Madras High Court
N. Krishnan vs S.A. Nanjan And Anr. on 14 August, 2001
Equivalent citations: [2002]108COMPCAS849(MAD)
JUDGMENT B. Akbar Dasha Khadiri, J.
1. The appellant herein is the complainant before the learned Judicial Magistrate, Kothagiri.
2. This criminal appeal has arisen in this way :
The appellant herein is an Advocate. According to him, the first respondent is the managing partner of a firm known as "Sivasakthi Tea Industries". The second respondent is stated to be a working partner. According to the appellant, on April 13, 1991, the first respondent issued a self-cheque for Rs. 20,000 drawn on State Bank of Travancore, Coonoor Branch, which he had endorsed in favour of the appellant. Similarly on April 20, 1991, the first respondent issued another self-cheque drawn on the same Bank and endorsed the same in favour of the appellant and received Rs. 25,000. Exhibit Nos. P-1 and P-2 are the cheques. When the cheques were presented to the Bank, they were returned with exhibit Nos. P-3 and P-4 endorsements as funds insufficient on September 16, 1991. The appellant gave exhibit Nos. P-5 and P-6 notices to the first respondent, which the first respondent has received under exhibits P-7 and P-8 acknowledgements. The notice was not served on the second respondent, but returned. Therefore, the appellant again issued the notice, to the second respondent but it was relumed as refused as per exhibit P-11 endorsement. The respondents had not come forward to make payment within the statutory period of fifteen days from the date of receipt/ refusal to receive the notice. Therefore, the appellant instituted proceedings in C.C.No. 334 of 1992 before the Judicial Magistrate, Kothagiri, under Section 138 of the Negotiable Instruments Act, 1881.
3. The respondents raised the following contentions :
(i) What had been issued were self-cheques and, therefore, the appellant herein cannot prefer a complaint; (ii) the first cheque is not supported by consideration; and (iii) the cheques were issued by the first respondent in his capacity as the managing partner of Sivasakthi Tea Industries and, therefore, Sivasakthi Tea Industries should have been added as an accused to the complaint in the absence of Sivasakthi Tea Industries being a party, the complaint is vitiated.
4. The learned trial Magistrate enquired into the matter and held that the first respondent has made blank endorsements on the back of the cheques and thus the complainant has become a holder in due course and the holder in due course is the payee and, therefore, the appellant herein, as payee, has a cause of action to prefer the complaint.
5. So far as the second objection is concerned, the learned trial Magistrate came to the conclusion that there is a presumption that every negotiable instrument is drawn for consideration and, the respondents had not let in any evidence to rebut the presumption and prove that exhibit No. P-1 is not supported by consideration.
6. So far as the third objection is concerned, the learned trial Magistrate concurred with the respondents that the cheques were issued by the first respondent in his capacity as managing partner of Sivasakthi Tea Industries and, therefore, in the absence of Sivasakthi Tea Industries being a party, the complaint is vitiated. On that ground, the learned trial Magistrate acquitted the respondents which had culminated in the instant criminal appeal.
7. Heard, both the sides, so far as the first objection is concerned, when the cheques had been endorsed in favour of the appellant, he becomes a holder in due course. As per the provision of Section 9 of the Negotiable Instruments Act, a holder in due course is a person who is in possession of the negotiable instrument. When an endorsement is made, then he becomes the payee or the endorser. Therefore, I am of the view that the learned trial Magistrate has rightly held that the appellant is a holder in due course who can institute action under 138 of the Negotiable Instruments Act, provided the ingredients of Section Section 138 of the Negotiable Instruments Act are satisfied.
8. Even with respect to the second objection, though the respondents have contended that exhibit No. P-l the first cheque is not supported by consideration, once when the first respondent admits the signature, and thus, due execution, consideration has to be presumed, under Section 118 of the Negotiable Instruments Act.
9. So far as the third objection, which was sustained by the learned trial Magistrate, is concerned, it has to be pointed out that the learned Judicial Magistrate erred in holding so. Section 141 of the Negotiable Instruments Act reads as under :
"Section 141. Offences by companies.--(1) It the person committing an offence under Section 138 is a company, every person who, at the time the offence was committed, was incharge 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.
(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 any body corporate and includes a firm or other association of individuals; and
(b) 'director' in relation to a firm, means a partner in the firm."
10. In view of the Explanation, "company" would include a firm also and "director" in relation to a firm would mean a partner in the firm.
11. It is admitted that Sivasakthi Tea Industries is a partneiship firm of which the first respondent is the managing partner and the second respondent is the working partner. Of course, in the case of a company, the company is a juridical person which can sue and be sued in its own name, whereas in the case of a firm, it has to be represented by persons who are at the helm of the affairs of the same.
