Corporate responsibility under NEGOTIABLE INSTRUMENTS ACT 1881
Author : Legalance Research team
Contributed by : Shailendra Pathak & Akash Valappil
Modern day belongs to the companies and the commerce in India which has adapted itself to this new form. All businesses large and small have taken to converting themselves to companies and then they face the challenges of dealing with the new corporate identity and liability of the company and its directors.
This article however restricts itself to the realm of negotiable instruments and the effect of their dishonour vis-a-vis the companies. The article also traces the various factors which govern theÂ Â procedural as well as legal aspects of dishonour of cheques by corporate or by a third party. Various judgements on this subject shed a light on the decisive factors involved in cases of dishonour and define the position of the companies in various positions and stages of trials of dishonour in the Indian system under the provisions of Negotiable instruments ACT. 1881.
1)Â Â Â Â Â PRELOGUE
The corporates have by and far occupied this age and every new day sees a considerable increase in the number of companies. Business today has become equivalent to a company and they come in all sizes great and small. Such is expanse of the â€œCOMPANY CULTUREâ€ that most of the entrepreneurs have their companies registered even before they complete their formal education and that, is long before they start thinking about business.
Every age brings with it, a new trend, a new culture and in turn a new set of legal dimensions. In this age where businesses rise by the day and fall by the night, the first encounter that they have with law could start with a simple case of Dishonour of cheque!
As simple as it appears, Law on dishonour of cheque in India has evolved due to the development of notion of the â€œCORPORATE PERSONALITYâ€.
This Article seeks to analyse and study the â€œResponsibilities of the corporates under the Negotiable instruments Act 1881â€.
Speaking of objectivity, we, as lawyers, entrepreneurs or as academics, seek to trace the development of law on dishonour of cheques where companies are involved, through various judgments and views of the Honâ€™ble Supreme Court as well as the various High Courts of the country and shed some light on the complexities involved therein.
To know the complexities of this â€œsimple issueâ€ we firstly need to understand the concept of negotiable instruments and their use in day to day life. The essence of any negotiable instrument is commerce and commerce, simply put, is give and take!
Â The germ of commerce can be traced to ancient times of structured business systems from the maxims like â€˜Nemodat quad non habatâ€™, (Latin) i.e. no person can give to another of which he is not the true owner, however a negotiable instrument is one exception to it. A negotiable instrument is the property which is acquired by anyone who takes it bonafide and for value, notwithstanding any defects of title in the person from whom he took it. If a person notices a defect in the title of the goods and has still purchased it, it cannot be called a bonafide purchase and hence would lose the immunity of negotiable instruments from the above maxim. So it can be said that when the true owner can transfer the contract or engagement therein by simple delivery of the instrument, that instrument can be called a negotiable instrument. The word â€˜transferâ€™ in the above statement, is transfer of â€˜ownershipâ€™ in the property, i.e. , the right of retaining it as against the previous owner, and using or transfer the title of the property to anyone, with or without consideration as he pleases, rendering him the absolute owner. Mere possession would not be construed as ownership. Cheque is a negotiable instrument that has the largest circulation amongst negotiable instruments and by and far, this instrument faces the largest abuse.Â In the Indian scenario the dishonour of a cheque is covered under S. 138 of the Negotiable instruments act 1881.
2)Â Â Â Â Â Section 138 OF THE NEGOTIABLE INSTRUMENTS ACT 1881:-
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, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may extend to one year, 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)Â 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)Â 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 fifteen days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
(c)Â 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.
Explanation- For the purposes of this section,” debt or other liability” means a legally enforceable debt or other liability.
What can be inferred from the legal provisions is that, dishonour of cheque in India, therefore has been classified as an act of dishonesty and whoever would dishonour his cheque would attract not only economic penalties but would also be looking at a term in prison. Such is the distaste for dishonour that, the legislators thought of incorporating a criminal sanction so that the message to the defaulter is loud and clear.
3)Â Â Â Â Â Object:-
Dishonour of cheques has to be considered as a serious offence. Delay in payment in business transactions due to insufficiency of funds has serious impact on business, causing growth retardation of the economy.
The object behind Section 138 is that the aggrieved party should get his money due under dishonoured cheque as early as possible. As such Court is required to pass suitable direction for payment of compensation.1 It is also to enhance the acceptability of cheques in settlement of liabilities by making the drawer liable for penalties in case of dishonour of cheques due to insufficient arrangements made by the drawer, with adequate safeguards to prevent harassment of honest drawers. Hence it is created assuring security in negotiable instruments in the general interest of public.
