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K. Pannir Selvam v. M.M.T.C Ltd., New Delhi And Another

Andhra Pradesh High Court
Sep 7, 1999
Smart Summary (Beta)

Structured Summary of the Opinion — Vaman Rao, J.

Factual and Procedural Background

This is a petition filed under Section 482 of the Criminal Procedure Code, 1973, by the sixth accused in C.C. No. 218 of 1997 before the VIth Metropolitan Magistrate for Railways, Visakhapatnam, seeking quashing of the criminal proceedings. The complainant is a Government of India wholly owned company. The complaint arises from transactions between the complainant and accused No. 1 company (Raghunath Cotton and Oil Products) as commission agent. Accused No. 1-company agreed to pay Rs. 135 lakhs and issued two cheques: one dated November 6, 1994 for Rs. 65,00,000 and another dated November 29, 1994 for Rs. 70,00,000, both drawn on the State Bank of India, Ongole branch and signed by the managing director (accused No. 2). The cheques were presented for collection and returned for insufficiency of funds. One cheque was re-presented and dishonoured with memo dated December 9, 1994 (reason "exceeds arrangement"). The complainant issued a lawyer's notice dated December 23, 1994 to accused Nos. 1 and 2 requesting payment within 15 days. Accused Nos. 1 and 2 received the notice but did not make payment; the complainant filed a complaint under Section 138 of the Negotiable Instruments Act for dishonour of a cheque of Rs. 65,00,000, with liberty to take civil and other criminal actions as warranted. The petitioner (accused No. 6) seeks quashing of proceedings.

Legal Issues Presented

  1. Whether the proceedings against the petitioner (accused No. 6) are vitiated for want of a separate notice to him under Section 138(b) of the Negotiable Instruments Act when the notice was sent only to the company (drawer) and its managing director (accused No. 2).
  2. Whether a commercial manager (the petitioner), who is not a director, can be held liable under Section 141 of the Negotiable Instruments Act as a person "in charge of, and ... responsible to, the company for the conduct of the business of the company."
  3. Whether the averments in the complaint are sufficiently specific to attract liability under Section 141 of the Negotiable Instruments Act and thereby justify proceeding against the petitioner, or whether the complaint should be quashed under Section 482 CrPC on the basis of defects in those averments.

Arguments of the Parties

Petitioner's Arguments

  • The petitioner (accused No. 6) contends that the notice required by Section 138 of the Negotiable Instruments Act was issued only to the company and its managing director (accused Nos. 1 and 2) and not separately to him; therefore, the requirement under Section 138 has not been complied with as regards the petitioner.
  • The petitioner asserts that he is only the commercial manager (not even a director) and that being assigned important commercial duties alone is insufficient to impose criminal liability under the Negotiable Instruments Act (the counsel specifically referenced Section 158 in argument, noting such duties do not automatically create criminal liability).

Respondent's Arguments

  • The respondent argues that notice to the drawer (the company) and its managing director satisfies the requirement under Section 138(b) of the Negotiable Instruments Act because the cheque was drawn on behalf of the company and signed by the managing director, and Section 138(b) mandates notice to the drawer of the cheque.
  • The respondent relies on Section 141 of the Negotiable Instruments Act to contend that where the offender 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" shall be deemed guilty; thus accused No. 6 can be proceeded against based on the complaint's averments that accused Nos. 2 to 7 were in charge of company affairs and that the commercial manager (petitioner) requested time with a promise to make funds available.
  • The respondent submits that the complaint contains specific averments (para. 4 and para. 6) that accused Nos. 2 to 7 were in charge of the affairs of the company and that the commercial manager played a role, providing a sufficient basis to proceed under Section 141.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Rajesh Bajaj v. State NCT of Delhi (Supreme Court) In a petition under Section 482 CrPC it is not permissible to adopt a strictly hyper-technical approach and "sieve the complaint through a colander of finest gauzes"; questions of fact about whether a person was in charge of a company's affairs and whether assigned functions were sufficient must be gone into at trial. The court relied on this authority to hold that a minute dissection of the complaint's language is not appropriate in a Section 482 petition and that issues about the petitioner's actual role and responsibility should be decided by the trial court during trial rather than by quashing proceedings at the threshold.
State of Haryana v. Bhajan Lal (Supreme Court) Criteria laid down by the Supreme Court for quashing criminal proceedings under Section 482 CrPC. The opinion states that "the criteria laid down by the Supreme Court in the case of State of Haryana v. Bhajan Lal be said to have been satisfied in this case." (The court then proceeds to dismiss the petition.)

