 24 January 2006
dismissed the petition. The High Court rejected the submissions
urged on behalf of the appellant on the ground that the
complainant had pleaded ignorance about the existence of the
company. Moreover, in the view of the High Court, it would not
be difficult for the complainant to take steps to proceed
against the company as well as against other persons who are
responsible for the affairs of the company.
The judgment of the High Court has been questioned on two
grounds. Learned counsel appearing on behalf of the appellant
submits that firstly, the appellant could not be prosecuted
without the company being named as an accused. The cheque was
issued by the company and was signed by the appellant as its
Director. Secondly, it was urged that the observation of the
High Court that the company can now be proceeded against in the
complaint is misconceived. Learned counsel submitted that the
offence under Section 138 is complete only upon the issuance of
a notice of demand and the failure of payment within the
prescribed period. In absence of compliance with the
requirements of Section 138, it is asserted, the direction of
the High Court that the company could be impleaded/arraigned at
this stage is erroneous.
The first submission on behalf of the appellant is no
longer res integra. A decision of a three Judge Bench of this
Court in Aneeta Hada vs. Godfather Travels and Tours Private
Limited(2012) 5 SCC 661 governs the area of dispute. The issue which fell for consideration was whether an authorized
signatory of a
company would be liable for prosecution under Section 138 of
the Negotiable Instruments Act, 1881 without the company being
arraigned as an accused. The three Judge Bench held thus:-
“58. Applying the doctrine of strict
construction, we are of the considered opinion
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.”
In similar terms, the Court further held:
“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…. “
The judgment of the three Judge Bench has since been
followed by a two Judge Bench of this Court in Charanjit Pal
Jindal vs. L.N. Metalics2. There is merit in the second
submission which has been urged on behalf of the appellant as
2 (2015) 15 SCC 768
5
well. The proviso to Section 138 contains the pre-conditions
which must be fulfilled before an offence under the provision
is made out. These conditions are; (i) presentation of the
cheque to the bank within six months from the date on which it
is drawn or within the period of its validity, whichever is
earlier; (ii) a demand being made in writing by the payee or
holder in due course by the issuance of a notice in writing to
the drawer of the cheque within thirty days of the receipt of
information from the bank of the return of the cheques; and
(iii) the failure of the drawer to make payment of the amount
of money to the payee or the holder in due course within
fifteen days of the receipt of the notice.
In MSR Leathers vs. S. Palaniappan (2013) 1 SCC 177, this Court held
thus :-
“12. The proviso to Section 138, however, is all
important and stipulates three distinct
conditions precedent, which must be satisfied
before the dishonour of a cheque can constitute
an offence and become punishable. The first
condition is that the cheque ought to have 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. The second condition is that the payee
or the holder in due course of the cheque, as the
case may be, ought to make 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
cheque as unpaid. The third condition is that
the drawer of such a cheque should have failed to
make payment of the said amount of money to the
payee or as the case may be, to the holder in due
course of the cheque within fifteen days of the
receipt of the said notice. It is only upon the
satisfaction of all the three conditions
mentioned above and enumerated under the proviso
to Section 138 as clauses (a), (b) and (c)
thereof that an offence under Section 138 can be
said to have been committed by the person
issuing the cheque.”
The importance of fulfilling these conditions has been
adverted to in a recent judgment of a two Judge Bench of this
Court in N. Harihara Krishnan vs. J. Thomas (2018) 13 SC 663.
Adverting to the ingredients of Section 138, the Court observed
as follows:
“26. ….Obviously such complaints must
contain the factual allegations constituting
each of the ingredients of the offence under
Section 138. Those ingredients are: (1) that a
person drew a cheque on an account maintained by
him with the banker; (2) that such a cheque when
presented to the bank is returned by the bank
unpaid; (3) that such a cheque was presented to
the bank within a period of six months from the
date it was drawn or within the period of its
validity whichever is earlier; (4) that the
payee demanded in writing from the drawer of the
cheque the payment of the amount of money due
under the cheque to payee; and (5) such a notice
of payment is made within a period of 30 days
from the date of the receipt of the information
by the payee from the bank regarding the return
of the cheque as unpaid...”
