Bangalore District Court
And The Accused No.2 Are Known To Each ... vs No.2 To 5 Being The Managing Director And ... on 11 December, 2020
1 CC.22957/2011 (J)
IN THE COURT OF THE XV ADDL CHIEF METROPOLITAN
MAGISTRATE AT BANGALORE CITY.
Dated this the 11th day of December-2020
Present: Lokesh Dhanapal Havale B.A.LL.B
XV Addl.C.M.M., Bangalore.
Judgment U/s.355 of the Cr.P.C. 1973.
1.Sl.No.of the case CC.No.22957/2011
2.Name of the Complainant: Sri.P.S.SUBRAMANYAM,
Aged about 52 years,
S/o.Late Srinivasa Murthy,
Proprietor, Sri.Hanuman
Home Appliances,
No.123, Ground Floor,
S.K.R.Market,
Bangalore - 560 002.
3.Names of the accused: 1. M/s.Tribol Voice
Communications Pvt.Ltd.,
(A registered company)
Represented by its Managing
Director & Directors.
2. Sri.Arunkumar Bolar,
S/o.Bhaskar,
Managing Director of
M/s.Tribol Voice
Communications
Pvt.Ltd.,
3. SMT.VEENA.B.,
W/o.Sri.Arun Kumar Bolar,
Director of M/s.Tribol Voice
Communications Pvt. Ltd.,
4. Miss.Suhana Bolar,
D/o. Arun Kumar Bolar,
Director of M/s.Tribol Voice
Communications Pvt. Ltd.,
All are residing at No.583,
2 CC.22957/2011 (J)
12th 'A' Cross, 8th Main,
J.P.Nagar 2nd Phase,
Bangalore - 560 078.
And office at
GIB, 9/1,
Ground Floor,
Commerce House,
Cunningham Road,
Bangalore - 560 052.
5. Sri. Naveen Kumar,
S/o.Sri.Ramachandra,
Director of M/s.Tribol Voice
Communications Pvt. Ltd.,
C/o. Seribrum Systems
Pvt. Ltd.,
No.14, 2nd Floor,
72nd Cross, 5th Block,
Rajajinagar, Bangalore-560
010.
Office at GIB 9/1,
Ground Floor,
Commerce House,
Cunningham Road,
Bangalore - 560 052.
4.The offence complained U/s.138 of Negotiable
of : Instruments Act.
5.Plea of the accused: Pleaded not guilty.
6.Final Order: Acting U/s.255(1) Cr.P.C.,
Accused No.5 is acquitted.
Acting U/s.255(2) Cr.P.C.,
Accused No.1 to 4 are convicted.
7.Date of final Order 11.12.2020
***
3 CC.22957/2011 (J)
This complaint is filed U/Sec.200 of Cr.P.C. against the
Accused No.1 to 5 for the offence punishable U/Sec.138 of the
Negotiable Instruments Act, 1881, wherein Accused No.1 is a
Company and Accused No.2 is its MD and Accused No.3 to 5
are its directors.
2. The brief facts of the complaint are as under.
The complainant owns Proprietorship concern by the
name Hanuman Home Appliances and its account is in
Ratnakar Bank Ltd., Gandhinagar Branch, Bengaluru having
Acc. No.1005712010001139. The Accused No.1 is a
Registered Private Limited Company by the name Tribol Voice
Communications Pvt. Ltd., Accused No.2 is its Managing
Director and Accused No.3 to 5 are its Directors. The
complainant and the Accused No.2 are known to each other.
The Accused No.2 in consultation with Accused No.3 to 5
obtained loan of Rs.10,00,000/- from the complainant and it
was transferred by way of RTGS No.URT RATNH from his
account bearing No.1005712010001139 into the account of
the Accused No.1 bearing No.16430200000892 with the
Federal Bank Ltd., Vijayanagar Branch, Bengaluru. On
demand by the complainant for repayment, the Accused No.2
issued a post dated cheque bearing No.196017 dated
18.4.2011, drawn on Vijaya Bank, Infantry Road and also
executed a Promissory Note. The complainant presented the
said cheque for encashment through Ratnakar Bank,
Gandhinagar Branch, Bengaluru. It was returned unpaid with
shara "Account Frozen". Vide bank endorsement dated
26.4.2011. The complainant issued the statutory notice dated
12.5.2011 to all the Accused and it was duly served upon
4 CC.22957/2011 (J)
them and they sent reply notice dated 28.5.2011. Despite the
service statutory notice, the Accused No.2 to 5 failed to pay
the cheque amount and thereby committed an offence
punishable U/s.138 of the N.I.Act.
3. After the institution of the complaint, cognizance of the
offence has been taken against the Accused and it has been
registered as PCR No.14038/2011. On the basis of materials
available on record, the criminal case has been registered
against the Accused No.1 to 5 and summons were issued to
the Accused. In response to service of the summons, the
Accused No.2 to 5 being the Managing Director and Directors
of the Accused No.1 Company have appeared through their
learned counsels and got enlarged on bail. The prosecution
papers were supplied to the Accused No.2 to 5 and substance
of the accusation was read over and explained to the Accused
No.2 to 5. They pleaded not guilty and claimed to be tried.
4. In order to prove his case, the complainant examined
himself as as PW-1 and got marked Ex.P.1 to P.28. In this case
the cheque in question, which is marked as Ex.P.1 is the
photocopy. As per the order dated 14.07.2011 in the order-
sheet, the complainant produced the original cheque at the
time of sworn statement and the Court after verifying the
original cheque with the photocopy of the cheque has
returned the originals to the complainant with a direction to
produce the documents at appropriate time. The accused
were not secured for almost 7 years. Thereafter at the time of
leading evidence by the complainant the original cheque was
reported to be lost and an application was filed seeking
permission to adduce secondary evidence as per Sec.65 of
5 CC.22957/2011 (J)
Evidence Act. The said application was contested and the
Court passed order on 5.10.2019 allowing the application and
permitting the complainant to adduce secondary evidence by
producing the photocopy of the cheque bearing No.196017
dated 18.04.2011. Accordingly the photo copy of the cheque
was marked as Ex.P.1. The order dated 05.10.2019 was not
challenged by the accused. Thereafter the statements of the
Accused No.2 to 5 U/s 313 of Cr.P.C were recorded. In order to
prove their defence, the Accused No.4 examined herself as
DW-1, the Accused No.3 examined herself as DW-2, the
Accused No.1 examined himself as DW-3 and the Accused
No.5 examined himself as DW-4. The documents on the side
of the defence were marked as Ex.D.1 to D.26.
5. I have heard the arguments of the learned counsels
appearing for the complainant and Accused No.2 to 5 and
perused the entire materials. On perusal the points that arise
for my consideration are as under;
1. Whether the complainant proves that the
Accused No.2 is Managing Director and
Accused No.3 to 5 are the Directors of Accused
No.1 Company by name the Tribol Voice
Communication Pvt. Ltd, and the Accused No.2
on behalf of Accused No.1 Company and on
behalf of other Accused has issued the cheque
bearing No.196017 drawn on Vijaya Bank,
Infantry Road Branch, Bengaluru in favour of
complainant for a sum of Rs.10,00,000/-
towards the discharge of legally enforceable
debt/liability, and on its presentation, it was
6 CC.22957/2011 (J)
dishonored for the reason "Account
Frozen/Insufficient Funds" and they have not
paid the amount even after the lapse of 15
days from the date of service of statutory
notice on them and thereby Accused No.1 to 5
have committed an offence punishable
U/Sec.138 of N.I. Act, 1881?
2. Whether the Accused No.1 to 5 rebut the
presumption U/s. 139 of N.I.Act?
3. What order?
6. My answers on the above points for consideration are
as under.
Point No.1 : In the Affirmative.
Point No.2 : In the Negative.
Point No.3 : As per final order for the following:-
REASONS
7. Point No.1 and 2:- The points are taken together for
common discussion to avoid repetition of facts and evidence.
8. At this juncture it is necessary to discuss the
provisions under Section 138, 118(a), 139 and 141 of the N.I.
Act., 1881 and the said provisions are extracted and they
read as under;
138. Dishonour of cheque for
insufficiency, etc., of funds in the
account - Where any cheque drawn by a
7 CC.22957/2011 (J)
person on an account maintained by him
with a banker for payment of any amount of
money to another person from out of that
account for the discharge, in whole or in
part, of any debt or other liability, is returned
by the bank unpaid, either because of the
amount of money standing to the credit of
that account is insufficient to honour the
cheque or that it exceeds the amount
arranged to be paid from that account by an
agreement made with that bank, such
person shall be deemed to have committed
an offence and shall, without prejudice to
any other provision of this Act, be punished
with imprisonment for a term which may be
extended to two years, or with fine which
may extend to twice the amount of the
cheque, or with both:
Provided that nothing contained in this
section shall apply unless:-
(a) the cheque has been presented to
the bank within a period of six months
from the date on which it is drawn or
within the period of its validity,
whichever is earlier;
(b) the payee or the holder in due
course of the cheque, as the case may
be, makes demand for the payment of
8 CC.22957/2011 (J)
the said amount of money by giving a
notice in writing, to the drawer of the
cheque, within thirty days of the
receipt of information by him from the
bank regarding the return of the
cheque as unpaid; and
(c) the drawer of such cheque fails to
make the payment of the said amount
of money to the payee or as the case
may be, to the holder in due course of
the cheque within fifteen days of the
receipt of the said notice.
Explanation:- For the purposes of
this section, "debt or other liability"
means a legally enforceable debt or
other liability.
118. Presumptions as to negotiable
instruments. -Until the contrary is proved,
the following presumptions shall be made;
(a) of consideration - that every
negotiable instrument was made or
drawn for consideration, and that
every such instrument, when it has
been accepted, indorsed, negotiated
or transferred, was accepted,
indorsed, negotiated or transferred for
consideration;
9 CC.22957/2011 (J)
(b) as to date:- that every Negotiable
Instrument bearing date was made or
drawn on such date;
139. Presumption in favour of holder.-
It shall be presumed, unless the contrary is
proved, that the holder of a cheque received
the cheque of the nature referred to in
section 138 for the discharge, in whole or in
part, of any debt or other liability.
141. Offences by companies:-(1) If the
person committing an offence under section
138 is a Company, every person who, at the
time the offence was committed, was in
charge of, and was responsible to the
Company for the conduct of the business of
the Company, as well as the Company, shall
be deemed to be guilty of the offence and
shall be liable to be proceeded against and
punished accordingly;
Provided that nothing contained in
this sub-section shall render any person
liable to punishment if he proves that the
offence was committed without his
knowledge, or that he had exercised all due
diligence to prevent the commission of such
offence;
10 CC.22957/2011 (J)
Provided further that where a person
is nominated as a Director of a Company by
virtue of his holding any office or
employment in the Central Government or
State Government or a financial corporation
owned or controlled by the Central
Government or the State Government, as
the case may be, he shall not be liable for
prosecution under this Chapter.
(2) Notwithstanding anything contained in
sub-section (1), where any offence under
this Act has been committed by a Company
and it is proved that the offence has been
committed with the consent or connivance
of, or is attributable to, any neglect on the
part of, any director, manager, secretary or
other officer of the Company, such director,
manager, secretary or other officer shall also
be deemed to be guilty of that offence and
shall be liable to be proceeded against and
punished accordingly.
Explanation:- For the purposes of this
section;
(a) "Company" means and Board of
Directorsy corporate and includes a
firm or other association of
individuals; and
11 CC.22957/2011 (J)
(b) "director", in relation to a firm,
means a partner in the firm.
