Calcutta High Court
Company Of Management For Baranagar ... vs Atis Dipankar Chowdhuri on 15 February, 1993
Equivalent citations: 1993CRILJ2165
ORDER Amal Kanti Bhattacharji, J.
1. This revisional application has been filed by two accused petitioners against whom a criminal proceeding under Section 138/141 of the Negotiable Instruments Act, 1881 has been pending. The aforesaid proceeding was started on the basis of a petition of complaint filed by the opposite party, namely the Manager (Recovery) of the State Bank of India, 24 Park Street. Calcutta alleging that the petitioners had issued a cheque in favour of the Bank in discharge of certain debts and that the said cheque bounced. It was accordingly alleged that an offence under Section 138 of the Negotiable Instruments Act was committed and that the accused was liable for punishment under the said section, read with Section 141 of the Act. The relevant facts which are necessary for consideration of this revisional application may be briefly stated as follows : --
2. The Baranagar Jute Factor, company within the meaning of the Companies Act, 1956, was a borrower of the O.P. Bank and the Bank filed a suit against the Company for realisation of a sum of Rs. 352.43 lakhs. A winding up proceeding was started against the Company at the instance of the creditors and by an order of the High Court a Committee of Management was formed under a scheme approved by the said Court and subsequently confirmed by the Supreme Court. The Bank being a secured creditor was outside the winding up proceeding. Some of the hypothecated assets of the Bank were sold to the said Committee of Management by an order of the High Court passed in the suit filed by the Bank and in terms of the said order the committee of Management (Accused No. 1) was to pay the sale price of Rs. 155 lakhs by instalments to the Bank to be credited to the Company's account. The petitioner No. 1 issued a cheque in favour of the O.P. Bank under the signature of petitioner No. 2 being cheque No. 776924 dated 29-8-90 drawn on the Union Bank of India, Ezra Street Branch. The Bank presented the cheque through clearing on 11-9-90 to the said Union Bank of India who returned the cheque under a memo dated 12-9-90 with the remark "exceeds arrangement". Thereafter the Bank again presented the cheque on or about 22-11-90 through clearing to the Union Bank of India but this time also the bank of India but this time also the bank returned the cheque on 23-11-90 with the remark "refer to drawer." The Bank wrote a letter to the Union Bank of India on 30-11-90 enquiring about the reason of the dishonour of the cheque to which the Bank's reply was that the balance . in the relative account maintained by the Committee of Management with the bank was not sufficient to pass the said cheque. This reply was dated 1-12-90. Thereafter the Bank issued a notice dated 4-12-90 to the Committee of Management stating the fact of dishonour of the cheque and demanded payment of Rs. 2.50 lakhs. The said letter was replied to by the Committee of Management under the signature of petitioner No. 2 by a letter dated 11-12-90 acknowledging the receipt of the letter and raising certain frevolous contentions. The amount of money demanded by the Bank was, however, not paid by the Committee of Management.
3. On the basis of the above allegations a petition of complaint was filed by the O.P. No. 2 before the Chief Metropolitan Magistrate, Calcutta who took cognizance of the case under Section 138, read with Section 141 of the Negotiable Instruments Act and since then the said proceeding has been pending in the said Court. The petitioners have filed this revisional application challenging the validity of the prosecution and praying that the same be quashed as it was vitiated by delay and for non compliance within the time schedule mentioned in Section 138.
4. Mr. Pradip Ghosh speaking for the petitioners raises several objections regarding the maintainability of the prosecution. In short his contentions are firstly that an offence under Section 138 of the Negotiable Instruments Act is deemed to have been committed on the first return of the cheque by the Bank on any of the grounds mentioned in the said section and that subsequent requirements of making a demand for the payment of the amount of money mentioned in the cheque and the failure to payment of the same must be reckoned within the time schedule mentioned in Clause (b) and (c) of the Proviso, to the said section. Thus according to Mr. Ghosh the Bank ought to have made a demand in writing within fifteen days of the receipt of information by it from the bank regarding the return of the cheque unpaid and that a prosecution could be started only if the drawer of the cheque failed to make the payment to the payee within fifteen days of the receipt of such notice. In this case the Bank having not given a timely notice on receipt of the intimation of the dishonour of the cheque and having preferred to present the cheque for a second time had lost the right to launch a prosecution under Section 138. His second contention is that the prosecution having been initiated under Section 138, read with Section 141 of the Negotiable Instruments Act, the accused must be a company within the meaning of Section 141. It is argued that the Committee of Management created on the basis of a scheme approved by the High Court is not a company and that as such no successful prosecution can continue against the said Committee. His third contention is that the Committee of Management having been formed under orders of the High Court, no prosecution could be launched against the said Committee without the prior sanction of the High Court. Mr. Ghosh cites a number of decisions in support of his contentions and it is necessary to examine his elaborate arguments advanced in this regard.
