Gujarat High Court
Shah Nitinkumar Dhirajlal vs Patel Mahendrakumar Rameshchandra @ ... on 7 April, 2016
Author: Sonia Gokani
Bench: Sonia Gokani
R/SCR.A/2750/2015 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CRIMINAL APPLICATION (QUASHING) NO. 2750 of 2015
With
SPECIAL CRIMINAL APPLICATION NO. 6403 of 2015
With
SPECIAL CRIMINAL APPLICATION NO. 6405 of 2015
TO
SPECIAL CRIMINAL APPLICATION NO. 6414 of 2015
With
SPECIAL CRIMINAL APPLICATION NO. 7056 of 2015
With
SPECIAL CRIMINAL APPLICATION NO. 7058 of 2015
With
SPECIAL CRIMINAL APPLICATION NO. 7060 of 2015
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SHAH NITINKUMAR DHIRAJLAL....Applicant(s)
Versus
PATEL MAHENDRAKUMAR RAMESHCHANDRA @ COMPANY PARTNER
AND ADMINISTRATOR & 1....Respondent(s)
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Appearance:
MR BOMI H SETHNA, ADVOCATE for the Applicant(s) No. 1
MR PP MAJMUDAR, ADVOCATE for the Respondent(s) No. 1
MR NISHIT P GANDHI, ADVOCATE for the Respondent(s) No. 1
MR JK SHAH, ADDL.PUBLIC PROSECUTOR for the Respondent(s) No. 2
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CORAM HONOURABLE MS JUSTICE SONIA GOKANI
:
Date : 07/04/2016
COMMON ORAL ORDER
1. All these petitions since involve identical questions of facts and law, they are being Page 1 of 61 HC-NIC Page 1 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER decided by this common order. For the sake of convenience, the facts are drawn from Special Criminal Application No.6403 of 2015.
2. The petitioner has been arraigned as an accused in various proceedings filed by the respondent No.1original complainant under section 138 of the Negotiable Instruments (Amended) Act, 2015 (hereinafter referred to as 'the Act'). The petitioner herein seeks invocation of extraordinary jurisdiction under Article 226 of the Constitution of India read with inherent powers under section 482 of the Code of Criminal Procedure, 1973. The challenge in the present petition is to the legality and validity of the order of issuance of process and continuity of proceedings in absence of impleadment of Hindu Undivided Family (hereinafter referred to as 'the HUF') as party to such proceedings and as an equator, the petitioner seeks quashment of the criminal cases pending before the Court of the learned Chief Judicial Magistrate, Patan.
3. The brief facts leading to filing of the petition Page 2 of 61 HC-NIC Page 2 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER are that the respondent No.1original complainant is a proprietary firm. The proprietor Shri Kanaiyalal (Kanubhai) Shivlal Shah, resident of Patan, acts as a commission agent and is a trader as well. The petitioner is a Karta of an HUF i.e. Riddhi Siddhi Traders, based at Patan. Because of the requirement of the monetary aspects, for the transaction of the business, the parties had monetary transactions. Various cheques in question were drawn in the name of the firm and were issued by the petitioner as a Karta of Riddhi Siddhi Traders, an HUF. The efficient and predominant plea that has been raised in the present petition is that without impleading Riddhi Siddhi Traders, an HUF, as a party, no criminal complaint can be sustained. Therefore, they have filed present petition seeking following substantial reliefs :
"8(A) Your Lordships be please to quash and set aside the criminal case no.4155 of 2015 pending before the Hon.Chief Judicial Magistrate Court, Patan in the interest of justice."Page 3 of 61
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4. Shri D.J. Bhatt, learned counsel appearing with the learned counsel Shri P.B. Velani as well as Shri Bomi Shethna, learned counsel appearing for the respective petitioners, have fervently submitted that section 141 of the Act makes it abundantly clear that the term 'association of individuals' as provided under section 141 would include the HUF business and, therefore, it shall have to be covered by the decision rendered by the Apex Court in the case of Aneeta Hada v.
Godfather Travels and Tours Pvt. Ltd., reported in (2012) 5 SCC 661, wherein the Court has held that if the company is not arraigned as an accused, the proceedings initiated in coronation is not maintainable either against the company or against the Director. He has also sought to rely upon a decision of the Apex Court in the case of Dadasaheb Rawal Co.op. v. Ramesh, reported in 2009 CR.L.J. 661, wherein the Court has held that the term 'association of individuals' would include the HUF business and, therefore, it is urged fervently that the decision in the case of Aneeta Hada (supra) would have direct impact on Page 4 of 61 HC-NIC Page 4 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER the present petition. Any initiation of proceedings under section 138 of the Act, without impleading the HUF as a party, has to fail. Once the process is issued, there is no way the petitioner can challenge the aspect of maintainability of the complaint before the concerned Court. He has urged that this being a summary trial and even if it is converted into summons triable case, there is no provision which would permit making of any application before the trial Court and the petitioner may have to undergo unnecessarily the ordeal of trial.
5. Shri J.K. Shah, learned Additional Public Prosecutor appearing for the respondent No.2 and Shri P.P. Majmudar, learned counsel appearing with Shri Nishit Gandhi, learned counsel appearing for the respondent No.1 in all the petitions, have fervently objected to the quashment of the complaint. According to them, the present petitions are premature at this stage. The Court must not to go into factual aspects of the matter and it would not be appropriate for this Court to look into the Page 5 of 61 HC-NIC Page 5 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER merits of the matters at this stage. They have further urged that once the trial Court has taken cognizance by issuing summons, no interference would be necessary and it is only in the extraordinary circumstances, this Court needs to exercise extraordinary powers of quashment. They have sought to rely upon a decision of the Apex Court rendered in a different context in the case of Incometax Officer, Gorakhpur v. Ram Prasad, reported in (1973) 3 SCC 25, which provides that the HUF is neither a firm nor an association of persons. They also have sought to rely upon a decision of the Madras High Court in the case of Arpit Jhanwar v. Kamlesh Jain, reported in (2013) 1 CRIMES 51, in support of his arguments.
6. Having thus heard both the sides and having also considered the material on record, the sole issue that requires to be considered is as to whether the complaints which have been filed without impleading the HUF as party only against the petitioners, as Karta of the HUF, need to be quashed applying the decision of the Apex Court in the case of Aneeta Hada (supra).
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R/SCR.A/2750/2015 ORDER
7. Taking firstly the decision in the case of Aneeta Hada (supra), the Apex Court has extensively considered the maintainability of the prosecution under section 141 of the Act as to whether the arraying of a company as an accused is imperative to conclude that without arraying the company as an accused, the authorized signatory cannot be prosecuted. The commission of offence by company if is an express condition precedent to attract the vicariously liability of others. Hence, when the company can be prosecuted, then only the persons mentioned in the other categories could be vicariously liable for the offence, subject, of course, to the averments made in the petition and proof thereof. In the matter before the Apex Court, the company was not arrayed as an accused and, therefore, the complaints were held not maintainable either against the company or against the Director. It would be profitable to reproduce the relevant paragraphs, which read as under :
"39. It is to be borne in mind that Section Page 7 of 61 HC-NIC Page 7 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER 141 of the Act is concerned with the offences by the company. It makes the other persons vicariously liable for commission of an offence on the part of the company. As has been stated by us earlier, the vicarious liability gets attracted when the condition precedent laid down in Section 141 of the Act stands satisfied.There can be no dispute that as the liability is penal in nature, a strict construction of the provision would be necessitous and, in a way, the warrant.
