O.N. Phadnish vs Radhakrishnan and Another

B. Akbar Basha Khadiri, J.—Both the criminal revisions are to set aside the orders passed by the learned Judicial Magistrate, Panruti, in C.

M. P. No. 5098 of 1999, in C. C. No. 206 of 1998 and in C. M. P. No. 5109 of 1999 in C. C. No. 212 of 1998.

Criminal Revision Case No. 272 of 2000 has arisen in this way :

The petitioner herein is the accused before the trial court. The respondent herein is the complainant. The complainant is dealing in cashew-nut

oil. The accused purchased cashewnut oil from the complainant on several dates. He had to pay a sum of Rs. 3,32,379.80 to the complainant.

Towards discharge of part of the debt, the accused issued a cheque for Rs. 3,00,000 on March 25, 1998. He had specifically requested the

complainant to present the cheque on September 15, 1998. But, the cheque was returned on the same date with an endorsement ""exceeds

arrangements"". The complainant issued statutory notice on September 19, 1998. The accused received the notice, but he did not make payment.

Therefore, the complainant preferred the instant private complaint under sections 138 and 142 of the Negotiable Instruments Act before the

learned Judicial Magistrate, Panruti, who took cognizance of the matter in C. C. No. 206 of 1998.

Crl. R. C. No. 273 of 2000 has arisen in this way :

The petitioner herein is the accused. The respondent herein is the complainant. The complainant herein also is a similar dealer in cashewnut oil.

The accused purchased cashewnut oil from the petitioner on the following dates :

March 27, 1998, under Bill No. 79 for Rs. 32,200 ; May 5, 1998, under Bill No. 107 for Rs. 72,657 ; May 27, 1998, under Bill No. 125 for Rs.

48,916.

Towards discharge of the debt, the accused issued a cheque for Rs. 32,000 on August 10, 1998, and another cheque for Rs. 48,918 on August

20, 1998. The cheques were presented in the Lakshmivilas Bank Ltd., Panruti, for collection on September 10, 1998. But they were returned on

September 10, 1998, itself with an endorsement that payment was stopped by the drawer. The complainant issued statutory notice on September

16, 1998, which the accused received on September 19, 1998. The accused neither chose to give reply nor make payment. Therefore, the

complainant preferred the instant complaint under Sections 138 and 142 of the Negotiable Instruments Act, on October 5, 1998. The learned

Judicial Magistrate, Panruti, took cognizance of the private complaint in C. C. No. 212 of 1998.

Summonses were sent to the accused in both the cases. The accused preferred Crl. M. P. No. 5098 of 1999 in C. C. No. 206 of 1998 and

Crl. M. P. No. 5109 of 1999 in C. C. No. 212 of 1998 seeking discharge on the following grounds :

(i) The cheques were issued as security for prompt payment and they were not issued in discharge of the existing liability ;

(ii) The respective complainants have failed to implead the company as a party to the proceedings. They are prosecuting him in the individual

capacity and not as the chairman or managing director of the company and, therefore, the proceedings should be quashed.

The learned Judicial Magistrate dismissed both the criminal miscellaneous petitions, against which orders, the accused therein has preferred the

respective criminal revision cases.

Since the questions of fact and law involved in both the criminal revisions are one and the same both the matters can be disposed of by a

common order.

Heard both the sides. It is not in dispute that the petitioner had issued cheques to the respective respondents. His case is that the cheques were

issued only as security and not in discharge of an existing liability. It has to be pointed out that prosecution u/s 138 of the Negotiable Instruments

Act is a statutory prosecution. The cardinal principle of the benefit of the doubt may not apply to the cases of this nature, where a presumption can

be drawn in favour of execution and passing of consideration and genuineness of the document in question. There is a presumption u/s 118 of the

Negotiable Instruments Act that every negotiable instrument was made or drawn for consideration. Section 139 of the Negotiable Instruments Act

says that unless the contrary is proved, it shall be presumed that the holder of a cheque received the cheque of the nature referred to in Section

138 for the discharge, in whole or in part, of any debt or other liability.

It is the case of the respective respondents herein/complainants that in discharge of liabilities that existed towards purchase of cashewnut oil,

the cheques were issued to them. In fact, the complainant in C. C. No. 212 of 1998 had given the dates, bill numbers and amounts regarding such

purchase. When presumptions can be drawn in favour of the respondents herein/complainants regarding consideration that the purpose for which

the cheques were issued is in discharge of existing liability, then the burden shifts to the petitioner herein/accused to rebut the presumption by letting

in evidence that in fact, the cheques were not drawn for consideration or that they were not given to the respective respondents

herein/complainants in discharge of the existing liabilities. I feel, at this stage when the trial is pending, the petitioner/accused cannot seek discharge

on this ground.

