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CHEQUE BOUNS CASE

whether an authorised signatory of a company would be liable for prosecution under Section 138 of the Negotiable Instruments Act, 1881 (for brevity ‘the Act’) without the company being arraigned as an accused. Be it noted, these two appeals were initially heard by a two-Judge Bench and there was difference of opinion between the two learned Judges in the interpretation of Sections 138 and 141 of the Act and, therefore, the matter has been placed before us. Keeping in view the anatomy of the aforesaid provision, our analysis pertaining to Section 141 of the Act would squarely apply to the 2000 enactment. Thus adjudged, the director could not have been held liable for the offence under Section 85 of the 2000 Act. Resultantly, the Criminal Appeal No. 1483 of 2009 is allowed and the proceeding against the appellant is quashed. As far as the company is concerned, it was not arraigned as an accused. Ergo, the proceeding as initiated in the existing incarnation is not maintainable either against the company or against the director. As a logical sequeter, the appeals are allowed and the proceedings initiated against Avnish Bajaj as well as the company in the present form are quashed. 49. Before we part with the case, we must record our uninhibited and unreserved appreciation for the able assistance rendered by the learned counsel for the parties and the learned amicus curiae. 50. In the ultimate analysis, all the appeals are allowed.

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The supreme court of india. Taken about 170 m ...

The supreme court of india. Taken about 170 m from the main building outside the perimeter wall (Photo credit: Wikipedia)

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IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 838 OF 2008
Aneeta Hada …..…..Appellant
Versus
M/s. Godfather Travels & Tours Pvt. Ltd. …Respondent
WITH
CRIMINAL APPEAL NO. 842 OF 2008
Anil Hada ………Appellant
Versus
M/s. Godfather Travels & Tours Pvt. Ltd. …Respondent
WITH
CRIMINAL APPEAL NO. 1483 OF 2009
Avnish Bajaj ………Appellant
Versus
State …Respondent
ANDPage 2
2
CRIMINAL APPEAL NO. 1484 OF 2009
Ebay India Pvt. Ltd. ………Appellant
Versus
State and Anr. …Respondent
J U D G M E N T
DIPAK MISRA, J.
In Criminal Appeal Nos. 838 of 2008 and 842 of 2008, the
common proposition of law that has emerged for consideration is
whether an authorised signatory of a company would be liable for
prosecution under Section 138 of the Negotiable Instruments Act,
1881 (for brevity 奏 he Act without the company being arraigned
as an accused. Be it noted, these two appeals were initially heard
by a two-Judge Bench and there was difference of opinion
between the two learned Judges in the interpretation of Sections
138 and 141 of the Act and, therefore, the matter has been
placed before us.
2. In Criminal Appeal Nos. 1483 of 2009 and 1484 of 2009, the
issue involved pertains to the interpretation of Section 85 of the Page 3
3
Information Technology Act, 2000 (for short 奏 he 2000 Act which
is pari materia with Section 141 of the Act. Be it noted, a director
of the appellant-Company was prosecuted under Section 292 of
the Indian Penal Code and Section 67 of the 2000 Act without
impleading the company as an accused. The initiation of
prosecution was challenged under Section 482 of the Code of
Criminal Procedure before the High Court and the High Court
held that offences are made out against the appellant-Company
along with the directors under Section 67 read with Section 85 of
the 2000 Act and, on the said base, declined to quash the
proceeding. The core issue that has emerged in these two appeals
is whether the company could have been made liable for
prosecution without being impleaded as an accused and whether
the directors could have been prosecuted for offences punishable
under the aforesaid provisions without the company being
arrayed as an accused. Regard being had to the similitude of the
controversy, these two appeals were linked with Criminal Appeal
Nos. 838 of 2008 and 842 of 2008.
3. We have already noted that there was difference of opinion
in respect of the interpretation of Sections 138 and 141 of the Act
and, therefore, we shall advert to the facts in Criminal Appeal No.Page 4
4
838 of 2008 and, thereafter, refer to the facts in Criminal Appeal
Nos. 1482 of 2009 and 1484 of 2009.
4. The appellant, Anita Hada, an authorised signatory of
International Travels Limited, a company registered under the
Companies Act, 1956, issued a cheque dated 17
th
January, 2011
for a sum of Rs.5,10,000/- in favour of the respondent, namely,
M/s. Godfather Travels & Tours Private Limited, which was
dishonoured as a consequence of which the said respondent
initiated criminal action by filing a complaint before the
concerned Judicial Magistrate under Section 138 of the Act. In
the complaint petition, the Company was not arrayed as an
accused. However, the Magistrate took cognizance of the offence
against the accused appellant.
5. Being aggrieved by the said order, she invoked the
jurisdiction of the High Court under Section 482 of the Code of
Criminal Procedure for quashing of the criminal proceeding and
the High Court, considering the scope of Sections 138 and 139 of
the Act and various other factors, opined that the ground urged
would be in the sphere of defence of the accused and would not
strengthen the edifice for quashing of the proceeding. While
assailing the said order before the two-Judge Bench, the Page 5
5
substratum of argument was that as the Company was not
arrayed as an accused, the legal fiction created by the legislature
in Section 141 of the Act would not get attracted. It was
canvassed that once a legal fiction is created by the statutory
provision against the Company as well as the person responsible
for the acts of the Company, the conditions precedent engrafted
under such deeming provisions are to be totally satisfied and one
such condition is impleadment of the principal offender. S.B.
Sinha, J. dissected the anatomy of Sections 138 and 141 of the
Act and referred to the decisions in Standard Chartered Bank
and others v. Directorate of Enforcement and others
1
;
Madhumilan Syntex Ltd. & others v. Union of India and
another
2
; S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and
Another
3
; Sabitha Ramamurthy and Another v. R.B.S.
Channabasavaradhya4
; S.V. Mazumdar and others v.
1
(2005) 4 SCC 530
2
AIR 2007 SC 1481 : (2007) 11 SCC 297
3
(2005) 8 SCC 89
4
(2006) 10 SCC 581Page 6
6
Gujarat State Fertilizer Co. Ltd. and Another
5
; Sarav
Investment & Financial Consultancy Private Limited and
another v. Lloyds Register of Shipping Indian Office Staff
Provident Fund and another
6
; K. Srikanth Singh v. North
East Securities Ltd. and Anr.
7
; Suryalakshmi Cotton Mills
Ltd. v. Rajvir Industries Ltd. and Ors.
8
; N. Rangachari v.
Bharat Sanchar Nigam Ltd.
9
; Everest Advertising (P) Ltd. v.
State, Govt. of NCT of Delhi and Ors.
