Shah Rajendrabhai Jayantilal vs D.Pranjivandas And Sons ... on 31 January, 2017

[Cites 46, Cited by 5]

Gujarat High Court

Shah Rajendrabhai Jayantilal vs D.Pranjivandas And Sons ... on 31 January, 2017

HC-NIC Page 1 of 34 Created On Sun Aug 13 00:30:06 IST 2017 R/SCR.A/1970/2015 JUDGMENT 1 By this writ application under Article 226 of the Constitution of India, the writ applicant has prayed for the following reliefs:

"8(A) Your Lordships be please to quash and set aside the criminal case no.22 of 2014 pending before the learned Chief Judicial Magistrate Court, Patan in the interest of justice.

(B) Pending hearing and final disposal of this application, Your Lordships be pleased to stay the further proceedings of the criminal case no.22 of 2014 pending before the learned Chief Judicial Magistrate Court, Patan in the interest of justice.

(C) Such other and further relief which your Lordships deem fit may kindly be granted in the interest of justice."

2 The case of the complainant may be summarised as under:

2.1 The complainant is one Kanaiyalal Dhirajlal Popat, serving as a 'Manager' of Dhirajlal Pranjivandas Popat, H.U.F. The H.U.F. is carrying on business and is running a firm in the name of 'D. Pranjivandas and Sons'. It is the case of the complainant that the accused herein is a member of an H.U.F. running in the name of 'R.J. Shah', H.U.F. The accused is the 'Karta' of the 'R.J. Shah', H.U.F.. The accused Nos.2 and 3, in the complaint, are the members of the H.U.F. being the wife and son of the 'Karta'. In connection with a business transaction with the complainant, the accused, in his capacity as the 'Karta' - 'Manager' of the R.J. Shah, H.U.F. issued a cheque dated 15th September 2013 for the amount of Rs.5,00,000/ (Rupees Five Lac only) in favour of the complainant drawn on the Sardargunj Mercantile Cooperative Bank, Market Yard, Patan. The cheque in question drawn by the accused in favour of the complainant came to be dishonoured, as the funds were insufficient in the account maintained by the H.U.F.. In such circumstances, a statutory Notice under Section 138 of the Negotiable Instruments Act (for short, the "N.I. Act") dated 21st November 2013 was Page 2 of 34 HC-NIC Page 2 of 34 Created On Sun Aug 13 00:30:06 IST 2017 R/SCR.A/1970/2015 JUDGMENT served upon the accused persons by the complainant. As the amount was not paid by the accused within the statutory time period, the complainant filed a private complaint in the Court of the learned Chief Judicial Magistrate, Patan for the offence punishable under Section 138 of the Negotiable Instruments Act, which came to be registered as the Criminal Case No.22 of 2014.

3 The accused, being the 'Karta' of the H.U.F., is here before this Court, praying for quashing of the proceedings of the criminal case.

         ●       SUBMISSIONS ON BEHALF OF THE ACCUSED: 
         4      Mr. Amit R. Joshi, the learned counsel appearing for the accused

submitted that his client is a member of the H.U.F. and is the 'Karta' -

'Manager'. The H.U.F. is engaged in the business of trading. The name of the firm is 'M.S. Traders'. It is submitted that a H.U.F. is a legal entity and will constitute an association of individuals within the meaning of Section 141 of the N.I. Act. In such circumstances, according to the learned counsel, without impleading the H.U.F., as a legal entity or a juridical person as one of the accused in the complaint, the member / 'Karta' of the H.U.F. alone cannot be prosecuted for the offence punishable under Section 138 of the N.I. Act.

5 The learned counsel submitted that the 'Karta' of the H.U.F. is not the owner of the firm, and therefore, the H.U.F., a legal entity i.e. as an association of individuals, has got to be arraigned as an accused so as to make the prosecution of the members of the H.U.F. maintainable for the offence punishable under Section 138 of the N.I. Act. He submitted that the H.U.F., being a legal entity, is a juristic person and a separate entity from the coparcener. The 'Karta' of the H.U.F. exists because of the H.U.F. Otherwise, the 'Karta' has no legal existence, and the prosecution Page 3 of 34 HC-NIC Page 3 of 34 Created On Sun Aug 13 00:30:06 IST 2017 R/SCR.A/1970/2015 JUDGMENT of the 'Karta' is not maintainable under Section 138 of the N.I. Act in the absence of the H.U.F. 6 The learned counsel submits that a H.U.F. is included in the expression "person", as defined in the Income Tax Act, 1961. As a H.U.F., being the principal offender, has not been arraigned as an accused, the prosecution of the 'Karta' of the H.U.F. for the offence punishable under Section 138 of the N.I. Act should fail.

7 The learned counsel, in support of his submissions, has placed reliance on the following decisions:

(1) Kapurchand Shrimal vs. Tax Recovery Officer, Hyderabad [AIR 1969 SC 682] (2) Mrs. Kshetra Mohan - Sannyasi Charan Sadhukhan vs. Commissioner of Excess Profits Tax, West Bengal [AIR 1953 SC 516] (3) Sathyaprema Manjunatha Gowda vs. Controller of Estate Duty. Karnataka [(1997) 10 SCC 684] (4) Income Tax Officer, Gorakhpur vs. Ram Prasad [(1973) 3 SCC 25] (5) Alladi Narasimha Rao vs. M/s. Core Tree Solutions Pvt. Ltd, A.C. Guards [2013 Criminal Law Journal 1046] (6) United Phospherus Limited vs. Saiteja Fertilizers and Pesticides [2003 (114) Company Cases 587] (7) Aneeta Hada vs. Godfather Travels & Tours Pvt. Ltd [(2012) 5 SCC 661] (8) Dadasaheb Rawal Cooperative Bank of Dondaicha vs. R.J. Jain [2009 Criminal Law Journal 67] Page 4 of 34 HC-NIC Page 4 of 34 Created On Sun Aug 13 00:30:06 IST 2017 R/SCR.A/1970/2015 JUDGMENT ● SUBMISSIONS ON BEHALF OF THE COMPLAINANT:

