Allahabad High Court
Ram Chandra Agarwal And Others vs State Of U.P.And Another on 24 January, 2013
Author: Sunil Hali
Bench: Sunil Hali
HIGH COURT OF JUDICATURE AT ALLAHABAD A.F.R. Reserved. Court No. - 41 Case :- APPLICATION U/S 482 No. - 14646 of 2012 Petitioner :- Ram Chandra Agarwal And Others Respondent :- State Of U.P.And Another Petitioner Counsel :- Arun Kumar,A. Chaturvedi Respondent Counsel :- Govt. Advocate,Krishna Agrawal CONNECTED WITH Case :- APPLICATION U/S 482 No. - 34950 of 2011 Petitioner :- Tpg Wholesale Pvt.Ltd. And Others Respondent :- State Of U.P. And Another Petitioner Counsel :- Vinay Saran Respondent Counsel :- Govt.Advocate,Arvind Kr.Shukla,Krishan Agrawal,V.M.Zaidi AND Case :- APPLICATION U/S 482 No. - 34952 of 2011 Petitioner :- Tpg Wholesale Pvt.Ltd. And Others Respondent :- State Of U.P. And Another Petitioner Counsel :- Vinay Saran Respondent Counsel :- Govt.Advocate,Arvind Kr.Shukla,Krishan Agrawal,V.M.Zaidi AND Case :- APPLICATION U/S 482 No. - 34953 of 2011 Petitioner :- Tpg Wholesale Pvt.Ltd. And Others Respondent :- State Of U.P. And Another Petitioner Counsel :- Vinay Saran Respondent Counsel :- Govt.Advocate,Arvind Kr.Shukla,Krishan Agrawal,V.M.Zaidi AND Case :- APPLICATION U/S 482 No. - 34955 of 2011 Petitioner :- Tpg Wholesale Private Ltd.And Others Respondent :- State Of U.P. And Another Petitioner Counsel :- Vinay Saran Respondent Counsel :- Govt.Advocate AND Case :- APPLICATION U/S 482 No. - 34956 of 2011 Petitioner :- Tpg Wholesale Private Ltd.And Others Respondent :- State Of U.P. And Another Petitioner Counsel :- Vinay Saran Respondent Counsel :- Govt.Advocate AND Case :- APPLICATION U/S 482 No. - 36563 of 2011 Petitioner :- Tpg Wholesale Private Limited & Others Respondent :- State Of U.P. & Another Petitioner Counsel :- Vinay Saran Respondent Counsel :- Govt. Advocate,Krishna Agrawal AND Case :- APPLICATION U/S 482 No. - 36565 of 2011 Petitioner :- Tpg Wholesale Private Limited & Others Respondent :- State Of U.P. & Another Petitioner Counsel :- Vinay Saran Respondent Counsel :- Govt. Advocate,Krishna Agrawal AND Case :- APPLICATION U/S 482 No. - 36567 of 2011 Petitioner :- Tpg Wholesale Private Limited & Others Respondent :- State Of U.P. & Another Petitioner Counsel :- Vinay Saran Respondent Counsel :- Govt. Advocate,Krishna Agrawal AND Case :- APPLICATION U/S 482 No. - 36570 of 2011 Petitioner :- Tpg Wholesale Private Ltd.And Others Respondent :- State Of U.P. And Another Petitioner Counsel :- Vinay Saran Respondent Counsel :- Govt. Advocate,Krishna Agrawal AND Case :- APPLICATION U/S 482 No. - 36568 of 2011 Petitioner :- Tpg Wholesale Private Ltd.And Others Respondent :- State Of U.P. And Another Petitioner Counsel :- Vinay Saran Respondent Counsel :- Govt. Advocate,Krishna Agrawal AND Case :- APPLICATION U/S 482 No. - 36560 of 2011 Petitioner :- Tpg Wholesale Private Ltd.And Others Respondent :- State Of U.P. And Another Petitioner Counsel :- Vinay Saran Respondent Counsel :- Govt. Advocate,Krishna Agrawal AND Case :- APPLICATION U/S 482 No. - 36569 of 2011 Petitioner :- Tpg Wholesale Private Ltd.And Others Respondent :- State Of U.P. And Another Petitioner Counsel :- Vinay Saran Respondent Counsel :- Govt. Advocate,Krishna Agrawal AND Case :- APPLICATION U/S 482 No. - 15118 of 2012 Petitioner :- Ram Chandra Agarwal And Others Respondent :- State Of U.P. And Another Petitioner Counsel :- Arun Kumar,A. Chaturvedi Respondent Counsel :- Govt. Advocate,Krishna Agrawal AND Case :- APPLICATION U/S 482 No. - 34954 of 2011 Petitioner :- Tpg Wholesale Private Ltd.And Others Respondent :- State Of U.P. And Another Petitioner Counsel :- Vinay Saran Respondent Counsel :- Govt.Advocate Hon'ble Sunil Hali,J.
