In the Supreme Court of India (2012) 5 SCC 661 Appellant Aneeta Hada Respondent Godfather Travels & Tours pvt. ltd. Date of Judgement 27th April, 2012 Bench Hon’ble Justice Dalveer Bhandari, Justice Sudhansu Jyoti Mukhopadhaya, Justice Dipak Misra
Because of the similarity between the controversy, the two appeals of 838 and 842 of 2008, the facts of which will be referred to first; were linked with two appeals of 1483 and 1484 of 2009, the facts of which will be referred to thereafter. 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 offenses punishable under the aforesaid provisions without the company being arrayed as an accused.
Aneeta Handa, the Appellant, was an authorized signatory of International Travels Limited, a company registered under the Companies Act, 1956, issued a cheque dated 17th January 2011 in favor of the respondent, M/s. Godfather Travels & Tours Private Limited. The cheque subsequently got dishonored as the result of which the respondent initiated a criminal proceeding by filing a complaint before the concerned Judicial Magistrate as per section 138 of the Negotiable Instruments Act, 1881. The Company of the accused was not displayed in the complaint. The Court’s decision was against the accused.
Facts of the other two appeals(1483 and 1484 of 2009):
The appellant is the director of the company who is prosecuted under section 292 of the IPC and Section 67 of the 2000 Act without impleading the company as an accused. The initiation of the prosecution was challenged under Section 482 of the Code of Criminal Procedure before the High Court and the High Court held that offenses 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.
After dissatisfaction from the judgment, the appellant approached the High Court under section 482 of CrPC for quashing the criminal proceeding. The High after taking into account the scope of sections 138 and 139 of the Negotiable Instruments Act, 1881, and various other factors,[i]stated that the decision would be against the accused and the concerned contention will not hold strong.
In criticism of the said order before the two-judge bench, the basis of the argument being that the company was not included as an accused and the legal fiction created under section 141 of the said Act won’t be attracted. It was submitted that after the creation of legal fiction against the Company as well as the person responsible for its acts, the conditions precedent to it after the application of the provisions are to be totally satisfied and one such condition would be the prosecution of the principal offender.
One of the judges of the two-Judge Bench, S.B. Sinha allowed the appeals while the other judge, V.S. Sirpurkar, was of the opinion that the appeals should be dismissed. This disagreement between the Judges led to the referral of the case to a three-Judge Bench which is consequently being heard in this case.
Laws and Statutory Provisions Concerned:
- Section 183, 139,141 of the Negotiable Instruments Act, 1881.
- Section 482 of the CrPC (Code of Criminal Procedure), 1973
- Section 67 and 85 of the Information Technology Act, 2000
- Section 292 of the Indian Penal Code (IPC), 1860
- Section 10 of the Essential Commodities Act,1955
- Whether a complaint under section 138 of the Negotiable Instruments Act, 1881 read with section 141, against the director and authorized signatory of a cheque without the joining of the company as an accused, maintainable?
- What is the scope of section 141 of the Negotiable Instruments Act, 1881; the extent of deeming legal fiction as per the section?
- Can a person in charge of the company be prosecuted without the company being made primarily liable under section 10 of the Essential Commodities Act, 1955?
- Whether the company, registered under the Companies Act applicable for criminal liability under the concerned provisions?
- Whether the criminal proceedings against the Director of the company under section 292 of IPC maintainable without including the company as the accused, keeping in mind sections 67 and 85 of the Information Technology Act, 2000?
Contentions from both sides:
From the Appellants side:
It was submitted that there has to be some finding related to the commission of the offense by the Company and such findings cannot be recorded until the company is before the court, especially when it is a separate legal entity recognized by law. The individual being held liable has a vicarious liability and as per the facts and the law until the company is charged as a primary forbearer of crime, the vicarious liability of the individual does not arise. The essence of vicarious liability is linked with the liability of the principal offender.
Strict Construction of the penal provision is a fundamental principle in criminal law and deeming fiction under section 141 of the Act, has to be applied in all aptness so that language of the provision doesn’t get away with concepts like ‘identification’ and ‘attribution’ thereby lifting the corporate veil putting the directors and officers responsible in a deemed concept within some guided parameters. The Company here, is the principal offender as per law and it’s not being included in the case which damages the case of the prosecution and if there is any unfavorable finding against it, that would hinder the company’s reputation, which is not permitted in law.
The decisions previously referred to in the proceeding, Sheoratan Agarwal and Another v. State of Madhya Pradesh,[ii] was submitted to be improperly distinguished with the State of Madras v. C.V. Parekh and Anr.,[iii] which ultimately led to the misconstruction of the ratio given by the two-judge bench.