8 On the other hand, this writ application has been vehemently opposed by Mr. Davawala, the learned counsel appearing for the complainant. Mr. Davawala submits that by any stretch of imagination, a Hindu Undivided Family is not a firm nor an association of persons. In such circumstances, an H.U.F. will not constitute an "association of individuals", according to the term "company", as explained in Section 141 of the N.I. Act. He submits that the term "association of individuals"

means, as held by the Supreme Court in the case of Ramanlal Bhailal Patel vs. State of Gujarat reported in (2008) 5 SCC 449, a group of persons, who have become coowners by their own volition with a common purpose. The learned counsel submits that the H.U.F., in the present case, appears to be engaged in the business in the name of 'M.S. Traders', and the members may be having a common purpose, i.e. to carry on business, but in an H.U.F., the members do not become co owners by their own free will and volition, but by birth.

9 Mr. Davawala submitted that a Hindu Undivided Family as such has no legal entity distinct and separate from that of the members who constitute it. It may be that a member of a Hindu Undivided Family may continue to have certain personal rights and may be able to own property in his own right and enter into a contract in his own right but a Hindu Undivided Family is not like a company, partnership firm, Corporation or a limited concern and it cannot, therefore, be said that it has a legal entity distinct and separate from that of those who constitute it.

10 Mr. Davawala submits that a joint Hindu Family is a unit to which no outsider can be admitted by agreement; it is a status which can only be acquired by birth or by adoption and the head or 'Karta' of that family Page 5 of 34 HC-NIC Page 5 of 34 Created On Sun Aug 13 00:30:06 IST 2017 R/SCR.A/1970/2015 JUDGMENT has certain rights and, while acting within those rights, he can bind every member of the family by his actions or deal with the join family property which, though it does not belong to him and belongs to all, he has been given the power to manager or dispose of, in the interest of the family.

11 Mr. Davawala submits that the principles laid down by the Supreme Court in the case of Aneeta Hada (supra) will have no application to the case at hand. He submits that Section 141 of the Act is concerned with the offences by the company. The explanation to Section 141 provides that "company" means any body corporate and includes a firm or other association of individuals; and a "Director", relating to a firm, means a partner in the firm. He submits that there is no specific inclusion of the H.U.F. in the definition of the term "company" in the N.I. Act.

12 In support of his submissions, Mr. Davawala has placed reliance on a decision of the Madras High Court in the case of Arpit Jhanwar vs. Kamlesh Jain [(2012) 3 L.W. 776].

13 Having heard the learned counsel appearing for the parties and having considered the materials on record, the only question that falls for my consideration is whether an H.U.F. will constitute an "association of individuals" according to the term "company" as explained in Section 141 of the Act.

14 For the purpose of answering the question posed as referred to above, it is necessary to understand the concept of H.U.F. 15 WHAT IS AN H.U.F.?



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A Hindu Undivided Family is an extended family arrangement prevalent among Hindus of the Indian subcontinent, consisting of many generations living under the same roof. All the male members are blood relatives and all the women are either mothers, wives, unmarried daughters, or widowed relatives, all bound by the common sapinda relationship. The joint family status being the result of birth, the possession of joint cord that knits the members of the family together is not property or business but the relationship. The family is headed by a patriarch, usually the oldest male, who makes decisions on economic and social matters on behalf of the entire family. All money goes to the common pool and all property is held jointly. To put it in other words, the H.U.F. is a family consists of all lineally descended from a common ancestor. Hence, H.U.F. is a group is a group of members of the same family. The 'father', or the "senior member" of the family called the 'Karta', ordinarily manages the property belonging to the Joint Family. Hence, the status of H.U.F. cannot be termed as person.

The fact remains that every individual is interested to save his tax. A very effective and legal way advised by the C.As. is creating an H.U.F. A Hindu Undivided Family offers specific advantages as far as taxes is concerned. The Income Tax Act and Wealth Tax Act recognize the H.U.F. as an independent assessable or taxable entity. Therefore, an H.U.F. enjoys all the deduction and exemptions as a separate assessee. The overall objective behind the formation of the H.U.F. is to save tax by having an extra benefit of slab rate, deductions and exemptions. Under Section 4 of the Income Tax Act, 1961, the income tax is payable by "every person". "Person" includes a "Hindu Undivided Family" as defined in Section 2(31). The definition of "Hindu Undivided Family" is not found in the Income Tax Act. Therefore, the expression "Hindu Undivided Family" must be construed in the sense in which it is Page 7 of 34 HC-NIC Page 7 of 34 Created On Sun Aug 13 00:30:06 IST 2017 R/SCR.A/1970/2015 JUDGMENT understood under the "Hindu Law". [See: Surjit Lal Chhabda vs. CIT 101 ITR 776(SC)] The H.U.F. can be governed either by the Mitakshara Laws or by Dayabhaga Laws. All the H.U.F. to the exception of the State of West Bengal are governed by the Mitakshara Law. West Bengal follows the Dayabhaga system.