9. On plain perusal of the provisions U/s. 118(a) and 139
of the N.I.Act., it can be seen that initially the statutory
presumptions are raised in favour the complainant. However
it is open to an Accused to raise probable defences and rebut
the statutory presumptions by proving the same. An Accused
can raise a defence, wherein the existence of legally
enforceable debt or liability can be contested. It is also well
established that an Accused for discharging the burden of
proof placed upon him under a statute need not examine
himself. He may discharge his burden on the basis of the
materials already brought on record. An Accused has
constitutional rights to maintain silence. The standard of
proof on part of the Accused and that of the prosecution in a
Criminal case is different. The prosecution must prove the
guilt of an Accused beyond all reasonable doubts but the
standard of proof so as to prove a defence on the part of an
Accused is preponderance of probabilities.
10. The burden of proving the defence is on the
Accused. However, in a case, where a Company is an Accused
and its directors are to be made vicariously liable, then it is
necessary for the complainant to prove that its directors were
in charge of and responsible to the conduct of its business at
the time of commission of the offence. Once the complainant
proves it, the onus shifts on an Accused to prove that the
offence was committed without his knowledge or he had
exercised all due diligence to prevent the commission of
12 CC.22957/2011 (J)
offence, if not, the directors are vicariously liable. On the
other hand, if the directors are able to prove by cogent
evidence that they are neither in charge of and responsible to
the conduct of the business of the Company nor they had
knowledge of the transaction or negligent, they are entitled
for acquittal.
11. The complainant examined himself as PW-1. He filed
affidavit on oath in lieu of his examination-in-chief and
reiterated the averments made in the complaint. He got
marked Ex.P.1 to P.28. Ex.P.1 (photocopy of the cheque
marked as per order dated 05.10.2019) is the photocopy of
the cheque dated 18.04.2011 bearing No.196017 for
Rs.10,00,000/- issued in favour of the complainant. It pertains
the account of Accused No.1 Company and bears the
signature of the Accused No.2, who is its Managing Director.
Ex.P.2 is the Bank endorsement dated 26.04.2011. It
discloses that the cheque was presented for the encashment
and it was returned with shara "Accounts Frozen". Ex.P.3 is
the office copy of the legal notice dated 07.05.2011
demanding the repayment of money comprised in the cheque
at ExP.1. Ex.P.4 to P.9 are the postal receipts for having sent
the legal notice to the accused. Ex.P.10 to P.15 are the postal
envelopes returned unserved on the accused with shara 'No
such person at the address' and 'no such company at the
address' and Ex.P.10(a) to P.15(a) are the legal notices sent
to the accused, which are same as that of Ex.P.3. Ex.P.16 is
the Agreement dated 24.10.2010, which shows that the
Accused No.2 has executed the agreement of availing loan for
business of Accused No.1 Company. It is mentioned in the
13 CC.22957/2011 (J)
agreement that he issued post dated cheque bearing
No.196017 for Rs.10,00,000/-, which is the cheque in question
marked as ExP.1 and execution of the Promissory note and
consideration receipt as per Ex.P.22. Ex.P.17 to P.20 are the
postal acknowledgements for having served the notice on
accused No.1 to 4. Ex.P.21 is the reply notice dated
28.5.2011. In the said reply notice the transfer of money is
admitted but the purpose of the transaction was denied.
Ex.P.22 is the on Demand Promissory Note and consideration
receipt for a sum of Rs.10,00,000/- executed by the Accused
No.2 in favour of the complainant. Ex.P.23 is the bank account
statement of the Proprietorship concern of the complainant
by name Hanuman Home Appliances in the Ratnakar Bank
Ltd. It discloses that on 25.06.2010 an amount of
Rs.10,00,000/- has been transferred to the account of
accused No.1 company, which is admitted fact as per Ex.P.21.
It also discloses that the amount of Rs.8,80,000/-was taken
from Siddivinayak Agro-Tech on 24.06.2010 and cash deposit
of amount of Rs.4,99,000/- was made to the account on the
same day. Ex.P.24 and P.25 are certified copies of the Form
No.DIR-12 issued by Registrar of Companies, Bengaluru,
which shows that the accused No.4 and 5 have not been
associated with the Accused No.1 company as Directors with
effect from 21.07.2018. Ex.P.27 and P.28 are the certified
copies of Memorandum of Association and Articles of
Association of Accused No.1 Company issued by Asst.
Registrar of Companies, Bengaluru.
12. The Accused No.2 to 5 have led their defence
evidence. The Accused No.4, 3, 2 and 5 were examined as
14 CC.22957/2011 (J)
DW-1 to DW-4 respectively and they got marked Ex.D.1 to
D.27. Ex.D.1 to 15 are the documents pertaining to the
Accused No.4, which show that she worked in various
companies from 2010 to 2016. ExD.1 is the certified copy of
increment letter dated 2.12.2005 of Accused No.4 issued by
Airtel Mobile services, Ex.D.2 is the certified copy of
Experience Letter dated 06.01.2011 issued by Airtel Mobile
services, Ex.D.3 is the certified copy of Resignation
Acceptance Letter dated 02.11.2010 issued by Airtel Mobile
services, Ex.D.4 is the certified copy of Offer Letter dated
10.11.2010 of Tata Tele Services, Ex.D.5 is the certified copy
of Appointment Letter dated 10.11.2010 issued by Tata Tele
Services, Ex.D.6 is the certified copy of Resignation
Acceptance Letter dated 04.08.2016 issued by Tata Tele
Services, Ex.D.7 is the certified copy of Experience Letter
dated 23.11.2016 issued by Tata Tele Services, Ex.D.8 is the
certified copy of Letter dated 22.08.2016 given by Reliance
Company and Ex.D.9 to 15 are certified copies of the Income
Tax Returns from the year 2012-13 to 2018-19.
13. Ex.D.16 and D.18 are the certified copies of Articles
of Association and Memorandum of Association of Accused
No.1 Company issued by Asst. Registrar of Companies,
Bengaluru. Ex.D.17 is the certified copy of certificate of
incorporation of Accused No.1 Company issued by Asst.
Registrar of Companies, Bengaluru. Ex.D.19 is the certified
copy of letter of resignation dated 23.05.2003 submitted by
the Accused No.4 to the Accused No.1 Company. Ex.D.20 is
the certified copy of letter of resignation dated 4.3.1997
submitted by the Accused No.5 to the Accused No.1. Ex.D.21
15 CC.22957/2011 (J)
is the certified copy of letter dated 29.3.1997 issued by
Accused No.1 accepting resignation of Accused No.5. Ex.D.22
is the certified copy of letter dated 21.1.2013 addressed by
the Accused No.5 to the Registrar of Companies, Bengaluru in
respect of his resignation from the Accused No.1 Company as
its director. Ex.D.23 is the certified copy of the letter of
appointment of accused No.5 dated 20.04.2000 issued by
Convergence Infotech Ltd. Ex.D.24 is the certified copy of the
Relieving Letter dated 21.09.2004 issued by Convergence
Infotech Ltd. Ex.D.25 is the letter of appointment of accused
No.5 dated 22.09.2004 issued by Travtech Software Pvt. Ltd.
Ex.D.26 is the certified copy of the Judgment dated
10.06.2019 in CC.No.33517/2011 passed by Hon'ble XVIII
ACMM, Bengaluru acquitting the accused No.5 of the offence
punishable U/s.138 of N.I.Act, which is one of the connected
cases filed on accused No.1 to 5. Ex.D.27 is the certified copy
of the Judgment dated 10.06.2019 in CC.No.33519/2011
passed by Hon'ble XVIII ACMM, Bengaluru acquitting the
accused No.5 of the offence punishable U/s.138 of N.I.Act,
which is another connected case filed on accused No.1 to 5.
On perusal of Ex.D.26 and 27, they disclose that the accused
No.5 has been acquitted on the ground that accused No.5 has
proved that he had resigned from the post of Director of
accused No.1 company in the year 1997.
14. The documents disclose that the complainant
presented the cheque at ExP.1 for encashment within time
i.e. within the validity of the cheque. The Accused No.2/DW.3,
who is Managing Director, admitted the issuance of cheque,
signature and the seal of the Accused No.1 Company. The
16 CC.22957/2011 (J)
Accused No.2 also admitted the same in his evidence.
Therefore, the presumption arises in favour of the
complainant. The admission attracts the ratio laid down by
the Hon'ble Supreme Court of India in its decisions reported in
2011 (11) SCC 441 - Rangappa V/s Mohan and 2015 (8) SCC
378 - T.Vasanthakumar V/s.Vijayakumari. The ratio is that the
cheque shall be presumed to be for consideration unless and
until the court forms a belief that the consideration does not
exist or considers its non-existence so probable that a
prudent man would, under the circumstances of a particular
case, act upon the plea that it does not exist. Further it was
also admitted that the amount mentioned in the cheque was
transferred to the account of Accused No.1 Company through
RTGS. It was also admitted in reply notice at ExP.21 as well as
in the evidence of DW.1.
15. ExP.2 is the memo dated 27.04.2011 issued by the
bank with shara "Account Frozen". The complainant issued
statutory notice dated 07.05.2011 as per ExP.3 to the
Accused No.1 to 5 within time from the date of receipt of
dishonor memo. The counsel for the accused No.2 to 4 argued
that the act of freezing the account is the act of the bank and
the Accused No.1 Company could not be made liable.
He relied upon the judgment of Hon'ble Delhi High Court
in M/s. Ceasefire Industries Ltd Vs. State & Others, reported in
(2017) 2 MAD WN (Cri) 71, wherein it was held as under;
"The reason given by the Bank for the return of
the cheque being "Account Freezed" or "Account
Blocked"; the complainant being aware of the fact
17 CC.22957/2011 (J)
and the reason being not what is envisaged in
Sec.138 of N.I.Act., the petition is devoid of
merit."
He also relied upon the judgment of Hon'ble High Court of
Punjab and Harayana in Rajesh Meena Vs. State of Haryana
and others in its decision dated 01.07.2019, wherein the
Hon'ble Court has interpreted the expression "account
maintained by the drawer" as under;
A careful analysis of Section 138 N.I.Act
reveals that the first and foremost requirement to
maintain the complaint under Section 138 NI Act
is that the cheque issued by the account holder
must be from the account maintained by account
holder with the drawer-Bank for discharge in
whole or in part of any debt or other liability.
The expression "account maintained by him"
as appearing in Section 138 of NI Act carries
great significance and meaning. The dictionary
meaning of "Maintain" (as contained in Oxfort
Dictionary) is defined as:- the act of making the
state or situation continue. Therefore, the said
expression "account maintained by him" cannot
be construed narrowly to mean that if the account
belongs to the accused, the necessary ingredient
would be complete. This expression "account
maintained by him" must necessarily include that
the said account is not only alive and operative,
but the account holder is capable of executing
18 CC.22957/2011 (J)
command to govern the financial transactions
which include the clearance of cheques etc. The
authority and control of the account holder upon
the account must exist on the effective date i.e.,
when the cheque becomes valid for presentation
in the bank. It is settled law that mere issuance of
a cheque is not an offence, but it becomes
punishable when the said cheque is dishonoured.
Mere fact that the record of the drawer bank
shows a particular name as account holder would
not be sufficient to establish that account is being
maintained by the account holder, unless the said
account holder holds the authority and control
over the said account. In other words, if an
account holder is deprived off his authority,
control and dominion over the bank account, it
cannot be said that the account is being
maintained by the said account holder.
