S.Velayuidhan Pillai vs Chellath Franklin
2021 Latest Caselaw 12906 Ker

        IN THE HIGH COURT OF KERALA AT ERNAKULAM
                         PRESENT
         THE HONOURABLE MR.JUSTICE N.ANIL KUMAR
MONDAY, THE 14TH DAY OF JUNE 2021 / 24TH JYAISHTA, 1943
              CRL.REV.PET NO. 1906 OF 2014
    [AGAINST THE ORDER/JUDGMENT IN CRA 97/2014 OF I
         ADDITIONAL DISTRICT COURT, ERNAKULAM,
 AGAINST THE JUDGMENT IN ST 1985/2008 BEFORE THE COURT
     JUDICIAL FIRST CLASS MAGISTRATE-VI, ERNAKULAM
                     DTD.17.1.2014]
REVISION PETITIONER/APPELLANT/FIRST ACCUSED:

         S.VELAYUDHAN PILLAI
         MANAGING PARTNER, M/S.K.VELAYUDHAN PILLAI,
         GLASS MERCHANT, BROADWAY, ERNAKULAM DISTRICT-
         682031.
         BY ADVS.
         SRI.O.RAMACHANDRAN NAMBIAR
         SRI.BABU SHANKAR
         SRI.CIBI THOMAS
         SRI.GEEN T.MATHEW

RESPONDENTS/RESPONDENTS/COMPLAINANT:

1 CHELLATH FRANKLIN S/O.XAVIER, ADVOCATE, GANDHINAGAR, KALOOR POST- 682017, ERNAKULAM DISTRICT.

2 STATE OF KERALA REPRESENTED BY THE PUBLIC PROSECUTOR, HIGH COURT OF KERALA, ERNAKULAM DISTRICT-682031. BY ADV SHRI.M.V.S.NAMPOOTHIRY

THIS CRIMINAL REVISION PETITION HAVING COME UP FOR ADMISSION ON 03.03.2021, THE COURT ON 14.06.2021 ORDERED THE FOLLOWING:

Crl.R.P.No.1906 of 2014

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Crl.R.P.No.1906 of 2014 ORDER [C.R.] [Dated this the 14th day of June, 2021]

The revision petitioner is the first accused in

S.T.No.1985/2008 of the Judicial First Class Magistrate

Court-IV, Ernakulam. The first respondent is the

complainant in the above case. The revision petitioner is

aggrieved by the judgment dated 29.8.2014 passed by the

Sessions Court, Ernakulam holding that the appellant is

guilty of the offence under Section 138 of the Negotiable

Instruments Act,1881 (hereinafter referred to as 'the N.I.

Act') after confirming the finding of conviction and sentence

passed by the trial court by its judgment dated 17 th January,

2014. The parties are hereinafter referred to as 'the

complainant' and 'the accused' according to their status in Crl.R.P.No.1906 of 2014

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the trial court unless otherwise stated.

2. The brief facts of the case, which emanate from

the records, are that the revision petitioner borrowed an

amount of Rs.8,00,000/- from the complainant and executed

a cheque dated 31.1.2008 for an amount of Rs.8,00,000/- in

the name of the complainant from the State Bank of

Travancore, Ernakulam Broadway branch. The complainant

presented the cheque for collection through Catholic Syrian

Bank, Market Road branch. The cheque on presentation was

returned due to insufficiency of funds in the account of the

accused. A legal notice was sent by the complainant to the

accused. The notice was duly served, but the accused

neither responded to the notice nor made any payment in

furtherance thereto within the statutory period. The first

accused is the Managing Partner of the firm and the second Crl.R.P.No.1906 of 2014

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accused is the partner of the firm under name and style

M/s.K.Velayudhan Pillai, Glass Merchant, Broadway,

Ernakulam.

3. The first respondent/complainant recorded

preliminary evidence before the trial court and thereafter,

the accused was directed to be summoned for the offence

punishable under Section 138 of the N.I.Act. Pursuant to the

summons, the first accused entered appearance and the

second accused was reported dead. After securing the

presence of the first accused, the particulars of the offence

allegedly committed by the first accused under Section 138

of the N.I.Act were read over to him, whereto he pleaded not

guilty and claimed for trial. Thereafter, PWs.1 to 4 were

examined and marked Exts.P1 to P8 on the complainant's

side. On conclusion of the recording of the complainant's Crl.R.P.No.1906 of 2014

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evidence, the accused was questioned under Section 313(1)

(b) of the Code of Criminal Procedure (hereinafter referred

to as 'the Cr.P.C.') by the trial court for the purpose of

enabling him to explain any circumstance appearing in the

evidence against him whereby the revision

petitioner/accused denied all the incriminating

circumstances appearing in the evidence against him and

claimed innocence. DW1 was examined on the side of the

accused and duly exhibited Exts.D1 to D5.

