Bangalore District Court
And The Accused No.2 Are Known To Each ... vs No.2 In Consultation With Accused No.3 ... on 11 December, 2020
1 CC.24468/2011 (J)
IN THE COURT OF THE XV ADDL CHIEF METROPOLITAN
MAGISTRATE AT BANGALORE CITY.
Dated this the 11th Day of December 2020
Present: Lokesh Dhanapal Havale B.A.LL.B
XV Addl.C.M.M., Bangalore.
Judgment U/s.355 of the Cr.P.C. 1973.
1.Sl.No.of the case CC.No.24468/2011
2.Name of the Complainant: Sri.P.S.Ramesh,
Aged about 52 years,
S/o.late Srinivasa Murthy,
R/at.No.11, 13th Cross,
Swimming Pool Extension,
Malleshwaram,
Bangalore - 560 003.
(By Sri C.N.A.M. Advocate)
3.Names of the Accused: 1. M/s.Tribol Voice
Communications Pvt.Ltd.,
(A registered Company)
Represented by its Managing
Director & Directors.
2. Sri.Arunkumar Bolar
S/o. Bhaskar, Major
Managing Director,
3. Smt.Veena Bolar
W/o. Arun Kumar, Major
Director,
4. Miss. Suhana Bolar,
D/o. Arun Kumar, Major,
Director,
All residing at No.583,
12th 'A' Cross, 8th Main,
J.P.Nagar 2nd Phase,
Bangalore - 560 078.
2 CC.24468/2011 (J)
Also at: GIB 9/1,
Ground Floor,
Commerce House,
Cunningham Road,
Bangalore - 560 052.
(By Sri. K.R.P.P. Advocate
5. Sri. Naveen Kumar,
S/o. D.B. Ramachandra, Major,
Director,
C/o. Seribrum Systems
Pvt. Ltd.,
No.14, 2nd Floor,
72nd Cross, 5th Block,
Rajajinagar, Bangalore560 010.
Office at: GIB 9/1,
Ground Floor,
Commerce House,
Cunningham Road,
Bangalore - 560 052.
(By Sri. V.S.A. Advocate )
4.The offence complained of U/s.138 of Negotiable Instruments Act.
5.Plea of the Accused: Pleaded not guilty.
6.Final Order: Acting U/s.255(1) Cr.P.C., Accused
No.5 is acquitted.
Acting U/s.255(2) Cr.P.C., Accused
No.1 to 4 are convicted.
7.Date of final Order 11.12.2020
***
3 CC.24468/2011 (J)
This complaint is filed U/Sec.200 of Cr.P.C. against the Accused
No.1 to 5 for the offence punishable U/Sec.138 of the Negotiable
Instruments Act, 1881, wherein Accused No.1 is a Company and
Accused No.2 is its MD and Accused No.3 to 5 are its directors.
2. The brief facts of the complaint are as under.
The complainant is a businessman having firm by the name
Balaji Enterprises and its account is in Ratnakar Bank Ltd.,
Gandhinagar Branch, Bengaluru having Acc. No. 1005712010001250.
The Accused No.1 is a Registered Private Limited Company by the
name Tribol Voice Communications Pvt. Ltd., Accused No.2 is its
Managing Director and Accused No.3 to 5 are its Directors. The
complainant and the Accused No.2 are known to each other. The
Accused No.2 in consultation with Accused No.3 to 5 obtained loan of
Rs.9,87,000/ from the complainant and it was transferred by way of
RTGS into the account of the Accused No.1 bearing
No.16430200000892 with the Federal Bank Ltd., Vijayanagar Branch,
Bengaluru. On demand by the complainant for repayment, the Accused
No.2 issued a post dated cheque bearing No.196016 dated 7.4.2011,
drawn on Vijaya Bank, Infantry Road and also executed a Promissory
Note. The complainant presented the said cheque for encashment
through Ratnakar Bank, Gandhinagar Branch, Bengaluru. It was
returned unpaid with shara "Account Frozen" and "Funds Insufficient"
vide bank endorsement dated 27.4.2011. The complainant issued the
statutory notice dated 7.5.2011 to all the Accused and it was duly
served upon them and they sent reply notice dated 28.5.2011. Despite
the service statutory notice, the Accused No.2 to 5 failed to pay the
cheque amount and thereby committed an offence punishable U/s.138
of the N.I.Act.
4 CC.24468/2011 (J)
3. After the institution of the complaint, cognizance of the offence
has been taken against the Accused and it has been registered as PCR
No.13895/2011. On the basis of materials available on record, the
criminal case has been registered against the Accused No.1 to 5 and
summons were issued to the Accused. In response to service of the
summons, the Accused No.2 to 5 being the Managing Director and
Directors of the Accused No.1 Company have appeared through their
learned counsels and got enlarged on bail. The prosecution papers were
supplied to the Accused No.2 to 5 and substance of the accusation was
read over and explained to the Accused No.2 to 5. They pleaded not
guilty and claimed to be tried.
4. In order to prove his case, the complainant examined himself as
as PW1 and got marked Ex.P.1 to P.10. Thereafter the statements of
the Accused No.2 to 5 U/s 313 of Cr.P.C were recorded. In order to
prove their defence, the Accused No.2 examined himself as DW1, the
Accused No.4 examined herself as DW2, the Accused No.3 examined
herself as DW3 and the Accused No.5 examined himself as DW4. The
documents on the side of the defence were marked as Ex.D.1 to D.33.
5. I have heard the arguments of the learned counsels appearing
for the complainant and Accused No.2 to 5 and perused the entire
materials. On perusal the points that arise for my consideration are as
under;
1. Whether the complainant proves that the Accused
No.2 is Managing Director and Accused No.3 to 5 are
the Directors of Accused No.1 Company by name the
Tribol Voice Communication Pvt. Ltd, and the Accused
No.2 on behalf of Accused No.1 Company and on
5 CC.24468/2011 (J)
behalf of other Accused has issued the cheque bearing
No.196016 drawn on Vijaya Bank, Infantry Road
Branch, Bengaluru in favour of complainant for a sum
of Rs.9,87,000/towards the discharge of legally
enforceable debt/liability, and on its presentation, it
was dishonored for the reason "Account
Frozen/Insufficient Funds" and they have not paid the
amount even after the lapse of 15 days from the date
of service of statutory notice on them and thereby
Accused No.1 to 5 have committed an offence
punishable U/Sec.138 of N.I. Act, 1881?
2. Whether the Accused No.1 to 5 rebut the
presumption U/s. 139 of N.I.Act?
3. What order?
6. My answers on the above points for consideration are as under.
Point No.1 : In the Affirmative.
Point No.2 : In the Negative.
Point No.3 : As per final order for the following:
REASONS
7. Point No.1 and 2: The points are taken together for common
discussion to avoid repetition of facts and evidence.
8. At this juncture it is necessary to discuss the provisions under
Section 138, 118(a), 139 and 141 of the N.I. Act., 1881 and the said
provisions are extracted and they read as under;
6 CC.24468/2011 (J)
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
provision of this Act, be punished with imprisonment
for a term which may be extended to two years, or
with fine which may extend to twice the amount of
the cheque, or with both:
Provided that nothing contained in this section
shall apply unless:
(a) the cheque has been presented to the bank
within a period of six months from the date
on which it is drawn or within the period of
its validity, whichever is earlier;
(b) the payee or the holder in due course of
the cheque, as the case may be, makes
demand for the payment of the said amount
of money by giving a notice in writing, to the
7 CC.24468/2011 (J)
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.
118. Presumptions as to negotiable instruments.
-Until the contrary is proved, the following
presumptions shall be made;
(a) of consideration - that every negotiable
instrument was made or drawn for
consideration, and that every such
instrument, when it has been accepted,
indorsed, negotiated or transferred, was
accepted, indorsed, negotiated or transferred
for consideration;
(b) as to date: that every Negotiable
Instrument bearing date was made or drawn
on such date;
8 CC.24468/2011 (J)
139. Presumption in favour of holder. It shall be
presumed, unless the contrary is proved, that the
holder of a cheque received the cheque of the nature
referred to in section 138 for the discharge, in whole
or in part, of any 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 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.
9 CC.24468/2011 (J)
(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.
Explanation: For the purposes of this section;
(a) "Company" means and Board of
Directorsy corporate and includes a firm or
other association of individuals; and
(b) "director", in relation to a firm, means a
partner in the firm.
9. On plain perusal of the provisions U/s. 118(a) and 139 of the
N.I.Act., it can be seen that initially the statutory presumptions are
raised in favour the complainant. However it is open to an Accused to
raise probable defences and rebut the statutory presumptions by
proving the same. An Accused can raise a defence, wherein the
existence of legally enforceable debt or liability can be contested. It is
also well established that an Accused for discharging the burden of
proof placed upon him under a statute need not examine himself. He
may discharge his burden on the basis of the materials already brought
on record. An Accused has constitutional rights to maintain silence.
The standard of proof on part of the Accused and that of the
10 CC.24468/2011 (J)
prosecution in a Criminal case is different. The prosecution must prove
the guilt of an Accused beyond all reasonable doubts but the standard
of proof so as to prove a defence on the part of an Accused is
preponderance of probabilities.
10. The burden of proving the defence is on the Accused.
However, in a case, where a Company is an Accused and its directors
are to be made vicariously liable, then it is necessary for the
complainant to prove that its directors were in charge of and
responsible to the conduct of its business at the time of commission of
the offence. Once the complainant proves it, the onus shifts on an
Accused to prove that the offence was committed without his
knowledge or he had exercised all due diligence to prevent the
commission of offence, if not, the directors are vicariously liable. On
the other hand, if the directors are able to prove by cogent evidence
that they are neither in charge of and responsible to the conduct of the
business of the Company nor they had knowledge of the transaction or
negligent, they are entitled for acquittal.
11. The complainant examined himself as PW1. He filed
affidavit on oath in lieu of his examinationinchief and reiterated the
averments made in the complaint. He got marked Ex.P.1 to P.10.