16 The Supreme Court in the case of Sathyaprema (supra) observed in paras 8, 9 and 10 as under:

"8...The Hindu joint family consists of male members descending lineally from a common male ancestor, together with their mother, wives or windows and unmarried daughters bound together by the fundamental principle of sapindaship or family relationship which is the essence and distinguishing feature of the institution. This body is purely a creature of law and cannot be created by act of parties have insofar that by adoption or marriage a stranger may be affiliated as a member thereof. An undivided family which is the normal condition of Hindu society is ordinarily joint not only in estate but in food and worship; therefore, not only the concerns of the joint family, but whatever relates to their commonality and their religious duties and observances are regulated by the members or by the manager to whom they have, expressly or by implication, delegated the task of regulation. The joint family status being the result of birth, possession of joint properties is only an adjunct of the joint family and is not necessary for its constitution. Nor is it necessary that all the members possess rights or status even though the property of the family is called joint family property.

9 On the other hand, coparcenary is a narrower body than a joint family and consists of only those persons who have taken by birth an interest in the property of the holder fro the time being and who can enforce a partition whenever they like. It commences with a common ancestor and includes a holder of joint property and only those males in his male line who are not removed from him by more than three degrees. Thus while a son, a grandson or a greatgrandson is a coparcener with the holder of the property, the great greatgrandson cannot be coparcencer with him, because he is removed by more than three degrees from the holder.

               10       Hindu Undivided Family is a concept and coparcenary is not one of  


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the same under the Hindu Law. But for the purposes of taxation under the Act, as in other tax measures, like the Incometax Act, they are treated as one and the same..."

17 The Supreme Court in the case of Mrs. Kshetra (supra) observed in para 6 as under:

"A Hindu undivided family is no doubt included in the expression "person"

as defined in the Indian Incometax Act as well as in the Excess Profits Tax Act but it is not a juristic person for all purposes. The affairs of the Hindu undivided family are looked after and managed by its Karta. When two Kartas of two Hindu undivided families enter into it partnership agreement the partnership is popularly described as one between the two Hindu undivided families but in the eye of the law it is a partnership between the two Kartas and the other members of the families do not 'ipso facto' become partners. There is, however, nothing to prevent the individual members of one Hindu undivided family from entering into a partnership with the individual members of another Hindu undivided family and in such a case it is a partnership between the individual members and it is wholly inappropriate to describe such a partnership as one between two Hindu undivided families."

18 A Division Bench of the Allahabad High Court in the case of Ram Kumar Ram Niwas Nanpara vs. Commissioner of Income Tax, U.P. and Ajmer Merwara, Lucknow [AIR 1953 Allahabad 150] considered the question whether a Hindu Undivided Family is a legal entity distinct and separate from that of the members who constitute it. The Court observed in para 11 as under:

"The next point for consideration is whether a Hindu undivided family as such has a legal entity distinct and separate from that of the members who constitute it. It may be that member of a Hindu undivided family may continue to have certain personal rights and may be able to own property in his own right and enter into a contract in his own right but a Hindu undivided family is not like a corporation or a limited concern and it cannot, therefore, be said that it has a legal entity quite distinct and separate from that of those who constitute it. A joint Hindu family is a unit to which no outsider can be admitted by agreement; it is a status Page 9 of 34 HC-NIC Page 9 of 34 Created On Sun Aug 13 00:30:06 IST 2017 R/SCR.A/1970/2015 JUDGMENT which can only be acquired by birth or by adoption and the head or Karta of that family has certain rights and, while acting within those rights, he can bind every member of the family by his actions or deal with the joint family property which, though it does not belong to him and belongs to all, he has been given the power to manage or dispose of, in the interest of the family. It is difficult to equate or define the position of a joint Hindu family as understood under the Hindu Law with the modern conception of a company or a firm or association of individuals for trade or business purposes."

● DIFFERENCES BETWEEN PARTNERSHIP & H.U.F. BUSINESS: 19 A Partnership comes into existence, by means of a contract between partners, whereas, a joint Hindu family arises as a result of status, i.e., by birth in the family. Accordingly, if two or more members of an HUF carry on an inherited business, it is not a partnership because it has been created by status or obtained by birth and not by an agreement.

H.U.F. is a unique form of business existing only in India and is governed by the provisions of the Hindu Law. It comes into existence by operation of Hindu Law and not out of contract. The firm is owned by the members of undivided Hindu family, called coparceners. The business of an HUF is managed by the seniormost male member, also known as Karta or Manager.

There are two schools of Hindu Law, namely, • Dayabhaga, and;

• Mitakshara.

Dayabhaga It is applicable only to the states of West Bengal and Assam. According to this school, only the male members become heirs on the death of the father. Technically, H.U.F. business is not possible under this system.





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Mitakshara It is applicable to the rest of India. According to this school, a joint Hindu family consists of all persons including the wives and unmarried daughters lineally descended from a common ancestor. But only those persons constitute the firm who acquire by birth a coparcenary interest in the joint ancestral property, such interest belongs to three successive generations in the male line (son, grandson, and great grandson) who inherit the ancestral property immediately on their birth in the family. Thus, the property inherited by a Hindu from his father, grandfather and great grandfather is regarded as his ancestral property. The Hindu Law Succession Act, 1956 has extended the line of coparcenary interest to female relatives of the deceased coparceners and male relative claiming through such female relatives.

As the head of the joint family, the Karta has full control over business affairs of the family. He also acts as the custodian of the firm's assets. His liability is unlimited, whereas, the liability of coparceners is limited to the value of their individual interests in the joint ancestral property. The death or insolvency of a coparcener or even that of the Karta does not affect the life of the business of the family. However, an HUF firm can be dissolved through mutual agreement among all the coparceners.

The main points of differences between a partnership and H.U.F. business are as follows.

1. Basis of formation A partnership arises out of a contract between partners. Whereas an HUF arises by the operation of Hindu Law. It is created by status or birth in the family, no agreement is needed for it.





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         2. Regulating law

A partnership is governed by the provisions of the Indian Partnership Act, 1932. An HUF business is governed by Hindu Law Succession Act.