40. In this context, we may usefully refer to Section 263 of Francis Bennion Statutory Interpretation where it is stated as follows:
"A principle of statutory interpretation embodies the policy of the law, which is in turn based on public policy. The court presumes, unless the contrary intention appears, that the legislator intended to conform to this legal policy. A principle of statutory interpretation can therefore be described as a principle of legal policy formulated as a guide to legislative intention."
41. It will be seemly to quote a passage from Maxwell on The Interpretation of Statutes (12th Edition) : "The strict construction of penal Statutes Page 8 of 61 HC-NIC Page 8 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER seems to manifest itself in four ways: in the requirement of express language for the creation of an offence; in interpreting strictly words setting out the elements of an offence; in requiring the fulfillment to the letter of statutory conditions precedent to the infliction of punishment; and in insisting on the strict observance of technical provisions concerning criminal procedure and jurisdiction."
42. We have referred to the aforesaid passages only to highlight that there has to be strict observance of the provisions regard being had to the legislative intendment because it deals with penal provisions and a penalty is not to be imposed affecting the rights of persons whether juristic entities or individuals, unless they are arrayed as accused.It is to be kept in mind that the power of punishment is vested in the legislature and that is absolute in Section 141 of the Act which clearly speaks of commission of offence by the company. The learned counsel for the respondents have vehemently urged that the use of the term aswellas in the Section is of immense significance and, in its tentacle, it brings in the company as well as the director and/or other officers who are responsible for the acts of the company Page 9 of 61 HC-NIC Page 9 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER and, therefore, a prosecution against the directors or other officers is tenable even if the company is not arraigned as an accused. The words aswellas have to be understood in the context. In Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. and others44it has been laid down that the entire Statute must be first read as a whole, then section by section, clause by clause, phrase by phrase and word by word.The same principle has been reiterated in Deewan Singh and others v. Rajendra Prasad Ardevi and others45and Sarabjit Rick Singh v. Union of India46.Applying the doctrine of strict construction, we are of the considered opinion that commission of offence by the company is an express condition precedent to attract the vicarious liability of others. Thus, the words aswellas the company appearing in the Section make it absolutely unmistakably clear that when the company can be prosecuted, then only the persons mentioned in the other categories could be vicariously liable for the offence subject to the averments in the petition and proof thereof. One cannot be oblivious of the fact that the company is a juristic person and it has its own respectability.If a finding is recorded against it, it would create a concavity in its reputation. There can be Page 10 of 61 HC-NIC Page 10 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER situations when the corporate reputation is affected when a director is indicted."
43. In view of our aforesaid analysis, we arrive at the irresistible conclusion that for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the dragnet on the touchstone of vicarious liability as the same has been stipulated in the provision itself. We say so on the basis of the ratio laid down in C.V. Parekh, (AIR 1971 SC 447) (supra) which is a threeJudge Bench decision. Thus, the view expressed in Sheoratan Agarwal, (AIR 1984 SC 1824) (supra) does not correctly lay down the law and, accordingly, is hereby overruled. The decision in Anil Hada, (AIR 2000 SC 145 : 1999 AIR SCW 4228) (supra) is overruled with the qualifier as stated in paragraph 37. The decision in Modi Distilleries, (AIR 1988 SC 1128) (supra) has to be treated to be restricted to its own facts as has been explained by us hereinabove.
44. We will be failing in our duty if we do not state that all the decisions cited by the learned counsel for the respondents relate to service of notice, instructions Page 11 of 61 HC-NIC Page 11 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER for stopping of payment and certain other areas covered under Section 138 of the Act. The same really do not render any aid or assistance to the case of the respondents and, therefore, we refrain ourselves from dealing with the said authorities.
45. Resultantly, the Criminal Appeal Nos. 838 of 2008 and 842 of 2008 are allowed and the proceedings initiated under Section 138 of the Act are quashed.
46. Presently, we shall advert to the other two appeals, i.e., Criminal Appeal Nos. 1483 of 2009 and 1484 of 2009 wherein the offence is under Section 67 read with Section 85 of the 2000 Act. In Criminal Appeal No. 1483 of 2009, the director of the company is the appellant and in Criminal Appeal No. 1484 of 2009, the company. Both of them have called in question the legal substantiality of the same order passed by the High Court. In the said case, the High Court followed the decision in Sheoratan Agarwal, (AIR 1984 SC 1824) (supra) and, while dealing with the application under Section 482 of the Code of Criminal Procedure at the instance of Avnish Bajaj, the Managing Director of the company, quashed the charges under Sections 292 and 294 of the Indian Penal Code and directed the offences under Section 67 read with Page 12 of 61 HC-NIC Page 12 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER Section 85 of the 2000 Act to continue. It is apt to note that the learned single Judge has observed that a prima facie case for the offence under Sections 292(2)(a) and 292(2)
(b) of the Indian Penal Code is also made out against the company.
47. Section 85 of the 2000 Act is as under: "85. Offences by companies (1) Where a person committing a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder is a company, every person who, at the time the contravention was committed, was incharge of, and was responsible to, the company for the conduct of business of the company as well as the company, shall be guilty of the contravention and shall be liable to be proceeded against and punished accordingly:
Provided that nothing contained in this sub section shall render any such person liable to punishment if he proves that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention.
(2) Notwithstanding anything contained in subsection (1), where a contravention of any of the provisions of this Act or of any Page 13 of 61 HC-NIC Page 13 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER rule, direction or order made thereunder has been committed by a company and it is proved that the contravention has taken place 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 the contravention and shall be liable to be proceeded against and punished accordingly."
48. Keeping in view the anatomy of the aforesaid provision, our analysis pertaining to Section 141 of the Act would squarely apply to the 2000 enactment. Thus adjudged, the director could not have been held liable for the offence under Section 85 of the 2000 Act. Resultantly, the Criminal Appeal No. 1483 of 2009 is allowed and the proceeding against the appellant is quashed. As far as the company is concerned, it was not arraigned as an accused. Ergo, the proceeding as initiated in the existing incarnation is not maintainable either against the company or against the director. As a logical sequeter, the appeals are allowed and the proceedings initiated against Avnish Bajaj as well as the company in the present form are quashed."
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8. The Apex Court in the case of Incometax Officer, Gorakhpur (supra) held that the respondent was the Karta of an HUF which carried on business in the name and style of "Ram Nath Ram Prasad". The Incometax assessments were made on the family for assessment years 194445 to 194748. In relation to the Incometax Act, it has been held considering section 2(17) of the Incometax Act that the definition of HUF when is considered with regard to the charging section 4, it could be held that the HUF is neither a firm nor an association of persons. It is a separate entity by itself and if the HUF is to be considered as an association of persons, there was no point in making separate provision for the assessment of Hindu Undivided Family. The Court also held that this conclusion is strengthened by section 25A of the Indian Incometax Act, 1922, which provides for the assessment of Hindu Undivided Family after its partition.
