Dr. Yudhvir Singh Manhas vs Mushtaq Ahmed

Heard.

Through the instant petition, petitioner seeks quashment of (i) criminal complaint filed under Section 138 of Negotiable Instrument Act entitled, "Mushtaq Ahmed vs. Yudhveer Singh" pending in the court of learned Additional Special Mobile Magistrate, Doda; (ii) Summoning order dated 05.04.2018 by virtue of which the court of learned Additional Special Mobile Magistrate, Doda has taken cognizance of the case and has issued process against the petitioner; and (iii) Proceedings initiated and pending in the court of learned Additional Special Mobile Magistrate, Doda in case titled, "Mushtaq Ahmed vs. Yudhveer Singh" under Section 138 of the Negotiable Instrument Act.

The petitioner claims to be the Managing Director of M/S Care India Pvt. Ltd. (a company limited) with the object to carry on the business to act as advisor, consultant and manages for the placement of individuals in various Private and Government offices, Bodies Corporate, Firms, Public Relation Offices, Establishment, Autonomous Bodies, Agencies, Industrial Houses, Local Authorities, Social and Religious Organizations, Hotels, Restaurants and Business premises, according to their needs and to look after their personnel requirement whether in India or abroad.

Learned counsel for the petitioner states that respondent has filed a criminal complaint titled, "Mushtaq Ahmed vs. Yudhveer Singh &ors." under Section 138 of the Negotiable Instruments Act, 1881 against the petitioner, which is pending before the court of learned Additional Special Mobile Magistrate, Doda wherein the court has taken cognizance and issued process against him. It is further stated that the respondent in order to oppress the petitioner has filed the above said complaint in which he has annexed one cheque bearing No.000041 dated 26.11.2017 of Yes Bank and the cheque in question was not drawn from the account maintained by the petitioner, but by the Care India HR SERVICES PVT. LTD. It is contended that the respondent has not filed the aforesaid complaint against the company, but against the petitioner in individual capacity, as such the petitioner is not liable to be prosecuted under Section 138 Negotiable Instrument Act.

Learned counsel for the petitioner further contends that in the cause title of the complaint, petitioner's name has been prosecuted for the offence under Section 138 of the Act in his personal capacity, whereas the cheque in question has been returned with the memo of account closed by the company and not by the petitioner. Even assuming that petitioner is Managing Director of the company and he signs the cheque in his capacity, on behalf of the company, therefore, he cannot be mulcted with criminal liability on the basis of a cheque which has been drawn on an account of the company and not on account of the accused. The name of the company has been omitted in the cause title. It is also envisaged in Section 141 that if a company is not prosecuted due to any legal snag or otherwise, the other prosecuted person, on that score alone is not held liable.

The petitioner seeks quashment of above said complaint and order dated 05.04.2018 on the following grounds:-

"(i)Because the proceedings impugned in the petition including summonsing order passed by the learned trial court are not tenable in law, in that, the same have been initiated in a routine and mechanical manner without application of mind and even without going through the allegations in the complaint.

(ii)Because the learned trial court gravely erred in taking out proceedings in the legally unsustainable complaint and in doing so the learned trial court has omitted to appreciate the fact that the complaint under Section 138of the Negotiable Instruments Act has been filed against the petitioner in person and not against the company issuing the alleged cheque in question.

(iii)Because the nature of the offence under Section 138 of the Act the first ingredient constituting the offence is the fact that a person drew a cheque. The identity of the drawer of the cheque is necessarily required to be known to the complainant (payee) and needs investigation and would not normally be in dispute unless the person who is alleged to have drawn a cheque disputes that very fact.

(iv) Because it has already been held by the Hon'ble Supreme Court in N.Harihara Krishnan vs. J. Thomas vide SLP(Crl) No. 1439 of 2017LP(Crl) that failure to comply with any one of the steps contemplated under Section 138 would not provide "cause of action for prosecution". Therefore, in the context of a prosecution under Section 138, the concept of taking cognizance of the offence but not the offender is not appropriate. Unless the complaint contains all the necessary factual allegations constituting each of the ingredients of the offence under Section 138, the Court cannot take cognizance of the offence. Disclosure of the name of the person drawing the cheque is one of the factual allegations which a complaint is required to contain. Otherwise in the absence of any authority of law to investigate the offence under Section 138, there would be no person against whom a court can proceed.

