Gujarat High Court
J.K.P. Agro Foods Pvt Ltd Through ... vs Mahindarpur Balaji Trading (Opc) ... on 1 November, 2023
Bench: Nisha M. Thakore
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/CRIMINAL MISC.APPLICATION (FOR LEAVE TO APPEAL) NO. 3191 of
2022
In R/CRIMINAL APPEAL NO. 335 of 2022
With
R/CRIMINAL APPEAL NO. 335 of 2022
FOR APPROVAL AND SIGNATURE:
HONOURABLE MS. JUSTICE NISHA M. THAKORE
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy
of the judgment ?
4 Whether this case involves a substantial question
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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J.K.P. AGRO FOODS PVT LTD THROUGH DIRECTOR KALPESH
PRAJAPATI
Versus
MAHINDARPUR BALAJI TRADING (OPC) CO. PVT. LTD., THROUGH
DIRECTOR GIRIRAJ S. MAHESHWARI
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Appearance:
MS ANUSHREE M SONI(11431) for the Applicant(s) No. 1
NOTICE SERVED for the Respondent(s) No. 1
MR RC KODEKAR ADDIL. PUBLIC PROSECUTOR for the Respondent(s)
No. 2
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CORAM:HONOURABLE MS. JUSTICE NISHA M. THAKORE
Date : 01/11/2023
ORAL JUDGMENT
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1. Rule. Learned APP waives service of Rule on behalf of the
respondent No.1 - State.
2. This is an application filed by the applicant - original
complainant under Section 378(4)(3) of the Code of Criminal
Procedure challenging the judgment and order dated 10.12.2021
passed by the learned 2nd Additional Chief Judicial Magistrate,
Anand, in Criminal Case No.3043 of 2018. By the said judgment
and order, the learned Magistrate has proceeded to record the
acquittal of the present respondent No.1 for the offence punishable
under Section 138 of the Negotiable Instruments Act.
3. Brief facts leading to filing of the present appeal are summarized
as under:
3.1 The respondent No.1 has been arraigned as an accused in his
capacity as Director of Mahindarpur Balaji Trading (OPC) Co. Pvt.
Ltd. The complainant is a Company registered under the
Companies Act, 2013 and has filed the complaint through its
Director - Kalpesh Prajapati. It is the case of the complainant that
the respondent - accused has purchased the goods worth
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Rs.14,47,400/-, which was reflected as outstanding amount in its
account. The complainant has produced the bilty issued by Surya
Logistic Services as well as All India Road Transport Company in
support of alleged delivery of the goods to the respondent -
original accused. Hence, according to the complainant the legally
enforceable debt to be realized from the accused is to the tune of
Rs.14,47,4000/-.
3.2 The complainant has further contended that the respondent -
accused had issued a cheque of the aforesaid Mahindarpur Balaji
Trading (OPC) Co. Pvt. Ltd. towards the payment of the aforesaid
outstanding amount on 29.05.2018. The said cheque was issued
under the signature of the original accused. It is further contended
that the respondent - accused had assured the complainant about
realization of the aforesaid amount. Thus, the complainant had
become the holder in due course of the said disputed cheque.
3.3 The complainant had presented the said cheque dated
29.05.2018, however, the said cheque was not realized pursuant
to the instructions issued by the drawer for stop payment. The
aforesaid fact of non-realization was communicated to the
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complainant by the concerned bank on 01.06.2018. Hence, the
cause had arisen for the complainant to proceed for issuance of
statutory notice under Section 138 of the Negotiable Instruments
Act.
3.4 The aforesaid legal notice dated 18.06.2018 raising demand of
outstanding amount was sent through RPAD as well as by Speed
Post at the known address of the respondent - accused. Such
notice, according to the complainant, was duly served upon the
accused on 22.06.2018 as well as through Speed Post on
21.06.2018. The respondent - accused had given vague reply
dated 25.06.2018 and had avoided the payment of the outstanding
amount. This gave cause for the complainant to proceed for
lodging of the complainant before the Court of 2nd Additional Chief
Judicial Magistrate, Anand. On 17.07.2018, such a complaint was
registered as Criminal Case No.3043 of 2018.
4. Learned Magistrate upon recording the verification of the
complainant had proceeded to issue summons upon the
respondent - accused. The respondent - accused had appeared
before the learned Magistrate and his plea was recorded vide
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Exhibit 23, wherein he had denied the alleged offence. In such
circumstances, the learned Magistrate has proceeded with
summary trial of the aforesaid Criminal Case. After framing issues
and upon recording the evidence led by the respective parties as
well as taking into consideration the statement of the respondent -
accused recorded under Section 313 of the Code of Criminal
Procedure, the learned Magistrate proceeded to record the
acquittal of present respondent - accused by holding that the
complaint itself was not maintainable.
