Amlagiris and Others vs MSPL Limited

P.D. Waingankar, J.—By judgment of conviction and order of sentence dated 23.01.2013 in C.C. No. 238/2011 on the file of Principal Civil Judge and JMFC, Hospet, the accused have been convicted for the offence punishable under Section 138 of N.I. Act and have been sentenced to pay a fine of Rs. 10,000/- each and in default to undergo simple imprisonment for a period of three months apart from ordering to pay compensation of Rs. 2,00,00,000/- to the complainant by accused Nos. 2 and 3 and in default to undergo simple imprisonment for a period of one year. The judgment of conviction and order of sentence passed by the Magistrate has been confirmed in Crl. A. No. 24/2013 on the file of III Addl. District and Sessions Judge, Bellary sitting at Hospet by order dated 07.06.2014. Questioning the legality and correctness of the orders passed by the Magistrate and the Sessions Judge, this revision petition is preferred by the accused under Section 397 r/w Section 401 of Cr.P.C.

The facts which gave rise to this petition are as under:

Petitioner No. 1-M/s. Amalgiris is a partnership firm of which the petitioner Nos. 2 and 3 are the partners. The petitioner firm was engaged in supply of iron ore to the respondent-M/s. MSPL Ltd., Hospet as per the orders placed by the respondent from time to time. The respondent company used to make advance payment to the petitioner firm towards supply of iron ore from time to time. It is the case of the respondent/complainant that the petitioner firm failed to supply iron ore as per the orders placed by the respondent. As such, the respondent called upon the petitioner to refund the advance amount paid. The petitioner firm failed to repay the advance amount despite the demand made by the respondent. After persistent demand, finally, the petitioner firm issued a cheque No. 818743 dated 13.05.2011 drawn on Corporation Bank, Dr. Atamram Borkar Road, Panjim, Gao for Rs. 2,00,00,000/- in favour of the respondent/company. The respondent presented the cheque for collection on 13.05.2011. It came to be dishonoured on 30.05.2011 for the reason that the petitioner firm stopped the payment. On 09.06.2011, the respondent issued a notice of demand informing the petitioner firm and its partners regarding the factum of dishonour of cheque and called upon them to pay the cheque amount within the stipulated period of time. Though the notices were served upon the firm and the partners, the cheque amount was not paid. Instead, they gave untenable reply stating therein that the cheque was not issued towards the discharge of liability, but it was issued as a security in pursuance of the purchase order placed by the respondent. As such, the respondent filed a complaint under Section 200 of Cr.P.C. against petitioner Nos. 1 to 3 for the offence punishable under Section 138 of N.I. Act before JMFC, Hospet.

The petitioners, who were accused Nos. 1 to 3 appeared before the Magistrate. They having denied the accusation, the respondent complainant to prove its case examined one B. Srivastav as P.W. 1 and marked Exs. P1 to P16. On behalf of the accused, the agreement entered into between the parties dated 10.07.2009 and 20.07.2009 were marked as Exs. D1 and D2. The accused did not step into the witness box. After recording the statement of the accused and after hearing the arguments, the learned Magistrate held that the cheque was issued towards the discharge of the liability and not as a security and thereby the learned Magistrate convicted all the accused for the offence punishable under Section 138 of N.I. Act and sentenced them to pay fine of Rs. 10,000/- each and ordered to pay compensation to the respondent amounting to Rs. 2,00,00,000/-.

Aggrieved by the judgment of conviction and order of sentence passed by the Magistrate, the accused preferred Crl. A. No. 24/2013 on the file of III Addl. District and Sessions Judge Bellary. During the pendency of the appeal, the accused filed an application seeking permission to lead further evidence by producing certain documents. Though the application was opposed, the learned Sessions Judge heard the application and permitted them to lead evidence. But, the accused did not come forward to lead evidence. Finally, upon merits the appeal came to be dismissed by order dated 07.06.2014 confirming the judgment of conviction and sentence passed by the Magistrate. Therefore, this revision petition challenging the legality and the correctness of the order passed by both the Court below.

Since there was delay of 269 days in filing the revision petition, an application under Section 5 of the Limitation Act was filed for condonation of delay on the ground that the petitioners were facing criminal proceedings in various Courts including the Courts at Bengaluru in a case filed by Lokayuktha. They were also in custody for some time, they are the residents of Chennai and the delay was due to bona fide reasons. The application was opposed by the respondent. Since the amount shown in the cheque in question runs into crores of rupees and since the cause shown for the delay seems to be sufficient cause, upon hearing both the learned counsels the delay was condoned and the arguments were heard on merits at length.