Court's Reasoning and Analysis

The court's analysis proceeds from statutory interpretation of Sections 138 and 141 of the Negotiable Instruments Act and a textual review of the complaint's averments:

  1. Statutory requirement of notice: Section 138(b) requires that the payee or holder give a written notice to the drawer of the cheque within 15 days of receipt of information from the bank about dishonour. The court reasons that this provision mandates notice to the drawer of the cheque and not to every person who might be deemed liable under Section 141. In the present case, the cheque was drawn on behalf of the company and signed by its managing director; thus notice to the company and its managing director meets the requirement of Section 138(b) as to notice to the drawer.
  2. Liability of company officials: Section 141 provides that if the person committing the offence under Section 138 is a company, then every person who was in charge of, and responsible to, the company for the conduct of its business at the time of the offence shall be deemed guilty. The court explains that Section 141 creates liability for such persons, but there is no legal requirement that separate notice under Section 138 be served on those persons whose liability arises by virtue of Section 141.
  3. Complaint averments and their sufficiency: The complaint contains specific averments (para. 4 and para. 6) stating that accused Nos. 2 to 7 were in charge of the affairs of the company relating to the transaction and that the commercial manager (the petitioner) requested time with a promise to make funds available. The petitioner argued that para. 6's language refers the "in charge" allegation only to accused Nos. 3 to 5 (directors) and not to the commercial manager. The court held that in a Section 482 petition a detailed parsing of the complaint is inappropriate; where two interpretations are possible, the question should be left to the trial court to decide in light of further evidence. The court further observed that para. 4 does specifically mention accused Nos. 2 to 7 as being in charge of company affairs.
  4. Application of precedents: Relying on the Supreme Court's guidance in Rajesh Bajaj, the court declined to adopt a hyper-technical approach to the complaint and emphasized that factual questions about whether the petitioner was truly in charge and responsible must be determined at trial. The court also noted the Bhajan Lal criteria (for quashing), stating those criteria were "said to have been satisfied" in this case, and nonetheless proceeded to dismiss the petition (see Holding below).
  5. Conclusion on quashing: For these reasons—notice to the drawer/MD satisfying Section 138(b), Section 141 permitting prosecution of persons in charge without separate notice, and the sufficiency of complaint averments or at least the inappropriateness of resolving ambiguities on a Section 482 petition—the court found no ground to quash the proceedings against the petitioner.

Holding and Implications

FINAL DECISION: THE PETITION IS DISMISSED.

Implications and direct consequences:

  • The criminal proceedings in C.C. No. 218 of 1997 will continue against the petitioner (accused No. 6); the petition for quashing under Section 482 CrPC is refused.
  • The trial court is to determine in due course whether the petitioner was "in charge of, and ... responsible to, the company for the conduct of the business of the company" and whether the petitioner is liable under Section 141; the present order does not decide those factual issues and specifically states that the observations are not findings of fact.
  • The court expressly allowed the petitioner to apply to the trial court to dispense with his personal attendance, noting the petitioner has left the company and taken another job; such requests are left to the discretion of the trial court subject to representation requirements and the petitioner's presence on specific hearing dates if directed.
  • No broader legal change or new precedent is set by this opinion beyond the court's application of existing statutory provisions and reliance upon established Supreme Court authority (Rajesh Bajaj and Bhajan Lal). The decision addresses the specific application of Sections 138 and 141 to the facts before the court and leaves factual determinations to the trial court.
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JUDGMENT Vaman Rao, J.

1. This petition under Section 482 of the Criminal Procedure Code, 1973, has been filed by the sixth accused in C. C. No. 218 of 1997, on the file of the VIth Metropolitan Magistrate for Railways, Visa-khapatnam, for quashing the proceedings in the said case.