Common questions involved in all the aforesaid applications relate to the question as to whether liability can be transferred to subsequent buyer of the company which has drawn cheques for discharge of its debt or liability under Section 138 of Negotiable Instruments Act (herein after referred to as N.I. Act). Since this question is involved in all the aforesaid applications, it is deemed proper to decide them by a common judgement.
In order to determine this issued Application U/s 482 No. 14646 of 2012 is taken as leading case and in order to appreciate the controversy involved certain facts are required to be noted for proper adjudication of the case, which is as under:
Vishal Retail limited is duly registered under the Companies Act having its registered and Corporate office at Plot No. 332, Near Telco Service Station, Behind Shokeen Farmlands, Rangpuri Extension, New Delhi. Applicants No. 1 to 3 are Directors of the Company. Respondent no. 2 (hereinafter called as the complainant) is in the business of Garment stitching and manufacturing of ready-made garments. Applicants accused had a running agreement with the complainant for stitching of garments of the cloths/fabric/materials which were supplied by the accused applicants i.e. Vishal Retails Limited. As per agreed terms, the accused applicants company were required to make payments of the job work conducted by the complainant within stipulated time span of 60-75 days from the date of delivery of finished goods which was supplied against way bill issued by the accused persons. As agreed upon in terms of the agreement accused persons have issued post dated cheques to the complainant. Every thing went on smoothly until March 2011. Cheques which were issued for its encashment after March, 2011 could not be encashed as a result of which present controversy has arisen. In the present case, Cheque No. 477738 for an amount of Rs 6,45,510/- was issued on 16.4.2011 drawn on A/c No. 31003763038, SBI, South Extension, New Delhi. Aforesaid cheque was presented by the complainant to their bankers in Bhadohi where they are carrying their business. The said cheque was presented on 27.4.2011 which was returned with memo of the Bank that the cheque could not be cleared due to insufficient funds.
Statutory notice was issued by the complainant to the accused to make the payment within a period prescribed therein. Receiving no response from the applicants in this behalf present complaint has been filed before the Trial Court.
Allegations contained in the complaint are that for purpose of discharging their liability cheque no. 477738 was issued for an amount of Rs 6,45,510/- drawn at SBI, South Extension, New Delhi. The said cheque was presented by the complainant to their bankers in Bhadohi where they are carrying on their business. The said cheque was however returned on 27.4.2011 accompanying memo of the bank with endorsement that it could not be encashed on account of insufficient funds. Consequently statutory notice was issued to the accused persons on 21.5.2011 calling upon them to make payments within 15 days from the date of receive of the notice. It emanates from the complaint that the accused No. 5,7 to 17 named in the complaint had responsed to the statutory notice issued on 21.5.2011, however, other accused persons did not chose to reply the same. It further transpires in the complaint that retail and whole sale business of Vishal Retail Limited was transferred to Air Plaza Retail Holdings Private Limited and T.P.G. Whole Sale Private Limited respectively on 14.3.2011 under the Business Transfer Agreement in the following manner:-
(a) That the retail undertaking of the company to Air Plaza Retail Holdings Private Limited (a Company owned by Shri Ram Groups)
(b) The whole sale undertaking of the company to T.P.G. Whole Sales Private Ltd (a subsidiary of TPG VW Limited).
In terms of the agreement it was agreed between the parties that from the date of completion i.e. 14.3.2011 the entire business of Vishal Retail Limited was passed over to the company which had stepped into shoes of the Vishal Retail Ltd along with entire assets and liabilities. This information is said to have been conveyed to the complainant by the accused Nos. 1 to 6 but despite that cheques in dispute were presented before the Bank for encashment which could not be honoured. It further appears from the record that the cheques were presented after 14.3.2011 as such accused Nos 1 to 6 had no liability to discharge this debt. It was for the subsequent buyers of the Company who were liable to discharge this liability. It is in this context that the complainant had arrayed subsequent buyers of the Vishal Retail Limited as accused in the present case. On the presentation of the complaint process has been issued against all the accused persons. It is also important to mention that the complainant has presented as many as 13 cheques after 14.3.2011 which have met the same fate as the present one.