12. In the latest decision reported in Anil Hada v. Indian Acrylic Ltd., II'(1999) BC 170=X (1999) SLT 1=IV (1999) CCR 285 (SC)=(2000) 1 LW (Crl.) 422, a question was posed by the Apex Court, when a company which committed offence under Section 138 of the Negotiable Instruments Act eludes from being prosecuted thereof, can the directors of that company be prosecuted for that offence ? The Apex Court has pointed out that the offender under Section 138 of the Negotiable Instruments Act is the drawer of the cheque but by virtue of fiction envisaged in Section 141 of the Negotiable Instruments Act, three categories of persons can be discerned within the purview of penal liability. They are (1) the company which committed the offence, (2) everyone who was incharge of and responsible for the business of the company, (3) any other person who is a director or a manager or a secretary or officer of the company, with whose connivance or due to whose neglect the company has committed the offence. Their Lordships of the Apex Court have stated as under in paragraph 12 (page 40 of 99 Comp Cas) :
"Thus, when the drawer of the cheque who falls within the ambit of Section 138 of the Act is a human being or a body corporate or even a firm, prosecution proceedings can be initiated against such drawer. In this context the phrase 'as well as' used in Subsection (1) of Section 141 of the Act has some importance. The said phrase would embroil the persons mentioned in the first category within the tentacles of the offence on par with the offending company. Similarly the words 'shall also' in Sub-section (2) are capable of bringing the third category persons additionally within the dragnet of the offence on an equal par. The effect of reading Section 141 is that when the company is the drawer of the cheque such company is the principal offender under Section 138 of the Act and the remaining persons are made offenders by virtue of the legal fiction created by the Legislature as per the section. Hence the actual offence should have been committed by the company and then alone the other two categories of persons can also become liable for the offence."
13. Their Lordships have further stated in paragraph 13 as under (page 41) :
"The provisions do not contain a condition that prosecution of the company is a sine qua non for prosecution of the other persons who fall within the second and the third categories mentioned above. No doubt a finding that the offence was committed by the company is a sine qua non for convicting those other persons. But if a company is not proseculed due to any legal snag or otherwise, the other prosecuted persons cannot, on that score alone, escape from the penal liability created through the legal fiction envisaged in Section 141 of the Act."
14. Their Lordships have concluded, thus (page 43) :
"We, therefore, hold that even if the prosecution proceedings aganist the company were not taken or could not be continued, it is no bar for proceeding against the other persons falling within the purview of Sub-sections (1) and (2) of Section 141 of the Act."
15. Referring to the decision reported in U.P. Pollution Control Board v. Modi Distillery, . Their Lordships held that the observations made in this regard in that decision are obiter under the law and the point was specifically discussed in Sheoratan Agarwal v. State of Madhya Pradesh, .
16. It would be thus clear that non-prosecution of the company does not vitiate the proceedings.
17. There is one more aspect which the Trial Court has not considered, i.e., whether the cheques were issued in discharge of an existing liability. The essential ingredients to attract offence under Section 138 of the Negotiable Instruments Act are : (i) the cheque should have been issued for discharge in whole or in part of any debt or other liability; (ii) the cheque should have been presented within the period of six months or within the period of its validity whichever is earlier, it should have been returned by the Bank; (iii) the payee or the holder in due course should have issued a notice in writing to the drawer within fifteen days of the receipt of information by him from the Bank regarding return of the cheque as unpaid; (iv) after the receipt of the said notice by the payee or the holder in due course, the drawee should have failed to pay the cheque amount within fifteen days of the receipt of such notice; and (v) on non-payment of amount due on the dishonoured cheque within fifteen days of the receipt of notice by the drawer, the complaint should have been filed within one month from the date of expiry of grace time of fifteen days before a Metropolitan Magistrate or a Magistrate not below the rank of the Judicial Magistrate of First Class.
18. Before the learned Judicial Magistrate, the respondents have raised an objection that the cheque was not issued in discharge of whole or part of any debt or other liability. This aspect had not been considered by the learned Judicial Magistrate. Section 139 of the Negotiable Instruments Act reads as under :
"Section 139. Presumption in favour of holder.--It shall be presumed, unless the contrary is proved, that the holder of acheque received the chequeof the nature referred to in Section 138 for the discharge, in whole or in part or any debt or other liability."
19. In Alsa Constructions and Housing Ltd. v. M. Mal Reddy, (1999) 1 MWN (Cr.) 159, my learned brother M. Karpagavinayagam J. has held that under Section 139, it shall be presumed, unless the contrary is proved, that the complainant received the cheque from the accused for the discharge of the debt or liability. The noble Judge has pointed out that even assuming that there is no existing liability, it is for the accused to rebut the presumption contained. That was a case where the accused had received Rs. 30 lakhs on January 8, 1997, and executed a promissory note, that later on January 8, 1998, the accused had issued a cheque.