3. Number of members In a partnership business, the number of members cannot exceed 20 in case of nonbanking business and 10 in case of banking business. But there is no such ceiling on the number of members (coparceners) in HUF.

4. Admission of new members No new partner can be admitted to the existing partnership without the consent of all the other partners. In case of HUF firm, a person becomes a member (coparcener) merely by his birth.

5. Minor member A minor cannot become a fullfledged partner in a firm; he can be admitted only to the benefits of partnership. In an H.U.F., a male child becomes a fullfledged member by birth.

6. Rights of females In a partnership, women can become partners and they enjoy the same rights and privileges, as do male partners. In case of an HUF business, on the other hand, the membership is restricted to male members only. However, as per Hindu Law Succession Act,1956, a female relative of a deceased male member gets a coparcenery interest in the event of his death.

7. Implied agency Page 12 of 34 HC-NIC Page 12 of 34 Created On Sun Aug 13 00:30:06 IST 2017 R/SCR.A/1970/2015 JUDGMENT In a partnership, every partner has implied authority to represent the firm and bind the other partners by his acts. In H.U.F. this right rests with the Karta only, other members may be allowed by Karta expressly or impliedly to contract debts on behalf of the firm.

8. Liability of members In a partnership, the liability of all the partners is unlimited. Every partner is jointly and severally liable to third parties for the full debts of the firm. Whereas in case of HUF, liability of each member, except the Karta, is limited to the extent of his share in the property of the family.

9. Right to accounts Each partner not only enjoys a right to inspect the books of account of the firm and demand a copy thereof, he can even demand the accounts of the past dealings. But a coparcener has no right to ask for the accounts of past dealings. He can ask for the position of the existing assets only.

10. Mode of dissolution A partnership firm is dissolved on the insolvency or death of a partner. But the death, lunacy or insolvency of a coparcener does not affect an HUF. It continues to operate even after the death of a coparcener.

● CONCEPT OF AN "ARTIFICIAL PERSON":

20 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", "juridical person", "legal entity" etc., In some countries, even Page 13 of 34 HC-NIC Page 13 of 34 Created On Sun Aug 13 00:30:06 IST 2017 R/SCR.A/1970/2015 JUDGMENT 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 the slavery was abolished, the slaves were not treated as the legal persons.

They were given legal status of person only through a statute during the 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 the formation of institutions like the 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 the various laws.[See: Abraham Memorial Education Trust vs. C. Suresh Babu, 2013 (2) Bank Case 133] 21 The Supreme Court in Shiromani Gurdwara Prabandhak Committee Vs. Som Nath Dass [(2000) 4 SCC 146] observed in para 19 as under:

"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 Page 14 of 34 HC-NIC Page 14 of 34 Created On Sun Aug 13 00:30:06 IST 2017 R/SCR.A/1970/2015 JUDGMENT 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 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) 22 Let me now look into Sections 138 and 141 of the Negotiable Instruments Act which proceed as follows:

"138. Dishonour of cheque for insufficiency, etc., of funds in the account, Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a [a term which may be extended to two years], or with fine which may extend to twice the amount of the cheque, or with both :..."

[emphasis supplied] "141. Offences by companies. (1) If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.

Provided that nothing contained in this subsection 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 :

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HC-NIC Page 15 of 34 Created On Sun Aug 13 00:30:06 IST 2017 R/SCR.A/1970/2015 JUDGMENT a [Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.] (2) Notwithstanding anything contained in subsection (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 corporation and includes a firm or other association of individuals; and

(b) "director", in relation to a firm, means a partner in the firm.]"

2 The term "person" employed in Section 138 of the N.I. Act has not been defined in the Act. In Section 3(42) of the General Clauses Act, 1897, the term "person" is defined as follows:

"3 (42) "person" shall include any company or association or body of individuals, whether incorporated or not;"

24 This provision is precisely in pari materia to Section 11 of IPC. The definition of the term 'person' made both in Section 3(42) of the General Clauses Act and Section 11 of IPC is not exhaustive. It is hardly a definition. It is undoubtedly inclusive. The indication of the intention of the Legislature is to give wider sense so as to mean not only natural persons but to include artificial or juridical persons also, provided, such artificial or juridical person is a legal entity. For instance, an idol is a juridical person capable of owning property and is, therefore, a "person".



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But, a proprietary concern is not a legal entity and so, it is not a person in terms of Section 11 of IPC. Similarly, a Hindu Undivided Family is a legal entity capable of owning property and, therefore, undoubtedly, such a HUF is a person as defined in Section 3(42) of the General Clauses Act and Section 11 of IPC. Therefore, for an offence committed by a HUF punishable under Section 138 of The Negotiable Instruments Act, the HUF can be prosecuted and punished. But, at the same time, since, the HUF is an artificial person, sentence of imprisonment can not be imposed on the HUF. [vide the judgment of a Constitution Bench of the Hon'ble Supreme Court in Standard Chartered Bank vs. Directorate of Enforcement (2005) 4 SCC 530=20052LW. (Crl) 658]. [See: Arpit Jhanwar (supra)].

25 For an offence committed by an artificial / juridical person, unless it is specific provided in the statute, every individual who is a component of the artificial or juridical person cannot be held vicariously liable for punishment; it is only the artificial or juridical person who is liable for punishment. A company incorporated under the Companies Act is a person. To create such vicarious liability for the persons in charge of the day to day affairs of the company along with the company, the Legislature has enacted Section 141 of the Act referred to above.

26 In the case at hand, the argument canvassed on behalf of the applicant being the 'Karta' of the H.U.F. is that an H.U.F. is a legal entity and should be read in Section 141 of the N.I. Act. In other words, according to the applicant, an H.U.F. is a company as defined in Section 141 of the Act. If it is argued that if that be so, then the H.U.F. is a "association of individuals" as expressed in the explanation (a) to Section 141 of the N.I. Act.




