Balaji Diesel, Sales Mart vs Dalton Ceramic Industries

P.R. Shivakumar, J.—As against the judgment of the lower appellate Court (Additional District and Sessions Judge-cum-Chief Judicial

Magistrate, Vellore) dated 08.02.1999 made in C.A. No. 35 of 1994, reversing the judgment of conviction of the trial court (Judicial Magistrate

No. 3, Vellore), dated 31.03.1994 made in C.C. No. 21 of 1993, the present Criminal Appeal has been preferred u/s 378(4) Cr.P.C.

The complainant before the trial Court/the respondent before the lower appellate Court is the appellant herein. He had preferred a private

complaint u/s 200 Cr.P.C. alleging commission of an offence punishable u/s 138 of the Negotiable Instruments Act by the respondent herein.

Following the procedure prescribed for taking cognizance of offences on private complaint, the learned Judicial Magistrate No. 3, Vellore, took

the same on file as C.C. No. 21 of 1993. On appearance of the accused and on the plea of not guilty made by the accused, the accused (the

respondent herein) was tried for an offence punishable u/s 138 of the Negotiable Instruments Act.

In the trial, four witnesses were examined as P.Ws.1 to 4 and 15 documents were marked as Ex.P1 to P15 on the side of the

complainant/prosecution. No witness was examined, however one document was marked as Ex.D1 on the side of the accused. Ex.C1 was

marked as Court document. At the conclusion of trial, the learned Judicial Magistrate No. 3, Vellore held the accused (the respondent herein)

guilty of an offence punishable u/s 138 of the Negotiable Instruments Act, convicted the accused and imposed a sentence of six months simple

imprisonment and a fine of Rs. 3,000/- along with a default sentence of three months simple imprisonment to be undergone in case of default of

payment of fine. It was also directed therein that out of the fine amount, Rs. 2,000/- should be paid to the complainant as compensation.

Challenging the correctness and legality of the conviction recorded and sentence imposed by the trial Court, the accused (the respondent herein)

filed an appeal in C.A. No. 35 of 1994 on the file of the learned Additional District and Sessions Judge-cum-Chief Judicial Magistrate, Vellore.

The learned lower appellate judge allowed the appeal, set aside the conviction recorded by the trial Court and acquitted the accused/respondent

herein with a direction that the fine collected from the accused/respondent herein should be refunded to him. As against the said judgment of the

learned Additional District and Sessions Judge-cum-Chief Judicial Magistrate, Vellore, the present appeal has been filed by the

complainant/appellant herein on various grounds set out in the appeal petition.

This Court heard the submissions made by Mr. P. Rajamanickam, learned Counsel appearing for the appellant and by M/s. T.S. Gopalan &

Co, learned Counsel appearing for the respondent. The judgments of the Courts below and other material records were also perused. This Court

paid it anxious consideration to each and every point raised on either side and the materials available on record.

The complainant/appellant herein is a proprietary concern called ''M/s. Balaji Diesel Virpanai Koodam'' and it is represented by its Manager

Gnana Soundari for presenting the complaint in question and also the present appeal. According to the complainant, a business concern called

''M/s. Dalton Ceramic Industries, which is shown to be the accused/respondent represented by its partner Subramanian, purchased diesel on a

bulk quantity and issued three cheques dated 17.08.1992, 15.12.1992 and 30.12.1992 respectively drawn on the State Bank of India, Small

Industries Branch, Vellore bearing cheque Nos. 942509, 942552 and 942553 for Rs. 13,000/-, Rs. 15,000/- and Rs. 15,000/- respectively

towards the payment of the cost of the diesel purchased from the above said petrol bunk. On presentation for payment, all those cheques were

returned ''unpaid'' with endorsements ''exceeds arrangement''. After a statutory notice calling upon the accused/respondent herein to make payment

of the amount covered by the cheques was given, the accused/respondent herein, instead of making payment chose to give a false reply and hence,

the accused/respondent committed an offence punishable u/s 138 of the Negotiable Instruments Act.

Mere perusal of the cause title of the complaint will show that an industrial concern (a partnership firm) by name ""M/s. Dalton Ceramic

Industries"" represented by its partner Subramanian is shown to be the accused and the prosecution has been launched against the industrial

concern alone and not the above said Subramanian in his personal capacity. Section 141 of the Negotiable Instruments Act is an enabling provision

to prosecute the persons responsible for the management or business of a company for an offence committed by the company u/s 138 of the

Negotiable Instruments Act. It is to the effect that when such an offence is committed by 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.