4. The first appellate court, on re-appraisal of

the evidence on record, affirmed that the complainant

proved that Ext.P1 cheque was issued for a legally

enforceable debt and it was for the revision

petitioner/accused to discharge his burden to rebut the

presumption under Sections 118 and 139 of the N.I.Act. Crl.R.P.No.1906 of 2014

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5. After considering the evidence adduced by

the parties and hearing the parties, the trial court and first

appellate court concurrently found that the accused was

guilty of the offence under Section 138 of the N.I.Act and

accordingly, he was convicted thereunder. The revision

petitioner/first accused was convicted and sentenced to pay

a fine of Rs.8,20,000/- and in default of payment of fine, to

undergo simple imprisonment for a period of six months. It

was directed that the fine amount, if realised, an amount of

Rs.8,10,000/- shall be paid to the complainant as

compensation under Section 357(1)(b) of the Cr.P.C.

6. The first accused in this case is

Sri.K.Velayudhan Pillai, Managing Partner,

M/s.K.Velayudhan Pillai Glass Merchant, Broadway,

Ernakulam and the second accused is one of the partners of Crl.R.P.No.1906 of 2014

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the firm. Learned counsel for the revision petitioner

contended that the findings of the trial court and appellate

court, if taken to its logical conclusion, would lead to an

incorrect legal proposition in interpreting the statutory

provision under section 141 of the Act, that the company or

firm is not a sine qua non for prosecution of the other

persons, who fall within the second and third categories,

that is every one who was in charge of, and was responsible

for the business of the company and any other person, who

was a director or managing director or secretary or officer

of the company or due to whose neglect the company had

committed the offence. According to the learned counsel for

the revision petitioner, both the trial court and the first

appellate court held that although the company is not an

accused, the prosecution under Section 138 of the N.I.Act is Crl.R.P.No.1906 of 2014

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sustainable. The learned counsel for the revision petitioner

contended that on a plain reading of Section 141 of the

N.I.Act, it is clear that a finding has to be entered that the

company has committed the offence and such a finding

cannot be recorded unless the company is before the court,

more so, when it enjoys the status of a separate legal entity.

According to the learned counsel for the revision petitioner,

the company or firm, although a juristic person, is a

separate entity. Its directors may come and go and the

company remains maintaining its own reputation and

standing. Thus, it is argued that unless the company or firm,

the principal entity, is prosecuted as an accused, the

subsidiary entity, the individual namely, accused 1 and 2

cannot be held liable for the offence punishable under

Section 138 of the N.I.Act. Thus, it is argued that when the Crl.R.P.No.1906 of 2014

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company is in existence, the company is the principal

offender and its non-impleadment will create a dent in the

prosecution case. Relying on the decision in Aneeta Hada v.

M/s.Godfather Travels and Tours Pvt. Ltd [2012 (2)KLT

736(SC)], the learned counsel for the revision

petitioner/accused contended that an authorised signatory

of a company cannot be made liable for the prosecution

under Section 138 of the N.I.Act without the company being

arrayed as an accused.

7. On the other hand, the learned counsel for the

complainant would contend that the account in question

involved in this case is not relating to the firm and it is an

account maintained by the first accused separately. The

learned counsel for the complainant further contended that

the firm is properly represented and the first accused Crl.R.P.No.1906 of 2014

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defended the action in his capacity as the Managing Partner

of the firm knowing fully well that he has been defending

the firm itself. In other words, it was contended that the

company, being a legal entity, acts to with its directors or

other officers to sign and issue the cheque and intimate the

Bank to honour the cheque, if signed by such person.

8. Heard Sri.Geen.T.Mathew, the learned counsel

for the revision petitioner and Sri.M.V.S.Nampoothiri, the

learned counsel for the 1st respondent.

9. The proposition of law that has emerged for

consideration is whether an authorised signatory of a

company or firm would be liable for prosecution under

Section 138 of the N.I.Act without the company being

arrayed as an accused.

10. Ext.P1 cheque is dated 31.01.2008 for an Crl.R.P.No.1906 of 2014

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amount of Rs.8,00,000/-. Ext.P2 would show that the

complainant presented the cheque before the bank on or

before 21.05.2008 within six months from the date of

Ext.P1. Ext.P2 would further show that the cheque was

returned unpaid from the bank for the reason 'funds

insufficient'. Exts.P3 and P4 would show that the

complainant had issued statutory notice on 10.06.2008

requesting the accused to pay the amount covered under

the cheque within 15 days from the date of receipt of the

notice. The accused received the notice on 10.06.2008 by

Ext.P5.