9. The Madras High Court in the case of Arpit Jhanwar (supra) was dealing with a matter arising out of section 138 of the Negotiable Instruments Page 15 of 61 HC-NIC Page 15 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER Act raising the issue whether the term 'company' includes the association of individuals. It held and observed that the term 'association of individuals' means a group of persons who have become coowners by their own volition with a common purpose. If the coownership is not by volition nor do they have any common purpose then, the coowners will not constitute an Association of Individuals in terms of section 141 of the Act. In a HUF, the members do not become coowners by their own volition and there is also no common purpose in their coownership.
As has been held by the Hon'ble Supreme Court, each member of the HUF can act in regard to his or her share without any request or obligation to the other owners. They do not automatically become an Association of persons/body of individuals. Thus, the law laid down by the Hon'ble Supreme Court squarely applies to the Negotiable Instruments Act, for the purpose of understanding the definition of the term 'company' and thus, an HUF can not be a company in terms of section 141 of the Act. Therefore, Page 16 of 61 HC-NIC Page 16 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER the petitioners who were before the Court as individual members of the HUF, shall not be held vicariously liable for the offence committed by the Karta of the HUF. While so holding, the Court extensively dealt with various decisions of the Apex Court and other High Courts. It would be profitable to reproduce some of the relevant findings and observations, which read as under :
"11. The explanation (a) to Section 141 of the Act, would go to indicate that it is indisputably an inclusive definition. The use of the word includes would normally indicate the intention of the legislature to enlarge the meaning of the word used in the statute. As has been held by the Hon'ble Supreme Court in Ramanlal Bhailal Patel v. State of Gujarat (2008 (5) SCC 449), consequently, the word must be construed as comprehending not only such things which they signify according to their natural import, but also those things which the interpretation clause declares that they shall include. Thus, where a definition uses the word includes, as contrasted from means, the word defined not only bears its ordinary, popular and natural meaning, but in addition also bears the extended Page 17 of 61 HC-NIC Page 17 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER statutory meaning. In para 24, the Hon'ble Supreme Court has held as follows:
4. The ordinary, popular and natural meaning of the word person is a specific individual human being. But in law the word person has a slightly different connotation and refers any entity that is recognised by law as having the rights and duties of a human being. Salmond defines person as any being whom the law regards as capable of rights and duties or as a being, whether human or not, of which rights and duties are the attributes (Jurisprudence, 12th Edn., p.
299). Thus the word person, in law, unless otherwise intended, refers not only to a natural person (male or female human being), but also any legal person (that is an entity that is recognised by law as having or capable of having rights and duties). The General Clauses Act thus defines a person as including a corporation or an association of persons or a body of individuals whether incorporated or not. The said general legal definition is, however, either modified or restricted or expanded in different statutes with reference to the object of the enactment or the context in which it is used. For instance, the definition of the word person in the Income Tax Act, is very wide and includes an individual, a Hindu Page 18 of 61 HC-NIC Page 18 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER Undivided Family, a company, a firm, an association of persons or body of individuals whether incorporated or not, a local authority and every other artificial juridical person. At the other extreme is the Citizenship Act, Section 2(f) of which reads thus: Person does not include any company or association or body of individuals whether incorporated or not.
Similarly, the definition under Section 2(g) of the Representation of People Act, 1950, is person does not include a body of persons.
12. In South Gujarat Roofing Tiles Manufactures Association and another v. The State of Gujarat and another , (1976) 4 SCC 601, the Hon'ble Supreme Court has held that "though the word "include" is generally used in interpretation clauses as a word of enlargement, in some cases the context might suggest a different intention". When the liberty of the subject is involved having penal consequences, then, the word 'include' should receive strict interpretation and not liberal interpretation. Therefore, it should be interpreted having reference to the context of the Act. Admittedly, the term company includes an Association of Individuals. Had it been the intention of the Parliament to bring in a HUF within the Page 19 of 61 HC-NIC Page 19 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER meaning of the term company, as it has been done in the other enactments, like The Income Tax Act, it would have specifically included the same in express terms in this Act also. The very fact that it has not been done so would only reflect the intention of the Parliament not to include a HUF as a company in terms of Section 141 of the Act.
13. with this back ground, now, we have to analyse as to whether the expression Association of Individuals as explained in Section 141 of the Act will include a HUF so as to be called as a company in terms of Section 141 of the Act.
14. A similar question arose for consideration before the Honble Supreme Court in ITO v. Ram Prasad, ((1973) 3 SCC 25, at page 29). That was a case where the question arose for consideration before the Honble Supreme Court was as to whether the HUF is an Association of Persons in terms of the provisions of the Income Tax Act, 1922. Speaking for the three Judge Bench, Justice K.S.Hegde took note of the definition of the term person as found in Section 2(17) of the Income Tax Act, wherein it states that the term persons includes a HUF. In view of the specific inclusion of HUF within the definition of the term persons, the Honble Page 20 of 61 HC-NIC Page 20 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER Supreme Court in paragraph No.10 has held as follows:
10. This provision applies only to firms and associations of persons. Hindu undivided family is neither a firm nor an association of persons. It is a separate entity by itself. That is made clear by Section 3 of the Indian Income Tax Act, 1922 which classifies the assessee under the heads individuals. Hindu undivided families, companies, local authorities, firms and other associations of persons. . . . . . . . . If Hindu undivided family is to be considered as an association of persons, there was no point in making separate provision for the assessment of Hindu undivided family. This conclusion is strengthened by Section 25A of the Indian Income Tax Act, 1922 which provides for the assessment of Hindu undivided family after its partition.
15. Again, more or less, a similar question arose for consideration before the Honble Supreme Court in Ramanlal Bhailal Patel v. State of Gujarat (cited supra). That was a case relating to Gujarat Agricultural Lands Ceiling Act, 1960. In the said Act, the term person is defined in Section 2(21) of the Act which states that a person includes a Page 21 of 61 HC-NIC Page 21 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER joint family. Section 2(16) of Gujarat Agricultural Lands Ceiling Act defines the term joint family meaning thereby a Undivided Hindu Family and in the case of other persons a group or unit the members of which by custom or usage are joint in estate or residence. After having made a comparison of the General Clauses Act and Section 2 (21) and (16) of the Gujarat Agricultural Lands Ceiling Act, the Honble Supreme Court has held as follows: The inclusive definition of person in the Ceiling Act, in the absence of any exclusion, would have the same meaning assigned to the word in the General Clauses Act, and in addition, a joint family as defined. Thus, the word person in the Ceiling Act will, unless the context otherwise requires, refer to :
(i) a natural human being;
(ii) any legal entity which is capable of possessing rights and duties, including any company or association of persons or body of individuals (whether incorporated or not);
and
(iii) a Hindu Undivided Family or any other group or unit of persons, the members of which by custom or usage, are joint in Page 22 of 61 HC-NIC Page 22 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER estate and residence.
16. Thus, in the above judgements, since there is a specific inclusion of HUF into the meaning of the term person, the Honble Supreme Court held that a HUF is a person for the purpose of the above enactments. As we have already seen, there is no such specific inclusion of the HUF in the definition of the term company in the Negotiable Instruments Act.
17. In the same judgement, nextly, the Honble Supreme Court had to consider the question as to whether the coowners are together a person.