The next contention of the petitioner herein is that the cheques were issued by him in his capacity as chairman-cum-managing director of N. S.

P. Cashew By Products (P.) Ltd. and that there is one more director to the company and that non-inclusion of the company as an accused is fatal

to the prosecution. Section 141 of the Negotiable Instruments Act recites as under : ""141. Offences by companies.--(1) If the person committing

an offence u/s 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 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.

(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 attributable 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 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."" It would be useful to refer to certain decisions :

(i) In Sheoratan Agarwal and Another Vs. State of Madhya Pradesh, : while considering a case u/s 10 of the Essential Commodities Act, 1955,

which is identical to the provisions of Section 141 of the Negotiable Instruments Act, the apex court has held that persons or an officer of the

company can each be separately prosecuted under Sub-section (1) or (2) of Section 10 of the Essential Commodities Act, 1955, irrespective of

the company itself is prosecuted or not, if contravention of the order is by the company.

(ii) In U.P. Pollution Control Board v. Modi Distillery , the apex court had to consider similar points while dealing with Section 47 of the Water

(Prevention and Control of Pollution) Act (6 of 1974), which is identical to Section 141 of the Negotiable Instruments Act. The apex court held

that unless there was prosecution of the company there can be no prosecution of the managing director.

To be more specific, while considering identical provisions under two different acts, namely, the Essential Commodities Act, and Water

(Prevention and Control of Pollution) Act, two different views were expressed by the apex court.

(iii) The decision reported in U. P. Pollution Control Board v. Modi Distillery [1988] 63 Comp Cas 77 (SC) was followed by Padmini Jesudurai J.

in Krishan Bai Vs. Arti Press, wherein the learned judge held that unless the company was made an accused, the person in charge of and

responsible to the company for the conduct and business of the company cannot be made an accused. This view was followed by Pratap Singh J.

in the decision in S. Krishnamoorthy Vs. B.S. Kesavan, . That was a case where when a cheque was issued by a firm, the partner only was

prosecuted. Pratap Singh J. had held that inasmuch as the offence was committed by the firm, without the firm being arrayed as accused, the

petitioner (partner) alone cannot be arrayed as an accused and be proceeded with.

(iv) In A. Jafferullah Vs. T. Stanes and Co. Ltd., , Pratap Singh J. confirmed the earlier view expressed in S. Krishnamoorthy Vs. B.S. Kesavan, .

The learned judge held that of the two decisions rendered by the apex court, i.e., Sheoratan Agarwal and Another Vs. State of Madhya Pradesh, :

and U. P. Pollution Control Board''s case [1988] 63 Comp Cas 77 cited supra, the latter decision should be followed.

(v) In Suryanarayanan v. Anchor Marine Service [1995] 1 LW Crl. 132 when a similar question arose, Rengasamy J. has expressed the view that

the company shall also be prosecuted and the partner alone cannot be prosecuted.

(vi) But, the view expressed by the apex court in Sheoratan Agarwal and Another Vs. State of Madhya Pradesh, was followed in Alex Vs.

Vijayan, wherein the Kerala High Court held that proceedings can be instituted u/s 138 of the Negotiable Instruments Act against the directors

without impleading the company.

(vii) The same view was expressed by the same court in the decision in M.O.H. Iqbal Vs. M. Uthaman and Another, . It was held by that court

that when the offence is committed by a company either the company alone or the persons-in-charge of the business of the company alone or both

of them together can be prosecuted for the offences u/s 138 of the Negotiable Instruments Act.

(viii) In the decisions reported in N. Doraisamy and others Vs. Archana Enterprises, M. S. Janarthanam J. has followed the view expressed by the

apex court in Sheoratan Agarwal and Another Vs. State of Madhya Pradesh, and held that the managing director can be prosecuted even without

including the company as co-accused. M. S. Janarthanam J. has also pointed out that earlier decisions rendered by this court on this point had not

correctly laid down the law in the light of the decision rendered by the apex court reported in Sheoratan Agarwal and Another Vs. State of

Madhya Pradesh, .