16. However the Accused did not agitate the same
either in the reply notice or in the evidence. It took almost 7
years to secure the presence of Accused No.2 to 5 as per the
order sheet. They did not even raise the issue at the initial
stage, after their appearance. It is only at the stage of
arguments, the point has been raised. When the facts of
transfer of amount to the account of Accused No.1 and
issuance of cheque are admitted, the burden is on the
Accused to prove their defences. The memo was issued with
shara "Account Frozen".
19 CC.22957/2011 (J)
The Hon'ble High Court of Karnataka observed in its
judgment dated 21.08.2018 in Crl.R.P. No.879 OF 2016
between Ms. B.N Anitha Vs. Sri G Yuvaraj Singh as under;
"No doubt it is true that if the bank suo moto
blocked the account, an offence under Sec.138
N.I.Act cannot be invoked; however it depends on
the facts and circumstances. Despite having
sufficient balance in the account, if the account is
blocked by the bank for a valid reason, then no fault
can be found with the Accused. But for not
maintaining the balance in the account and for not
operating it for quite a long time, if the bank blocks
the account, and knowing it very well if the cheque
is issued, the Accused cannot take advantage of
such a situation.
The Hon'ble Supreme Court of India has in the case
of Laxmi Dychem v. State of Gujarat and Ors. reported in
(2012) 13 SCC 375 held as under;
The expression "amount of money...........is
insufficient" appearing in Section 138, N.I. Act is a
genus and dishonour for reasons such as "account
closed", "payment stopped", "referred to the
drawer" are only species of that genus and would
attract penal liability under section 138, N.I. Act.
The Hon'ble Supreme Court of India in the decision
of D. Vinod Shivappa Vs. Nanda Belliappa reported in
20 CC.22957/2011 (J)
(2006) 6 SCC 456 held with respect to the object of Sec.
138 of the Act at para 13 as follows;
"13. Sec. 138 of the Act was enacted to punish
those unscrupulous persons who purported to
discharge their liability by issuing cheques without
really intending to do so, which was demonstrated
by the fact that there was no sufficient balance in
the account to discharge the liability. Apart from
civil liability, a criminal liability was imposed on
such unscrupulous drawers of cheques. The
prosecution, however, was made subject to certain
conditions. With a view to avoid unnecessary
prosecution of an honest drawer of a cheque, or to
give an opportunity to the drawer to make amends,
the proviso to Sec. 138 provides that after
dishonour of the cheque, the payee or the holder of
the cheque in due course must give a written notice
to the drawer to make good the payment. The
drawer is given 15 days time from date of receipt of
notice to make the payment, and only if he fails to
make the payment he may be prosecuted.
The object which the proviso seeks to achieve
is quite obvious. It may be that on account of
mistake of the bank, a cheque may be returned
despite the fact that there is sufficient balance in
the account from which the amount is to be paid. In
such a case if the drawer of the cheque is
prosecuted without notice, it would result in great
21 CC.22957/2011 (J)
in-justice and hardship to an honest drawer. One
can also conceive of cases where a well intentioned
drawer may have inadvertently missed to make
necessary arrangements for reasons beyond his
control, even though he genuinely intended to
honour the cheque drawn by him. The law treats
such lapses induced by inadvertence or negligence
to be pardonable, provided the drawer after notice
makes amends and pays the amount within the
prescribed period. It is for this reason that Clause (c)
of proviso to Sec. 138 provides that the section shall
not apply unless the drawer of the cheque fails to
make the payment within 15 days of the receipt of
the said notice. To repeat, the proviso is meant to
protect honest drawers whose cheques may have
been dishonoured for the fault of others, or who
may have genuinely wanted to fulfill their promise
but on account of inadvertence or negligence failed
to make necessary arrangements for the payment
of the cheque. The proviso is not meant to protect
unscrupulous drawers who never intended to
honour the cheques issued by them, it being a part
of their modus operandi to cheat unsuspecting
persons."
17. On perusal of the above decisions, they show that
whatever be the reason for dishonour of the cheque, it has to
be co-related to the insufficiency of funds in the account or to
the lack of arrangement made by the drawer with his bank
under an agreement. The facts of the present case, show that
22 CC.22957/2011 (J)
the account of the Accused No.1 was freezed, which is
obviously the act of the Bank and the account to be
maintained by an account holder means that he should be in
position to operate the said account by either depositing
money therein or by withdrawing money therefrom and
further he should be in a position to give effective instructions
to his banker with whom the account is maintained. However
the facts were not brought on record by the Accused by
adducing cogent evidence in respect of the account of the
Accused No.1 Company such as the date on which account
was frozen; the reason for which it was frozen; whether he
had the knowledge of the same at the time of issuance of
cheque in question and if he had, whether the intimation was
given to the complainant about the same and the Company
had sufficient amount with it at the relevant point of time to
deposit the same to its account. Further the question of
sufficiency of funds in the account at that time is also a
relevant factor. If the said facts were brought on record by
way of evidence, the Court would have been in a better
position to appreciate the aspect of shara "Account Frozen".
The Accused can not escape his liability on point raised at the
fag end of the trial, when he has failed to discharge his
burden to show by leading evidence that he had sufficient
balance with the Company as on the date of dishonour or he
was in position to arrange said amount at relevant time and
to show that he was an honest drawer. Therefore the
argument of the counsel for the accused is not tenable.
18. The legal notice dated 07.05.2011 at ExP.3 was
served on the Accused and the reply notice dated 28.5.2011
23 CC.22957/2011 (J)
was issued as per ExP.21. Further the order sheet shows that
the complainant has filed this complaint well within time. The
Accused have denied the service of notice and took the
defence that the Accused No.1 Company was shifted to
another address and the Company itself was closed long back
i.e. in the year 2000.
In the decision of D. Vinod Shivappa Vs. Nanda Belliappa
reported in (2006) 6 SCC 456 Hon'ble Supreme Court held as
under;
"When the drawer refuses to accept notice or when
he evades service of the notice by fraudulent or
unscrupulous means so that the envelope
containing the notice is returned with a false
endorsement such as premises locked or addressee
not available, Court may presume receipt of the
notice by the drawer."
19. In this case the endorsement was not produced as
the reply notice has been given by the Accused, which is at
ExP.21. The suggestions were made to the PW.1 in respect of
change of address and closure of the Company. However,
during the course of cross-examination, the Accused
No.2/DW.3 admitted that the Accused No.1 Company is still
existing but denied the address. However the ExD.17 and 16
produced by DW.1, which are Certificate of Incorporation and
Articles of Association, which are obtained during the year
2018 from Registrar of Companies, depict the same address.
Moreover the Accused have not adduced any evidence to
show that the address was changed and it was duly intimated
24 CC.22957/2011 (J)
to the Registrar of Companies as per law. The notices have
been returned with shara "No such person or company at the
address" as per Ex.P-10 to 15 and the same would be
presumed as deemed service of notices, when the address
was proved. Further the notices have been served on accused
No. 1 to 4 as per Ex.P-17 to 20, which are the
acknowledgements for having served the notices on the
accused on another address. The Accused has not rebutted
the presumption of service of notice by cogent evidence.
Moreover as per the Judgment of the Hon'ble Supreme Court
of India in Crl.Appeal No.767 of 2007 (Arising out of SLP (Crl)
No.3910 of 2006 between CC Alavi Haji Vs.Palapetty
Muhammed and another decided on 18.5.2007, wherein it has
been held by the Hon'ble Supreme Court of India para No.17
as under;
17. It is also to be borne in mind
that the requirement of giving of notice is a
clear departure from the rule of Criminal Law,
where there is no stipulation of giving of a
notice before filing a complaint. Any drawer
who claims that he did not receive the notice
sent by post, can, within 15 days of
receipt of summons from the court in respect
of the complaint U/s.138 of the Act, make
payment of the cheque amount and submit
to the Court that he had made payment
within 15 days of receipt of summons (by
receiving a copy of complaint with the
summons) and, therefore, the complaint is
25 CC.22957/2011 (J)
liable to be rejected. A person who does not
pay within 15 days of receipt of the summons
from the Court along with the copy of
the complaint u/s.138 of the Act, cannot
obviously contend that there was no proper
service of notice as required u/s.138, by
ignoring statutory presumption to the contrary
u/s.27 of the G.C. Act and Section 114 of the
Evidence Act. In our view, any other
interpretation of the proviso would defeat
the very object of the legislation. As observed
in Bhaskaran's case (supra), if the 'giving of
notice' in the context of Clause (b) of the
proviso was the same as the 'receipt of
notice' a trickster cheque drawer would get
the premium to avoid receiving the notice by
adopting different strategies and escape from
legal consequences of Section 138 of the Act.
In a nutshell it can be said that the statutory notice is an
opportunity given to the accused to make payment and avoid
the consequences of 138 of N.I.Act. In the case on hand, the
accused appeared before the Court and contested the case
by taking all probable defences. They cannot take the shelter
of statutory requirement of service of notice to avoid the
consequences of Section 138 of N.I.Act.
20. It is the specific defence of the Accused and the
argument of the counsel for the Accused No.2 to 4 that the
brothers of the complainant were interested in taking over the
26 CC.22957/2011 (J)
business of the Accused No.1 Company from 01.04.2011 and
invested money for purchase of equity shares of the Accused
No.1 Company. The complainant and his brothers took
signatures of the Accused No.2 on various blank papers and
various blank undated cheques as security until the transfer
of shares. The Accused No.2 was required to arrange the
transfer after the audit on 31.03.2011. They require time until
July, 2011 as the modalities of transfer of shares have to be
discussed with the professionals and in the meantime the
complainant and his brothers tried to encash the cheques,
which have been given as security, without his knowledge.
The blank signed cheques were misused and blank papers
were used to fabricate loan agreement. There is no legally
recoverable debt. The said defence was also taken in the
reply notice at Ex.P.21. He further argued that ExP.16 is
created document and the Company has not authorized
Accused No.2 to execute such agreement and he has not
executed any document. He further argued that as per para
24 of the ExD.16, the management is vested with board of
directors and Company can not be made liable for the acts of
Accused No.2.
21. In support of the defence of the accused, the counsel
for accused no.2 to 4 placed reliance on the judgment of the
Hon'ble Supreme Court of India in the case of Bharath Barrel
and Drum Manufacture Co., Vs.Ameen Chand Pyarelal
reported in (1999) 3 SCC 3S and in MS.Narayan Menon Vs.
State of Kerala reported in (2006) 6 SCC 39, wherein it was
held as under:-
27 CC.22957/2011 (J)
"The standard of proof required to rebut the
presumption under Section 139 is that of
"preponderance of probabilities". Therefore, if the
accused are able to raise a probable defense
which creates doubts about the existence of a
legally enforceable debt or other liability, the onus
shifts back to the complainant to prove by way of
evidence, beyond reasonable doubt, that the
cheque in question was issued by the accused in
discharge, whole or in part, of any debt or other
liability, and the presumptions under Section
118(a) and Section 139 will not come to the
rescue of the complainant."
