This petition has been filed under Section 482 Cr.P.C for quashing the criminal proceedings initiated against the petitioners herein on the file of the XVII Metropolitan Magistrate, Saidapet, Chennai as C.C.No.6583/2007. The petitioners herein have been arraigned as accused Nos.1 to 3 in the above said case. The said calendar case was instituted on a private complaint preferred by the respondent herein for an alleged offence punishable under Section 138 of the Negotiable Instruments Act, 1881.
2. The first petitioner is the company of which the second petitioner is the Chairman and Managing Director, whereas the third petitioner is the Executive Director. The issuance of process of notice by the trial court to the petitioners herein/accused is challenged in this petition and the petitioners have sought for an order quashing of the criminal proceedings initiated against them on the following grounds:-
Though it is true that the allegations found in the complaint that air tickets were booked for six persons on behalf of the first petitioner company for Madras-Kuwait-Madras under Invoice No.00334 dated 19.04.2007 for a sum of Rs.99,000/- and for the payment of the said amount a cheque bearing No.036572 dated 12.05.2007 was issued to the complainant and that the same was returned unpaid when presented in the bank, according to the petitioners the tickets booked on behalf of the first petitioner were not issued and the tickets booked were not utilised by the persons for whom they were booked and hence there was no legal liability to pay the amount. 2) The complaint does not contain necessary averments as to who are all managing the affairs of the company, the details regarding the signatories of the cheque and the capacity in which each one of the petitioners is liable for being proceeded with for an offence punishable under Section 138 of the Negotiable Instruments Act, 1881. 3) Without there being necessary averments a director of a company or a partner of a firm cannot be prosecuted for the dishonour of the cheque issued in the name of the company or partnership firm, as the case may be. 4) Notice should have been issued to all the persons arraigned as accused and the notice issued to the company shall not be enough to prosecute its directors and the non-issuance of notice to the petitioners 2 and 3 will vitiate the proceedings initiated against them.
3. Based on the above said contentions, the petitioners have prayed for an order quashing the criminal proceedings instituted against the petitioners in C.C.No.6583/2007 on the file of XVII Metropolitan Magistrate for the alleged offence punishable under Section 138 of the Negotiable Instruments Act, 1881.
4. The petition is resisted by the respondent/complainant contending that none of the grounds alleged in the petition is enough to quash the criminal proceedings instituted against the petitioners herein. It is the contention of the respondent/ complainant that the notice issued to the company (drawer) is enough and no separate notice need be issued to the directors of the company for launching a prosecution against a company as well as its directors responsible for the conduct of the business of the company. It is also the contention of the respondent/complainant that, apart from making a clear and unambiguous averment to the effect that the persons sought to be prosecuted as directors of the company which committed the offence under Section 138 of the Negotiable Instruments Act, 1881, are looking after the affairs of the company and are responsible to the company for the conduct of its business, detailed particulars narrating the particular instances on which the directors were taking part in the conduct of the business of the company need not be stated in the petition. Stating that the cheque was issued on behalf of the first petitioner company and the second petitioner being the Chairman and Managing Director of the company and the third petitioner being the Executive Director of the company were taking part in the day to day affairs of the company and were thus responsible to the company for the conduct of its business, the respondent has contended that the prayer made in this petition for quashing the complaint has got to be rejected as unsustainable.
5. The arguments advanced by Mr.C.Bauliah, learned counsel for the petitioners and by Mr.S.Venkateswaran, learned counsel for the respondent/complainant were heard. The petition and the connected papers were also perused.
6. The points that arise for consideration in this petition are as follows:-
i) Whether notice to the petitioners 2 and 3 who are said to be the managing director and executive director of the first petitioner company is mandatory for their prosecution along with the first petitioner company? Whether the prosecution initiated against them has to be quashed because of absence of such separate notice under
section 138(b) of the Negotiable Instruments Act, 1881 to the petitioners 2 and 3?
(and)
ii) Whether there is lack of averment for the prosecution of petitioners 2 and 3? Whether the prosecution initiated against them can be quashed on the ground that averments necessary for their prosecution have not been made?
7. Let us first of all take up the contention of the petitioners that the complaint is not maintainable as against the petitioners 2 and 3, as no separate notice was served on them besides serving statutory notice under
Section 138(b) of the Negotiable Instruments Act, 1888 on the company, namely the first petitioner (first accused), for discussion.