Magistrate took the cognizance of the matter and summoned the accused persons vide order dated 16.9.2011. This order was questioned before the learned Sessions Judge, Bhadhoh which stood transferred to the Court of Addl. Sessions Judge, Court No. 2 Bhadohi who dismissed the revision petition. It is under this circumstances the present applications have been filed.
Heard learned counsel for the parties and perused the material on record.
Principal contention raised by the learned counsel for the applicants is that after the transfer of the retail and whole sale business of Vishal Retail Limited which stood transferred to A.P. Retail and T.P.G. Whole Sale on 14.3.2011 the said liability is required to be discharged by them and not by the applicants. It is further averred that intimation about the said transfer was given to the complainant but despite that cheques were presented before the Bank for encashment. However, it is important to mention that applicants acknowledges that the cheques were issued for discharge of existing liability. It is also admitted that statutory notice issued by the complainant has been received by the applicants within the stipulated time.
Other contention raised on behalf of applicants No. 1 to 6 is that the Court at Bhadohi had no jurisdiction to entertain the complaint as none of the acts contemplated under Section 138 N.I. Act have taken place within the territorial jurisdiction at Bhadohi. The cheques were issued in Delhi and drawn at SBI, South Extension, New Delhi.
Third contention raised was that notice even issued to all the Directors of the company which is in violation of the Section 141 of the N.I. Act. According to provision of Section 141 of N.I. Act 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. According to applicants all the Directors more particularly Applicants No. 4 to 6 were not responsible for the company for the conduct of the business of the Company as well as the company. Process issued against them was uncalled for.
On the other hand stand of the accused persons No. 7 to 17 who are the directors of the companies who have acquired the retail and whole sale business of the Vishal Retail Limited, is that they are not liable to discharge the debt of Vishal Retial Limited. It is the liability exclusively to be borne by the accused nos. 1 to 6.
The stand of the respondents accused No. 6 to 17 is that they are not bound to discharge the debt or liability created by accused No. 1 to 6. It is a liability created under the Special Statute which binds only drawer of the cheques who has maintained an Account in the Bank. Since the accused are not drawer of the cheques and are not maintaining the account in the Bank where the cheques were dishonoured cannot be fasten this liability merely on account of being transferee of the said company.
Stand of complainant is that ingredients of Section 138 of N.I. Act are fully complied with as such present petition is not maintainable. Bare reading of the complaint by itself reveals that the material facts constituting substantive offence are made out. Other contention raised by the learned counsel for the complainant is that all the accused persons are liable under the act to discharge the liability created by the accused No. 1 to 6 in issuing the aforesaid cheques.
It is stated that the transaction in the shape of transfer of the business to other companies stands done fraudulently to avoid the liability of the company owned by all the accused No. 1 to 6. It is further stated that the applicants have deliberately concealed the liability in the slump sale agreement.
Other contention raised is that the Court at Bhadohi had the jurisdiction to entertain the complaint as the company is carrying business at Bhadohi and cheques were also issued at Bhadohi where it was presented to their bankers at Bhadohi namely the State Bank of India at Bhadohi. In view of the Core Banking System a cheque can be presented at any place for its encashment where the branches of the Banks are available. It is not necessary that the cheques are required to be presented to the same Bank where the amount is required to be drawn.
In so far as involvement of Directors is concerned it is an issue which cannot be determined in these proceedings. It is required to be decided during course of trial. In this behalf, stand of the complainant is that all the six persons are responsible to discharge the liability as provided under Section 141 of N.I. Act.
The gravamen of the controversy is whether any person who has been mentioned in Sections 141 of the Act can be prosecuted when liability has been transferred to subsequent buyer of the company under Section 138 of Negotiable Instruments Act. To appreciate the controversy, certain provisions need to be referred to. Section 138 of the Act, which deals with the ingredients of the offence for dishonour of the cheque and the consequent non-payment of the amount due thereon, reads as follows: -
"138. Dishonour of cheque for insufficiency, etc, of funds in the account - Where any cheque drawn by a person on account maintained by him with a banker for the 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 arrangement made with the 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 a term which may be extended to two years, or with a 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 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."