9. Normally, where a group of persons have not become coowners by their own volition with a common purpose, they cannot be considered as a person. When the children of the owner of a property succeed to his property by testamentary succession or inherit by operation of law, they become co owners, but the coownership is not by volition of parties nor do they have any common purpose. Each can act in regard to his/her share, on his/her own, without any right or obligation towards the other owners. The legal heirs though coowners, do not automatically become an association of Page 23 of 61 HC-NIC Page 23 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER persons/body of individuals. When different persons buy undivided shares in a plot of land and engage a common developer to construct an apartment building, with individual ownership in regard to respective apartment and joint ownership of common areas, the coowners of the plot of land, do not become an association of persons/body of individuals, in the absence of a deeming provision in a statute or an agreement. Similarly, when two or more persons merely purchase a property, under a common sale deed, without any agreement to have a common or joint venture, they will not become an association of persons/body of individuals. Mere purchase under a common deed without anything more, will not convert a co ownership into a joint enterprise. Thus when there are ten coowners of a property, they are ten persons and not a body of individuals to be treated as a single person. But if the coowners proceed further and enter into an arrangement or agreement to have a joint enterprise or venture to produce a common result for their benefit, then the coowners may answer the definition of a person.
(Emphasis supplied)
18. This dictum laid down by the Honble Supreme Court categorically answers the Page 24 of 61 HC-NIC Page 24 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER question involved in the instant cases. As we have seen, as per Section 141 of the Act, the term company includes an Association of Individuals. Here, the term Association of Individuals means, as has been held by the Honble Supreme Court, a group of persons who have become coowners by their own volition with a common purpose. If the coownership is not by volition nor do they have any common purpose then, the coowners will not constitute an Association of Individuals in terms of Section 141 of the Act. In a HUF, the members do not become coowners by their own volition and there is also no common purpose in their coownership. As has been held by the Honble Supreme Court, each member of the HUF can act in regard to his or her share without any request or obligation to the other owners. They do not automatically become an Association of persons/body of individuals. Thus, the law laid down by the Honble Supreme Court squarely applies to the Negotiable Instruments Act, for the purpose of understanding the definition of the term company and thus, a HUF can not be a company in terms of Section 141 of the Act.
19. But, the learned counsel for the petitioner has relied on a judgement of the Andhra Pradesh High Court in Jagadish Rai Page 25 of 61 HC-NIC Page 25 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER Agarwal and Ors v State of Andhra Pradesh and Ors (cited supra) wherein a quite contrary view has been taken. This is a case relating to Negotiable Instruments Act. While considering the same question, the Andhra Pradesh High Court has held as follows: ... Since the dishonoured cheque was issued by the 1st petitioner as Kartha of the HUF, petitioners 2 to 4, being the sons of 1st petitioner and member of HUF, in view of the explanation of Section 141 of the Act, like directors of a company, can be made liable for the offence under Section 138 of the Act.
20. The Bombay High Court has also taken such a view in The Dadasaheb Rawal Coop v. Ramesh (2009(2)Mh.L.J). In that case, while dealing with a case under the Negotiable Instruments Act relating to a HUF business, in paragraph No.9 of the judgment, the Bombay High Court has held as follows:
9.A plain reading of the expression company as used in subclause (a) of the Explanation is that it is inclusive of any body corporate or other association of individuals. The term association of individuals will include club, trust, HUF Page 26 of 61 HC-NIC Page 26 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER business, etc. It shall have to be construed ejusdem generis along with other expressions company or firm. Therefore, a joint family business must be deemed as a juristic person like a company or firm. When it is specifically alleged that the respondent Nos.1 and 2 are the joint proprietors/owners of the business of M/s New Sheetal Traders, which is a joint family business of themselves and their son Sheetal, prima facie, they are covered under section 141 of the Negotiable Instruments Act in view of the Explanation appended thereto.
21. With respect, I am unable to persuade myself to agree with the views expressed by the Bombay High Court and the Andhra Pradesh High Court, in view of my foregoing discussions and the law laid down by the Honble Supreme Court in Ramanlal Bhailal Patel v. State of Gujarat case (cited supra).
22. A learned Single Judge of this Court in Mrs.Gayathri v. S.R.Jayaraman (2009 (3) MWN (cr.) DCC 128) had an occasion to consider the same question. In paragraph No.10 of the said judgement, the learned Judge has framed the following question :
The pertinent question that arises here is Page 27 of 61 HC-NIC Page 27 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER whether an Hindu Undivided Family comes under the definition of Company found in Section 141 of the Negotiable Instruments Act, 1881, and has held as follows:
10. As per section 141, if the person committing an offence punishable under Section 138 happens to be a company then, every person, who at the time of commission of offence was in charge of and responsible to the company for the conduct of its business, as well as the Company shall be deemed to have committed the offence. Sub Clause (2) of the Section provides that a director of the Company, even if he does not come under the category of persons liable under subclause (1) shall be deemed to have committed the offence, if it is proved that the offence has been committed with his consent or connivance or is attributable to neglect on his part. As per the Explanation appended to Section 141, partners are equated to a Company and its Directors. The definition of Company includes the companies incorporated, partnership firms and other association of individuals. The pertinent question that arises here is whether an Hindu Undivided Family comes under the definition of Company found in Section 141 of the Negotiable Instruments Act, 1881.Page 28 of 61
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23. Before the learned Judge, the judgement of the Andhra Pradesh High Court in Sri Jagadish Rai Agarwal and Others Vs. State of Andhra Pradesh and Others (cited supra) was cited. Having referred to the same, the learned Judge has observed as follows: with due respect to the Honble Single Judge of the Andhra Pradesh High Court, this Court is not able to accept such a blanket proposition without a qualification that such cheque should have been issued in respect of an account maintained in the name of the HUF in order to hold the members of the HUF responsible for the dishonour of such cheque equating them with a Director of a company.
24. A close reading of the said judgement of the learned Single Judge of this Court would go to show that the entire gamut of the argument was that since the cheques were not issued in respect of an account maintained by the HUF, a member of the HUF cannot be held responsible under Section 141 of the Act. Thus, the learned Judge had no occasion to examine the basic question as to whether a HUF is a company in terms of Section 141 of the Act. The learned Judge, eventually, quashed the complaint against a member of the HUF since, the cheque had not been Page 29 of 61 HC-NIC Page 29 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER issued in respect of an account maintained in the name of the HUF. Thus the said judgement is not on the question which is precisely before this Court now for consideration.
25. In view of the foregoing discussions, I hold that a HUF will not constitute an Association of Individuals as per the term company explained in Section 141 of the Act and so, in the instant cases, the petitioner who is stated to be only a member of the HUF shall not be vicariously liable for the offence allegedly committed by the Kartha of the HUF. In view of the above, the prosecutions in these cases against the petitioner are liable to be quashed."
