REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO.1586 OF 2022
(ARISING OUT OF SPECIAL LEAVE APPEAL (CRIMINAL) NO. 9811 OF 2021)
S.P. MANI AND MOHAN DAIRY ……APPELLANT(S)
VERSUS
DR. SNEHALATHA ELANGOVAN ......RESPONDENT(S)
J U D G M E N T
| ture Not Verified<br>lly siJgned. bBy . PARDIWALA, J.<br>AL ANAND<br>2022.09.16<br>:39 IST | | |
|---|
| IS | T |
1. Leave granted.
1
2. This appeal is at the instance of the original complainant of
a complaint filed under Section 138 of the Negotiable
Instruments Act, 1881 (for short, “the NI Act”) and is directed
against the order passed by the High Court of Madras dated
16.02.2021 in the Criminal Original Petition No. 1063 of 2021
filed by the respondent herein (accused no.03) under Section 482
of the Code of Criminal Procedure (for short, “the Code”), whereby
the High Court allowed the application and quashed the criminal
proceedings initiated against the respondent herein in the court
of the Judicial Magistrate Fast Track Court No.II, Erode.
3. There are some legal issues with a neverending debate. The
debate on such legal issues goes on and on despite there being
plethora of case law on the subject. The NI Act by now is almost
three decades old. Section 141 of the NI Act is on the statute past
more than three decades. There are various decisions of this
Court and High Courts explaining the true purport of Section 141
of the NI Act. However, the debate on Section 141 of the NI Act is
never ending. The present litigation is also one in which we have
been called upon to look into Section 141 of the NI Act.
FACTUAL MATRIX
2
4. The facts of this case are plain and simple. The appellant
herein (original complainant) is engaged in the business of milk
and milk products. The respondent herein is one of the partners
of a Partnership Firm running in the name of Sira Marketing
Services. The firm used to purchase milk and milk products from
the appellant/complainant on credit basis. The appellant has to
recover an amount of Rs. 10,71,434.60/ (Rs. Ten Lakh Seventy
One Thousand Four Hundred Thirty Four and Sixty paise) from
the partnership firm. The firm issued a cheque duly signed by the
original accused No. 02 (partner/authorised signatory) in favour
of the appellant for the amount of Rs. 10,00,000/ (Rs. Ten Lakh
only) dated 05.05.2017. The cheque came to be dishonoured as
there was no sufficient balance in the account maintained by the
firm. No sooner, the bank intimated the appellant herein that the
cheque could not be cleared due to insufficient funds than the
appellant herein issued a statutory notice dated 14082017 to
the firm and the two partners of the firm. Despite service of
notice to the firm as well as the two partners (accused persons)
the amount was not paid to the appellant and therefore, the
appellant was left with no other option but to file the complaint in
the Judicial Magistrate Fast Track Court No. II, Erode for the
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offence punishable under Section 138 r/w 141 of the NI Act
which came to registered as the STC No. 583 of 2017.
5. The respondent herein (original accused No. 03/partner)
preferred an application under 482 of the Code in the High Court
and prayed that the criminal proceedings instituted against her
may be quashed as she has no liability under the law. The
principal argument of the respondent herein before the High
Court was that much before the cheque came to be issued, the
firm had been dissolved. The accounts of the firm were also
settled on 13022017 following the dissolution. The High
Court quashed the proceedings against the respondent herein
mainly on the ground that there was nothing to indicate as to
how and in what manner the respondent at the relevant point of
time was incharge and responsible for the conduct of the
business of the firm. The High Court took the view that the
complaint can be prosecuted as against the respondent herein
only if the allegations made in the complaint fulfils the
requirements of Section 141 of the NI Act. The High Court took
the view that merely by reciting the words used under Section
141 of the NI Act in the complaint no vicarious liability can be
fastened on the partner of the firm.
4
6. In such circumstances above, the High Court allowed the
application filed by respondent herein and terminated the
proceedings as far as the respondent is concerned.
7. In view of the aforesaid, the appellant (original complainant)
is here before this Court with the present appeal.
Submissions on behalf of the Appellant
8. The learned counsel, Mr. E.R. Kumar appearing for the
appellant vehemently submitted that the High Court committed a
serious error in passing the impugned Order quashing the
proceedings against the respondent herein. He would submit that
the entire premise on which the High Court proceeded could be
termed as erroneous in law. The learned counsel would submit
that in the statutory notice issued to the respondent as well as in
the body of the complaint, there are specific averments that the
accused Nos. 02 and 03 respectively, being the partners of the
partnership firms, are incharge and responsible for the dayto
day affairs of the firm. He pointed out there are specific
averments made in the complaint that the partners which include
the respondent herein are regularly looking after and actively
taking part in the daytoday business of the firm. He further
pointed out that there is a specific averment that in order to
5
discharge the liability, the original accused No. 02 had issued the
cheque within the knowledge and consent of the respondent
herein. It is argued that if the substance of the allegation made in
the complaint fulfil the requirements of Section 141 of the NI Act,
the complaint is to proceed and is required to be tried with. The
learned counsel vociferously argued that while construing a
complaint the Court should not adopt a hypertechnical approach
and quash the same.
9. The learned counsel further pointed out that three
individual notices were issued under Section 138 of the NI Act
before the filing of the complaint. He would submit that the
statutory notice was duly served upon the respondent herein.
However, the respondent thought fit not to give any reply to the
notice. It is argued that if the respondent had anything to say as
regards her role in the firm, she could have given an appropriate
reply that she is a sleeping partner and not involved into the day
today affairs of the firm. It is argued that respondent herein
could also have clarified in her reply that the firm had already
been dissolved much before the cheque was issued and in such
circumstances, no liability could be fastened on her. In the
absence of any reply to the statutory notice, the respondent could
6
not have argued before the High Court for the first time about her
involvement in the affairs of the firm. The learned counsel would
submit that the High Court committed a serious error in
accepting such submission canvassed on behalf of the
respondent at the preliminary stage.
10. The learned counsel further submitted that once the
necessary averments are made in the complaint, the onus
thereafter would shift on the accused to establish by producing
some unimpeachable and incontrovertible evidence which may
clearly indicate that the respondent herein as one of the partners
of the firm, could not have been concerned with the issuance of
the cheque in question.
11. In such circumstances referred above, the learned counsel
appearing for the appellant prays that there being merit in his
appeal, the same may be allowed and the impugned order passed
by the High Court may be quashed.
Submissions on behalf of the Respondent:
12. Ms. Hari Priya Padmanabhan, the learned counsel
appearing for the respondent (accused) on the other hand has
vehemently opposed the present appeal submitting that no error,
not to speak of any error of law, could be said to have been
7
committed by the High Court in passing the impugned order. She
would submit that mere bald averments in the complaint are not
sufficient to fasten the vicarious lability on the partner of the firm
as envisaged under Section 141 of the NI Act. The learned
counsel would submit that the case on hand is squarely covered
by the decision of this Court in the case of SMS
, (2005) 8 SCC 89.