Ex.P.1 is the endorsement issued by Deputy Registrar of Companies,
Karnataka, Bengaluru pertaining to the Accused No.1 Company. Ex.P.2
is the certified copy of Form No.32 of Accused No.1 Company issued by
the Registrar of Companies, Karnataka, Bengaluru, wherein the names
of Accused No.2 to 5 have been mentioned as directors of Accused No.1
Company from the date of its incorporation. Ex.P.3 is the certified copy
of certificate of incorporation of Accused No.1 issued by Deputy
11 CC.24468/2011 (J)
Registrar of Companies, Karnataka, Bengaluru. It discloses that it was
incorporated on 25.08.1995. Ex.P.4 is the cheque dated 07.04.2011
bearing No.196016 for Rs.9,87,000/ issued in favour of the
complainant. It pertains the account of Accused No.1 Company and
bears the signature of the Accused No.2, who is its Managing Director.
The signature is at Ex.P.4(a). Ex.P.5 is the Bank endorsement dated
27.04.2011. It discloses that the cheque was presented for the
encashment and it was returned with shara "Accounts Frozen" and
"Funds Insufficient". Ex.P.6 is the Agreement dated 25.10.2010, which
shows that the Accused No.2 has executed the agreement of availing
loan for business of Accused No.1 Company. It is mentioned in the
agreement that he issued post dated cheque bearing No.196016 for
Rs.9,87,000/, which is the cheque in question marked as ExP.1 and
also executed promissory note, which is marked as ExP.9. Ex.P.7 is the
office copy of the legal notice dated 07.05.2011 demanding the
repayment of money comprised in the cheque at ExP.4. Ex.P.8 is empty
envelope in which the reply notice has been received by the
complainant. Ex.P.9 is the on Demand Promissory Note and
consideration receipt for a sum of Rs.9,87,000/ executed by the
Accused No.2 in favour of the complainant. Ex.P.10 is the reply notice
dated 28.5.2011. In the said reply notice the transfer of money is
admitted but the purpose of the transaction was denied.
12. The Accused No.2 to 5 have led their defence evidence.
The Accused No.2, 4, 3 and 5 were examined as DW1 to DW4
respectively and they got marked Ex.D.1 to D.33. Ex.D.1 is the certified
copy of certificate of incorporation of Accused No.1 Company issued by
Asst. Registrar of Companies, Bengaluru. Ex.D.2 and D.3 are the
certified copies of Articles of Association and Memorandum of
12 CC.24468/2011 (J)
Association of Accused No.1 Company issued by Asst. Registrar of
Companies, Bengaluru. Ex.D.4 is the certified copy of letter of
resignation dated 4.3.1997 submitted by the Accused No.5 to the
Accused No.1. Ex.D.5 is the certified copy of letter dated 29.3.1997
issued by Accused No.1 accepting resignation of Accused No.5. Ex.D.6
is the certified copy of letter dated 21.1.2013 addressed by the Accused
No.5 to the Registrar of Companies, Bengaluru in respect of his
resignation from the Accused No.1 Company as its director. Ex.D.7 is
the certified copy of Form No.DIR12 issued by the Registrar of
Companies, Bengaluru informing to the Accused No.1 Company about
acceptance of resignation of Accused No.4 and 5, which came into
effect from 21.7.2018. Ex.D.8 is the certified copy of Form No.32 of
Accused No.1 Company issued by Registrar of Companies, Bengaluru,
which is the list of directors at its incorporation. It shows Accused No.2
to 5 as directors of the Company at its incorporation.
13. Ex.D.9 to 33 are the documents pertaining to the Accused
no.4, which show that she worked in various companies from 2010 to
2016. ExD.9 is the increment letter dated 2.12.2015 of Accused No.4
issued by Airtel Mobile services, Ex.D.10 is the Experience Letter dated
06.01.2011 issued by Airtel Mobile services, Ex.D.11 is the Resignation
Acceptance Letter dated 02.11.2010 issued by Airtel Mobile services,
Ex.D.12 is the Offer Letter dated 10.11.2010 of Tata Tele Services,
Ex.D.13 is the Appointment Letter dated 10.11.2010 issued by Tata
Tele Services, Ex.D.14 is the Resignation Acceptance Letter dated
04.08.2016 issued by Tata Tele Services, Ex.D.15 is the Experience
Letter dated 23.11.2016 issued by Tata Tele Services, Ex.D.16 is the
Letter dated 22.08.2016 given by Reliance Company, Ex.D.17 to 23 are
the Income Tax Returns from the year 201213 to 201819, Ex.D.24 to
13 CC.24468/2011 (J)
32 are the certified copies of the pay slips of Accused No.4 and Ex.D.33
is the certified copy of I.D. issued by Tata Tele Services.
14. The documents disclose that the complainant presented the
cheque at ExP.4 for encashment within time i.e. within the validity of
the cheque. The Accused No.2/DW.1, who is Managing Director,
admitted the issuance of cheque, signature and the seal of the Accused
No.1 Company. The Accused No.2 also admitted the same in his
evidence. Therefore, the presumption arises in favour of the
complainant. The admission attracts the ratio laid down by the Hon'ble
Supreme Court of India in its decisions reported in 2011 (11) SCC 441
- Rangappa V/s Mohan and 2015 (8) SCC 378 - T.Vasanthakumar
V/s.Vijayakumari. The ratio is that the cheque shall be presumed to be
for consideration unless and until the court forms a belief that the
consideration does not exist or considers its nonexistence so probable
that a prudent man would, under the circumstances of a particular
case, act upon the plea that it does not exist. Further it was also
admitted that the amount mentioned in the cheque was transferred to
the account of Accused No.1 Company through RTGS. It was also
admitted in reply notice at ExP.10 as well as in the evidence of DW.1.
15. ExP.5 is the memo dated 27.04.2011 issued by the bank
with shara "Account Frozen" and "Funds Insufficient". The complainant
issued statutory notice dated 07.05.2011 as per ExP.7 to the Accused
No.1 to 5 within time from the date of receipt of dishonor memo. The
counsel for the accused No.2 to 4 argued that the act of freezing the
account is the act of the bank and the Accused No.1 Company could
not be made liable.
14 CC.24468/2011 (J)
He relied upon the judgment of Hon'ble Delhi High Court in M/s.
Ceasefire Industries Ltd Vs. State & Others, reported in (2017) 2 MAD
WN (Cri) 71, wherein it was held as under;
"The reason given by the Bank for the return of the cheque
being "Account Freezed" or "Account Blocked"; the
complainant being aware of the fact and the reason being
not what is envisaged in Sec.138 of N.I.Act., the petition is
devoid of merit."
He also relied upon the judgment of Hon'ble High Court of Punjab
and Harayana in Rajesh Meena Vs. State of Haryana and others in its
decision dated 01.07.2019, wherein the Hon'ble Court has interpreted
the expression "account maintained by the drawer" as under;
A careful analysis of Section 138 N.I.Act reveals that
the first and foremost requirement to maintain the
complaint under Section 138 NI Act is that the cheque
issued by the account holder must be from the account
maintained by account holder with the drawerBank for
discharge in whole or in part of any debt or other liability.
The expression "account maintained by him" as
appearing in Section 138 of NI Act carries great
significance and meaning. The dictionary meaning of
"Maintain" (as contained in Oxfort Dictionary) is defined
as: the act of making the state or situation continue.
Therefore, the said expression "account maintained by him"
cannot be construed narrowly to mean that if the account
belongs to the accused, the necessary ingredient would be
15 CC.24468/2011 (J)
complete. This expression "account maintained by him"
must necessarily include that the said account is not only
alive and operative, but the account holder is capable of
executing command to govern the financial transactions
which include the clearance of cheques etc. The authority
and control of the account holder upon the account must
exist on the effective date i.e., when the cheque becomes
valid for presentation in the bank. It is settled law that
mere issuance of a cheque is not an offence, but it becomes
punishable when the said cheque is dishonoured. Mere fact
that the record of the drawer bank shows a particular name
as account holder would not be sufficient to establish that
account is being maintained by the account holder, unless
the said account holder holds the authority and control over
the said account. In other words, if an account holder is
deprived off his authority, control and dominion over the
bank account, it cannot be said that the account is being
maintained by the said account holder.
16. However the Accused did not agitate the same either in the
reply notice or in the evidence. It took almost 7 years to secure the
presence of Accused No.2 to 5 as per the order sheet. They did not even
raise the issue at the initial stage, after their appearance. It is only at
the stage of arguments, the point has been raised. When the facts of
transfer of amount to the account of Accused No.1 and issuance of
cheque are admitted, the burden is on the Accused to prove their
defences. The memo was not issued with "Account Frozen" shara alone.
It has also been issued with shara "Funds Insufficient".
16 CC.24468/2011 (J)
The Hon'ble High Court of Karnataka observed in its judgment
dated 21.08.2018 in Crl.R.P. No.879 OF 2016 between Ms. B.N Anitha
Vs. Sri G Yuvaraj Singh as under;
"No doubt it is true that if the bank suo moto blocked the
account, an offence under Sec.138 N.I.Act cannot be invoked;
however it depends on the facts and circumstances. Despite
having sufficient balance in the account, if the account is
blocked by the bank for a valid reason, then no fault can be
found with the Accused. But for not maintaining the balance
in the account and for not operating it for quite a long time, if
the bank blocks the account, and knowing it very well if the
cheque is issued, the Accused cannot take advantage of such a
situation.
The Hon'ble Supreme Court of India has in the case of Laxmi
Dychem v. State of Gujarat and Ors. reported in (2012) 13 SCC
375 held as under;
The expression "amount of money...........is insufficient"
appearing in Section 138, N.I. Act is a genus and dishonour
for reasons such as "account closed", "payment stopped",
"referred to the drawer" are only species of that genus and
would attract penal liability under section 138, N.I. Act.
The Hon'ble Supreme Court of India in the decision of D.
Vinod Shivappa Vs. Nanda Belliappa reported in (2006) 6 SCC 456
held with respect to the object of Sec. 138 of the Act at para 13 as
follows;
"13. Sec. 138 of the Act was enacted to punish those
unscrupulous persons who purported to discharge their
17 CC.24468/2011 (J)
liability by issuing cheques without really intending to do so,
which was demonstrated by the fact that there was no
sufficient balance in the account to discharge the liability.
Apart from civil liability, a criminal liability was imposed on
such unscrupulous drawers of cheques. The prosecution,
however, was made subject to certain conditions. With a view
to avoid unnecessary prosecution of an honest drawer of a
cheque, or to give an opportunity to the drawer to make
amends, the proviso to Sec. 138 provides that after dishonour
of the cheque, the payee or the holder of the cheque in due
course must give a written notice to the drawer to make good
the payment. The drawer is given 15 days time from date of
receipt of notice to make the payment, and only if he fails to
make the payment he may be prosecuted.