10. Yet another decision of the Madras High Court delivered on August 05, 2009, in the case of Gayathri v. S.R. Jayaraman, reported in 2011 ACD 200, whereby the Madras High Court was considering the question as to whether the members of an HUF can be held liable in respect of a cheque issued by the Karta of the HUF. The reference is made to the decision of the Andhra Pradesh High Court rendered in the case of Page 30 of 61 HC-NIC Page 30 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER Jagdish Rai Agarwal and others v. The State of Andhra Pradesh and others, reported in 2005 CrLJ 314, wherein it has been held that if the cheque issued by the Karta of the HUF is dishonoured, the sons of the Karta would be held liable for prosecution for the offence punishable under section 138 of the Act read with section 141 of the Act as they should be equated to the Directors of a company by virtue of the explanation found in section 141 of the Act. The Madras High Court did not agree with the said proposition and held that such a blanket proposition, according to the Madras High Court, without a qualification that such cheque should have been issued in respect of an account maintained in the name of the HUF in order to hold the members of the HUF liable for dishonour of such cheque equating them with a Director of a company, would make it nearly impossible to be accepted. The Court further held that even assuming that an HUF can be brought under the definition of 'company' as per the exception found in section 141 of the Act, if the cheque in Page 31 of 61 HC-NIC Page 31 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER question is not issued in respect of an account maintained in the name of the HUF, such HUF or the other members of the HUF cannot be held liable for dishonour of such cheque. In the matter before the Madras High Court, it was a case of the accused that the cheque was issued by the first accused as a Karta of the HUF and the second accused who was the petitioner before the Madras High Court as a member of the HUF, he was not liable as per section 141 of the Act. The Court held that even assuming without admitting that for the dishonour of a cheque in respect of an account maintained by a Karta of the HUF in his name, the members of such HUF can also be held liable, holding them at par with the Director of a Company, necessary averments are also required to be made in the complaint to the effect that such person was in charge of and responsible for his company or his business. In absence of such necessary averments, the prosecution launched against them can be quashed.
Therefore, what really is required to be considered is as to whether the cheque which has Page 32 of 61 HC-NIC Page 32 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER been issued and dishonoured, was a cheque on an account maintained by the HUF or in the personal name of the petitioner. The cheque should have been issued in respect of an account maintained in the name of the HUF in order to hold the members of the HUF liable for a dishonour of a cheque.
11. The Andhra Pradesh High Court in the case of Alladi Narasimha Rao v. M/s. Core Tree Solutions Private Limited, A.C. Guards and another, reported in 2013 CR.L.J. 1046, has also referred to the earlier decision in the case of Jagdish Rai Agarwal (supra), to hold that such observations in respect of the HUF appears to be against the concept of sections 138 and 141 of the Act, which in clear terms contemplate that there should be account in the name of a drawer of the cheque, which was dishonoured or in order to make others responsible for the dishonour of the cheque. They should come within the purview of the meaning of the company as incorporated under subsection (2) of section 141 of the Act.
The Court also referred to the decision in the Page 33 of 61 HC-NIC Page 33 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER case of Commissioner of Incometax, Bombay v.
Indira Balkrishna, reported in AIR 1960 SC 1172, wherein while dealing with section 3 of the Incometax Act, 1922, it was held that the word 'associate' means, according to the Oxford Dictionary, "to join in common purpose".
Therefore, 'an association of persons' means two or more persons join in a common purpose or common action. The Court also held that the words occur in the section which imposes a tax on income, the association must be one the object of which is to produce in income, profits or gains.
It would be beneficial to regurgitate the relevant paragraphs of the decision in the case of Alladi Narsimha Rao (supra), which read as under :
"14. There is no specification in the Explanation (a) to Section 141 of the Act as to whether the words "other association of individuals" should be in relation to a business enterprise or a business deal. The intendment of these words can be gathered by examining in which context those words were employed. In order to have clear picture of this aspect, it is also necessary to examine Page 34 of 61 HC-NIC Page 34 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER in what context the words "company" and "firm" are employed in the Section. These words associate with business enterprises. Thereby when the words "association of individuals" are employed in the Explanation as per the legislative intendment those words should be taken to have same connotation with the other words subject to their ambit. This emphasizes that the very same words cannot be taken as meant just an association of individuals formed for any other purpose also in the present context.
15. The MoU was executed between all the accused on one hand and the complainant on the other with reference to the payment of rents for the buildings. Can that be termed as "business deal"? Certainly not, because it is only an understanding with regards to the payment of rents which is different from the word "business"; therefore, it cannot be held that there was "other association of individuals" formed for a definite purpose of conducting or achieving something. Thereby it is not proper to bring the acts of A1 to A6 and A8 within the ambit of Section 138 read with Section 141 of the Act, which of course does not preclude the examination of the matter from a different angle if there is a scope to do so. In other words if the ingredients of cheating are Page 35 of 61 HC-NIC Page 35 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER satisfied with reference to the material available, the Court below is at liberty to proceed in that line as per law.That Court has to exercise its discretion judicially in accordance with the authority conferred upon it."
12. The Bombay High Court in the case of Dadasaheb Rawal Cooperative Bank of Dondaicha Ltd. v. Ramesh Jawrilal Jain, reported in 2009 CrLJ 67, was dealing with a case of dishonour of a cheque issued by an HUF, wherein the Court held that the joint family business must be deemed as juristic person like company or firm. The term 'association of individuals' will include the HUF business. A plain reading of the expression 'company' as used in subclause
(a) of the Explanation appended to section 141 of the Act, is that it includes any body corporation and includes a firm or other association of individuals. The term 'association of individuals' would include club, trust, HUF business, etc. It shall have to be construed ejusdem generis along with other expressions 'company' or 'firm' and, therefore, a joint Page 36 of 61 HC-NIC Page 36 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER family business must be deemed as a juristic person like a company or firm. There being a unity of ownership and community of interest, the shares of the individual members in the profits and loss are not worked out unlike in case of partnership firm. So far as the business of a joint family is concerned, the Manager is liable not only to the extent of his share in the joint family property, but also personally. It would be profitable to reproduce the relevant paragraphs of the said decision, which read as under :
"9. A plain reading of the expression "company" as used in subclause (a) of the Explanation is that it is inclusive of any body corporate or "other association of individuals". The term "association of individuals" will include club, trust, HUF business, etc. It shall have to be construed ejusdem generis alongwith other expressions "company" or "firm". Therefore, a joint family business must be deemed as a juristic person like a company or firm. When it is specifically alleged that the respondent Nos. 1 and 2 are the joint proprietors/owners of the business of M/s New Sheetal Traders, which is a joint family business of themselves and their son Page 37 of 61 HC-NIC Page 37 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER Sheetal, prima facie, they are covered under Section 141 of the Negotiable Instruments Act in view of the Explanation appended thereto.
10. In "Baskar v. Muthuswamy" (2001) 106 Comp Cas 489, a Bench of Madras High Court held that where there were positive allegations in the complaint that the accused was partner of the firm, but he denied his such status on strength of extracts from Register of Firms, it was improper to go into evidence at the premature stage. It was held that the true state of affairs could only be gone into at the stage of trial. Hence, the Bench of Madras High Court declined to quash the process issued against the accused. It is also well settled in view of Nair (K.P.G.) v. Jindal Menthol India Ltd." (2001) 104 Comp Cas 290 that the words of Section 141 (1) need not be incorporated in a complaint as magic words but substance of the allegations read as a whole, should fulfil its requirements.
11. Section 141 is comprehensive. It would cover all types of business organisations which are shown therein. The definition is inclusive and is used to convey something more than what is defined Consequently, the Page 38 of 61 HC-NIC Page 38 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER term "association of individuals" will include Hindu Undivided Family of which the business is said to be a joint concern.