Perusal of aforesaid legal provision contemplates that section 138 creates an offence for which the mental elements are not necessary. It is enough if a cheque is drawn by the accused 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 discharge in whole or in part, of any debt or other liability due. Therefore, whenever the cheques are on account of insufficiency of funds or reasons referable to the drawer's liability to provide for funds, the provisions of section 138 of the Act would be attracted, provided the following conditions are satisfied:
1. Existence of a "live account" at the time of issue of cheque is a condition precedent for attracting penal liability for the offence under this section. A cheque cannot be issued de hors an account maintained by its drawer with the banker. When the cheque is returned by the bank unpaid because of the account of money standing to the credit of the cheque, to make demand for payment as provided for payment as indicated in clause (b) of the proviso. The words "that account" in the section denote to the account in respect of which the cheque was drawn. No doubt if any person manages to issue a cheque without an account with the bank concerned its consequences would not snowball into the offence described under section 138 of the Act. For the offence under section 138 of the Act there must have been an account maintained by the drawer at the time of the cheque was drawn.
2. Issue of Cheque in discharge of a debt or liability wholly or in part. Where a cheque is issued not for the purposes of discharge of any debt or other liability, the maker of the cheque is not liable for prosecution under section 138 of the Act. A cheque given as a gift or for any other reasons and not for the satisfaction of any debt or other liability, partly or wholly, even if it is returned unpaid will not meet the penal consequences.
If the above conditions are fulfilled, irrespective of the notice of the drawer he shall be deemed to have committed an offence, provided the other three requisites are fulfilled:
a) Presentation of the cheque within six months or within the period of its validity, whichever is earlier. Thus, if a cheque is valid for three months and is presented to the bank within a period of six months the provisions of this section shall not be attracted. However if the period of validity of the cheque is not specified or prescribed the cheque is presented within six months from the date the cause of action can arise. The six months are taken from the date the cheque was drawn.
b) Return of the cheque unpaid for reason of insufficiency of funds to honour the cheque or that it exceeds the arrangement made to be paid from that account by an agreement with the bank. Even if the cheque is returned with the endorsement "account closed" section 138 is attracted;
c) Issue of the notice of dishonour demanding payment within thirty days of receipt of information as to dishonour of the cheque. Such notice must be given within 30 days of information from the bank regarding the return of cheque as unpaid and;
d) Failure of the drawer to make the payment within fifteen days of the receipt of the payment. If the payment is not made after the receipt of the notice within stipulated time a cause of action for initiating criminal proceedings under this section will arise.
From reading of the aforesaid, 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 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, the Court is 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. 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.
Necessary ingredients to constitute an offence under Section 138 as discussed herein above is one who is drawer of the cheque where he has live account. It is not in dispute that the cheque was issued by the applicants for discharge of liability and despite statutory notice issued amount has already been paid.
Contention of learned counsel for the applicants is that after transfer of the retail whole sale business of Vishal Retail Limited which stood transferred to A.P. Retail and T.P.G. Whole sale on 14.3.2006 liability is required to be discharged by them and not by the applicants. This contention of the learned counsel for the applicants cannot be accepted as once the ingredients of Section 138 are complied with the onus shift on the accused to rebut such allegations. What is important and necessary is the fact that the cheque has been drawn by the applicants nos. 1 to 6 on a Bank where they have working account which was dishonoured on account of insufficient funds. Issue with regard to transfer of the retail whole sale business to some other company will not discharge the applicants from their liability.
Admittedly, the companies who have purchased the retail and whole sale business of the applicants' company did not have any live account in the Bank where the cheques were drawn not had they issued any cheque in favour of the complainant. Liability in this case is personal. In view of this contention of learned counsel for the applicants cannot be accepted.
At this juncture, It will be important to refer to Section 141 of the Act which deals with offences by companies. As the spine of the controversy rests on the said provision, it is reproduced below: -
"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;
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 and punished accordingly.
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.