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         27     The explanation (a) to Section 141 of the N.I. Act, would go to

indicate that it is indisputably an inclusive definition. The use of the word "include" would clearly indicate the intention of the legislature to enlarge the meaning of the word used in the statute. The Supreme Court in Ramanlal Bhailal Patel (supra) held that 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 statutory meaning. [See: Arpit Jhanwar (supra)].

28 The Supreme Court in the case of Ramanlal Bhailal Patel (supra) considered the legal meaning of the word "person". The Supreme Court considered in context with the Gujarat Agricultural Lands Ceiling Act, 1960. I may quote the observations made by the Supreme Court as contained from paras 22 to 26 as under:

"22 The extent of land that could be held by the appellants depends upon the interpretation of the word 'person' in section 6(1) of the Ceiling Act which provides that "no person shall be entitled to hold land in excess of the ceiling area". If the ten coowners are considered as an 'association of persons' or 'body of individuals', and consequently as a 'person', then the ten coowners together as a person, will be entitled to only one unit of land which is the ceiling area per person. But if 'association of persons' or body of individuals is not a 'person', or if a coownership is not an association of person/body of individuals, then each coowner or the family of each co owner, as the case may be will be a separate 'person' having regard to the definition of person in section 2(21) of Ceiling Act, in which event, each family will be entitled to hold one unit of land.

23 The word 'person' is defined in the Act, but it is an inclusive definition, that is "a person includes a joint family." Where the definition is an inclusive definition, the use of the word 'includes' indicates an intention to enlarge the meaning of the word used in the Statute. Consequently, the word must be construed as comprehending not only such things which they signify according to their natural import, but also Page 18 of 34 HC-NIC Page 18 of 34 Created On Sun Aug 13 00:30:06 IST 2017 R/SCR.A/1970/2015 JUDGMENT 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 bear the extended statutory meaning (See S.K. Gupta v. K.P. Jain, AIR 1979 SC 734 following Dilworth vs. Commissioner of Stamps, 1899 AC 99 and Jobbins vs. Middlesex County Council 1949 (1) KB 142).

24 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 to any entity that is recognized 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 Edition Page 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 recognized 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 Income Tax Act, is very wide and includes an individual, a Hindu 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 Representation of the People Act 1950, is "person" does not include a body of persons.

25 Both definitions of the word 'person', in General Clauses Act and Ceiling Act, are inclusive definitions. The inclusive definition of 'person' in General Clauses Act applies to all Gujarat Act unless there is anything repugnant in the subject or the context. The inclusive definition of 'person' in section 2(21) of the Ceiling Act, does not indicate anything repugnant to the definition of 'person' in General Clauses Act, but merely adds 'joint family' to the existing definition. Therefore the definition of person in the Ceiling Act, would include the definition of person in section 3(35) of General Clauses Act. The resultant position can be stated thus : The definition of person in General Clauses Act, being an inclusive definition, would include the ordinary, popular and general meaning and those specifically included in the definition. 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, Page 19 of 34 HC-NIC Page 19 of 34 Created On Sun Aug 13 00:30:06 IST 2017 R/SCR.A/1970/2015 JUDGMENT 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 estate and residence.

26 We are fortified in this view by the decision of this Court in Hasmukhalal Dahayabhai vs. State of Gujarat, 1976 (4) SCC 100, wherein this Court had occasion to consider the definition of 'person' in the Ceiling Act, in a different context. It was contended in that case that in view of the definition of 'person' in General Clauses Act, 1897, a central enactment, that is, 'person' shall include any company or association or body of individuals, whether incorporated or not, there cannot be a different definition in the Ceiling Act, and therefore, section 6(2) of the Ceiling Act treating family as a 'person' was unconstitutional. It was pointed out that section 6(2) had the effect of making a person who held land within ceiling limit, to lose part of his/ her holding, on marriage to someone who also held land within ceiling limit. (For example, if a bachelor who was holding 35 acres of land which is within ceiling limit, married someone who held 20 acres, they will together lose 19 acres by reason of the fact that they formed a 'family'). This Court negatived the challenge to the definition of 'person'. In that context this Court observed that the term 'person' is not, strictly speaking, defined in the Act, and the definition merely clarified that the term includes a joint family and did not exclude an individual from being a person in the eye of law. This Court observed that the term 'person' for the purposes of Ceiling Act would include individuals as natural persons as well as group or body of individuals as artificial persons, as also a joint family and a family. This Court proceeded to explain section 6(2) thus:

"16. We do not find any fixed concept of "person" anywhere. No doubt the concept is wide so that it could be contended that it should not be narrowed down or confined. But does Section 6(2) do that? Section 6(2) does not either disable a husband or wife from owning or holding their separate properties separately. It does not merge or destroy their separate legal personalities. It requires their separate holdings to be grouped together as though they were held by one person only for the purpose of determining the ceiling limit for each member of a family. It may indirectly have the effect of disabling a member of a family from holding land upto the prescribed ceiling limit for a person holding as an individual. In Page 20 of 34 HC-NIC Page 20 of 34 Created On Sun Aug 13 00:30:06 IST 2017 R/SCR.A/1970/2015 JUDGMENT other words, the result is that such a member of a family will have to be content with a holding less than that of an unmarried individual. It has the effect of making it clear that what have to be grouped together are the separate properties of individuals belonging to families other than what are "joint families", in law. It takes in and applies to members of families other than undivided Hindu families. It means that married persons and their minor children will have to be viewed as though they hold one lot together even though they retain their separate legal personalities and remain competent owners of their separate holdings. It does not affect either their legal status or competence. It does reduce their individual holdings.""