Section 138 of the Negotiable Instruments Act, 1881 is enacted in order to safeguard the credibility of commercial transactions and to prevent bouncing of cheques by providing personal liability against the drawer of the cheque. In case of a cheque issued by the firm, the drawer of the cheque is the firm. In case of cheque issued by the business firm of Joint Hindu Family, all the members can be roped into as the drawers of the cheques though signatory is one of them. Under these circumstances, the impugned order is unsustainable. The learned Sessions Judge failed to see that quashing of the process at the premature stage was not called for in view of the Explanation appended to Section 141 of the Negotiable Instruments Act. In any case, at such a premature stage, the process ought not to have been quashed against the respondent Nos. 1 and 2. The prospective defence of the respondent Nos. 1 and 2 could not be a sufficient ground to quash the order of process issued against them. Needless to say, the impugned order is patently illegal and liable to be interfered with and deserves to be set aside."
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R/SCR.A/2750/2015 ORDER
13. The Supreme Court in the case of Ramanlal Bhailal Patel v. State of Gujarat, reported in (2008) 5 SCC 449, while interpreting the Gujarat Agricultural Land Ceiling Act, 1960, was considering the definition of a person to hold that it is inclusive one and it includes 'a joint family' and word 'includes' indicates an intention to enlarge the meaning of the words used. The word 'include' is used in contrast from 'means'. The Court also held that the 'person' in Ceiling Act will, unless the context otherwise requires, refer to, a natural human being, any legal entity which is capable of possession of rights and duties, including any company or association of person or individuals (whether incorporated or not) and a Hindu Undivided Family or any other group or unit of persons, the members of which by custom or usage, are joint in estate and residence, are covered. The Court also held that the 'association of persons' or 'body of individuals' are the expressions which are interchangeable at legal connotation. It would be profitable to reproduce the relevant Page 40 of 61 HC-NIC Page 40 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER observations of the said decision, which read as under :
"20. The terms 'association of persons' and 'body of individuals' (which are interchangeable) have a legal connotation and refer to an entity having rights and duties. They are not to be understood literally. For example, if half a dozen people are travelling in a car or a boat, or standing in a bus stop, they may be a group of persons or a 'body of individuals' in the literal sense. But they are not an association of persons/body of individuals in the legal sense. When a calamity occurs or a disaster strikes, and a band of volunteers or doctors meet at the site and associate or cooperate with each other for providing relief to victims, and not doing anything for their own benefit, they may literally be an association of persons, but they are not 'an association of persons/ body of individuals' in the legal sense.A mere combination of persons or coming together of persons without anything more, without any intention to have a joint venture or carry on some common activity with a common understanding and purpose will not convert two or more persons into a body of individuals/association of persons. An Page 41 of 61 HC-NIC Page 41 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER 'association of persons/body of individuals' is one in which two or more persons join in a common purpose and common action to achieve some common benefit. Where there is a combination of individuals by volition of the parties, engaged together in some joint enterprise or venture, it is known as 'association of persons/body of individuals'.The common object will have some relevance to determine whether a group or set of persons is an association of persons or body of individuals with reference to a particular statute. For example, when the said terms 'association of persons' or 'body of individuals' occur in a section which imposes a tax on income, the association must be one the object of which is to produce income, profit or gain, [vide : Commissioner of Income Tax vs. Indira Balkrishna (AIR 1960 SC 1172), Mohammed Noorulla vs. Commissioner of Income Tax, Madras (AIR 1961 SC 1043), M.V. Shanmugam vs. Commissioner of Income Tax, Madras (AIR 1970 SC 1707) and Meera and Company vs. Commissioner of Income Tax, 1997 (4) SCC 677). But the object need not always be to carry on commercial or business activity. For example, when the word 'person' occurs in a statute relating to agriculture or ceiling on land holding, the term 'association of persons/body of Page 42 of 61 HC-NIC Page 42 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER individuals' may refer to a combination of individuals who join together to acquire and own land as coowners and carry on agricultural operations as a joint enterprise.
21. Normally, where a group of persons have not become coowners by their volition with a common purpose, they cannot be considered as a 'person'. When the children of the owner of a property succeed to his property by testamentary succession or inherit by operation of law, they become coowners, but the coownership is not by volition of parties nor do they have any common purpose.
Each can act in regard to his/ her share, on his/her own, without any right or obligation towards the other owners. The legal heirs though coowners, do not automatically become an 'association of persons/ body of individuals'. When different persons buy undivided shares in a plot of land and engage a common developer to construct an apartment building, with individual ownership in regard to respective apartment and joint ownership of common areas, the co owners of the plot of land, do not become an 'association of persons/ body of individuals', in the absence of a deeming provision in a statute or an agreement. Similarly, when two or more persons merely Page 43 of 61 HC-NIC Page 43 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER purchase a property, under a common sale deed, without any agreement to have a common or joint venture, they will not become an 'association of persons/body of individuals'. Mere purchase under a common deed without anything more, will not convert a coownership into a joint enterprise. Thus when there are ten coowners of a property, they are ten persons and not a 'body of individuals' to be treated as a 'single person'. But if the coowners proceed further and enter into an arrangement or agreement to have a joint enterprise or venture to produce a common result for their benefit, then the coowners may answer the definition of a 'person'.
22. We will now examine whether a group of individuals purchasing agricultural land jointly as coowners, not with the intention of retaining the property in coownership and carrying on agricultural activities jointly, nor with the intention of managing it as a joint venture nor with the intention of holding it together to generate income, profit or gain, but solely with the intention of dividing the land so purchased and hold their respective shares separately and individually, can be considered as a 'person' for the purposes of the Ceiling Act. The Tribunal and the High court have Page 44 of 61 HC-NIC Page 44 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER proceeded on the basis that the ten purchasers constituted an 'association of persons' and therefore a separate juristic person. Let us examine whether the said conclusion is correct."