4)Â Â Â Â Â Nature:-
The nature of offence under Section 138, N.I. Act is a regulatory offence2, however it can also be considered a criminal offence. The reason being, in the event of the dishonour of a cheque a person can be prosecuted under Section 138 of the N.I. Act and also section 420 of the Indian Penal code (Cheating and dishonestly inducing delivery of property) however one may assert that this is unconstitutional under article 20(2) (Protection in respect of conviction for offences) of the Constitution of India, which says â€œNo person shall be prosecuted and punished for the same offence more than onceâ€. The essential difference between the act and the offence has to be attained to fathom the complexity of this matter.
1) RajendraRamsingGhorpade v. ShikshanPrasarakMandal, 2007 (1) Civil LJ 731 at p.733 (Bom)
2) Damodar S. Prabhu v. Syed Babalal H, 2010 Cri LJ 2860 (SC)Â :2010(3) Civil LJ 571 (SC)Â : AIR 2010 SC 1907
An act, is the action of a person which leads to an offence. It has to be understood that one act can cause more than one offence. So we can say, due to the act of not having sufficient funds in the account of a person, leads to dishonour of a cheque, is one offence and the second offence which can be invoked is, fraudulently drawing a cheque when the drawer knows about the insufficiency in funds . Hence there are two offences from the same act. There is no constitutional invalidity, and there can civil as well as criminal proceedings which can run concurrently.
InÂ K.S. Anto v. Union of India3the question of double jeopardy as enshrined in Article 20 (2) in light of section 138 and section 420 of the Indian Penal Code where the court held that:
“Offences under section 138 of the Negotiable Instruments Act and section 420 of the Penal Code are different and the ingredients are also different. Convictions for different offences, separately is not barred under article 20 (2). In spite of prosecutions and convictions under section 138, there will be no constitutional bar in prosecution for an offence punishable under section 420 of the Penal Code and a prosecution will be if such an offence is made out.”
5)Â Â Â Â Â Offence under section 138 (filing of complaint):-
The commission of offence under sec 138 is as follows, the drawer must draw the cheque, which has to presented in the bank within a period of three months from the date on which it is drawn or within the period of its validity.Â In the case of insufficiency of funds, the cheque returns to the payee or the holder-in-due course as the cheque has bounced, then the payee or the holder-in-due course has to give a notice in writing within thirty days to the drawer of the cheque to make the payment within fifteen days failing to which, the payee or the holder-in-due course can file a complaint with one month to the Metropolitan Magistrate Court or to the Court of a Judicial Magistrate of the first class. In appropriate cases, delay in the presentation of the complaint petition could be condoned by use of general principals of Limitation Act, and the same could not be said be said illegal4. This has been specifically mentioned in section 142(b)5, this proviso to section 142 (b) of the N.I Act empowers the Trail magistrate to take cognizance of the complaint, on the complainant satisfying the court showing sufficient cause for not making the complaint within the period prescribed. In the instant case, there was a delay of only 5-6 days,
3) K.S. Anto v Union of India and Ors. (Ker HC) 1993 76 Comp Cas 105 Ker
4) Managing Director, Woodburn Development Builders Pvt. Ltd v. Smt. DebamayaPanigrahi, 2007 Cri LJ 3699 (Ori) : AIR 2007 (NOC) 2613 (Ori).
5) Inserted by Act 55 of 2002, S.9 .
so, the Trial Magistrate was held justified in condoning the delay of 5-6 days in making the complaint and taking cognizance of the complaint6. Where the complaint for dishonour was barred by limitation, no pleading or prayer made for condonation of delay, no sufficient cause was shown, it was held that, complaint was barred by time7
6)Â Â Â Â Â Computation of complaining period:-
When the notice has been delivered to the offender, and in the event of non payment of the amount within fifteen days, the complainant has to file the complaint within thirty days. So from which day we can the compute the period of notice. Does the complaining period of thirty days start from the day as on the fifteenth day of the notice period? Or will it be considered from the next following day after the expiry of the notice period of fifteen days? The answer could be found in the case of Veteran Company Pvt. Ltd. And Anr.vs State And Ors. on 16 September, 2003 (Cal).
The petitioner was indebted to the complainant/ opposite party, the cheques given by the petitioner were dishonoured. The notice to make payment was given by the complainant on 22nd June 2001 and without filing any complaint, the complainant again sent a second notice on the 7th July 2001. The complaint was filed on 7th September2001. The complainant suppressed the fact that he had sent the first notice, apprehending the limitation (thirty days) imposed by the Act. However the petitioner submitted both the notices as evidence.