The first proviso to Section 141(1) is to the effect that any such person referred to in Sub-clause (1) shall not be liable to punishment, if he

proves that the offence was committed without his knowledge and that he had exercised all due diligence to prevent the commission of such

offence. Sub-clause 2 of Section 141 makes the officers of the company, like director, manager, secretary or other officers of the company liable

to be prosecuted and punished for the offence u/s 138, if the offence committed by the company is proved to have been committed with the

consent or connivance of such officer or is attributable to any neglect on the part of such officer. In the explanation, a partnership firm is also

brought under the definition of a company and a partner of a firm is equated with a director of a company for the purpose of the said penal

provision.

In the instant case, it is not the case of the complainant/appellant herein that Subramanian purchased diesel on credit for himself. The admitted

case of the complainant/appellant is that diesel was purchased on credit by Subramanian on behalf of M/s. Dalton Ceramic Industries (partnership

firm). It is also the admitted case of the complainant/appellant that the cheques were not issued in respect of the personal account of Subramanian

and on the other hand, admittedly the firm''s cheques signed by Subramanian as partner were issued. Though the industrial concern named M/s.

Dalton Ceramic Industries represented by its partner Subramanian alone has been shown to be the accused in the complaint, it transpires, the

learned Judicial Magistrate (trial Court) proceeded on the assumption that the complaint was against Subramanian as an individual. It is obvious

from the concluding paragraph of the judgment of the trial Court (paragraph-24), wherein the trial Court has chosen to award a sentence of six

months simple imprisonment along with a fine of Rs. 3,000/-. Technically speaking a corporate personality (company) or a firm to which such a

personality is sought to be extended under the explanation to Section 141(2) cannot be put in prison and this aspect was considered by the

Hon''ble Supreme Court in Standard Chartered Bank and Others etc. Vs. Directorate of Enforcement and Others etc., . The said judgment was

pronounced by a constitutional bench of the Hon''ble Supreme Court. As per the majority a company or corporation being a juristic person can be

prosecuted for an offence for which mandatory punishment prescribed is imprisonment and fine. But since the artificial persons like company or

corporation cannot be physically put in prison and the punishment of imprisonment cannot be imposed on a company or a corporation, the

punishment to such artificial persons can only be in the nature of fine. While considering the constitutionality of Section 141, the Hon''ble supreme

Court held that though it is quite impossible to put the corporate personality in prison, the section has to be interpreted in such a way that only fine

shall be imposed on such corporate personalities.

In this case, the learned Judicial Magistrate has chosen to award a substantive sentence of six months simple imprisonment which goes to show

that the learned Judicial Magistrate was proceeding on the assumption that the complaint was against Subramanian as an individual and not against

the partnership firm coming under the definition of company as per the explanation found u/s 141.

On the other hand, the learned Additional District and Sessions Judge-cum-Chief Judicial Magistrate, Vellore, while dealing with the appeal,

also committed the very same mistake by making an observation that the company (partnership firm) was not prosecuted and on the other hand its

partner alone as an individual was prosecuted before the trial Court. The learned lower appellate Judge, relying on the judgment of this Court in A.

Jafferullah v. T. Stanes and Company Ltd. rep by its Legal Officer, K.P. Chandrasekaran reported in 1994(1) LW (Crl) 262, observed that a

prosecution launched against a partner of the firm alone without arraying the firm as an accused, was not maintainable. The lower appellate Judge

held that a prosecution of one of the partners alone, even on the ground that the said partner happened to be the person who acted on behalf of the

partnership firm in the dealings with the complainant, without making the partnership firm and its other partners as co-accused, was not

maintainable. This Court is not in a position to countenance the above said observation made by the learned lower appellate judge.