5. As regards the first contention about interpretation of the scope of a prosecution under Section 138 of the Negotiable Instruments Act Mr. Ghosh argues with force that the prosecution under the said section being for an offence without the requirement of any mens rea, the same can be launched only with the strict observance of the statutory requirements. According to him the offence under Section 138 is a "deemed offence" and that for such an offence the relevant penal provisions must be strictly construed. It is argued that the complainant having not made a demand by serving a notice within the time mentioned in Clause (b) of the Proviso to Section 138 cannot be allowed to extend this period by preferring to make a second or third representation at his will. It is argued that penal provisions should be strictly interpreted and if an alternative interpretation is in favour of the accused the same should be accepted. Mr. Ghosh refers to a decision of the Kerala High Court reported in Crimes 1992 (1) page 23 (Kumaresan v. Ameerappa) (AIR 1972 Ker 23) (sic). In the said case a complaint was filed that a cheque drawn on the Bank was issued by the petitioner on 4-11-89 in favour of the complainant and on 6-11-89 the cheque was returned as the same was dishonoured by the drawee bank with the endorsement "Refer to the drawer". Notice issued by the complainant was received by the petitioner on 23-11-89 but no payment was made pursuant to the said notice. The complainant again presented the cheque on 15-1-90 before the drawee bank and the same was again dishonoured. A fresh notice was issued to the petitioner which was received on 13-2-90. As no payment was made by the petitioner thereafter too a complaint was filed on 12-3-90. The learned Magistrate took cognizance of the case and issued process to the petitioner. The same argument as in the present case was raised before the High Court about the validity of the prosecution and it was contended (as has been done by Mr. Ghosh in the present case) that there were two reasonable constructions available to interpret the provisions of Section 138 of the Negotiable Instruments Act and that the construction which was favourable to the accused should be accepted according to the principle of interpretation of statute. The High Court considered the argument by discussing two other cases namely Prithviraj v. Mathew Kashy, 1 1991 (1) KLT 595 : (1991 Cri LJ 1771) and Paramjit Singh v. Job I 1989 (ii) KLT 740, I and held that the payee cannot have a second cause of action on the same cheque when once he had failed to institute a complaint on the strength of the first cause of action. While expressing the above view the Division Bench rules out the argument that the words in the relevant provisions of Section 138 of the Negotiable Instruments Act were ambiguous.
6. The next case cited is 1991 C Cr LR (Cal) 311 (Sarbnarayan Jha v. M/s. Khan Palchowdhury & Co. Pvt. Ltd.). In this case a single Judge while deciding the question of jurisdiction in respect of an offence under Section 138 of the Negotiable Instruments Act held that the cause of action for initiating a criminal proceeding for an offence under Section 138 arises only on omission or failure on the part of a drawer of a cheque to make payment to the payee as contemplated in Clause (c) of the Proviso to the said section. So if a cheque was returned unpaid within the jurisdiction of one Court, the cause of action for launching prosecution might arise within the jurisdiction of another Court where the drawer failed to pay the amount to the payee after a demand was made for such payment. This case, therefore, does not deal with the question raised in the instant revision case.
7. Yet another case reported in 1990 C Cr LR (Cal) 145 was also cited. This case, decided by a Division Bench of the Calcutta High Court, actually dealt with the question of the retrospective operation of the amended Section 138 and it was held that no prosecution could be held for the bouncing of a cheque prior to the introduction of the amendment in Section 138. So this case also is of no help.