The object which the proviso seeks to achieve is quite
obvious. It may be that on account of mistake of the bank, a
cheque may be returned despite the fact that there is sufficient
balance in the account from which the amount is to be paid. In
such a case if the drawer of the cheque is prosecuted without
notice, it would result in great injustice and hardship to an
honest drawer. One can also conceive of cases where a well
intentioned drawer may have inadvertently missed to make
necessary arrangements for reasons beyond his control, even
though he genuinely intended to honour the cheque drawn by
him. The law treats such lapses induced by inadvertence or
negligence to be pardonable, provided the drawer after notice
makes amends and pays the amount within the prescribed
period. It is for this reason that Clause (c) of proviso to Sec.
18 CC.24468/2011 (J)
138 provides that the section shall not apply unless the drawer
of the cheque fails to make the payment within 15 days of the
receipt of the said notice. To repeat, the proviso is meant to
protect honest drawers whose cheques may have been
dishonoured for the fault of others, or who may have
genuinely wanted to fulfill their promise but on account of
inadvertence or negligence failed to make necessary
arrangements for the payment of the cheque. The proviso is
not meant to protect unscrupulous drawers who never
intended to honour the cheques issued by them, it being a part
of their modus operandi to cheat unsuspecting persons."
17. On perusal of the above decisions, they show that whatever
be the reason for dishonour of the cheque, it has to be corelated to the
insufficiency of funds in the account or to the lack of arrangement
made by the drawer with his bank under an agreement. The facts of the
present case, show that the account of the Accused No.1 was freezed,
which is obviously the act of the Bank and the account to be
maintained by an account holder means that he should be in position to
operate the said account by either depositing money therein or by
withdrawing money therefrom and further he should be in a position to
give effective instructions to his banker with whom the account is
maintained. However the facts were not brought on record by the
Accused by adducing cogent evidence in respect of the account of the
Accused No.1 Company such as the date on which account was frozen;
the reason for which it was frozen; whether he had the knowledge of
the same at the time of issuance of cheque in question and if he had,
whether the intimation was given to the complainant about the same
and the Company had sufficient amount with it at the relevant point of
19 CC.24468/2011 (J)
time to deposit the same to its account. Further the question of
sufficiency of funds in the account at that time is also a relevant factor
but the bank has already issued the endorsement with shara "Funds
Insufficient" along with shara "Account Frozen". If the said facts were
brought on record by way of evidence, the Court would have been in a
better position to appreciate the aspect of shara "Account Frozen". The
Accused can not escape his liability on point raised at the fag end of the
trial, when he has failed to discharge his burden to show by leading
evidence that he had sufficient balance with the Company as on the
date of dishonour or he was in position to arrange said amount at
relevant time and to show that he was an honest drawer. Therefore the
argument of the counsel for the accused is not tenable.
18. The legal notice dated 07.05.2011 at ExP.7 was served on the
Accused and the reply notice dated 28.5.2011 was issued as per
ExP.10. Further the order sheet dated 22.6.2011 speaks that the
complainant has filed this complaint well within time. The Accused
have denied the service of notice and took the defence that the Accused
No.1 Company was shifted to another address and the Company itself
was closed long back i.e. in the year 2000.
In the decision of D. Vinod Shivappa Vs. Nanda Belliappa
reported in (2006) 6 SCC 456 Hon'ble Supreme Court held as under;
"When the drawer refuses to accept notice or when he evades
service of the notice by fraudulent or unscrupulous means so
that the envelope containing the notice is returned with a false
endorsement such as premises locked or addressee not
available, Court may presume receipt of the notice by the
drawer."
20 CC.24468/2011 (J)
19. In this case the endorsement was not produced as the reply
notice has been given by the Accused, which is at ExP.10. The
suggestions were made to the PW.1 in respect of change of address and
closure of the Company. However, during the course of cross
examination, the Accused No.2/DW.1 admitted that the Accused No.1
Company is still existing but denied the address. However the ExD.1
and 2 produced by DW.1, which are Certificate of Incorporation and
Articles of Association, which are obtained during the year 2018 from
Registrar of Companies, depict the same address. Moreover the
Accused have not adduced any evidence to show that the address was
changed and it was duly intimated to the Registrar of Companies as per
law. Even though it is considered for the sake of arguments that the
address of the Company was changed, the notice would have been
returned with shara "address changed or addressee left" and the same
would be presumed as deemed service of notice, when the address was
proved. The Accused has not rebutted the presumption of service of
notice by cogent evidence. Moreover as per the Judgment of the
Hon'ble Supreme Court of India in Crl.Appeal No.767 of 2007 (Arising
out of SLP (Crl) No.3910 of 2006 between CC Alavi Haji
Vs.Palapetty Muhammed and another decided on 18.5.2007, wherein it
has been held by the Hon'ble Supreme Court of India para No.17 as
under;
17. It is also to be borne in mind that the
requirement of giving of notice is a clear departure from
the rule of Criminal Law, where there is no stipulation
of giving of a notice before filing a complaint. Any
drawer who claims that he did not receive the notice
sent by post, can, within 15 days of receipt of
21 CC.24468/2011 (J)
summons from the court in respect of the complaint
U/s.138 of the Act, make payment of the cheque
amount and submit to the Court that he had made
payment within 15 days of receipt of summons (by
receiving a copy of complaint with the summons) and,
therefore, the complaint is liable to be rejected. A person
who does not pay within 15 days of receipt of the
summons from the Court along with the copy of
the complaint u/s.138 of the Act, cannot obviously
contend that there was no proper service of notice as
required u/s.138, by ignoring statutory presumption to
the contrary u/s.27 of the G.C. Act and Section 114 of
the Evidence Act. In our view, any other interpretation
of the proviso would defeat the very object of the
legislation. As observed in Bhaskaran's case (supra), if
the 'giving of notice' in the context of Clause (b) of the
proviso was the same as the 'receipt of notice'
a trickster cheque drawer would get the premium to
avoid receiving the notice by adopting different
strategies and escape from legal consequences of Section
138 of the Act.
In a nutshell it can be said that the statutory notice is an
opportunity given to the accused to make payment and avoid the
consequences of 138 of N.I.Act. In the case on hand, the accused
appeared before the Court and contested the case by taking all
probable defences. They cannot take the shelter of statutory
requirement of service of notice to avoid the consequences of Section
138 of N.I.Act.
22 CC.24468/2011 (J)
20. The counsel for the accused No.2 to 4 argued that the
complainant filed the affidavit in lieu of examination in chief and it is
not as per law and therefore the evidence given by him has to be
brushed aside. He placed reliance on the decision of the Hon'ble Apex
Court reported in 1996 (5) SCC 181, wherein it was held that "an
affidavit is a statement in writing on oath or affirmation before a person
having authority to administer oath or affirmation." According to the
said decision, an affidavit must be sworn or affirmed in the manner
required by law or it is not an affidavit. It has been admitted by the
Complainant that the Affidavit is signed by the him in his house.
Therefore such evidence has to be discarded. On perusal of the entire
evidence and the affidavit, it appears that the affidavit was properly
sworn as per law and this Court is of the opinion the the answer
elicited in the cross examination of PW.1 should not be considered to
negate the case of the complainant in the interest of justice.
Considering the facts and circumstances, the said aspect has no bearing
on the case and the argument of the counsel for the accused No.2 to 4
is not tenable. Therefore, the documents on record show that the
complainant has complied all the ingredients U/s.138 of N.I.Act.
Therefore the presumption arises U/s. 139 of NI Act in favour of the
complainant that the cheque in question was given for legally
recoverable debt/liability.
21. It is the specific defence of the Accused and the argument of
the counsel for the Accused No.2 to 4 that the brothers of the
complainant by name P.S.Subramanyam and P.S.Sridharmurthy were
interested in taking over the business of the Accused No.1 Company
from 01.04.2011 and invested money for purchase of equity shares of
the Accused No.1 Company. The complainant and his brothers took
23 CC.24468/2011 (J)
signatures of the Accused No.2 on various blank papers and various
blank undated cheques as security until the transfer of shares. The
Accused No.2 was required to arrange the transfer after the audit on
31.03.2011. They require time until July, 2011 as the modalities of
transfer of shares have to be discussed with the professionals and in the
meantime the complainant and his brothers tried to encash the
cheques, which have been given as security, without his knowledge.
The blank signed cheques were misused and blank papers were used to
fabricate loan agreement. There is no legally recoverable debt. The said
defence was also taken in the reply notice at Ex.P.10. He further argued
that ExP.6 is created document and the Company has not authorized
Accused No.2 to execute such agreement and he has not executed any
document. He further argued that as per para 24 of the ExD.2, the
management is vested with board of directors and Company can not be
made liable for the acts of Accused No.2.
22. In support of the defence of the accused, the counsel for
accused no.2 to 4 placed reliance on the judgment of the Hon'ble
Supreme Court of India in the case of Bharath Barrel and Drum
Manufacture Co., Vs.Ameen Chand Pyarelal reported in (1999) 3 SCC
3S and in MS.Narayan Menon Vs. State of Kerala reported in (2006) 6
SCC 39, wherein it was held as under:
"The standard of proof required to rebut the presumption
under Section 139 is that of "preponderance of
probabilities". Therefore, if the accused are able to raise a
probable defense which creates doubts about the existence of
a legally enforceable debt or other liability, the onus shifts
back to the complainant to prove by way of evidence, beyond
reasonable doubt, that the cheque in question was issued by
24 CC.24468/2011 (J)
the accused in discharge, whole or in part, of any debt or
other liability, and the presumptions under Section 118(a)
and Section 139 will not come to the rescue of the
complainant."
23. He further argued that the complainant is totally aware of the
covenant in Articles of Association. It has been specifically admitted by
the complainant in the crossexamination that he has asked about the
M/A and A/A of the company. Moreover by virtue of Doctrine of
constructive notice, the complainant is aware of the covenants of the
Memorandum and Articles of Association of Accused No.1 company,
since MOA and AOA are public documents registered with ROC,
Bangalore and each and every person in general public presumed to be
aware of the same. The purported loan agreement at ExP.6 said to be
executed by Accused No.2 on 25102010 and on the same date, the
accused No.2 is said to admit hand written clause in the ExP.6 about
the cheque and signed by Accused No.2. The Accused No.2 has
rebutted by the same. The cheque of the company is purely concocted
and it is void abinitio. Assuming without admitting that the
complainant had purportedly advanced loan to Accused No.1 company,
based on an agreement (Ex.P.6) entered with Accused No.2 is beyond
the scope of Articles of Association and the complainant being a
contracting party is also bound by the Articles of Association of Accused
No.1 company. Hence, the purported loan transaction itself is illegal
and nonest.