20. In K. Bhaskaran v. Sankaran Vaidhyan Balan, VIII (1999} SLT 147 = IV (1999) CCR 63=(1999) 2 MWN (Cr.) SC 357, where when there was a dispute between two brothers regarding issuance of a cheque, Their Lordships have pointed out that as the signature in the cheque is admitted to be that of the accused, the presumption envisaged under Section 118 of the Act can legally be inferred that the cheque was made or drawn for consideration on the date which the cheque bears, that Section 139 of the Act enjoins on the Court to presume that the holder of the cheque received it for the discharge Of any debt or liability and that the burden was on the accused to rebut the aforesaid presumption.
21. The headlines to Chapter XVII of the Negotiable Instruments Act reads as under :
"Of penalties in case of dishonour of certain cheques for insufficiency of funds in the accounts." (Underlining mine)
22. Reference to "certain cheques" would mean that all the cheques which come within the purview of Section 6 of the Negotiable Instruments Act would not fall within the ambit of the cheque referred to under Section 138 of the Negotiable Instruments Act. It is only the cheques which fall within the class of cheques referred to in Section 138 of the Negotiable Instruments Act with indication of dishonour, to which penalty would be attracted. As per Section 6 of the Negotiable Instruments Act, the cheque is an instrument which becomes payable instantly on demand. It is adocument which creates a debt. When a cheque is issued, a question arises whether it is for payment of an existing debt or for creation of a new debt. If it is for payment of existing debt, whether whole or in part, then such cheque would come within the purview of Section 138 of the Negotiable Instruments Act. If the cheque is to create a new debt, then it would fall outside the ambit of Section 138 of the Negotiable Instruments Act. Because that can be construed only as a security for the debt to be incurred. In other words, such cheque should indicate debitum in praesenti. It is a debt owing, That is why payment made through cheques as gifts, donations, etc., are considered to be beyond the scheme of Section 138 of the Negotiable Instruments Act, because such cheques were not issued for the purpose of discharge of any debt or other liability to make the maker liable for prosecution. Of course, there is a presumption under Section 139 of the Negotiable Instruments Act that the cheque is issued for the discharge of the existing debt or liability. Such presumption is a rebuttable presumption as pointed out by Their Lordships in K. Bhaskaran v. Sankaran Vaidhyan Balan, (supra). The burden lies very heavily upon the respondents to rebut the presumption.
23. In the instant case, the respondents are relying upon the pieces of evidence let in by the appellant himself to prove that thecheque was not issued in dischargeof adebt or liability. Reference to exhibit No. P-5 notice reads as under :
"That you No. 1 has drawn a self-cheque No. MSP/CAX 283750 dated 13.4.1991, on State Bank of Travancore, Coonoor Branch for the sum of Rs. 20,000 (rupees twenty thousand) and issued the said cheque to me and received the said sum of Rs. 20,000 from me."
Exhibit P-6 notice reads as under :
"that you No. 1 has drawn a self-cheque No. MSP/CAX 283751 dated 20.4.1991, on the State Bank of Travancore, Coonoor branch for the sum of Rs. 25,000 (rupees twenty-five thousand) and issued the cheque to me and received Rs. 25,000 from me."
Thus, the recital in the notice would go to show that the cheques were issued first and ihe consideration was received thereafter. In the complaint, the appellant had stated as under :
"The accused No. 1 in the capacity of managing partner of the said Firm drew two self-cheques No. MSP/CAX 283750 dated 13.4.1991 for the sum of Rs. 20,000 and another cheque No. MSP/CAX 283751 dated 20.4.1991 for the sum of Rs. 25,000 on the State Bank of Travancore at its branch at Coonoor and hence received from the complainant a sum of Rs. 45,000 under the said cheques." (Underlining mine) '(Portion in Tamil not printed)". A careful perusal of the evidence of P.W. 1 would read as under :
24. Thus, the recitals in the notice, complaint and evidence of P.W.I would clearly indicate that the first respondent issued the cheques and thereafter received the money. The pleadings and the pieces of oral and documentary evidence which are relied upon by the respondents would clearly go to show that the cheques were not issued in discharge of a debt or liability, but the cheques themselves create the liability and, therefore, they would fall outside the purview of Section 138 of the Negotiable Instruments Act. In that view of the matter, I hold that the culpability under Section 138 of the Negotiable Instruments Act cannot be fastened upon the respondents. I confirm the acquittal, but on a different ground. The criminal appeal is dismissed.