5. I have heard learned advocate Ms. Anushree Soni, who has
appeared on record for the applicant and learned APP Mr. R.C.
Kodekar has appeared on behalf of the respondent - State.
6. This Court vide order dated 09.02.2022 had issued notice upon
the respondent - accused. Such notice issued by the Court has
been duly served, however, the respondent - accused has chosen
not to contest this application seeking special leave to appeal by
entering his appearance. In such circumstances, noticing the issue
involved, this Court has proceeded for final adjudication of this
application seeking special leave to appeal along with appeal.
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7. Learned advocate for the applicant at the outset has assailed
the order of acquittal mainly on the ground that the learned
Magistrate though initially after recording on verification, having
satisfied with the compliance of basic ingredients under Section
138 of the Negotiable Instruments Act issued summons upon the
respondent - accused however later on proceeded to dismiss the
complaint on erroneous ground by holding the complaint itself
being not maintainable. She, therefore, submitted that the special
leave to appeal requires consideration, more particularly, the
erroneous determination of non-maintainability of the complaint
has entailed acquittal of the respondent - accused on technical
ground, which is required to be examined closely after admission
of the appeal.
8. Learned advocate has invited attention of this Court to the cause
title of the original complaint and has contended that in fact, the
complaint was filed against the drawer i.e. Mahindarpur Balaji
Trading (OPC) Co. Pvt. Ltd. as well as authorized signatory
namely Giriraj S. Maheshwari, who is Director of the said
Company. She further submitted that in the cause title, since the
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description of the respondent - accused was narrated as
Company through its Director, the learned Magistrate ought to
have appreciated the fact that both the drawer as well as
authorized signatory were represented and joined as accused. She
further contended that the learned Magistrate wrongly disbelieved
the case of the complainant by applying the principle laid down by
the Hon'ble Supreme Court in the case of Anita Handa Vs.
Godfather Travels and Tours Pvt. Ltd. reported in (2012) 5
Supreme Court Cases 661 in the facts of the present case. At this
stage, the learned advocate has placed on record the Company
Master Data, wherein the details of the said Company goes to
indicate that the respondent - accused is the sole Director of the
Company and thus, the said Company is categorized as Private
(one person) Company. Learned advocate has placed reliance
upon Section 2(62) of the Companies Act, 2013 and has argued
that the Company can be incorporated with one Director also. In
fact, in such a category of the Company, the compliance
requirements are much lesser than that of private Company. By
referring to the aforesaid provisions, she further contended that
once it had been established that there is no another Director in
the Company except present respondent - accused, who is also
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authorized signatory of the Company, there was sufficient
compliance of the provisions of the Section 138 of the Negotiable
Instruments Act. By referring to the various documents including
certificate of incorporation of the aforesaid Company (Exhibit 25),
disputed cheque (Exhibit 26), cheque return memo (Exhibit 27),
legal notice issued by the complainant to the accused (Exhibit 28),
RPAD slip as well as postal slip (Exhibit 29), tracking consignment
report (Exhibit 30), speed post slip (Exhibit 31), tracking
consignment report of speed post (Exhibit 32), copy of supplied
bills to the accused (Exhibit 33 to 36), transport bills (Exhibit 37 to
40), reply given by the accused (Exhibit 41) and extract of account
maintained by the complainant (Exhibit 42) , she has further invited
attention of this Court to the findings recorded by the learned
Magistrate. She submitted that upon appreciation of the aforesaid
documents, the learned Magistrate at one stage, had drawn
presumption in favour of the complainant in terms of Sections
118(a) and 139 of the Negotiable Instruments Act. She further
submitted that though the complainant had offered himself for
cross-examination, the respondent - accused had failed to cross-
examine the complainant nor any evidence was led by the
respondent - accused. She submitted that only defence, which
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has emerged on record, is in the form of a statement of the
accused recorded under Section 313 of the Code of Criminal
Procedure. The only response is in the form of denial of questions
put to the respondent accused. She therefore submitted that in
absence of any contradictions being brought on record by the
respondent - accused, the presumption drawn by the learned
Magistrate in favour of the complainant has remained intact. In
such circumstances, the learned Magistrate ought to have
convicted the respondent - accused for the offence punishable
under Section 138 of the Negotiable Instruments Act.
9. I have heard learned advocate for the applicant and having
perused the record as well as the authorities placed on record, the
only question which poses for consideration is whether the learned
Magistrate committed any error in dismissing the complaint by
holding that non-joinder of drawer of the disputed cheque i.e.