In the present case, the record before the Court
indicates that the cheque was drawn by the appellant for
Lakshmi Cement and Ceramics Industries Ltd., as its Director.
A notice of demand was served only on the appellant. The
complaint was lodged only against the appellant without
arraigning the company as an accused.
The provisions of Section 141 postulate that if the
person committing an offence under Section 138 is a company,
every person, who at the time when the offence was committed
was in charge of or 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 punished.
In the absence of the company being arraigned as an
accused, a complaint against the appellant was therefore not
maintainable. The appellant had signed the cheque as a Director
of the company and for and on its behalf. Moreover, in the
absence of a notice of demand being served on the company and
without compliance with the proviso to Section 138, the High
Court was in error in holding that the company could now be
arraigned as an accused.
We, accordingly, are of the view that the High Court was
in erorr in rejecting the petition under Section 482 of the
CrPC.
We hence allow the appeal and set aside the judgment of
the High Court. In consequence, the complaint, being C.R.P No.
27/2004 shall stand quashed.
During the pendency of these proceedings, this Court on
28 November 2008 recorded the statement of the appellant that
he was willing to deposit the entire cheque, and hence issued
the following directions:
“Learned counsel appearing for the petitioner
submits that petitioner is willing to deposit the
entire cheque amount which was dishonoured in
this Court.
Let the amount be deposited in this Court within
four weeks from today and on deposit of the
amount within the aforesaid period, Registry to
issue fresh notice to the respondent as
respondent is not represented till date. The
amount, so deposited, shall be invested in a
fixed deposit in a nationalised bank initially
for a period of six months and may be kept
renewed from time to time until further orders.”
In pursuance of the aforesaid directions, the appellant
deposited an amount of Rs. 4,15,000/- on 23 February 2009.
The amount has been invested in a fixed deposit which has been
renewed periodically.
In our view, having regard to the intent of the order
which was passed by this Court on 28 November 2008, it would be
appropriate and proper if the amount deposited in this Court,
together with accrued interest, is paid over to the respondentcomplainant.
The Registry shall, accordingly, issue a communication to
the respondent intimating a copy of the present order (since
the respondent has not appeared despite service of notice. The
amount shall be disbursed to the respondent against proof of
identity.
The criminal appeal is, accordingly, disposed of.
Pending application(s), if any, shall also stand disposed
of.
...…...….......………………........J.
(DR. DHANANJAYA Y. CHANDRACHUD)
…...…........……………….…........J.
(HEMANT GUPTA)
NEW DELHI,
January 17, 2019
Print Page
Court in Aneeta Hada vs. Godfather Travels and Tours Private
Limited(2012) 5 SCC 661 governs the area of dispute. The issue which fell for consideration was whether an authorized
signatory of a
company would be liable for prosecution under Section 138 of
the Negotiable Instruments Act, 1881 without the company being
arraigned as an accused. The three Judge Bench held thus:-
“58. Applying the doctrine of strict
construction, we are of the considered opinion
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.”
In similar terms, the Court further held:
“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…. “
The provisions of Section 141 postulate that if the
person committing an offence under Section 138 is a company,
every person, who at the time when the offence was committed
was in charge of or 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 punished.
In the absence of the company being arraigned as an
accused, a complaint against the appellant was therefore not
maintainable. The appellant had signed the cheque as a Director
of the company and for and on its behalf. Moreover, in the
absence of a notice of demand being served on the company and
without compliance with the proviso to Section 138, the High
Court was in error in holding that the company could now be
arraigned as an accused.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 1465 OF 2009
HIMANSHU Vs B. SHIVAMURTHY
Dr. Dhananjaya Y. Chandrachud, J.
Dated:January 17, 2019.
Citation: (2019) 3 SCC 797, MANU/SC/0072/2019
A complaint under Section 138 of the Negotiable
Instruments Act, 1881 was instituted by the respondent against
the appellant. According to the complainant, the appellant had
borrowed a sum of Rs. 4,15,000/- “for his business development”
and on the same day, the appellant issued a cheque drawn on
Karnataka Bank, Hosadurga for an equivalent amount. When the
cheque was presented on 26 December 2003 for encashment to the
State Bank of Mysore, Beligere Branch, the bank returned the
cheque with an endorsement on 29 December 2003 stating that
funds were insufficient. The complainant issued a notice to the
appellant on 19 January 2004 which was served on 28 January
2004.