The apex court held that “having given our anxious consideration to this question, we are of the opinion that the above two provisions can be harmonized with the interpretation that on each presentation of the cheque and its dishonor a fresh right — and not cause of action — accrues in his favour. He may, therefore, without taking preemptory action in exercise of his such right under Clause (b) of Section 138, go on presenting the cheque so as to enable him to exercise such right at any point of time during the validity of the cheque. But, once he gives a notice under Clause (b) of Section 138 he forfeits such right, for, in case of failure of the drawer to pay the money within the stipulated time he would be liable for the offence and the cause of action for filing the complaint will arise. Needless to say, the period of one month for filing the complaint will be reckoned from the day immediately following the day on which the period of fifteen days from the date of the receipt of the notice by the drawer, expires”.
7) Constructive notice:-When a cheque is drawn fraudulently, knowing about the insufficiency in the account, the person apprehends the arrival of the notice from the payee or the holder-in-due course to make payment or face legal consequences. He may then evade the notice by not being available in his residence, so that he may later plead that he was not aware of the notice as he did not receive it and may evade prosecution.
6) RameshwarLal alias Ramesh v. Ram NiwasSingania and another, 2010 (1) Civil LJ 424 (Raj)
7) Umiya Pipe (P) Ltd. v. State of Gujrat, 2009 (2) Civil LJ 853 at p. 857 (Guj)
The legislature apprehended such mischief, and hence constructive notice came into effect. In a case, the change of residential address was not communicated by him to the complainant or the postal authorities whereby the Postman returned the notice with endorsement â€œhouse of addressee found lockedâ€. As such, constructive notice comes into force and accused cannot escape prosecution with plea of want of statutory notice8.In the event of a cheque bounce the notice to the drawer of the cheque is to be sent by RPAD (Registered post acknowledgment due), once the notice is received by the drawer the he has to sign the â€˜acknowledgment dueâ€™. If however the drawer is not available and the acknowledgment is not signed the presumption raised is that the drawer has received the notice. We can say a constructive notice has been delivered. When the drawer changes his residence it is not mandatory for the payee or the holder-in-due course to initiate a proceeding where the cause of action arose. It has been observed that the payee can prosecute drawer at any places where the either resides or carries on business or works for gain.9
8) Offences by companies
(1)Â Offences by companies (section 141). 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 sub- section 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)Â Notwithstanding anything contained in sub- section (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, Explanation.- For the purposes of this section,-
(a) ” company” means any body corporate and includes a firm or other association of individuals; and (b) â€œdirectorâ€, in relation to a firm, means a partner in a firm.
Section 3 of the Companies Act, 1956 defines the term company however under section 141 of the Negotiable Instruments Act the term â€œcompanyâ€ is used in a broader sense, a â€œcompanyâ€ would include any body â€œcorporateâ€ or other â€œassociation of individualsâ€. The term â€œassociation of individualsâ€ will include clubs, trusts, HUF business etc.
8) A.M. Perumal v. M/s. Star Tours and Travels India Ltd. and another, 2010 Cri LJ 3732(Ker)
.9) Crompton Greaves Ltd. v. M/s Shivam Traders, Thane, 2010 Cri LJ 1227 (Bom).
It shall have to be constructed ejusdem generis along with other expressions â€œcompanyâ€ or â€œfirmâ€. The term â€œassociation of individualsâ€ will however not include sole proprietors as there is only one person and not an association of individuals. Therefore, a joint family business must be deemed like a juristic person like a company or a firm. When it is specially alleged that respondent 1 and 2are the joint proprietors/ owners of the joint family business themselves and their son is primae facie they are covered under sec 141 of the N.I Act in view of the explanation appended to it.10
Â 9) Company as an accused and as a complainant.