10
; Saroj Kumar Poddar
v. State (NCT of Delhi) and Anr.
11
; N.K. Wahi v. Shekhar
5
(2005) 4 SCC 173
6
(2007) 14 SCC 753
7
(2007) 12 SCC 788
8
(2008)13 SCC 678
9
(2007) 5 SCC 108
10
(2007) 5 SCC 54
11Page 7
7
Singh and Ors.
12
; and took note of the two-Judge Bench decision
in Sheoratan Agarwal and Another v. State of Madhya
Pradesh13
wherein the decision of the three-Judge Bench in
State of Madras v. C.V. Parekh and Another
14
was
distinguished and expressed the view as follows: –
“28. With the greatest of respect to the learned judges, it is
difficult to agree therewith. The findings, if taken to its logical
corollary lead us to an anomalous position. The trial court, in a
given case although the company is not an accused, would have
to arrive at a finding that it is guilty. Company, although a
juristic person, is a separate entity. Directors may come and go.
The company remains. It has its own reputation and standing in
the market which is required to be maintained. Nobody, without
any authority of
law, can sentence it or find it guilty of commission of offence.
Before recording a finding that it is guilty of commission of a
serious offence, it may be heard. The Director who was in charge
of the company at one point of time may have no interest in the
company. He may not even defend the company. He need not
even continue to be its Director. He may have his own score to
settle in view of change in management of the company. In a
situation of that nature, the company would for all intent and
purport would stand convicted, although, it was not an accused
and, thus, had no opportunity to defend itself.
(2007) 3 SCC 693
12
(2007) 9 SCC 481
13
(1984) 4 SCC 352
14
(1970) 3 SCC 491Page 8
8
29. Any person accused of commission of an offence, whether
natural or juristic, has some rights. If it is to be found guilty of
commission of an offence on the basis whereof its Directors are
held liable, the procedures laid down in the Code of Criminal
Procedure must be followed. In determining such an issue all
relevant aspects of the matter must be kept in mind. The ground
realities cannot be lost sight of. Accused persons are being
convicted for commission of an offence under Section 138 of the
Act inter alia on drawing statutory presumptions.
Various provisions contained therein lean in favour of a
drawer of the cheque or the holder thereof and against the
accused. Sections 20, 118(c), 139 and 140 of the Act are some
such provisions. The Act is a penal statute. Unlike offences under
the general law it provides for reverse burden. The onus of proof
shifts to the accused if some foundational facts are established.
It is, therefore, in interpreting a statute of this nature
difficult to conceive that it would be
legally permissible to hold a company, the prime offender, liable
for commission of an offence although it does not get an
opportunity to defend itself. It is against all principles of fairness
and justice. It is opposed to the Rule of Law. No statute in view of
our Constitutional Scheme can be construed in such a manner so
as to refuse an opportunity of being heard to a person. It would
not only offend a common- sense, it may be held to be
unconstitutional. Such a construction, therefore, in my opinion
should be avoided.
In any event in a case of this nature, the construction which
may be available in invoking Essential Commodities Act,
Prevention of Food Adulteration Act, which affects the Society at
large may not have any application when only a private individual
is involved.Page 9
9
6. Thereafter, the learned Judge referred to Anil Hada v.
Indian Acrylic Ltd.
15
and R. Rajgopal v. S.S. Venkat
16
,
distinguished the decision in Anil Hada and opined that the
issue decided in the said case is to be understood in the factual
matrix obtaining therein as the Company could not have been
prosecuted, it being under liquidation. The observations to the
effect that the Company need not be prosecuted against was
regarded as obiter dicta and not the ratio decidendi. Sinha J.
clearly opined that the Bench was bound by the three-Judge
Bench decision in S.M.S. Pharmaceuticals Ltd.痴 case (supra)
and C.V. Parekh 痴 case (supra). After stating so, he observed as
under: –
的t is one thing to say that the complaint petition proceeded
against the accused persons on the premise that the company
had not committed the offence but the accused did, but it is
another thing to say that although the company was the principal
offender, it need not be made an accused at all.
I have no doubt whatsoever in our mind that prosecution of
the company is a sine qua non for prosecution of the other
persons who fall within the second and third categories of the
candidates, viz., everyone who was in-charge and was responsible
for the business of the company and any other person who was a
director or managing director or secretary or officer of the
15
(2000) 1 SCC 1
16
(2001) 10 SCC 91Page 10
10
company with whose connivance or due to whose neglect the
company had committed the offence.”
7. The learned Judge also took note of the maxim lex non cogit
ad impossibilia and expressed thus: –
典 rue interpretation, in my opinion, of the
said provision would be that a company has to be
made an accused but applying the principle “lex
non cogit ad impossibilia”, i.e., if for some legal
snag, the company cannot be proceeded against
without obtaining sanction of a court of law or
other authority, the trial as against the other
accused may be proceeded against if the
ingredients of Section 138 as also 141 are
otherwise fulfilled. In such an event, it would not
be a case where the company had not been made
an accused
but would be one where the company cannot be
proceeded against due to existence of a legal bar.
A distinction must be borne in mind between cases
where a company had not been made an accused
and the one where despite making it an accused, it
cannot be proceeded against because of a legal
bar.”
8. Being of the aforesaid view, he allowed the appeals.
9. V.S. Sirpurkar J., after narrating the facts and referring to
Section 141(2) of the Act, which deals with additional criminal
liability, opined that even if the liability against the appellant is
vicarious herein on account of the offence having alleged to have
been committed by M/s. International Travels, it would bePage 11
11
presumed that the appellant had also committed the offence and
non-arraying of M/s. International Travels as an accused would
be of no consequence. His Lordship further held that there is
nothing in Standard Chartered Bank and others (supra),
S.M.S. Pharmaceuticals Limited (supra), Sabitha
Ramamurthy and another (supra), S.V. Muzumdar and others
(supra), Sarav Investment and Financial Consultants Pvt.
Ltd. and another (supra) and K. Srikanth Singh (supra) to
suggest that unless the Company itself is made an accused, there
cannot be prosecution of the signatory of the cheque alone.
Thereafter, the learned Judge referred to the decision in Anil
Hada and expressed that in the said case, the decision of C.V.
Parekh (supra) and Sheoratan Agarwal (supra) had been
referred to and, therefore, it is a binding precedent and cannot be
viewed as an obiter dicta. Sirpurkar J. further proceeded to state
that the principle of lex non cogit ad impossibilia would not apply.