8. The main contention of the learned counsel for the petitioners is that the complaint as against the second and third petitioners cannot be maintained in so far as the mandatory requirement of issuing notice under
Section 138(b) has not been complied with. According to the submissions made by the learned counsel for petitioners, the prosecution launched against the petitioners 2 and 3 should be quashed on the sole ground that no notice under
Section 138(b) of the Negotiable Instruments Act, 1881 was served on them calling upon them to pay the amount covered by the dishonoured cheque and that for prosecuting the directors of the company for an offence punishable under Section 138 of the Negotiable Instruments Act committed by the company, notice issued to the company shall not be sufficient.
9. According to the submissions of the learned counsel for petitioners, each and every one of the directors, who is sought to be prosecuted for the offence committed by the company shall be served with the statutory notice contemplated under
Section 138(b) of the Negotiable Instruments Act, 1881 and that if prosecution is launched against them without serving such notice, it will amount to denial of an opportunity to the director concerned to avoid a prosecution being launched against him either by making payment of the cheque amount or by giving a reply setting out the grounds as to how he shall not be liable to be prosecuted for the offence committed by the company. The above said contention of the learned counsel for the petitioners cannot be countenanced. The reasons are found in the subsequent paragraphs of this order.
10. Section 138 of the Negotiable Instruments Act reads as follows:
" 138. Dishonour of cheque for insufficiency, etc., of funds in the account Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such persons 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 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 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."
Proviso (b) to Section 138 of the Negotiable Instruments Act, 1881 says that the payee or the holder in due course of the cheque, as the case may be, shall make a demand for the payment of the said amount of money by giving a notice in writing to the drawer of the cheque within 30 days of the receipt of information by him from the bank regarding return of the cheque unpaid. The provision itself makes clear that the mandatory requirement is that the drawer of the cheque must be given such notice within 30 days from the date of receipt of information regarding the return of the cheque unpaid.
11. Section 141 of the Negotiable Instruments Act dealing with the offences committed by the companies, reads as follows:-
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 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:
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) Not withstanding 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 shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
Explanation. For the purposes of this section,
(a) "company" means any body corporate and includes a firm or other association of individuals; and
(b) "director", in relation to a firm, means a partner in the firm.
12. It says if the person committing an offence under Section 138 of the Negotiable Instruments Act, 1881, is a company, every person who 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 offence and shall be liable to be proceeded against and punished accordingly. None of the provisions between Section 138 to
145 of the Negotiable Instruments Act, 1881 mandates that notice to the directors proposed to be prosecuted should be given in case of offences committed by the company.
13. In this regard, the attention of this court was drawn to the judgment of the Hon'ble Supreme Court in Bilakchand Gyanchand Co. vs. A.Chinnaswami reported in AIR 1999 SUPREME COURT 2182 and Rajneesh Aggarwal v. Amit J.Bhalla reported in AIR 2001 SC 518. It was held therein that a notice issued to the director or managing director who was signatory to the cheque issued on behalf of the company shall be sufficient notice to the drawer company. The reverse proposition, namely whether a notice issued to the company shall be enough for the prosecution of the director or the managing director has not been discussed therein. However, on a proper interpretation of Section 138 in the light of the above said view expressed by the Hon'ble Supreme Court will make it clear that what has been mandated in the section is that the drawer or the holder in due course, before proceeding against the company and its directors for an offence under Section 138 of the Negotiable Instruments Act, 1881, should issue a notice within 30 days from the date of receipt of intimation from the bank regarding the dishonour of the cheque calling upon the drawer, namely the company, to make payment of the cheque amount. Notice to the company is made mandatory. Nowhere in the section or in the above said judgments of the Hon'ble Supreme Court, it has been stated that the directors of the company or other officials of the company proposed to be prosecuted, should be served with a notice before launching prosecution against them.
14. In this regard, a judgment of a learned single judge of Andhra Pradesh High Court in Suraj Theatre and others v. Smt.Kakarla Bhorathe and anothers reported in 1998 CRI.L.J.43 and a judgment of a division bench of the Calcutta High Court in Dilip Kumar Jaiswal v. Debapriya Banerjee reported in 1992(2) KLT 35 can be noticed. In the former, the Hon'ble single judge of the Andhra Pradesh High Court, in respect of prosecution of a partnership firm and its partners for an offence under Section 138 of the Negotiable Instruments Act, 1881, has held that it is not necessary to issue statutory notice under
Section 138(b) to each one of the partners and that it shall be sufficient to serve such statutory notice on the firm. Similar view was expressed by the division bench of Calcutta High Court in 1992(2) KLT 35 cited above.