8. Mr. Sudipto Moitra appearing for the O.P., however, cites a rather recent judgment of the Calcutta High Court reported in 1992 C Cr LR (Cal) 14 (Sekhar Gupta v. Subhas Chandra Mandal) in which a contrary view to that expressed in 1992 (1) Crimes 23 was taken. In this case, decided by a single Judge, it was held that the provisions of Section 138 did not prohibit or forbid presentation of the cheque to the bank for payment more than once. The prima facie reason for holding such a view was that under Clause (a) of the Proviso to Section 138 a payee was entitled to present the cheque to the bank within a period of six months at the latest. As this view is directly opposed to the view of the Division Bench of the Kerala High Court it is necessary to examine the provisions of Section 138 of the Negotiable Instruments Act more closely. Section 138 of the Act after its amendment stands as follows.
138. Dishonour of cheque for insufficiency etc., of funds in the account where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank upheld, 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 extend to one year, 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 a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer of the cheque, within fifteen 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.
9. An analysis of the section will reveal that an offence under this section shall be deemed to have been committed by a person if any cheque drawn by him on any bank against his account in favour of another person for the discharge of any debt or liability is returned by the bank unpaid on any of the two grounds, namely, (a) the money standing to the credit of the drawer in the bank is insufficient to honour the cheque or (b) it exceeds the amount arranged to be paid from that account by an agreement made with the bank. The section shall, however, not be enforceable unless the conditions mentioned in the three clauses of the Proviso are fulfilled. Thus the bouncing of a cheque on any of the grounds mentioned in the section, though an offence on account of the deeming provision in the section, is not punishable unless the conditions of the Proviso are fulfilled. Now, Clause (a) of the Proviso entitles the payee to present the cheque at any time within six months or within the period of its validity whichever is earlier. There is no bar if the cheque is presented just on the eve of its expiry period. There is also no bar if the cheque is presented for more than once in case it is not honoured on the first presentation. The question raised is, if a second presentation bars the right of prosecution.
10. As pointed out above, a second presentation is not barred by any law. Principle of penal legislation never postulates that penalty is the sole aim of a legislation. So, if the return of a cheque by the bank is found to be not punishable per se the legislature cannot be intended to encourage the imposition of penal measures against the drawer all at once. The intention of the legislature appears to give the drawer of the cheque an opportunity to make the payment in spite of the first default. Such payment may be by representation of the cheque also at the desire of the payer. So a second presentation cannot be left totally out of consideration in the interpretation of Section 138.
11. In this connection the bar of cognizance of an offence under Section 138 as provided in Section 142 of the Act may also be looked into. One requirement of prosecution under the said section is that the complaint must be made within one month of the date on which the cause of action arises under Clause (c) of the Proviso to Section 138. The date of cause of action under the said clause of the proviso is the date of expiry of 15 days of the receipt of the notice under Clause (b) of the Proviso. So the real cause of action giving rise to a right of prosecution arises from the failure of the drawer of the cheque to make payment to the payee and not from the date of return of the cheque by the bank.
12. The doctrine that penal statutes shall be strictly construed and that a particular provision which is capable of two interpretations should lean towards the benefit of the accused have been accepted in legal jurisprudence. But this doctrine may apply only when a fair construction of a penal provision cannot be made. The strictness of the principle should always be welcome particularly where the result may be highly penal. The principle of construction of penal statutes has been most accurately stated by Sedgwick in Statutory Law (2nd Edition page 287) in the following words : --
The more correct version of the doctrine appears to be that statutes of this class are to be fairly construed and faithfully applied according to the intent of the Legislature, without unwarrantable severity on the one hand or unjustifiable lenity on the other, in cases of doubt the courts inclining to mercy.
13. Having considered the provisions of Section 138 and the intention of the Legislature I am, therefore, in agreement with the learned Judge of our High Court in Shekhar Gupta's case that there is no prohibition in Section 138 of the Negotiable Instruments Act that a returned cheque cannot be presented again.