29 In South Gujarat Roofing Tiles Manufactures Association and another vs. the State of Gujarat and another, (1976) 4 SCC 601, the 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 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. [See: Arpit Jhanwar (supra)].

         ●      CONCEPT OF "ASSOCIATION OF INDIVIDUALS": 
         30    According  to  the  English  Oxford Dictionary,  "associate"  means :

"to join in common purpose, action or condition; to link together, unite, Page 21 of 34 HC-NIC Page 21 of 34 Created On Sun Aug 13 00:30:06 IST 2017 R/SCR.A/1970/2015 JUDGMENT combine, ally, confederate." In my opinion, this connotes that when two or more persons unite together of their own free volition in some common purpose or action they can be deemed to have associated together and formed an association.

31 The expression "Association of individuals" was considered by a Division Bench of the Calcutta High Court in a decision reported in 'B.N. Elias, In re', 19353 ITR 408 (A). At page 415 Derbyshire, C.J., in delivering the judgment quoted with approval the following passage from the judgment of Cotton, L.J. in Smith v. Anderson, (1880) 15 Ch D 247 at p. 282 (B) :

"I do not think it very material to consider how far the word 'association' differs from company or partnership, but I think we may say that if 'association' is intended to denote something different from a company or partnership, it must be judged by its two companions between which it stands, and it must denote something where the associates are in the nature of partners'."

Costello, J., in considering the same question, at p. 417 observed :

"Mr. Banerji invited us to take upon ourselves the difficult but not indeed impossible task of laying down a general definition of the expression "association of individuals". In my opinion that is not desirable from any point of view whatever. Each case must be decided upon its own peculiar facts and circumstances. When we find, as we do find in this case, that there is a combination of persons formed for the promotion of a joint enterprise banded together if I may so put it, coadventures, to use an archaic expression, then I think no difficulty whatever arises in the way of saying that in this particular case these four persons did constitute an 'association of individuals' within the meaning of both S. 3 and S. 55, Page 22 of 34 HC-NIC Page 22 of 34 Created On Sun Aug 13 00:30:06 IST 2017 R/SCR.A/1970/2015 JUDGMENT Incometax Act, 1922."

32 The views taken in decisions reported in Mufti Mohammad Aslam vs. Commissioner of Incometax, U. P., 19364 ITR 412 : (AIR 1936 All 817) (C); In the matter of Keshardas Chamria, 19375 ITR 246 :

(AIR 1937 Cal 583) (D) and Mohamad Abdul Kareem and Co. vs. Commissioner of Incometax, Madras, 194816 ITR 412 : (AIR 1949 Mad 509) (E) have gone still further and held that the expression "association of persons" should be read ejusdem generis with the word "firm" immediately preceding it; and before there can be an association of individuals within the meaning of the Act it must be shown that the association has at least some of the attributes of a firm or partnership, though not in the strictly legal sense of the term.

33 Beaumont, C.J., in delivering judgment in Commissioner of Incometax, Bombay vs. Laxmidas Devidas, 19375 ITR 584 : (AIR 1938 Bom 41) (F), preferred the rule laid down in B.N. Elias, In re (A) (supra) and dissented from the one taken in 19364 ITR 412 : (AIR 1936 All 817) (C) (cit. sup.).

34 The expression was also considered in Commissioner of Income tax, Burma vs. M.A. Baporia, 19397 ITR 225 : (AIR 1939 Rang 258) (SB) (G), and Roberts, C.J., in considering the question cited with approval the observations of Costello, J., in B.N. Elias, In re (A), (supra).

35 For the purposes of this case, it is not necessary for me to express myself as to whether the expression "association of persons" should be read ejusdem generis with the word "firm." Suffice it to say that before any group of persons can be called an association of persons it must be established on facts that they are in the nature of partners, i.e. in my Page 23 of 34 HC-NIC Page 23 of 34 Created On Sun Aug 13 00:30:06 IST 2017 R/SCR.A/1970/2015 JUDGMENT opinion, the established facts of the case must at least lead to an inference that the members of the group of their volition or free will have joined in a venture with a view to earn profit.

36 In 'Commissioner of Incometax, Burma vs. M.A. Baporia', AIR 1939 Bang 258 (SB) (B), it was held that the expression "association of individuals" in Section 3 of the Act must be construed 'ejusdem generis' not only with the word immediately preceding i.e. "firm" but with all other groups of assessees mentioned in the section. The common generic quality appears to be joint interest. There must be some kind of arrangement amongst the adult "persons" to indicate their intention to earn income profits and gains in common. In 'Mohammad Aslam vs. Commissioner of Incometax U.P.', AIR 1936 All 317 (C), the learned Judges preferred to construe the expression as ' ejusdem generis ' with the word immediately preceding i.e. "firm". According to them, such association must have some at least of the attributes of a firm or partnership though not strictly in the legal sense of the term. For the purpose of this case it is not necessary to resolve this conflict. In any view, there must be some kind of scheme of common management for the purpose of earning profits, gain, or income and an agent to carry it out.

37 The Supreme Court in the case of Ramanlal Bhailal Patel (supra) in context with the provisions of the Gujarat Agricultural Lands Ceiling Act, 1960 (27 of 1961) considered an important question whether the coowners are together a "person". The Supreme Court explained the terms "association of persons" and "body of individuals". I may quote the relevant paras as under:

"27 When several persons acquire undivided shares (as contrasted from defined portions) in a property, either equal or unequal, they become co Page 24 of 34 HC-NIC Page 24 of 34 Created On Sun Aug 13 00:30:06 IST 2017 R/SCR.A/1970/2015 JUDGMENT owners of the property; or where an owner of a property transfers a share in the property to another, the transferee becomes a coowner along with the original owner. To be termed as coowners, the right of each owner should be coordinate with the other 'owners'. If the right of one is higher in degree than that of the other, there is no coownership. For example, a mortgagor and mortgagee are not coowners. A lessor and lessee are not coowners. Whether the shares are equal or not, each coowner is entitled to be in possession of every part of the property, jointly with the other co owners. In Sri Ram Pasricha v. Jagannath [AIR 1976 SC 2335], this Court observed :

"Jurisprudentially it is not correct to say that a coowner of a property is not its owner. He owns every part of the composite property along with others and it cannot be said that he is only a partowner or a fractional owner of the property. The position will change only when partition takes place. .."