14. The Madras High Court in the case of Abraham Memorial Education Trust v. C. Suresh Babu, reported in 2013 (1) CompLJ 371, was considering as to whether a public charitable trust is a juristic person and a company in terms of section 141 of the Act, wherein the learned Single Judge of the High Court referred to the decision rendered in the case of Arpit Jhanwar (supra). It would be profitable to reproduce the relevant observations of the said decision, which read as under :
"11. Now, let us have a quick look into the history of the concept of an "Artificial Person". Every human being is a person in the eye of law. When a person is ordinarily understood to be a natural person, it only means a human being. But a person is also artificially created and recognised in law as such. Such persons are called in different names, such as "juristic person", Page 45 of 61 HC-NIC Page 45 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER "juridical person", "legal entity" etc., In some countries, even human beings were not treated as persons in law, for example, in Roman Law, a slave was not a person and he had no right to a family. In other words, he was treated like an animal. In French colonies also, before slavery was abolished, the slaves were not treated as legal persons. They were given legal status of person only through statute during later period. With the development of Society, cooperation among various sections of people became absolutely necessary for the well being of the humanity. Therefore, it became a natural necessity for formation of institutions like corporations and companies, etc. These institutions like corporations, companies etc., were given legal status of a person. By virtue of the statutory recognition, these artificial persons came to own property and enjoy various statutory rights and even some constitutional rights. As the society started growing more and more, there came more number of fictional personalities viz., juristic persons in different names enjoying different kinds of rights and liabilities as recognized under various laws. In the words of the Hon'ble Supreme Court in Shiromani Gurdwara Prabandhak Committee Vs. Som Nath Dass reported in (2000) 4 SCC 146 in Page 46 of 61 HC-NIC Page 46 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER paragraph 19:
"19. Thus, it is well settled and confirmed by the authorities on jurisprudence and courts of various countries that for a bigger thrust of sociopoliticalscientific development evolution of a fictional personality to be a juristic person became inevitable. This may be any entity, living, inanimate, objects or things. It may be a religious institution or any such useful unit which may impel the courts to recognise it. This recognition is for subserving the needs and faith of the society. A juristic person, like any other natural person is in law also conferred with rights and obligations and is dealt with in accordance with law. In other words, the entity acts like a natural person but only through a designated person, whose acts are processed within the ambit of law. When an idol was recognised as a juristic person, it was known it could not act by itself. As in the case of minor a guardian is appointed, so in the case of idol, a Shebait or manager is appointed to act on its behalf. In that sense, relation between an idol and Shebait is akin to that of a minor and a guardian. As a minor cannot express himself, so the idol, but like a guardian, the Shebait and manager have limitations under which they Page 47 of 61 HC-NIC Page 47 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER have to act. Similarly, where there is any endowment for charitable purpose it can create institutions like a church, hospital, gurudwara etc. The entrustment of an endowed fund for a purpose can only be used by the person so entrusted for that purpose in as much as he receives it for that purpose alone in trust. When the donor endows for an idol or for a mosque or for any institution, it necessitates the creation of a juristic person. The law also circumscribes the rights of any person receiving such entrustment to use it only for the purpose of such a juristic person. The endowment may be given for various purposes, may be for a church, idol, gurdwara or such other things that the human faculty may conceive of, out of faith and conscience but it gains the status of juristic person when it is recognised by the society as such."
(Emphasis added)
12. In the above judgment, the Hon'ble Supreme Court has referred to the judgment in Yogendra Nath Naskar Vs. Commissioner of Income Tax, Calcutta reported in 1969 (1) SCC 555 with approval. That case was decided by the a Coram of three Hon'ble Judges. The main question before the Hon'ble Supreme Court was whether a Hindu deity can be Page 48 of 61 HC-NIC Page 48 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER treated as a unit of assessment under Sections 3 and 4 of the Income Tax Act, 1922. While analysing the said question, the Hon'ble Supreme Court had referred to a case in Manohar Ganesh Vs. Lakshmiram reported in ILR 12 Bom 247 which is also popularly known as "Dakor temple case", wherein, two Hon'ble English Judges by name "West" and "Birdwood", JJ have held as follows:
"The Hindu Law, like the Roman Law and those derived from it, recognises not only incorporate bodies with rights of property vested in the corporation apart from its individual members but also juridical persons called foundations. A Hindu who wishes to establish a religious or charitable institution may according to his law express his purpose and endow it and the ruler will give effect to the bounty or at least, protect it so far at any rate as is consistent with his own Dharma or conception or morality. A trust is not required for the purpose; the necessity of a trust in such a case is indeed a peculiarity and a modern peculiarity of the English Law. In early law a gift placed as it was expressed on the altar of God, sufficed it to convey to the Church the lands thus dedicated. It is consistent with the grants having been made to the juridical person symbolised or Page 49 of 61 HC-NIC Page 49 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER personified in the idol."
13. The same view was expressed by the Madras High Court in Vidyapurna Tirtha Swami Vs. Vidyanidhi Tirtha Swami and others reported in ILR 27 Mad 435, which reads as follows : "It is to give due effect to such a sentiment, widespread and deeprooted as it has always been, with reference to something not capable of holding property as a natural person, that the laws of most countries have sanctioned the creation of a fictitious person in the matter as is implied in the felicitous observation made in the work already cited "Perhaps the oldest of all juristic persons is the God, hero or the saint" (Pollock and Maitland's History of English Law, Volume 1, 481)."
14. In Yogendra Nath Naskar's case (cited supra), the Hon'ble Supreme Court while examining the issue as to how an artificial person in the form of a Trust came into being has held as follows: "The legal position is comparable in many respects to the, development in Roman Law. So far as charitable endowment is concerned Roman Lawas later developed recognised two kinds of juristic persons. One was a corporation or aggregate of persons which owed its juristic personality to State sanction. A private person might make over property by way of gift or legacy to a corporation already in existence and might at the same time prescribe the particular purpose for which the property was to be Page 50 of 61 HC-NIC Page 50 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER employed e.g. feeding the poor or giving relief to the poor distressed. The recipient corporate would be in a position of a trustee and would be legally bound to spend the funds for the particular purpose. The other alternative was for the donor to create an institution or foundation himself. This would be a new juristic person which depended for its origin upon nothing else but the will of the founder provided it was directed to a charitable purpose. The foundation would be the owner of the dedicated property in the eye of law and the administrators would be in the position of trustees bound to carry out the object of the foundation.
(emphasis added)
xxx xxx xxx
21. Now, let us examine the question as to whether such a Public Charitable Trust has been recognised as a juristic person for the purpose of Negotiable Instruments Act. The term person has not been defined in the Negotiable Instruments Act. Therefore, one has to again look for the definition in the General Clauses Act. Section 2(42) of the General Clauses Act defines the term 'person' as follows:
"person" shall include any company or association or body of individuals, whether incorporated or not."
Similarly Section 11 of the Indian Penal Code also defines the term 'person' as follows:
Page 51 of 61HC-NIC Page 51 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER "Section 11. "Person": The word person includes any Company or Association or body of persons, whether incorporated or not."
22. Undoubtedly, in both the enactments, the definition is inclusive. It is a well settled law, if the Legislature has used only an inclusive definition, the list enumerated in the definition clause shall not be treated as exhaustive. Applying the doctrine of "ejusdem generis" and going by the purpose and context, while interpreting the definition clause, it is for the Court to bring in any other similar artificial person into the ambit of the term 'person' as made in Section 3(42) of the General Clauses Act and Section 11 of the I.P.C. It is, of course true, that the term 'Trust' has not been expressly included in Section 2 of the General Clause Act. As we have already noticed, a Trust enjoys various rights and discharges various obligations like that of other institutions enumerated under Section 2(42) of the General Clauses Act, as well as, Section 11 of the Indian Penal Code. Therefore, applying the doctrine of ejusdem generis, I have no hesitation to hold that a Public Charitable Trust falls within the definition of the term 'person' as defined in Section 11 of the Indian Penal Code and Section 3(42) of the General Page 52 of 61 HC-NIC Page 52 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER Clauses Act.
