Delhi High Court

Kamal Kumar & Anr. vs K G Dutta & Anr. on 13 September, 2011

Author: Mukta Gupta

$~1-3
*     IN THE HIGH COURT OF DELHI AT NEW DELHI

+      CRL.M.C. 1892/2010
                                       Decided on: 13th September, 2011
       KAMAL KUMAR & ANR.                             ..... Petitioner
                      Through       Mr. Sunil K. Kalra, Adv.
               versus

       K G DUTTA & ANR.                        ..... Respondent
                     Through    Mr. Dushyant Chaudhary, Adv. for R-1

                              AND

+      CRL.M.C. 1893/2010

       KAMAL KUMAR & ANR.                           ..... Petitioner
                      Through       Mr. Sunil K. Kalra, Adv.
               versus

       K G DUTTA & ANR.                            ..... Respondent
                     Through    Mr. Dushyant Chaudhary, Adv. for R-1

                              AND

+      CRL.M.C. 1894/2010

       KAMAL KUMAR & ANR.                                ..... Petitioner
                  Through           Mr. Sunil K. Kalra, Adv.

                     versus

       K G DUTTA & ANR.                      ..... Respondent
                     Through Mr. Dushyant Chaudhary, Adv. for R-1
       CORAM:
       HON'BLE MS. JUSTICE MUKTA GUPTA



Crl.M.C.Nos.1892-1894/2010                                      Page 1 of 10
 1. Whether the Reporters of local papers may                Not Necessary
   be allowed to see the judgment?

2. To be referred to Reporter or not?                       Yes

3. Whether the judgment should be reported                  Yes
   in the Digest?

MUKTA GUPTA, J. (ORAL)

1. By these petitions, the Petitioners seek quashing of criminal

Complaint Nos. 7311A/04, 7310/04 and 7311/04 under Section 138

Negotiable Instrument Act (in short N.I. Act) and the proceedings pursuant

thereto pending before the Learned Metropolitan Magistrate.

2. Learned counsel for the Petitioner contends that admittedly the cheque

in question has been issued by one Anil Kumar as the sole proprietor of M/s.

Triveni Transport Company. The Petitioners are neither the signatory of the

cheque nor they have anything to do with either Anil Kumar or M/s. Triveni

Transport Company since it is a proprietorship concern. Though vicarious

liability can be fastened under Section 141 N.I. Act Act but it is only a strict

liability and can be fastened only if the Petitioners fall within the ambit of

the said provision. According to him a perusal of the entire complaint do not

contain allegations which fulfill the requirement of Section 138 N.I. Act

against the Petitioners and thus the proceedings qua the Petitioners in the

abovementioned Complaint Cases is liable to be quashed.

3. Learned counsel for the Respondent No.1 on the other hand relying

upon Vijay Chandela Vs. Cable Sales and Services (India) Pvt. Ltd. 2005 (1)

Crimes 437 contends that the question whether the Petitioners are liable or

not is a question to be decided during trial on reception of evidence. Hence

no case for quashing of proceedings is made out and the petitions be

dismissed.

4. I have heard learned counsel for the parties. Admittedly, the cheques

in issue have been signed by one Anil Kumar as the sole proprietor of M/s.

Triveni Transport Company. In the complaint the allegations against the

Petitioner No.1 are that he negotiated with the complainant on behalf of Anil

Kumar proprietor M/s. Triveni Transport Company and himself for

providing Tata trucks for carrying goods and material on monthly basis at a

flat rate of Rs. 40,000/- per month which terms and conditions were agreed

and accepted orally between all the accused and the complainant in a

meeting in the office. It is further alleged that the complainant approached

the accused persons and informed about the fate of the cheques and

demanded the payment of the aforesaid cheques as they were returned with

remarks "funds insufficient". All the accused requested the complainant to

re-present and promised that the cheques would be honoured, however they

were again returned with the remarks "insufficient funds". Again when he

approached all the accused they asked him to represent the same but again

the cheques met the same fate of being dishonoured with the remarks

"insufficient funds". The accused thus deliberately, malafidely and with

dishonest intention to cheat the complainant defrauded him knowing fully

well that the accused did not have the sufficient funds in their accounts.

5. It may be noted that the Petitioners have been summoned for offences

under Section 138 Negotiable Instruments Act and not for offences under

Section 420/406 IPC. Section 138 Negotiable Instruments Act provides as

under:

"138.Dishonour of cheque for insufficiency, etc., of funds in the account.- Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheuqe 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 notice in writing, to the drawer of the cheque, (within thirty days) of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and

(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or as the case may be, to the holder in due course of the cheque within fifteen days of the receipt of the said notice.

Explanation.-For the purposes of this section, "debt or other liability" means a legally enforceable debt or other liability."

6. A perusal of Section 138 Negotiable Instruments Act shows that the

liability is only of the person who issues the cheque drawn on an account

maintained by him, in discharge of a legally enforceable debt or other

liability. The vicarious liability in the case of a company or a firm under

Section 141 N.I. Act would arise if a person is incharge and responsible for

the conduct of the business of the company or the firm. Hon'ble Supreme

Court in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89

held as under:-

"10. While analysing Section 141 of the Act, it will be seen that it operates in cases where an offence under Section 138 is committed by a company. The key words which occur in the section are "every person". These are general words and take every person connected with a company within their sweep. Therefore, these words have been rightly qualified by use of the words:

"Who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence, etc."