He relied upon the judgment of Hon'ble Madras High Court in
Kotla Venkataswamy Vs. Chintaramamurthy and others reported in
Volume XL law weekly page 366; AIR 1934 MAD 579, wherein it was
held as follows:
25 CC.24468/2011 (J)
"What are the obligations of persons dealing with a
company will be found given at length in palmer's company
law 14th edn. P.38. He must be taken to have read the
companies Act and the articles of association of the
company he is dealing with and thus to have had
constructive notice of their contents."
Further it was argued that assuming that based on the loan
agreement at Ex.P.6, the Accused No.2 had issued the cheque and the
issuance of the cheque has been questioned by the Accused to the
complainant. The execution of agreement itself is disputed. In that
regard, he relied upon the judgment of the Hon'ble High Court of
Karnataka reported in (2010) 4 BC 507; (2010) Cri.LJ 1061; 2011 (3)
Kant LJ 331 in the case of Sri. Venkatesh Bhat A. Vs. Rohitdas Shenoy
wherein it was held as under;
"11. Since the valid execution of the ExP.1 agreement and
the issue of cheque in question by the accused to the
complainant in terms thereof, are seriously questioned,
findings as to "whether the said agreement is with free
consent", "whether the Accused No.2, issued the said cheque
issued voluntarily in terms of the said Agreement",
"Whether the signatures of the Accused were obtained on
the said agreement", and whether the said cheque was taken
by the complainant by exercising coercion on him are to be
given. As rightly observed by the Trial Court, findings on
these issues could not be given by it being the Criminal
Court, and the said findings on the said issues are to be
given by a competent Civil Court. Therefore I am of the
26 CC.24468/2011 (J)
considered opinion that thr trial Court is quite justified in
observing at para 12 of its judgment that if at all any terms
of the alleged agreement dated 15.05.2007 are violated by
the accused, then the remedy is left elsewhere but not before
it, which is a Criminal Court."
Further it was argued that even assuming that the Accused No.1
Company is having liability towards the amount received in its account,
the proper remedy open for the complainant is to file either winding up
application before the appropriate Tribunal under Companies Act or to
prefer a civil suit. Section 138 N.I.Act, could not be used as an
alternative for recovery of money and the penal provisions of section
138 could not be used as Arm twisting tactics against the company.
24. On the other hand the counsel for the complainant argued that
as per Ex.D.2 and Ex.D.3, the authorized share capital of the Company
is Rs.10,00,000/ divided into 10,000 equity shares of Rs.100/ each
and the Company has power to increase or reduce the capital of the
Company. The Directors at the time of incorporation Accused No.2 to 5
took hundred shares each. The total issued share capital of the
Directors is Rs.40,000/ and the amount transferred by the complainant
is Rs.9,87,000/. The Accused No.2 issued cheque as per Ex.P.4 with
seal of the Company and his signature and executed Promissory Note
as per Ex.P.9 in the similar manner. In support of Ex.P.4 and P.9, he
also executed agreement as per Ex.P.6, wherein the seal and signature
in the first page were admitted and the seal and signatures on other
pages were denied. Para No.28 of Ex.D.2 clearly show that all the
directors shall authorize for use of seal, which shall be kept in the safe
custody provided by the board of directors and shall be used in the
27 CC.24468/2011 (J)
presence of one of the directors. He further argued that para No.25 of
the Ex.D.2 refers to appointment of Managing Director and para No.27
of the Ex.D.2 refers to delegation of powers to him and para No.29
refers to borrowing powers. The Accused No.2 being Managing Director
of Accused No.1 Company is authorized to borrow money under the
delegation of powers from the Directors and in the same authority
executed Ex.P.6 and P.9, which clearly show that the amount was given
as loan and not for purchase of equity shares.
25. At this juncture it is necessary to extract the clauses in the
Articles of Association for the purpose of discussion.
Clause3. The Authorized Share Capital of the Company is
Rs.10,00,000/ (Rupees Ten lakhs only) divided into 10,000 (Ten
thousand) Equity Shares of Rs.100 (Rupees one hundred only) each
with power to increase or reduce the capital of the Company and to
divide the shares in the capital for the time being into several
classes and to attach thereto respectively such preferential, deferred,
qualified of special rights privileges or conditions as may be
determined and to various modify of approval any such rights,
privileges or conditions in such manner as may for the time being
be provided by the Articles of Association of the Company.
Clause5. Subject to the provisions hereinafter contained, shares in
the Company shall be transferable by written instrument in the
prescribed form signed both by the transferor and the transferee
and the transferor shall be deemed to remain the holder of the
share until the name of the transferee is entered in the Register of
Members in respect thereof.
28 CC.24468/2011 (J)
Clause14. Subject to section 252 of the Companies Act, 1956,
and unless and until otherwise determined by the Company in
General Meeting, the number of Directors shall not be less than two
or more than ten including all kinds of Directors. The Director shall
not be liable to retire by rotation. The first Directors of the
Company shall be:
1. ARUN KUMAR BOLAR
2. B.R.NAVEEN KUMAR.
3. SMT. VEENA BOLAR
4. MISS.SUHANA BOLAR.
and they shall be permanent Directors of the Company and shall
hold office for life or until they resign from that office.
Clause24. The management and control of the business of the
Company shall be vested in the Directors who may exercise all such
powers and do all such acts and things as may be exercised or done
by the Company and are not by the Act expressly directed or
required to be exercised or done by the Company in General
Meeting but subject nevertheless to the provisions of the Act and to
any regulations from time to time made by the Company in
General meeting provided that no regulations so made shall
invalidate any prior act of the Directors which would have been
valid if such regulations had not been made.
Clause25. The Board of Directors may from time to time appoint
one or more of their Board of Directorsy to be a Managing Director
or Managing Directors of the Company either for a fixed term or
without any limitation as to the period for which he or they is or
are to hold such office, on such terms and conditions as they deem
29 CC.24468/2011 (J)
fit and delegate such powers to him or them as they deem proper
and may from time to time remove or dismiss him or them from
office and appoint another or others in his or in their place or
places. The Directors may fix the remuneration of such managing
Directors whether by the way of salary and or commission or by
conferring a right to participate in the profits of the Company or by
a Combination of both.
Clause27. The Board may, subject to the provisions of the Act,
delegate any of its powers to Committee consisting of such member
or members of its Board of Directorsy as it thinks fit and or to the
Managing Director or Manager. Any Committee so formed or the
Managing Director shall in the exercise of the powers so delegated
conform to any regulations they may from time to time be imposed
upon it by the Board.
Clause28. The Company shall have common Seal and the Board
shall provide for the safe custody thereof. The Seal shall not be
applied to any instrument except by the authority of a resolution of
the Board or of a Committee of the Board authorised by it in that
behalf and in the presence of one Director or such other person as
the Board may appoint for the purpose and such Director or other
person aforesaid shall sign every instrument to which Seal of the
Company is so affixed in his presence.
Clause29. The board of directors may from time to time at their
discretion raise or borrow secure the payments of any sum of
money for purpose of the Company's business and may secure the
payment or repayment of such money by mortgage or charge upon
30 CC.24468/2011 (J)
the whole or any part of the assets and property of the Company
(present and future) including its uncalled share capital.
Subject to as aforesaid, any bonds, debentures or other
securities issued by the Company shall be under the control of
Board of Directors who may issue them upon such terms and
conditions and in such manner and for such consideration as they
consider to be for the benefit of the Company.
If the Directors any other person shall become personally
liable for the payment of any sum primarily due from the
Company, the Directors may execute cause to be executed any
mortgage, charge or security cover for affecting the whole or any
part of the assets of the Company by way of indemnity to secure the
Directors or persons so becoming liable aforesaid for any loss in
respect of any such liability.
26. It is clear from the clause No.2 of ExD.2, which is the Articles
of Association, that the authorized capital of the Company is
Rs.10,00,000/ which is divided into 10,000 equity shares of Rs.100/
each and the directors of the Company i.e. Accused No.2 to 5 took 100
shares each total amounting to issued share capital of 40,000/. No
records as to the business of the Company were brought on record. It is
not clarified as to what is the issued share capital of the Company. No
doubt there is a clause in Ex.D.2 that the Company can raise or reduce
its authorized share capital but there is nothing on record to show that
the process of raising authorized share capital was initiated by the
Company at the relevant point of time as alleged by its Directors in the
reply notice at Ex.P.10. The amount mentioned in the cheque in
31 CC.24468/2011 (J)
question is more than the remaining amount of the authorized share
capital after deduction of issued share capital. That apart there are
series of cases filed by the brothers of the complainant on the Accused
No.1 Company and all the amounts mentioned in those cheques are
near to or more than Rs.10,00,000/. If at all it is considered for the
sake of arguments that the brothers of the complainant were to take
over the Company and agreed to purchase the shares of the Company
and accordingly transferred the amount, there was no necessity for
Accused No.1 Company or its Managing Director Accused No.2 to issue
blank cheques and to give blank papers either to the complainant or to
his brothers, as contended by accused. It would have been sufficient if
the acknowledgement of the receipt of amount was given stating
therein that the amount was received towards allotment of shares,
which is the procedure in the common course of business. Therefore
the defence of the Accused that the amount was transferred for
purchase of equity shares does not hold water.
27. Further clause 27 of the Ex.D.2 clearly shows that the
Directors can delegate the powers to Managing Director and as per
clause 29 the Company has power to borrow money through the
Directors. Therefore the argument that the Company is not responsible
for the acts of Accused No.2 as the consent of all the Directors of the
Board was not taken in the general meeting is also not tenable. The
burden of proving the defence is on the Accused and the Accused have
not produced any evidence to show that the amount of the cheque in
question was not loan and it was the amount given for purchase of
equity shares. On the other hand, the complainant produced Ex.P.6,
which is the agreement between the complainant and the Accused
No.2, who is the Managing Director of the Company, which shows that
32 CC.24468/2011 (J)
the amount given to the Company was loan. It is undisputed fact that
the Accused No.2, who is the Managing Director of the Accused No.1
Company, and the complainant are known to each other and DW1
admitted it. The Accused only disputed execution of Ex.P.6 by Accused
No.2. However Accused No2./DW1 admitted the seal of the Company
and his signature on the first page of Ex.P.6 and denied the seal and
signatures on other pages of Ex.P.6. The defence of Accused that the
Accused No.2 gave signed blank cheques and signed blank papers was
not proved. Moreover the Accused No.2/DW1 has not disputed
signature and seal on Ex.P.4. There is no difference in the seal and
signature on Ex.P.4 and the seal and signatures on Ex.P.6 and P.9. As
per clause No.28, the Board of Directors of the Company have to
provide for safe custody of seal of the Company and it should not be
used without authorization by way of resolution. As per clause 21 of
the ExD.2, the quorum for the meeting of Board of Directors is 1/3rd.