14. As regards the next branch of argument of Mr. Ghosh that the prosecution in this case cannot succeed as it was not instituted with the leave of the Court, Mr. Ghosh argues that the Committee of Management in this case being appointed on the basis of the Court's Order the same cannot be prosecuted without the leave of the Court. It is argued that the general policy accepted by the Court necessitating the prior leave of the Court in the case of the prosecution against a receiver should apply in this case also. Mr. Ghosh in this regard refers to several decisions of the High Court in support of his argument. He refers to a decision of the Division Bench reported in 59 CWN 481 (Banwarilal Agarwal v. Sudhamoy Basu, Receiver), in which it has been held that the rule requiring leave of the Court to sue a receiver is an ancient rule based, not on any statutory authority but on reason of public policy. It has been further held in this case that for all practical purposes, the Rule has become a part of the law of the land and that its application is not limited to suits, strictly so-called, but also to other legal proceedings. Reference has also been made to a case reported in 1990 (1) CHN 222 (Galokpati Mahato v. The State of West Bengal). This was also a case in which a receiver appointed of a Colliery by an order of the High Court passed in a suit was prosecuted on the allegation that he was extracting coal from the said colliery and selling the same to different persons contrary to the provisions of the Coal Mines (Nationalisation) Amendment Act, 1976. It was held that a receiver appointed by the Court is entitled to protection under Sections 78 and 79 of the Indian Penal Code and that the prosecution should apply to the Court appointing the receiver for sanction to prosecute him. The next case referred to is Corporation of Calcutta v. Sudhamoy Bose in which it was held that a receiver of property appointed by a Court cannot be prosecuted for an alleged offence under the Calcutta Municipal Act, in connection with the duties of a receiver as such. Another case relied on is Rambadan Chowbey v. State reported in 1982 (1) CHN 470. It was also a case of prosecution of a receiver for illegal mining in violation of the provisions of the Coal Mines (Nationalisation) Amendment Act, 1976.
15. Mr. Ghosh argues that the principle applicable to the prosecution of a receiver appointed by the Court equally applies in this case also. He submits that the Committee of Management was appointed here by the High Court expressly for the purpose of. running the mill of the company against whom a proceeding for winding up was pending in the High Court and that this committee has a status equal to that of a receiver and that for all practical purposes the committee should be deemed to be a representative of the Court. It is, therefore, argued that without the previous sanction of the High Court the prosecution against the Committee of Management was bad and that it was incurably bad so as to quash the proceedings. Mr. Maitra on the other hand argues that the duties of the Committee of Management in this case cannot be equal to that of a receiver. According to him the receiver is appointed under the statute and that he represents the Court. So as a matter of public policy he should not be prosecuted at will by any aggrieved party as in that case it would be an encroachment on the authority of the Court. He further argues that the Committee of Management was appointed in pursuance of a scheme submitted under the provisions of the Companies Act and that as such it could not be deemed to be representative of the Court. Mr. Maitra also argues that even if it be accepted that the committee appointed by the Court was an officer of the Court, the proper remedy for an irregular prosecution was by way of a proceeding under the Contempt of Courts Act. According to him it was a mere irregularity which could not affect the merits of the prosecution.
16. The above arguments of both the parties should be considered in the proper context in which the Committee of Management was appointed by the Court. It was appointed in pursuance of a scheme and the committee consisted of several persons from the category of creditors each of whom chose to send a representative of their own to the committee. Mr. Ghosh submits that the committee included even a representative of the State Bank who is the complainant in this case. So according to him a prosecution at the instance of the State Bank against a committee which included representative of the Bank was embarrassing and not bona fide. In any case Mr. Ghosh submits that there were good reasons for taking the leave of the Court before launching prosecution in this case as the committee acted bona fide and due to stringent circumstances was not in a position to pay the amount of the cheque and was subjected to an ignominious prosecution. It must be held that the committee was a creation of the Court as otherwise a natural procedure could have been to allow the prayer for winding up of the company and proceed accordingly. The Court held that there were special considerations for not allowing the company to be liquidated as per prayer and that there was an attempt to make an arrangement for payment of the debts of the company by running the mill. It, therefore, cannot be said that the Committee of Management was constituted as a matter of course or it was a natural limb of the company. If the committee could not function and carry on its mission according to order of the Court, the matter was to be reported to the Court and further course of action would have been devised on its basis. So the committee should for all practical purposes be deemed to be a representative of the Court and should be treated in the similar way in which a receiver or any other officer appointed by the Court is done. Mr. Ghosh rightly argues that if the leave of the Court was sought before launching the prosecution, the Court might consider under which circumstances the alleged offence was committed or if there was any bona fide motive in signing the cheque. Considering all these aspects of the question I think that the prosecution in this case without the prior leave of the Court has been bad.
