SC: When company/accused is let off, complainant cannot continue against the MD


Court :
Supreme Court of India

Brief :
The Supreme Court bench comprising of Justices Sudhansu Jyoti Mukhopadhaya and V. Gopala Gowda in an appeal against the judgment passed by the High Court of complaint under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881 ruled that proceedings against Managing Director cannot continue in the event of the company/accused being let off.

Citation :
Anil Gupta Vs. Star India Pvt. Ltd. & Anr.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO.1364 OF 2014

(arising out of SLP(Crl.) No.7039 of 2007)

Anil Gupta  … APPELLANT

VERSUS

Star India Pvt. Ltd. & Anr.             … RESPONDENTS

SUDHANSU JYOTI MUKHOPADHAYA,J.

Leave granted.

J U D G M E N T 

2. This  appeal  is  directed  against  the  judgment  dated  13

August, 2007 passed by the High Court of Delhi at New Delhi in 

Criminal  Miscellaneous  Case  No.2380  of  2004.  By  the  impugned 

judgment, the High Court held that the complaint under Section 138 

read  with  Section  141  of  the  Negotiable  Instruments  Act,  1881 

(hereinafter referred to as the, ‘Act’) was barred by limitation 

and quashed the summon order against respondent no.2-Visionaries 

Media  Network  (hereinafter  referred  to  as  the,  ‘Company’).  It 

further held that the dispute qua the appellant (petitioner no.2 

before High Court) is within limitation and affirmed the summon 

order against the appellant. 

3. The factual matrix of the case is as follows:

Page 1

1

th 

A subscription agreement was entered into between respondent 

nos.1  and  2  whereby  respondent  no.2-Company  was  appointed  as 

distributor of Star Channels and collecting subscription fee for 

the  same.  On  27.12.2003,  respondent  no.2-Company  issued  three 

cheques bearing nos.790913, 790912 and 790911 for Rs.6,00,000/-, 

Rs.5,00,000/- and Rs.5,00,000/- respectively drawn on the Indian 

Overseas Bank, Gandhi Nagar, Jammu. The aforesaid three cheques 

were  presented  before  the  Indian  Overseas  Bank,  Gandhi  Nagar, 

Jammu and were dishonoured on 6.01.2004. Respondent No.1 served 

notice on respondent no.2-Company with a demand notice separately 

for all the three cheques. Respondent no.2-Company replied to the 

said notice on 20.01.2004 informed respondent no.1 that payments 

were stopped because of their inability to stop the piracy due to 

which the cable operators did not make payments.  

Thereafter,  respondent  no.1  issued  second  notice  dated 

28.01.2004 on the appellant based on the same facts and based on 

the  same  memo  of  dishonor  in  respect  of  the  aforesaid  three 

cheques.  Respondent no.1 also issued a corrigendum of the same 

date to the said notice. The appellant submitted reply to the said 

notice on 3.02.2004.

4. Respondent no.1 filed a Criminal Complaint under Sections 138 

and  141  of  the  Act  on  17.03.2004.  According  to  appellant, 

respondent  no,1  concealed  the  material  fact  of  having  earlier 

issued notice dated 14.1.2004 with regard to the aforesaid three 

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2

cheques  and  by  misleading  the  Court  got  summons  issued  by 

Metropolitan  Magistrate  in  Complaint  No.698  of  2001  to  the 

appellant and respondent no.2-Company.  

5. Thereafter,  respondent  no.2-Company  and  appellant  jointly 

filed  Criminal  Miscellaneous  Petition  No.2380  of  2004  under 

Section 482 of the Criminal Procedure Code, 1973 before the High 

Court of Delhi at New Delhi for quashing the aforesaid criminal 

complaint filed by respondent no.1. In its reply, respondent no.1 

taken the plea that first notice dated 14.01.2004 was not a notice 

under Section 138 of the Act. It was contended on behalf of the 

appellant  that  he  was  only  vicariously  liable  on  behalf  of 

respondent no.2-Company. Learned counsel for the appellant placed 

reliance on decisions of this Court in support of his claim. 

 

6. The High Court by impugned judgment while recording the stand 

taken by respondent no.1 that letter dated 14.01.2004 constituted 

a  valid  notice  under  Section  138  of  the  Act  and  hence  the 

complaint based on second notice against respondent no.2-Company 

was not maintainable and quashed the summon issued by the Trial 

Court  against  respondent  no.2-Company.  However,  so  far  as 

appellant is concerned, the High Court relying on decision of this 

Court in  Anil Hada v. Indian Acrylic Ltd., (2000) 1 SCC 1, held 

that the proceeding against the Director can be issued even in 

absence  of  the  Company  being  impleaded,  The  High  Court  further 

held that the summoning order was valid since the first notice was 

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not addressed to the appellant and the second notice which was 

also  addressed  to  the  appellant  was  issued  within  time  and. 

therefore, criminal complaint filed by respondent no.1 against the 

appellant on the basis of the said notice is maintainable.  