There are 4 directors as per ExD.2 out of which 3 are family members
and it shows that if two directors are present, it is sufficient. Under
such circumstances, it cannot be believed that other two family
members i.e. Accused No.3 and 4 have no knowledge about the acts of
the Accused No.2. If they did not had the knowledge, then the burden
is on them to prove that they had no knowledge of the transaction or
they had exercised all due diligence to prevent the commission of
offence. Therefore the defence of the Accused that Ex.P.6 is created
document is not tenable. It is clearly mentioned in Ex.P.6 that a cheque
in question was issued for the repayment of the loan taken by the
Company. The complainant has clearly proved the execution of Ex.P.6
and on the other hand the Accused failed to prove that the said
documents were created by the complainant. The accused never
pleaded that the agreement at Ex.P.6 was the product of fraud,
33 CC.24468/2011 (J)
coercion, misrepresentation or inducement. If they would have taken
the said defence and created the doubt as to the execution of the ExP.6
by leading evidence in that regard, then this court, being the criminal
Court, would have had no jurisdiction to answer such issues. There is
no whisper of any word about the same either in reply notice or in the
defence evidence. Such being the case, the facts of the present case and
facts of the judgment relied upon by the accused are different and with
due respect the said judgment is not applicable to the case on hand and
therefore none of the arguments of the counsel for the accused in that
regard are tenable.
28. It is admitted by the Accused No.2/DW.1 that he gave the
cheque in question to the complainant by making the signature and
putting the seal of Accused No.1 Company. He disputed the name and
date on the cheque. He contended that it was only given to the
complainant as security. As per the presumption U/s.118(b) of N.I.Act
every Negotiable Instrument bearing a date was made or drawn on
such date and as per Section 20 of the N.I.Act, if the person signs and
delivers Negotiable Instrument and it is left incomplete and thereby he
authorizes the holder to complete the Negotiable Instrument and
thereby he is liable for the amount mentioned in the Negotiable
Instrument. In the Judgment rendered by the Hon'ble Supreme Court
of lndia in its Criminal Appeal No.230231 of 2019 - Bir Singh V/s.
Mukesh Kumar at para No.38 and 40 it was held as under:
38. If a signed blank cheque is voluntarily presented
to a payee, towards some payment, the payee may fill up the
amount and other particulars. This in itself would not
invalidate the cheque. The onus would still be on the
34 CC.24468/2011 (J)
Accused to prove that the cheque was not in discharge of a
debt or liability by adducing evidence.
40. Even a blank cheque leaf, voluntarily signed and
handed over by the Accused, which is towards some
payment, would attract presumption under Section 139 of
the Negotiable Instruments Act, in the absence of any cogent
evidence to show that the cheque was not issued in discharge
of a debt.
29. The counsel for the accused No.2 to 4 argued that the cheque
was given as security and therefore Sec.138 of NI Act will not be
attracted against the accused persons. He placed reliance on the
judgment of the Hon'ble High Court of Karnataka in Branch Manager,
PCA and RD Bank Limited, Beltangady Vs. Suresh Ganapathy Das, in
Criminal Appeal No.425/2010, decided on 27022018, wherein it was
held as follows:
"It is to be seen that the cheque was not issued by the
accused/respondent towards legally recoverable debt. It was
issued as a security for the loan, which was borrowed from
the complainant. This is further fortified by the judgment
relied on by the council for the appellant himself in
Sampelly Sathyanarayana Rao which reads that, if on the
date of the cheque liability or debt exists, or the amount has
become legally recoverable, the section is attracted and not
otherwise."
On the other hand the counsel for the complainant argued that
the complainant disputes that the cheque was given as security.
35 CC.24468/2011 (J)
However even cheque given as security also attracts the ingredients of
section 138 of N.I. Act. He placed reliance on the Judgment of Hon'ble
High Court of Karnataka reported in ILR 2019 KAR page No.1953,
wherein it was held that "even the post dated cheque issued as a security
also attracts the provision U/s.138 of N.I.Act."
Further in the case of I.C.D.S. Ltd. v. Beena Shabbir & Anr.
reported in AIR 2002 SC 3014, the Supreme Court has observed as
follows;
".....The commencement of the Section stands
with the words "where any cheque". The above noted
three words are of extreme significance, in particular, by
reason of the user of the word "any" the first three words
suggest that in fact for whatever reason if a cheque is
drawn on an account maintained by him with a banker
in favour of another person for the discharge of any debt
or other liability, the highlighted words if read with the
first three words at the commencement of Section 138,
leave no manner of doubt that for whatever reason it
may be, the liability under this provision cannot be
avoided in the event the same stands returned by the
banker unpaid. The legislature has been careful enough
to record not only discharge in whole or in part of any
debt but the same includes other liability as well...."
30. Thus, even if the dishonoured cheque in question was issued
for security, it will still come under the ambit of Section 138 of the Act.
The only condition is that the cheque must be backed by some form of
legally enforceable debt or other liability towards the holder, which is
36 CC.24468/2011 (J)
fulfilled as per the above discussion. Moreover, unless and until, the
defence is able to prove that the cheque was never meant to be
presented for encashment, a mere claim to that effect does not rebut
the presumption under section 118 (a) of the Act that every negotiable
instrument is made or drawn for consideration. Therefore, the burden
is on the Accused to prove that there was no legally recoverable debt or
liability. Therefore the defence of the Accused that the signed blank
cheques issued as security were misused is not tenable in view of the
aforesaid discussion and also for the reason that the Accused failed to
prove that the amount was given to the Company by the complainant
for the purpose of taking over the Company by way of purchase of
equity shares.
31. The Accused took defence stating that the complainant has
no financial capacity. The counsel for the accused argued that the
amount was transferred from the account of the firm of the
complainant by name M/s. Balaji Enterprises to the the Accused No.1
Company. The cheque was alleged to have been issued in the name of
complainant and not in the name of the firm. The complainant has not
shown that he has financial capacity to give such huge amount. The
source of funds has not been disclosed. He further argued that if the
complainant failed to prove source of funds and financial capacity to
lend, the presumption U/s.139 of N.I.Act goes against the complainant.
He placed reliance on the decision of Hon'ble High Court of Punjab
and Harayana in Amit Kumar Vs. Yogesh Arora reported in (2015) 5
LawHerald 4490, wherein it was held as under;
"The Complainant has failed to prove as to in which
capacity, he had paid such a huge amount without any
37 CC.24468/2011 (J)
document. The complainant has also failed to prove his case
and the presumption goes against him."
32. On perusal of the materials, it is clear that at one instance the
Accused took defence that the amount has been given to take over the
Company by purchasing its equity shares and at other instance
challenged the financial capacity. However it is clear that the
complainant has clearly stated in the complaint that he is the sole
proprietor of the firm M/s. Balaji Enterprises and the amount has been
transferred to the account of Accused No.1 Company from the account
of the firm through RTGS, which is undisputed fact. It is also stated
that the amount has been transferred after mobilizing it. PW.1 stated in
his evidence that apart from his own amount, he took money from
others and transferred it to the Accused No.1. Admittedly amount has
been transferred from account to account through RTGS and therefore
no further proof is necessary as required in case of cash payment. The
complainant being the sole proprietor of the M/s. Balaji Enterprises, he
may file the complaint in his own name or in the name of firm
representing it or by executing the GPA to some other person
conversant with the transaction. Moreover the signature, seal and
issuance of cheque is admitted and it raises the presumption U/s. 118
of the Act that the cheque in question has been drawn for
consideration. Therefore, the defence of the Accused in respect of
financial capacity is not tenable.
33. The Accused No.3 has raised the defence that though she is
the director of the Accused No.1 Company, she has not participated in
its day to day affairs and Accused No.2 alone is responsible to Accused
No.1 Company for its conduct of business. The Accused No.4 and 5
38 CC.24468/2011 (J)
have raised the defence that they tendered their resignations to the
post of directors of Accused No.1 Company on 23.5.2003 and 4.3.1997
respectively. They are not responsible for the conduct of business of
Accused No.1 Company. The Accused No.2, who is Managing Director
of the Accused No.1 has not disputed the said fact. Instead he admitted
in his evidence that the Accused No.4 and 5 have resigned on the
alleged dates. With reference to the defence of the Accused No.4 and 5,
the provision U/s. 303 of the Companies Act, 1956 is relevant and it
reads as under;
303. The register of Directors, Managing Agents,
Secretaries and Treasurers etc.,
(1) Every Company shall keep at its registered office a
Register of its Directors, Managing Director,
Managing Agent, Secretaries and Treasurers,
Manager and Secretary, containing with respect to
each of them the following particulars;
(a) In the case of an individual, his present
name and surname in full; any former name
or surname in full; his father's name and
surname in full or where the individual is a
married woman, the husband's name and
surname in full, his usual residential address;
his Nationality; and if that Nationality is not
Nationality of origin, his Nationality of
origin; his business occupation, if any; if he
holds office of Director, Managing Director,
Managing Agent, Manager or Secretary in
39 CC.24468/2011 (J)
any other Board of Directorsy, corporate the
particulars of each such office held by him;
and except in the case of a Private Company
which is not subsidiary of Public Company,
the date of his birth;
(b) to (e) *****
(2) The Company shall, within the periods
respectively mentioned in this SubSection, send to the
Registrar a return in duplicate in the prescribed form
containing of particulars specified in the said register
and a Notification in duplicate in the prescribed form
of any Agent among its Directors, Managing
Directors, Managing Agents, Secretaries and
Treasurers, Managers or Secretaries specifying the
date of the change. The period within which the said
return is to be sent shall be a period of 30 days from
the appointment of First Director of the Company and
the period within which the said Notification of a
change is to be sent shall be 30 days from the
happening thereof;
(3) If default is made in complying with SubSection
(1) or (2), the Company, and every officer of the
Company who is in default, shall be punishable with
fine which may extend to Rs.50 for every day during
which the default continues.