It has been repeatedly held by the Hon''ble Supreme Court, say for example, in Anil Hada Vs. Indian Acrylic Limited, that when an offence u/s

138 of the Negotiable Instruments Act is committed by a firm, a partner of the firm can be prosecuted leaving out the firm. In the said judgment it

has been held as follows:

Three categories of persons can be discerned from the said provision who are brought within the purview of the penal ability through the legal

fiction envisaged in the section. They are: (1) the company which committed the offence, (2) everyone who was in charge of and was responsible

for the business of the company, and (3) any other person who is a director or a manager or a secretary or officer of the company, with whose

connivance or due to whose neglect the company has committed the offence

In the same judgment it has been observed in paragraph 13 as follows:

If the offence was committed by a company it can be punished only if the company is prosecuted. But instead of prosecuting the company if a

payee opts to prosecute only the persons falling within the second or third category the payee can succeed in the case only if he succeeds in

showing that the offence was actually committed by the company. In such a prosecution the accused can show that the company has not

committed the offence, though such company is not made an accused, and hence the prosecuted accused is not liable to be punished. The

provisions do not contain a condition that prosecution of the company is sine qua non for prosecution of the other persons who fall within the

second and the third categories mentioned above. No doubt a finding that the offence was committed by the company is sine qua non for

convicting those other persons. But if a company is not prosecuted due to any legal snag or otherwise, the other prosecuted persons cannot, on

that score alone, escape from the penal liability created through the legal fiction envisaged in Section 141 of the Act.

The said view was also followed by a subsequent judgment in R. Rajagopal v. S.S. Venkat reported in (2001) 10 SCC 91. In that case also it

was clearly held that the prosecution of a partner of a firm without arraying the firm as an accused was nonetheless maintainable.

Therefore, the above said conclusion arrived at by the learned Judge of the lower appellate Court on the legal issue - whether a prosecution of

a partner of a partnership firm for an offence u/s 138 of the Negotiable Instruments Act committed by the firm shall be maintainable without the

partnership firm and other partners being made as co-accused? - is not in tune with the views expressed by the Hon''ble Supreme Court and

hence, the same deserves disapproval.

Apart from holding that the complaint against a partner alone without making the firm and other partners as co-accused was not maintainable,

the learned Judge of the lower appellate Court on merits has also held that, the charge made against the said partner was not substantiated. This

Court does not deem it fit to consider the said question on merits, as the above said opinion was expressed on the assumption that the partner

alone and not the partnership firm was the accused, whereas in fact, the partnership firm and not the partner was the accused. This Court also

considers it unnecessary to go into the merits of the allegations, as the case can be disposed of on other grounds. The pertinent question that arises

for consideration is whether the appellant herein has properly initiated prosecution by complying the mandatory condition for launching prosecution

for an offence u/s 138 of the Negotiable Instruments Act, 1881.

The statutory notice u/s 138 proviso (b) of the Negotiable Instruments Act informing the dishonour of the cheque and calling upon to make

payment was issued to Subramanian as an individual and not as a partner representing the partnership firm. Admittedly, notice was not issued to

the partnership firm - M/s. Dalton Ceramic Industries. Of course, a notice issued to a partner of the firm shall be enough to prosecute the firm also,

as it shall be deemed to be a notice issued to the partnership firm.

In Rajneesh Aggarwal Vs. Amit J. Bhalla, , it was held that notice for payment issued in the name of the director, who signed the cheque in

question, is a notice to the drawer company. But, such a notice shall indicate the fact that the cheque was issued on behalf of the company and that

he was a director/partner in the company/partnership firm. It has been held as follows in the said judgment:

The object of issuing notice indicating the factum of dishonour of the cheques is to give an opportunity to the drawer to make payment within 15

days, so that it will not be necessary for the payee to proceed against in any criminal action, even though the bank dishonoured the cheques. It is

also Amit Bhalla, who had signed the cheques as the Director of M/s. Bhalla Techtran Industries Ltd. When the notice was issued to the said Shri.

Amit Bhalla, Director of M/s. Bhalla Techtran Industries Ltd., it was incumbent upon Shri Bhalla, to see that the payments are made within the

stipulated period of 15 days. It is not disputed (signature alleged) that Shri Bhalla has not signed the cheques, nor is it disputed that Shri Bhalla was

not the Director of the company. Bearing in mind the object of issuance of such notice, it must be held that the notices cannot be construed in a

narrow technical way without examining the substance of the matter. We really fail to understand as to why the judgment of this Court in

Bilakchand Gyanchand Co., will have no application. In that case also criminal proceedings had been initiated against A. Chinnaswami, who was

the Managing Director of the company and the cheques in question had been signed by him. In the aforesaid premises, we have no hesitation to

come to the conclusion that the High Court committed an error in recording a finding that there was no notice to the drawer of the cheque as

required u/s 138 of the Negotiable Instruments Act. In our opinion, after the cheques were dishonoured by the bank, the way the payee had

served due notice and yet there was a failure on the part of the accused to pay who had signed the cheques as the director of the company.

