HIMANSHU versus B. SHIVAMURTHY & ANR.

[2019] 1 S.C.R. 991

HIMANSHU

B. SHIVAMURTHY & ANR.

(Criminal Appeal No. 1465 of 2009)

JANUARY 17, 2019

[DR. DHANANJAYA Y CHANDRACHUDAND HEMANT GUPTA, JJ.]

Negotiable Instruments Act, 1881 – s.141 and Proviso to s.138– Maintainability of Complaint – When cheque was drawn by aperson as director of Company – Appellant borrowed sum ofmoney from respondent and issued cheque – When cheque waspresented in the bank for encashment, it was returned with theendorsement that funds were insufficient – Respondent issued noticeto the appellant – Upon the failure of the appellant to pay the amountdue under the cheque, complaint was instituted – Appellant filedpetition u/s. 482 of the Cr.P.C. to quash the complaint – Appellantcontended that cheque was issued by one of the directors of thecompany and that was not cheque issued by any person in hisindividual capacity – Submission of appellant was rejected by theHigh Court and it held that company could be arraigned as anaccused, and the petition was dismissed – On appeal, held: In theinstant case, the record before the Court indicated that the chequewas drawn by the appellant for ‘L’ Company, as its Director – Noticeof demand was served only on the appellant – Complaint was lodgedonly against the appellant without arraigning the company as anaccused – In the absence of the company being arraigned as anaccused, complaint against the appellant was therefore notmaintainable – Appellant had signed the cheque as Director ofthe company and for and on its behalf – Moreover, in the absenceof notice of demand being served on the company and withoutcompliance with the proviso to s.138, the High Court was in errorin holding that the company could now be arraigned as an accused– High Court erred in rejecting the petition u/s. 482 of the Cr.P.C –Code of Criminal Procedure, 1973 – s.482.

Complainant-respondent instituted complaint u/s.138 ofthe Negotiable Instruments Act, 1881 against the appellant.According to the complainant, the appellant had borrowed sum

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Aof Rs. 4,15,000/- “for his business development” and on the sameday, the appellant issued cheque for an equivalent amount. Whenthe cheque was presented for encashment to the Bank, it wasreturned with an endorsement that funds were insufficient. Thecomplainant issued notice to the appellant, upon the failure ofthe appellant to pay the amount due under the cheque, complaintBwas instituted. Appellant instituted petition u/s.482 of Cr.P.C.before the High Court, which was dismissed. Hence, the presentcriminal appeal.

Disposing of the appeal, the Court

HELD: 1. The judgment of the High Court has beenCquestioned on two grounds. The appellant submits that firstly,the appellant could not be prosecuted without the company beingnamed as an accused. The cheque was issued by the companyand was signed by the appellant as its Director. Secondly, it wasurged that the observation of the High Court that the companyDcan now be proceeded against in the complaint is misconceived.Appellant also submitted that the offence under Section 138 iscomplete only upon the issuance of notice of demand and thefailure of payment within the prescribed period. In absence ofcompliance with the requirements of Section 138, it is asserted,the direction of the High Court that the company could beEimpleaded/arraigned at this stage is erroneous. [Para 7][996-C-D]2. The first submission on behalf of the appellant is no longerres integra. decision of three Judge Bench of this Court inAneeta Hada v. Godfather Travels and Tours Private LimitedFgoverns the area of dispute. The issue which fell for considerationwas whether an authorized signatory of company would be liablefor prosecution under Section 138 of the Negotiable InstrumentsAct, 1881 without the company being arraigned as an accused.The three Judge Bench held that applying the doctrine of strictconstruction, the considered opinion was that commission ofGoffence by the company is an express condition precedent toattract the vicarious liability of others. Thus, the words “as wellas the company” appearing in the section make it absolutelyunmistakably clear that when the company can be prosecuted,then only the persons mentioned in the other categories couldHbe vicariously liable for the offence subject to the averments in

the petition and proof thereof. One cannot be oblivious of thefact that the company is juristic person and it has its ownrespectability. Further, the Court held that the for maintainingthe prosecution under Section 141 of the Act, arraigning of acompany as an accused is imperative. [Para 8][996-E-H; 997-A-B]

Aneeta Hada v. Godfather Travels and Tours PrivateLimited (2012) 5 SCC 661 : [2012] 5 SCR 503 – reliedon.