Company is fatal to the proceedings under Section 138 of the
Negotiable Instruments Act.
10. The aforesaid issue being the question of law is no longer res
integra. The similar had question arose for consideration before
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three Judges Bench of the Hon'ble Supreme Court in the case of
Anita Handa (Supra) as to whether the complaint under Section
138 of the Negotiable Instruments Act and Section 141 thereto
against the Director or authorized signatory of the cheque without
arraigning the company as accused, was maintainable? Initially,
the matter was notified before two Judges Bench, which due to
diversion of opinion, was referred to the three Judges bench. The
Hon'ble Supreme Court had upon analysis of relevant provisions of
the Negotiable Instruments Act, held that Section 141 uses terms
``person" and refers it to a company. The Company is treated as a
juristic person in the eyes of law and the concept of corporate
criminal liability is attracted to a corporation and company. The
said provisions of the Act invariably held in offences by the
Company, certain categories of officers in certain circumstances
are deemed to be guilty of the offence under Section 138 of the
Negotiable Instruments Act.
11. Learned advocate for the applicant has tried to distinguish the
aforesaid judgment of the Hon'ble Supreme Court by making much
emphasize on the fact that invocation of Section 141 would come
into play in case where the Company and group of persons guiding
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the business of the Company, have any criminal intent, then that
would be imputed to the body or the Corporation. Whereas in the
facts of the present case, the Company is solely guided by one
person i.e. sole Director, who is at the same time authorized
signatory of the disputed cheque. To examine the aforesaid
argument of the learned advocate, it would be relevant to first take
into consideration the cause title of the original complaint. Close
examination of the description of cause title of the complaint,
suggests narration of the sole accused as under:
"Giriraj Maheshwari, Director of Mahindarpur Balaji Trading
(OPC) Co. Pvt. Ltd."
It is evident from the aforesaid narration that only person,
who has been arraigned as accused in the complaint is Giriraj
Maheshwari, who has been joined in his capacity as Director of the
said Company. Thus, it is evident that the Company has not been
separately joined as accused in the aforesaid complaint. It would
be appropriate to look into the aspect of significance of existence
of the Company in cases related to the offence committed by the
Company. The Company is a separate "legal person" or "legal
entity" in common law with a unique identity from its members.
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Generally, the Company upon incorporation under the provisions
of Act becomes a unit of legal entity and it is under control of its
Board of Directors. In such circumstances, evidently no crime can
be committed by the Company unless it is projected by the
Director's decision. In such a set of facts, the theory of law of
attribution comes into play which mandates that the persons, who
are companies "directing mind" are held liable along with its
business. The issue arose for consideration in the case of Maksud
Saiyed Vs. State of Gujarat & Ors. reported in 2007 (14)
Company Cases 590 (SC), whereby the Court ruled out that the
liability of the Managing Director and Director would arise provided
any provision exists in that behalf in the statute. The best instance
where the statute provides for certain provisions for vicarious
liability, based on the existence of Legislation intention responding
to vicarious liability in the criminal case committed by the
Corporate body, is available in the form of Section 141 of the
Negotiable Instruments Act. Section 141 of the Negotiable
Instruments Act reads as under:
"Section 141: Offences by companies. --
(1) If the person committing an offence under section 138 is
a company, every person who, at the time the offence was
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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:
22 [Provided further that where a person is nominated as a
Director of a company by virtue of his holding any office or
employment in the Central Government or State Government
or a financial corporation owned or controlled by the Central
Government or the State Government, as the case may be,
he shall not be liable for prosecution under this Chapter.]
(2) 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
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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) "director", in relation to a firm, means a partner in the
firm.]"
12. Thus, on plain reading of the aforesaid provision, it curled out
the Legislation intention which drew the vicarious responsibility of
the Director for the violation committed by the Corporate body by
virtue of his role as Director. Later on, the aforesaid view was
reiterated in the case of Sunil Bharti Mittal Vs. Central Bureau
of Investigation reported in 2015(4) SCC 609. The Hon'ble
Supreme Court in the case of Pepsi Foods Ltd. and Another v.
Special Judicial Magistrate and Others reported in (1998) 5
SCC 749 held that Summoning of an accused in a criminal case is
a serious matter. Criminal law cannot be set into motion as a
matter of course. It further held that while issuing summons, it was
for the learned Magistrate to record satisfaction about prima facie
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case against the accused, who is a Managing Director, Company
Secretary and / or Director of the Company and the role played by
the Company in their respective capacity. Thus, the aforesaid
compliance was held sine qua non for initiating summary
proceedings. Same view was followed by and much emphasis was
put on proceedings against the Director as a consequence of
creation of legal fiction in the case of Kirshna Texport & Capital
markets Ltd. vs. Ila A. Agrawal & Ors., reported in 2015 (8) SCC
28. In light of the aforesaid authorities, undoubtedly putting
criminal proceedings in motion is a serious affair where strict
adherence of statutory provisions is expected.