The learned counsel for the petitioners/accused vehemently argued before me that the offence committed by the firm is sine qua non for convicting the partners of the firm. A firm cannot be prosecuted for the offence under section 138 of the N.I. Act, unless the demand notice is served upon the firm demanding the payment of cheque amount. In the case on hand, no notice was issued or served upon the firm and therefore the prosecution against the firm was not maintainable and as such the conviction of the firm is bad in law. The learned counsel would further submit that unless the firm is convicted, vicarious liability cannot be fastened on the partners of the firm for the acts of the firm. Pointing out at Ex-P3-the demand notice, the learned counsel submitted that the demand notice was not issued or served upon the firm and thereby ingredients of section 138 of 141 of the N.I. Act are not fulfilled. Further it is submitted that there are no averments in the complaint in compliance of section 141 of the N.I. Act to show that the petitioner Nos. 2 and 3 were incharge and responsible for the conduct of the business of the firm and therefore fastening the vicarious liability of the firm on petitioner Nos. 2 and 3 being the partners is not justified. It is further submitted that the learned Magistrate having imposed the sentence of fine of Rs. 10,000/- was not justified in awarding compensation of Rs. 2,00,00,000/- under section 357(3) of Cr.P.C. The learned counsel placing reliance on the following decisions in support of his arguments sought to set-aside the judgment of conviction and sentence:-

R. Vijayan Vs. Baby and Another, .

On the other hand, learned counsel for the respondent has argued in support of the judgment of conviction and sentence passed against the petitioners and also on the scope of revision before a High Court and sought for dismissal of the revision petition.

It is not in dispute that the cheque in question was issued by petitioner No. 1 firm. It was signed by petitioner No. 2 one of the partner. It is also not in dispute that on presentation, the cheque came to be dishonoured. Ex-P3 is the office copy of the demand notice dated 9.6.2011 issued to petitioners, firm and its partners by RPAD. The notices were served upon the firm and the partners. Ex-P12 is the reply dated 29.6.2011 to Ex-P3 issued on behalf of the firm and the partners. When the cheque amount was not paid, despite service of notice within a period of 15 days, the prosecution was launched against the firm and the partners as evidence from the complaint. Therefore, there is no substance in the submission made by the learned counsel for the petitioners that the firm was not issued with a demand notice before launching the prosecution.

It is true that there are no averments in the complaint strictly in compliance with Section 141 of the N.I. Act. The averments made out in para 2 of the complaint are as under:-

"Both the partners are responsible for the activities of the firm."

Section 141 of the N.I. Act speaks about the offences by companies which reads as under:-

Offences by companies-(1) If the person committing an offence under section138 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."

Thus from reading Section 141 and the averments made out in the complaint in para 2, it is obvious that averments are not strictly in compliance with Section 141 of the N.I. Act. Nowhere it is stated in the complaint that the petitioners were responsible for the conduct of the business of the company. But the fact remains that petitioner No. 3 is the wife of petitioner No. 2, who is shown as managing partner, who is signatory to the cheque in question. Petitioner No. 3 is shown as partner. Thus petitioner No. 2 being the managing partner who signed the cheque and he being the husband of petitioner No. 3 has to be held liable for the vicarious criminal liability of the firm, though it is stated in the complaint that both the partners are responsible for the activities of the firm. Thus the material placed on record is sufficient to hold that it is petitioner No. 2 being managing partner is liable for conviction for the offence punishable under Sections 138 of N.I. Act. Petitioner No. 3 being the wife of petitioner No. 2 and as there is no evidence that she was responsible for the firm for the conduct of the business, she cannot be held guilty.

It is pertinent to note that the learned Magistrate having levied fine of Rs. 10,000/- and in default to undergo simple imprisonment for a period of three months, it was impermissible to levy a compensation of Rs. 2.00 crores under section 357(3) of the Code as held by the Supreme Court in R. Vijayan Vs. Baby and Another, . It is held in the head note ''A'' by the Supreme Court as under:-

"(A) Criminal P.C. (2 of 1974), S. 357-Negotiable Instruments Act (26 of 1881), S. 138 -Payment of compensation-When fine too imposed on accused - Compensation could be paid out of fine - There is no need to award separate compensation - Only where sentence does not include fine but only imprisonment and court finds that person who suffered loss or injury by reason of act of accused-Court permitted to award compensation under Section 357(3) - Fine imposed by Magistrate for offence under S. 138 -Not permissible for him to award any compensation under Section 357."

The above ratio laid down by the Supreme Court is aptly applicable to the facts of this case. For all these reasons, I pass the following:-

a. Revision petition is partly allowed.

b. The conviction of petitioner No. 1 firm and petitioner No. 2-Managing partner of the firm under Section 138 of the N.I. Act and order sentencing petitioner No. 2 to pay a fine of Rs. 10,000/-, in default to undergo simple imprisonment for a period of three months imposed by the Magistrate and confirmed by the Sessions Judge is hereby affirmed.

c. The judgment of conviction and order of sentence as against petitioner No. 3 and the order directing the petitioners to pay compensation of Rs. 2.00 crore are hereby set-aside.

d. The amount deposited by the petitioners before this Court in pursuance of the direction of the Hon''ble Supreme Court is hereby ordered to be refunded to petitioner No. 2.