34. Every Company is required to keep at its registered office a
register of its directors, managing director, manager and secretary
40 CC.24468/2011 (J)
containing the particulars with respect to each of them as per sub
section (1) of S. 303 of the Companies Act, 1956. Subsection (2) of S.
303 mandates every Company to send to the Registrar a return in
duplicate containing the particulars specified in the register. Any
change among its directors, managing directors, managers or
secretaries specifying the date of change is also required to be
furnished to the Registrar of Companies in the prescribed form within
30 days of such change. There is statutory requirement of informing the
Registrar of Companies about change among directors of the Company.
If the register is not maintained and the resignation of directors is not
informed to the Registrar of Companies in prescribed form within
prescribed time, the Company and its officers, who are at default are
liable for punishment as per Sub section 3 of S.303 of the Act.
35. In cases where an offence is committed by a company, a
Company being juristic person has to be represented by natural persons
and the vicarious liability is to be attracted on officers of the Company.
The category of persons who are liable Section 141 are: (1) the
Company which committed the offence, (2) everyone 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 consent or connivance or due to
whose neglect the Company has committed the offence. Section 141
extends criminal liability on account of dishonor of cheque in case of a
Company to every person who at the time of the offence, was in charge
of, and was responsible for the conduct of the business of the Company.
By the provision contained in Section 141, such a person is vicariously
liable to be held guilty for the offence under Section 138 and punished
accordingly. A director of a Company, who was not in charge of and
41 CC.24468/2011 (J)
was not responsible for the conduct of the business of the Company at
the relevant time, will not be liable for a criminal offence under the
provisions. But for making directors liable for the offences committed
by the Company under Section 141, there must be specific averments
against the directors, showing as to how and in what manner they were
responsible for the conduct of the business of the Company. However
specific averments against the Managing Director or Joint Managing
Director are not required to be made in the complaint. By virtue of the
office they hold as Managing Director or Joint Managing Director, these
persons are in charge of and responsible for the conduct of business of
the Company. Therefore, they get covered under Section 141. So far as
the signatory of a cheque which is dishonoured is concerned, he is
clearly responsible for the incriminating act and will be covered under
subsection (2) of Section 141 of the Act.
36. It is the specific defence of the Accused No.3 that she is the
house wife and the business of the Company was looked into by her
husband Accused No.2. However no cogent evidence was brought on
record to show that Accused No.3 was not active director of the
Company. On the other hand it was proved by the complainant that the
Accused No.3 was the director of the Company from the date of its
incorporation till date as per ExD.1 and 2. She was active director and
has consented to the acts of her husbandAccused No.2 in the course of
business of Accused No.1 Company. There is logic in the argument of
the counsel for the complainant that one man could not run the
Company and there must be two or more directors. It was also
explicitly clear from ExD.2, which is the Articles of Association of the
Company.
42 CC.24468/2011 (J)
37. It is the specific defence of Accused No.4 and 5 that they
have tendered their resignations to the post of directors of Accused
No.1 Company on 23.5.2003 and 04.03.1997 respectively. They are not
responsible for the conduct of business of Accused No.1 Company. The
burden is on the Accused No.4 and 5 to prove the said fact. To prove
the said fact the Accused No.5 examined as DW.4 and got marked
ExD.4 to 6. ExD.4 is the resignation letter dated 04.03.1997 given by
the Accused No.5 to the Board of Directors of Accused No.1 Company,
which is to take effect immediately. ExD.5 is the resignation acceptance
letter dated 29.03.1997 issued by Accused No.2 on behalf of the
Company accepting the resignation of Accused No.5 and relieving him
w.e.f 04.03.1997. ExD.6 is the letter of intimation of the resignation of
Accused No.5 as the director of Accused No.1 Company w.e.f.
04.03.1997 sent by him to the Registrar of Companies on 21.01.2013.
The said document is subsequent to the filing of the case and could not
be considered. Prior to the Companies Amendment Act, 2013 which
came into effect on 29.08.2013, the Companies Act, 1956 was in force
and there was no provision in respect of the resignation of the director
in the said Act and it was governed by the Articles of Association and
common law. Further there was no provision enabling the director to
report his resignation directly to the Registrar of Companies. The
procedure for resignation of director and enabling provision to the
director to report his resignation directly to Registrar of Companies, in
case of failure on the part of Company to report the same, have been
incorporated in the Companies Amendment Act, 2013.
38. Similarly Accused No.4 examined herself as DW.2 and got
marked ExD.9 to ExD.33, the cumulative effect of all the documents
marked on behalf of Accused No.4 is that she has worked in various
43 CC.24468/2011 (J)
companies from 2005 onwards. The income Tax Returns from 2012 to
2018 show her address as Indira Prastha Apartment, which is the
address of Accused No.2, who is her father. The income Tax Returns
from 201819 shows the address of her husband by name Somanna. It
is clear that even after 2003, she continued to reside along with her
parents, Accused No.2 and 3, at their residential address. Accused No.2
to 4 are family members and Accused No.5 is outsider. Therefore it
shows that the Accused No.4 was aware of the day to day affairs of the
Company. Though Accused No.2/DW.1 admitted that Accused No.4 has
resigned from the Accused No.1 Company on 23.05.2003, there is no
piece of record produced by her to show that she resigned from the
post of director of the Company on the alleged date. Therefore adverse
inference can be drawn that no such documents exist to show that
Accused No.4 resigned on alleged date. Merely showing that she was
working in various companies during the said period would not be
considered as her resignation to the Accused No.1 Company. However
she relied on the ExD.7, which is the Form No.DIR12 issued by the
Registrar of the Companies showing that the Accused No.4 and 5 have
resigned from the post of directors of the Company w.e.f. 21.07.2018,
which is not useful to Accused no.4 and 5 as the transaction in question
pertaining to the year 201011.
39. DW.2 and 4 were cross examined by the counsel for the
complainant in length to show that they were the directors of the
Company as on the date of transaction and they are aware of all the
facts and they were responsible for the day to day affairs and the
conduct of the business of the Company. However nothing worth was
elicited in their cross examination. It was argued by the counsel for the
complainant relying on the ExD.7 that the Accused no.4 and 5 were the
44 CC.24468/2011 (J)
directors of the Company till 2018. It was specifically argued by him in
respect of Accused No.4 that there is no evidence on record to show
that she resigned from the post of director of the Company on
23.05.2003. It was specifically argued by him in respect of Accused
No.5 that though ExD.4 and 5 are produced to show that Accused No.5
resigned from the post of director of the Company and the Company
accepted his resignation, it was not duly reported to the Registrar of
Companies. It is mandatory U/s. 303 of the Companies Act, 1956 that
the resignation of director needs to be reported to the Registrar of the
Companies within 30 days. Therefore the Accused No.4 and 5 remain
as directors of the Company till 21.07.2018 as per ExD.7. In support of
his argument he relied on the decision of the Hon'ble Supreme Court of
India reported in AIR 2011 SC 1090 between Harshendra Kumar D. Vs.
Rebatilata Koley and others, wherein at para 15 it was observed as
under;
"15. Every Company is required to keep at its registered
office a register of its directors, managing director, manager
and secretary containing the particulars with respect to each
of them as set out in clauses (a) to (e) of subsection (1) of
Section 303 of the Companies Act, 1956. Subsection (2) of
Section 303 mandates every Company to send to the
Registrar a return in duplicate containing the particulars
specified in the register. Any change among its directors,
managing directors, managers or secretaries specifying the
date of change is also required to be furnished to the
Registrar of Companies in the prescribed form within 30
days of such change. There is, thus, statutory requirement of
informing the Registrar of Companies about change among
45 CC.24468/2011 (J)
directors of the Company. In this view of the matter, in our
opinion, it must be held that a director whose resignation
has been accepted by the Company and that has been duly
notified to the Registrar of Companies cannot be made
accountable and fastened with liability for anything done by
the Company after the acceptance of his resignation. The
words `every person who, at the time the offence was
committed', occurring in Section 141 (1) of the NI Act are
not without significance and these words indicate that
criminal liability of a director must be determined on the
date the offence is alleged to have been committed."
40. The argument for the counsel for the complainant could be
accepted in respect of the resignation of the accused No.5 only when
the resignation given by accused No.5 as per Ex.D.4 is to be considered
as invalid, for want of due report by the company to the Registrar of
Companies, even though it was accepted by the company as per Ex.D.5.
In the case of Mother Care (India) Limited vs. Prof.Ramaswamy
P.Aiyar reported in ILR 2004 KAR 1081, the Hon'ble High Court of
Karnataka at paragraph 12 of the judgment, while considering the
question of resignation of Director, held as follows:
"...As the appointment of a Director is not a bilateral
character, the question of acceptance of the request to
relinquish the office would not arise. Filing of Form No.32 in
terms of Section 303 (2) of the Act is only a consequential
act to be performed by the Company in obedience to the
statutory provision. If such a form is filed with the Registrar
of Companies, it is a proof of a Director ceasing to be a
46 CC.24468/2011 (J)
director. But, it is not an act to be complied with in order to
make a resignation valid. Therefore, as the resignation by a
direction, relinquishing his office as such director is of an
unilateral character, it comes into effect when the act of such
resignation to relinquish the office is communicated to the
Board. In law, the Board to whom the act of relinquishment
is communicated is not required to take any action by way of
accepting resignation and therefore, the relinquishment takes
effect from the date of such communication where the
resignation is intended to operate in presenti. In order to
make the said resignation effective, it is not necessary that
the Board should accept it. Whether the Board accepts the
resignation or not if the resignation is intended to operate in
presenti the resignation comes into effect when such
intention to relinquish the office is communicated to the
Board. In that view of the matter, once a resignation letter is
submitted to the Board, the date of which the intention to
relinquish is communicated to the Board, that is the date
from which the Director ceases to be a Director of the
Company."