This Court also relied on the following passage from Salmond's 'Jurisprudence' :

"It is an undivided unity, which is vested at the same time in more than one person The several ownership of a part is a different thing from the co ownership of the whole. So soon as each of two coowners begins to own a part of the thing instead of the whole of it, the coownership has been dissolved into sole ownership by the process known as partition. Co ownership involves the undivided integrity of what is owned."

28 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 '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 Page 25 of 34 HC-NIC Page 25 of 34 Created On Sun Aug 13 00:30:06 IST 2017 R/SCR.A/1970/2015 JUDGMENT 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 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.

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 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 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'."

38 A learned Single Judge of the Andhra Pradesh High Court in the case of Alladi Narasimha Rao (supra) considered the question whether Page 26 of 34 HC-NIC Page 26 of 34 Created On Sun Aug 13 00:30:06 IST 2017 R/SCR.A/1970/2015 JUDGMENT the words "other association of individuals" should be in relation to a business enterprise or a business deal. I may quote the relevant observations made by the learned Judge as contained in paras 13, 14 and 15 as under:

"13 In Commissioner of Income Tax, Bombay v. Indira Balkrishna, (AIR 1960 SC 1172) 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 must be one in which two or more persons join in a common purpose or common action, and as the words occur in the Section which imposes a tax on income, the association must be one the object of which is to produce income, profits or gains".

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 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 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."





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         39    The Supreme Court in the case of Income Tax Officer, Gorakhpur

(supra), in context with the Excess Profits Tax Act, 1940 considered the question whether a Hindu Undivided Family is a firm or an association of person. The Supreme Court answered the question in para 10, which reads as under:

"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 IncomeTax 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 IncomeTax Act, 1922 which provides for the assessment of Hindu undivided family after its partition."

40 In the case of Commissioner of Income Tax, Bombay North, Kutch and Saurashtra, Ahmedabad vs. Smt. Indira Balkrishna [AIR 1960 Supreme Court 1172] in context with Section 3 of the Income Tax (11 of 1922) considered the question as to what would constitute an "association of person". The Supreme Court in paras 9 and 10 observed as under:

"9. It is enough for our purpose to refer to three decisions : In re, B. N. Elias, 19353 ITR 408 (Cal); Commissioner of Incometax, Bombay v. Laxmidas Devidas, 19375 ITR 584 (Bom) : and in re. Dwarkanath Harishchandra, 19375 ITR 716 : (AIR 1938 Bom 353). In 19353 ITR 408 (Cal ) Derbyshire, C. J. rightly pointed out that the word "associate" means, according to the Oxford dictionary, "to join in common purpose, or to joint in an action." Therefore, an association of persons must be one in which two or more persons join in a common purpose or common action, and as the words occur in a section which imposes a tax on income, the association must be on the object of which is to produce income, profits or gains. This was the view expressed by Beaumout, C. J. in 19375 ITR 584 (Bom) at p. 589 and also in 19375 ITR 76 : (AIR 1938 Bom 353). In 19353 ITR 408 (Cal ) Costella, J. put the test in more forceful language. He said : "It may well be that the intention of the Page 28 of 34 HC-NIC Page 28 of 34 Created On Sun Aug 13 00:30:06 IST 2017 R/SCR.A/1970/2015 JUDGMENT legislature was to hit combinations of individuals who were engaged together in some joint enterprise but did not in law constitute partnership.....When we find....that there is a combination of persons formed for the promotion of a joint enterprise....then I think no difficulty arises in the way of saying that these persons did constitute an association......."

10. We think that the aforesaid decisions correctly lay down the crucial test for determining what is an association of persons within the meaning of S. 3 of the Incometax Act, and they have been accepted and followed in a number of later decisions of different High Courts to all of which it is unnecessary to call attention. It is, however, necessary to add some words of caution here. There is no formula of universal application as to what facts, how many of them and of what nature, are necessary to come to a conclusion that there is an association of persons within the meaning of S. 3; it must depend on the particular facts and circumstances of each case as to whether the conclusion can be drawn or not."

41 Thus, what is discernible from the principles explained in the decisions referred to above is that the word "association" implies the result of an agreement giving rise to the rights and obligations of one against the other. Persona who have no mutual rights and obligations do not constitute an association because they happen to have a common interest or several interests in something which is to be divided between them. James L.J. in Smith vs. Andersen, (1880) 15 Ch. Div. 247 at p. 273 : (50 L.J. Ch. 39) has observed as follows :

"Now there are three words there, 'company, association, or partnership.' I cannot understand what the difference is between a company and an association. The word association, in the sense in which it is now commonly used, is etymologically inaccurate, for 'association' does not properly describe the thing formed, but properly and etymologically describes the act of associating together, from which act of associating there is formed a company or partnership."

And again "A company or association (which I take to be synonymous terms) is the result of an arrangement by which parties intend to form a partnership which is constantly changing."




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He laid stress on the fact that an association creates mutual rights and obligations between the persona associating and observed as follows :

"Persons who have no mutual rights and obligations do not, according to my view, constitute an association because they happen to have a common interest or several interests in something which is to be divided between them."