On incorporation under law, a company becomes a separate legal entity as compared to its members. The company is different and distinct from its members in law. It has its own name and its own seal, its assets and liabilities are separate and distinct from those of its members. It is capable of owning property, incurring debt, borrowing money, having a bank account, employing people, entering into contracts and suing and being sued separately. So the company being a complainant or an accused i.e. the companyâ€™s right to sue or to be sued is evoked from the Companies Act 1956. The Companies Act gives a company the right to legal representation under Section 10GD (Right to Legal Representation).â€The applicant or the appellant may either appear in person or authorise one or more chartered accountants or company secretaries or cost accountants or legal practitioners or any officer to present his or its case before the Tribunal or Appellate Tribunal, as the case maybe.â€
When a company is accused under section 141(1), 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. Section 141(2) says, notwithstanding anything contained in sub- section (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. The gist of this section is that, whoever is involved in and responsible for the working of the company would be liable for the offence by the company. Where there is no material to show that the petitioner has been the person-in-charge of the firm and was responsible for the conduct of business and no partnership deed has been produced to show that the petitioner is a partner in the said firm, mere representation by the accused persons that petitioner was the partner of the firm by itself is not enough to proceed against the petitioner and thus intimation of criminal proceeding against the petitioner is not warranted and, therefore, the complaint is liable to be quashed11. In another case, where no specific role was attributed to accused who were Directors of the company, oral and documentary evidence showing that accused-Director not-in-charge of the company at the time
10) DadasahebRawal Co-op. Bank of Dondaicha Ltd. v. Ramesh Jawrilal Jain, 2009 Cri LJ 67 at p. 69 (Bom) ) 11)InderSeghal v. M/s Thakar Petrochemical Ltd. (2003) 4 Rec Cri R 327 :2004 Cri LJ (NOC) 102 (P&H).
of the commission of offence, order of acquittal passed in dishonour of case held proper12.Â A company can initiate a legal proceeding against a company which is declared â€œsickâ€ by the Board For Industrial & Financial Reconstruction. Section 22(Suspension of Legal Proceeding and Contracts etc) of SICA does not create a legal impediment for instituting and proceedings with a criminal case under sec 138 of N.I Act against a company or its Directors13.
However there are scenarios where filing a complaint is futile. Where an order under section 22A (Direction not to Dispose of Assets) of SICA is already passed , against a company, restrain order against assets operative, non-payment of due amount under dishonoured cheque, offence could not have been said to have completed. Complaint was liable to be quashed14.
10) Liability of Directors
When a company`s cheque is dishonoured, the persons who are in-charge and responsible to the company are liable under section 141 of the N.I Act. The words â€œin-chargeand responsibleâ€ seemed to be prejudice and hence was considered in the Supreme Court in the case of K.K. Ahuja v V.K Vora. K.K. Ahuja, the appellant, had filed two criminal complaints, under Section 138 of the NI Act, against M/S Motorol Speciality Oils Ltd and eight of its officers (Chairman, four Directors, VP Finance, General Manager and Deputy General Manager (â€œDGMâ€) respectively), in the Court of the Metropolitan Magistrate, Delhi, averring that at the time of the commission of the offence, all the eight officers were in-charge of and responsible for the conduct of the day-to-day business of the Company and thus deemed to be guilty under Section 138, read with, Section 141 of the NI Act.
The accused DGM moved to quash the proceedings against him on the ground that as DGM of the Company he was not in-charge of the conduct of the day-to-day business of the Company. This petition was allowed by the Delhi High Court, which was then challenged before the Supreme Court in K.K. Ahuja. The Supreme Court held,that for an officer of the company to be held liable under section (141) of the N.I Act, first, he should be a person responsible for the conduct of business of the company under the provisions of the Companies Act, 1956. Secondly, he should be de-facto in charge of the company. Hence we can say, the sleeping partners, partners by estoppels of the company etc or whoever, who do not participate actively in the business of the company cannot be held liable. The case is elaborated below.
To satisfy the first condition the officer who would be liable are (a) the managing directors; (b) the whole-time directors; (c) the manager; (d) the secretary; (e) any person in accordance with whose directions or instructions the Board of directors of the company is accustomed to act;
12) Kotak Mahindra Bank Ltd. v Bharat S. Dhanukar, 2009 Cri LJ (NOC) 240 (Bom).
13) M/s AefloatÂ Textiles ( India) Ltd v M/s BagharaPolyfabPvt. Ltd, 2008 Cri LJ 1494(Bom)
14) Jaipur Syntex Ltd. v State of Rajasthan, 2006 (1) Civil LJ 891 at p. 894(Raj)
Â (f) any person charged by the Board with the responsibility of complying with that provision (and who has given his consent in that behalf to the Board); and (g) where any company does not have any of the officers specified in clauses (a) to (c), any director or directors who may be specified by the Board in this behalf or where no director is so specified, all the directors. The Supreme Court held that other employees of the company cannot be said to be persons who are responsible to the company for the conduct of the business of the company.In certain business scenarios an officer may hold an authoritative post however the contribution in decision making or business as a whole is trivial. The overall control of an officer in a company can only be inferred from the facts of the case, as it differs from one company to another. Hence the Supreme Court held that theÂ â€œperson in charge of the business of the companyâ€ refers to a person, who is in overall control of the day-to-day business of the company.