15. In the light of the above said authoritative pronouncement of the division bench of the Calcutta High court and for the reasons stated supra, this court comes to the conclusion that the contention raised on behalf of the petitioners 2 and 3 to the effect that the prosecution launched against them cannot be maintained for absence of separate notice to them cannot be countenanced and the same deserves to be rejected as untenable. The above said contention raised on behalf of the petitioners is rejected as unacceptable and it is hereby held that the launching of the prosecution against the second and third respondents cannot be successfully challenged on the ground of absence of notice under
Section 138(b) of the Negotiable Instruments Act, 1881. Accordingly, it is hereby held that the complaint against the petitioners 2 and 3 cannot be quashed on the ground of absence of separate notice to them besides the service of notice on the company, namely the first petitioner.
16. It is not in dispute that air tickets for six persons for Madras-Kuwait-Madras to the value of Rs.99,000/- were booked with the respondent/complainant company on behalf of the first petitioner/first accused company. It is also not in dispute that the cheque in question was issued for the above said amount on behalf of the first petitioner company in favour of the respondent/complainant. It is also not in dispute that the cheque dated 12.05.2007 bearing No.036572, when presented for collection, was returned unpaid for the reason "insufficiency of funds". The cheque was returned on 17.05.2007 and the same was intimated to the respondent/complainant by its banker's memo dated 18.05.2007. Within the time stipulated in the statute, the respondent/complainant issued a legal notice demanding payment of the amount covered by the cheque within 15 days from the date of receipt of the notice. The notice was issued on 24.05.2007 and the same was received by the first petitioner/first accused on 25.05.2007. After waiting for 15 days from the date of receipt of the statutory notice, the respondent/complainant has preferred the complaint on the file of the learned XVII Metropolitan Magistrate in time on 05.07.2007. 15 days time from the date of receipt of statutory notice expired on 09.06.2007. Thereafter, within a period of one month, the complaint should have been filed. The period of thirty days expired on 08.07.2009. But the complaint was preferred on the file of XVII Metropolitan Magistrate on 05.07.2007 itself.
17. There are a number of judgments in which it has been held by the Hon'ble Supreme Court that the vicarious liability of the managing director and other directors can be inferred only if clear averments to the effect that such directors were in-charge of the business of the company and they were responsible to the company for its conduct of business have been made. One such judgment in which such an observation was made by the Hon'ble Supreme court is Sabitha Ramamurthy & Anr. v. R.B.S.Channabasavaradhya reported in 2006 CRI.L.J.4602. In the said judgment, it has been observed as follows:
" A bare perusal of the complaint petitions demonstrates that the statutory requirements contained in Section 141 of the Negotiable Instruments Act had not been complied with. It may be true that it is not necessary for the complainant to specifically reproduce the wordings of the section but what is required is a clear statement of fact so as to enable the court to arrive at a prima facie opinion that the accused are vicariously liable. Section 141 raises a legal fiction. By reason of the said provision, a person although is not personally liable for commission of such an offence would be vicariously liable therefor. Such vicarious liability can be inferred so far as a company registered or incorporated under the Companies Act, 1956 is concerned only if the requisite statements, which are required to be averred in the complaint petition, are made so as to make the accused therein vicariously liable for the offence committed by the company. Before a person can be made vicariously liable, strict compliance of the statutory requirements would be insisted. Not only the averments made in paragraph 7 of the complaint petitions does not meet the said statutory requirements, the sworn statement of the witness made by the son of Respondent herein, does not contain any statement that Appellants were in charge of the business of the company. In a case where the court is required to issue summons which would put the accused to some sort of harassment, the court should insist strict compliance of the statutory requirements. In terms of Section 200 of the Code of Criminal procedure, the complainant is bound to make statements on oath as to how the offence has been committed and how the accused persons are responsible therefor.
18. In S.M.S.Pharmaceuticals Ltd. v. Neeta Bhalla and Another reported in (2005) 8 SCC 89, it was observed by the Hon'ble Supreme Court as follows:
"In view of the above discussion, our answers tot he questions posed in the reference are as under:
(a) It is necessary to specifically aver in a complaint under Section 141 that at the time the offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company. This averment is an essential requirement of Section 141 and has to be made in a complaint. Without this averment being made in a complaint, the requirements of Section 141 cannot be said to be satisfied.
(b) The answer tot he question posed in sub-para(b) has to be in the negative. Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A direction in a company cannot be deemed to be in charge of and responsible tot he company for the conduct of its business. The requirement of Section 141 is that 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 direction in such cases."