11. In paragraph 1 of the complaint, it is stated

that the first accused is the Managing Partner and the

second accused is the partner of M/s.K.Velayudhan Pillai

Glass Merchant, Broadway, Ernakulam. In the affidavit Crl.R.P.No.1906 of 2014

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dated 08.07.2008, the very same sentence is reiterated.

Admittedly, the first accused is one of the partners of the

firm. He himself had subscribed his signature in Ext.P1.

Learned counsel for the revision petitioner would contend

that even if the execution and handing over the cheque by

the accused is proved by the complainant, the same would

not help him to secure conviction since Ext.P1 cheque

belongs to the firm, of which the accused 1 and 2 are

partners and the firm is not made as a party in the case. In

order to prove that Ext.P1 cheque belongs to the firm, DW1

was examined and marked Exts.D1 to D5. Going by Exts.D1

to D3, it is clear that the same was relating to a new account

opened by the accused after the case. At the same time,

Exts.D4 and D5 would clarify that Ext.P1 cheque was drawn

on the account maintained by the firm. Ext.D1 is relating to Crl.R.P.No.1906 of 2014

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the current account No.67089520826 in favour of

Sri.K.Velayudhan Pillai. It is in respect of a separate current

account opening form. Ext.D4 would show that the old

account number 62228 of Sri. K.Velayudhan Pillai on

migration to core-banking, changed as 57030066065.

Ext.P1 cheque was issued from the old account No.62228.

Ext.D5 statement of account would show that the new

account number is 57030066065. Ext.D1 account opening

form shows that while opening a new account by

Sri.K.Velayudhan Pillai in the State Bank of Travancore,

Broadway, Ernakulam Branch, on 13.8.2009, his existing

number 57030066065 is stated specifically on Page No.5.

As per the account opening form details, it is obligatory on

the part of the customer to disclose the account number if

he is already a customer of the Branch. Thus, it is clear that, Crl.R.P.No.1906 of 2014

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the core banking number 57030066065 corresponding to

old account number 62228 of Sri.K. Velayudhan Pillai is the

subject matter of Ext.P1 cheque. The deed of partnership

produced by DW1 would show that it was executed way

back in 1998.

12. The trial court and the appellate court

concurrently expressed the view that even if the

prosecution proceedings against the firm were not taken

or could not be continued, it is no bar for proceeding

against accused 1 and 2 and the partners of the firm falling

within the purview of sub-sections (1) and (2) of Section

141 of the N.I.Act. The trial court held that the accused

cannot contend that he is not the drawer of the cheque and

he is not maintaining any account with the bank,

presumably for the reason that he had signed the cheque in Crl.R.P.No.1906 of 2014

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his capacity as a partner of the firm, which is maintaining

the account. Thereafter, the trial court referred to the

decision reported in Radhakrishnan v. A.C.Thomas and

another [2006 (1) KLT 150], and held that there is no

postulate under Section 141 of the N.I.Act and that the

Director or the signatory of the cheque cannot be separately

prosecuted, unless the company is arrayed as an accused. In

Radhakrishnan's case, a learned Single Bench of this Court

took note of the two Judge Bench decision in Anil Hada v.

Indian Acrylic Ltd. [(2000) 1 SCC 1], wherein it was held

that the company acts through its Directors or authorised

officers and they cannot seek escape route on the

foundation that the company has not been impleaded as an

accused. In Anil Hada's case, it was clearly held that the

word 'as well as the company' assumes significance Crl.R.P.No.1906 of 2014

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inasmuch as the deemed liability includes both the

company and the officers in charge, and hence prosecution

can exclusively be maintained against the Directors or

officers in charge depending on the averment made in the

complaint petition.

13. At this juncture, the question arises for

consideration is whether any person, who has been

described under Section 141 (1) and (2) of the N.I.Act can

be prosecuted for the offence under Section 138 of the

N.I.Act without the Company being impleaded as an

accused. On a reading of Anil Hada's case, it is clear that the

actual offence should have been committed by the company

and then alone the other two categories of persons can also

become liable for the offence and thereafter, proceed to

state that if the company is not prosecuted due to legal snag Crl.R.P.No.1906 of 2014

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or otherwise, the accused cannot escape from the penal

consequences envisaged under Section 141 of the Act. In

this context, it is profitable to take note of the three Judge

Bench decision in Aneeta Hada v. Godfather Travels and

Tools Private Ltd., [2012 (2) KLT 736 (SC)], wherein it has

been held in paragraph 37 as follows:

"37. We have already opined that the decision in Sheoratan Agarwal (supra) runs counter to the ratio laid down in the case of C.V.Parekh (supra) which is by a larger Bench and hence, is a binding precedent. On the aforesaid ratiocination, the decision in Anil Hada (supra) has to be treated as not laying down the correct law as far as it states that the director or any other officer can be prosecuted without impleadment of the company. Needless to emphasize, the matter would stand on a different footing where there is some legal impediment and the doctrine of lex non cogit ad impossibilia gets attracted."