So we can say to hold an officer liable he should fall within one of the above categories and the complainant through specific averments should prove that the particular officer was de-facto in overall control of business.â€œÂ Liability depends on the role one plays in the affairs of a Company and not on designation or status15
The Supreme Court also held that the officers who may not be in-charge of day to day business but still the offence under section 138 of the N.I. Act is committed with their consent or connivance or due to their negligence, they would be liable under section 141(2). This however has to be proved by the complainant through specific averments in the complaint. If specific averments are not made in the complaint the section 141 of N.I Act cannot be invoked16.It was also held in the case of Smt. KattaSujatav.Fertilizers& Chemicals Travancore Ltd.Â , wherein it has also been held by the Apex Court that the ‘person in charge’ must mean that the person should be in overall control of the day-to-day business of the company or firm.
11) Valid authorization:-
On reading Section 142 (a) of the negotiable instruments act, it can be inferred that the court shall not take cognizance of any offence unless it has been given in writing by the â€œpayeeâ€ or the â€œholder-in-dueâ€ course. There are scenarios where the power has been delegated to another person through a Power of Attorney. So will a complaint filed by a Power of Attorney holder be considered a valid authorization to render the suit maintainable? This issue was raised in the Supreme court of India in M/S.Â ShankarÂ FinanceÂ & … vs State Of Andhra Pradesh &Ors on 26 June, 2008.The payee of the cheque is M/sÂ ShankarÂ FinanceÂ &Â Investments. The complaint is filed by “M/sÂ ShankarÂ FinanceÂ &Â Investments, a proprietary concern of Sri AtmakuriSankaraRao, represented by its power of Attorney Holder Sri ThamadaSatyanarayana”. It is therefore evident that the complaint is in the name of and on behalf of the payee. Â Paragraph 7 of the judgment read as â€“
15) S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and AnrÂ (â€œS.M.S. Pharmaâ€(MANU/SC/0622/2005)
16) K.K. Ahuja v. V.K. Vora(MANU/SC/1111/2009, per R.V. Raveendran, J.)
â€œOnce the complaint is in the name of the `payee’ and is in writing, the requirements of section 142 are fulfilled. Who should represent the payee where the payee is a company, or how the payee should be represented where payee is a sole proprietary concern, is not a matter that is governed by section 142, but by the general law.â€
Paragraph 10 of the judgment read as-â€œThis Court has always recognized that the power of attorney holder can initiate criminal proceedings on behalf of his Principal.â€From the above excerpts of the judgment we can conclude that a Power of Attorney holder can file a complaint of behalf of the payee. The complaint would be improper only if it is made in the name of the Power of Attorney holder in his own name as if he is the complainant.When a complaint has been filed under section 138 of N.I Act by the complainant, will the death of the complainant ipso facto terminate the proceedings under sec 138? Is anyone authorized by law to continue the proceedings? In the case of .Reddappa v. M. Vijaya (High Court of Karnataka- 1996) it was held it is not necessary that legal heirs or legal representatives only can continue the proceedings – A fit and proper person can be permitted to prosecute the petition. In MaddipattaGovindaiah Naidu v. Yalakaluri Kamalamma,17, learned single Judge of the Andhra Pradesh High Court has said that criminal proceedings legally instituted do not terminate or abate merely on the death of the complainant, the cause of action for civil action bears no analogy to complainants of crime. In GautamRanjanBasu v. Smt. Shanta Mukherjee18, Â learned single Judge of the Calcutta High Court has said that in case of demise of the complainant there cannot be any ipso facto termination of the criminal proceedings, Magistrate has every power to allow substitution upon the demise of the original complainant if he is satisfied from the other surrounding circumstances and materials on record that such permission should be given, that satisfaction is to be subjective satisfaction derived from the records of the case and a satisfaction derived on fact available on record
A signature in any complaint or document is the usual mandatory practice for validating the contents of it by the person making it. So is a complaint made under section 138, 141 of the Negotiable Instruments Act maintainable without the signature of the authorized representatives? This question was raised in the Supreme Court in the case Indra Kumar Patodia&Anr. V Reliance industries Lts. & Ors.19Before the case went to Supreme Court by a special leave petition, the case was tried before the High Court. The learned single bench, referred two points for consideration by the larger bench (a) in the matter of a complaint for the offence punishable
17) MaddipattaGovindaiah Naidu v. YalakaluriKamalamma, 1984 Cri LJ 1326
18) GautamRanjanBasu v. Smt. Shanta Mukherjee, 1995 Cri LJ 1131
19) Indra Kumar Patodia&Anr. V Reliance industries Lts. &Ors. 2013 AIR (SC) 426 : 2012 AIR (SCW) 6579 : 2012 (11) Scale 271 : 2012 (8) Supreme 205
under section 138 of the Act weather the complaint without the signature of the complainant, in-spite of the verification of complaint, is nonâ€“entia and weather no prosecution can lie on such complaint?;and (b) if the answer to point (a) is negative then whether it is mere irregularity and can it be cured subsequently and weather such subsequent amendment would relate back to the date of filling of the complaint or whether it would be hit by the Law of Limitation. The High court disposed of the matter by answering point (a) in the affirmative in holding that the complaint under section 138 of the Act is maintainable and when such complaint is verified by the complainant and the process issued by the Magistrate after verification, it cannot be said that the said complaint is non-entia and the prosecution of such complaint is maintainable. Further, it was held that since the answer to point (a) was in affirmative, it was not necessary to decide point (b) and directed to place the appeals for deciding the same on merits.