22. He further argued that the complainant is totally
aware of the covenant in Articles of Association. It has been
specifically admitted by the complainant in the cross-
examination that he has asked about the M/A and A/A of the
company. Moreover by virtue of Doctrine of constructive
notice, the complainant is aware of the covenants of the
Memorandum and Articles of Association of Accused No.1
company, since MOA and AOA are public documents
registered with ROC, Bangalore and each and every person in
general public presumed to be aware of the same. The
purported loan agreement at ExP.16 said to be executed by
Accused No.2 on 24-10-2010 and on the same date, the
accused No.2 is said to admit hand written clause in the
ExP.16 about the cheque and signed by Accused No.2. The
Accused No.2 has rebutted by the same. The cheque of the
company is purely concocted and it is void ab-initio. Assuming
28 CC.22957/2011 (J)
without admitting that the complainant had purportedly
advanced loan to Accused No.1 company, based on an
agreement (Ex.P.16) entered with Accused No.2 is beyond the
scope of Articles of Association and the complainant being a
contracting party is also bound by the Articles of Association
of Accused No.1 company. Hence, the purported loan
transaction itself is illegal and non-est.
He relied upon the judgment of Hon'ble Madras High
Court in Kotla Venkataswamy Vs. Chintaramamurthy and
others reported in Volume XL law weekly page 366; AIR 1934
MAD 579, wherein it was held as follows:-
"What are the obligations of persons dealing with
a company will be found given at length in
palmer's company law 14th edn. P.38. He must be
taken to have read the companies Act and the
articles of association of the company he is
dealing with and thus to have had constructive
notice of their contents."
23. Further it was argued that assuming that based on
the loan agreement at Ex.P.16, the Accused No.2 had issued
the cheque and the issuance of the cheque has been
questioned by the Accused to the complainant. The execution
of agreement itself is disputed. In that regard, he relied upon
the judgment of the Hon'ble High Court of Karnataka reported
in (2010) 4 BC 507; (2010) Cri.LJ 1061; 2011 (3) Kant LJ 331 in
the case of Sri. Venkatesh Bhat A. Vs. Rohitdas Shenoy
wherein it was held as under;
29 CC.22957/2011 (J)
"11. Since the valid execution of the ExP.1
agreement and the issue of cheque in question by
the accused to the complainant in terms thereof,
are seriously questioned, findings as to "whether
the said agreement is with free consent",
"whether the Accused No.2, issued the said
cheque issued voluntarily in terms of the said
Agreement", "Whether the signatures of the
Accused were obtained on the said agreement",
and whether the said cheque was taken by the
complainant by exercising coercion on him are to
be given. As rightly observed by the Trial Court,
findings on these issues could not be given by it
being the Criminal Court, and the said findings on
the said issues are to be given by a competent
Civil Court. Therefore I am of the considered
opinion that thr trial Court is quite justified in
observing at para 12 of its judgment that if at all
any terms of the alleged agreement dated
15.05.2007 are violated by the accused, then the
remedy is left elsewhere but not before it, which
is a Criminal Court."
Further it was argued that even assuming that the
Accused No.1 Company is having liability towards the amount
received in its account, the proper remedy open for the
complainant is to file either winding up application before the
appropriate Tribunal under Companies Act or to prefer a civil
suit. Section 138 N.I.Act, could not be used as an alternative
for recovery of money and the penal provisions of section 138
30 CC.22957/2011 (J)
could not be used as Arm twisting tactics against the
company.
24. On the other hand the counsel for the complainant
argued that as per Ex.D.16 and Ex.D.18, the authorized share
capital of the Company is Rs.10,00,000/- divided into 10,000
equity shares of Rs.100/- each and the Company has power to
increase or reduce the capital of the Company. The Directors
at the time of incorporation Accused No.2 to 5 took hundred
shares each. The total issued share capital of the Directors is
Rs.40,000/- and the amount transferred by the complainant is
Rs.10,00,000/-. The Accused No.2 issued cheque as per Ex.P.1
with seal of the Company and his signature and executed
Promissory Note as per Ex.P.22 in the similar manner. In
support of Ex.P.1 and P.22, he also executed agreement as
per Ex.P.16, wherein the seal and signature in the first page
were admitted and the seal and signatures on other pages
were denied. Para No.28 of Ex.D.16 clearly show that all the
directors shall authorize for use of seal, which shall be kept in
the safe custody provided by the board of directors and shall
be used in the presence of one of the directors. He further
argued that para No.25 of the Ex.D.16 refers to appointment
of Managing Director and para No.27 of the Ex.D.16 refers to
delegation of powers to him and para No.29 refers to
borrowing powers. The Accused No.2 being Managing Director
of Accused No.1 Company is authorized to borrow money
under the delegation of powers from the Directors and in the
same authority executed Ex.P.16 and P.22, which clearly
show that the amount was given as loan and not for purchase
of equity shares.
31 CC.22957/2011 (J)
25. At this juncture it is necessary to extract the clauses
in the Articles of Association for the purpose of discussion.
Clause-3. The Authorized Share Capital of the Company
is Rs.10,00,000/- (Rupees Ten lakhs only) divided into
10,000 (Ten thousand) Equity Shares of Rs.100 (Rupees
one hundred only) each with power to increase or
reduce the capital of the Company and to divide the
shares in the capital for the time being into several
classes and to attach thereto respectively such
preferential, deferred, qualified of special rights
privileges or conditions as may be determined and to
various modify of approval any such rights, privileges or
conditions in such manner as may for the time being be
provided by the Articles of Association of the Company.
Clause-5. Subject to the provisions hereinafter
contained, shares in the Company shall be transferable
by written instrument in the prescribed form signed
both by the transferor and the transferee and the
transferor shall be deemed to remain the holder of the
share until the name of the transferee is entered in the
Register of Members in respect thereof.
Clause-14. Subject to section 252 of the
Companies Act, 1956, and unless and until otherwise
determined by the Company in General Meeting, the
number of Directors shall not be less than two or more
than ten including all kinds of Directors. The Director
32 CC.22957/2011 (J)
shall not be liable to retire by rotation. The first
Directors of the Company shall be:
1. ARUN KUMAR BOLAR
2. B.R.NAVEEN KUMAR.
3. SMT. VEENA BOLAR
4. MISS.SUHANA BOLAR.
and they shall be permanent Directors of the Company
and shall hold office for life or until they resign from that
office.
Clause-24. The management and control of the
business of the Company shall be vested in the
Directors who may exercise all such powers and do all
such acts and things as may be exercised or done by
the Company and are not by the Act expressly directed
or required to be exercised or done by the Company in
General Meeting but subject nevertheless to the
provisions of the Act and to any regulations from time to
time made by the Company in General meeting
provided that no regulations so made shall invalidate
any prior act of the Directors which would have been
valid if such regulations had not been made.
Clause-25. The Board of Directors may from time
to time appoint one or more of their Board of Directorsy
to be a Managing Director or Managing Directors of the
Company either for a fixed term or without any
limitation as to the period for which he or they is or are
to hold such office, on such terms and conditions as
they deem fit and delegate such powers to him or them
33 CC.22957/2011 (J)
as they deem proper and may from time to time remove
or dismiss him or them from office and appoint another
or others in his or in their place or places. The Directors
may fix the remuneration of such managing Directors
whether by the way of salary and or commission or by
conferring a right to participate in the profits of the
Company or by a Combination of both.
Clause-27. The Board may, subject to the
provisions of the Act, delegate any of its powers to
Committee consisting of such member or members of
its Board of Directorsy as it thinks fit and or to the
Managing Director or Manager. Any Committee so
formed or the Managing Director shall in the exercise of
the powers so delegated conform to any regulations
they may from time to time be imposed upon it by the
Board.
Clause-28. The Company shall have common Seal
and the Board shall provide for the safe custody thereof.
The Seal shall not be applied to any instrument except
by the authority of a resolution of the Board or of a
Committee of the Board authorised by it in that behalf
and in the presence of one Director or such other person
as the Board may appoint for the purpose and such
Director or other person aforesaid shall sign every
instrument to which Seal of the Company is so affixed in
his presence.
Clause-29. The board of directors may from time to
time at their discretion raise or borrow secure the
34 CC.22957/2011 (J)
payments of any sum of money for purpose of the
Company's business and may secure the payment or
repayment of such money by mortgage or charge upon
the whole or any part of the assets and property of the
Company (present and future) including its uncalled
share capital.
Subject to as aforesaid, any bonds, debentures or
other securities issued by the Company shall be under
the control of Board of Directors who may issue them
upon such terms and conditions and in such manner
and for such consideration as they consider to be for the
benefit of the Company.
If the Directors any other person shall become
personally liable for the payment of any sum primarily
due from the Company, the Directors may execute
cause to be executed any mortgage, charge or security
cover for affecting the whole or any part of the assets of
the Company by way of indemnity to secure the
Directors or persons so becoming liable aforesaid for
any loss in respect of any such liability.
26. It is clear from the clause No.2 of ExD.16, which is
the Articles of Association, that the authorized capital of the
Company is Rs.10,00,000/- which is divided into 10,000 equity
shares of Rs.100/- each and the directors of the Company i.e.
Accused No.2 to 5 took 100 shares each total amounting to
issued share capital of 40,000/-. No records as to the business
of the Company were brought on record. It is not clarified as
35 CC.22957/2011 (J)
to what is the issued share capital of the Company. No doubt
there is a clause in Ex.D.16 that the Company can raise or
reduce its authorized share capital but there is nothing on
record to show that the process of raising authorized share
capital was initiated by the Company at the relevant point of
time as alleged by its Directors in the reply notice at Ex.P.21.
The amount mentioned in the cheque in question is more
than the remaining amount of the authorized share capital
after deduction of issued share capital. That apart there are
series of cases filed by the brothers of the complainant on the
Accused No.1 Company and all the amounts mentioned in
those cheques are near to or more than Rs.10,00,000/-. If at
all it is considered for the sake of arguments that the brothers
of the complainant were to take over the Company and
agreed to purchase the shares of the Company and
accordingly transferred the amount, there was no necessity
for Accused No.1 Company or its Managing Director Accused
No.2 to issue blank cheques and to give blank papers either
to the complainant or to his brothers, as contended by
accused. It would have been sufficient if the
acknowledgement of the receipt of amount was given stating
therein that the amount was received towards allotment of
shares, which is the procedure in the common course of
business. Therefore the defence of the Accused that the
amount was transferred for purchase of equity shares does
not hold water.
27. Further clause 27 of the Ex.D.16 clearly shows that
the Directors can delegate the powers to Managing Director
and as per clause 29 the Company has power to borrow
36 CC.22957/2011 (J)
money through the Directors. Therefore the argument that
the Company is not responsible for the acts of Accused No.2
as the consent of all the Directors of the Board was not taken
in the general meeting is also not tenable. The burden of
proving the defence is on the Accused and the Accused have
not produced any evidence to show that the amount of the
cheque in question was not loan and it was the amount given
for purchase of equity shares. On the other hand, the
complainant produced Ex.P.16, which is the agreement
between the complainant and the Accused No.2, who is the
Managing Director of the Company, which shows that the
amount given to the Company was loan. It is undisputed fact
that the Accused No.2, who is the Managing Director of the
Accused No.1 Company, and the complainant are known to
each other and DW-1 admitted it. The Accused only disputed
execution of Ex.P.16 by Accused No.2. However Accused
No2./DW-1 admitted the seal of the Company and his
signature on the first page of Ex.P.16 and denied the seal and
signatures on other pages of Ex.P.16. The defence of Accused
that the Accused No.2 gave signed blank cheques and signed
blank papers was not proved. Moreover the Accused
No.2/DW-3 has not disputed signature and seal on Ex.P.1.