That apart, the learned Judge held that in the case at hand, it is
yet to be decided as to whether the flaw was that of the Company
or the appellant herself and it could not be made out as to
whether the cheque issued by the accused was issued on behalf
of the Company or to discharge her personal liability. Eventually,
his Lordship referred to the allegations in the complaint which arePage 12
12
to the effect that the two accused persons, namely, Anil Hada and
Aneeta Hada, used to purchase the air tickets for their clients and
they had purchased for the Company from time to time and
issued cheques. The accused No. 1 used to conduct the business
of the Company and she also used to purchase the tickets from
the complainant. On the aforesaid foundation the learned Judge
opined that the basic complaint is against the two accused
persons in their individual capacity and they might be
purchasing tickets for their travelling company. Being of this
view, he dismissed both the appeals.
10. We have heard Mr. Muneesh Malhotra, learned counsel for
the appellant in Criminal Appeal Nos. 838 and 842 of 2008, Dr.
Abhishek Manu Singhvi, learned senior counsel for the appellant
in Criminal Appeal No. 1483 of 2009 and for the respondent in
Criminal Appeal No. 1484 of 2009, Mr. Sidharth Luthra, learned
senior counsel for the appellant in Criminal Appeal No. 1484 of
2009, Mr. Rajesh Harnal, learned counsel for the respondents in
Criminal Appeal Nos. 838 of 2008 and 842 of 2008, Mr. P.P.
Malhotra, learned Additional Solicitor General for the respondent
in Criminal Appeal No. 1483 of 2009 and Mr. Arun Mohan,
learned Amicus Curiae.Page 13
13
11. The learned senior counsel appearing for the appellants, in
support of the proponement that the impleadment of the
company is a categorical imperative to maintain a prosecution
against the directors, various signatories and other categories of
officers, have canvassed as follows: –
(a) The language of Section 141 of the Act being absolutely plain
and clear, a finding has to be returned that the
company has committed the offence and such a finding cannot be
recorded unless the company is before the court, more so,
when it enjoys the status of a separate legal entity. That
apart, the liability of the individual as per the provision is
vicarious and such culpability arises, ipso facto and ipso
jure, from the fact that the individual occupies a decision
making position in the corporate entity. It is patent that
unless the company, the principal entity, is prosecuted as
an accused, the subsidiary entity, the individual, cannot be
held liable, for the language used in the provision makes the
company the principal offender.
(b) The essence of vicarious liability is inextricably intertwined
with the liability of the principal offender. If both are treatedPage 14
14
separately, it would amount to causing violence to the
language employed in the provision.
(c) It is a fundamental principle of criminal law that a penal
provision must receive strict construction. The deeming
fiction has to be applied in its complete sense to have the
full effect as the use of the language in the provision really
ostracizes or gets away with the concepts like 妬dentification
殿ttributionand lifting the corporate veil
and, in fact, puts the directors and the officers responsible in a
deemed concept compartment on certain guided parameters.
(d) The company, as per Section 141 of the Act, is the principal
offender and when it is in existence, its non-impleadment
will create an incurable dent in the prosecution and further,
if any punishment is inflicted or an unfavourable finding is
recorded, it would affect the reputation of the company
which is not countenanced in law.
(e) The decision in Sheoratan Agarwal and Another (supra)
has incorrectly distinguished the decision in C.V. Parekh
(supra) and has also misconstrued the ratio laid down
therein. That apart, in the said decision, a part of the
provision contained in Section 10(1) of the EssentialPage 15
15
Commodities Act, 1955 (for brevity 奏 he 1955 Act has been
altogether omitted as a consequence of which a patent
mistake has occurred.
(f) The decision in Anil Hada (supra) has not appreciated in
proper perspective the ratio decidendi in C.V. Parekh and
further there is an inherent contradiction in the judgment
inasmuch as at one point, it has been stated that 鍍 he payee can
succeed in the case only if he succeeds in showing that the
offence was actually committed by the companybut at
another place, it has been ruled that 鍍he accused can show
that the company has not committed the offence, though
such company is not made an accused
(g) The terms used 殿 s well as the companyin Section 141(1) of
the Act cannot mean that no offence need be committed by
the company to attract the vicarious liability of the officers
in-charge of the management of the company because the
first condition precedent is commission of the offence by a
person which is the company.
12. The learned counsel for the respondents, resisting the
submissions propounded by the learned counsel for the
appellants, have urged the following contentions: -Page 16
16
(i) If the interpretation placed by the appellant is accepted, the
scheme, aims, objects and the purpose of the legislature
would be defeated inasmuch as Chapter XVII of the Act as
introduced by the Negotiable Instruments Laws
(Amendment) Act, 1988 (66 of 1988)is to promote efficacy of
banking to ensure that in commercial or contractual transactions,
cheques are not dishonoured and the credibility in
transacting business through cheques is maintained. The
Chapter has been inserted with the object of promoting and
inculcating faith in the efficacy of the banking system and
its operations and giving credibility to negotiable
instruments in business transactions. The fundamental
purpose is to discourage people from not honouring their
commitments and punish unscrupulous persons who
purport to discharge their liability by issuing cheques
without really intending to do so. If the legislative
intendment is appositely understood and appreciated, the
interpretation of the various provisions of the Act is to be
made in favour of the paying-complainant. To bolster the
aforesaid submission, reliance has been placed on
Electronics Trade and Technology Development
Corporation Ltd., Secunderabad v. Indian TechnologistsPage 17
17
and Engineers (Electronics) (P) Ltd. and another
17
, C.C.
Alavi Haji v. Palapetty Mohammed
and Another
18
and Vinay Devanna Nayak v. Ryot Sewa
Sahakaro Bank Ltd.
19
(ii) The reliance placed by the appellants on the decision in C.V.
Parekh (supra) is absolutely misconceived. In the first case,
the Court was considering the question of acquittal or
conviction of the accused persons after considering the
entire evidence led by the parties before the trial court but in
the present case, the challenge has been at the threshold
where summons have been issued. That apart, the 1955
Act and the Act in question operate in different fields having
different legislative intents, objects and purposes and
further deal with offences of various nature. In the case at
hand, the new dimensions of economic growth development
and revolutionary changes and the frequent commercial
17
(1996) 2 SCC 739
18
(2007) 6 SCC 555
19
(2008) 2 SCC 305Page 18
18
transactions by use of cheques are to be taken note of.
Further, Section 141 creates liability for punishment of
offences under Section 138 and it is a deemed liability
whereas the criminal liability created for an offence under
Section 7 of the 1955 Act is not a deemed offence.
(iii) After the amendment of the Act, the unscrupulous drawers
had endeavoured hard to seek many an escape route to
avoid the criminal liability but this Court with appropriate
interpretative process has discouraged the innovative pleas
of such accused persons who had issued cheques as the
purpose is to eradicate mischief in the commercial world. To
buttress the aforesaid submission, heavy reliance has been
placed on D. Vinod Shivappa v. Nanda Belliappa20
, M/s.