Pharmaceuticals Ltd. v. Neeta Bhalla
Relying on the said decision of this Court, the learned counsel
would submit that the deeming fiction creating criminal lability
and vicarious lability are a departure from the usual principles of
criminal law and that a clear case should be spelt out and the
accused person should be made aware of the case alleged against
him or her. The learned counsel would submit that this would
therefore necessarily require averments in addition to the
statement that the accused is incharge of and responsible for
the affairs of the company/firm.
13. The learned counsel appearing for the respondent in
support of her aforesaid submissions has placed strong reliance
on the following decisions:
8
(i) Gunmala Sales Pvt. Ltd. v. Anu Mehta & Ors ,
reported in (2015) 1 SCC 103;
(ii)
National Small Industries Corporation v. Harmeet
Singh Paintal & Anr ., reported in (2010) 3 SCC 330;
(iii)
Sunita Palita & Others v. M/s Panchami Stone
Quarry , reported in (2022) SC Online SC 945.
14. In such circumstances referred above, the learned counsel
appearing for the respondent prays that there being no merit in
this appeal, the same may be dismissed.
Analysis
15. Having heard the learned counsel appearing for the parties
and having gone through the materials on record the only
question that falls for our consideration is whether the High
Court committed any error in passing the impugned order?
16. Since the arguments of both the sides have proceeded
mainly on the averments made in the complaint and to analyze
the case before us in proper perspective, it is necessary to
scrutinize the statutory notice as well as the complaint. The
statutory notice dated 14.08.2017 reads thus:
“To,
9
1. Sira Marketing Service,
Represented by it's Partner/ Authorized Signatory,
Rajesh, Old No.60, New No.30,
28th Cross St, Indhira Nagar,
Adyar, Chennai20.
2. Rajesh,
Partner/ Authorized Signatory,
Sira Marketing Service,
Old No.60, New No. 30,
28th Cross St, Indhira Nagar,
Adyar, Chennai20.
3. Dr. Mrs. Snehalatha Elangovan,
W/o. Elangovan,
Partner / Authorized Signatory,
Sira Marketing Service,
Old No.60, New No.30,
28th Cross St, Indhira Nagar,
Adyar, Chennai20.
Sir,
Please take notice that we are instructed by our client
S.P. Mani and Mohan Dairy, Represented by its
Managing Partner: R.Mohanasundaram, No.34 & 84,
Jeevanantham Street, Kollampalayam, Erode638 002 to
issue this notice to you.
You No.1 is a Partnership Firm, You No.2 and 3 are
Partners and incharge and responsible for the daytoday
affairs of You No. 1, you No.2 and 3 are regularly looking
after and actively taking part in the daytoday business
of You No.1.
Our client is doing business in Milk and Milk Products:
You used to purchase Milk and Milk Products from our
client on credit basis. Our client is maintaining true and
correct accounts. As per accounts maintained by our
client you have to pay a balance of Rs. 10,71,434.60 to
10
our client. In order to discharge the part of the said
balance amount and liability you No.2 on behalf of you
No.1 and with the knowledge and consent of you No.3
issued the following cheque which is drawn on TamilNad
Mercantile Bank Ltd., Thiruvanmiyur Branch, Chennai
41.
S.No. Cheque Date Cheque No. Cheque Amount
1. 05.05.2017 411618 Rs. 10,00,000/
On your request our client presented the above said
cheque for collection on 13.06.2017 through HDFC Bank
Ltd., Sathy Road Branch, Erode and the same was
returned as "Funds Insufficient" on 14.06.2017. Again on
your request our client presented the above said cheque
for collection on 20.07.2017 through HDFC Bank Ltd.,
Sathy Road Branch, Erode and the same was returned
as "Funds Insufficient" on 21.07.2017. Without sufficient
funds in your account, you have issued the above said
cheque.
You issued the above said cheque assuring payment on
presentation of the same. At the time of issuing the said
cheque, you represented that you are having an account
in which you will have sufficient amount in your account.
But you purposely allowed the same to be dishonoured
with an intention to cheat and defraud our client.
Therefore, you have committed an offence punishable
U/S 138 of the Negotiable Instruments Act.
You are hereby called upon to pay the above said
amount of Rs.10,00,000/due under the above said
cheque dated 05.05.2017 within is days from the date of
receipt of this notice. Please note that on your failure to
make the payment within the abovementioned time,
legal action will be taken against you under section 138
of the Negotiable Instruments Act 1881 and thereupon
you will be held liable for all the costs and consequences
arising thereof.” [Emphasis
supplied]
11
17. At the cost of repetition, we may state that there is no
dispute that the aforesaid notice issued to the respondent was
duly acknowledged by her, however, the respondent thought fit
not to give any reply to the same. The acknowledgement receipt
has also been placed on record. The learned counsel appearing
for the respondent fairly submitted that her client was in receipt
of the notice however, no reply has been given to the same.
18. The complaint filed under Section 138 of the NI Act reads
thus:
“The complainant is a Partnership Firm registered under
the Partnership act and carrying on business in the
above said address. The Partners of the said firm
resolved that D. Gokulnath, S/o. M. Dhanapal the
Manager of the said complainant who knows personally
about each and every transaction of this case to be and
he is authorized to represent the firm in this case. A copy
of power of attorney is produced herewith.
The accused No.1 is a Partnership Firm, the accused
No.2 and 3 are Partners and incharge and responsible
for the daytoday affairs of the accused No.1, the
accused No.2 and 3 are regularly looking after and
actively taking part in the daytoday business of the
accused No.1.
The complainant is doing business in Milk and Milk
Products. The accused used to purchase Milk and Milk
Products from the complainant on credit basis. The
complainant is maintaining true and correct accounts. As
per accounts maintained by the complainant, the
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accused have to pay a balance of Rs.10,71,434.60 to the
complainant. In order to discharge the part of the said
balance amount and liability the accused No.2 on behalf
of the accused No. 1 and with the knowledge and
consent of the accused No.3 issued the following cheque
which is drawn on TamilNad Mercantile Bank Ltd.,
Thiruvanmiyur Branch, Chennai41.
S.No. Cheque Date Cheque No. Cheque Amount
1. 05.05.2017 411618 Rs. 10,00,000/
On the request of the accused the complainant presented
the above said cheque for collection on 13.06.2017
through HDFC Bank Ltd., Sathy Road Branch, Erode and
the same was returned as "Funds Insufficient" on
14.06.2017. Again, on the request of the accused the
complainant presented the above said cheque for
collection on 20.07.2017 through HDFC Bank Ltd., Sathy
Road Branch, Erode and the same was returned as
"Funds Insufficient" on 21.07.2017. Without sufficient
funds in their account accused have issued the above
said cheque.
The accused issued the above said cheque assuring
payment on presentation of the same. At the time of
issuing the said cheque, the accused represented that
they are having an account in which they will have
sufficient amount in their account. But the accused
purposely allowed the same to be dishonoured with an
intention to cheat and defraud the complainant.