Upon the failure of the appellant to pay the amount due
under the cheque, a complaint was instituted.
The Civil Judge, Junior Division, Tiptur took cognizance
2
on 6 July 2004 and issued summons to the appellant.
The appellant instituted a petition under Section 482 of
the Code of Criminal Procedure, 1973 (“CrPC”) before the High
Court of Karnataka. Paragraph 6 of the petition states the
ground on which the jurisdiction of the High Court was invoked.
“6. The cheque was issued by one of the
directors of M/s Lakshmi Cement and
Industries Ltd., i.e., on behalf of said company.
The said company was public limited company and in
order to demonstrate the said fact, the accused
herewith produces copies of the memorandum and
articles of association of the company alongwith
the certification of incorporation of the company
and which are marked as ANNEXURE C1, C2 AND C3
respectively.”
In paragraph 7, the appellant averred thus:-
“7. …
The complainant approached the learned Magistrate
with a request to take cognizance against the
accused stating that the accused on 23.12.2003 had
issued a cheque in his favour and the said cheque
was bounced on 26.12.2003 on meticulously going
through the cheque dated 23.12.2005 it discloses
that the cheque was issued by one of the directors
of the company and that was not a cheque issued by
any person in his individual capacity. If that is
accepted the complaint should have been against the
company and its Directors and not against the
Accused.”
The appellant submitted that the cheque was issued by a
Director of Lakshmi Cement and Ceramics Industries Ltd., a
public limited company. In other words, the cheque was not
issued by the signatory in his personal capacity. Hence, it
was urged that the complaint ought to have been instituted
against the company and its Directors and not against the
appellant.
3
The High Court by its order dated 24 January 2006
dismissed the petition. The High Court rejected the submissions
urged on behalf of the appellant on the ground that the
complainant had pleaded ignorance about the existence of the
company. Moreover, in the view of the High Court, it would not
be difficult for the complainant to take steps to proceed
against the company as well as against other persons who are
responsible for the affairs of the company.
The judgment of the High Court has been questioned on two
grounds. Learned counsel appearing on behalf of the appellant
submits that firstly, the appellant could not be prosecuted
without the company being named as an accused. The cheque was
issued by the company and was signed by the appellant as its
Director. Secondly, it was urged that the observation of the
High Court that the company can now be proceeded against in the
complaint is misconceived. Learned counsel submitted that the
offence under Section 138 is complete only upon the issuance of
a notice of demand and the failure of payment within the
prescribed period. In absence of compliance with the
requirements of Section 138, it is asserted, the direction of
the High Court that the company could be impleaded/arraigned at
this stage is erroneous.
The first submission on behalf of the appellant is no
longer res integra. A decision of a three Judge Bench of this
Court in Aneeta Hada vs. Godfather Travels and Tours Private
Limited(2012) 5 SCC 661 governs the area of dispute. The issue which fell for consideration was whether an authorized
signatory of a
company would be liable for prosecution under Section 138 of
the Negotiable Instruments Act, 1881 without the company being
arraigned as an accused. The three Judge Bench held thus:-
“58. Applying the doctrine of strict
construction, we are of the considered opinion
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.”
In similar terms, the Court further held:
“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…. “
The judgment of the three Judge Bench has since been
followed by a two Judge Bench of this Court in Charanjit Pal
Jindal vs. L.N. Metalics2. There is merit in the second
submission which has been urged on behalf of the appellant as
2 (2015) 15 SCC 768
5
well. The proviso to Section 138 contains the pre-conditions
which must be fulfilled before an offence under the provision
is made out. These conditions are; (i) presentation of the
cheque to the bank within six months from the date on which it
is drawn or within the period of its validity, whichever is
earlier; (ii) a demand being made in writing by the payee or
holder in due course by the issuance of a notice in writing to
the drawer of the cheque within thirty days of the receipt of
information from the bank of the return of the cheques; and
(iii) the failure of the drawer to make payment of the amount
of money to the payee or the holder in due course within
fifteen days of the receipt of the notice.