Modi Cement Ltd. v. Shri Kuchil Kumar Nandi
21
,
Goaplast Pvt. Shri Ltd. v. Chico Ursula D 痴 ouza and
20
AIR 2006 SC 2179
21
AIR 1998 SC 1057Page 19
19
Anr.
22
, NEPC Micon Ltd and Ors. v. Magma Leasing
Ltd.
23
, Dalmia Cement (Bharat) Ltd. v. M/s. Galaxy
Traders and Agencies Ltd and Ors.
24
, I.C.D.C. Ltd. v.
Beena Shabeer and Anr.
25
and S.V. Majumdar and others
v. Gujarat Fertilizers Co. Ltd and Anr.
26
(iv) The company being a legal entity acts through its directors
or other authorized officers and it authorizes its directors or
other officers to sign and issue cheques and intimate the
bank to honour the cheques if signed by such persons. The
legislature in its wisdom has used the word 租 rawerin
Sections 7 and 138 of the Act but not 殿 n account holder A
notice issued to the Managing Director of the company who
22
AIR 2003 SC 2035
23
(1999) 4 SCC 253
24
AIR 2001 SC 676
25
2002 Crl.L.J. 3935 (SC)
26
AIR 2005 SC 2436Page 20
20
has signed the cheques is liable for the offence and a
signatory of a cheque is clearly responsible for the
incriminating act and, therefore, a complaint under Section
138 of the Act against the director or authorized signatory of
the cheque is maintainable. In this regard, reliance has
been placed upon M/s Bilakchand Gyanchand Co. v. A.
Chinnaswami
27
, Rajneesh Aggarwal v. Amit J. Bhalla28
,
SMS Pharmaceuticals Ltd. v. Neeta Bhalla (supra), Anil
Hada v. Indian Acrylic Ltd. (supra) and R. Rajgopal v.
S.S. Venkat
29
.
(v) There is no postulate under Section 141 of the Act that the
director or the signatory of the cheque cannot be separately
prosecuted unless the company is arrayed as an accused.
The company, as is well-known, acts through its directors or
authorised officers and they cannot seek an escape route by
27
JT 1999 (10) SC 236
28
JT 2001 (1) SC 325
29
AIR 2001 SC 2432Page 21
21
seeking quashment of the proceedings under Section 482 of the
Code of Criminal Procedure solely on the foundation that the
company has not been impleaded as an accused. The words
殿 s well as the companyassumes significance inasmuch as
the deemed liability includes both the company and the
officers in-charge and hence prosecution can exclusively be
maintained against the directors or officers in-charge
depending on the averments made in the complaint petition.
13. The gravamen of the controversy is whether any person who
has been mentioned in Sections 141(1) and 141(2) of the Act can
be prosecuted without the company being impleaded as an
accused. To appreciate the controversy, certain provisions need
to be referred to. Section 138 of the Act, which deals with the
ingredients of the offence for dishonour of the cheque and the
consequent non-payment of the amount due thereon, reads as
follows: –
“138. Dishonour of cheque for insufficiency,
etc, of funds in the account Where any cheque
drawn by a person on account maintained by him
with a banker for the payment of any amount of
money to another person from out of that account
for the discharge, in whole or in part, of any debt
or other liability, is returned
by the bank unpaid, either because of the
amount of money standing to the credit of that
account is insufficient to honour the cheque orPage 22
22
that it exceeds the amount arranged to be paid
from that account by an arrangement made with
the bank, such person shall be deemed to have
committed an offence and shall without prejudice
to any other provisions of this Act, be punished
with imprisonment for a term which may be
extended to two years, or with a fine which may
extend to twice the amount of the cheque, or with
both:
Provided that nothing contained in this
section shall apply unless
(a) the cheque has been presented to the bank
within a period of six months from the date
on which it is drawn or within the period of
its validity, whichever is earlier,
(b) the payee or the holder in due course of the
cheque, as the case may be, makes a
demand for the payment of the said amount
of money by giving a notice, in writing, to
the drawer of the cheque, within thirty days
of the receipt of information by him from the
bank regarding the return of the cheque as
unpaid, and
(c) the drawer of such cheque fails to make the
payment of said amount of money to the
payee or, as the case may be, to the holder
in due course of the cheque, within fifteen
days of the receipt of the said notice.”
14. The main part of the provision can be segregated into three
compartments, namely, (i) the cheque is drawn by a person, (ii)
the cheque drawn on an account maintained by him with the
banker for payment of any amount of money to another person
from out of that account for the discharge, in whole or in part, of
a debt or other liability, is returned unpaid, either because thePage 23
23
amount of money standing to the credit of that account is
insufficient to honour the cheque or it exceeds the amount
arranged to be paid from that account by an arrangement made
with the bank and (iii) such person shall be deemed to have
committed an offence and shall, without prejudice to any other
provision of the Act, be punished with imprisonment for a term
which may extend to two years or with fine which may extend to
twice the amount of the cheque or with both. The proviso to the
said section postulates under what circumstances the section
shall not apply. In the case at hand, we are not concerned with
the said aspect. It will not be out of place to state that the main
part of the provision deals with the basic ingredients and the
proviso deals with certain circumstances and lays certain
conditions where it will not be applicable. The emphasis has been
laid on the factum that the cheque has to be drawn by a person
on the account maintained by him and he must have issued the
cheque in discharge of any debt or other liability. Section 7 of the
Act defines 租rawerto mean the maker of a bill of
exchange or a cheque. An authorised signatory of a company
becomes a drawer as he has been authorised to do so in respect
of the account maintained by the company. Page 24
24
15. At this juncture, we may refer to Section 141 which deals
with offences by companies. As the spine of the controversy rests
on the said provision, it is reproduced below: –
“141. 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
punished accordingly;
Provided that nothing contained in this subsection 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 subsection (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.”Page 25
25
16. On a reading of the said provision, it is plain as day that if a
person who commits offence under Section 138 of the Act is a
company, the company as well as every person in charge of and
responsible to the company for the conduct of business of the
company at the time of commission of offence is deemed to be
guilty of the offence. The first proviso carves out under what
circumstances the criminal liability would not be fastened. Subsection (2) enlarges the criminal liability by incorporating the
concepts of connivance, negligence and consent that engulfs
many categories of officers. It is worth noting that in both the
provisions, there is a 租eemedconcept of criminal liability.