13. Apart from the aforesaid authorities, if one looks at strict
adherence of section 141 of the NI Act is concern, the Hon'ble
Supreme Court in the case of Anita Handa (Supra) noted that if a
group of persons that guide the business of the companies have
the criminal intent, that would be imputed to the body corporate
and in this backdrop, Section 141 of the Act was analyzed. The
legal position which emerges from the aforesaid authority and plain
reading of Section 141 of Negotiable Instruments Act, invariably
suggests the legislative intent about the constructive liability of the
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Director on behalf of the Company was created by the legal fiction.
At this stage, it would be relevant to revisit the charging section
under the Negotiable Instruments Act. Section 138 of the
Negotiable Instruments 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 provisions of this Act, be
punished with imprisonment for 19 [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--
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(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, 20 [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."
14. Aforesaid provisions have been dealt with by the Hon'ble
Supreme Court in the case of Anita Handa(Supra). The relevant
observations are as under:
"19. The main part of the provision can be segregated into
three compartments, namely, (i) the cheque is drawn by a
person, (ii) the cheque drawn on an account maintained by
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him with the 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 a debt or other liability, is returned unpaid,
either because the amount of money standing to the credit of
that account is insufficient to honour the cheque or it exceeds
the amount arranged to be paid from that account by an
arrangement made with the bank and (iii) such person shall
be deemed to have committed an offence and shall, without
prejudice to any other provision of the Act, be punished with
imprisonment for a term which may extend to two years or
with fine which may extend to twice the amount of the cheque
or with both. The proviso to the said section postulates under
what circumstances the section shall not apply. In the case at
hand, we are not concerned with the said aspect. It will not be
out of place to state that the main part of the provision deals
with the basic ingredients and the proviso deals with certain
circumstances and lays certain conditions where it will not be
applicable. The emphasis has been laid on the factum that the
cheque has to be drawn by a person on the account
maintained by him and he must have issued the cheque in
discharge of any debt or other liability.
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20. Section 7 of the Act defines 'drawer' to mean the maker of
a bill of exchange or a cheque. An authorised signatory of a
company becomes a drawer as he has been authorised to do
so in respect of the account maintained by the company.
22. On a reading of the said provision, it is plain as day that if
a person who commits offence under Section 138 of the Act is
a company, the company as well as every person in charge of
and responsible to the company for the conduct of business of
the company at the time of commission of offence is deemed
to be guilty of the offence. The first proviso carves out under
what circumstances the criminal liability would not be
fastened. Sub-section (2) enlarges the criminal liability by
incorporating the concepts of connivance, negligence and
consent that engulfs many categories of officers. It is worth
noting that in both the provisions, there is a 'deemed' concept
of criminal liability.
32. We have referred to the aforesaid authorities to highlight
that the company can have criminal liability and further, if a
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group of persons that guide the business of the companies
have the criminal intent, that would be imputed to the body
corporate. In this backdrop, Section 141 of the Act has to be
understood. The said provision clearly stipulates that when a
person which is a company commits an offence, then certain
categories of persons in charge as well as the company would
be deemed to be liable for the offences under Section 138.
Thus, the statutory intendment is absolutely plain. As is
perceptible, the provision makes the functionaries and the
companies to be liable and that is by deeming fiction. A
deeming fiction has its own signification.
38. From the aforesaid pronouncements, the principle that can
be culled out is that it is the bounden duty of the court to
ascertain for what purpose the legal fiction has been created.
It is also the duty of the court to imagine the fiction with all real
consequences and instances unless prohibited from doing so.
That apart, the use of the term 'deemed' has to be read in its
context and further the fullest logical purpose and import are
to be understood. It is because in modern legislation, the term
'deemed' has been used for manifold purposes. The object of
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the legislature has to be kept in mind.
39. The word 'deemed' used in Section 141 of the Act applies
to the company and the persons responsible for the acts of
the company. It crystallizes the corporate criminal liability and
vicarious liability of a person who is in charge of the company.
What averments should be required to make a person
vicariously liable has been dealt with in SMS Pharmaceuticals
Ltd. (supra). In the said case, it has been opined that the
criminal liability on account of dishonour of cheque primarily
falls on the drawee company and is extended to the officers of
the company and as there is a specific provision extending
the liability to the officers, the conditions incorporated in
Section 141 are to be satisfied.