In Bilakchand Gyanchand Co. v. A. Chinnaswami reported in (1999) 5 SCC 693, it has been held has follows:

It is evident that proceedings were initiated by the appellant against A. Chinnaswami who happened to be the Managing Director of Shakti

Spinners Ltd. The cheques in question which were dishonoured were signed by him. The process was issued by the Judicial Magistrate in his

name. We see no infirmity in the notice issued u/s 138 addressed to A. Chinnaswami, who was a signatory of the said cheques. The High Court, in

our opinion, clearly fell in error in allowing the petition u/s 482 Cr.P.C. and in quashing, the complaint and setting aside the proceedings pending

before the Judicial Magistrate.

In the instant case, statutory notice was sent to R.P. Subramanian describing him to be the proprietor of Dalton Ceramic Industries, thereby

meaning that Dalton Ceramics Limited was a proprietary concern and R.P. Supramanian was its proprietor. However, while filing the complaint the

said concern is shown to be a partnership firm. The description of the accused found in the complaint is as follows:

M/s. Dalton Ceramics Industry represented by its partner.

Subramanian, aged 42

s/o Perumal,

27-E, Thennamaram St.,

Vellore.1, N.A.A. Dt.

It is unnecessary to cite all the judgments to say that it is mandatory to serve a notice on the drawer of the cheque for prosecuting for the offence

u/s 138 r/w 141 of the Negotiable Instruments Act. When the drawer of the cheque happens to be a company, notice issued to a director who

signed the cheque on behalf of the company shall be a proper ntoice to the company. The requirement of issuing the statutory notice shall be

complied with if such a statutory notice is issued to the drawer company. In the case on hand, the statutory notice marked as Ex.P10 cannot be

construed to be a proper notice issued to the accused partnership firm. The notice contains a defect in the description of the accused concern,

which will definitely invalidate the said notice. Notice was issued to R.P. Subramanian as an individual describing him to be the proprietor of Dalton

Ceramic Industries. Section 141 of the Negotiable Instruments Act does not contemplate the inclusion of a proprietary concern in the definition of

company. Only partnership firms, societies and associations are deemed to be companies for the purpose of prosecution for an offence u/s 138

r/w 141 of the Negotiable Instruments Act. As notice was issued to an individual with a description that he was the proprietor of a concern, the

same cannot be construed to be a valid notice to the accused partnership firm. Therefore, the complaint is bound to fail as the requirement of

issuing a statutory notice was not properly complied with. The appellant/complainant is not sure of the nature of composition of the accused

concern. It is quite obvious from the fact that in the statutory notice marked as Ex.P10, R.P. Subramanian has been shown to be the proprietor of

''Dalton Ceramic Industries"", whereas in the complaint ""Dalton Ceramics Industries"" arrayed as the sole accused is described to be a firm

represented by its partner R.P. Subramanian. The appellant/complainant was not sure as to whether the partnership firm was prosecuted or the

partner who was deemed to be a director as per Section 141 was prosecuted. P.W.1, in her evidence, during cross-examination, gave an evasive

answer as to whom the statutory notice was given. She also pleaded ignorance as to how many persons were partners of Daltan Ceramics

Industries. Therefore, even the prosecution of the accused partnership firm is not proper as there was no proper statutory notice issued to either

the said firm or to its partner. The notice issued to the R.P. Subramanian as an individual describing him to be the proprietor of Dalton Ceramics

Industries shall not be taken as a proper statutory notice to the accused partnership firm.

For all the reasons stated above, this Court comes to the conclusion that, though not for the reasons assigned by the lower appellate court, but

for the reasons stated supra, the judgment of the lower appellate court setting aside the conviction of R.P. Subramanian and acquitting the

respondent/accused deserves to be confirmed. Accordingly the appeal is dismissed.