41. Therefore it is very clear that for want of a provision in the
Companies Act 1956 governing the resignation of a Director, it should
be held that the resignation takes effect the moment, the letter of
resignation is submitted. The procedure as contemplated under Section
168 of Companies Act, 2013 is not applicable then. However as per
Sec. 168(1) of Companies Act 2013 also, a director may resign from his
office by giving a notice in writing to the company and the Board shall
47 CC.24468/2011 (J)
on receipt of such notice take note of the same and the company shall
intimate the Registrar in such manner, within such time and in such
form as may be prescribed and shall also place the fact of such
resignation in the report of directors laid in the immediately following
general meeting by the company. The provision is also made by the
proviso that a director shall also forward a copy of his resignation
along with detailed reasons for the resignation to the Registrar within
thirty days of resignation in such manner as may be prescribed.
Thereafter as per the Companies Act, 2017 such filing was made
optional by substituting words "director shall also forward" by the
words "director may also forward". In simple words a director can
resign after giving a notice in writing to the company and on receipt of
the notice of resignation next step would be to intimate the Registrar of
Companies after that company will put forward all the facts and reports
in the next general meeting. As per the provisions of Section 168 of
Companies Act, no right has been given to any managerial person to
reject the resignation given by Directors and the Directors, who have
resigned shall not be made liable even after their resignation. However
they are liable for the offences which have occurred during their
tenure. As per the provision of Section 168(2) of Companies Act, the
resignation of a director shall take effect from the date on which the
notice is received by the company or the date, if any, specified by the
director in the notice, whichever is later. However if the Articles of the
Association provides for specific clause that the resignation should be
accepted by the Board of Directors then it will not take effect until the
resignation is accepted by the Board. According to various judicial
pronouncements, the Articles of the Association of the Company can
make the requirements of the Act more stringent. Therefore, the
operation of Section 6 (Act to override MOA/AOA) will not effect the
48 CC.24468/2011 (J)
operation of a clause in the Articles of the Association that requires
acceptance of resignation by a Director, which is contradictory to
Section 168 and thus the Articles of the Association shall prevail over
Section 168. In the case on hand there is no clause for acceptance of
resignation in the Articles of the Association, which is at ExD.2.
Therefore looking from any angle the resignation given by accused
No.5 as per Ex.D.4 and accepted by the company as per Ex.D.5 could
be considered as invalid resignation. It is valid resignation in the eye of
law as stood then and therefore the argument of the counsel for the
complainant is not acceptable. The resignation is valid even though the
Board has neither conducted the meeting nor passed a resolution to file
the eform 32 / DIR12 with ROC for intimating the Resignation. As per
Section 303 (3) of the Companies Act, 1956, if the register is not
maintained as per sub clause (1) and the resignation of directors is not
informed to the Registrar of Companies in prescribed form within
prescribed time as per sub clause (2), the Company and its officers,
who are at default are liable for punishment i.e. fine of Rs.50 for every
day during which the default continues. As per Ex.D.4 the resignation
of the accused No.5 is effective from 04.03.1997 as it is mentioned in
the letter that the resignation is to take effect immediately and it was
accepted. Hence accused No.5 cannot be fastened with the vicarious
liability of the company for the transaction which has taken place much
after his resignation i.e. in the year 2011. However the fact of
resignation of accused No.4 has not been proved as per the discussion
made above.
42. The counsel for the accused No.2 to 4 argued that the
complainant failed to aver in the complaint that in what manner the
accused No.3 and 4 are liable. It is clearly stated in the complaint that
49 CC.24468/2011 (J)
the accused No.2 did not mention about the other Directors of the
company to the complainant. In the absence of averment, they cannot
be fastened with vicarious liability of the company. Moreover it has not
been proved by the complainant that accused No.3 and 4 are in charge
of and responsible to the conduct of the business of the company. He
argued that mere mentioning the same in the affidavit filed in lieu of
examination in chief will not serve the purpose. All the acts are done by
the accused No.2 without the knowledge of others and he is personally
liable and under such situation even Company can not be made liable.
43. The counsel for the complainant argued that accused No.2 to
4 are the family members and they knew about all the acts of the
accused No.2 and they have consented for the same. Such being the
case, the accused No.3 shall not be allowed to escape from liability
stating that she is house wife and the business of the company was
looked into by accused No.2, who is her husband. Similarly accused
No.4 shall not be allowed to escape from liability stating that she has
resigned; she was working in different companies; she was residing at
the address of her husband and the business of the company was
looked into by accused No.2, who is her father. He further argued that
as per Ex.D.1 and 2, accused No.3 and 4 are the Directors of the
Company and as such they are liable. It is also averred in the complaint
that accused No.2 in consultation with other accused made the
transaction in question.
44. It is necessary at this stage to go through the principles laid
down by the Hon'ble Apex Court in decision in the case of National
Small Industries Corporation Limited v. Harmeet Singh Paintal and
50 CC.24468/2011 (J)
Another, reported in 2010 (3) SCC 330 Hon'ble Apex Court held at
paragraph No.24 and 25 as under;
24) Section 291 of the Companies Act provides that subject
to the provisions of that Act, the Board of Directors of a
Company shall be entitled to exercise all such powers, and to
do all such acts and things, as the Company is authorized to
exercise and do. A Company, though a legal entity, can act
only through its Board of Directors. The settled position is
that a Managing Director is prima facie incharge of and
responsible for the Company's business and affairs and can
be prosecuted for offences by the Company. But insofar as
other Directors are concerned, they can be prosecuted only if
they were incharge of and responsible for the conduct of the
business of the Company. A combined reading of Sec. 5 and
Sec.291 of Companies Act, 1956 with the definitions in
clauses 24, 26, 30, 31 and 45 of Sec. 2 of that Act would
show that the following persons are considered to be the
persons who are responsible to the Company for the conduct
of the business of the Company:
(a) the Managing Director/s;
(b) the wholetime Director/s;
(c) the Manager;
(d) the Secretary;
(e) any person in accordance with whose directions or
instructions the Board of Directors of the Company is
accustomed to act;
51 CC.24468/2011 (J)
(f) any person charged by the Board of Directors with the
responsibility of complying with that provision;
Provided that the person so charged has given his
consent in this behalf to the Board;
(g) where any Company does not have any of the officers
specified in clauses (a) to (c), any director or directors who
may be specified by the Board in this behalf or where no
director is so specified, all the directors:
Provided that where the Board exercises any power
under clause (f) or clause (g), it shall, within thirty days of
the exercise of such powers, file with the Registrar a return in
the prescribed form.
But if the Accused is not one of the persons who falls
under the category of "persons who are responsible to the
Company for the conduct of the business of the Company"
then merely by stating that "he was incharge of the business
of the Company" or by stating that "he was in charge of the
daytoday management of the Company" or by stating that
"he was incharge of, and was responsible to the Company
for the conduct of the business of the Company", he cannot
be made vicariously liable under Section 141(1) of the Act.
To put it clear that for making a person liable under Section
141(2), the mechanical repetition of the requirements under
Section 141(1) will be of no assistance, but there should be
necessary averments in the complaint as to how and in what
manner the Accused was guilty of consent and connivance or
negligence and therefore, responsible under subsection (2)
of Section 141 of the Act.
52 CC.24468/2011 (J)
25) From the above discussion, the following principles
emerge :
(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
Accused therein vicariously liable for offence committed by
Company along with averments in the petition containing
that Accused were incharge 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 Accused is Managing Director or 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.
53 CC.24468/2011 (J)
(vi) If 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 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.
45. Ordinarily, a director is not, by way of holding the position of
a director, liable for the debts of the company. The law in this regard is
well settled. The director(s) is/are also not held personally liable. There
are, however, two exceptions, the first is where the Director or
Directors make themselves personally liable, i.e., by execution of
personal guarantees, indemnities, etc and the second is where a
Director induces a third party to act to his detriment by advancing a
loan or money to the Company. In the case on hand, it is neither
alleged by the complainant or other accused that the accused No.2
induced the complainant or played fraud nor it has been proved by
leading evidence. Hence the argument of the counsel for the accused
No.2 to 4 that the company is not liable and the accused No.2 is
personally liable is not acceptable.
46. It is well known fact that the companies function only
through Board of Directors. It is the Board of Directors that has to be
held responsible for the company's acts, because it is the Board of
Directors, which runs the company, which acts as body and mind of the
company. Who would know as to which Director performs what
54 CC.24468/2011 (J)
function in the company when as per law the whole body of Board of
Directors work as soul and mind of the company. The Directors have
collective responsibility towards the company. The division of work or
responsibility of the directors is not brought to the knowledge of public
by advertisements nor the internal arrangement of the company is
revealed to the company's creditors. The common creditor or the
person dealing with the company, being an outsider, would not know
the internal management of the company, he would know only the
Board of Directors. Even this information he has to gather from
Registrar of Companies or from prospectus of company or from
Memorandum of Association. This aspect is clearly applicable to the
case on hand as the details of the Board of Directors has been obtained
by the complainant before filing the complaint. It appears that even at
the time of issuing legal notice, the complainant was not aware of the
fact that who are all the directors of the company as the the notice was
also given to third person by name H.R.Mylarappa, who is unconcerned
with the company, assuming that he was one of the directors of the
company and later at the time of filing the complaint his name was
deleted.
47. It is not necessary that cheques are to be issued by Directors
and it does not mean that the directors can not be made liable if they
have not issued the cheques. It is within the special knowledge of the
Directors on Board of company as to how they have distributed work
among themselves, who was the sleeping Director, what were the
powers given to Manager, what were the powers delegated to
Managing Director, what were the powers kept back by the company
and who was looking after what affairs of the company. This internal
management of company, within the special knowledge of the
55 CC.24468/2011 (J)
Directors, has to be brought to the notice of the Court by the Board of
Directors or Directors and then it is to be proved before the Court. It
can never be in the knowledge of an outsider as to what different
resolutions were passed by the Board of Directors of a company
delegating powers, who were the persons to whom powers were
delegated, what powers were delegated and who has to manage what.
The section 106 of the Indian Evidence Act, the law specified as
under:
106. Burden of proving fact specially within knowledge
When any fact is specially within the knowledge of any
person, the burden of proving that fact is upon him.
