Criminal Trident Pack: IPC, CrPC and IEA by Sr. Adv. G.S Shukla and Adv. Raghav Arora
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IN THE SUPREME COURT OF INDIA
CIVIL APPELALTE JURISDICTION
CRIMINAL APPEAL NO. 875 OF 2008
(Arising out of SLP (Crl.) No. 4801 of 2007)
DCM Financial Services Ltd. …. Appellant
Versus
J.N. Sareen and another …. Respondents
J U D G M E N T
S.B. SINHA, J.
1. Leave granted.
2. What would be the effect of a post dated cheque vis-à-vis
prosecution in terms of Section 141 of the Negotiable Instruments Act,
1881 (in short the Act) is the question involved in this appeal which
arises out of a judgment and order dated 31st January, 2007 passed by the
High Court of Delhi at New Delhi in Criminal Revision No. 777 of 2003
dismissing the Criminal Revision Application preferred from an order
dated 5th July, 2003 passed by the learned Additional Sessions Judge,
New Delhi, discharging the 1st respondent No.1 herein.
3. The basic fact of the matter is not in dispute.
First Respondent herein was a Director of a Company known as
M/s. International Agro Allied Products Ltd. (the Company). It had
purchased certain agricultural equipments on hire purchase/lease from on
3rd April, 1995. As a part of the said transaction some post dated cheques
were issued in favour of the appellant herein towards the payment of
monthly hire/rental.
First Respondent admittedly resigned from the Directorship of the
Company on or about 25th May, 1996. It was accepted. One of the said
post dated cheques which was issued in April, 1995 was dated 28th
January, 1998 amounting to Rs.2,01,298/-, when presented to the bank
by the appellant for encashment, was dishonoured. Pursuant thereto a
notice for payment was issued. Amount having not been paid despite
service of notice, a complaint petition was filed under Section 138 of the
Act. It was inter alia averred therein :-
“8. That on assurance of the accused persons
cheque No.0644739 dated 28th January, 1998 for a
sum of Rs.2,01,298/- drawn on Bank of Baroda,
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Lucknow and delivered/issued by the accused towards
payment of hire/lease rentals, were presented for
encashment again by complainant company through
their bankers and the same was returned unpaid by the
bankers of the accused vide memo dated 22.6.1998
with the remarks “Insufficient Funds” to the banker’s
of complainant company. The complainant received
the information only on 21.6.1998. (sic) (Copy of
memo of cheque returned and above referred cheque
are annexed herewith.).
9. That the complainant company sent a legal
notice to the accused persons through its advocate on
6th July, 1998, demanding the payment against these
cheques within 15 days from the receipt of the notice.
This notice was sent to the accused persons both
through registered AD & UPC within 15 days from
the date of receiving the information regarding
dishonouring of the cheques.
10. That the accused persons failed to make the
payment of the above said amount despite service of
legal notice on him.
13. That the accused No.1 is a ccompany/firm and
accused No. 2 to 10 were in charge and were
responsible to the accused No.1, at the time when
offence was committed. Hence, the accused Nos. 2 to
10 in addition to the accused No.1 are liable to be
prosecuted and punished in accordance with law by
this Hon’ble Court, as provided by section 141 of the
N.I. Act, 1881. Further the offence has been
committed by the accused No.1 with the consent and
connivance of the accused Nos. 2 to 10.”
4. No allegation was made in the complaint petition that the 1st
respondent was a signatory to the cheque or he was authorized therefor.
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5. An application was filed by the 1st respondent for his discharge.
By reason of the order dated 5th July, 2003 the same was allowed by the
learned Additional Sessions Judge, New Delhi, stating :-
“….It is a well-known fact that the Constitution of the
Board of Directors of a company keeps on changing
and a fixed ration of the directors of the company
keep on retiring by rotation every year and new
directors are inducted. The complainant cannot make
directors of the year 1995 or 1996 as the accused
person for a cheque dishonoured in the year 1998. He
can make accused only those directors who were the
directors of the company in the year 1998. The
Companies Act has made specific provisions for all
companies registered with the Registrar of Companies
to file a return about the directors in the company.
These provisions have been made for the benefit to
the public so that the people can get information from
Registrar of Companies about the change in the
constitution of directors. Change of the constitution
of the Board of Directors is not a private affair of the
company. A complainant cannot take the plea that he
had made those directors as accused which were
known to him. If this plea of complainant is allowed
then he would be at liberty to make all the person who
at any point of time, had been the director of company
as accused.