Therefore, the accused have committed an offence
punishable u/s 138 of the Negotiable Instruments Act.
Thereupon the complainant issued a lawyer notice on
14.08.2017 to the accused calling upon them to pay the
above said sum of Rs.10,00,000/ due under the said
cheque dated 05.05.2017 within 15 days from the date
of receipt of this notice. The accused received the above
said notice on 16.08.2017. But they failed to pay the
above said cheque amount within 15 days. Hence the
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accused has committed an offence punishable u/s 138
r/w. 142 of Negotiable Instruments Act 1881 as
amended by Act 55 of2002.
The complainant submits that he had produced the
relevant documents relating to this offence.
He further submits that he has filed this complaint within
one month from the date of expiry of 15 days grace time
given in the notice for the payment of above said
cheque's amount. The above said cheque was presented
for collection through HDFC Bank Ltd., Sathy Road
Branch, Erode which is situated in Erode
Karungalpalayam Police Station limit. Hence this Hon'ble
court is having jurisdiction to cognizance the offence.
A court fee of Rs.5,000/ is paid under Tamilnadu Court
Fee Act.
It is therefore, prayed that this Hon'ble Court may be
pleased to take this case on file, issue summon to the
accused, enquire the matter, punish the accused with
maximum sentence and direct the accused to pay
compensation to the complainant u/s 357 CPC and
[Emphasis
render justice.”
supplied]
19. Thus, from the aforesaid the following averments in the
complaint are evident:
(a) Accused No.1 is a Partnership Firm, the accused Nos. 2 and
3 resply are the partners and in charge and responsible for
the daytoday affairs of the firm, the accused Nos. 2 and 3
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are regularly looking after and actively taking part in the
daytoday business of the firm;
(b) In order to discharge the part liability, the accused No. 2 on
behalf of the firm and with the consent and knowledge of the
accused No. 3 issued the cheque drawn on the Tamilnad
Mercantile Bank Ltd., Thiruvanmiyur Branch, Chennai41.
20. The aforesaid averments are not only found to be read in the
complaint but in the notice too.
21. We shall now proceed to look into the impugned order
passed by the High Court. The same order reads thus:
“This criminal original petition has been filed to quash
the proceedings in STC No. 583 of 2017, pending on the
file of the Judicial Magistrate Fast Track Court No.II
Erode.
2. The respondent has filed a complaint under
Section 138 of the Negotiable Instruments Act. The
petitioner has been arrayed as A~ 3 in the complaint.
This quash petition has been filed primarily on two
grounds. The first ground is that the Partnership Firm
was dissolved during February 2017 and the subject
cheque is said to have been issued by A~2 on
05.05.2017, after the dissolution of the Partnership Firm.
The 2nd ground that has been raised is that the
allegations made in the complaint does not satisfy the
requirements of Section 141 of the Negotiable
Instruments Act.
3. Heard Mr. K. Kannan, learned counsel for the
petitioner and Mr. M. Guruprasad, learned counsel for
the respondent.
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4. Insofar as the first issue that is raised by the
petitioner, the same cannot be gone into by this Court
and it is a factual issue which can be decided only in the
course of trial.
5. Insofar as the second issue is concerned, it will be
beneficial to extract the relevant portion from the
complaint filed by the respondent hereunder:
"The accused No. 1 is a Partnership Firm, the
accused No.2 and 3 are Partners and incharge and
responsible for the daytoday affairs of the accused
No. 1, the accused No.2 and 3 are regularly looking
after and actively taking part in the daytoday
business of the accused No. 1.
The complainant is doing business in Milk and Milk
Products. The accused used to purchase Milk and
Milk Products from the complainant on credit basis.
The complainant is maintaining true and correct
accounts. As per accounts maintained by the
complainant, the accused have to pay a balance of
Rs. 10,71,434. 60/ to the complainant. In order to
discharge the part of the said balance amount and
liability the accused No.2 on behalf of the accused
No.1 and with the knowledge and consent of the
accused No. 3 issued the following cheque which is
drawn on Tamil Nadu Mercantile Bank Ltd.,
Thiruvanmiyur Branch, Chennai41.”
S.No. Cheque Date Cheuqe No. Cheque Amount
1. 05.05.2017 411618 Rs. 10,00,000/
6. In the present case, A~ 1 is the Partnership Firm
and A~2 who is the partner is the signatory of the
cheque. The petitioner A~ 3 has been roped in as an
accused since she is a partner of A~ 1 Firm. The
complaint can be prosecuted as against the petitioner
only if the allegations made in the complaint satisfies the
16
requirements of Section 141 of the Negotiable
Instruments Act.
7. In the present case, the respondent has merely
repeated the words used under Section 141 of the
Negotiable Instruments Act and there is absolutely no
allegation as to how and in what manner the petitioner is
incharge and responsible for the conduct of the
business. In the absence of such an allegation, the
complaint is not maintainable as against the petitioner.
The law on this issue is well settled.
8. In the result, the proceedings in STC No. 583 of
2017, on the file of the Judicial Magistrate Fast Track
Court No.II, Erode, is hereby quashed insofar as the
petitioner is concerned. The Court below is directed to
complete the proceedings in STC No.583 of 2017, against
the other accused persons within a period of three
months from the date of receipt of a copy of this order.
9. This criminal original petition is allowed with the
above directions. Consequently, connected miscellaneous
petitions are closed.”
22. Thus, the plain reading of the impugned order passed by
the High Court as aforesaid would indicate that the proceedings
came to be quashed essentially on the ground that there was
nothing to indicate that in what manner the respondent herein
was incharge and responsible for the daytoday affairs of the
firm so as to make her vicariously liable for the alleged offence
with the aid of Section 141 of the NI Act. To put it in other words,
the High Court proceeded on the footing that mere averments in
17
the complaint as regards the role of the respondent as a partner
in the firm is not sufficient.