(v) Because it is clear from the Section 138 of Negotiable Instrument Act that a person liable to answer this penal provision is only the person who has drawn the cheque, which could be seen from the opening words "where any cheque drawn by a person on an account maintained by him....." thereby indicating the person to be dealt with under Section 138 of the Negotiable Instrument Act or the person answerable to under Section 138 of the Act must be the person who had drawn the cheque and who is having the account, in which account the cheque is drawn.

(vi )Because the mandate holder is not drawer in the real sense, as it needs to be understand for the purpose of Section 138 of the Act and it is also an admitted position, that the mandate holder is not the account holder, though he is authorized signatory on behalf of the account holder. Unfortunately, trial court without going into the details, placing reliance upon some decision, in my opinion, has committed an error in concluding, that the case is not bad for no-joinder of the owner. It is clear from the above facts that the case has not been filed against the account holder but against the petitioner. In the view, the finding of the trial court in this regard is liable to set aside as the case itself is not maintainable and no question of conviction shall arise."

I have considered the rival contentions and law on the subjects. Before going ahead upon the case, the contents of the complaint filed under Section 138 NI Act by the respondent-Mushtaq Ahmed reads as under:-

"(1) During the course of business the accused had approached the complainant and had taken amount of Rs. 75,000/- (Rupees Seventy five thousand only).

(2) That for the outstanding, the accused issued one cheque of Yes Bank cheque bearing No. 000041 dated 26.11.2017 on current account No.009085800001181 amount of Rs.75,000/- in favour of the complainant.

(3) That the aforementioned cheque was presented in the Jammu and Kashmir Bank Branch Doda Main by the complainant for its encashment. However, the said cheque was dishonoured by the Bankers of the accused i.e., Jammu and Kashmir Bank Branch Doda (Main) vide dishonor Memo dated 12.02.2018 indicating the reasons for the dishonor as "Account Closed" which clearly depicts that the cheque has been returned unpaid for account closed by his Bankers, Yes Bank to Jammu and Kashmir Bank Branch Doda (Main).

(4) That upon the dishonor of the aforementioned cheque, the complainant served a notice in terms of the requirement of Section 138 of Negotiable Instruments Act upon the accused, whereby the accused was intimated about the dishonor of the cheque aforementioned and the accused was further called upon to make payment of the amount of the cheque dishonoured within fifteen days from the receipt on notice by the accused.

(5) That the complainant immediately on return of the cheque by the J&K Bank Branch Doda (Main) approached the accused time and again but he failed to pay the amount to the complainant.

(6) That the complainant has suffered a lot and is still suffering due to the fraudulent intention and tactics of the accused and is sustaining from an irreparable monetary loss due to hoodwinks and false assurances.

(7) That besides the aforesaid legal notices No. LN/06/2018 dated 20.02.2018 and despite having the knowledge of the dishonor of the aforementioned cheque, the accused has not made any payment so far despite lapse of period of fifteen days within which the accused was called upon to make payment of the amount of the cheque dishonored.

(8) That the accused as such has committed an offence which is punishable under Section 138 of the Negotiable Instruments Act and he deserves to be prosecuted and punished accordingly.

(9) That due to some domestic problems the complainant could not approached this Court for filing the complaint within time. Hence, the complainant is entitled to condonation of delay in filing the complaint."

From bare perusal of cheque in question dated 26.11.2017, it is evident that it has been issued by M/S Care India Pvt. Ltd. in favour of respondent; petitioner being Managing Director has been authorized to put his signature on cheque on behalf of company. He has not issued cheque in his personal capacity.

Section 141 of N.I. Act reads as under:-

"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 be proceeded against and 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) Notwithstanding 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 attribute to, any neglect on the part of, any director, Manager, secretary, or other officer of the company, such 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 purpose of this section. -

(a) "Company" means anybody corporate and includes a firm or other association of individuals; and

(b) "Director", in relating to a firm, means a partner in the firm."

From bare perusal of this section, it is evident that section 141 of Act is a penal provision creating vicarious liability, and which, as per settled law, must be strictly construed.