5. I consider in view of the documents placed by
the applicant on record showing that applicant had
resigned way back in 1996 and his resignation was
informed to the Registrar of Companies in October
1996 by filing the statutory Form 32, the plea of
complainant that applicant was a director cannot be
considered without any affidavit of the Authorized
Representative of the complainant that he has verified
from the Registrar of Companies and Form No.32
filed by the accused was not genuine. It is not a
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trivial matter that a person has to face trial as an
accused in the court. No person can be asked to face
trial in the court without there being a basis of
proceedings against him merely at the wishes of a
complainant. The court must be satisfied that the
persons who has been called as an accused against
him there was sufficient grounds to proceed. In this
case I consider that complainant has taken vague plea
in reply to the application of accused regarding
genuineness and non-admission of Form No.32 or
about his being responsible for the function of the
company. In view of specific documents by the
accused applicant the vague pleas of the company do
not and anywhere.”
The Criminal Revision Application filed thereagainst, as indicated
hereinbefore, has been dismissed.
6. Mr. P.S. Patwalia, learned Senior Counsel appearing on behalf of
the appellant, would submit that although before the High Court no
material was placed to show that the 1st respondent was a signatory to the
cheque in question, in view of the fact that the entire records were
available to the High Court, it should have been held that the First
Respondent was primarily liable for payment of the amount thereunder.
7. Mr. J.N. Sareen, learned counsel appearing on behalf of the 1st
respondent, supported the impugned judgment.
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8. In support of the said complaint petition one Peter N. Ballam was
examined on behalf of the appellant. In relation to the 1st respondent he
did not make any statement as is required in terms of Section 141 of the
Act. He merely stated :-
“8. I state that the above named accused no.1 is a
Company and accused No. 2 to 8 are Directors/key
executives of the accused No.1 Company and are
responsible for the affairs of accused No.1 is/are
guilty of offence u/s 138 of Negotiable Instruments
Act & 420 of IPC and is/are liable to be prosecuted
and punished in accordance with law.”
He, thus, even was not aware of the post held by the First
Respondent herein at the relevant time.
The learned Sessions Judge in his order dated 5th July, 2003 has
noticed that no contention had been raised that the 1st respondent in his
capacity as an authorized signatory signed the cheque. Such a contention
appears to have been raised before us for the first time. It has not been
disputed that the 1st respondent resigned as a Director of the Company on
or about 25th May, 1996.
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9. The question which arises for consideration is as to whether an
authorized signatory, in a situation of this nature, would be liable for
prosecution.
10. The underlying purpose for which the Parliament enacted Section
138 of the Act is not in doubt or dispute. What, however, is necessary to
be borne in mind is the distinction between a civil proceeding and a
criminal proceeding. What is also necessary to be borne in mind is the
standard of proof in a civil suit and a criminal case.
11. Averments made in the complaint petition supported by the
statements of the complainant form the basis for taking cognizance of an
offence by the Magistrate. Application of mind on the averments made
in the complaint petition vis-à-vis the order which is required to be
passed for summoning the witnesses is imperative.
12. The complaint petition did not disclose as to who had signed the
cheque on behalf of the Company. Involvement of the 1st respondent in
commission of the offence as signatory was neither averred nor stated by
the authorized representative of the complainant. Even the complaint
petition proceeded on the basis that the averments contained in the
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complaint petition were sufficient to enable the learned Magistrate to
summon the accused. Even before the High Court such a contention has
not been raised, as noticed hereinbefore.
We may notice the concession made by Mr. Patwalia in this behalf
that such a contention has been raised before us for the first time. This
itself indicates the manner in which the complaint proceeded. Fairness
on the part of the complainant is also expected in such a matter.
It is now not in dispute that the 1st respondent had intimated the
complainant as regards his resignation from the Company.
13. Section 138 of the Act reads as under :-
“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 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
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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…”
14. For constituting an offence in terms of the said provision, the
following ingredients are to be satisfied:-
a) A cheque must be drawn;
b) It must be presented and returned unpaid inter alia with the
remarks “insufficient funds”;
c) A Notice for payment should be served on the accused;
d) The accused has failed to make the payment of the said
amount to the payee within 15 days from the date of receipt
of notice.
15. First Respondent indisputably was a Director of the Company.
The liability attached to him was not a personal liability. It was a
constructive liability. The cheque was drawn on behalf of the Company.
He might have been liable as a person incharge of the company within
the meaning of Section 141 of the Act as has been held by this Court in
S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla and another : (2005) 8
9
SCC 89 whereupon strong reliance has been placed by Mr. Patwalia.
One of the questions which indisputably arose for consideration therein
was as to whether a signatory of the cheque would come within the
purview of Section 141 of the Act, as would appear from paragraph 1
thereof, which reads :-
“This matter arises from a reference made by a
two-Judge Bench of this Court for
determination of the following questions by a
larger Bench:
“(a) Whether for purposes of Section 141 of the
Negotiable Instruments Act, 1881, it is
sufficient if the substance of the allegation read
as a whole fulfil the requirements of the said
section and it is not necessary to specifically
state in the complaint that the person accused
was in charge of, or responsible for, the
conduct of the business of the company.