19. The said view in S.M.S.Pharmaceutical's case was that of a larger bench consisting of three Hon'ble judges of the Supreme Court. The same was also referred to in Green Earth Asphalt and Power Private Limited versus State of Maharashtra through PSO and others reported in (2008) 8 SCC 278. The law laid down by the Hon'ble Supreme Court in interpreting Section 141 of the Negotiable Instruments Act, 1881, makes it obligatory on the part of the complainant, who wants to prosecute the directors of the company also along with the company for an offence punishable under Section 138 of the Negotiable Instruments Act, to make necessary averments to the effect that the director/directors who is/are sought to be prosecuted along with the company was/were in-charge of and was/were responsible to the company for the conduct of its business. The bare minimum requirement is that, at least such an averment should have been made in the complaint to make the directors vicariously liable for offence committed by the company punishable under Section 138 of the Negotiable Instruments Act, 1881. In this case, the necessary averment is found in paragraph 2 of the complaint which reads as follows:
The Accused are 1.M/s.BLUECHIP SERVICES INTERNATIONAL (CHENNAI) PVT. LTD.-(A1) having its Administrative office at #229, C/2, IIIrd Floor. Raahat Plaza, 172, Arcot Road, Vadapalani, Chennai-600026, 2.Mr.MOHAMED HARISS @ SABIR SIDDIQUE s/o.Sadiq Siddiqi, who is the Chairman and Managing Director of BlueChip Services International (Chennai) Pvt. Ltd.-(A2). 3.Mrs.MUBEEN TAJ w/o.Mr.Mohamed Hariss, who is the Executive Director of M/s.BlueChip Services International (Chennai)Pvt. Ltd.-A3. Both the Accused (A2 and A3) are residing at 543 'E' Block, Semar Estate, Doshi Gardens, 321, Arcot Road, Vadapalani, Chennai-600026. The address for all notices and processes on the accused is as stated above.
20. Excepting the allegation that the second petitioner is the Chairman and Managing Director of the first petitioner company and that the third petitioner is the Executive Director of the first petitioner company, there is no other averment found in the complaint to show that either the second petitioner or the third petitioner was in-charge of and was responsible to the company for the conduct of its business. Mere recital that one is the Chairman and Managing Director and the other is the Executive Director shall not be enough and the same will not be a proper compliance of the condition found in Section 141 of the Negotiable Instruments Act. Nowhere in the complaint the respondent/complainant has stated who was the signatory to the cheque. There is not even an averment to the effect that either the second petitioner or the third petitioner was in-charge of and was responsible for the conduct of the business of the company at the time of accrual of the cause of action. The complaint itself is bereft of such particulars necessary to maintain a prosecution against the petitioners 2 and 3 herein.
21. Therefore, this court comes to the conclusion that the criminal proceedings initiated by the issuance of process to the petitioners 2 and 3 herein in C.C.No.6583/2007 is liable to be quashed not on the ground of absence of service of notice separately on them, but on the ground that no sufficient averment has been made in the complaint to the effect that they were in charge of and responsible for the conduct of the business of the first petitioner company at the relevant point of time. So far as the first petitioner is concerned, clear averments have been made to the effect that the cheque was issued in the name of the first petitioner company. The notice was also issued to the first petitioner company. The cheque was issued in respect of an account maintained in the name of the company. Therefore the institution of a criminal case against the first petitioner company for the offence under Section 138 of the Negotiable Instruments Act cannot be said to be improper.
22. The only ground on which the complaint as against the first petitioner also is sought to be quashed is that though the cheque was issued for the tickets booked with the respondent/complainant, actually the persons for whom the tickets were booked did not use those tickets and that hence the cheque should be construed to be one issued in respect of a liability which is not legally enforceable. This court is unable to accept the same to be a ground on which the complaint can be quashed at the threshold itself. Disputed facts cannot be the basis on which a complaint can be quashed. The said contention can, at the best, be raised as a plea of defence in the trial court. It can never be a ground on which the complaint itself can be quashed. Therefore, this petition is liable to be dismissed so far as the prayer made in respect of the first petitioner is concerned.
23. In the result, this petition is partly allowed and the criminal proceedings initiated on the file learned XVII Metropolitan Magistrate, Saidapet, Chennai in C.C.No.6583/2007 is quashed so far as the petitioners 2 and 3 alone are concerned. So far as the prayer in respect of the first petitioner is concerned, this petition shall stand dismissed.
asr To XVIII Metropolitan Magistrate, Saidapet, Chennai