2024 TaxPub(CL) 47 (HP-HC)

NEGOTIABLE INSTRUMENTS ACT, 1881

Sections 138 & 142

Dishonour of cheque - Petition for quashing of proceedings - Society being a primary accused not arrayed as party in complaint - Whether complaint against office bearers is maintainable

Society issued cheque in favour of lender regarding repayment of loan, but the cheque was dishonoured due to insufficient funds. Therefore, the lender filed complaint under sections 138 and 142 against office bearers of the society including the petitioner, wherein Trial Court issued summons against them. The petitioner filed petition for quashing of the summons as well as the complaint on the ground that the complaint against the office bearers without impleading the society was not maintainable. Held: The society is a body corporate having its independent existence. As per the complaint, the loan was taken by the society and the cheque was issued by the society. The society is the primary accused but it was not arrayed as a party. The complaint against the petitioner and other is not maintainable in the absence of a society. Thus, the proceedings against the office bearers are quashed.

REFERRED : Pawan Kumar Goel v. State of U.P., 2022 SCC OnLine SC 1598; Dilip Hariramani v. Bank of Baroda, 2022 SCC OnLine SC 579

FAVOUR : In favour of petitioner

A.Y. :

IN THE HIMACHAL PRADESH HIGH COURT

RAKESH KAINTHLA, J.

Anjana Kumari v. State of Himachal Pradesh

Cr. MMO No. 1159 of 2022

15 December, 2023

Petitioner by: R.L. Chaudhary, Advocate

Respondent No. 1 by: R.P. Singh, Deputy Advocate General

Respondent No. 2 by: Ajay Chandel Advocate complainant

Respondent No. 3 by: P.K. Bhatti Advocate

Rakesh Kainthla, J.

The complainant filed a complaint (Annexure P-4) before the learned Trial Court against the petitioner and respondent no. 3 for the commission of an offence punishable under section 138 read with section 142 of the Negotiable Instruments Act. (Parties shall hereinafter be referred to in the same manner as they were arrayed before the learned Trial Court for convenience). It was asserted that Himalyan Mahila Avam Jan kalyan Sansthan H.O. Basi, Hamirpur is registered under the Society Registration Act, 2006. Accused no. 1 is the Chairman and accused no. 2 is the Secretary of the Society. The Society had taken a loan of Rs. 1 lac from the complainant and assured him to return the same on demand. The complainant is an employee of the Society. The Society did not pay his salary for 14 months. The complainant requested the society to pay the money due to him and the Society issued a cheque for Rs. 5 lac in discharge of its legal liability. The complainant presented the cheque for its realisation but it was dishonoured. Hence, the complaint was filed for taking action against the accused.

2. The learned Trial Court found sufficient reasons to summon the accused for the commission of an offence punishable under section 138 of the Negotiable Instruments Act.

3. Being aggrieved from the filing of the complaint and the order summoning the accused, the petitioner approached this Court for quashing of the complaint and the summoning order. It was asserted that no salary was fixed. The Society is a non-governmental organization/NGO and is working on a no profit and no-loss basis. The NGO paid the amount due to the complainant. The cheque was signed by accused no. 1 and 2 in their official capacity. The Society was not made an accused and the complaint was filed only against the office bearers of the Society. A complaint against the office bearers without impleading the Society is not maintainable. Therefore, it was prayed that the present petition be allowed and the complaint as well as the summoning order be quashed.

4. I have heard Mr. R.L. Chaudhary, learned counsel for the petitioner-accused, Mr. R.P. Singh, learned Deputy Advocate General, for respondent no. 1-State, Mr. Ajay Chandel learned counsel for the respondent No. 2/complainant and Mr. P.K. Bhatti learned counsel for the respondent no. 3.

5. Mr. R.L. Chaudhary learned counsel for the petitioner submitted that the Society is a body corporate having its independent existence. As per the complaint, the loan was taken by the Society and the cheque was issued by the society. The Society is the primary accused but it was not arrayed as a party.

The complaint against the petitioner and the accused no. 2 is not maintainable in the absence of a Company. Therefore he prayed that the present petition be allowed and the complaint be quashed.

6. Mr. Ajay Chandel, learned counsel for the complainant submitted that the Society is not a body corporate and the provisions of section 141 of the Negotiable Instruments Act apply only to the body corporate; therefore, he prayed that the present petition be dismissed.

7. Mr. R.P. Singh learned Deputy Advocate General for the respondent-State submitted that the State is not a necessary party and it was unnecessarily arrayed.

8. Mr. P.K. Bhatti learned counsel for respondent no. 3 adopted the submissions of Mr. R.L. Chaudhary, learned counsel for the petitioner.