42 In the case of United Phospherus Limited (supra), a learned Single Judge of High Court of Andhra Pradesh observed in paras 10 and 11 as under:

"10 A reading of Explanation (1) indicates that the express "company"

shall mean a body corporate and includes a firm or other association of individuals. The term "other association of individuals cannot be understood to refer even to informal understandings between individuals. It has to be understood in the context of body corporate and partnership firms. The principles of ejusdem generis gets attracted in such case. The "association of individuals" should be of similar nature as companies and partnership firms.

11 Apart from companies and partnership firms, the law provides for registration of "association of individuals" such as those under the Societies Registration Act. The reference can be only to such "association of individuals" and not any other loosely knitted, uncertain and amoebic gatherings. In fact, to hold an individual responsible in the absence of such a process of registration or incorporation would just be next to impossibility, Conversely, if such a procedure is permitted, even third parties can be held liable though they do not have any legal or other relationships with such unincorporated and unregistered agencies."

43 A learned Single Judge of the Madras High Court in the case of Arpit Jhanwar (supra), after referring to and relying upon the decision of the Supreme Court in the case of Ramanlal Bhailal Patel (supra), has answered the very same question which has fallen for my consideration in the case at hand as under:

"This dictum laid down by the Hon'ble Supreme Court categorically answers the question involved in the instant cases. As we have seen, as per Section 141 of the Act, the term company includes an Association of Page 30 of 34 HC-NIC Page 30 of 34 Created On Sun Aug 13 00:30:06 IST 2017 R/SCR.A/1970/2015 JUDGMENT Individuals. Here, the term Association of Individuals means, as has been held by the Hon'ble Supreme Court, a group of persons who have become coowners by their own volition with a common purpose. If the co ownership 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 co ownership. 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, a HUF can not be a company in terms of Section 141 of the Act."

44 Thus, I have reached to the conclusion that although the H.U.F. in the case at hand may be engaged in a business and is running a firm in the name of M.S. Traders and may be having a common purpose, yet what is missing is the element of free will and volition. 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 N.I. Act, it is absolutely necessary that the combination of individuals must be on their own free will and volition. Secondly, it is also necessary that such combination of individuals must be with a common purpose. There may be a common purpose to be carried forward by an H.U.F., but an individual becomes a member of the H.U.F., not on his own free will and volition, but by status and birth.

45 I may quote at the cost of repetition the observations of the Supreme Court in the case of Commissioner of Income Tax, Bombay North, Kutch and Saurashtra (supra) as under:

"There is no formula of universal application as to what facts, how many of them and of what nature, are necessary to come to a conclusion that there is an association of persons within the meaning of S. 3; it must depend on the particular facts and circumstances of each case as to Page 31 of 34 HC-NIC Page 31 of 34 Created On Sun Aug 13 00:30:06 IST 2017 R/SCR.A/1970/2015 JUDGMENT whether the conclusion can be drawn or not."

46 The view taken by the Madras High Court in the case of Arpit Jhanwar (supra) is quite commendable and I am in agreement with the reasonings assigned in the said judgment.

47 Let me now look into the decision of the Bombay High Court in the case of Dadasaheb Rawal (supra) on which strong reliance is placed by the learned counsel appearing for the applicant. The learned Single Judge of the Bombay High Court in the case of Dadasaheb Rawal (supra) observed in paras 7, 8, 9, 10 and 11 as under:

"7. It is well settled that in a joint family business, no member of the family can say that he or she is the owner to the extent of any particular share in the profits and assets. There is unity of ownership and community of interest. The pattern of accounts of the joint family business is different from those of a partnership. In the case of joint Hindu family business, the shares of the individual members in the profits and loss are not worked out unlike in case of partnership account. So far as the joint Hindu family business is concerned, the Manager is liable not only to the extent of his share in the joint family property, but also personally.

8. The Explanation appended to Section 141 may be considered for the present purpose. It reads as follows.

"141. Offences by companies. (1) ***** (2) ***** 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."

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 along with other expressions "company" or "firm". Therefore, a joint family business must be deemed as a juristic person like a company Page 32 of 34 HC-NIC Page 32 of 34 Created On Sun Aug 13 00:30:06 IST 2017 R/SCR.A/1970/2015 JUDGMENT 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.

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 fulfill 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 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."

48 The learned Single Judge took the view that Section 141 is comprehensive and would cover all types of business organisations. It is difficult for me to subscribe to the view taken by the learned Single Judge of the Bombay High Court, more particularly, in view of the Page 33 of 34 HC-NIC Page 33 of 34 Created On Sun Aug 13 00:30:06 IST 2017 R/SCR.A/1970/2015 JUDGMENT decision of the Supreme Court in the case of Ramanlal Bhailal Patel (supra).

49 I take notice of the fact that the decision of the Supreme Court in the case of Ramanlal Bhailal Patel (supra) is dated 5th February 2008. Whereas the Bombay High Court decision in the case of Dadasaheb Rawal (supra) is dated 22nd August 2008. The Supreme Court decision has not been considered by the Bombay High Court.

50 My final conclusions are drawn as under:

[a] A H.U.F. will not constitute an "association of individuals"

within the meaning of Section of 141 of the N.I. Act.

[b] A H.U.F. is not a legal entity distinct and separate from that of the members who constitute it.

[c] The principles laid down by the Supreme Court in the case of Aneeta Hada (supra) will not apply in the case of a H.U.F.

51 For the foregoing reasons, this application fails and is hereby rejected. Notice stands discharged. The adinterim relief granted earlier stands vacated forthwith.

(J.B.PARDIWALA, J.) chandresh Page 34 of 34 HC-NIC Page 34 of 34 Created On Sun Aug 13 00:30:06 IST 2017

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