What is required is that the persons who are sought to be made criminally liable under Section 141 should be, at the time the offence was committed, in charge of and responsible to the company for the conduct of the business of the company. Every person connected with the company shall not fall within the ambit of the provision. It is only those persons who were in charge of and responsible for the conduct of business of the company at the time of commission of an offence, who will be liable for criminal action. It follows from this that if a director of a company who was not in charge of and was not responsible for the conduct of the business of the company at the relevant time, will not be liable under the provision. The liability arises from being in charge of and responsible for the conduct of business of the company at the relevant time when the offence was committed and not on the basis of merely holding a designation or office in a company. Conversely, a person not holding any office or designation in a company may be liable if he satisfies the main requirement of being in charge of and responsible for the conduct of business of a company at the relevant time. Liability depends on the role one plays in the affairs of a company and not on designation or status. If being a director or manager or secretary was

enough to cast criminal liability, the section would have said so. Instead of "every person" the section would have said "every director, manager or secretary in a company is liable"..., etc. The legislature is aware that it is a case of criminal liability which means serious consequences so far as the person sought to be made liable is concerned. Therefore, only persons who can be said to be connected with the commission of a crime at the relevant time have been subjected to action.

18. To sum up, there is almost unanimous judicial opinion that necessary averments ought to be contained in a complaint before a person can be subjected to criminal process. A liability under Section 141 of the Act is sought to be fastened vicariously on a person connected with a company, the principal accused being the company itself. It is a departure from the rule in criminal law against vicarious liability. A clear case should be spelled out in the complaint against the person sought to be made liable. Section 141 of the Act contains the requirements for making a person liable under the said provision. That the respondent falls within the parameters of Section 141 has to be spelled out. A complaint has to be examined by the Magistrate in the first instance on the basis of averments contained therein. If the Magistrate is satisfied that there are averments which bring the case within Section 141, he would issue the process. We have seen that merely being described as a director in a company is not sufficient to satisfy the requirement of Section 141. Even a non-director can be liable under Section 141 of the Act. The averments in the complaint would also serve the purpose that the person sought to be made liable would know what is the case which is alleged against him. This will enable him to meet the case at the trial."

7. Also in DCM Financial Services Limited v. J.N. Sareen, (2008) 8 SCC

1 their Lordships held:-

"19. Section 141 of the Act provides for a constructive liability. A legal fiction has been created thereby. The statute being a penal one, should receive strict construction. It requires strict compliance with the provision. Specific averments in the complaint petition so as to satisfy the requirements of Section 141 of the Act are imperative. Mere fact that at one point of time some role has been played by the accused may not by itself be sufficient to attract the constructive liability under Section 141 of the Act. (See K. Srikanth Singh v. North East Securities Ltd, (2007) 12 SCC

788)

20. We may also notice that this Court in N.K. Wahi v. Shekhar Singh, (2007) 9 SCC 481 has observed: (SCC p. 483, para 8)

"8. To launch a prosecution, therefore, against the alleged Directors there must be a specific allegation in the complaint as to the part played by them in the transaction. There should be clear and unambiguous allegation as to how the Directors are in-charge and responsible for the conduct of the business of the company. The description should be clear. It is true that precise words from the provisions of the Act need not be reproduced and the court can always come to a conclusion in facts of each case. But still, in the absence of any averment or specific evidence the net result would be that complaint would not be entertainable."

(emphasis supplied)"

8. In Raghu Lakshminarayanan Vs. Fine Tubes (2007) 5 SCC 103 while

dealing with the proprietary concern held:

"8. The concept of vicarious liability was introduced in penal statutes like the Negotiable Instruments Act to make the Directors, partners or other persons, in charge of and control of the business of the company or otherwise responsible for its affairs; the company itself being a juristic person.

9. The description of the accused in the complaint petition is absolutely vague. A juristic person can be a company within the meaning of the provisions of the Companies Act, 1956 or a partnership within the meaning of the provisions of the Partnership Act, 1932 or an association of persons which ordinarily would mean a body of persons which is not incorporated under any statute. A proprietary concern, however, stands absolutely on a different footing. A person may carry on business in the name of a business concern, but he being proprietor thereof, would be solely responsible for conduct of its affairs."

9. In the present case, in the entire complaint it has not been alleged that

how the Petitioners were associated with the firm which was a proprietorship

firm with Anil Kumar being the sole proprietor. No averment has been

made as to how the Petitioners were responsible and incharge of the

functioning of the firm. The cheques have been issued by Anil Kumar as

proprietor of "Triveni Transport Company". Thus even as per the complaint

the Petitioners are neither the drawer of the cheques from their accounts nor

concerned with the affairs of the proprietorship firm "Triveni Transport

Company". The Petitioners are thus not liable for offence under Section 138

read with Section 141 N.I. Act.

10. The reliance of the Respondent on Vijay Chandela (supra) is mis-

conceived. In the said case the Petitioner therein accepted that he was a