17. Section 139 of the Act creates a presumption in favour of the
holder. The said provision has to be read in conjunction with
Section 118(a) which occurs in Chapter XIII of the Act that deals
with special rules of evidence. Section 140 stipulates the defence
which may not be allowed in a prosecution under Section 138 of
the Act. Thus, there is a deemed fiction in relation to criminal
liability, presumption in favour of the holder, and denial of a
defence in respect of certain aspects.
18. Section 141 uses the term 叢 ersonand refers it to a
company. There is no trace of doubt that the company is aPage 26
26
juristic person. The concept of corporate criminal liability is
attracted to a corporation and company and it is so luminescent
from the language employed under Section 141 of the Act. It is
apposite to note that the present enactment is one where the
company itself and certain categories of officers in certain
circumstances are deemed to be guilty of the offence.
19. In Halsbury痴 Laws of England, Volume 11(1), in paragraph
35, it has been laid down that in general, a corporation is in the
same position in relation to criminal liability as a natural person
and may be convicted of common law and statutory offences
including those requiring mens rea.
20. In 19 Corpus Juris Secundum, in paragraph 1358, while
dealing with liability in respect of criminal prosecution, it has
been stated that a corporation shall be liable for criminal
prosecution for crimes punishable with fine; in certain
jurisdictions, a corporation cannot be convicted except as
specifically provided by statute.
21. In H.L. Bolton (Engineering) Co. Ltd. vs. T.J. Graham &
Sons Ltd.
30
Lord Denning, while dealing with the liability of a
30
(1956) 3 All E.R. 624Page 27
27
company, in his inimitable style, has expressed that a company
may in many ways be likened to a human body. It has a brain
and nerve centre which controls what it does. It also has hands
which hold the tools and act in accordance with directions from
the centre. Some of the people in the company are mere servants
and agents who are nothing more than hands to do the work and
cannot be said to represent the mind or will. Others are directors
and managers who represent the directing mind and will of the
company, and control what it does. The state of mind of these
managers is the state of mind of the company and is treated by
the law as such. In certain cases, where the law requires
personal fault as a condition of liability in tort, the fault of the
manager will be the personal fault of the company. The learned
Law Lord referred to Lord Haldane 痴 speech in Lennard 痴
Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd.
31
. Elaborating
further, he has observed that in criminal law, in cases where the
law requires a guilty mind as a condition of a criminal offence, the
guilty mind of the directors or the managers will render the
company itself guilty.
31
(1915) AC 705, 713-714; 31 T.L.R. 294Page 28
28
22. It may be appropriate at this stage to notice the observations
made by MacNaghten, J. in Director of Public Prosecutions v.
Kent and Sussex Contractors Ltd.
32
: (AC p. 156.)
鄭 body corporate is a 菟 ersonto whom,
amongst the various attributes it may have, there
should be imputed the attribute of a mind
capable of knowing and forming an intention
indeed it is much too late in the day to suggest
the contrary. It can only know or form an
intention through its human agents, but
circumstance may be such that the knowledge of
the agent must be imputed to the body corporate.
Counsel for the respondents says that, although a
body corporate may be capable of having an
intention, it is not capable of having a criminal
intention. In this particular case the intention
was the intention to deceive. If, as in this case,
the responsible agent of a body corporate puts
forward a document knowing it to be false and
intending that it should deceive. I apprehend,
according to the authorities that Viscount
Caldecote, L.C.J., has cited, his knowledge and
intention must be imputed to the body corporate.
23. In this regard, it is profitable to refer to the decision in
Iridium India Telecom Ltd. v. Motorola Inc and Ors.
33
wherein
it has been held that in all jurisdictions across the world governed
32
1994 KB 146 : (1994) 1 All ER 119 (DC)
33
(2011) 1 SCC 74Page 29
29
by the rule of law, companies and corporate houses can no longer
claim immunity from criminal prosecution on the ground that
they are not capable of possessing the necessary mens rea for
commission of criminal offences. It has been observed that the
legal position in England and United States has now been
crystallized to leave no manner of doubt that the corporation
would be liable for crimes of intent. In the said decision, the twoJudge Bench has observed thus:-
“The courts in England have emphatically
rejected the notion that a body corporate could
not commit a criminal offence which was an
outcome of an act of will needing a particular
state of mind. The aforesaid notion has been
rejected by adopting the doctrine of attribution
and imputation. In other words, the criminal
intent of the 殿 lter egoof the company/body
corporate i.e. the person or group of persons
that guide the business of the company, would
be imputed to the corporation.
24. In Standard Charted Bank (supra), the majority has laid
down the view that there is no dispute that a company is liable to
be prosecuted and punished for criminal offences. Although
there are earlier authorities to the fact that the corporation
cannot commit a crime, the generally accepted modern rule is
that a corporation may be subject to indictment and other
criminal process although the criminal act may be committed
through its agent. It has also been observed that there is noPage 30
30
immunity to the companies from prosecution merely because the
prosecution is in respect of offences for which the punishment is
mandatory imprisonment and fine.
25. We have referred to the aforesaid authorities to highlight
that the company can have criminal liability and further, if a
group of persons that guide the business of the companies have
the criminal intent, that would be imputed to the body corporate.
In this backdrop, Section 141 of the Act has to be understood.
The said provision clearly stipulates that when a person which is
a company commits an offence, then certain categories of persons
in charge as well as the company would be deemed to be liable for
the offences under Section 138. Thus, the statutory intendment
is absolutely plain.
26. As is perceptible, the provision makes the functionaries and
the companies to be liable and that is by deeming fiction. A
deeming fiction has its own signification.
27. In this context, we may refer with profit to the observations
made by Lord Justice James in Ex Parte Walton, In re,
Levy
34
, which is as follows:
34Page 31
31
“When a statute enacts that something shall
be deemed to have been done, which, in fact and
truth was not done, the Court is entitled and
bound to ascertain for what purposes and
between what persons the statutory fiction is to
be resorted to.”
28. Lord Asquith, in East end Dwellings Co. Ltd. v. Finsbury
Borough Council
35
, had expressed his opinion as follows:
“If you are bidden to treat an imaginary state of
affairs as real, you must surely, unless prohibited
from doing so, also imagine as real the
consequences and incidents, which, if the
putative state of affairs had in fact existed, must
inevitably have flowed from or accompanied it….
The statute says that you must imagine a certain
state of affairs; it does not say that having done
so, you must cause or permit your imagination to
boggle when it comes to the inevitable corollaries
of that state of affairs.”
29. In The Bengal Immunity Co. Ltd. v. State of Bihar and
others
36
, the majority in the Constitution Bench have opined that
legal fictions are created only for some definite purpose.