In case titled S.M.S. Pharmaceuticals Ltd. V Neeta Bhalla & Anr. reported in AIR 2005 SC 3512, a three judges bench of Apex court in a reference made by two judges Bench, has held as under:-

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It will be seen from the above provisions that Section 138 casts criminal liability punishable with imprisonment or fine or with both on a person who issues a cheque towards discharge of a debt or liability as a whole or in part and the cheque is dishonoured by the Bank on presentation. Section 141extends such criminal liability in case of a Company to every person who at the time of the offence, was incharge of, and was responsible for the conduct of the business of the Company. By a deeming provision contained in Section 141 of the Act, such a person is vicariously liable to be held guilty for the offence under Section 138 and punished accordingly. Section 138 is the charging section creating criminal liability in case of dishonour of a cheque and its main ingredients are :

(i) Issuance of a cheque.

(ii) Presentation of the cheque

(iii) Dishonour of the cheque

(iv) Service of statutory notice on the person sought to be made liable, and

(v) Non-compliance or non-payment in pursuance of the notice within 15 days of the receipt of the notice.

Sections 138 and 141 of the Act form part of Chapter XVII introduced in the Act by way of an amendment carried out by virtue of Act 66 of 1988 effective from 1st April, 1989. These provisions were introduced with a view to encourage the culture of use of cheques and enhancing the credibility of the instruments. The legislature has sought to inculcate faith in the efficacy of banking operations and use of negotiable instruments in business transactions. The penal provision is meant to discourage people from not honouring their commitments by way of payment through cheques. Section 139, occurring in the same Chapter of the Act creates a presumption that the holder of a cheque receives the cheque in discharge, in whole or in part, of any debt or other liability.

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To sum up, there is almost unanimous judicial opinion that necessary averments ought to be contained in a complaint before a person can be subjected to criminal process. A liability under Section 141 of the Act is sought to be fastened vicariously on a person connected with a company, the principal accused being the company itself. It is a departure from the rule in criminal law against vicarious liability. A clear case should be spelled out in the complaint against the person sought to be made liable. Section 141 of the Act contains the requirements for making a person liable under the said provision. That the respondent falls within the parameters of Section 141 has to be spelled out. A complaint has to be examined by the Magistrate in the first instance on the basis of averments contained therein. If the Magistrate is satisfied that there are averments which bring the case within Section 141, he would issue the process. We have seen that merely being described as a director in a company is not sufficient to satisfy the requirement of Section 141. Even a non-director can be liable under Section 141 of the Act. The averments in the complaint would also serve the purpose that the person sought to be made liable would know what is the case which is alleged against him. This will enable him to meet the case at the trial.

In view of the above discussion, our answers to the 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 to the 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 director in a company cannot be deemed to be in charge of and responsible to the 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 director in such cases."

The apex court after detail appreciations of existing laws has answered the reference as under:-

"19. In view of the above discussion, our answers to the 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 to question posed in sub-para (b) has to be in negative. Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for 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 director in such cases.

(c) The answer to question (c ) has to be in affirmative. The question notes that the Managing Director or Joint Managing Director would be admittedly in charge of the company and responsible to the company for conduct of its business. When that is so, holders of such positions in a company become liable under Section 141 of the Act. By virtue of the office they hold as Managing Director or Joint Managing Director, these persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 141. So far as signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under sub-section (2) of Section 141.

The Reference having been answered, individual cases may be listed before appropriate Bench for disposal in accordance with law."

It is, therefore, not sufficient to make a bald cursory statement in a complaint that the Director (arrayed as an accused) is in charge of and responsible to the company for the conduct of the business of the company without anything more as to the role of the Director. But the complaint should spell out as to how and in what manner respondent was incharge of or was responsible to the accused Company for the conduct of its business. In present case there is no averment in complaint as to how respondent is liable under section 138 of N.I. Act; suspicious averments have been made in complaint that during the course of business the accused had approached the complainant and had taken amount of Rs.75,000/-. There has not been mentioned as to what was business of complainant and how and for what purpose the respondent has taken amount. As already held cheque in question has been issued by M/S Care India Pvt. Ltd., so complainant was obliged to make specific averments in complaint with regard to nature of business and as to how respondent being authorized signatory was liable for commission of offence under section 138 of N.I. Act.

In view of above, this petition is allowed; complaint is quashed due to non compliance of section 141 of N.I. Act.