Gujarat High Court
Rakeshsinh Varvusinh Zala (Makwana) vs Anirudhsinh Pruthvisinh Zala on 18 June, 2024
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/CRIMINAL MISC. APPLICATION NO. 15790 of 2019
(FOR QUASHING & SET ASIDE FIR/ORDER)
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE DIVYESH A. JOSHI : Sd/-
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1 Whether Reporters of Local Papers may be NO
allowed to see the judgment ?
2 To be referred to the Reporter or not ? NO
3 Whether their Lordships wish to see the
fair copy of the judgment ? NO
4 Whether this case involves a substantial
question of law as to the interpretation
of the Constitution of India or any NO
order made thereunder ?
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RAKESHSINH VARVUSINH ZALA (MAKWANA)
Versus
ANIRUDHSINH PRUTHVISINH ZALA & ANR.
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Appearance:
MR JV VAGHELA(5809) for the Applicant(s) No. 1
NOTICE SERVED for the Respondent(s) No. 1
MS MONALI BHATT APP for the Respondent(s) No. 2
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CORAM:HONOURABLE MR. JUSTICE DIVYESH A. JOSHI
Date : 18/06/2024
ORAL JUDGMENT
1. By way of preferring present application under
Section 482 of the Criminal Procedure Code, 1972
(hereinafter referred to as "CrPC" for short), the
applicant has invoked extra ordinary jurisdiction
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of this Court for quashing and setting aside the
criminal complaint being Criminal Case No.620/2018
pending before the court of the learned Judicial
Magistrate, First Class, Dehgam for the offences
under Section 138 read with Section 141 of the
Negotiable Instrument Act, 1881 (hereinafter
referred to as "NI Act" for short).
2. The brief facts leading to the filing of the
present application are as under,
2.1 The applicant and the respondent no.2 herein
were in the same business of land dealing and
thereby they came in contact with each other
and developed good relations. Thereafter on
03.07.2010, the applicant and his friend,
Anilkumar Amrutlal Joshi formed one
partnership firm in the name and style of
"Bhagyalaxmi Cotton Industries", wherein the
respondent no.2 was having partnership of
45%, however at the time of relieving the
firm, the respondent no.2 executed one
registered sale deed in favour of the
applicant and his friend and it was assured
by the applicant that the sale consideration
would be paid later on but though sufficient
time has been passed, not a single penny was
given by the applicant to the respondent no.2
and, hence, the respondent no.2 filed Regular
Civil Suit No.8/2014 before the court of the
learned Principal Civil Judge, Talod and
during the pendency of the said suit, the
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applicant issued cheque of Rs.50,00,000/-
towards the sale consideration with an
assurance that it will be honoured on deposit
of the same but it was returned unpaid with
an endorsement "account no. not clear" and,
hence, legal notice was issued through
advocate, however despite service of notice,
payment was not made by the accused, which
led to filing of the complaint against the
accused persons.
2.2 On filing of the aforesaid complaint,
verification of the complainant was recorded
and, thereafter, process was issued upon the
accused.
2.3 As soon as the said fact came to the notice
of the present applicant, immediately
applicant has filed present application for
quashment of the proceeding against him and
while issuing notice, liberty was granted to
the applicant to seek adjournment before the
court concerned on account of pendency of the
present proceedings before this Court.
3. Heard learned advocate, Mr. J.V. Vaghela for the
applicant and learned APP Ms. Monali Bhatt for the
respondent no.2 - State of Gujarat. Though served,
neither the respondent no.1 has remained present
personally nor engaged advocate.
4. Learned advocate, Mr. Vaghela submitted that the
complainant, the present applicant and one
Anilkumar Amrutlal Joshi were the partners of one
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partnership firm viz., Bhagyalaxmi Cotton
Industries, which came into existence w.e.f.
03.07.2010 by way of executing registered deed,
wherein except the present applicant and the
complainant, other three persons were shown as
partners and in the said firm, the complainant was
having 45% share, however thereafter, the
complainant and one Champaksinh Zala have decided
to separate from the business transaction of the
said firm and agreement to that effect came to be
executed between them and, thereafter, the name of
the complainant and said Champaksinh Zala have
been deleted from the list of the partners.