7. Learned  counsel  appearing  on  behalf  of  the  appellant 

contended that the order of the High Court is contrary to the law 

in as much as this is not a case where proceedings were initiated 

against  the  Managing  Director  alone.  On  the  contrary,  the 

proceedings  are  instituted  against  the  company/accused  and  its 

Managing Director. In the event of the company/accused being let 

off, the same cannot continue against the Managing Director who 

admittedly is only vicariously liable. 

8. It is further submitted that even as per law laid down in 

Anil  Handa’s  case,  the  Director  of  a  company/accused  is  only 

liable vicariously and upon his showing that the principal accused 

is not liable he cannot be held guilty. 

9. On the other hand, according to counsel for the respondents, 

the issue is no longer res integra as held by the High Court. 

10. Section  138  of  the  Act  deals  with  dishonor  of  cheque  for 

insufficiency etc. as follows:

 “138. Dishonour of cheque for insufficiency, etc.,

of funds in the account.—Where any cheque drawn by

a person on an account maintained by him with a

banker  for  payment  of  any  amount  of  money  to

another person from out of that account for the

discharge,  in  whole  or  in  part,  of  any  debt  or 

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4

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

arrangement 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 years, 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 in due 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

cheque 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 be, to the holder in due course

of the cheque within fifteen days of the receipt of

the said notice.”

From  the  aforesaid  provision,  it  is  clear  that  only  the 

drawer of the cheque falls within the ambit of Section 138 of the 

Act whether human being or a body corporate or even a firm. 

11. The guilt for offence under Section 138 will be deemed to be 

upon other persons connected with the Company in view of Section 

141 of the Act, which reads as follows:

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 “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

punished accordingly:

Provided  that  nothing  contained  in  this  subsection

 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.

(2) Notwithstanding anything contained in subsection

(1),

where

any

offence

under

this

Act

has

 

been

committed

by

a

company

and

it

is

proved

that

 

the

offence

has

been

committed

with

the

consent

or

 

connivance

of,

or

is

attributable

to,

any

neglect

 

on

the part of, any director, manager, secretary or

 

other

 officer  of  the  company,  such  director,

manager, secretary or other officer shall also be

deemed to be guilty of that offence and shall be

liable  to  be  proceeded  against  and  punished

accordingly.”

12. Similar question was raised and considered by two Judge Bench 

of this Court in Anil Hada v. India Acrylic Ltd. (2000) 1 SCC 1. 

This Court held:

“12. Thus when the drawer of the cheque who falls

within the ambit of Section 138 of the Act is a

human  being  or  a  body  corporate  or  even  firm,

prosecution  proceedings  can  be  initiated  against

such drawer. In this context the phrase “as well

as” used in sub-section (1) of Section 141 of the

Act  has  some  importance.  The  said  phrase  would

embroil the persons mentioned in the first category

within the tentacles of the offence on a par with

the offending company. Similarly the words “shall

also” in sub-section (2) are capable of bringing

the third category persons additionally within the

dragnet of the offence on an equal par. The effect

of reading Section 141 is that when the company is 

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the  drawer  of  the  cheque  such  company  is  the

principal offender under Section 138 of the Act and

the remaining persons are made offenders by virtue

of the legal fiction created by the legislature as

per the section. Hence the actual offence should

have been committed by the company, and then alone

the other two categories of persons can also become

liable for the offence.

13. If the offence was committed by a company it

can be punished only if the company is prosecuted.

But instead of prosecuting the company if a payee

opts to prosecute only the persons falling within

the second or third category the payee can succeed

in the case only if he succeeds in showing that the

offence was actually committed by the company. In

such a  prosecution the accused can show that the

company has not committed the offence, though such

company  is  not  made  an  accused,  and  hence  the

prosecuted accused is not liable to be punished.

The  provisions  do  not  contain  a  condition  that

prosecution  of  the  company  is  sine  qua  non  for

prosecution of the other persons who fall within

the  second  and  the  third  categories  mentioned

above.  No  doubt  a  finding  that  the  offence  was

committed  by  the  company  is  sine  qua  non  for

convicting those other persons. But if a company is

not prosecuted due to any legal snag or otherwise,

the other prosecuted persons cannot, on that score

alone,  escape  from  the  penal  liability  created

through the legal fiction envisaged in Section 141

of the Act.”