Analysing Section 141 of the Negotiable Instrument Act,
1881
23. The provisions of Section 138 and Section 141 resply of the
NI Act read as under:
“ Section 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, without
prejudice to any other provision of this Act, be punished
with imprisonment for a term which may be extended 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
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| notice in writing, to the drawer of the cheque, within<br>thirty days of the receipt of information by him from<br>the bank regarding the return of the cheque as<br>unpaid; and | | |
|---|
| (c) the drawer of such cheque fails to make the<br>payment of the said amount of money to the payee<br>or, as the case may be, to the holder in due course<br>of the cheque, within fifteen days of the receipt of<br>the said notice. | | |
| Explanation: For the purposes of this Section, “debt or other<br>liability” means a legally enforceable debt or other liability.” | | | |
| | | |
| “Section 141. Offences by companies.— | | | |
| (1) If the person committing an offence under Section 138<br>is a company, every person who, at the time the<br>offence was committed, was in charge of, and was<br>responsible to the company for the conduct of the<br>business of the company, as well as the company,<br>shall be deemed to be guilty of the offence and shall<br>be liable to be proceeded against and punished<br>accordingly.”<br>Provided that nothing contained in this subsection<br>shall render any person liable to punishment if he<br>proves that the offence was committed without his<br>knowledge, or that he had exercised all due diligence to<br>prevent the commission of such offence.<br>Provided further that where a person is nominated<br>as a Director of a company by virtue of his holding any<br>office or employment in the Central Government or State<br>Government or a financial corporation owned or<br>controlled by the Central Government or the State<br>Government, as the case may be, he shall not be liable<br>for prosecution under this Chapter.<br>(2) Notwithstanding anything contained in subsection<br>(1), where any offence under this Act has been<br>committed by a company and it is proved that the<br>offence has been committed with the consent or<br>connivance of, or is attributable to, any neglect on the | (1) If the person committing an offence under Section 138<br>is a company, every person who, at the time the<br>offence was committed, was in charge of, and was<br>responsible to the company for the conduct of the<br>business of the company, as well as the company,<br>shall be deemed to be guilty of the offence and shall<br>be liable to be proceeded against and punished<br>accordingly.” | | |
| | Provided that nothing contained in this subsection<br>shall render any person liable to punishment if he<br>proves that the offence was committed without his<br>knowledge, or that he had exercised all due diligence to<br>prevent the commission of such offence. | |
| | Provided further that where a person is nominated<br>as a Director of a company by virtue of his holding any<br>office or employment in the Central Government or State<br>Government or a financial corporation owned or<br>controlled by the Central Government or the State<br>Government, as the case may be, he shall not be liable<br>for prosecution under this Chapter. | |
| | | |
| (2) Notwithstanding anything contained in subsection<br>(1), where any offence under this Act has been<br>committed by a company and it is proved that the<br>offence has been committed with the consent or<br>connivance of, or is attributable to, any neglect on the | | |
19
| part of, any director, manager, secretary or other<br>officer of the company, such director, manager,<br>secretary or other officer shall also be deemed to be<br>guilty of that offence and shall be liable to be<br>proceeded against and punished accordingly.<br>Explanation — For the purposes of this Section—<br>(a) “company” means any body corporate and includes a<br>firm or other association of individuals; and<br>(b) “director”, in relation to a firm, means a partner in the<br>firm.” | | | part of, any director, manager, secretary or other<br>officer of the company, such director, manager,<br>secretary or other officer shall also be deemed to be<br>guilty of that offence and shall be liable to be<br>proceeded against and punished accordingly. | |
|---|
| Explanation — For the purposes of this Section— | | | |
| | | (a) “company” means any body corporate and includes a<br>firm or other association of individuals; and | |
| | | (b) “director”, in relation to a firm, means a partner in the<br>firm.” | |
| | | | |
| 24. | | | Evidently, the gist of Section 138 is that the drawer of the | |
cheque shall be deemed to have committed an offence when the
cheque drawn by him is returned unpaid on the prescribed
grounds. The conditions precedent and the conditions
subsequent to constitute the offence are drawing of a cheque on
the account maintained by the drawer with a banker,
presentation of the cheque within the prescribed period, making
of a demand by the payee by giving a notice in writing within the
prescribed period and failure of the drawer to pay within the
prescribed period. Upon fulfilment of these requirements, the
commission of the offence which may be called the offence of
‘dishonour of cheque’ is complete. If the drawer is a company, the
offence is primarily committed by the company. By virtue of the
provisions of subsection (1) of Section 141, the guilt for the
offence and the liability to be prosecuted and punished shall be
20
extended to every person who, at the time the offence was
committed, was in charge of and was responsible to the company
for the conduct of its business; irrespective of whether such
person is a director, manager, secretary or other officer of the
company. It would be for such responsible person, in order to be
exonerated in terms of the first proviso, to prove that the offence
was committed without his knowledge or despite his due
diligence.
| 25. | | Under the separate provision of subsection (2), if it is |
|---|
proved that the offence was committed with the consent or
connivance of or was attributable to the neglect on the part of
any director, manager, secretary or other officer of the company,
such person would also be deemed to be guilty for that offence.
Obviously, the burden of alleging and proving consent,
connivance or neglect on the part of any director, etc. would rest
| upon the complainant. The | | non obstante | | clause with which the |
|---|
subsection (2) opens indicate that the deeming provision is
distinct and different from the deeming provision in subsection
(1) in which the office or designation of the person in charge of
and responsible to the company for the conduct of its business is
immaterial.
21
| 26. | | While the essential element for implicating a person under |
|---|
subsection (1) is his or her being in charge of and responsible to
the company in the conduct of its business at the time of
commission of the offence, the emphasis in subsection (2) is
upon the holding of an office and consent, connivance or
negligence of such officer irrespective of his or her being or not
being actually in charge of and responsible to the company in the
conduct of its business. Thus, the important and distinguishing
feature in subsection (1) is the control of a responsible person
over the affairs of the company rather than his holding of an
office or his designation, while the liability under subsection (2)
arises out of holding an office and consent, connivance or
neglect. While all the persons covered by subsection (1) and sub
section (2) are liable to be proceeded against and also punished
upon the proof of their being either in charge of and responsible
to the company in the conduct of its business or of their holding
of the office and having been guilty of consent, connivance or
neglect in the matter of commission of the offence by the
company, the person covered by subsection (1) may, by virtue of
the first proviso, escape only punishment if he proves that the
22
offence was committed without his knowledge or despite his due
diligence.
| 27. | | As for the requisite evidence, the burden upon the |
|---|
prosecution would be discharged under subsection (1) when a
person is proved to be in charge of and responsible to the
company in the conduct of its business and would shift upon the
accused to prove that he was ignorant or diligent, if that be his
defence; whereas under subsection (2) the prosecution would be
required to allege and prove the consent, connivance or neglect
and holding of the office by the accused. There is nothing to
suggest that the same person cannot be made to face the
prosecution either under subsection (1) or subsection (2) or
both. A director or manager can be arraigned and proved to be
guilty as the person in charge of and responsible to the company
as well as the director of the company who, as such, might have
consented to, connived at or been negligent in respect of the
offence of dishonour of cheque, be logically deduced that a
person can be arraigned in a complaint as the accused along with
| the company if it | | prima facie | | appears that he was in charge of |
|---|
and responsible to the company for the conduct of its business,
although he may or may not be or may not have continued to be
23
a director or other officer of the company, as mentioned in sub
section (2). It would be sufficient if the complaint indicates that
such person has been arraigned on the basis of averments which
disclose him or her to be the person in charge of and responsible
to the company in the conduct of its business at the time the
offence was committed. Evidently, a person who signs the cheque
or who has the authority to sign the cheque for and on behalf of
| the company, regardless of his office or capacity, can, | | prima facie | , |
|---|
be assumed to be in charge of and responsible to the company in
the conduct of its business. And, where such person is
prosecuted, then, if it be his defence that the offence was
committed without his or her knowledge or that he or she has
exercised all due diligence to prevent the commission of such
offence, the burden to prove that would be on him or her and can
only be discharged at the stage of evidence.