(b) Whether a director of a company would be
deemed to be in charge of, and responsible to,
the company for conduct of the business of the
company and, therefore, deemed to be guilty of
the offence unless he proves to the contrary.
(c) Even if it is held that specific averments are
necessary, whether in the absence of such
averments the signatory of the cheque and or
the managing directors or joint managing
director who admittedly would be in charge of
the company and responsible to the company
for conduct of its business could be proceeded
against.”
It was opined :-
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“9. The position of a managing director or a
joint managing director in a company may be
different. These persons, as the designation of
their office suggests, are in charge of a
company and are responsible for the conduct of
the business of the company. In order to escape
liability such persons may have to bring their
case within the proviso to Section 141(1), that
is, they will have to prove that when the
offence was committed they had no knowledge
of the offence or that they exercised all due
diligence to prevent the commission of the
offence.”
It was concluded :-
“10. While analysing Section 141 of the Act, it
will be seen that it operates in cases where an
offence under Section 138 is committed by a
company. The key words which occur in the
section are “every person”. These are general
words and take every person connected with a
company within their sweep.
Therefore, these words have been rightly
qualified by use of the words:
“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, etc.”
What is required is that the persons who are
sought to be made criminally liable under
Section 141 should be, at the time the offence
was committed, in charge of and responsible to
the company for the conduct of the business of
the company. Every person connected with the
company shall not fall within the ambit of the
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provision. It is only those persons who were in
charge of and responsible for the conduct of
business of the company at the time of
commission of an offence, who will be liable
for criminal action. It follows from this that if a
director of a company who was not in charge of
and was not responsible for the conduct of the
business of the company at the relevant time,
will not be liable under the provision. The
liability arises from being in charge of and
responsible for the conduct of business of the
company at the relevant time when the offence
was committed and not on the basis of merely
holding a designation or office in a company.
Conversely, a person not holding any office or
designation in a company may be liable if he
satisfies the main requirement of being in
charge of and responsible for the conduct of
business of a company at the relevant time.
Liability depends on the role one plays in the
affairs of a company and not on designation or
status. If being a director or manager or
secretary was enough to cast criminal liability,
the section would have said so. Instead of
“every person” the section would have said
“every director, manager or secretary in a
company is liable”..., etc. The legislature is
aware that it is a case of criminal liability which
means serious consequences so far as the
person sought to be made liable is concerned.
Therefore, only persons who can be said to be
connected with the commission of a crime at
the relevant time have been subjected to
action.”
16. We may also notice a decision of this Court in N. Rangachari vs.
Bharat Sanchar Nigam Ltd. : (2007) 5 SCC 108 wherein it was held :-
12
“21. A person normally having business or
commercial dealings with a company, would
satisfy himself about its creditworthiness and
reliability by looking at its promoters and
Board of Directors and the nature and extent of
its business and its memorandum or articles of
association. Other than that, he may not be
aware of the arrangements within the company
in regard to its management, daily routine, etc.
Therefore, when a cheque issued to him by the
company is dishonoured, he is expected only to
be aware generally of who are in charge of the
affairs of the company. It is not reasonable to
expect him to know whether the person who
signed the cheque was instructed to do so or
whether he has been deprived of his authority
to do so when he actually signed the cheque.
Those are matters peculiarly within the
knowledge of the company and those in charge
of it. So, all that a payee of a cheque that is
dishonoured can be expected to allege is that
the persons named in the complaint are in
charge of its affairs. The Directors are prima
facie in that position.”
It was further held :-
27. We think that, in the circumstances, the
High Court has rightly come to the conclusion
that it is not a fit case for exercise of
jurisdiction under Section 482 of the Code of
Criminal Procedure for quashing the complaint.
In fact, an advertence to Sections 138 and 141
of the Negotiable Instruments Act shows that
on the other elements of an offence under
Section 138 being satisfied, the burden is on the
Board of Directors or the officers in charge of
the affairs of the company to show that they are
not liable to be convicted. Any restriction on
their power or existence of any special
circumstance that makes them not liable is
something that is peculiarly within their
knowledge and it is for them to establish at the
trial such a restriction or to show that at the
relevant time they were not in charge of the
affairs of the Company. Reading the complaint
as a whole, we are satisfied that it is a case
where the contentions sought to be raised by
the appellant can only be dealt with after the
conclusion (sic commencement) of the trial.”
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17. We are, however, concerned with a different situation hereat.
18. Section 141 of the Act provides for a constructive liability. A
legal fiction has been created thereby. The statute being a penal one,
should receive strict construction. It requires strict compliance of the
provision. Specific averments in the complaint petition so as to satisfy
the requirements of Section 141 of the Act are imperative. Mere fact
that at one point of time some role has been played by the accused may
not by itself be sufficient to attract the constructive liability under
Section 141 of the Act. (See K. Srikanth Singh vs. M/s. North East
Securities Ltd. and another : JT 2007 (9) SC 449).