1881 (17) Ch D 746
35
1952 AC 109
36
AIR 1955 SC 661Page 32
32
30. In Hira H. Advani Etc. v. State of Maharashtra37
, while
dealing with a proceeding under the Customs Act, especially
sub-section (4) of Section 171-A wherein an enquiry by the
custom authority is referred to, and the language employed
therein, namely, “to be deemed to be a judicial proceeding
within the meaning of Sections 193 and 228 of the Indian Penal
Code”, it has been opined as follows:
“It was argued that the Legislature might well
have used the word “deemed” in Sub-section (4) of
Section171 not in the first of the above senses
but in the second, if not the third. In our view the
meaning to be attached to the word “deemed”
must depend upon the context in which it is
used.”
31. In State of Tamil Nadu v. Arooran Sugars Ltd.
38
, the
Constitution Bench, while dealing with the deeming provision in a
statute, ruled that the role of a provision in a statute creating
legal fiction is well settled. Reference was made to The Chief
Inspector of Mines and another v. Lala Karam Chand
37
AIR 1971 SC 44
38
AIR 1997 SC 1815Page 33
33
Thapar Etc.
39
, J.K. Cotton Spinning and Weaving Mills Ltd.
and anr. v. Union of India and others
40
, M. Venugopal v.
Divisional Manager, Life Insurance Corporation of India41
and Harish Tandon v. Addl. District Magistrate,
Allahabad42
and eventually, it was held that when a statute
creates a legal fiction saying that something shall be deemed to
have been done which in fact and truth has not been done, the
Court has to examine and ascertain as to for what purpose and
between which persons such a statutory fiction is to be resorted
to and thereafter, the courts have to give full effect to such a
statutory fiction and it has to be carried to its logical conclusion.
32. From the aforesaid pronouncements, the principle that can
be culled out is that it is the bounden duty of the court to
39
AIR 1961 SC 838
40
AIR 1988 SC 191
41
(1994) 2 SCC 323
42
(1995) 1 SCC 537Page 34
34
ascertain for what purpose the legal fiction has been created. It is
also the duty of the court to imagine the fiction with all real
consequences and instances unless prohibited from doing so.
That apart, the use of the term ‘deemed’ has to be read in its
context and further the fullest logical purpose and import are to
be understood. It is because in modern legislation, the term
‘deemed’ has been used for manifold purposes. The object of the
legislature has to be kept in mind.
33. The word 租 eemedused in Section 141 of the Act applies to
the company and the persons responsible for the acts of the
company. It crystallizes the corporate criminal liability and
vicarious liability of a person who is in charge of the company.
What averments should be required to make a person vicariously
liable has been dealt with in SMS Pharmaceuticals Ltd. (supra).
In the said case, it has been opined that the criminal liability on
account of dishonour of cheque primarily falls on the drawee
company and is extended to the officers of the company and as
there is a specific provision extending the liability to the officers,
the conditions incorporated in Section 141 are to be satisfied. It
has been ruled as follow:- Page 35
35
“It primarily falls on the drawer company and is
extended to officers of the company. The normal
rule in the cases involving criminal liability is
against vicarious liability, that is, no one is to be
held criminally liable for an act of another. This
normal rule is, however, subject to exception on
account of specific provision being made in the
statutes extending liability to others. Section 141
of the Act is an instance of specific provision
which in case an offence under Section 138 is
committed by a company, extends criminal
liability for dishonor of a cheque to officers of the
company. Section 141 contains conditions which
have to be satisfied before the liability can be
extended to officers of a company. Since the
provision creates criminal liability, the conditions
have to be strictly complied with. The conditions
are intended to ensure that a person who is
sought to be made vicariously liable for an offence
of which the principal accused is the company,
had a role to play in relation to the incriminating
act and further that such a person should know
what is attributed to him to make him liable.
After so stating, it has been further held that while analyzing
Section 141 of the Act, it will be seen that it operates in cases
where an offence under Section 138 is committed by a company.
In paragraph 19 of the judgment, it has been clearly held as
follows: –
“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.”Page 36
36
34. Presently, we shall deal with the ratio laid down in the case
of C.V. Parekh (supra). In the said case, a three-Judge Bench
was interpreting Section 10 of the 1955 Act. The respondents,
C.V. Parekh and another, were active participants in the
management of the company. The trial court had convicted them
on the ground the goods were disposed of at a price higher than
the control price by Vallabhadas Thacker with the aid of Kamdar
and the same could not have taken place without the knowledge
of the partners of the firm. The High Court set aside the order of
conviction on the ground that there was no material on the basis
of which a finding could be recorded that the respondents knew
about the disposal by Kamdar and Vallabhadas Thacker. A
contention was raised before this Court on behalf of the State of
Madras that the conviction could be made on the basis of Section
10 of the 1955 Act. The three-Judge Bench repelled the
contention by stating thus: –
鏑 earned counsel for the appellant,
however, sought conviction of the two
respondents on the basis of Section 10 of the
Essential Commodities Act under which, if the
person contravening an order made under
Section 3 (which covers an order under the
Iron and Steel Control Order, 1956), is a
company, every person who, at the time the
contravention was committed, was in charge
of, and was responsible to, the company for the
conduct of the business of the company as wellPage 37
37
as the company, shall be deemed to be guilty of
the contravention and shall be liable to be
proceeded against and punished accordingly.
It was urged that the two respondents were in
charge of, and were responsible to, the
Company for the conduct of the business of the
Company and, consequently, they must be
held responsible for the sale and for thus
contravening the provisions of clause (5) of the
Iron and Steel Control Order. This argument
cannot be accepted, because it ignores the first
condition
for the applicability of Section 10 to the effect
that the person contravening the order must
be a company itself. In the present case, there
is no finding either by the Magistrate or by the
High Court that the sale in contravention of
clause (5) of the Iron and Steel Control Order
was made by the Company. In fact, the
Company was not charged with the offence at
all. The liability of the persons in charge of the
Company only arises when the contravention is
by the Company itself. Since, in this case,
there is no evidence and no finding that the
Company contravened clause (5) of the Iron
and Steel Control Order, the two respondents
could not be held responsible. The actual
contravention was by Kamdar and Vallabhadas
Thacker and any contravention by them would
not fasten responsibility on the respondents.”
(emphasis supplied)
The aforesaid paragraph clearly lays down that the first
condition is that the company should be held to be liable; a
charge has to be framed; a finding has to be recorded, and the
liability of the persons in charge of the company only arises when
the contravention is by the company itself. The said decision hasPage 38
38
been distinguished in the case of Sheoratan Agarwal and
another (supra). The two-Judge Bench in the said case referred
to Section 10 of the 1955 Act and opined that the company alone
may be prosecuted or the person in charge only may be
prosecuted since there is no statutory compulsion that the
person in charge or an officer of the company may not be
prosecuted unless he be ranged alongside the company itself.