There is no difference in the seal and signature on Ex.P.1 and
the seal and signatures on Ex.P.16 and P.22. As per clause
No.28, the Board of Directors of the Company have to provide
for safe custody of seal of the Company and it should not be
used without authorization by way of resolution. As per clause
21 of the ExD.16, the quorum for the meeting of Board of
Directors is 1/3rd. There are 4 directors as per ExD.16 out of
which 3 are family members and it shows that if two directors
37 CC.22957/2011 (J)
are present, it is sufficient. Under such circumstances, it
cannot be believed that other two family members i.e.
Accused No.3 and 4 have no knowledge about the acts of the
Accused No.2. If they did not had the knowledge, then the
burden is on them to prove that they had no knowledge of the
transaction or they had exercised all due diligence to prevent
the commission of offence. Therefore the defence of the
Accused that Ex.P.16 is created document is not tenable. It is
clearly mentioned in Ex.P.16 that a cheque in question was
issued for the repayment of the loan taken by the Company.
The complainant has clearly proved the execution of Ex.P.16
and on the other hand the Accused failed to prove that the
said documents were created by the complainant. The
accused never pleaded that the agreement at Ex.P.16 was the
product of fraud, coercion, misrepresentation or inducement.
If they would have taken the said defence and created the
doubt as to the execution of the ExP.16 by leading evidence
in that regard, then this court, being the criminal Court, would
have had no jurisdiction to answer such issues. There is no
whisper of any word about the same either in reply notice or
in the defence evidence. Such being the case, the facts of the
present case and facts of the judgment relied upon by the
accused are different and with due respect the said judgment
is not applicable to the case on hand. Further when multiple
remedies are available the complainant has right to choose
one of them. Therefore none of the arguments of the counsel
for the accused in that regard are tenable.
28. It is admitted by the Accused No.2/DW.3 that he
gave the cheque in question to the complainant by making
38 CC.22957/2011 (J)
the signature and putting the seal of Accused No.1 Company.
He disputed the name and date on the cheque. He contended
that it was only given to the complainant as security. As per
the presumption U/s.118(b) of N.I.Act every Negotiable
Instrument bearing a date was made or drawn on such date
and as per Section 20 of the N.I.Act, if the person signs and
delivers Negotiable Instrument and it is left incomplete and
thereby he authorizes the holder to complete the Negotiable
Instrument and thereby he is liable for the amount mentioned
in the Negotiable Instrument. In the Judgment rendered by
the Hon'ble Supreme Court of lndia in its Criminal Appeal
No.230-231 of 2019 - Bir Singh V/s. Mukesh Kumar at para
No.38 and 40 it was held as under:-
38. If a signed blank cheque is voluntarily
presented to a payee, towards some payment, the
payee may fill up the amount and other
particulars. This in itself would not invalidate the
cheque. The onus would still be on the Accused to
prove that the cheque was not in discharge of a
debt or liability by adducing evidence.
40. Even a blank cheque leaf, voluntarily
signed and handed over by the Accused, which is
towards some payment, would attract
presumption under Section 139 of the Negotiable
Instruments Act, in the absence of any cogent
evidence to show that the cheque was not issued
in discharge of a debt.
39 CC.22957/2011 (J)
29. The counsel for the accused No.2 to 4 argued that
the cheque was given as security and therefore Sec.138 of NI
Act will not be attracted against the accused persons. He
placed reliance on the judgment of the Hon'ble High Court of
Karnataka in Branch Manager, PCA and RD Bank Limited,
Beltangady Vs. Suresh Ganapathy Das, in Criminal Appeal
No.425/2010, decided on 27-02-2018, wherein it was held as
follows:
"It is to be seen that the cheque was not issued
by the accused/respondent towards legally
recoverable debt. It was issued as a security for
the loan, which was borrowed from the
complainant. This is further fortified by the
judgment relied on by the council for the
appellant himself in Sampelly Sathyanarayana
Rao which reads that, if on the date of the
cheque liability or debt exists, or the amount has
become legally recoverable, the section is
attracted and not otherwise."
On the other hand the counsel for the complainant
argued that the complainant disputes that the cheque was
given as security. However even cheque given as security
also attracts the ingredients of section 138 of N.I. Act. He
placed reliance on the Judgment of Hon'ble High Court of
Karnataka reported in ILR 2019 KAR page No.1953, wherein it
was held that "even the post dated cheque issued as a
security also attracts the provision U/s.138 of N.I.Act."
40 CC.22957/2011 (J)
Further in the case of I.C.D.S. Ltd. v. Beena Shabbir &
Anr. reported in AIR 2002 SC 3014, the Supreme Court has
observed as follows;
".....The commencement of the Section
stands with the words "where any cheque".
The above noted three words are of extreme
significance, in particular, by reason of the
user of the word "any" the first three words
suggest that in fact for whatever reason if a
cheque is drawn on an account maintained by
him with a banker in favour of another person
for the discharge of any debt or other liability,
the highlighted words if read with the first
three words at the commencement of Section
138, leave no manner of doubt that for
whatever reason it may be, the liability under
this provision cannot be avoided in the event
the same stands returned by the banker
unpaid. The legislature has been careful
enough to record not only discharge in whole
or in part of any debt but the same includes
other liability as well...."
30. Thus, even if the dishonoured cheque in question
was issued for security, it will still come under the ambit of
Section 138 of the Act. The only condition is that the cheque
must be backed by some form of legally enforceable debt or
other liability towards the holder, which is fulfilled as per the
above discussion. Moreover, unless and until, the defence is
able to prove that the cheque was never meant to be
41 CC.22957/2011 (J)
presented for encashment, a mere claim to that effect does
not rebut the presumption under section 118 (a) of the Act
that every negotiable instrument is made or drawn for
consideration. Therefore, the burden is on the Accused to
prove that there was no legally recoverable debt or liability.
Therefore the defence of the Accused that the signed blank
cheques issued as security were misused is not tenable in
view of the aforesaid discussion and also for the reason that
the Accused failed to prove that the amount was given to the
Company by the complainant for the purpose of taking over
the Company by way of purchase of equity shares.
31. The Accused took defence stating that the
complainant has no financial capacity. The counsel for the
accused argued that the amount was transferred from the
account of the firm of the complainant by name M/s.
Hanuman Home Appliances to the the Accused No.1
Company. The cheque was alleged to have been issued in the
name of complainant and not in the name of the firm. The
complainant has not shown that he has financial capacity to
give such huge amount. The source of funds has not been
disclosed. He further argued that if the complainant failed to
prove source of funds and financial capacity to lend, the
presumption U/s.139 of N.I.Act goes against the complainant.
He placed reliance on the decision of Hon'ble High Court
of Punjab and Harayana in Amit Kumar Vs. Yogesh Arora
reported in (2015) 5 LawHerald 4490, wherein it was held as
under;
42 CC.22957/2011 (J)
"The Complainant has failed to prove as to in
which capacity, he had paid such a huge amount
without any document. The complainant has also
failed to prove his case and the presumption goes
against him."
32. On perusal of the materials, it is clear that at one
instance the Accused took defence that the amount has been
given to take over the Company by purchasing its equity
shares and at other instance challenged the financial
capacity. However it is clear that the complainant has clearly
stated in the complaint that he is the sole proprietor of the
firm M/s. Hanuman Home Appliances and the amount has
been transferred to the account of Accused No.1 Company
from the account of the firm through RTGS, which is
undisputed fact. Admittedly amount has been transferred
from account to account through RTGS and therefore no
further proof is necessary as required in case of cash
payment. The complainant being the sole proprietor of the
M/s. Hanuman Home Appliances, he may file the complaint in
his own name or in the name of firm representing it or by
executing the GPA to some other person conversant with the
transaction. Moreover the signature, seal and issuance of
cheque is admitted and it raises the presumption U/s. 118 of
the Act that the cheque in question has been drawn for
consideration. Therefore, the defence of the Accused in
respect of financial capacity is not tenable.
33. The Accused No.3 has raised the defence that
though she is the director of the Accused No.1 Company, she
has not participated in its day to day affairs and Accused No.2
43 CC.22957/2011 (J)
alone is responsible to Accused No.1 Company for its conduct
of business. The Accused No.4 and 5 have raised the defence
that they tendered their resignations to the post of directors
of Accused No.1 Company on 23.5.2003 and 4.3.1997
respectively. They are not responsible for the conduct of
business of Accused No.1 Company. The Accused No.2, who is
Managing Director of the Accused No.1 has not disputed the
said fact. Instead he admitted in his evidence that the
Accused No.4 and 5 have resigned on the alleged dates. With
reference to the defence of the Accused No.4 and 5, the
provision U/s. 303 of the Companies Act, 1956 is relevant and
it reads as under;
303. The register of Directors,
Managing Agents, Secretaries and
Treasurers etc.,
(1) Every Company shall keep at its
registered office a Register of its Directors,
Managing Director, Managing Agent,
Secretaries and Treasurers, Manager and
Secretary, containing with respect to each of
them the following particulars;
(a) In the case of an individual, his
present name and surname in full; any
former name or surname in full; his
father's name and surname in full or
where the individual is a married
woman, the husband's name and
surname in full, his usual residential
44 CC.22957/2011 (J)
address; his Nationality; and if that
Nationality is not Nationality of origin,
his Nationality of origin; his business
occupation, if any; if he holds office of
Director, Managing Director, Managing
Agent, Manager or Secretary in any
other Board of Directorsy, corporate
the particulars of each such office
held by him; and except in the case of
a Private Company which is not
subsidiary of Public Company, the
date of his birth;
(b) to (e)- *****
(2) The Company shall, within the periods
respectively mentioned in this Sub-Section,
send to the Registrar a return in duplicate in
the prescribed form containing of particulars
specified in the said register and a
Notification in duplicate in the prescribed
form of any Agent among its Directors,
Managing Directors, Managing Agents,
Secretaries and Treasurers, Managers or
Secretaries specifying the date of the
change. The period within which the said
return is to be sent shall be a period of 30
days from the appointment of First Director
of the Company and the period within which
the said Notification of a change is to be sent
shall be 30 days from the happening thereof;
45 CC.22957/2011 (J)
(3) If default is made in complying with Sub-
Section (1) or (2), the Company, and every
officer of the Company who is in default,
shall be punishable with fine which may
extend to Rs.50 for every day during which
the default continues.
34. Every Company is required to keep at its registered
office a register of its directors, managing director, manager
and secretary containing the particulars with respect to each
of them as per sub-section (1) of S. 303 of the Companies
Act, 1956. Sub-section (2) of S. 303 mandates every Company
to send to the Registrar a return in duplicate containing the
particulars specified in the register. Any change among its
directors, managing directors, managers or secretaries
specifying the date of change is also required to be furnished
to the Registrar of Companies in the prescribed form within
30 days of such change. There is statutory requirement of
informing the Registrar of Companies about change among
directors of the Company. If the register is not maintained
and the resignation of directors is not informed to the
Registrar of Companies in prescribed form within prescribed
time, the Company and its officers, who are at default are
liable for punishment as per Sub section 3 of S.303 of the Act.