28. While dealing with a reference to resolve the apparent
conflict between the judgments of this Court in the Municipal
, (1983) 1 SCC 1,
Corporation of Delhi v. Ram Kishan Rohtagi
and the , (1987)
U.P. Pollution Control Board v. Modi Distillery
3 SCC 684, in the context of vicarious liability under the
24
| provisions of Section 141 of the NI Act, this Court in P.<br>Rajarathinam v. State of Maharashtra, (2000) 10 SCC 529,<br>pertinently observed as under: | | |
|---|
| “4. A bare reading of the provision mandates that some<br>facts must come on the record in order to figure as to who<br>should answer the charge ultimately. Necessarily, pre<br>charge evidence assumes importance. The complainant will<br>have to put his side of the case as given out in the complaint | |
| and the persons summoned would have to put on the record | |
| all what is material to extricate themselves out. In any case, | |
| the crucial time would be when framing charge whereat a | |
| decision in that respect would be required to be made by the | |
| court. Presently, it appears to us premature to be resolving | |
| the conflict and the ratio deduced thereby, may turn out to | |
| be obiter. Therefore, we think that we need not resolve such | |
| conflict at present and leave it to the court concerned to | |
| pass appropriate orders at the time of framing of charge. In | |
| this manner, we dispose of these appeals.” | |
| [Emphasis supplied] | |
| | |
| 29. The seminal issue raised and requires to be settled in the<br>present case is one relating to a person liable to be proceeded<br>against under the provisions of subsection (1) of Section 141 for<br>being incharge of and responsible to the company “at the time<br>the offence was committed.” It would, therefore, be important to<br>find out the “time” when the offence under Section 138 can be<br>said to have been committed by the company. It is common place<br>that an offence means an aggregate of facts or omissions which<br>are punishable by law and, therefore, can consist of several | | |
25
| parts, each part being committed at different time and place<br>involving different persons. The provisions of Section 138 would<br>require a series of acts of commission and omission to happen<br>before the offence of, what may be loosely called “dishonour of<br>cheque” can be constituted for the purpose of prosecution and<br>punishment. It is held by the Supreme Court in K.<br>Bhaskaran v. Sankaran Vaidhyan Balan, (1999) 7 SCC 510,<br>that: | | | | |
|---|
| | “14. The offence under Section 138 of the Act can be<br>completed only with the concatenation of a number of<br>acts. The following are the acts which are components of<br>the said offence: (1) drawing of the cheque, (2)<br>presentation of the cheque to the bank, (3) returning the<br>cheque unpaid by the drawee bank, (4) giving notice in<br>writing to the drawer of the cheque demanding payment<br>of the cheque amount, (5) failure of the drawer to make<br>payment within 15 days of the receipt of the notice.” | | |
| | | | |
| 30. | | | Different persons can be incharge of the company when | |
| | | | |
| each of the series of acts of commission and omission essential to | | | | |
| | | | |
| complete the commission of offence by the company were being | | | | |
| | | | |
| committed. To take an example, in the case of a company, “A” | | | | |
| | | | |
| might be in charge of the company at the time of drawing the | | | | |
| | | | |
| cheque, “B” might be in charge of the company at the time of | | | | |
| | | | |
| dishonour of cheque and “C” might be in charge of the company | | | | |
26
| at the time of failure to pay within 15 days of the receipt of the | | | | | | | | |
|---|
| | | | | | | | |
| demand notice. In such a case, the permissibility of prosecution | | | | | | | | |
| | | | | | | | |
| of A, B and C resply or any of them would advance the purpose of | | | | | | | | |
| | | | | | | | |
| the provision and, if none can be prosecuted or punished, it | | | | | | | | |
| | | | | | | | |
| would frustrate the purpose of the provisions of Section 138 as | | | | | | | | |
| | | | | | | | |
| well as Section 141. The key to this interpretation lies in the use | | | | | | | | |
| | | | | | | | |
| of the phrase: “ | | | every person shall be deemed to be guilty of the | | | | | |
| | | | | | | | |
| offence and shall be liable to be proceeded against and punished | | | | | | | | |
| | | | | | | | |
| accordingly | | ” as it occurs in subsection (1) of Section 141 and the | | | | | | |
| | | | | | | | |
| use of the phrase “ | | | | provided that nothing contained in this sub | | | | |
| | | | | | | | |
| section shall render | | | | | | any | | person liable to punishment if he |
| | | | | | | | |
| proves… | ” that occurs in the first proviso. Every person who was | | | | | | | |
| | | | | | | | |
| in charge of and was responsible to the company for the conduct | | | | | | | | |
| | | | | | | | |
| of its business at the time any of the components necessary for | | | | | | | | |
| | | | | | | | |
| the commission of the offence occurred may be “proceeded | | | | | | | | |
| | | | | | | | |
| against”, but may not be “punished” if he succeeds in proving | | | | | | | | |
| | | | | | | | |
| that the offence was committed without his knowledge and | | | | | | | | |
| | | | | | | | |
| despite his due diligence; the burden of proving that remaining | | | | | | | | |
| | | | | | | | |
| on him. Therefore, it also has to be held that the time of | | | | | | | | |
| | | | | | | | |
| commission of the offence of dishonour of cheque cannot be on | | | | | | | | |
| | | | | | | | |
| the stroke of a clock or during 15 days after the demand notice | | | | | | | | |
27
| has to be construed as the time when each of the acts of | | |
|---|
| | |
| commission and omission essential to constitute the offence was | | |
| | |
| committed. The word “every” points to the possibility of plurality | | |
| | |
| of responsible persons at the same point of time as also to the | | |
| | |
| possibility of a series of persons being in charge when the | | |
| | |
| sequence of events culminating into the commission of offence by | | |
| | |
| the company were taking place. As to what this ‘relevant time’ is, | | |
| | |
| was a question that this Court was called to answer, | inter alia | , in |
| | |
| N Rangachari v. Bharati Sanchar Nigam Limited | , AIR (2007) | |
| | |
| SC 1682. In this case, Data Access, a company had issued two | | |
| | |
| cheques to the BSNL, which were duly presented, but were | | |
| | |
| dishonoured for insufficiency of funds. A complaint under | | |
| | |
| Section 138 of the NI Act was filed. While the BSNL held the | | |
| | |
| directors liable, the appellant, a chairman in the company | | |
| | |
| contended that he being a nominated chairman and holding an | | |
| | |
| Honorary post in the Company, was never assigned with any of | | |
| | |
| the company’s financial or other business activities. He was the | | |
| | |
| Chairman for name sake and was never entrusted with any job or | | |
| | |
| business or constituted a signing authority. Resolving the issue | | |
| of when the liability could be fastened, this Court said: | | |
| of when the liability could be fastened, this Court said: | | |
28
| “ | In the case on hand, reading the complaint as a whole, it | | | | | | | | | | | | | | | | | |
|---|
| is clear that the allegations in the complaint are that at the | | | | | | | | | | | | | | | | | | |
| time at which the two dishonoured cheques were issued | | | | | | | | | | | | | | | | | | |
| by the company, the appellant and another were the | | | | | | | | | | | | | | | | | | |
| Directors of the company and were in charge of the affairs | | | | | | | | | | | | | | | | | | |
| of the company. It is not proper to split hairs in reading | | | | | | | | | | | | | | | | | | |
| the complaint so as to come to a conclusion that the | | | | | | | | | | | | | | | | | | |
| allegations as a whole are not sufficient to show that at | | | | | | | | | | | | | | | | | | |
| the relevant point of time the appellant and the other are | | | | | | | | | | | | | | | | | | |
| not alleged to be persons incharge of the affairs of the | | | | | | | | | | | | | | | | | | |
| company. Obviously, the complaint refers to the point of | | | | | | | | | | | | | | | | | | |
| time when the two cheques were issued, their | | | | | | | | | | | | | | | | | | |
| presentment, dishonour and failure to pay in spite of | | | | | | | | | | | | | | | | | | |
| notice of dishonour. | | | | | ” | | | | | | | | | | | | | |
| | | | | | | | | | | [Emphasis supplied] | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| As held by this Court in | | | | | | | | Anil Hada | | | | v. | | Indian Acrylic Ltd. | | | , |
(2000) 1 SCC 1, the phrase “as well as” used in subsection (1) of
Section 141 of the NI Act would embroil the persons mentioned
therein within the tentacles of the offence on par with the
offending company. Therefore, when the company or firm is the
drawee of the cheque, such company or firm is the principal
offender and the fiction created by the legislature. When the
offence is attributed to a juristic person or a body made up of
several individuals and the liability to be prosecuted and
punished is extended to embroil by legal fiction certain human
beings, that legal fiction has to be so interpreted and applied that
the individuals intended to be embroiled may not escape the
29
liability by mere fact of having not been in charge at the time
when one of the other of the events essential to complete the
| offence by the company happened. Borrowing again from | | K. |
|---|
| Bhaskaran | | (supra), the court should not adopt an interpretation |
|---|
which helps a dishonest evader and clips an honest payee as that
would defeat the very legislative measure.