48. Therefore it is very clear that the burden is to be put on the
Director to prove that he is not responsible for the conduct of the
business. As there is a presumption under law that a cheque is issued in
discharge of a debt or liability and this presumption has to be rebutted
by the person issuing a cheque, in the same manner when law enjoins
responsibility of running a company on all the Directors collectively, if
a Director takes the stand that he had no responsibility, the onus to
rebut legal presumption is on him. It cannot be expected of a
complainant whose cheque has been dishonoured to prove as to which
of the Directors was responsible for conduct of the business nor it is the
legal duty of a complainant to do this. When law has made Board of
Directors responsible for the conduct of the business as a body of the
company, each and every Director has to be considered incharge of
responsibility for conduct of the business. The Director has to prove
before the Court that he was not the Director at the relevant time or he
was not responsible for the business of the company because of certain
resolution passed by the Board of Directors making someone else
56 CC.24468/2011 (J)
responsible. When a cheque is dishonoured, it is for the Director to
prove that he was not liable for dishonour of the cheque as he was not
looking after the business of the company and some other Director was
looking after the business of the company as the person whose cheque
is dishonored is in no position to prove whether the Director was
responsible for conduct of business or not. The Director by virtue of his
being a Director is responsible for conduct of business under law and if
he says that he was not responsible he is supposed to prove the same. It
was held by the the Hon'ble Supreme Court in N. Rangachari vs. B.S.
N.L 2007 Crl.L.J 2448 that "A company, though a legal entity, cannot act
by itself but can only act through its Directors. Normally, the Board of
Directors act for an on behalf of the company. This is clear from section
291 of the Companies Act which provides that subject to the provisions of
that Act, the Board of Directors of a Company shall be entitled to exercise
all such powers and to do all such acts and things as the Company is
authorized to exercise and do." However it is well settled that a Director
in a company cannot be deemed to be in charge of and responsible to
the company for the conduct of its business in the context of section
141 of the Act.
49. Coming to the facts of the case, the accused No.2 being the
Managing Director of the Accused No.1 company has to be held liable.
Further as per Clause14 of the Articles of the Association of the
Company, all the directors at its incorporation are permanent directors,
who shall hold the office for life or until resignation. Accused No.1
Company is the private limited company and the rotational retirement
of directors as provided U/s. 255 and 256 of the Companies Act, 1956
is not applicable. Therefore all the directors being life time directors are
in charge of and responsible to the conduct of the business of the
57 CC.24468/2011 (J)
accused No.1 Company except the directors, who have resigned.
Moreover the accused No.3 and 4 are the wife and daughter of the
accused No.2. It is a closely associated company. Accused No.2 to 4 are
the family members and it can not be said that the they are unaware of
the acts of the accused No.2. The only thing that can be presumed that
the accused No.3 and 4 knew about all the transactions or else they are
negligent and their acts can be attributable to the negligence, which
resulted in commission of the offence. In both the situations the
accused No.3 and 4 becomes liable for the acts of the accused No.2.
Under the facts and circumstances of the case, it can not be believed
that the accused No.3 and 4 are unaware of the acts of the accused
No.2. As per the discussion made above, the accused No.5 has proved
by preponderance of probabilities that he had resigned from the post of
director of accused No.1 company. Therefore the remaining directors
i.e. accused No.3 and 4 have to be held vicariously liable. The accused
No.3 and 4 failed to bring anything on record, which shows that they
exercised due diligence to prevent the commission of offence. Further it
can not believed that the accused No.2 would have obtained the loan to
an extent of cheque amount in this case and lakhs together amount in
other connected cases totally amounting more than 50 lakh Rupees
during the year 2011, without bringing it to the knowledge of accused
No.3 and 4, who are family members. The prudent man would never
do such things.
50. The counsel for the accused No.2 to 4 argued that the
prosecution lacks bonafides and the same should not be considered. He
relied upon the judgment of Hon'ble Madras High Court in Kanthilal V
Jain Vs. M/s.Kuttiyappa in Crl. App No.346/2012 dated 25102017
wherein it was held as under;
58 CC.24468/2011 (J)
"It is the trait of law that the burden rebutting the
presumption under section 139 and Section 118 of N.I.Act,
is not as equivalent to the burden of proof of guilt by the
prosecution. It is not necessary for the accused to disprove
the case of the prosecution beyond reasonable doubt. If the
accused is able to satisfy the court, by legally acceptable
evidence, that the case of the prosecution lacks bonafide, the
accused will be entitled to benefit of doubt."
He also relied upon the judgment of the Hon'ble High Court of
Karnataka reported in LAWS (KAR) 2013 10 286 in the case of
Shivalinga Vs. Basagonda wherein it was held as under;
"At this juncture, it must be noticed that action under
Section 138 of the Act is an action under criminal law and
on proof of guilt, the drawer will be visited with punishment
up to two years of imprisonment. Therefore, under the
common criminal law, the burden rests on the complainant
to establish the charge with acceptable evidence and it is
only then the burden will shift upon the accused to rebut it.
The presumption under Section 139 of the Act is rebuttable
presumption. If the accused caused a dent in the case of
complainant about the transaction of loan itself and if that
accused could succeed by eliciting anything by his
independent evidence or could point out from the evidence
of the complainant itself, that there is a doubt about the
transaction, then that would be sufficient to uphold his
evidence."
59 CC.24468/2011 (J)
51. On perusal of the entire evidence on record, it is crystal clear
that the accused have failed to elicit anything, which supports the
probable defences taken by them. They also failed to bring anything on
record, which supports their defences. The accused failed to discharge
the burden of rebutting the presumption U/s. 139 and 118 of NI Act.
The accused have neither proved that the prosecution lacks bonafides
nor created such a doubt about the transaction so as to cause dent in
the case of the prosecution. On the other hand the prosecution clearly
proved its case by adducing cogent evidence to the satisfaction of the
Court. Therefore with due respect the above decisions are not
applicable to the facts of the case. Hence Point No.1 is answered in the
affirmative and the point No.2 is answered in the Negative.
52. Point No.3 : In view of the reasons assigned in Point No.1
and 2, it is clear that the transaction is proved and the transaction is
made in the year 201011. The took almost 7 years to secure the
presence of the accused before the Court even the notice issued by the
complainant was served on the accused. It shows that the accused have
played all the tactics to delay the proceedings. As per the provision U/s
138 of NI Act the Court has power to impose fine up to double the
cheque amount. That apart if the complainant would have kept the said
amount in the bank, it would have fetched minimum interest @ 6% per
annum. Therefore considering the facts and circumstances of the case,
it is just and proper to impose the fine to that extent. Hence I proceed
to pass the following:
ORDER
As per the provisions of Sec.255(2) Cr.P.C. the Accused No.1 Company is held liable and Accused No.2 to 4 are held vicariously liable and 60 CC.24468/2011 (J) are hereby convicted for the offence punishable u/s.138 of NI Act, 1881 and sentenced to pay fine of Rs.15,15,000/ (Rupees Fifteen Lakhs Fifteen Thousand Only.) On deposit of fine amount the complainant is entitled for compensation of Rs.15,00,000/ (Rupees Fifteen Lakhs only). The remaining balance amount of Rs.15,000/ is to be forfeited to the state.
In default of payment of the fine amount Accused No.2 to 4 each shall undergo simple imprisonment for the period of six months.
As per the provisions of Sec.255(1) Cr.P.C. the Accused No.5 is acquitted of the the offence punishable U/s.138 of NI Act, 1881.
The personal bonds executed by the Accused No.2 to 5 are hereby stands cancelled and cash surety of Rs.8,000/ each furnished by the Accused No.2 to 4 and cash surety of Rs.5,000/ furnished by the Accused No.5 shall be refunded to them after expiry of appeal period.
Copy of the judgment shall be furnished to the Accused No.1 to 4 at free of cost.
(Dictated Judgment to the Stenographer directly on the computer, transcript thereof is computerized and printout taken by him, is verified and then pronounced by me in Open Court on this the 11th day of December2020.) (Lokesh Dhanapal Havale) XV Addl. CMM., Bangalore.
61 CC.24468/2011 (J) ANNEXURE Witnesses examined for the Complainant: PW.1 P.S.Ramesh Documents marked for the Complainant: Ex.P.1 : Document issued by Asst. Registrar of Companies.
Ex.P.2 : CC of the Form No.32 issued by the Asst. Registrar of Companies.
Ex.P.3 : CC of the Certificate of Incorporation pertaining to Accused No.1 Company. Ex.P.4 : Cheque dated 07.04.2011 Ex.P.4(a) : Signature of the Accused No.2.
Ex.P.5 : Bank endorsement.
Ex.P.6 : Agreement dated 25.10.2010.
Ex.P.7 : Legal Notice dated 07.05.2011.
Ex.P.8 : Envelope pertaining to reply notice.
Ex.P.9 : On Demand Promissory Note executed
the Accused No.2.
Ex.P.10 : Reply notice dated 28.05.2011
Witnesses examined For Defence: DW1 Arun Kumar Bolar DW2 Suhana W/o. Sham Somanna D/o. Arun Kumar Bolar DW3 Veena W/o.Arun Kumar Bolar DW4 Naveen Kumar S/o. B.D.Ramachandra.
Documents marked for Defence: Ex.D.1 : CC of the Certificate of Incorporation pertaining to Accused No.1 Company. Ex.D.2 : CC of the Articles of Association pertaining to Accused No.1 Company.
62 CC.24468/2011 (J) Ex.D.3 : CC of the Memorandum of Association pertaining to Accused No.1 Company. Ex.D.4 : CC of the resignation letter dated 04.03.1997 of Accused No.5 Ex.D.5 : CC of acceptance letter of resignation of Accused No.5 dated 29.03.1997.
Ex.D.6 : CC of the letter dated 21.01.2013 given to Registrar of Companies by Accused No.4 in respect of his resignation.
Ex.D.7 : CC of the Form No.DIR12 issued by Deputy Registrar of Companies. Ex.D.8 : CC of the Form No.32 issued by the Deputy Registrar of Companies. Ex.D.9 : Increment letter given by Airtel Mobile Service.
Ex.D.10 : Experience Letter dated 06.01.2011.
Ex.D.11 : Resignation Acceptance Letter dated 02.11.2010.
Ex.D.12 : Offer Letter of Tata Tele Service dated 10.11.2010.
Ex.D.13 : Appointment Letter dated 10.11.2010.
Ex.D.14 : Resignation Acceptance Letter dated 04.08.2016.
Ex.D.15 : Experience Letter dated 23.11.2016. Ex.D.16 : Letter dated 22.08.2016 given by Reliance Company.
Ex.D.17 to 23 : Income Tax returns from the year 201213 to the year 201819.
Ex.D.24 to 32 : CC of the Pay slips of Accused No.4. Ex.D.33 : CC of the I.D. issued by Tata Tele Services Ltd.
(Lokesh Dhanapal Havale) XV Addl.CMM., Bangalore.