(ix) In the latest decision reported in Anil Hada Vs. Indian Acrylic Limited, a question was posed by the apex court that when a company, which

committed offence u/s 138 of the Negotiable Instruments Act, eludes from being prosecuted thereof, can the directors of that company be

prosecuted for that offence. The apex court has pointed out that the offender u/s 138 of the Negotiable Instruments Act is the drawer of the

cheque but by virtue of the fiction envisaged in Section 141 of the Negotiable Instruments Act, three categories of the persons can be discerned

within the purview of penal liability. They are, (1) the company which committed the offence ; (2) everyone who was in charge of and responsible

for the business of the company ; (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. Their Lordships of the apex court have stated as under in paragraph

12 (page 40 of 99 Comp Cas) :

Thus when the drawer of the cheque who falls within the ambit of Section 138 of the Act is a human being or a body corporate or even a firm,

prosecution proceedings can be initiated against such drawer. In this context the phrase ''as well as'' used in Sub-section (1) of Section 141 of the

Act has some importance, The said phrase would embroil the persons mentioned in the first category within the tentacles of the offence on par with

the offending company. Similarly, the words ''shall also'' in Sub-section (2) are capable of bringing the third category persons additionally within the

dragnet of the offence on an equal par. The effect of reading Section 141 is that when the company is the drawer of the cheque such company is

the principal offender u/s 138 of the Act and the remaining persons are made offenders by virtue of the legal fiction created by the Legislature as

per the section. Hence the actual offence should have been committed by the company, and then alone the other two categories of persons can

also become liable for the offence.

Their Lordships have further stated in para. 13 as under (page 41 of 99 Comp Cas) ;

The provisions do not contain a condition that prosecution of the company is a 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 a 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.

Their Lordships have concluded thus (page 43 of 99 Comp Cas) :

We therefore, hold that even if the prosecution proceedings against the company were not taken or could not be continued, it is no bar for

proceeding against the other persons falling within the purview of sub-sections (1) and (2) of Section 141 of the Act.

Referring to the decision in U. P. Pollution Control Board''s case [1988] 63 Comp Cas 77 (SC) cited supra, their Lordships held that the

observations made in this regard in that decision are obiter under the law and the point was specifically discussed in Sheoratan Agarwal and

Another Vs. State of Madhya Pradesh, .

It would thus be clear that non-prosecution of the company does not vitiate the proceedings. The other contention of the petitioner is that the

respective respondents have instituted proceedings against him in his personal capacity and not as the managing director of the company and,

therefore, the trial is vitiated. I have very carefully gone through the complaints. Though in the body of the complaints, the respective respondents

herein/complainants have not specifically stated that the petitioner herein had issued the cheque in his individual capacity or in the capacity of the

managing director, but reference to the cause-title would clearly go to show that the petitioner herein is prosecuted only as the chairman-cum-

managing director of the company. The description of the petitioner herein/accused given in the complaint reads as under : O. N. Phadnish, S/o N.

S. Phadnish, Chairman-cum-managing director, NSP Cashew Bye Products (P,) Ltd., 59/5, Cuddalore Road, Panruti.

In those complaints, it is stated that the accused purchased the cashewnut shell liquid (oil) from the respective complainants on several dates.

Though the copies of the cheques are not enclosed in the typed set of papers, the very petition filed by the petitioner herein in Crl. M. P. Nos.

5098 of 1999 and 5109 of 1999 would go to show that he had issued the cheques representing the company. Therefore, the cheques would bear

the rubber stamp of the company. Further when the petitioner is the drawer of the cheques and in whatever capacity he had issued the cheques

either as the managing director or in his individual capacity, if the cheques bounced for any of the reasons, then his act would attract a liability u/s

138 of the Negotiable Instruments Act.

In Rajesh Bajaj Vs. State NCT of Delhi and Others, : the apex court has held that in a petition u/s 482 of the Criminal Procedure Code it is

not permissible to adopt a strictly hypertechnical approach and sieve the complaint through a colander of finest gauzes for testing the ingredients of

the offence alleged against the accused, as to whether the person in question was really in charge of the affairs of the company and was responsible

to the affairs of the company or not, and as to what functions he was assigned in the affairs of the company and whether those functions could be

considered sufficient to hold that he was in charge of the affairs of the company are matters which have to be gone into during the trial.

When the petitioner himself had admitted that he had issued the cheques as the managing director, then he is primarily liable and then he could

not state that he is being prosecuted in his individual capacity. The cause-title in both the complaints would indicate that he is being prosecuted as

the managing director of the company.

I do not find any merit in the contentions of the petitioner. Both the criminal revision cases are therefore dismissed with a direction to the trial

court to dispose of both the matters, expeditiously, if possible within three months.