9. I have given considerable thought to the rival submissions at the bar and have gone through the record carefully.

10. Section 141 of the Negotiable Instruments Act deals with the liability of the Company and provides that where the offence is committed by 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 its business as well as the company, shall be deemed to be guilty of the commission of the offence. It is apparent from the bare perusal of the provisions that in the case of a Company, the Company as well as the office bearers are liable. Hence, the company is primarily liable and the office bearers are vicariously liable. It was laid down by the Hon'ble Supreme Court in Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661 : 2013 TaxPub(CL) 0214 (SC) that it is not permissible to prosecute the Directors in the absence of the Company. It was observed that :--

'58. Applying the doctrine of strict construction, we are of the considered opinion that the commission of the offence by the company is an express condition precedent to attract the vicarious liability of others. Thus, the words 'as well as the company' appearing in the section make it absolutely unmistakably clear that when the company can be prosecuted, then only the persons mentioned in the other categories could be vicariously liable for the offence subject to the averments in the petition and proof thereof. One cannot be oblivious to the fact that the company is a juristic person and it has its own respectability. If a finding is recorded against it, it would create a concavity in its reputation. There can be situations when the corporate reputation is affected when a Director is indicted.

59. In view of our aforesaid analysis, we arrive at the irresistible conclusion that for maintaining the prosecution under section 141 of the Act, arraigning of a company as an accused is imperative.'

11. This judgment was followed by the Hon'ble Supreme Court in Charanjit Pal Jindal v. L.N. Metalics, (2015) 15 SCC 768: 2015 SCC OnLine SC 1033 and it was held :--

'11. From the aforesaid finding, we find that after analysing all the provisions and having noticed the different decisions rendered by this Court, the three-judge Bench arrived at the irresistible conclusion that for maintaining the prosecution under section 141 of the Act, arraigning a company as an accused is imperative. Hence, in this case, we find no reason to refer the matter to the larger Bench.

12. In the present case, only the appellant was impleaded as an accused. In that view of the matter, we are of the view that the complaint with respect to the offence under section 138 read with section 141 of the Act was not maintainable following the decision in Aneeta Hada [Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661 : (2012) 3 SCC (Civ) 350 : (2012) 3 SCC (Cri) 241 : 2013 TaxPub(CL) 0214 (SC)]. We set aside the Judgment, dated 17-4-2010 passed by the trial court, the Order, dated 27-5-2011 passed by the appellate court and the impugned Judgment, dated 9-11-2012 passed by the High Court of Orissa, Cuttack in Charanjit Pal Jindal v. L.N. Metalics [Charanjit Pal Jindal v. L.N. Metalics, Criminal Revision No. 467 of 2011, decided on 9-11-2012 (Ori)]. The appellant stands acquitted.'

12. This position was reiterated in Himanshu v. B. Shivamurthy, (2019) 3 SCC 797 : 2019 SCC OnLine SC 83 and it was held :--

'11. In the present case, the record before the Court indicates that the cheque was drawn by the appellant for Lakshmi Cement and Ceramics Industries Ltd., as its Director. A notice of demand was served only on the appellant. The complaint was lodged only against the appellant without arraigning the company as an accused.

12. The provisions of section 141 postulate that if the person committing an offence under section 138 is a company, every person, who at the time when the offence was committed was in charge of or 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.

13. In the absence of the company being arraigned as an accused, a complaint against the appellant was therefore not maintainable. The appellant had signed the cheque as a Director of the company and for and on its behalf. Moreover, in the absence of a notice of demand being served on the company and without compliance with the proviso to section 138, the High Court was in error in holding that the company could now be arraigned as an accused.

14. We, accordingly, are of the view that the High Court was in error in rejecting the petition under section 482 Cr.P.C. We hence allow the appeal and set aside the judgment of the High Court. In consequence, the complaint, being CRP No. 27 of 2004 shall stand quashed.'

13. Similar is the judgment in Dilip Hariramani v. Bank of Baroda, 2022 SCC OnLine SC 579, wherein it was held :--

15. The judgment in Dayle De'souza v. Government of India through Deputy Chief Labour Commissioner (C), answered the question of whether a director or a partner can be prosecuted without the company being prosecuted. Reference in this regard was made to the views expressed by this Court in State of Madras v. C.V. Parekh on the one hand and the divergent view expressed in Sheoratan Agarwal v. State of Madhya Pradesh and Anil Hada v. Indian Acrylic Ltd. This controversy was settled by a three-judge Bench of this Court in Aneeta Hada (supra), in which, interpreting and expounding the difference between the primary/substantial liability and vicarious liability under section 141 of the NI Act, it has held :--

'51. We have already opined that the decision in Sheoratan Agarwal runs counter to the ratio laid down in C.V. Parekh which is by a larger Bench and hence, is a binding precedent. On the aforesaid ratiocination, the decision in Anil Hada has to be treated as not laying down the correct law as far as it states that the Director or any other officer can be prosecuted without impleadment of the company. Needless to emphasise, the matter would stand on a different footing where there is some legal impediment and the doctrine of lex non cogit ad impossibilia gets attracted.