Learned advocate submitted that as two partners
have been separated from the firm, another person
has been entered into partnership firm, therefore,
the firm has decided to close the account
maintained with Bank of Baroda, which was closed
on 29.06.2017. Learned advocate submitted that at
the time of submission of the application to close
the account before the Bank of Baroda, letter
purportedly written by the members of the firm
specifically stating that on the date of closing
the main account, Cheque Nos.50951 to 51000 were
issued by the Bank, out of which, Cheque
Nos.50951, 50952, 50953, 50958, 50959, 50960,
50961, 50962, 50963 & 50964 were not found
available in the cheque-book and the said cheques
were in the custody of one Rajendrasinh Madarsinh
Vaghela and he has also disclosed the said fact to
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the bank. Learned advocate submitted that
therefore because of disputes between the parties
at the relevant time, the complainant has also
filed civil suit before the court of the learned
Principal Senior Civil Judge, Talod to cancel the
registered sale deed executed between the parties
and also sought relief including the relief of
permanent injunction. Learned advocate submitted
that in the said proceedings, the applicant is one
of the defendants, however subsequently, the
proceedings have been terminated due to non-
availability of the plaintiff before the court
concerned. Learned advocate submitted that
admittedly the cheque was issued by one of the
partners of the partnership firm and before
registration of the complaint against the
applicant, basic procedure as required under the
provision of the NI Act has not been followed.
Learned advocate submitted that it is settled
proposition of law that before registration of the
complaint, notice as required under the law is
required to be issued upon the guilty person in
the criminal proceedings but in the facts of the
present case, no such notice has been issued to
the firm, which violates the provision of the NI
Act. Learned advocate, therefore, has referred to
the decision of the Hon'ble Supreme Court in case
of Aneeta Hada Vs. Godfather Travels & Tours Pvt.
Ltd., reported in (2012) 5 SCC 661 and submitted
that the prosecution launched against the
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applicant, if at all to be believed as true and
genuine in its entirety then also, it cannot be
entertained as the provision of the NI Act would
base upon technicality and the basic requirement
of Section 138 of the NI Act is required to be
fulfilled, which admittedly in the facts of the
present case has not been followed. It is,
therefore, urged that considering the ratio
enunciated in the aforesaid decision and
considering the facts of the case, this
application may be allowed and the impugned
proceedings instituted against the applicant may
be quashed and set aside.
5. Learned APP Ms. Bhatt has opposed the present
application with a vehemence and submitted that
the cheque issued by the applicant is purportedly
signed by the applicant as he is one of the
partners of the firm and after considering and
evaluating all the material placed on record, the
learned Judge has passed an order of issuance of
process, therefore, there was no error or law and/
or facts on the part of the learned Judge while
passing the said order. It is, therefore, urged
that the present application may be rejected.
6. In view of the rival submissions canvassed by
learned advocates for the parties and on
examination of the documents produced on record,
it is found out that a firm in the name and style
of "Bhagylaxmi Cotton Industries" was formed by
the applicant, complainant and three others and at
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the relevant point of time, an agreement came to
be reduced into writing on 03.07.2010, wherein the
complainant was having 45% share in the said firm
but thereafter with their mutual understanding,
the complainant and one one Champaksinh Zala have
decided to separate from the said firm and
accordingly, an agreement came to be reduced into
writing on 28.10.2010 and their names have been
deleted from the list of the partners. It is also
found that thereafter 28.01.2014, a writing has
been executed, wherein one Rajendrasinh Madarsinh
Vaghela has admitted that at the time of closing
the main account, Cheque Nos.50951 to 51000 were
issued by the Bank but out of them, Cheque
Nos.50951, 50952, 50953, 50958, 50959, 50960,
50961, 50962, 50963 & 50964 were in the custody of
one Rajendrasinh Madarsinh Vaghela and he has also
disclosed the said fact to the bank and also
accepted the liability of those cheques if any
untoward incident occurs. It is also found out
that civil suit was filed by the complainant
before the court of the learned Principal Senior
Civil Judge, Talod to cancel the registered sale
deed executed between the parties but on account
of non-availability of the plaintiff before the
court concerned, the said proceedings were
terminated. It is also found out that in between,
the cheque was issued by one of the partners of
the partnership firm, which was deposited and
dishonoured, which led to filing of complaint
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under the provision of the NI Act.