35. In cases where an offence is committed by a
company, a Company being juristic person has to be
represented by natural persons and the vicarious liability is to
be attracted on officers of the Company. The category of
persons who are liable Section 141 are: (1) the Company
46 CC.22957/2011 (J)
which committed the offence, (2) everyone who was in charge
of and was responsible for the business of the Company, and
(3) any other person who is a director or a manager or a
secretary or officer of the Company, with whose consent or
connivance or due to whose neglect the Company has
committed the offence. Section 141 extends criminal liability
on account of dishonor of cheque in case of a Company to
every person who at the time of the offence, was in charge of,
and was responsible for the conduct of the business of the
Company. By the provision contained in Section 141, such a
person is vicariously liable to be held guilty for the offence
under Section 138 and punished accordingly. A director of a
Company, who was not in charge of and was not responsible
for the conduct of the business of the Company at the
relevant time, will not be liable for a criminal offence under
the provisions. But for making directors liable for the offences
committed by the Company under Section 141, there must be
specific averments against the directors, showing as to how
and in what manner they were responsible for the conduct of
the business of the Company. However specific averments
against the Managing Director or Joint Managing Director are
not required to be made in the complaint. By virtue of the
office they hold as Managing Director or Joint Managing
Director, these persons are in charge of and responsible for
the conduct of business of the Company. Therefore, they get
covered under Section 141. So far as the signatory of a
cheque which is dishonoured is concerned, he is clearly
responsible for the incriminating act and will be covered
under sub-section (2) of Section 141 of the Act.
47 CC.22957/2011 (J)
36. It is the specific defence of the Accused No.3 that
she is the house wife and the business of the Company was
looked into by her husband Accused No.2. However no cogent
evidence was brought on record to show that Accused No.3
was not active director of the Company. On the other hand it
was proved by the complainant that the Accused No.3 was
the director of the Company from the date of its incorporation
till date as per ExD.16 and 17. She was active director and
has consented to the acts of her husband-Accused No.2 in the
course of business of Accused No.1 Company. There is logic in
the argument of the counsel for the complainant that one
man could not run the Company and there must be two or
more directors. It was also explicitly clear from ExD.16, which
is the Articles of Association of the Company. Moreover the
accused No. 1 /DW.3 clearly admitted in his evidence that
generally when the loan was being obtained by the company
himself and another director i.e., accused No.3 were used to
take jointly. Therefore the stand of accused No.3 does not
hold water.
37. It is the specific defence of Accused No.4 and 5 that
they have tendered their resignations to the post of directors
of Accused No.1 Company on 23.5.2003 and 04.03.1997
respectively. They are not responsible for the conduct of
business of Accused No.1 Company. The burden is on the
Accused No.4 and 5 to prove the said fact. To prove the said
fact the Accused No.5 examined as DW.4 and got marked
ExD.20 to 27. ExD.20 is the resignation letter dated
04.03.1997 given by the Accused No.5 to the Board of
Directors of Accused No.1 Company, which is to take effect
48 CC.22957/2011 (J)
immediately. ExD.21 is the resignation acceptance letter
dated 29.03.1997 issued by Accused No.2 on behalf of the
Company accepting the resignation of Accused No.5 and
relieving him w.e.f 04.03.1997. ExD.22 is the letter of
intimation of the resignation of Accused No.5 as the director
of Accused No.1 Company w.e.f. 04.03.1997 sent by him to
the Registrar of Companies on 21.01.2013. The said
document is subsequent to the filing of the case and could
not be considered. Ex.D.23 and Ex.D.24 are the documents
which show that the accused No. 5 had worked in
Convergence Infotech Ltd. Ex.D.25 is the documents which
shows that accused No.5 had worked in Travtech Software
Pvt. Ltd. Ex.D.26 and Ex.D.27 are the certified copies of the
Judgments dated 10.06.2019 in CC.No.33517/2011 and
CC.No.33519/2011 passed by Hon'ble XVIII ACMM, Bengaluru
acquitting the accused No.5 of the offence punishable U/s.138
of N.I.Act, which are other connected cases filed on accused
No.1 to 5. On perusal of Ex.D.26 and 27, they disclose that
the accused No.5 has been acquitted on the ground that
accused No.5 has proved that he had resigned from the post
of Director of accused No.1 company in the year 1997. Prior
to the Companies Amendment Act, 2013 which came into
effect on 29.08.2013, the Companies Act, 1956 was in force
and there was no provision in respect of the resignation of the
director in the said Act and it was governed by the Articles of
Association and common law. Further there was no provision
enabling the director to report his resignation directly to the
Registrar of Companies. The procedure for resignation of
director and enabling provision to the director to report his
resignation directly to Registrar of Companies, in case of
49 CC.22957/2011 (J)
failure on the part of Company to report the same, have been
incorporated in the Companies Amendment Act, 2013.
38. Similarly Accused No.4 examined herself as DW.1
and got marked ExD.1 to ExD.15, the cumulative effect of all
the documents marked on behalf of Accused No.4 is that she
has worked in various companies from 2005 onwards.
Accused No. 1/DW.3 also got marked one document in favour
of accused No. 3/DW.1 i.e., the certified copy of resignation
letter dated 23.05.2003 alleged to have given by accused No.
3, which is at Ex.D-19. He deposed that the accused No. 4 and
5 have tendered their resignations and thereafter he has
been looking after the affairs of the company along with
accused No.3. The resolution was passed by the Board of
Directors of company after the resignation of accused No. 4
and 5. However the resolution passed by the Board of
Directors was not filed. Therefore adverse inference could be
drawn that no such resolution exists. Further the resignation
letter was not endorsed by any officer of the company for
having received the same and the resignation acceptance
letter was not communicated to accused No.3 by the
company. Therefore it is difficult to believe that the accused
No.3 had resigned from the post of Director of the company
on alleged date. The income Tax Returns from 2012 to 2017,
which are at Ex.D-9 to 13, show her address as Indira Prastha
Apartment, which is the address of Accused No.2, who is her
father. The income Tax Returns from 2018-19 shows the
address of her husband by name Somanna as Cauverinagar,
PS road, Banglaore. It is clear that even after 2003, she
continued to reside along with her parents, Accused No.2 and
50 CC.22957/2011 (J)
3, at their residential address. Accused No.2 to 4 are family
members and Accused No.5 is outsider. Therefore it shows
that the Accused No.4 was aware of the day to day affairs of
the Company. Though Accused No.2/DW.3 admitted that
Accused No.4 has resigned from the Accused No.1 Company
on 23.05.2003, there is no piece of record, except Ex.D-19,
which is not acceptable document, produced by her to show
that she resigned from the post of director of the Company on
the alleged date. Therefore adverse inference can be drawn
that no such documents exist to show that Accused No.4
resigned on alleged date. Merely showing that she was
working in various companies during the said period would
not be considered as her resignation to the Accused No.1
Company.
39. DW.1 and 4 were cross examined by the counsel for
the complainant in length to show that they were the
directors of the Company as on the date of transaction and
they are aware of all the facts and they were responsible for
the day to day affairs and the conduct of the business of the
Company. However nothing worth was elicited in their cross
examination. It was argued by the counsel for the
complainant relying on the ExD.24 and 25 that the Accused
no.4 and 5 were the directors of the Company till 2018. It was
specifically argued by him in respect of Accused No.4 that
there is no evidence on record to show that she resigned from
the post of director of the Company on 23.05.2003. It was
specifically argued by him in respect of Accused No.5 that
though ExD.20 and 21 are produced to show that Accused
No.5 resigned from the post of director of the Company and
51 CC.22957/2011 (J)
the Company accepted his resignation, it was not duly
reported to the Registrar of Companies. It is mandatory U/s.
303 of the Companies Act, 1956 that the resignation of
director needs to be reported to the Registrar of the
Companies within 30 days. Therefore the Accused No.4 and 5
remain as directors of the Company till 21.07.2018 as per
ExD.24 and 25. In support of his argument he relied on the
decision of the Hon'ble Supreme Court of India reported in AIR
2011 SC 1090 between Harshendra Kumar D. Vs. Rebatilata
Koley and others, wherein at para 15 it was observed as
under;
"15. Every Company is required to keep at its
registered office a register of its directors,
managing director, manager and secretary
containing the particulars with respect to each of
them as set out in clauses (a) to (e) of sub-section
(1) of Section 303 of the Companies Act, 1956.
Sub-section (2) of Section 303 mandates every
Company to send to the Registrar a return in
duplicate containing the particulars specified in the
register. Any change among its directors,
managing directors, managers or secretaries
specifying the date of change is also required to be
furnished to the Registrar of Companies in the
prescribed form within 30 days of such change.
There is, thus, statutory requirement of informing
the Registrar of Companies about change among
directors of the Company. In this view of the
matter, in our opinion, it must be held that a
52 CC.22957/2011 (J)
director - whose resignation has been accepted by
the Company and that has been duly notified to
the Registrar of Companies - cannot be made
accountable and fastened with liability for anything
done by the Company after the acceptance of his
resignation. The words `every person who, at the
time the offence was committed', occurring in
Section 141 (1) of the NI Act are not without
significance and these words indicate that criminal
liability of a director must be determined on the
date the offence is alleged to have been
committed."
40. The argument for the counsel for the complainant
could be accepted in respect of the resignation of the accused
No.5 only when the resignation given by accused No.5 as per
Ex.D.20 is to be considered as invalid, for want of due report
by the company to the Registrar of Companies, even though
it was accepted by the company as per Ex.D.21.
In the case of Mother Care (India) Limited vs.
Prof.Ramaswamy P.Aiyar reported in ILR 2004 KAR 1081, the
Hon'ble High Court of Karnataka at paragraph 12 of the
judgment, while considering the question of resignation of
Director, held as follows:
"...As the appointment of a Director is not a
bilateral character, the question of acceptance of
the request to relinquish the office would not arise.
Filing of Form No.32 in terms of Section 303 (2) of
the Act is only a consequential act to be performed
53 CC.22957/2011 (J)
by the Company in obedience to the statutory
provision. If such a form is filed with the Registrar
of Companies, it is a proof of a Director ceasing to
be a director. But, it is not an act to be complied
with in order to make a resignation valid.
Therefore, as the resignation by a direction,
relinquishing his office as such director is of an
unilateral character, it comes into effect when the
act of such resignation to relinquish the office is
communicated to the Board. In law, the Board to
whom the act of relinquishment is communicated
is not required to take any action by way of
accepting resignation and therefore, the
relinquishment takes effect from the date of such
communication where the resignation is intended
to operate in presenti. In order to make the said
resignation effective, it is not necessary that the
Board should accept it. Whether the Board accepts
the resignation or not if the resignation is intended
to operate in presenti the resignation comes into
effect when such intention to relinquish the office
is communicated to the Board. In that view of the
matter, once a resignation letter is submitted to
the Board, the date of which the intention to
relinquish is communicated to the Board, that is
the date from which the Director ceases to be a
Director of the Company."