32. In the aforesaid context, we may straight away proceed to
look into the following observations made by this Court in the
case of Monaben Ketanbhai Shah v. State of Gujarat in
Criminal Appeal No. 850 of 2004 decided on 10.08.2004 reported
in (2004) 7 SCC 15:
30
33. Thus, the legal principles discernible from the aforesaid
decision of this Court may be summarised as under:
(a) Vicarious liability can be fastened on those who are in
charge of and responsible to the company or firm for the
conduct of its business. For the purpose of Section 141, the
firm comes within the ambit of a company;
(b) It is not necessary to reproduce the language of Section 141
verbatim in the complaint since the complaint is required to
be read as a whole;
31
(c) If the substance of the allegations made in the complaint
fulfil the requirements of Section 141, the complaint has to
proceed in regards the law.
(d) In construing a complaint a hypertechnical approach
should not be adopted so as to quash the same.
(e) The laudable object of preventing bouncing of cheques and
sustaining the credibility of commercial transactions
resulting in the enactment of Sections 138 and 141
respectively should be kept in mind by the Court concerned.
(f) These provisions create a statutory presumption of
dishonesty exposing a person to criminal liability if payment
is not made within the statutory period even after the issue
of notice.
(g) The power of quashing should be exercised very sparingly
and where, read as a whole, the factual foundation for the
offence has been laid in the complaint, it should not be
quashed.
(h) The Court concerned would owe a duty to discharge the
accused if taking everything stated in the complaint is
correct and construing the allegations made therein liberally
32
in favour of the complainant, the ingredients of the offence
are altogether lacking.
34. The interrelationship between the Sections 138 and 141
respectively of the NI Act has been succinctly explained by this
Court in , AIR (2005)
SMS Pharmaceuticals v. Neeta Bhalla
3512, in the following words:
“It will be seen from the above provisions that Section 138
casts criminal liability punishable with imprisonment or
fine or with both on a person who issues a cheque
towards discharge of a debt or liability as a whole or in
part and the cheque is dishonoured by the Bank on
presentation. Section 141 extends such criminal liability in
case of a Company to every person who at the time of the
offence, was incharge of and was responsible for the
conduct of the business of the Company. By a deeming
provision contained in Section 141 of the Act, such a
person is vicariously liable to be held guilty for the offence
under Section 138 and punished accordingly.”
Who is liable? Vicarious liability:
35. This Court in
Assistant Commissioner, AssessmentII,
Bangalore and Ors. v. Velliappa Textiles Ltd. and Ors. AIR
(2004) SC 86, introduced the concept of ego and alter ego in
relation to the employee and the employer corporation. The Court
elucidated this principle in the following words:
“In order to trigger corporate criminal liability for the
actions of the employee (who must generally be liable
33
| himself), the actoremployee who physically committed the | | | | | | | | | |
|---|
| offence must be the ego, the centre of the corporate | | | | | | | | | |
| personality, the vital organ of the body corporate, the | | | | | | | | | alter |
| ego | | of the employer corporation or its directing mind. Since | | | | | | | |
| the company/corporation has no mind of its own, its active | | | | | | | | | |
| and directing will must consequently be sought in the | | | | | | | | | |
| person of somebody who for some purposes may be called | | | | | | | | | |
| an agent, but who is really the directing mind and will of | | | | | | | | | |
| the corporation, the very ego and centre of the personality | | | | | | | | | |
| of the corporation. To this extent there are no difficulties in | | | | | | | | | |
| our law to fix criminal liability on a company. The common | | | | | | | | | |
| law tradition of | | | | alter ego | | or identification approach is | | | |
| applicable under our existing laws.” | | | | | | | | | |
| 36. | | Now, the logical question that would follow is who would |
|---|
be liable through the company for this offence? Can the
company itself be prosecuted for this offence? Answering this
| question, the Section 141 says, | ‘every person who was in |
|---|
| charge of’ | and | ‘was responsible to the company for the |
|---|
| conduct of the business’ | shall be deemed to be guilty of the |
|---|
offence. This concept of vicarious liability has been explained
| by this Court in | Sabhitha Ramamurthy v. RBS |
|---|
| Channabasavaradhya | , AIR (2006) SC 3086, as: |
|---|
| “Section 141 raises a legal fiction. By reason of the said | |
|---|
| provision, a person although is not personally liable for | |
| commission of such an offence would be vicariously liable | |
| therefor. | Such vicarious liability can be inferred so far as a |
| company registered or incorporated under the Companies | |
| Act, 1956 is concerned only if the requisite statements, | |
| which are required to be averred in the complaint petition, | |
34
| are made so as to make the accused therein vicariously | | | | | | | | | | |
|---|
| liable for the offence committed by the company | | | | | | | | | . Before a | |
| person can be made vicariously liable, strict compliance | | | | | | | | | | |
| with the statutory requirements would be insisted.” | | | | | | | | | | |
| | | | | | | | [Emphasis supplied] | | |
37. At this stage, we should look into the decision of this Court
in the case of K.K. Ahuja v. V.K. Vora , (2009) 10 SCC 48, in
(supra), wherein this Court discussed the principles
K.K. Ahuja
of vicarious liability of the officers of a company in respect of
dishonour of a cheque and held
“27. The position under section 141 of the Act can be
summarized thus:
(i) If the accused is the Managing Director or a Joint
Managing Director, it is not necessary to make an
averment in the complaint that he is in charge of, and
is responsible to the company, for the conduct of the
business of the company. It is sufficient if an
averment is made that the accused was the Managing
Director or Joint Managing Director at the relevant
time. This is because the prefix “Managing” to the
word “Director” makes it clear that they were in
charge of and are responsible to the company, for the
conduct of the business of the company.