Aggrieved by the said decision, the appellants had filled the above appeals by the way of special leave before the court. The supreme court held (para 15) â€œ as rightly pointed out by the Division bench, no prejudice has been caused to the accused for the non signing of the complaint. The statement made on oath and signed by the accused safeguards the interests of the accused. In view of the same we, we hold that the requirements of section 142(a) of the Act is that the complaint must be necessarily in writing and the complaint can be presented by the payee or the holder-in-due course of the cheque and it need to be signed by the complainant. In other words, if the legislature intended the complaint under the act, apart from been in writing, is also required to be signed by the complainant, the legislature would have used different language and inserted the same at appropriate place. In our opinion, the correct interpretation would be that the complaint under section 142(a) of the act requires to be in writing as at the time of taking cognizance of the, the Magistrate will examine the complainant on oath and the verification statement will be signed by the complainantâ€.On the point whether the verification will hold retrospectively for maintainability of the suit, the Court relied on the decision of JapaniSahoo v Chandra Sekhar Mohanty20 (para 17, 18, 19):-
17.â€ this Court held that -so far as the complainant is concerned, as soon as he files a complaint in a competent court of law, he has done everything which is required to be done by him at that stage. Thereafter, it is for the Magistrate to consider the matter to apply his mind and to take an appropriate decision of taking cognizance, issuing process or any other action which the law contemplates-. This Court further held that -the complainant has no control over those proceedings-. Taking note of Sections 468 and 473 of the Code, in para 52, this Court held that -for the purpose of computing the period of limitation, the relevant date must be considered as the date of filing of the complaint or initiating criminal proceedings and not the date of taking cognizance by a Magistrate or issuance of process by a Courtâ€-.
20) JapaniSahoo v Chandra SekharMohanty (2007) 7 SCC 394
18. â€œIn the light of the scheme of the Act and various provisions of the Code, we fully endorse the above view and hold that the crucial date for computing the period of limitation is the date of filing of the complaint or initiating criminal proceedings and not the date of taking cognizance by the Magistrate. In the case on hand, as pointed out earlier, the complaint was filed on June 3, 1998 which is well within the time and on the direction of the Magistrate, verification was recorded by solemn affirmation by authorized representatives of the complainant and after recording the statement and securing his signature, the learned Magistrate passed an order issuing summons against the accused under Sections 138/142 of the Actâ€.
19. â€œIn the light of the above discussion, taking note of various provisions of the Act and the Code which we have adverted above, we hold that the complaint under Section 138 of the Act without signature is maintainable when such complaint is verified by the complainant and the process is issued by the Magistrate after due verification. The prosecution of such complaint is maintainable and we agree with the conclusion arrived at by the Division Bench of the High Court. Consequently, both the appeals fail and are dismissedâ€
To conclude we can say a complaint without the signature of the complainant is maintainable provided it has been subsequently verified by the authorized representatives. Such verification will have retrospective effect.
In M.M.M.T.C Ltd. and Another v.Â Medchl Chemicals and Pharma21 a question was raised as to weather a complaint filed in the name and on behalf of the company by its employee without necessary authorization is maintainable. After analyzing the relevant provisions the language used in section 138 and 142(a) of the Act, the court held that the complaint is maintainable and held that the want of authorization can be rectified even at a subsequent stage. The eligibility criteria prescribed by section 142 is that the complaint shall be made by the payee or the holder-in-due course. This criterion is cleared if the complaint is made in the name and on behalf of the company.It can be inferred from the above judgments that the Courts have a pragmatic perspective in delivering the judgments. The courts do not always go by the literal meaning of each word of the law and evades such procedural hindrance for the production of justice.