Section 139 of the Act creates a presumption in favour of the holder. The said provision has to be read in conjunction with Section 118(a) which occurs in Chapter XIII of the Act that deals with special rules of evidence. Section 140 stipulates the defence which may not be allowed in a prosecution under Section 138 of the Act. Thus, there is a deemed fiction in relation to criminal liability, presumption in favour of the holder, and denial of a defence in respect of certain aspects. Section 141 uses the term ''person' and refers it to a company. There is no trace of doubt that the company is a juristic person. The concept of corporate criminal liability is attracted to a corporation and company and it is so luminescent from the language employed under Section 141 of the Act. It is apposite to note that the present enactment is one where the company itself and certain categories of officers in certain circumstances are deemed to be guilty of the offence.
Hon'ble Apex Court in S.M.S. Pharmaceuticals's Versus Neeta Bhalla (2005) 8 SCC 89 has considered the nature and extent of the liability under Section 141 of the Act was explained in the following terms -
"The liability under S. 141 arises from being in charge of and responsible for 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 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."
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. It has been ruled as follow:-
"It primarily falls on the drawer company and is extended to officers of the company. The normal rule in the cases involving criminal liability is against vicarious liability, that is, no one is to be held criminally liable for an act of another. This normal rule is, however, subject to exception on account of specific provision being made in the statutes extending liability to others. Section 141 of the Act is an instance of specific provision which in case an offence under Section 138 is committed by a company, extends criminal liability for dishonor of a cheque to officers of the company. Section 141 contains conditions which have to be satisfied before the liability can be extended to officers of a company. Since the provision creates criminal liability, the conditions have to be strictly complied with. The conditions are intended to ensure that a person who is sought to be made vicariously liable for an offence of which the principal accused is the company, had a role to play in relation to the incriminating act and further that such a person should know what is attributed to him to make him liable."
After so stating, it has been further held that 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. 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. In paragraph 19 of the judgment, it has been clearly held as follows: -
"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."
On a conspectus of the subsequent decisions on the subject, the Hon'ble Supreme Court in Harshendra Kumar v. Rebatilata Koley JT 2011 (2) SC 586 has quoted with approval the following principles culled out in National Small Industries Corporation Ltd. v. Harmeet Singh Paintal (2010) 2 SCC (Cri) 1113) is quoted as under:-
(i) The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every Director knows about the transaction.
(ii) Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company.
(iii) Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be averred in the complaint/petition, are made so as to make the accused therein vicariously liable for offence committed by the company along with averments in the petition containing that the accused were in charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with.
(iv) Vicarious liability on the part of a person must be pleaded and proved and not inferred.
(v) If the accused is a Managing Director or a Joint Managing Director then it is not necessary to make specific averment in the complaint and by virtue of their position they are liable to be proceeded with.
(vi) If the accused is a Director or an officer of a company who signed the cheques on behalf of the company then also it is not necessary to make specific averment in the complaint.
(vii) The person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a Director in such cases."
Applying the aforesaid principles in this case, the complainant specifically mentions in paragraph no. 10 of the complaint that the accused applicants 2,3, 5 and 6 are overlooking all the deals and transactions which were transacted by the complainant as the complainant was major supplier of all services to the accused no. 1. The said transactions were managed through phone calls which stands followed by the documentations. Conferences were arranged by accused nos. 2,3,5 and 6 on behalf of accused no. 1.
In view of aforesaid contention of learned counsel for the applicants that they were not actively involved in running the affairs of the company cannot be accepted at this stage.
The further contention raised on behalf of applicants No. 1 to 6 is that the Court at Bhadohi had no jurisdiction to entertain the complaint as none of the acts contemplated under Section 138 N.I. Act have taken place within the territorial jurisdiction at Bhadohi as the cheques were issued in Delhi and drawn at SBI, South Extension, New Delhi. It is contended that there is no averment in the complaint relating to the accrual of the cause of action at Bhadohi and thus the order of the learned Metropolitan Magistrate taking cognizance of offence and issuing summons to the applicants be set aside due to lack of jurisdiction.
Learned counsel for the complainant on the other hand contends that the Court at Bhadohi has jurisdiction to entertain the complaint. It is further contended that no commercial transaction between the applicants and the complainant was carried out in Delhi. Though, the company is carrying its business at Bhadohi and cheques were also issued at Bhadohi where it was presented to their bankers at Bhadohi namely the State Bank of India at Bhadohi. In view of the Core Banking System a cheque can be presented at any place for its encashment where the branches of the Banks are available. It is not necessary that the cheques are required to be presented to the same Bank where the amount is required to be drawn. The legal notice was sent from Bhadohi. Thus, the Court at Bhadohi has territorial jurisdiction to try the offences.