3. There is merit in the second submission which has beenurged on behalf of the appellant as well. The proviso to Section138 contains the pre-conditions which must be fulfilled before anoffence under the provision is made out. These conditions are;(i) presentation of the cheque to the bank within six months fromthe date on which it is drawn or within the period of its validity,whichever is earlier; (ii) demand being made in writing by thepayee or holder in due course by the issuance of notice in writingto the drawer of the cheque within thirty days of the receipt ofinformation from the bank of the return of the cheques; and (iii)the failure of the drawer to make payment of the amount of moneyto the payee or the holder in due course within fifteen days of thereceipt of the notice. [Para 9][997-D-E]

Charanjit Pal Jindal v. L.N. Metalics (2015) 5 SCALE16; MSR Leathers v. S. Palaniappan (2013) 1 SCC 177: [2012] 9 SCR 165 – referred to.

4. In the present case, the record before the Court indicatesthat the cheque was drawn by the appellant for ‘L’ Ltd. company,as its Director. notice of demand was served only on theappellant. The complaint was lodged only against the appellantwithout arraigning the company as an accused. [Para 12][998-G]

5. The provisions of Section 141 postulate that if the personcommitting an offence under Section 138 is company, everyperson, who at the time when the offence was committed was incharge of or was responsible to the company for the conduct ofthe business of the company as well as the company, shall bedeemed to be guilty of the offence and shall be liable to beproceeded against and punished. [Para 13][998-G-H; 999-A]

A6. In the absence of the company being arraigned as anaccused, complaint against the appellant was therefore notmaintainable. The appellant had signed the cheque as Directorof the company and for and on its behalf. Moreover, in theabsence of notice of demand being served on the company andwithout compliance with the proviso to Section 138, the HighBCourt was in error in holding that the company could now bearraigned as an accused.[Para 14][999-B]

N. Harihara Krishnan v. J. Thomas (2018) 13 SCC 663: [2017] 9 SCR 324– referred to.

Case Law Reference

CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No.

1465 of 2009.

From the Judgment and Order dated 24.01.2006 of the HighCourt of Karnataka at Bangalore in Criminal Petition No. 4467 of 2005.

Rohan Thawani, Prashant Kumar, Dhawesh Pahuja, JosephPookkatt, Advs. for the appellant.

V. N. Raghupathy, Parikshit P. Angadi, Md. Apzal Ansari, Advs.for the respondents.

The Judgment of the Court was delivered by

DR. DHANANJAYA Y CHANDRACHUD, J. 1.A complaintunder Section 138 of the Negotiable Instruments Act, 1881 was institutedby the respondent against the appellant. According to the complainant,the appellant had borrowed sum of Rs. 4,15,000/- “for his businessGdevelopment” and on the same day, the appellant issued cheque drawnon Karnataka Bank, Hosadurga for an equivalent amount. When thecheque was presented on 26 December 2003 for encashment to theState Bank of Mysore, Beligere Branch, the bank returned the chequewith an endorsement on 29 December 2003 stating that funds were

insufficient. The complainant issued notice to the appellant on 19 January2004 which was served on 28 January 2004.

2. Upon the failure of the appellant to pay the amount due underthe cheque, complaint was instituted.

3. The Civil Judge, Junior Division, Tiptur took cognizance on 6July 2004 and issued summons to the appellant.

4. The appellant instituted petition under Section 482 of the Codeof Criminal Procedure, 1973 (“CrPC”) before the High Court ofKarnataka. Paragraph 6 of the petition states the ground on which thejurisdiction of the High Court was invoked.

“6. The cheque was issued by one of the directors of M/s LakshmiCement and

Industries Ltd., i.e., on behalf of said company. The said companywas public limited company and in order to demonstrate the saidfact, the accused herewith produces copies of the memorandumand articles of association of the company alongwith thecertification of incorporation of the company and which are markedas ANNEXURE C1, C2 AND C3 respectively.”