7. As can be seen from the submissions made by
learned advocate for the applicant, it is the
specific case of the applicant that as per the
provision of Section 141 of the NI Act, notice as
required under the provision of the NI Act is
required to be issued and partnership firm is
required to be joined as party in the private
complaint, which in the facts of the present case
has not been done by the complainant and, hence,
as the mandatory requirement as provided under the
provision of the NI Act is not followed, impugned
complaint is not maintainable and is required to
be quashed and set aside. Therefore as this stage,
this Court would like to put reliance upon the
provision of Sections 138 and 141 of the NI Act,
which reads as under,
138. Dishonour of cheque for insufficiency, etc.,
of funds in the account.
Where any cheque drawn by a person on an
account maintained by him with a banker for
payment of any amount of money to another
person from out of that account for the
discharge, in whole or in part, of any debt
or other liability, is returned by the bank
unpaid, either because of the amount of money
standing to the credit of that account is
insufficient to honour the cheque or that it
exceeds the amount arranged to be paid from
that account by an agreement made with that
bank, such person shall be deemed to have
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committed an offence and shall, without
prejudice to any other provisions 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.]
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 committed, was in
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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:
[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 director,
manager, secretary or other officer shall
also be deemed to be guilty of that offence
and shall be liable to be proceeded against
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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.]
8. The scope of Section 141 of the NI Act has been
authoritatively discussed in the decision by the
Hon'ble Supreme Court in case of S.M.
Pharmaceuticals (Supra) And Saroj Kumar Poddar
V/s. State (Nct Of Delhi) & Anr., reported in
(2007) 3 SCC 693. The aforesaid decision of the
Hon'ble Supreme Court in case of S.M.S.
Pharmaceuticals Ltd. (supra) was reiterated by the
Hon'ble Supreme Court in subsequent decision in
case of N. Rangachari V/s. Bharat Sanchar Nigam
Ltd., reported in 2007 5 SCALE 821 and it has been
specifically opined as under,
"The scope of Sec. 141 has been
authoritatively discussed in the decision in
S.M.S. Pharmaceuticals Ltd. (supra) binding
on us and there is no scope for redefining it
in this case. Suffice it to say, that a
prosecution could be launched not only
against the company on behalf of which the
cheque issued has been dishonoured, but it
could also be initiated against every person
who at the time the offence was committed,
was in charge of and was responsible for the
conduct of the business of the company."
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It was further held:
"Therefore, a person in the commercial world
having a transaction with a company is
entitled to presume that the directors of the
company are incharge of the affairs of the
company. If any restrictions on their powers
are placed by the memorandum or articles of
the company, it is for the directors to
establish it at the trial. It is in that
context that Sec. 141 of the Negotiable
Instruments Act provides that when the
offender is a company, every person, who at
the time when the offence was committed was
incharge of and was responsible to the
company for the conduct of the business of
the company, shall also be deemed to be
guilty of the offence along with the company.
It appears to us that an allegation in the
complaint that the named accused are
directors of the company itself would usher
in the element of their acting for and on
behalf of the company and of their being
incharge of the company."