The issue of territorial jurisdiction under Section 138 NI Act was considered by the Hon'ble Supreme Court in K. Bhaskaran Vs. Shankaran Vaidhyam Balan & Anr (1999) 7 SCC 510. The Hon'ble Supreme Court observed that the following 5 acts are essential to constitute an offence under Section 138 of the NI Act and if these five different acts were done in five different localities, any one of the Courts exercising jurisdiction in one of the five local areas can become the place of trial for offence under Section 138 of the Act:-
(i) Drawing of the cheque;
(ii) Presentation of cheque to the bank;
(iii) Return of the cheque unpaid by the drawee bank;
(iv) Giving notice in writing to the drawer of the cheque demanding payment of the cheque amount and (iv) Failure of the drawer to make payment within 15 days of the receipt of the notice.
The Hon'ble Supreme Court was of the view that the complainant can choose any one of those Courts having jurisdiction over any one of the local areas within the territorial limits of which any one of those five acts was done. As the amplitude stands so widened and so expansive it is an idle exercise to raise jurisdictional question regarding the offence under Section 138 of the Act. The Hon'ble Apex Cout has held in paragraph nos. 15 & 16 of the judgement as under:-
"15. It is not necessary that all the above five acts should have been perpetrated at the same locality. It is possible that each of those five acts could be done at 5 different localities. But concatenation of all the above five is a sine qua non for the completion of the offence under Section 138 of the Code. In this context a reference to Section 178(d) of the Code is useful. It is extracted below:
Where the offence consists of several acts done in different local areas, it may be inquired into or tried by a Court having jurisdiction over any of such local areas.
16. Thus it is clear, if the five different acts were done in five different localities any one of the courts exercising jurisdiction in one of the five local areas can become the place of trial for the offence under Section 138 of the Act. In other words, the complainant can choose any one of those courts having jurisdiction over any one of the local areas within the territorial limits of which any one of those five acts was done. As the amplitude stands so widened and so expansive it is an idle exercise to raise jurisdictional question regarding the offence under Section 138 of the Act."
Thus clearly in view of law laid down by the Supreme Court in Bhaskaran's case, the courts at five different locations can have the territorial jurisdiction to entertain a complaint under Section 138 of the NI Act. But the practice of filing the complaint at courts situated in different locations in respect of cheques forming part of same transaction has to be deprecated.
The Apex Court in M/s. Prem Chand Vijay Kumar v. Yash Pal Singh, reported in 2005 All MR (Cri) 2029 (SC), followed in Musaraf Hossain Khan v. Bhagheeratha Engg. Ltd., reported in MANU/SC/8067/2006, further restated the basic ingredients which are necessary to lodge complaint Under Section 138 of the Negotiable Instruments Act. Those are as under:
In a generic and wide sense (as in Section 20 of the Civil Procedure Code, 1908 (in short 'CPC') "cause of action" means every fact which it is necessary to establish to support a right or obtain a judgment. Viewed in that context, the following facts are required to be proved to successfully prosecute the drawer for an offence under Section 138 of the Act:
(a) that the cheque was drawn for payment of an amount of money for discharge of a debt/liability and the cheque was dishonoured; (b) that the cheque was presented within the prescribed period; (c) that the payee made a demand for payment of the money by giving a notice in writing to the drawer within the stipulated period: and (d) that the drawer failed to make the payment within 15 days of the receipt of the notice. Proceedings on the basis of the generic meaning of the term "cause of action," certainly each of the above facts would constitute a part of the cause of action but Clause (b) of Section 142 gives it a restrictive meaning, in that, it refers to only one fact which will give rise to the cause of action and that is the failure to make the payment within 15 days from the date of the receipt of the notice. A combined reading of Sections 138 and 142 makes it clear that cause of action is to be reckoned accordingly. The combined reading of the above two sections of the Act leaves no room for doubt that cause of action within the meaning of Section 142(c) arises and can arise only once.
In view of above undisputed position of facts and law, the cause of action as contemplated in Section 142 of the Negotiable Instruments Act, would certainly arise at a place where the drawer fails to make payment of the cheque.