In paragraph 7, the appellant averred thus:-

The complainant approached the learned Magistrate with requestto take cognizance against the accused stating that the accusedon 23.12.2003 had issued cheque in his favour and the saidcheque was bounced on 26.12.2003 on meticulously going throughthe cheque dated 23.12.2005 it discloses that the cheque wasissued by one of the directors of the company and that was not acheque issued by any person in his individual capacity. If that isaccepted the complaint should have been against the companyand its Directors and not against the Accused.”

5. The appellant submitted that the cheque was issued by Directorof Lakshmi Cement and Ceramics Industries Ltd., public limitedcompany. In other words, the cheque was not issued by the signatory inhis personal capacity. Hence, it was urged that the complaint ought tohave been instituted against the company and its Directors and not againstthe appellant.

A6. The High Court by its order dated 24 January 2006 dismissedthe petition. The High Court rejected the submissions urged on behalf ofthe appellant on the ground that the complainant had pleaded ignoranceabout the existence of the company. Moreover, in the view of the HighCourt, it would not be difficult for the complainant to take steps to proceedagainst the company as well as against other persons who are responsibleBfor the affairs of the company.

7. The judgment of the High Court has been questioned on twogrounds. Learned counsel appearing on behalf of the appellant submitsthat firstly, the appellant could not be prosecuted without the companybeing named as an accused. The cheque was issued by the companyCand was signed by the appellant as its Director. Secondly, it was urgedthat the observation of the High Court that the company can now beproceeded against in the complaint is misconceived. Learned counselsubmitted that the offence under Section 138 is complete only upon theissuance of notice of demand and the failure of payment within theDprescribed period. In absence of compliance with the requirements ofSection 138, it is asserted, the direction of the High Court that thecompany could be impleaded/arraigned at this stage is erroneous.

8. The first submission on behalf of the appellant is no longer resintegra. decision of three Judge Bench of this Court in AneetaEHada vs. Godfather Travels and Tours Private Limited [1] governs thearea of dispute. The issue which fell for consideration was whether anauthorized signatory of company would be liable for prosecution underSection 138 of the Negotiable Instruments Act, 1881 without the companybeing arraigned as an accused. The three Judge Bench held thus:-

F“58. Applying the doctrine of strict construction, we are of theconsidered opinion that commission of offence by the company isan express condition precedent to attract the vicarious liability ofothers. Thus, the words “as well as the company” appearing inthe section make it absolutely unmistakably clear that when thecompany can be prosecuted, then only the persons mentioned inGthe other categories could be vicariously liable for the offencesubject to the averments in the petition and proof thereof. Onecannot be oblivious of the fact that the company is juristic personand it has its own respectability. If finding is recorded against it,it would create concavity in its reputation. There can be situationsH 1 (2012) 5 SCC 661

when the corporate reputation is affected when director isindicted.”

In similar terms, the Court further held:

“59. In view of our aforesaid analysis, we arrive at the irresistibleconclusion that for maintaining the prosecution underSection 141ofthe Act, arraigning of 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 beenstipulated in the provision itself…. “

9. The judgment of the three Judge Bench has since been followedby two Judge Bench of this Court in Charanjit Pal Jindal vs. L.N.Metalics[2]. There is merit in the second submission which has beenurged on behalf of the appellant as well. The proviso to Section 138contains the pre-conditions which must be fulfilled before an offenceunder the provision is made out. These conditions are; (i) presentation ofthe cheque to the bank within six months from the date on which it isdrawn or within the period of its validity, whichever is earlier; (ii) demandbeing made in writing by the payee or holder in due course by the issuanceof notice in writing to the drawer of the cheque within thirty days ofthe 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 ofmoney to the payee or the holder in due course within fifteen days of thereceipt of the notice.