The Decision in Anil Handa v. Indian Acrylic Paint,[iv] was also not considered in proper because it primarily contradicts with the ratio cited in C.V. Parekh’s case.[v] It was stated that “the payee can succeed in the case only if he succeeds in showing that the offense was actually committed by the company” but at another place, it was ruled that “the accused can show that the company has not committed the offense, though such company is not made an accused”.
From the Respondents side:
It was submitted that the interpretation of the concerned Section of Negotiable Instruments Act, 1881, and its Amendment Act 1988, by the appellants, would defeat its purpose, aims, and objectives of promoting efficiency in Banking. Its purpose is to discourage the dishonor of Commitments and to punish unscrupulous people. If the legislative intendment is appositely understood, the interpretation of the Act is to be made in favor of the paying-complainant.
It was stated that the appellant had a totally misconceived reliance placed in C.V. Parekh. The question before the trial court was acquittal or Conviction of the accused, while here it is the summons that has been issued by the previous bench. Also, the Purpose and aim of the Negotiable Instruments Act and 1955 Act is different where recent changes are taken account of. Further, Section 141 creates liability for the punishment of offenses under Section 138 and it is a deemed liability whereas the criminal liability created for an offense under Section 7 of the 1955 Act is not a deemed offense.
The Legislature has wisely mentioned the word Drawer in Section 138 of the Act and not the account holder and hence whosoever signs the cheques, will be liable for the offense and a signatory of a cheque, here the company, 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.
It was submitted that there is no provision in section 141 of the Act which says that a director cannot be separately prosecuted unless the company is primarily made liable and hence cannot escape liability, seeking quashing of the proceedings under Section 482 CrPC. The words “as well as the company” assumes significance 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.
The Judgement was ruled in favor of the appellants and in consonance with the decree of Judge S.B Sinha after which the appeals were allowed and the proceedings initiated under section 138 were quashed.
Section 141 uses the word person which refers to Company i.e a juristic person and can be held liable for criminal offenses. The statutory intendment of Section 141 is absolutely plain which states when a person, here company, commits offenses, certain people in charge of it as well as the company would be deemed liable for the offense under section 138 of the Act. The provision makes the company and people in charge liable by deeming fiction, which has its own signification.
The word ‘deemed’ used in Section 141 of the Act, crystallizes the corporate criminal liability and vicarious liability of a person who is in charge of the company. Referring to SMS Pharmaceuticals Ltd v. Neeta Bhalla.[vi] In the said case, it has been opined that the criminal liability on account of dishonor of cheque primarily falls on the drawee company and is extended to the officers of the company.
In the opinion of the court, the true application of section 141 would be by the application of the principle of lex non cogit ad impossibilia i.e if, for some legal snag, the company cannot be proceeded against without obtaining the sanction of the court of law or Authority. The trial against the other accused may proceed only if the requirements under section 138 and 141 of the Act are met. In such an event, a distinction must be made between the case where a company had not been made accused and the one where despite making it the accused it cannot be proceeded against because of the legal bar.
Laying emphasis on C.V Parekh’s case,[vii] it clearly lays down that the company should be held liable according to section 10 of the Essential Commodities Act,1955 and the liability of the company arises only when the contravention is by the company itself. In pursuance of the same principle the case of Sheoratan Agarwal,[viii] was overruled and Anil Handa[ix] was partly complied with.
Responding to the ‘as well as the company’ contention of the respondent, it was stated it is absolutely clear that once the company is liable, then only any of its members can be vicariously held liable.
With respect to the Appeals 1483 and 1484 of 2009, it was stated that keeping in mind 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 offense 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.
In view of our aforesaid analysis, an irresistible conclusion was arrived at, that for maintaining the prosecution under Section 141 of the Act, arraigning a company as an accused is 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. This was said on the basis of the ratio laid down above. It would be the failure of the duty on the part of the court if it had not been stated 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 and the same really does not render any aid or assistance to the case of the respondents and, therefore, it should be refrained from dealing with the said authorities[x]
“The views of the authors are personal“
[i] Criminal M.C No. 928 of 2006 decided on 12-1-2007.
[ii] Sheoratan Agarwal, and Another v. State of Madhya Pradesh, (1984) 4 SCC 352.
[iii] State of Madras v. C.V. Parekh and Anr., (1970) 3 SCC 491.
[iv] Anil Handa v. Indian Acrylic Paint, (2000) 1 SCC 1.
[v] Supra note 3.
[vi] SMS Pharmaceuticals Ltd v. Neeta Bhalla, (2005) 8 SCC 89.
[vii] Supra note 3.
[viii] Supra note 2.
[ix] Supra note 4.
[x]. Aneeta Hada v. Godfather Travels and Tours Pvt.Ltd. (2012) 5 SCC 661