17. We now come to the last branch of argument of Mr. Ghosh regarding the maintainability of the prosecution against the petition No. 1. The petitioner No. 1 is the Committee of Management for the Baranagar Jute Factory constituted under the orders of the High Court. The prosecution in this case is under Section 138 read with Section 141 of the Negotiable Instruments Act. Section 141 relates to the offences committed by companies. Under Sub-section (1) of the said section 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. In the Explanation appended to the section the company for the purpose of the section has been defined as any body corporate and including a firm or other association of individuals. Mr. Ghosh argues that the company is a juristic person and that it has its own status apart from its members. In the instant case, according to Mr. Ghosh the Committee of Management framed by the High Court is not a company and thus it could not attract the vicarious liability available against the actions of a company. Mr. Ghosh further argues that as it is not a company it has no representative capacity and that it has no Director in relation to a Company. So it could not be liable for any offence under Section 138 of the Act by virtue of Section 141. Moreover there is no question of any person being responsible to the petitioner No. 1 for the conduct of its business. Thus the argument of Mr. Ghosh is that the prosecution against the present Committee of Management on the assumption that it is covered by the definition of a company as mentioned Section 141 is a totally misconceived one.
18. Mr. Maitra on the other hand argues that the company within the meaning of Section 141 includes an association of individuals. He submits that its character is that of a firm under the Indian Partnership Act, 1932 and as a prosecution is possible against a firm so the present prosecution against the Committee of Management is a legal one. The nature and character of a firm have been explained in (Kadar Bux Omar Hyat v. Bukt Behari) wherin it has been stated that a firm is nothing but an association of individuals and that when such an association under a firm name enters into a partnership with another individual or another association of individuals, it is not the aggregate that combines with the individual but the individuals compose the aggregate. In the instant case, however, the Committee of Management is not a firm within the meaning of the Partnership Act, 1932 and its members are not partners on that account. Mr. Maitra submits that as it is an association of individuals it is covered by the definition of a company as referred to in Section 141 of the Act. But truly speaking the Committee of Management constituted by the High Court has no legal status as such to represent the aggregate of the individuals like a firm or any body corporate. It is not the company for whose benefit it has been ordered to work. It is also not an association of individuals to create any personality which can represent the aggregate of the individuals. It does not represent the members of the company nor does it work as an agent of the company. According to Mr. Ghosh therefore, no prosecution can be launched against the petitioner No. 1. In this respect Mr. Ghosh raises another point. He submits that the punishment under Section 138 of the Negotiable Instruments Act is imprisonment for a term which may extend to one year or with fine. Thus the Committee of Management here cannot suffer the punishment of imprisonment as it is not an individual. Mr. Ghosh cites a case reported in 1992 (1) CHN 299 (M/s. Hanuman Sugar and Industries Ltd. v. Nirmalendu Banerjee). In which a single Bench of this Court has held that the punishment of compulsory imprisonment as provided under Section 276B of the Income-tax Act cannot be imposed upon the company who is a juristic person and that as such the continuation of a criminal proceeding in this regard amounts to an abuse of the process of the Court and is liable to be quashed. Another case cited is M/s. Shyamlal Dey Housing Industries Pvt. Ltd. v. Sidheswar Bhusan Puttenda reported in 1992 (2) CHN 434 in which it has been held that a company cannot commit an offence under Section 276B of the Income-tax Act. It is argued on the basis of these cases that the Committee of Management in this case cannot suffer the punishment of imprisonment and as such cannot be an accused. Consequently no vicarious liability can be attached to the petitioner No. 2 on behalf of the Committee of Management.
19. Mr. Maitra on the other hand cites (Sheoratan Agarwal v. State of Madhya Pradesh) and argues that a person can be convicted of an offence even apart from the company. It was a case under the Essential Commodities Act. There is no doubt that a person may have individual liability for an offence as also the vicarious liability for a company if the offence is liable to be committed also individually. In the instant case the Committee of Management is actually not a company although it is a body of individuals. There is also a basic difference between a company and its employee and the accused Committee of Management and one of its members. So the case cited under the E.C. Act does not actually help in this case, and the Committee of Management cannot be prosecuted as a company.
20. Considering all the facts and arguments presented in this case I am of the opinion that although an offence under Section 138 of the Negotiable Instruments Act is found to have been committed, the prosecution fails for the reasons discussed by me above. This criminal revision, therefore, succeeds. The proceedings of criminal case No. C/46/1991 under Section 138/141 of the Negotiable Instruments Act pending in the Court of the Chief Metropolitan Magistrate, Calcutta, are hereby quashed. The accused petitioners are discharged after being released from their bail bonds.