“21. We,  therefore,  hold  that  even  if  the

prosecution  proceedings  against  the  Company  were

not taken or could not be continued, it is no bar

for proceeding against the other persons falling

within the purview of sub-sections (1) and (2) of

Section  141  of  the  Act.  In  the  light  of  the

aforesaid view we do not consider it necessary to

deal with the remaining question whether winding-up

order of a company would render the company nonexistent.”

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7

13. In  Aneeta  Hada  v.  Godfather  Travels  and  Tours  Pvt.  Ltd., 

(2008)  13  SCC  703,  taking  note  of  the  maxim  lex  non  cogit  ad 

impossibilia, two Judge Bench of this Court observed: 

“54. True  interpretation,  in  my  opinion,  of  the

said provision would be that a company has to be

made an accused but applying the principle of lex

non cogit ad impossibilia i.e. if for some legal

snag,  the  company  cannot  be  proceeded  against

without obtaining sanction of a court of law or

other  authority,  the  trial  as  against  the  other

accused may be proceeded against if the ingredients

of Section 138 as also Section 141 are otherwise

fulfilled. In such an event, it would not be a case

where the company had not been made an accused but

would be one where the company cannot be proceeded

against  due  to  existence  of  a  legal  bar.  A

distinction  must  be  borne  in  mind  between  cases

where a company had not been made an accused and

the  one  where  despite  making  it  an  accused,  it

cannot  be  proceeded  against  because  of  a  legal

bar.”

14. Again the same question was considered by three Judge Bench 

of this Court in Aneeta Hada v.  Godfather Travels and Tours Pvt. 

Ltd. (2012) 5 SCC 661. The Court noticed the decisions in Anil 

Hada (supra) case and Aneeta Hada (supra) case.  The three Judge 

Bench  while  partly  overruled  the  finding  of  Anil  Hada  (supra) 

affirmed the decision of Aneeta Hada (supra). This Court held 

“51. We have already opined that the decision in

Sheoratan Agarwal runs counter to the ratio laid

down in C.V. Parekh which is by a larger Bench and

hence,  is  a  binding  precedent.  On  the  aforesaid

ratiocination, the decision in Anil Hada has to be

treated as not laying down the correct law as far

as it states that the Director or any other officer

can  be  prosecuted  without  impleadment  of  the

company. Needless to emphasise, the matter would 

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8

stand on a different footing where there is some

legal impediment and the doctrine of lex non cogit

ad impossibilia gets attracted.”

“53. It is to be borne in mind that Section 141 of

the  Act  is  concerned  with  the  offences  by  the

company.  It  makes  the  other  persons  vicariously

liable for commission of an offence on the part of

the company. As has been stated by us earlier, the

vicarious  liability  gets  attracted  when  the

condition precedent laid down in Section 141 of the

Act stands satisfied. There can be no dispute that

as  the  liability  is  penal  in  nature,  a  strict

construction of the provision would be necessitous

and, in a way, the warrant.”

“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.

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. We say so on 

the basis of the ratio laid down in C.V. Parekh

17 

which is a three-Judge Bench decision. Thus, the

view  expressed  in  Sheoratan  Agarwal does  not

correctly  lay  down  the  law  and,  accordingly,  is

hereby  overruled.  The  decision  in  Anil  Hada is

overruled with the qualifier as stated in para 51. 

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9

The decision in Modi Distillery has to be treated

to  be  restricted  to  its  own  facts  as  has  been

explained by us hereinabove.”

15. In  the  present  case,  the  High  Court  by  impugned  judgment 

dated 13

th

 August, 2007 held that the complaint against respondent 

no.2-Company was not maintainable and quashed the summon issued by 

the  Trial  Court  against  respondent  no.2-Company.  Thereby,  the 

Company being not a party to the proceedings under Section 138 

read with Section 141 of the Act and in view of the fact that part 

of the judgment referred to by the High Court in Anil Hada (supra) 

has been overruled by three Judge Bench of this Court in  Aneeta 

Hada (supra), we have no other option but to set aside the rest 

part of the impugned judgment whereby the High Court held that the 

proceedings against the appellant can be continued even in absence 

of the Company.  We, accordingly,  set aside that part of the 

impugned judgment dated 13

th

 August, 2007 passed by the High Court 

so far it relates to appellant and quash the summon and proceeding 

pursuant to complaint case No.698 of 2001 qua the appellant.

16. The appeal is allowed with aforesaid observation. 

NEW DELHI,

JULY 07, 2014.

…………………………………………J.

                (SUDHANSU JYOTI MUKHOPADHAYA)

…………………………………………J.

 (V. GOPALA GOWDA)   

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Vineet Kumar
on 12 July 2014
Published in Corporate Law
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