In MSR Leathers vs. S. Palaniappan (2013) 1 SCC 177, this Court held
thus :-
“12. The proviso to Section 138, however, is all
important and stipulates three distinct
conditions precedent, which must be satisfied
before the dishonour of a cheque can constitute
an offence and become punishable. The first
condition is that the cheque ought to have 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. The second condition is that the payee
or the holder in due course of the cheque, as the
case may be, ought to make 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
cheque as unpaid. The third condition is that
the drawer of such a cheque should have failed to
make payment of the said amount of money to the
payee or as the case may be, to the holder in due
course of the cheque within fifteen days of the
receipt of the said notice. It is only upon the
satisfaction of all the three conditions
mentioned above and enumerated under the proviso
to Section 138 as clauses (a), (b) and (c)
thereof that an offence under Section 138 can be
said to have been committed by the person
issuing the cheque.”
The importance of fulfilling these conditions has been
adverted to in a recent judgment of a two Judge Bench of this
Court in N. Harihara Krishnan vs. J. Thomas (2018) 13 SC 663.
Adverting to the ingredients of Section 138, the Court observed
as follows:
“26. ….Obviously such complaints must
contain the factual allegations constituting
each of the ingredients of the offence under
Section 138. Those ingredients are: (1) that a
person drew a cheque on an account maintained by
him with the banker; (2) that such a cheque when
presented to the bank is returned by the bank
unpaid; (3) that such a cheque was presented to
the bank within a period of six months from the
date it was drawn or within the period of its
validity whichever is earlier; (4) that the
payee demanded in writing from the drawer of the
cheque the payment of the amount of money due
under the cheque to payee; and (5) such a notice
of payment is made within a period of 30 days
from the date of the receipt of the information
by the payee from the bank regarding the return
of the cheque as unpaid...”
In the present case, the record before the Court
indicates that the cheque was drawn by the appellant for
Lakshmi Cement and Ceramics Industries Ltd., as its Director.
A notice of demand was served only on the appellant. The
complaint was lodged only against the appellant without
arraigning the company as an accused.
The provisions of Section 141 postulate that if the
person committing an offence under Section 138 is a company,
every person, who at the time when the offence was committed
was in charge of or 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 punished.
In the absence of the company being arraigned as an
accused, a complaint against the appellant was therefore not
maintainable. The appellant had signed the cheque as a Director
of the company and for and on its behalf. Moreover, in the
absence of a notice of demand being served on the company and
without compliance with the proviso to Section 138, the High
Court was in error in holding that the company could now be
arraigned as an accused.
We, accordingly, are of the view that the High Court was
in erorr in rejecting the petition under Section 482 of the
CrPC.
We hence allow the appeal and set aside the judgment of
the High Court. In consequence, the complaint, being C.R.P No.
27/2004 shall stand quashed.
During the pendency of these proceedings, this Court on
28 November 2008 recorded the statement of the appellant that
he was willing to deposit the entire cheque, and hence issued
the following directions:
“Learned counsel appearing for the petitioner
submits that petitioner is willing to deposit the
entire cheque amount which was dishonoured in
this Court.
Let the amount be deposited in this Court within
four weeks from today and on deposit of the
amount within the aforesaid period, Registry to
issue fresh notice to the respondent as
respondent is not represented till date. The
amount, so deposited, shall be invested in a
fixed deposit in a nationalised bank initially
for a period of six months and may be kept
renewed from time to time until further orders.”
In pursuance of the aforesaid directions, the appellant
deposited an amount of Rs. 4,15,000/- on 23 February 2009.
The amount has been invested in a fixed deposit which has been
renewed periodically.
In our view, having regard to the intent of the order
which was passed by this Court on 28 November 2008, it would be
appropriate and proper if the amount deposited in this Court,
together with accrued interest, is paid over to the respondentcomplainant.
The Registry shall, accordingly, issue a communication to
the respondent intimating a copy of the present order (since
the respondent has not appeared despite service of notice. The
amount shall be disbursed to the respondent against proof of
identity.
The criminal appeal is, accordingly, disposed of.
Pending application(s), if any, shall also stand disposed
of.
...…...….......………………........J.
(DR. DHANANJAYA Y. CHANDRACHUD)
…...…........……………….…........J.
(HEMANT GUPTA)
NEW DELHI,
January 17, 2019
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