The two-Judge Bench further laid down that Section 10 of the
1955 Act indicates the persons who may be prosecuted where the
contravention is made by the company but it does not lay down
any condition that the person in-charge or an officer of the
company may not be separately prosecuted if the company itself
is not prosecuted. The two-Judge Bench referred to the
paragraph from C.V. Parekh (supra), which we have reproduced
hereinabove, and emphasised on certain sentences therein and
came to hold as follows: –
“The sentences underscored by us clearly show
that what was sought to be emphasised was that
there should be a finding that the contravention
was by the company before the accused could be
convicted and not that the company itself should
have been prosecuted along with the accused.
We are therefore clearly of the view that the
prosecutions are maintainable and that there isPage 39
39
nothing in Section 10 of the Essential
Commodities Act which bars such prosecutions.”
For the sake of completeness, we think it apposite to refer to
the sentences which have been underscored by the two-Judge
Bench:-
“because it ignores the first condition for the
applicability of Section 10 to the effect that the
person contravening the order must be a company
itself. In the present case, there is no finding either
by the Magistrate or by the High Court that the sale
in contravention of clause (5) of the Iron and Steel
Control Order was made by the Company and
there is no evidence and no finding that the
Company contravened clause (5) of the Iron and
Steel Control Order, the two respondents could not
be held responsible.”
35. With greatest respect to the learned Judges in Sheoratan
Agarwal (supra), the authoritative pronouncement in C.V.
Parekh (supra) has not been appositely appreciated. The
decision has been distinguished despite the clear dictum that the
first condition for the applicability of Section 10 of the 1955 Act is
that there has to be a contravention by the company itself. In our
humblest view, the said analysis of the verdict is not correct.
Quite apart, the decision in C.V. Parekh (supra) was under
Section 10(a) of the 1955 Act and rendered by a three-Judge
Bench and if such a view was going to be expressed, it wouldPage 40
40
have been appropriate to refer the matter to a larger Bench.
However, the two-Judge Bench chose it appropriate to distinguish
the same on the rationale which we have reproduced hereinabove.
We repeat with the deepest respect that we are unable to agree
with the aforesaid view.
36. In the case of Anil Hada (supra), the two-Judge Bench
posed the question: when a company, which committed the
offence under Section 138 of the Act eludes from being
prosecuted thereof, can the directors of that company be
prosecuted for that offence. The Bench referred to Section 141 of
the Act and expressed the view as follows: –
“12. 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 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 a
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 under
Section 138 of the Act and the remaining persons
are made offenders by virtue of the legal fictionPage 41
41
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.
13. 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.”
On a reading of both the paragraphs, it is evincible that the
two-Judge Bench expressed the view that 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 and, thereafter, proceeded to state that if the company is
not prosecuted due to legal snag or otherwise, the prosecutedPage 42
42
person cannot, on that score alone, escape from the penal liability
created through the legal fiction and this is envisaged in
Section 141 of the Act. If both the paragraphs are appreciated in
a studied manner, it can safely be stated that the conclusions
have been arrived at regard being had to the obtaining factual
matrix therein. However, it is noticeable that the Bench
thereafter referred to the dictum in Sheoratan Agarwal (supra)
and eventually held as follows: –
“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.”
37. We have already opined that the decision in Sheoratan
Agarwal (supra) runs counter to the ratio laid down in the case
of C.V. Parekh (supra) which is by a larger Bench and hence, is a
binding precedent. On the aforesaid ratiocination, the decision in
Anil Hada (supra) has to be treated as not laying down the
correct law as far as it states that the director or any other officer
can be prosecuted without impleadment of the company.
Needless to emphasize, the matter would stand on a different Page 43
43
footing where there is some legal impediment and the doctrine of
lex non cogit ad impossibilia gets attracted.
38. At this juncture, we may usefully refer to the decision in
U.P. Pollution Control Board v. M/s. Modi Distillery and
others
43
. In the said case, the company was not arraigned as an
accused and, on that score, the High Court quashed the
proceeding against the others. A two-Judge Bench of this Court
observed as follows: –
“Although as a pure proposition of law in the
abstract the learned single Judge 痴 view that
there can be no vicarious liability of the
Chairman, Vice-Chairman, Managing Director
and members of the Board of Directors under
sub-s.(1) or (2) of S.47 of the Act unless there was
a prosecution against Messers Modi Industries
Limited, the Company owning the industrial unit,
can be termed as correct, the objection raised by
the petitioners before the High Court ought to
have been viewed not in isolation but in the
conspectus of facts and events and not in
vacuum. We have already pointed out that the
technical flaw in the complaint is attributable to
the failure of the industrial unit to furnish the
requisite information called for by the Board.
Furthermore, the legal infirmity is of such a
nature which could be easily cured. Another
circumstance which brings out the narrow
perspective of the learned single Judge is his
failure to appreciate the fact that the averment in
paragraph 2 has to be construed in the light of
43
AIR 1988 SC 1128Page 44
44
the averments contained in paragraphs 17, 18
and 19 which are to the effect that the Chairman,
Vice-Chairman, Managing Director and members
of the Board of Directors were also liable for the
alleged offence committed by the Company.”
Be it noted, the two-Judge Bench has correctly stated that
there can be no vicarious liability unless there is a prosecution
against the company owning the industrial unit but, regard being
had to the factual matrix, namely, the technical fault on the part
of the company to furnish the requisite information called for by
the Board, directed for making a formal amendment by the
applicant and substitute the name of the owning industrial unit.
It is worth noting that in the said case, M/s. Modi distilleries was
arrayed as a party instead of M/s Modi Industries Limited. Thus,
it was a defective complaint which was curable but, a pregnant
one, the law laid down as regards the primary liability of the
company without which no vicarious liability can be imposed has
been appositely stated.
39. It is to be borne in mind that Section 141 of the 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. As has been stated by us earlier, the vicarious
liability gets attracted when the condition precedent laid down inPage 45
45
Section 141 of the Act stands satisfied. There can be no dispute
that as the liability is penal in nature, a strict construction of the
provision would be necessitous and, in a way, the warrant.
40. In this context, we may usefully refer to Section 263 of
Francis Bennion 痴 Statutory Interpretation where it is stated as
follows: –
鄭 principle of statutory interpretation
embodies the policy of the law, which is in turn
based on public policy. The court presumes,
unless the contrary intention appears, that the
legislator intended to conform to this legal policy. A
principle of statutory interpretation can therefore
be described as a principle of legal policy
formulated as a guide to legislative intention.