10. In MSR Leathers vs. S. Palaniappan[3], this Court held thus :-

“12. The proviso to Section 138, however, is all important andstipulates three distinct conditions precedent, which must besatisfied before the dishonour of cheque can constitute an offenceand become punishable. The first condition is that the chequeought to have been presented to the bank within period of sixmonths from the date on which it is drawn or within the period ofits validity, whichever is earlier. The second condition is that thepayee or the holder in due course of the cheque, as the case maybe, ought to make demand for the payment of the said amountof money by giving notice in writing, to the drawer of the cheque,within thirty days of the receipt of information by him from the

2 (2015) 15 SCC 768

3 (2013) 1 SCC 177

Abank regarding the return of the cheque as unpaid. The thirdcondition is that the drawer of such cheque should have failedto make payment of the said amount of money to the payee or asthe case may be, to the holder in due course of the cheque withinfifteen days of the receipt of the said notice. It is only upon thesatisfaction of all the three conditions mentioned above andBenumerated under the proviso to Section 138 as clauses (a),(b) and (c) thereof that an offence under Section 138 can besaid to have been committed by the person issuing thecheque.”

11. The importance of fulfilling these conditions has beenCadverted to in recent judgment of two Judge Bench of this Courtin N. Harihara Krishnan vs. J. Thomas[4].

Adverting to the ingredients of Section 138, the Court observedas follows:

D“26.….Obviously such complaints must contain the factualallegations constituting each of the ingredients of the offence underSection 138. Those ingredients are: (1) that person drew acheque on an account maintained by him with the banker; (2) thatsuch cheque when presented to the bank is returned by thebank unpaid; (3) that such cheque was presented to the bankEwithin period of six months from the date it was drawn or withinthe period of its validity whichever is earlier; (4) that the payeedemanded in writing from the drawer of the cheque the paymentof the amount of money due under the cheque to payee; and (5)such notice of payment is made within period of 30 days fromFthe date of the receipt of the information by the payee from thebank regarding the return of the cheque as unpaid...”

12. In the present case, the record before the Court indicates thatthe cheque was drawn by the appellant for Lakshmi Cement andCeramics Industries Ltd., as its Director. notice of demand wasGserved only on the appellant. The complaint was lodged only against theappellant without arraigning the company as an accused.

13. The provisions of Section 141 postulate that if the personcommitting an offence under Section 138 is company, every person,who at the time when the offence was committed was in charge of or 4 (2018) 13 SC 663H

was responsible to the company for the conduct of the business of thecompany as well as the company, shall be deemed to be guilty of theoffence and shall be liable to be proceeded against and punished.

14. In the absence of the company being arraigned as an accused,a complaint against the appellant was therefore not maintainable. Theappellant had signed the cheque as Director of the company and forand on its behalf. Moreover, in the absence of notice of demand beingserved on the company and without compliance with the proviso to Section138, the High Court was in error in holding that the company could nowbe arraigned as an accused.

15. We, accordingly, are of the view that the High Court was inerorr in rejecting the petition under Section 482 of the CrPC.

16. We hence allow the appeal and set aside the judgment of theHigh Court. In consequence, the complaint, being C.R.P No. 27/2004shall stand quashed.

17. During the pendency of these proceedings, this Court on 28November 2008 recorded the statement of the appellant that he waswilling to deposit the entire cheque, and hence issued the followingdirections:

“Learned counsel appearing for the petitioner submits that petitioneris willing to deposit the entire cheque amount which wasdishonoured in this Court.

Let the amount be deposited in this Court within four weeks fromtoday and on deposit of the amount within the aforesaid period,Registry to issue fresh notice to the respondent as respondent isnot represented till date. The amount, so deposited, shall beinvested in fixed deposit in nationalised bank initially for aperiod of six months and may be kept renewed from time to timeuntil further orders.”

18. In pursuance of the aforesaid directions, the appellant depositedan amount of Rs. 4,15,000/- on 23 February 2009. The amount hasbeen invested in fixed deposit which has been renewed periodically.

19. In our view, having regard to the intent of the order whichwas passed by this Court on 28 November 2008, it would be appropriateand proper if the amount deposited in this Court, together with accruedinterest, is paid over to the respondent-complainant.

1000SUPREME COURT REPORTS

A20. The Registry shall, accordingly, issue communication to therespondent intimating copy of the present order (since the respondenthas not appeared despite service of notice. The amount shall be disbursedto the respondent against proof of identity.

21. The criminal appeal is, accordingly, disposed of.BPending application(s), if any, shall also stand disposed of.

Ankit Gyan

Appeal disposed of.