19. We may also notice that this Court in N.K. Wahi vs. Shekhar
Singh and others : (2007) 9 SCC 481 has observed :-
“8. To launch a prosecution, therefore, against
the alleged Directors there must be a specific
allegation in the complaint as to the part played
by them in the transaction. There should be
clear and unambiguous allegation as to how the
Directors are in-charge and responsible for the
conduct of the business of the company. The
description should be clear. It is true that
precise words from the provisions of the Act
need not be reproduced and the court can
always come to a conclusion in facts of each
case. But still, in the absence of any averment
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or specific evidence the net result would be that
complaint would not be entertainable.”
[Emphasis supplied]
20. The cheque in question was admittedly a post dated one. It was
signed on 3rd April, 1995. It was presented only sometimes in June,
1998. In the meantime he had resigned from the directorship of the
Company. The complaint petition was filed on or about 20th August,
1998. Intimation about his resignation was given to the complainant in
writing by the 1st respondent on several occasions. Appellant was,
therefore, aware thereof. Despite having the knowledge, the 1st
respondent was impleaded one of the accused in the complaint as a
Director Incharge of the affairs of the Company on the date of
commission of the offence, which he was not. If he was proceeded
against as a signatory to the cheques, it should have been disclosed
before the learned Judge as also the High Court so as to enable him to
apply his mind in that behalf. It was not done. Although, therefore, it
may be that as an authorized signatory he will be deemed to be person
incharge, in the facts and circumstances of the case, we are of the opinion
that the said contention should not be permitted to be raised for the first
time before us. A person who had resigned with the knowledge of the
complainant in 1996 could not be a person incharge of the Company in
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1998 when the cheque was dishonoured. He had no say in the matter of
seeing that the cheque is honoured. He could not ask the Company to
pay the amount. He as a Director or otherwise could not have been made
responsible for payment of the cheque on behalf of the Company or
otherwise. (See also Shiv Kumar Poddar vs. State (NCT of Delhi) :
(2007) 3 SCC 693: Everest Adveristing Pvt. Ltd. vs. State (NCT of
Delhi) : (2007) 5 SCC 54 and Raghu Lakshminarayanan vs. Fine Tubes :
(2007) 5 SCC 103.
21. Mr. Patwalia, however, submitted that a situation may arise where
change in the management is effected only to avoid such constructive
liability.
Firstly we are not concerned with such a hypothetical case.
Secondly, as noticed by this Court in Rangachari’s case (supra) that a
person normally having business or commercial dealings with a
company, would satisfy himself about its creditworthiness and reliability
by looking at its promoters and Board of Directors and the nature and
extent of its business and its memorandum or articles of association.
22. When post dated cheques are issued and the same are accepted,
although it may be presumed that the money will be made available in
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the bank when the same is presented for encashment, but for that
purpose, the harsh provision of constructive liability may not be
available except when an appropriate case in that behalf is made out.
23. Section 140 of the Act cannot be said to have any application
whatsoever. Reason to believe on the part of a drawer that the cheque
would not be dishonoured cannot be a defence. But, then one must issue
the cheque with full knowledge as to when the same would be presented.
It appears to be a case where the appellant has taken undue advantage of
the post dated cheques given on behalf of the company. The statute does
not envisage misuse of a privilege conferred upon a party to the contract.
Submission of Mr. Patwalia made in view of the decision of this Court in
Adalat Prasad v. Rooplal Jindal and Others [(2004) 7 SCC 338] is
misplaced. Had such a contention been raised even in terms of Adalat
Prasad (supra), the respondents could have filed an application for
quashing in terms of Section 482 of the Code of Criminal Procedure at
that stage. Again such a contention had not been raised before the High
Court. No such ground appears to have been taken even in the Special
Leave Petition. While examining the issue, we have considered the case
from a broader angle. Having found that the prosecution of the
respondents being mala fide despite the fact that on technical grounds it
17
may be lawful to set aside the order of the High Court, it, in our opinion,
should not be done. Jurisdiction of this Court in terms of Article 136 of
the Constitution of India need not be exercised only because it would be
lawful to do so. Various factors including the conduct of the appellant
will be relevant therefor. Having regard to the facts and circumstances of
this case, it is not a fit case where we should allow the appellants to raise
additional contentions which have not been raised before the courts
below.
24. For the reasons abovementioned we are of the opinion that no case
has been made out for interference with the impugned judgment.
25. The appeal fails and is dismissed.
……………………………
…..J.
( S.B. Sinha )
……………………………
…..J.
( Dr. Mukundakam Sharma )
New Delhi
May 13, 2008
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