41. Therefore it is very clear that for want of a provision
in the Companies Act 1956 governing the resignation of a
54 CC.22957/2011 (J)
Director, it should be held that the resignation takes effect
the moment, the letter of resignation is submitted. The
procedure as contemplated under Section 168 of Companies
Act, 2013 is not applicable then. However as per Sec. 168(1)
of Companies Act 2013 also, a director may resign from his
office by giving a notice in writing to the company and the
Board shall on receipt of such notice take note of the same
and the company shall intimate the Registrar in such manner,
within such time and in such form as may be prescribed and
shall also place the fact of such resignation in the report of
directors laid in the immediately following general meeting by
the company. The provision is also made by the proviso that a
director shall also forward a copy of his resignation along
with detailed reasons for the resignation to the Registrar
within thirty days of resignation in such manner as may be
prescribed. Thereafter as per the Companies Act, 2017 such
filing was made optional by substituting words "director shall
also forward" by the words "director may also forward". In
simple words a director can resign after giving a notice in
writing to the company and on receipt of the notice of
resignation next step would be to intimate the Registrar of
Companies after that company will put forward all the facts
and reports in the next general meeting. As per the provisions
of Section 168 of Companies Act, no right has been given to
any managerial person to reject the resignation given by
Directors and the Directors, who have resigned shall not be
made liable even after their resignation. However they are
liable for the offences which have occurred during their
tenure. As per the provision of Section 168(2) of Companies
Act, the resignation of a director shall take effect from the
55 CC.22957/2011 (J)
date on which the notice is received by the company or the
date, if any, specified by the director in the notice, whichever
is later. However if the Articles of the Association provides for
specific clause that the resignation should be accepted by the
Board of Directors then it will not take effect until the
resignation is accepted by the Board. According to various
judicial pronouncements, the Articles of the Association of the
Company can make the requirements of the Act more
stringent. Therefore, the operation of Section 6 (Act to
override MOA/AOA) will not effect the operation of a clause in
the Articles of the Association that requires acceptance of
resignation by a Director, which is contradictory to Section
168 and thus the Articles of the Association shall prevail over
Section 168. In the case on hand there is no clause for
acceptance of resignation in the Articles of the Association,
which is at ExD.16. Therefore looking from any angle the
resignation given by accused No.5 as per Ex.D.20 and
accepted by the company as per Ex.D.21 could be considered
as invalid resignation. It is valid resignation in the eye of law
as stood then and therefore the argument of the counsel for
the complainant is not acceptable. The resignation is valid
even though the Board has neither conducted the meeting
nor passed a resolution to file the e-form 32 / DIR-12 with
ROC for intimating the Resignation. As per Section 303 (3) of
the Companies Act, 1956, if the register is not maintained as
per sub clause (1) and the resignation of directors is not
informed to the Registrar of Companies in prescribed form
within prescribed time as per sub clause (2), the Company
and its officers, who are at default are liable for punishment
i.e. fine of Rs.50 for every day during which the default
56 CC.22957/2011 (J)
continues. As per Ex.D.20 the resignation of the accused No.5
is effective from 04.03.1997 as it is mentioned in the letter
that the resignation is to take effect immediately and it was
accepted. Hence accused No.5 cannot be fastened with the
vicarious liability of the company for the transaction, which
has taken place much after his resignation i.e. in the year
2011. However the fact of resignation of accused No.4 has
not been proved as per the discussion made above.
42. The counsel for the accused No.2 to 4 argued that
the complainant failed to aver in the complaint that in what
manner the accused No.3 and 4 are liable. It is clearly stated
in the complaint that the accused No.2 did not mention about
the other Directors of the company to the complainant. In the
absence of averment, they cannot be fastened with vicarious
liability of the company. Moreover it has not been proved by
the complainant that accused No.3 and 4 are in charge of and
responsible to the conduct of the business of the company.
He argued that mere mentioning the same in the affidavit
filed in lieu of examination in chief will not serve the purpose.
All the acts are done by the accused No.2 without the
knowledge of others and he is personally liable and under
such situation even Company can not be made liable.
43. The counsel for the complainant argued that
accused No.2 to 4 are the family members and they knew
about all the acts of the accused No.2 and they have
consented for the same. Such being the case, the accused
No.3 shall not be allowed to escape from liability stating that
she is house wife and the business of the company was
looked into by accused No.2, who is her husband. Similarly
57 CC.22957/2011 (J)
accused No.4 shall not be allowed to escape from liability
stating that she has resigned; she was working in different
companies; she was residing at the address of her husband
and the business of the company was looked into by accused
No.2, who is her father. He further argued that as per Ex.D.16
and 17, accused No.3 and 4 are the Directors of the Company
and as such they are liable. It is also averred in the complaint
that accused No.2 in consultation with other accused made
the transaction in question.
44. It is necessary at this stage to go through the
principles laid down by the Hon'ble Apex Court in decision in
the case of National Small Industries Corporation Limited v.
Harmeet Singh Paintal and Another, reported in 2010 (3) SCC
330 Hon'ble Apex Court held at paragraph No.24 and 25 as
under;
24) Section 291 of the Companies Act provides
that subject to the provisions of that Act, the
Board of Directors of a Company shall be entitled
to exercise all such powers, and to do all such acts
and things, as the Company is authorized to
exercise and do. A Company, though a legal entity,
can act only through its Board of Directors. The
settled position is that a Managing Director is
prima facie in-charge of and responsible for the
Company's business and affairs and can be
prosecuted for offences by the Company. But
insofar as other Directors are concerned, they can
be prosecuted only if they were in-charge of and
58 CC.22957/2011 (J)
responsible for the conduct of the business of the
Company. A combined reading of Sec. 5 and
Sec.291 of Companies Act, 1956 with the
definitions in clauses 24, 26, 30, 31 and 45 of Sec.
2 of that Act would show that the following
persons are considered to be the persons who are
responsible to the Company for the conduct of the
business of the Company:
(a) the Managing Director/s;
(b) the whole-time Director/s;
(c) the Manager;
(d) the Secretary;
(e) any person in accordance with whose
directions or instructions the Board of Directors of
the Company is accustomed to act;
(f) any person charged by the Board of Directors
with the responsibility of complying with that
provision;
Provided that the person so charged has
given his consent in this behalf to the Board;
(g) where any Company does not have any of the
officers specified in clauses (a) to (c), any director
or directors who may be specified by the Board in
this behalf or where no director is so specified, all
the directors:
Provided that where the Board exercises any
power under clause (f) or clause (g), it shall, within
thirty days of the exercise of such powers, file with
the Registrar a return in the prescribed form.
59 CC.22957/2011 (J)
But if the Accused is not one of the persons
who falls under the category of "persons who are
responsible to the Company for the conduct of the
business of the Company" then merely by stating
that "he was in-charge of the business of the
Company" or by stating that "he was in- charge of
the day-to-day management of the Company" or
by stating that "he was in-charge of, and was
responsible to the Company for the conduct of the
business of the Company", he cannot be made
vicariously liable under Section 141(1) of the Act.
To put it clear that for making a person liable
under Section 141(2), the mechanical repetition of
the requirements under Section 141(1) will be of
no assistance, but there should be necessary
averments in the complaint as to how and in what
manner the Accused was guilty of consent and
connivance or negligence and therefore,
responsible under sub-section (2) of Section 141 of
the Act.
25) From the above discussion, the following
principles emerge :
(i) The primary responsibility is on the complainant
to make specific averments as are required under
the law in the complaint so as to make the
Accused vicariously liable. For fastening the
criminal liability, there is no presumption that
every Director knows about the transaction.
60 CC.22957/2011 (J)
(ii) Section 141 does not make all the Directors
liable for the offence. The criminal liability can be
fastened only on those who, at the time of the
commission of the offence, were in charge of and
were responsible for the conduct of the business of
the Company.
(iii) Vicarious liability can be inferred against a
Company registered or incorporated under the
Companies Act, 1956 only if the requisite
statements, which are required to be averred in
the complaint/petition, are made so as to make
Accused therein vicariously liable for offence
committed by Company along with averments in
the petition containing that Accused were in-
charge of and responsible for the business of the
Company and by virtue of their position they are
liable to be proceeded with.
(iv) Vicarious liability on the part of a person must
be pleaded and proved and not inferred.
(v) If Accused is Managing Director or Joint
Managing Director then it is not necessary to make
specific averment in the complaint and by virtue of
their position they are liable to be proceeded with.
(vi) If Accused is a Director or an Officer of a
Company who signed the cheques on behalf of the
Company then also it is not necessary to make
specific averment in complaint.
61 CC.22957/2011 (J)
(vii) The person sought to be made liable should
be in- charge of and responsible for the conduct of
the business of the Company at the relevant time.
This has to be averred as a fact as there is no
deemed liability of a Director in such cases.
45. Ordinarily, a director is not, by way of holding the
position of a director, liable for the debts of the company. The
law in this regard is well settled. The director(s) is/are also not
held personally liable. There are, however, two exceptions,
the first is where the Director or Directors make themselves
personally liable, i.e., by execution of personal guarantees,
indemnities, etc and the second is where a Director induces a
third party to act to his detriment by advancing a loan or
money to the Company. In the case on hand, it is neither
alleged by the complainant or other accused that the accused
No.2 induced the complainant or played fraud nor it has been
proved by leading evidence. Hence the argument of the
counsel for the accused No.2 to 4 that the company is not
liable and the accused No.2 is personally liable is not
acceptable.
46. It is well known fact that the companies function
only through Board of Directors. It is the Board of Directors
that has to be held responsible for the company's acts,
because it is the Board of Directors, which runs the company,
which acts as body and mind of the company. Who would
know as to which Director performs what function in the
company when as per law the whole body of Board of
Directors work as soul and mind of the company. The
62 CC.22957/2011 (J)
Directors have collective responsibility towards the company.
The division of work or responsibility of the directors is not
brought to the knowledge of public by advertisements nor the
internal arrangement of the company is revealed to the
company's creditors. The common creditor or the person
dealing with the company, being an outsider, would not know
the internal management of the company, he would know
only the Board of Directors. Even this information he has to
gather from Registrar of Companies or from prospectus of
company or from Memorandum of Association. This aspect is
clearly applicable to the case on hand as the details of the
Board of Directors has been obtained by the complainant
before filing the complaint. It appears that even at the time of
issuing legal notice, the complainant was not aware of the
fact that who are all the directors of the company as the the
notice was also given to third person by name H.R.Mylarappa,
who is unconcerned with the company, assuming that he was
one of the directors of the company and later at the time of
filing the complaint his name was deleted.
47. It is not necessary that cheques are to be issued by
Directors and it does not mean that the directors can not be
made liable if they have not issued the cheques. It is within
the special knowledge of the Directors on Board of company
as to how they have distributed work among themselves, who
was the sleeping Director, what were the powers given to
Manager, what were the powers delegated to Managing
Director, what were the powers kept back by the company
and who was looking after what affairs of the company. This
internal management of company, within the special
63 CC.22957/2011 (J)
knowledge of the Directors, has to be brought to the notice of
the Court by the Board of Directors or Directors and then it is
to be proved before the Court. It can never be in the
knowledge of an outsider as to what different resolutions
were passed by the Board of Directors of a company
delegating powers, who were the persons to whom powers
were delegated, what powers were delegated and who has to
manage what.
The section 106 of the Indian Evidence Act, the law
specified as under:
106. Burden of proving fact specially within
knowledge - When any fact is specially within
the knowledge of any person, the burden of
proving that fact is upon him.
48. Therefore it is very clear that the burden is to be put
on the Director to prove that he is not responsible for the
conduct of the business. As there is a presumption under law
that a cheque is issued in discharge of a debt or liability and
this presumption has to be rebutted by the person issuing a
cheque, in the same manner when law enjoins responsibility
of running a company on all the Directors collectively, if a
Director takes the stand that he had no responsibility, the
onus to rebut legal presumption is on him. It cannot be
expected of a complainant whose cheque has been
dishonoured to prove as to which of the Directors was
responsible for conduct of the business nor it is the legal duty
of a complainant to do this. When law has made Board of
Directors responsible for the conduct of the business as a
body of the company, each and every Director has to be
64 CC.22957/2011 (J)
considered in-charge of responsibility for conduct of the
business. The Director has to prove before the Court that he
was not the Director at the relevant time or he was not
responsible for the business of the company because of
certain resolution passed by the Board of Directors making
someone else responsible. When a cheque is dishonoured, it
is for the Director to prove that he was not liable for
dishonour of the cheque as he was not looking after the
business of the company and some other Director was looking
after the business of the company as the person whose
cheque is dishonored is in no position to prove whether the
Director was responsible for conduct of business or not. The
Director by virtue of his being a Director is responsible for
conduct of business under law and if he says that he was not
responsible he is supposed to prove the same. It was held by
the the Hon'ble Supreme Court in N. Rangachari vs. B.S. N.L
2007 Crl.L.J 2448 that "A company, though a legal entity,
cannot act by itself but can only act through its Directors.