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59. In view of our aforesaid analysis, we arrive at the irresistible conclusion that for maintaining the prosecution under section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the drag-net on the touchstone of vicarious liability as the same has been stipulated in the provision itself. We say so on the basis of the ratio laid down in C.V. Parekh which is a three-judge Bench decision. Thus, the view expressed in Sheoratan Agarwal does not correctly lay down the law and, accordingly, is hereby overruled. The decision in Anil Hada is overruled with the qualifier as stated in para 51. The decision in Modi Distillery has to be treated to be restricted to its own facts as has been explained by us hereinabove.'

16. The provisions of section 141 impose vicarious liability by deeming fiction which presupposes and requires the commission of the offence by the company or firm. Therefore, unless the company or firm has committed the offence as a principal accused, the persons mentioned in sub-section (1) or (2) would not be liable and convicted as vicariously liable. Section 141 of the NI Act extends vicarious criminal liability to officers associated with the company or firm when one of the twin requirements of section 141 has been satisfied, which person(s) then, by deeming fiction, is made vicariously liable and punished. However, such vicarious liability arises only when the company or firm commits the offence as the primary offender. This view has been subsequently followed in Sharad Kumar Sanghi v. Sangita Rane, Himanshu v. B. Shivamurthy and Hindustan Unilever Limited v. State of Madhya Pradesh. The exception carved out in Aneeta Hada (supra), which applies when there is a legal bar for prosecuting a company or a firm, is not felicitous for the present case. No such plea or assertion is made by the respondent.'

14. This position was reiterated in Pawan Kumar Goel v. State of U.P., 2022 SCC OnLine SC 1598 and it was held :--

25. This Court has been firm with the stand that if the complainant fails to make specific averments against the company in the complaint for the commission of an offence under section 138 of the NI Act, the same cannot be rectified by taking recourse to general principles of criminal jurisprudence. Needless to say, the provisions of section 141 impose vicarious liability by deeming fiction which pre-supposes and requires the commission of the offence by the company or firm. Therefore, unless the company or firm has committed the offence as a principal accused, the persons mentioned in sub-section (1) and (2) would not be liable to be convicted on the basis of the principles of vicarious liability.

15. Therefore, in view of the binding precedents of the Hon'ble Supreme Court, the submission that the prosecution of the Company is necessary before prosecuting its office bearers has to be accepted as correct.

16. It was submitted that the Himalayan Mahila Avam Jankalyan Sanstha is not a Company and these judgments do not apply to the present case. This submission is not acceptable. Explanation to section 141(2) provides that a Company means any body corporate and includes a firm or other association of individuals. Therefore, the term Company is not restricted to only those entities which are registered under the Companies Act but will include any body corporate.

17. It is an admitted position that the Himalayan Mahila Avam Jan Kalyan Sansthan is registered under the Societies Registration Act. This fact was mentioned in para 1 of the complaint. Section 14 of the H.P. Societies Registration Act provides that every Society shall be a body corporate by the name under which it is registered having perpetual succession and a common seal, It reads as under :--

14. Society to be a body corporate.--Every Society shall be a body corporate by the name under which it is registered having perpetual succession and a common seal, and shall have powers to acquire, hold and dispose of property, both movable and immovable, enter into contract, institute and defend suits and other legal proceedings and to do all other things necessary for the purpose for which it is constituted, and shall by the said name, sue or be sued.

18. This Section specifically provides that the Society shall be a body; hence, the submission that the Society is not a body corporate is not acceptable.

19. Therefore, the complainant could not have filed a complaint against the petitioner and respondent no. 3 without impleading the Company to an accused. The prosecution of the petitioner in the absence of the Company is bad.

20. In view of the above, the present petition is allowed and the complaint titled Mukesh Kumar v. Anjana Kumari and another quashed qua the petitioner pending before the learned Additional Chief Judicial Magistrate, Sarkaghat against the petitioner and the consequent proceedings arising out of the same are ordered to be quashed qua the petitioner.

21. The observation made hereinbefore shall remain confined to the disposal of the petition and will have no bearing whatsoever on the merits of the case.