xxx xxx xxx
34. The judgment of the Andhra Pradesh High Court and Bombay High Court referred to above were also placed before me by the learned Counsel. But, after having scientifically analyzed the provisions of the Act and by having regard to the context in which Section 141 was incorporated, I had to express my inability to agree with the above views expressed by the Andhra Pradesh High Court and the Bombay High Court. According to me, a HUF is not an "Association of Individuals". The said conclusion is based on the judgment of the Hon'ble Supreme Court in Ramanlal Bhailal Patel Vs. State of Gujarat reported in 2008 (5) SCC 449. wherein, in paragraph 29 of the said judgment the Hon'ble Supreme Court has held as follows:
"29. Normally, where a group of persons have not become coowners by their volition with a common purpose, they cannot be considered as a 'person'. When the children of the owner of a property succeed to his property by testamentary succession or inherit by operation of law, they become coowners, but the coownership is not by volition of parties nor do they have any common purpose. Each can act in regard to his/her share, on his/her own, without any right or obligation towards the other owners. The legal heirs though coowners, do not automatically become an 'association of persons/ body of Page 53 of 61 HC-NIC Page 53 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER individuals'. When different persons buy undivided shares in a plot of land and engage a common developer to construct an apartment building, with individual ownership in regard to respective apartment and joint ownership of common areas, the co owners of the plot of land, do not become an 'association of persons/body of individuals', in the absence of a deeming provision in a statute or an agreement. Similarly, when two or more persons merely purchase a property, under a common sale deed, without any agreement to have a common or joint venture, they will not become an 'association of persons/body of individuals'. Mere purchase under a common deed without anything more, will not convert a coownership into a joint enterprise. Thus when there are ten coowners of a property, they are ten persons and not a 'body of individuals' to be treated as a 'single person'. But if the coowners proceed further and enter into an arrangement or agreement to have a joint enterprise or venture to produce a common result for their benefit, then the coowners may answer the definition of a 'person'."
35. In the above judgment, the Hon'ble Supreme Court has made it very clear that a mere combination of individuals will not constitute an "Association of Individuals". To make it as an "Association of Individuals", in terms of Section 141 of the Act, it is absolutely necessary that the combination of individuals must be on their own volition. Secondly, it is also necessary that such combination of individuals must be with a common purpose. In an HUF, both the above essential requirements are absent Page 54 of 61 HC-NIC Page 54 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER inasmuch as an individual becomes a member of the HUF, not on his own volition but by birth. Similarly, there is no common purpose to be carried forward by a HUF. It is for these reasons, I had to hold that a HUF is not a Company in terms of Section 141 of the Negotiable Instruments Act."
15. Keeping the aforementioned ratio in mind, the moot question that is required to be addressed is as to whether the expression 'association of individuals' as explained in section 141 of the said Act, includes HUF.
16. As discussed hereinbefore, reference of the decision of the Apex Court rendered in the case of Ramanlal Bhailal Patel (supra) is necessary at this stage. The Apex Court has held that the HUF is a person for the purpose of Gujarat Agricultural Lands Ceiling Act. Section 2(21) of the said Act defined that a 'person' includes a joint family and section 2(16) of the very Act defined that a joint family means Undivided Hindu Family. The Apex Court held that the word 'person' in Ceiling Act will, unless the context otherwise requires refers to HUF as the Page 55 of 61 HC-NIC Page 55 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER definition is inclusive and also in absence of exclusion. There is no inclusion of HUF in the definition of the term 'company' under the Negotiable Instruments Act and, thus, in absence of any specific inclusion, it cannot be termed as 'company'. Even in the case of Ramanlal Bhailal Patel (supra), it is held while interpreting the use of the word "includes" as contracted from the "means" that the word "includes" merely indicates the intention of the legislature to enlarge.
17. As interpreted by Justice G.P. Singh in his book, "Principles of Statutory Interpretation"", 12th Edition of the year 2012, under the heading of "Restrictive and Extensive Definitions", the legislature has power to define a word even artificially. So the definition of a word in the definition section may either be restrictive of its ordinary meaning or it may be extensive of the same. When a word is defined to 'mean' such and such, the definition is prima facie restrictive and exhaustive, whereas, where the word defined is declared to 'include' such and such, the definition is prima facie extensive. In Page 56 of 61 HC-NIC Page 56 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER the case of Gollaleshwar Dev v. Gangavwa Kom Shantayya Math, reported in (1985) 4 SCC 393, when by an amending Act, the word 'includes' was substituted for the word 'means' in a definition section, it was held that the intention was to make it more extensive. Further, a definition may be in the form of 'means and includes', where again the definition is exhaustive.
Referring to the definition of 'charitable bequest' in a New Zealand statute, the Privy Council pointed out : "It is not said in terms that charitable bequest shall mean one or other of the things which are enumerated, but that it shall include them. The word 'include' is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute; and when it is so used those words or phrases must be construed as comprehending, not only such things, as they signify according to their natural import, but also those things which the interpretation clause declares that they shall include. But the word 'include' is susceptible of Page 57 of 61 HC-NIC Page 57 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER another construction, which may become imperative, if the context of the Act is sufficient to show that it was not merely employed for the purpose of adding to the natural significance of the words or expressions used. It may be equivalent to 'mean and include' and in that case it may afford an exhaustive explanation of the meaning which for the purposes of the Act must invariably be attached to those words or expressions." Thus, the word include may in certain contexts be a word of limitation.
18. At the same time, the Apex Court in the case of South Gujarat Roofing Tiles Manufactures Association and another v. The State of Gujarat and another, reported in (1976) 4 SCC 601, has held that when the liberty of the subject is involved having penal consequences, then, the word 'include' should receive strict interpretation and not liberal interpretation.
Thus, considering the term in the context of term 'Company', which includes 'association of individuals", the Parliament also could have included the HUF within the meaning of "company"
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which has not been done. Therefore, the expression "association of individuals" as explained in section 141 of the Act will not include an HUF so as to be called as a 'company' in terms of section 141 of the Act.
19. In the decision of the Apex Court in the case of Ramanlal Bhailal Patel (supra), the Apex Court has held in clear terms that where a group of persons have not become coowners by their own volition, with a common purpose, they cannot be considered a 'person'. Coownership cannot be converted into joint enterprise, unless they agree to have a common venture. They will not become a body of individuals or Association of persons, to be treated as a single person till they make arrangement to enter into an agreement for joint venture.
HUF since is not out of one's own volition, under section 141 of the Act, the term 'company' includes Association of Individuals. As held by the Apex Court, when there is no agreement or arrangement for a common venture, Page 59 of 61 HC-NIC Page 59 of 61 Created On Thu Dec 21 23:14:06 IST 2017 R/SCR.A/2750/2015 ORDER body of individuals cannot become Association of Persons and, therefore, the definition of 'company' would not include 'HUF'.
20. This Court essentially agrees with the reasonings given by the learned Single Judge of the Madras High Court in the case of Arpit Jhanwar (supra), to hold that an HUF will not constitute the association of individuals as per the term 'company' explained in section 141 of the Act and any member of the HUF would not be vicariously liable for commission of the offence punishable under section 138 of the Negotiable Instruments Act.
As the petitioners have urged not to proceed in absence of impleadment of HUF in the prosecution and have sought to rely on the decision of the Apex Court in the case of Aneeta Hada (supra), the issue of law has favoured the prosecution, where the HUF is not included in the definition of 'Association of Persons' and, therefore, not a 'company' under section 141 of the Act. This challenge merits no acceptance.
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In view of the aforesaid discussion, the present group of the petitions deserve to be dismissed.
21. For the foregoing reasons, the present group of petitions fail and the same are, accordingly, dismissed. Notice is discharged. The interim relief, if any granted earlier by this Court, stands vacated.
(MS SONIA GOKANI, J.) Aakar Page 61 of 61 HC-NIC Page 61 of 61 Created On Thu Dec 21 23:14:06 IST 2017