The Apex Court in K. Bhaskaran and M/s. Prem Chand (supra) refers to the basic ingredients which are necessary for an offence under Section 138 of the Act. There is no dispute about this that all these ingredients are necessary. The place of issuance of notice cannot be said to be determinative feature to decide the jurisdiction for filing a complaint under Section 138 of N.I. Act. The notice was though sent and received by the accused.. The party failed to make the payment as per notice. Therefore, issuance of notice itself cannot give cause of action to file complaint. The object of issuing notice as observed by the Apex Court in Rajneesh Aggarwal v. Amit J. Bhalla, reported in MANU/SC/1462/2001 is as under:
"Mere dishonour of a cheque would not raise to a cause of action unless the payee makes a demand in writing to the drawer of the cheque for the payment and the drawer fails to make the payment of the said amount of money to the payee. The object of issuing notice indicating the factum of dishonour of the cheques is to give an opportunity to the drawer to make the payment within 15 days, so that it will not be necessary for the payee to proceed against in any criminal action, even though the bank dishonoured the cheques."
Furthermore, the Supreme Court in K. Bhaskaran (supra) considered as to what are the various causes of action in a case under Section 138 of the Act to give territorial jurisdiction to a court. In para 11 of the judgment the Supreme Court held as under:
"11. We fail to comprehend as to how the trial court could have found so regarding the jurisdiction question. Under Section 177 of the Code "every offence shall ordinarily be inquired into and tried in a court within whose jurisdiction it was committed". The locality where the bank (which dishonoured the cheque) is situated cannot be regarded as the sole criterion to determine the place of offence. It must be remembered that offence under Section 138 would not be completed with the dishonour of the cheque. It attains completion only with the failure of the drawer of the cheque to pay the cheque amount within the expiry of 15 days mentioned in Clause (c) of the proviso to Section 138 of the act. It is normally difficult to fix up a particular locality as the place of failure to pay the amount covered by the cheque. A place, for that purpose, Crl.M.C. No. 1476/2007 Page 15 of 21 would depend upon a variety of factors. It can either be at the place where the drawer resides or at the place where the payee resides or at the place where either of them carries on business. Hence, the difficulty to fix up any particular locality as the place of occurrence for the offence under Section 138 of the Act."
From the discussions in the foregoing paragraphs the position that emerges is that the venue of enquiry or trial has primarily to be determined by the averments contained in the complaint. If on the basis of such averments the Court has jurisdiction, it has to proceed with the complaint. From the law laid down in the aforementioned judgement it is crystal clear that the cause of action for filing a complaint under Section 138 of the Act may also be at a place where the drawer of the cheque resided or the place where the payee resided or the place where either of them carried on business or the place where payment was to be made. But It is also manifest that any one of the five conditions enumerated by their Lordships in K. Bhaskaran's case, may not by itself invariably clinch the issue while deciding the question of jurisdiction. That question has to be decided keeping in view the entire sequence of events starting from issuance of the cheque in the ultimate culmination of refusal to pay. In any event of the matter the place of posting of a demand notice cannot determine the place of jurisdiction. One may post a demand notice from a place where none of the situations forming part of cause of action may arise as envisaged under Section 138 and Section 142 of the Negotiable Instruments Act. But can it be said that merely a demand notice was posted from a particular place, the same by itself would became a relevant factor to determine the place of jurisdiction. The answer is simply no.
Undoubtedly, Sections 177 to 182 in Chapter XIII, Code of Criminal Procedure, also cannot be overlooked. The ingredients of the offence punishable under Section 138 of the Act being such, it has to be borne in mind that one of the several acts leading to the commission of the offence will not take away the jurisdiction of the court within the territory of which the majority of the acts have been perpetrated. Section 178(d) of the Code has to be read in the backdrop of the peculiar nature of the offence punishable under Section 138. The observations of the Hon'ble Apex Court in K. Bhaskaran's case (supra) have to be read and understood in that context.
Import of the aforesaid judgement is that any one of the court exercising jurisdiction in one of the five local areas can become the place of trial for an offence under Section 138 of N.I. Act. One of such Act is return of cheque un-paid by the drawer bank. Admittedly, cheque has been submitted before a Bank at Bhadohi same was returned with endorsement that there is insufficient funds and therefore the cheque could not be encashed as such the Courts at Bhadohi had jurisdiction to entertain the complaint. It is specifically stated in the complaint by the complainant that all the transactions were held at Bhadohi. Complainant did not have any registered office in New Delhi. Correctness of all these can be determined only during the course of trial.
In view of this, I do not find any force in these applications. All the applications are dismissed accordingly.
Order Date :- 24.01.2013 RKS/