9. Thus bare reading of aforesaid sections together
with the aforesaid decision of the Hon'ble Apex
Court, it is found out that Sub-section (1) of
Section 141 of the NI Act provides that if a
person committing an offence under the section is
a company, every person who, at the time offence
committed, was in charge of, and responsible to,
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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. The
offender in Section 138 of the NI Act is the
drawer of the cheque. The drawer of the cheque
alone would have been the offender thereunder if
the NI Act did not contain other provisions. It is
because of Section 141 of the NI Act that penal
liability under Section 138 of the NI Act is cast
on other persons connected with the company. It is
also found out from the above provision that three
categories of persons can be discerned from the
said provision who are brought within the purview
of the penal liability through the legal fiction
envisaged in the section i.e. (1) The company the
principal offender which committed the offence,
(2) Every one who was in charge of and was
responsible for the business of the company, and
(3) Any other person who is a director or a
manager or a secretary or officer of the company,
with whose connivance or due to whose neglect the
company has committed the offence. However, if a
person proves that the offence was committed
without his knowledge, or that he had exercised
all due diligence to prevent the commission of
such offence, he shall not be liable to punishment
under this section. Sub-section (2) further
provides that where any offence under the NI Act
has been committed by a company and it is provided
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that the offence has been committed with the
consent or connivance of, or is attributable to,
any neglect on the part of, any director, manager,
secretary or other officer of the company, such
director, manager, secretary or other officer
shall also be deemed to be guilty of that offence
and shall be liable to be proceeded against and
punished accordingly. The Explanation to the
section defines 'company' as any body corporate
and includes a firm or other association of
individuals; and 'director', in relation to a
firm, means a partner in the firm. Therefore in
view of the aforesaid provision of the NI Act and
in view of the aforesaid decision, if the facts of
the present case are examined, it is found out
that admittedly, no notice as required under the
provision of the NI Act has been issued to the
firm nor the firm has been joined as party accused
in the private complaint filed by the complainant
except issuing individual notice and thus, it is
clear that there is clear violation of the
provision of the NI Act, which would vitiate the
complaint filed by the complainant.
10. At this stage, I would also like to refer to the
judgment of the Hon'ble Supreme Court in case of
Aneeta Hada (supra), upon which reliance has been
placed by learned advocate for the applicant,
wherein the Hon'ble Apex Court has considered the
provision of Sections 138 and 141 of the NI Act
and made observations in Paragraph Nos.39, 42 and
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43 as under,
"39. 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.
42. 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 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
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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.
In Reserve Bank of India v. Peerless General
Finance and Investment Co. Ltd. And others it
has been laid down that the entire statute
must be first read as a whole, then section
by section, clause by clause, phrase by
phrase and word by word. The same principle
has been reiterated in Deewan Singh and
others v. Rajendra Prasad Ardevi and others
and Sarabjit Rick Singh v. Union of India.
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 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
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director is indicted.
43. 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 (AIR
1971 SC 447) (supra) which is a threeJudge
Bench decision. Thus, the view expressed in
Sheoratan Agarwal, (AIR 1984 SC 1824) (supra)
does not correctly lay down the law and,
accordingly, is hereby overruled. The
decision in Anil Hada, (AIR 2000 SC 145 :
1999 AIR SCW 4228) (supra) is overruled with
the qualifier as stated in paragraph 37 the
decision in Modi Distilleries, (AIR 1988 SC
1128) (supra) has to be treated to be
restricted to its own facts as has been
explained by us hereinabove."
11. In my view, the case of the applicant is squarely
covered by the ratio laid down by the Hon'ble Apex
Court in the case of Aneeta Hada (supra). In the
present case, admittedly the original complainant
has not issued notice to the partnership firm nor
joined the partnership firm as an accused and the
complaint is filed only against the applicant, who
is one of the partners of the firm, and merely by
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making adverments made in the air and not in the
complaint, which is the basic requirement as
stated above, person concerned cannot be held
vicariously liable. Therefore in view of the ratio
enunciated in the aforesaid decision rendered by
the Hon'ble Apex Court in the case of Aneeta Hada
(supra), the impugned complaint is not
maintainable. Therefore, the present application
deserves to be allowed.
12. In the result, the present application is allowed.
The proceedings of Criminal Case No.620/2018
pending before the court of the learned Judicial
Magistrate, First Class, Dehgam are hereby quashed
and set aside qua the applicant. All consequential
proceedings pursuant thereto stand terminated qua
the applicant. Rule is made absolute. Direct
service is permitted.
Sd/-
(DIVYESH A. JOSHI, J.)
Gautam
