All HC | Summons sent to Director for dishonour of cheque under S. 138 NI Act, without prosecution against the Company. Is it permissible? Court answers

Allahabad High Court: Ravi Nath Tilhari, J., addressed a matter wherein a person being the director of the company signed a cheque on behalf of the company and since the said cheque got dishonoured, he was made liable, without the company being made liable under the offence of Section 138 of Negotiable Instruments Act, 1881.

The instant petition was filed under Section 482 of the Code of Criminal Procedure, 1973 for quashing of summoning order passed by Additional Chief Judicial Magistrate under Section 138 of the Negotiable Instruments Act.

Facts as stated by the applicant

Applicant has been stated to be the Director of a Company and complainant/OP 2, an employee in the railways, by giving assurance of contract of road construction from his superior officers in favour of applicant’s company obtained post-dated cheque of 5 lakh rupees in terms of security money.

Complainant had assured the applicant that once he starts earning profits from the said contract work he would return the post-dated cheques.

However, applicant without any prior notice to the company, complainant presented the cheque in the bank which was dishonoured due to non-availability of funds. One of the legal notice, though was not received by the applicant, but the second notice was served.

Points that arose for consideration:

High Court formulated the following points of consideration:

  • Whether criminal prosecution against the person in charge of, and responsible for conduct of the business of the company under Section 138 NI Act, can be maintained, in the absence of any prosecution of the Company for such offence and without making the company an accused, in view of Section 141 of the NI Act?
  • Whether the cheque in question was issued by the applicant in his personal capacity or in the capacity of director of the company?
  • Whether the orders under challenge and the criminal proceedings against the applicant deserve to be quashed in the exercise of jurisdiction under Section 482 CrPC?

Analysis of the above points:

In order to consider the first point, Court referred to Sections 138 and 141 of the Negotiable Instruments Act, 1881.

On perusal of the said provisions, the essential ingredients of offence under Section 138 NI Act as laid down by the Bench were:

  • The person drew a cheque on an account maintained by him with the banker
  • When such a cheque is presented to the bank is returned by the bank unpaid
  • such cheque was presented to the bank within a period of six months from the date it was drawn or within the period of its validity, whichever is earlier;
  • the payee demanded in writing from the drawer of the cheque the payment of the amount of money due under the cheque to the payee
  • Such a notice of payment is made within a period of 30 days from the date of the receipt of the information by the payee from the bank regarding return of the cheque, as unpaid and
  • Inspite of the demand notice the drawer of the cheque failed to make the payment within a period of 15 days from the date of receipt of the demand notice

For the offence to be constituted under Section 138 NI Act, all the above ingredients need to co-exist.

Supreme Court decision in Aneeta Hada v. Godfather Travels and Tours (P) Ltd., (2012) 5 SCC 661, held that Section 141 of NI Act is concerned with the offences by the company. It makes the other persons, vicariously liable for commission of an offence on the part of the company.

The vicarious liability gets attracted when the condition precedent laid down in Section 141 NI Act stands satisfied. There can be no vicarious liability unless there is a prosecution against the company. For maintaining a prosecution under Section 141 NI Act, arraying of the company as an accused is imperative.

 In Supreme Court’s decision of Standard Chartered Bank v. State of Maharashtra, (2016) 6 SCC 62, it was held that there cannot be any vicarious liability unless there was a prosecution against the Company.

In Harihara Krishnan v. J Thomas, (2018) 13 SCC 663, Supreme Court held that Section 141 stipulates the liability for the offence punishable under Section 138 NI Act when the person committing such an offence happens to be a company.

In Aneeta Hada v. Godfather Travels and Tours (P) Ltd., (2012) 5 SCC 661, it was settled that for maintaining a prosecution against the person in charge of and responsible for conduct of the business of the company under Section 138 NI Act, arraigning of the Company as an accused is imperative in view of Section 141 of the Act, as such a person can only be held vicariously liable.

With regard to point 1, hence Court held that such a person, cannot be prosecuted unless there was prosecution of the company.

Second Point

 Whether the cheque in question was issued by the applicant in his personal capacity or in the capacity of the Director of the Company?

The above-stated question can be determined from perusal of the cheque itself. It is one of the essential ingredients to constitute an offence under Section 138 NI Act, that the person drew a cheque on an account maintained with the Banker and the existence of this ingredient is to be proved from the document itself, i.e. the cheque, and for its proof no other evidence is required. Hence, Court could determine if the cheque was issued as authorized signatory or in personal capacity by the applicant by exercising its jurisdiction under Section 482 CrPC.

On perusal of the copy f the cheque it was found that the said was signed by Sanjay Singh, the applicant for Udit Infraheights Private Limited, as its authorized signatory.

Hence the cheque was not issued in the applicant’s personal capacity.

In the absence of the company, as accused, any offence was not made out, even prima facie, against the applicant for his summoning under Section 138 read with Section 141 of the NI Act.

While referring to the Supreme Court decision in Ashoke Bafna v. Upper India Steel Manufacturing and Engineering Company Ltd., (2018) 14 SCC 202, it was held that before summoning an accused under Section 138 NI Act, the Magistrate is expected to examine the nature of the allegations made in the complaint and the evidence, both oral and documentary, in support thereof, and then to proceed further with the proper application of mind to the legal principle of the issue.

Last Point

 With regard to the last point of consideration, Bench referred to the decision of Supreme Court in Rishipal Singh v. State of U.P., (2014) 7 SCC 215, Supreme Court, while considering the scope of Section 482 CrPC held that when a prosecution at the initial stage is asked to be quashed, the test to be applied is as to whether the uncontroverted allegations as made in the complaint prima facie establish the case.

In Pooja Ravinder Devidasani v. State of Maharshtra, (2015) 88 ACC 613, Supreme Court held that the Superior Court should maintain purity in the administration of justice and should not allow the abuse of process of the Court.

Therefore, Court opined that the complaint was not filed against the company, as the company was not made a party accused and no vicarious liability could be imposed upon the accused applicant.

Since, the cheque was not signed by the applicant in his personal capacity, the complaint could not have proceeded against him and no offence could be made out against the applicant.

Petition was allowed and the orders challenged were quashed. [Sanjay Singh v. State of U.P., 2021 SCC OnLine All 120, decided on 10-02-2021]

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