(ii) In the case of a director or an officer of the
company who signed the cheque on behalf of the
company, there is no need to make a specific
averment that he was in charge of and was
responsible to the company, for the conduct of the
business of the company or make any specific
allegation about consent, connivance or negligence.
The very fact that the dishonoured cheque was signed
35
by him on behalf of the company, would give rise to
responsibility under subsection (2) of Section 141.
(iii) In the case of a Director, Secretary or Manager (as
defined in Section 2(24) of the Companies Act ) or a
person referred to in clauses (e) and (f) of section 5 of
Companies Act, an averment in the complaint that he
was in charge of, and was responsible to the
company, for the conduct of the business of the
company is necessary to bring the case under section
141(1) of the Act. No further averment would be
necessary in the complaint, though some particulars
will be desirable. They can also be made liable
under Section 141(2) by making necessary averments
relating to consent and connivance or negligence, in
the complaint, to bring the matter under that sub
section.
(iv) Other Officers of a company cannot be made liable
under subsection (1) of Section 141. Other officers of
a company can be made liable only under subsection
(2) of Section 141, by averring in the complaint their
position and duties in the company and their role in
regard to the issue and dishonour of the cheque,
disclosing consent, connivance or negligence.”
[Emphasis supplied]
38. In a very recent pronouncement in the case of
Sunita
Palita v. M/s Panchami Stone Quarry (2022) SC Online SC
945, this Court, after referring to (supra) referred to
K.K. Ahuja
above, observed as under:
“When the accused is the Managing Director or a Joint
Managing Director of a company, it is not necessary to make
an averment in the complaint that he is in charge of, and is
responsible to the company for the conduct of the business of
36
the company. This is because the prefix “Managing” to the
word “Director” makes it clear that the Director was in
charge of and responsible to the company, for the conduct of
the business of the company. A Director or an Officer of the
company who signed the cheque renders himself liable in
case of dishonour. Other officers of a company can be made
liable only under subsection (2) of Section 141 of the NI Act
by averring in the complaint, their position and duties, in the
company, and their role in regard to the issue and dishonour
of the cheque, disclosing consent, connivance or negligence.”
39. In yet one another recent pronouncement in the case of
Ashutosh Ashok Parasrampuria v. Gharrkul Industries Pvt.
Ltd. reported in (2021) SCC Online SC 915, this Court after due
consideration of the decisions in the case of
SMS
Pharmaceuticals (supra); S.K. Alagh v. State of Uttar
Pradesh (2008) 5 SCC 662; Maharashtra State Electricity
, (2010) 10 SCC
Distribution Co. Ltd. v. Datar Switchgear Ltd.
479, and GHCL Employees Stock Option Trust v. India
, (2013) 4 SCC 505, observed as under:
Infoline Limited
“In the light of the ratio in SMS Pharmaceuticals Ltd. (supra)
and later judgments of which a reference has been made
what is to be looked into is whether in the complaint, in
addition to asserting that the appellants are the Directors of
the Company and they are incharge of and responsible to
the Company for the conduct of the business of the
Company and if statutory compliance of Section 141 of the
NI Act has been made, it may not open for the High Court to
interfere under Section 482 CrPC unless it comes across
37
some unimpeachable, incontrovertible evidence which is
beyond suspicion or doubt or totally acceptable
circumstances which may clearly indicate that the Director
could not have been concerned with the issuance of
cheques and asking him to stand the trial would be abused
of process of Court. Despite the presence of basic averment,
it may come to a conclusion that no case is made out
against the particular Director for which there could be
various reasons.”
[Emphasis supplied]
40. The principles discernible from the aforesaid decision of this
Court in the case of (supra)
Ashutosh Ashok Parasrampuriya
is that the High Court should not interfere under Section 482 of
the Code at the instance of an accused unless it comes across
some unimpeachable and incontrovertible evidence to indicate
that the Director/partner of a firm could not have been
concerned with the issuance of cheques. This Court clarified that
in a given case despite the presence of basic averments, the High
Court may conclude that no case is made out against the
particular Director/ partner provided the Director/partner is able
to adduce some unimpeachable and incontrovertible evidence
beyond suspicion and doubt.
Specific Averments in the complaint:
38
41. In Gunmala Sales Private Limited (supra), this Court
after an exhaustive review of its earlier decisions on Section 141
of the NI Act, summarized its conclusion as under:
“a) Once in a complaint filed under Section 138 read with
Section 141 of the NI Act the basic averment is made that
the Director was in charge of and responsible for the conduct
of the business of the company at the relevant time when the
offence was committed, the Magistrate can issue process
against such Director;
b) If a petition is filed under Section 482 of the Code for
quashing of such a complaint by the Director, the High Court
may, in the facts of a particular case, on an overall reading
of the complaint, refuse to quash the complaint because the
complaint contains the basic averment which is sufficient to
make out a case against the Director;
c) In the facts of a given case, on an overall reading of the
complaint, the High Court may, despite the presence of the
basic averment, quash the complaint because of the absence
of more particulars about role of the Director in the
complaint. It may do so having come across some
unimpeachable, incontrovertible evidence which is beyond
suspicion or doubt or totally acceptable circumstances which
may clearly indicate that the Director could not have been
concerned with the issuance of cheques and asking him to
stand the trial would be abuse of the process of the court.
Despite the presence of basic averment, it may come to a
conclusion that no case is made out against the Director.
Take for instance a case of a Director suffering from a
terminal illness who was bedridden at the relevant time or a
Director who had resigned long before issuance of cheques.
In such cases, if the High Court is convinced that prosecuting
such a Director is merely an armtwisting tactics, the High
Court may quash the proceedings. It bears repetition to state
that to establish such case unimpeachable, incontrovertible
evidence which is beyond suspicion or doubt or some totally
39
acceptable circumstances will have to be brought to the
notice of the High Court. Such cases may be few and far
between but the possibility of such a case being there cannot
be ruled out. In the absence of such evidence or
circumstances, complaint cannot be quashed;
d) No restriction can be placed on the High Court's powers
under Section 482 of the Code. The High Court always uses
and must use this power sparingly and with great
circumspection to prevent inter alia the abuse of the process
of the Court. There are no fixed formulae to be followed by
the High Court in this regard and the exercise of this power
depends upon the facts and circumstances of each case. The
High Court at that stage does not conduct a mini trial or
roving inquiry, but nothing prevents it from taking
unimpeachable evidence or totally acceptable circumstances
into account which may lead it to conclude that no trial is
necessary qua a particular Director.”