11)Impleading a company in a complaint:-
When an offence under section 138 read with 141 is committed by a company, the persons who are in charge and responsible for the conduct of business are held liable. A company is a separate legal entity which has the right to sue and be sued in its own name. Can we say, it is implied that when the persons in charge and responsible for the working of the company, while discharging its duties towards the company have committed the offence and hence the company should also be impleaded in the complaint.
21) M.M.M.T.C Ltd. and Another v.Â Medchl Chemicals and Pharma
So is a complaint maintainable without impleading the company in a complaint? There is an iota of cases that shed light on this question.
The judgment in the case of M/S. Egmore Benefit Society Ltd., …vs K. Balasigamani, Proprietor Ramu22proves to be an explanation to the above question. The petitioner in this case is the complaint, who is accused under section 138 by the respondent. The petitioner seeks to quash the complaint on the ground the complaint is not maintainable without impleading the company in the complaint. The learned senior counsel appearing for the complainantÂ Mr. R. Krishnamoorthy, cited various case laws to hold his contention that the complaint is not maintainable without impleading the company. The learned Senior Counsel appearing on behalf of the respondent, Mr. M. Kalyanasundaram, contended that even assuming that the prosecution, without impleading the company as an accused, is maintainable, yet there are no allegations in conformity with Section 141 of Negotiable Instruments Act, which alone could have enabled the Court to proceed against the respondent in this case. The learned senior counsel contended that as mandated under Article 21 of the Constitution of India, no person shall be deprived of his life or personal liberty except according to procedure established by law. In this case also, the single accused cannot be allowed to be proceeded against on the basis of materials which do not satisfy the requirements of Section 141 of the Negotiable Instruments Act. The learned senior counsel contended the procedure established by law, as far as the case on hand is concerned, is available in Sections 138 and 141 of the Negotiable Instruments Act and therefore unless the requirements of those two Sections are strictly satisfied, no prosecution can ever be launched. The learned senior counsel also contended that if at all anybody can be said to have committed the offence, it is only the firm which had committed the offence and therefore to prosecute the persons other than the persons who committed the offence, there should be allegations in the complaint, which are totally wanting in this case. TheÂ Various cases were cited by the senior counsel of the petitioner which were (i) K. Krishna Bai v. M\s. Arti Press, 1991 L.W. (Crl.) 513 (PadminiJesudurai,J);(ii)S.Krishnamoorthy v. B.S.Kesavan, 1994(Vol.80) C.C 755 (Pratap Singh, J); (iii) Balakumaran Textiles v. Chenammal, 1994 (81) CC 905 (Pratap Singh. J); (iv) Jeferullah A. v. M/s. S.t.Stanes and Company Ltd., 1994 (1) L.W. (Crl.) 262) (Pratap Singh, J); (v) Suryanarayanan v. M/s. Anchor Marine Service, 1995 (I) L.W. (Crl.) 132 (Rengasamy, J); (vi)Anandan v. Arivazhagan, (Rengasamy, J).Â Special emphasis was given to the case of U.P Pollution Control Board v M/s Modi Distillery and In SheoratanAgarwal v. State of M.P.Â Â All the learned Judges who had delivered those above judgments had derived support for their conclusion from the judgment of the Honourable Supreme Court of India reported in U.P. Pollution Control Board v. M/s. ModiDistrillery,In SheoratanAgarwal v. State of M.P., the Honourable Judges have categorically laid down that where the offence is committed by a company, the company or the persons incharge or responsible or both can be prosecuted.
22) M/S. Egmore Benefit Society Ltd., … vs K. Balasigamani, Proprietor Ramu, Equivalent citations: 1998 (2) ALD Cri 794, 1998 (2) ALT Cri 403
In other words the dictum in that case is that anyone of the persons mentioned in section 10 of the Essential Commodities Act viz. the company or the Directors can be prosecuted and there is no compelling necessity that in a prosecution all of them should be joined as accused.
When this is the clear pronouncement of law, laid down by the Honourable Supreme Court of India, it is needless to state that unless there is any other clear pronouncement of law on the very same issue running contra, it must be held that the judgment which lays down the law in a clear and unequivocal manner should have to be necessarily followed. He asserted that the case of U.P. Pollution control Board v M/s. Modi Distillery does not run contradictory to the law laid down in SheoratanAgarwal v. State of M.P.