Normally, the Board of Directors act for an on behalf of the
company. This is clear from section 291 of the Companies Act
which provides that subject to the provisions of that Act, the
Board of Directors of a Company shall be entitled to exercise
all such powers and to do all such acts and things as the
Company is authorized to exercise and do." However it is well
settled that a Director in a company cannot be deemed to be
in charge of and responsible to the company for the conduct
of its business in the context of section 141 of the Act.
49. Coming to the facts of the case, the accused No.2
being the Managing Director of the Accused No.1 company
65 CC.22957/2011 (J)
has to be held liable. Further as per Clause-14 of the Articles
of the Association of the Company, all the directors at its
incorporation are permanent directors, who shall hold the
office for life or until resignation. Accused No.1 Company is
the private limited company and the rotational retirement of
directors as provided U/s. 255 and 256 of the Companies Act,
1956 is not applicable. Therefore all the directors being life
time directors are in charge of and responsible to the conduct
of the business of the accused No.1 Company except the
directors, who have resigned. Moreover the accused No.3 and
4 are the wife and daughter of the accused No.2. It is a
closely associated company. Accused No.2 to 4 are the family
members and it can not be said that the they are unaware of
the acts of the accused No.2. The only thing that can be
presumed that the accused No.3 and 4 knew about all the
transactions or else they are negligent and their acts can be
attributable to the negligence, which resulted in commission
of the offence. In both the situations the accused No.3 and 4
becomes liable for the acts of the accused No.2. Under the
facts and circumstances of the case, it can not be believed
that the accused No.3 and 4 are unaware of the acts of the
accused No.2. As per the discussion made above, the accused
No.5 has proved by preponderance of probabilities that he
had resigned from the post of director of accused No.1
company. Therefore the remaining directors i.e. accused No.3
and 4 have to be held vicariously liable. The accused No.3
and 4 failed to bring anything on record, which shows that
they exercised due diligence to prevent the commission of
offence. Further it can not believed that the accused No.2
would have obtained the loan to an extent of cheque amount
66 CC.22957/2011 (J)
in this case and lakhs together amount in other connected
cases totally amounting to more than 50 lakh Rupees during
the year 2011, without bringing it to the knowledge of
accused No.3 and 4, who are family members. The prudent
man would never do such things.
50. The counsel for the accused No.2 to 4 argued that
the prosecution lacks bonafides and the same should not be
considered. He relied upon the judgment of Hon'ble Madras
High Court in Kanthilal V Jain Vs. M/s.Kuttiyappa in Crl. App
No.346/2012 dated 25-10-2017 wherein it was held as under;
"It is the trait of law that the burden
rebutting the presumption under section 139 and
Section 118 of N.I.Act, is not as equivalent to the
burden of proof of guilt by the prosecution. It is
not necessary for the accused to disprove the
case of the prosecution beyond reasonable doubt.
If the accused is able to satisfy the court, by
legally acceptable evidence, that the case of the
prosecution lacks bonafide, the accused will be
entitled to benefit of doubt."
He also relied upon the judgment of the Hon'ble High
Court of Karnataka reported in LAWS (KAR) 2013 10 286 in
the case of Shivalinga Vs. Basagonda wherein it was held as
under;
"At this juncture, it must be noticed that
action under Section 138 of the Act is an action
under criminal law and on proof of guilt, the
drawer will be visited with punishment up to two
67 CC.22957/2011 (J)
years of imprisonment. Therefore, under the
common criminal law, the burden rests on the
complainant to establish the charge with
acceptable evidence and it is only then the
burden will shift upon the accused to rebut it. The
presumption under Section 139 of the Act is
rebuttable presumption. If the accused caused a
dent in the case of complainant about the
transaction of loan itself and if that accused could
succeed by eliciting anything by his independent
evidence or could point out from the evidence of
the complainant itself, that there is a doubt about
the transaction, then that would be sufficient to
uphold his evidence."
51. On perusal of the entire evidence on record, it is
crystal clear that the accused have failed to elicit anything,
which supports the probable defences taken by them. They
also failed to bring anything on record, which supports their
defences. The accused failed to discharge the burden of
rebutting the presumption U/s. 139 and 118 of NI Act. The
accused have neither proved that the prosecution lacks
bonafides nor created such a doubt about the transaction so
as to cause dent in the case of the prosecution. On the other
hand the prosecution clearly proved its case by adducing
cogent evidence to the satisfaction of the Court. Therefore
with due respect the above decisions are not applicable to the
facts of the case. Hence Point No.1 is answered in the
affirmative and the point No.2 is answered in the Negative.
68 CC.22957/2011 (J)
52. Point No.3 : In view of the reasons assigned in
Point No.1 and 2, it is clear that the transaction is proved and
the transaction is made in the year 2010-11. The took almost
7 years to secure the presence of the accused before the
Court even the notice issued by the complainant was served
on the accused. It shows that the accused have played all the
tactics to delay the proceedings. As per the provision U/s 138
of NI Act the Court has power to impose fine up to double the
cheque amount. That apart if the complainant would have
kept the said amount in the bank, it would have fetched
minimum interest @ 6% per annum. Therefore considering
the facts and circumstances of the case, it is just and proper
to impose the fine to that extent. Hence I proceed to pass the
following:-
ORDER
As per the provisions of Sec.255(2) Cr.P.C. the Accused No.1 Company is held liable and Accused No.2 to 4 are held vicariously liable and are hereby convicted for the offence punishable u/s.138 of NI Act, 1881 and sentenced to pay fine of Rs.15,15,000/- (Rupees Fifteen Lakhs Fifteen Thousand Only.) On deposit of fine amount the complainant is entitled for compensation of Rs.15,00,000/- (Rupees Fifteen Lakhs only). The remaining balance amount of Rs.15,000/- is to be forfeited to the state.
In default of payment of the fine amount Accused No.2 to 4 each shall undergo simple imprisonment for the period of six months.
69 CC.22957/2011 (J) As per the provisions of Sec.255(1) Cr.P.C. the Accused No.5 is acquitted of the the offence punishable U/s.138 of NI Act, 1881.
The personal bonds executed by the Accused No.2 to 5 are hereby stands cancelled and cash surety of Rs.8,000/-
each furnished by the Accused No.2 to 4and cash surety of Rs.5,000/- furnished by the Accused No.5 shall be refunded to them after expiry of appeal period.
Copy of the judgment shall be furnished to the Accused No.1 to 4 at free of cost.
(Dictated Judgment to the Stenographer directly on the computer, transcript thereof is computerized and printout taken by him, is verified and then pronounced by me in Open Court on this the 11 th day of December-2020.) (Lokesh Dhanapal Havale) XV Addl. CMM., Bangalore.
70 CC.22957/2011 (J) ANNEXURE Witnesses examined for the Complainant:-
PW.1 P.S.Subramanyam Documents marked for the Complainant:-
Ex.P.1 : Photocopy of the cheque. Ex.P.2 : Bank Endorsement.
Ex.P.3 : Legal Notice dated 07.05.2011. Ex.P.4 to P.9 : Postal Receipts.
Ex.P.10 to P.15 : Empty Postal Covers.
Ex.P.10a to P.15a: Notices.
Ex.P.16 : Agreement dated 24.10.2010. Ex.P.17 to P.20 : Postal Acknowledgements Ex.P.21 : Reply Notice.
Ex.P.22 : D.P.Note & Consideration Receipt.
Ex.P.23 : Copy of the Bank Account Statement. Ex.P.24 & P.25 : CCs of the Form No.DIR-12 issued by Deputy Registrar of Companies. Ex.P.26 : CC of the Form No.32. Ex.P.27 : Memorandum of Association. Ex.P.28 : Articles of Association.
Witnesses examined For Defence:-
DW-1 Suhana Bolar.
DW-2 Veena Bolar.
DW-3 Arun Kumar Bolar.
DW-4 Naveen Kumar.
71 CC.22957/2011 (J)
Documents marked for Defence:-
Ex.D.1 : CC of the Increment Letter dtd.02.12.2005 Ex.D.2 : CC of the Experience Letter issued by Airtel.
Ex.D.3 : Resignation Acceptance Letter dated 02.11.2010.
Ex.D.4 : CC of the Offer Letter issued by Tata Tele Services dated 10.11.2010. Ex.D.5 : CC of the Appointment Letter dated 10.11.2010.
Ex.D.6 : Resignation Acceptance Letter dated 04.08.2016.
Ex.D.7 : Experience letter dated 23.11.2016. Ex.D.8 : Letter dated 22.08.2016 given by Reliance Company.
Ex.D.9 to D.15 : Income Tax returns from the year 2012-13 to the year 2018-19. Ex.D.16 : CC of the Articles of Association. Ex.D.17 : CC of the Certificate of Incorporation. Ex.D.18 : CC of the Memorandum of Association. Ex.D.19 : CC of the Resignation Letter of Suhana Bolar.
Ex.D.20 : CC of the Resignation Letter 04.03.1997.
Ex.D.21 : CC of Resignation Acceptance Letter dated 04.03.1997.
Ex.D.22 : CC of the Intimation Letter to R.O.C. Ex.D.23 : CC of Appointment Letter dated 20.04.2000 issued by Convergence Ex.D.24 : CC of the Resignation Acceptance 72 CC.22957/2011 (J) letter dated:21.09.2004 issued by Convergence Co.
Ex.D.25 : CC of the Appointment Letter dated 22.09.2004 issued by Travtech Software Pvt.Ltd.
Ex.D.26 : CC of the Judgment in CC.No.33519/2011.
Ex.D.27 : CC of the Judgment in CC.No.33517/2011.
(Lokesh Dhanapal Havale) XV Addl.CMM., Bangalore.
73 CC.22957/2011 (J) 11.12.2020 ORDER As per the provisions of Sec.255(2) Cr.P.C. the Accused No.1 Company is held liable and Accused No.2 to 4 are held vicariously liable and are hereby convicted for the offence punishable u/s.138 of NI Act, 1881 and sentenced to pay fine of Rs.15,15,000/- (Rupees Fifteen Lakhs Fifteen Thousand Only.) On deposit of fine amount the complainant is entitled for compensation of Rs.15,00,000/- (Rupees Fifteen Lakhs only). The remaining balance amount of Rs.15,000/- is to be forfeited to the state.
In default of payment of the fine amount Accused No.2 to 4 each shall undergo simple imprisonment for the period of six months.
As per the provisions of Sec.255(1) Cr.P.C. the Accused No.5 is acquitted of the the offence punishable U/s.138 of NI Act, 1881.
The personal bonds executed by the Accused No.2 to 5 are hereby stands cancelled and cash surety of Rs.8,000/-
each furnished by the Accused No.2 to 4and cash surety of Rs.5,000/- furnished by the Accused No.5 shall be refunded to them after expiry of appeal period.
74 CC.22957/2011 (J) Copy of the judgment shall be furnished to the Accused No.1 to 4 at free of cost.
(Lokesh Dhanapal Havale) XV Addl. CMM., Bangalore.