42. The principles of law and the dictum as laid in
Gunmala
Sales Private Limited (supra), in our opinion, still holds the
field and reflects the correct position of law.
43. In the case on hand, we find clear and specific averments
not only in the complaint but also in the statutory notice issued
to the respondent. There are specific averments that the cheque
was issued with the consent of the respondent herein and within
her knowledge. In our view, this was sufficient to put the
respondent herein to trial for the alleged offence. We are saying
so because the case of the respondent that at the time of
40
issuance of the cheque or at the time of the commission of the
offence, she was in no manner concerned with the firm or she
was not incharge or responsible for daytoday affairs of the firm
cannot be on the basis of mere bald assertion in this regard. The
same is not sufficient. To make good her case, the respondent
herein is expected to lead unimpeachable and incontrovertible
evidence. Nothing of the sort was adduced by the respondent
before the High Court to get the proceedings quashed. The High
Court had practically no legal basis to say that the averments
made in the complaint are not sufficient to fasten the vicarious
liability upon the respondent by virtue of Section 141 of the NI
Act.
44. We may also examine this appeal from a different angle. It is
not in dispute, as noted above, that no reply was given by the
respondent to the statutory notice served upon her by the
appellant. In the proceedings of the present type, it is essential
for the person to whom statutory notice is issued under Section
138 of the NI Act to give an appropriate reply. The person
concerned is expected to clarify his or her stance. If the person
concerned has some unimpeachable and incontrovertible
material to establish that he or she has no role to play in the
41
affairs of the company/firm, then such material should be
highlighted in the reply to the notice as a foundation. If any such
foundation is laid, the picture would be more clear before the
eyes of the complainant. The complainant would come to know as
to why the person to whom he has issued notice says that he is
not responsible for the dishonour of the cheque. Had the
respondent herein given appropriate reply highlighting whatever
she has sought to highlight before us then probably the
complainant would have undertaken further enquiry and would
have tried to find out what was the legal status of the firm on the
date of the commission of the offence and what was the status of
the respondent in the firm. The object of notice before the filing of
the complaint is not just to give a chance to the drawer of the
cheque to rectify his omission to make his stance clear so far as
his liability under Section 138 of the NI Act is concerned.
45. Once the necessary averments are made in the statutory
notice issued by the complainant in regard to the vicarious
liability of the partners and upon receipt of such notice, if the
partner keeps quiet and does not say anything in reply to the
same, then the complainant has all the reasons to believe that
what he has stated in the notice has been accepted by the
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noticee. In such circumstances what more is expected of the
complainant to say in the complaint.
46. When in view of the basic averment process is issued the
complaint must proceed against the Directors or partners as the
case may be. But, if any Director or Partner wants the process to
be quashed by filing a petition under Section 482 of the Code on
the ground that only a bald averment is made in the complaint
and that he is really not concerned with the issuance of the
cheque, he must in order to persuade the High Court to quash
the process either furnish some sterling incontrovertible material
or acceptable circumstances to substantiate his contention. He
must make out a case that making him stand the trial would be
an abuse of process of court. He cannot get the complaint
quashed merely on the ground that apart from the basic
averment no particulars are given in the complaint about his
role, because ordinarily the basic averment would be sufficient to
send him to trial and it could be argued that his further role
could be brought out in the trial. Quashing of a complaint is a
serious matter. Complaint cannot be quashed for the asking. For
quashing of a complaint, it must be shown that no offence is
made out at all against the Director or Partner.
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47. Our final conclusions may be summarised as under:
a.) The primary responsibility of the complainant is to
make specific averments in the complaint so as to
make the accused vicariously liable. For fastening
the criminal liability, there is no legal requirement
for the complainant to show that the accused
partner of the firm was aware about each and every
transaction. On the other hand, the first proviso
| to | | subsection (1) of | Section 141 | | of the Act clearly |
|---|
lays down that if the accused is able to prove to the
satisfaction of the Court that the offence was
committed without his/her knowledge or he/she
had exercised due diligence to prevent the
commission of such offence, he/she will not be
liable of punishment.
| b.) | | The complainant is supposed to know only generally |
|---|
as to who were in charge of the affairs of the
company or firm, as the case may be. The other
administrative matters would be within the special
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knowledge of the company or the firm and those
who are in charge of it. In such circumstances, the
complainant is expected to allege that the persons
named in the complaint are in charge of the affairs
of the company/firm. It is only the Directors of the
company or the partners of the firm, as the case
may be, who have the special knowledge about the
role they had played in the company or the partners
in a firm to show before the court that at the
relevant point of time they were not in charge of the
affairs of the company. Advertence to Sections 138
and Section 141 respectively of the NI 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/partners of a firm to show
that they were not liable to be convicted. The
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 to show that at the relevant
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time they were not in charge of the affairs of the
company or the firm.
| c.) | | Needless to say, the final judgement and order would |
|---|
depend on the evidence adduced. Criminal liability is
attracted only on those, who at the time of
commission of the offence, were in charge of and
were responsible for the conduct of the business of
the firm. But vicarious criminal liability can be
inferred against the partners of a firm when it is
specifically averred in the complaint about the status
| of the partners | ‘qua’ | the firm. This would make them |
|---|
liable to face the prosecution but it does not lead to
automatic conviction. Hence, they are not adversely
prejudiced if they are eventually found to be not
guilty, as a necessary consequence thereof would be
acquittal.
| d.) | | If any Director wants the process to be quashed by |
|---|
filing a petition under Section 482 of the Code on the
ground that only a bald averment is made in the
complaint and that he/she is really not concerned
with the issuance of the cheque, he/she must in
46
order to persuade the High Court to quash the
process either furnish some sterling incontrovertible
material or acceptable circumstances to substantiate
his/her contention. He/she must make out a case
that making him/her stand the trial would be an
abuse of process of Court.
decade back in the case of Rallis India Ltd v. Poduru Vidya
, (2011) 13 SCC 88, as to how the High Court
Bhusan & Ors.
should exercise its power to quash the criminal proceeding when
such proceeding is related to offences committed by the
companies. “The world of commercial transactions contains
numerous unique intricacies, many of which are yet to be
statutorily regulated. More particularly, the principle laid down
in Section 141 of the NI Act (which is pari materia with identical
sections in other Acts like the Food Safety and Standards Act,
2006; the erstwhile Prevention of Food Adulteration Act, 1954; etc.)
is susceptible to abuse by unscrupulous companies to the
detriment of unsuspecting third parties.”
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49. In the result, this appeal succeeds and is hereby allowed
with no order as to costs. The impugned order passed by the
High Court is hereby set aside.
50. Pending application, if any, also stands disposed of.
…….…………………………J.
(SURYA KANT)
……..………………………J.
(J.B. PARDIWALA)
New Delhi;
September 16, 2022
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