14. The Apex Court in Aneeta Hada (supra) had

occasion to examine the question whether an authorised

signatory would be liable for prosecution under Section 138 Crl.R.P.No.1906 of 2014

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of the N.I.Act without company being arraigned as an

accused and held as follows:-

"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."

15. Thus the liability of the revision petitioner is only

statutory because of his legal status as the Managing

Partner of the firm. Every person signing the cheque on

behalf of the firm/company on whose account a cheque is

drawn does not become the drawer of the cheque. Such a

signatory is only a person duly authorised to sign the

cheque on behalf of the firm/company.

16. Section 141 of the N.I.Act stipulates the liability

for the offence punishable under Section 138 of the N.I.Act Crl.R.P.No.1906 of 2014

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when the person committing such an offence happens to be

a firm or company.

"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 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."

17. The offence under Section 138 of the N.I.Act is

capable of being committed by the drawer of the cheque. In

MSR Leathers v. S.Palaniappan and another [(2013) 1

SCC 177, the Apex Court held thus:-

"12. The Proviso to Section 138 of the N.I.Act, however, is all important and stipulates three distinct conditions precedent, which must be satisfied before the dishonour of a cheque can constitute an offence and become punishable.

The first condition is that the cheque ought to have 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. The second condition is Crl.R.P.No.1906 of 2014

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that the payee or the holder in due course of the cheque, as the case may be, ought to make 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. The third condition is that the drawer of such a cheque should have failed to make 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. It is only upon the satisfaction of all the three conditions mentioned above and enumerated under the proviso to Section 138 as clauses (a), (b) and (c) thereof that an offence under Section 138 can be said to have been committed by the person issuing the cheque."

18. It is clear from Section 138 of the N.I.Act that in

spite of the demand notice referred to above, the drawer of

the cheque failed to make payment within 15 days from the

date of receipt of notice. Admittedly, no notice was issued to

the firm as contemplated under the Act before lodging the

complaint. Needless to say that this failure to comply with Crl.R.P.No.1906 of 2014

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any one of the steps contemplated under Section 138 of the

N.I.Act would not provide cause of action for the

prosecution. Hence the firm cannot be held liable at this

stage. Since no statutory notice was issued against the firm

within the time prescribed, the respondent has no sufficient

cause for invoking the jurisdiction of this court to implead

the firm as an accused in exercise of powers under Section

142 of the N.I.Act. Hence the legal principles formulated in

N.Harihara Krishnan v. J.Thomas [(2018) 3 SCC 663] and

Radhakrishnan v. State of Kerala [2018(4) KHC 262] are

not applicable in this case. Although Section 142 of the Act

authorises the court to condone the delay in appropriate

case, this court finds no reason to condone the delay in this

case. On the face of Ext.P1 cheque, it is clear that it was

drawn on account of the firm. Admittedly, the respondent Crl.R.P.No.1906 of 2014

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failed to issue notice to the firm as contemplated under

Clause (b) of the proviso to Section 138 of the N.I.Act.

19. In view of the decision in Aneeta Hada (supra),

the decision in Anil Hada (supra) has to be treated as, not

laying down the correct law. There can be no vicarious

liability unless there is a prosecution against the firm. The

vicarious liability gets attracted when the condition

precedent laid down in Section 141 of the N.I. Act can

satisfy. Thus, it can be safely concluded that if the

prosecution proceedings against the firm were not taken by

the complainant for the offence under section 138 of the

N.I.Act, it is certainly a bar for proceeding against the other

person coming within the ambit of sub-sections (1) and (2)

of Section 141 of the N.I.Act.

Crl.R.P.No.1906 of 2014

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In view of the above reasoning and discussion,

the conviction and sentence concurrently passed by the two

courts below are contrary to the dictum laid down by the

Apex Court in Aneeta Hada (supra) and, therefore, cannot

be sustained. The conviction and sentence are, accordingly,

set aside. The Crl.R.P. is allowed. The revision Petitioner is

found not guilty of the offence under Section 138 of the NI

Act and he is acquitted of the said offence. Cancelling his

bail bond, this Court direct that he be set at liberty. Pending

applications, if any, stand disposed of.

sd/-

N.ANIL KUMAR, JUDGE

MBS/