The facts of U.P. Pollution control Board v M/s. Modi Distillery are as follows:-Â A distillery called Modi Distillery was found to be discharging trade effluents into the river and therefore they are guilty of violating the provisions of water (Prevention and Control of Pollution) Act 6 of 1994. On this basis, the complaint was lodged against Modi Distillery as the first accused and ten other accused. Among the other accused were the Chairman, Vice Chairman, Managing Director and Members of the Board of Directors of M\S. Modi Industries Limited, which is the company owning the industrial unit viz. Modi Distillery, on process being issued, the officials of the company viz, Modi Industries Ltd., moved the High Court for quashing the proceedings and the High Court agreed with them and quashed the proceedings holding that there could no vicarious liability saddled on the Chairman, Vice Chairman, Managing Director and the other Members of the Board of Directors of the company under section 47 of the Act unless there was a prosecution of the company viz. M\s. Modi Industries Limited. The U.P. Pollution Control Board took up the matter in appeal before the Honourable Supreme Court of India. It was found therein that notices were issued prior to the filing of the complaint to the company asking for details about the, persons responsible for the conduct of the company and those letters were not responded. In that context, the complaint came to be filed describing Modi Distillery as the company within the meaning of Section 47 of that Act.
Attention should be given to the fact that Modi industries ltd. is the company and Modi Distillery is its industrial unit. The first accused in the case Modi Distillery is not the company and hence the above accused officers have approached the court to quash their proceedings contending that there could be no vicarious liability on them unless the company i.e.Â Modi Industries ltd is not prosecuted. Their contention was upheld by the High court. The matter was taken up in the Supreme Court of India. It was found that It was found therein that notices were issued prior to the filing of the complaint to the company asking for details about the, persons responsible for the conduct of the company and those letters were not responded.Â The absence of response from the company could not be construed as a hindrance to file a complaint and so, the complaint came to be filed describing Modi Distillery as the company within the meaning of Section 47 of that Act.
The issue in this case was, whether the above officers could be prosecuted in the absence of the prosecution of the company owning the said industrial unit. In para 6 of the judgment the learned Honourable judges have held thus:â€œ On a combined reading of the provisions contained in sub-Sections (1) and (2). We have no doubt, whatever that the Chairman, Vice Chairman, Managing Director and the Members of the Board of Directors of M\s. Modi Industries Ltd., the company owing the industrial unit M\s. Modi Distillery could be prosecuted as having been in charge of and responsible to the company, for the business of the industrial unit M\s. Modi Distillery owned by it and could deemed to be guilty of the offence with which they are charged….Therefore to my mind it appears on facts, the Honourable Judges have stated that even though Modi Industries Ltd., is not before the Court. Yet the above referred to office bearers of Modi Industries Ltd., could be prosecuted.â€After analysing of the cases cited and the main case of Modi, as it was the source of all conclusions of the cases cited, the learned judges of the High court in this case (M/S. Egmore Benefit Society Ltd., … vs K. Balasigamani, Proprietor Ramu) held in paragraph 14 of the judgment that:
â€œIn the light of the judgments of the Honourable Supreme Court of India reported in SheoratanAgarwal v. State of M.P., and U.P. Pollution Control Board v. M/s. ModiDistrillery, the view taken by his Lordship M.S. Janarthanam, J, as His Lordship then was; the view of Honourable Mr. Justice K.T. Thomas, as His Lordship then was in the Kerala High Court, and the view of the Honourable Mr. Justice S. Venkatraman, in the Karnataka High Court, I am also of the respectful opinion that the judgment of the Honourable Supreme Court of India reported in SheoratanAgarwal v. State of M.P., holds the field in clear and unequivocal terms to the effect that the prosecution, without impleading the company or the firm as an accused, is still maintainable.â€
Section 138 and 141 of negotiable instruments act seem to be a simple provision for dishonour of cheques however on the detailed analysis, the complexities of these sections is understood. The dishonour of cheques can happen in any form of business organizations, ranging from a sole proprietor to billion dollar corporates, hence the corporate aspect of these sections has much importance. The procedures and the implications involved in these sections need to be assimilated to evade the perils of prosecution or to have a valid prosecution.
Sources :The entire article has its roots in various judgments pronounced by the High courts and The Supreme Court of India and the information is gathered by perusing these judgments available in various journals mentioned in the citations.
All the citations can be found in the journals as well as on the internet however we suggest that the authenticity of the content as such (found on the internet) may not be in line with the actual contents of the reported judgments in the journals.Â