41. It will be seemly to quote a passage from Maxwell 痴 The
Interpretation of Statutes (12
th
Edition) : –
典 he strict construction of penal statutes
seems to manifest itself in four ways: in the
requirement of express language for the creation
of an offence; in interpreting strictly words setting
out the elements of an offence; in requiring the
fulfilment to the letter of statutory conditions
precedent to the infliction of punishment; and in
insisting on the strict observance of technical
provisions concerning criminal procedure and
jurisdiction.”
42. We have referred to the aforesaid passages only to highlight
that there has to be strict observance of the provisions regard
being had to the legislative intendment because it deals with
penal provisions and a penalty is not to be imposed affecting thePage 46
46
rights of persons whether juristic entities or individuals, unless
they are arrayed as accused. It is to be kept in mind that the
power of punishment is vested in the legislature and that is
absolute in Section 141 of the Act which clearly speaks of
commission of offence by the company. The learned counsel for
the respondents have vehemently urged that the use of the term
殿 s well asin the Section is of immense significance and, in its
tentacle, it brings in the company as well as the director and/or
other officers who are responsible for the acts of the company
and, therefore, a prosecution against the directors or other
officers is tenable even if the company is not arraigned as an
accused. The words 殿 s well ashave to be understood in the
context. In Reserve Bank of India v. Peerless General
Finance and Investment Co. Ltd. and others
44
it has been laid
down that the entire statute must be first read as a whole,
then section by section, clause by clause, phrase by phrase and
word by word. The same principle has been reiterated in
Deewan Singh and others v. Rajendra Prasad Ardevi and
44
(1987) 1 SCC 424Page 47
47
others
45
and Sarabjit Rick Singh v. Union of India46
. Applying
the doctrine of strict construction, we are of the considered
opinion that commission of offence by the company is an express
condition precedent to attract the vicarious liability of others.
Thus, the words 殿 s well as the companyappearing in the Section
make it absolutely unmistakably clear that when the company
can be prosecuted, then only the persons mentioned in the other
categories could be vicariously liable for the offence subject to the
averments in the petition and proof thereof. One cannot be
oblivious of the fact that the company is a juristic person and it
has its own respectability. If a finding is recorded against it, it
would create a concavity in its reputation. There can be
situations when the corporate reputation is affected when a
director is indicted.
43. In view of our aforesaid analysis, we arrive at the irresistible
conclusion that for maintaining the prosecution under Section
141 of the Act, arraigning of a company as an accused is
45
(2007) 10 SCC 528
46
(2008) 2 SCC 417Page 48
48
imperative. The other categories of offenders can only be brought
in the dragnet on the touchstone of vicarious liability as the same
has been stipulated in the provision itself. We say so on the basis
of the ratio laid down in C.V. Parekh (supra) which is a threeJudge Bench decision. Thus, the view expressed in Sheoratan
Agarwal (supra) does not correctly lay down the law and,
accordingly, is hereby overruled. The decision in Anil Hada
(supra) is overruled with the qualifier as stated in paragraph 37.
The decision in Modi Distilleries (supra) has to be treated to be
restricted to its own facts as has been explained by us
hereinabove.
44. We will be failing in our duty if we do not state that all the
decisions cited by the learned counsel for the respondents relate
to service of notice, instructions for stopping of payment and
certain other areas covered under Section 138 of the Act. The
same really do not render any aid or assistance to the case of the
respondents and, therefore, we refrain ourselves from dealing
with the said authorities.
45. Resultantly, the Criminal Appeal Nos. 838 of 2008 and 842
of 2008 are allowed and the proceedings initiated under Section
138 of the Act are quashed.Page 49
49
46. Presently, we shall advert to the other two appeals, i.e.,
Criminal Appeal Nos. 1483 of 2009 and 1484 of 2009 wherein the
offence is under Section 67 read with Section 85 of the 2000 Act.
In Criminal Appeal No. 1483 of 2009, the director of the company
is the appellant and in Criminal Appeal No. 1484 of 2009, the
company. Both of them have called in question the legal
substantiality of the same order passed by the High Court. In the
said case, the High Court followed the decision in Sheoratan
Agarwal (supra) and, while dealing with the application under
Section 482 of the Code of Criminal Procedure at the instance of
Avnish Bajaj, the Managing Director of the company, quashed the
charges under Sections 292 and 294 of the Indian Penal Code
and directed the offences under Section 67 read with Section 85
of the 2000 Act to continue. It is apt to note that the learned
single Judge has observed that a prima facie case for the offence
under Sections 292(2)(a) and 292(2)(b) of the Indian Penal Code is
also made out against the company.
47. Section 85 of the 2000 Act is as under: –
“85. Offences by companies – (1) Where a person
committing a contravention of any of the
provisions of this Act or of any rule, direction orPage 50
50
order made thereunder is a company, every
person who, at the time the contravention was
committed, was in charge of, and was responsible
to, the company for the conduct of business of
the company as well as the company, shall be
guilty of the contravention and shall be liable to
be proceeded against and punished accordingly:
Provided that nothing contained in this subsection shall render any such person liable to
punishment if he proves that the contravention
took place without his knowledge or that he
exercised all due diligence to prevent such
contravention.
(2) Notwithstanding anything contained in subsection (1), where a contravention of any of the
provisions of this Act or of any rule, direction or
order made thereunder has been committed by a
company and it is proved that the contravention
has taken place 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 the contravention and shall be liable
to be proceeded against and punished
accordingly.”
48. Keeping in view the anatomy of the aforesaid provision, our
analysis pertaining to Section 141 of the Act would squarely
apply to the 2000 enactment. Thus adjudged, the director could
not have been held liable for the offence under Section 85 of the
2000 Act. Resultantly, the Criminal Appeal No. 1483 of 2009 is
allowed and the proceeding against the appellant is quashed. As
far as the company is concerned, it was not arraigned as an
accused. Ergo, the proceeding as initiated in the existing Page 51
51
incarnation is not maintainable either against the company or
against the director. As a logical sequeter, the appeals are
allowed and the proceedings initiated against Avnish Bajaj as well
as the company in the present form are quashed.
49. Before we part with the case, we must record our
uninhibited and unreserved appreciation for the able assistance
rendered by the learned counsel for the parties and the learned
amicus curiae.
50. In the ultimate analysis, all the appeals are allowed.
………………………………………………J.
[Dalveer Bhandari]
……………..……J.
[Sudhansu Jyoti Mukhopadhaya]
………………………………………………J.
[Dipak Misra]
New Delhi;
April 27, 2012

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