43. A contention was raised before this Court on behalf of the
State of Madras that the conviction could be made on the
basis of Section 10 of the 1955 Act. The three-Judge Bench
repelled the contention by stating thus: -
"3. Learned counsel for the appellant, however, sought
conviction of the two respondents on the basis of Section
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10 of the Essential Commodities Act under which, if the
person contravening an order made under Section 3
(which covers an order under the Iron and Steel Control
Order, 1956), is a company, every person who, at the time
the contravention 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 contravention and shall be
liable to be proceeded against and punished accordingly.
It was urged that the two respondents were in charge of,
and were responsible to, the Company for the conduct of
the business of the Company and, consequently, they
must be held responsible for the sale and for thus
contravening the provisions of clause (5) of the Iron and
Steel Control Order, the two respondents could not be
held responsible. The actual contravention was by Kamdar
and Vallabhadas Thacker and any contravention by them
would not fasten responsibility on the respondents.
(emphasize supplied)
The aforesaid paragraph clearly lays down that the first
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condition is that the company should be held to be liable; a
charge has to be framed; a finding has to be recorded, and
the liability of the persons in charge of the company only
arises when the contravention is by the company itself.
53. It is to be borne in mind that Section 141 of the Act is
concerned with the offences by the company. It makes the
other persons vicariously liable for commission of an offence
on the part of the company. As has been stated by us earlier,
the vicarious liability gets attracted when the condition
precedent laid down in Section 141 of the Act stands satisfied.
There can be no dispute that as the liability is penal in nature,
a strict construction of the provision would be necessitous
and, in a way, the warrant.
56. We have referred to the aforesaid passages only to
highlight that there has to be strict observance of the
provisions regard being had to the legislative intendment
because it deals with penal provisions and a penalty is not to
be imposed affecting the rights of persons whether juristic
entities or individuals, unless they are arrayed as accused. It
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is to be kept in mind that the power of punishment is vested in
the legislature and that is absolute in Section 141 of the Act
which clearly speaks of commission of offence by the
company. The learned counsel for the respondents have
vehemently urged that the use of the term "as well as" in the
Section is of immense significance and, in its tentacle, it
brings in the company as well as the director and/or other
officers who are responsible for the acts of the company and,
therefore, a prosecution against the directors or other officers
is tenable even if the company is not arraigned as an
accused. The words "as well as" have to be understood in the
context.
58. Applying the doctrine of strict construction, we are of the
considered opinion that commission of offence by the
company is an express condition precedent to attract the
vicarious liability of others. Thus, the words "as well as the
company" appearing in the Section make it absolutely
unmistakably clear that when the company can be
prosecuted, then only the persons mentioned in the other
categories could be vicariously liable for the offence subject to
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the averments in the petition and proof thereof. One cannot
be oblivious of the fact that the company is a juristic person
and it has its own respectability. If a finding is recorded
against it, it would create a concavity in its reputation. There
can be situations when the corporate reputation is affected
when a director is indicted.
59. In view of our aforesaid analysis, we arrive at the
irresistible conclusion that for maintaining the prosecution
under Section 141 of the Act, arraigning of a company as an
accused is imperative. The other categories of offenders can
only be brought in the dragnet on the touchstone of vicarious
liability as the same has been stipulated in the provision itself.
We say so on the basis of the ratio laid down in C.V. Parekh
(supra) which is a three-Judge Bench decision. Thus, the view
expressed in
Sheoratan Agarwal (supra) does not correctly lay down the
law and, accordingly, is hereby overruled. The decision in Anil
Hada (supra) is overruled with the qualifier as stated in
paragraph 51. The decision in Modi Distilleries (supra) has to
be treated to be restricted to its own facts as has been
NEUTRAL CITATION
R/CR.MA/3191/2022 JUDGMENT DATED: 01/11/2023
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explained by us hereinabove."
15. In view of the aforesaid analysis drawn by the Hon'ble
Supreme Court, this Court is of the view that non-joinder of the
Company as accused, which otherwise is treated as principal
offender being drawer of the cheque, the Director of the Company
joined as sole accused representing the company as well as
authorised signatory, would not served the provisions of Section
141 of the Act. Thus, no arguable case is made out to grant this
application seeking special leave to appeal. Hence, present
application is hereby dismissed. Rule is discharged.
In view of the dismissal of the application seeking leave to
appeal, the Criminal Appeal No.335 of 2022 hereby stands
disposed of.
(NISHA M. THAKORE,J)
Y.N. VYAS