2. Respondent No. 1, a company wholly owned by the Government of India, is the complainant in this case. There were some transactions between the complainant and A-1 company (Raghunath Cotton and Oil Products) as commission agent. Certain amounts were found due from accused No. 1-company to the complainant and subject to final settlement the accused agreed to pay Rs. 135 lakhs and issued a cheque dated November 6, 1994, for Rs. 65,00,000 drawn on the State Bank of India, Ongole branch on the account of accused No. 1-company. Another cheque dated November 29, 1994, for Rs. 70 lakhs drawn on the same bank on the same account was also issued under the signature of the managing director of the company who is the second accused in that C. C. The complainant presented the cheques for collection in their bank, namely, the State Bank of India, Ongole, on November 22, 1994. The cheques were returned on the ground that sufficient funds are not available in the accounts concerned.

3. It is stated that these facts were brought to the notice of accused Nos. 2 to 7 who are in charge of the affairs of the company relating to the transactions under reference. The accused requested the complainant to represent the cheques with a promise that enough funds would be available in the account to honour the cheques. The complainant re-presented one of the cheques in State Bank of India, Overseas Branch, Visakhapatnam, on December 1, 1994. The said cheque was sent for collection by the said bank to the State Bank of India, Ongole branch on which the cheque was drawn. The said bank dishonoured the cheque and transmitted the same along with memo dated December 9, 1994, mentioning the reasons for dishonour as "exceeds arrangement". The complainant received this intimation on December 22, 1994. The complainant got issued a lawyer's notice dated December 23, 1994, setting out the above facts and required A-l and A-2 to make the payments within 15 days from the date of service of notice. Accused Nos. 1 and 2 received notice but did not choose to make any payments within the period of 15 days. On the other hand, the complainant received a contentious reply with false allegations. Hence, the complaint for the offence under Section 138 of the Negotiable Instruments Act was filed with liberty to take such a civil and other criminal actions as are warranted. Thus, it would be seen that the complaint is in respect of dishonour of cheque of Rs. 65,00,000.

4. Learned counsel for the petitioner, Sri Tamada Gopala Krishna seeks quashing of these proceedings on various grounds.

5. Firstly, it is contended that the petitioner herein is accused No. 6 in the complaint and admittedly notice as required under Section 138 of the Negotiable Instruments Act was issued to the company and its managing director, i.e., accused Nos. 1 and 2, respectively, and no notice was issued separately to the petitioner herein and as such requirement under Section 138 of the Negotiable Instruments Act has not been complied with.

6. Learned counsel for the respondent, Sri P. Srinivas Reddy, contends that the petitioner herein, accused No. 6 is being sought to be made liable for the offence under Section 138 of the Negotiable Instruments Act in view of the provisions in Section 141 of the Negotiable Instruments Act inasmuch as he as an officer of the company was in charge of and was responsible for the conduct of the business of the company. This contention on behalf of learned counsel for the petitioner is based on Section 138(b) of the Negotiable Instruments Act which reads as follows :

"(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 of giving a notice, in writing, to the drawer of the cheque, within 15 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid."

7. This provision mandates that a notice has to be given by the payee under a cheque which has been dishonoured to the drawer of the cheque. In this case, as the cheque has been drawn on behalf of the company under the signature of its managing director, A-2, the requirement under Section 138(b) of the Negotiable Instruments Act shall be deemed to have been complied with if notice is given to the company and represented by its managing director.

8. Section 141 of the Negotiable Instruments Act provides that if the person committing an offence under Section 138 of the Negotiable Instruments Act is a company, then not only the company will be liable but 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" shall be deemed to be guilty of the offence.

9. Reading together the provisions in sections 138 and 141 of the Negotiable Instruments Act, it would be clear that while Section 141 of the Negotiable Instruments Act creates the basis for liability against the employees of the company if the requirements under the said section are satisfied, there is no contemplation of notice to be issued in respect of such employees whose liability is based on Section 141 of the Negotiable Instruments Act. As observed above, the requirement of Section 138(b) of the Act is that notice should be sent to the drawer of the cheque and not to all the persons who can be deemed to be liable apart from the drawer of the cheque by virtue of the provision in Section 141 of the Act.

10. Thus, in this case, the contention that the prosecution of the petitioner, A-6, is bad for want of notice to him separately cannot be countenanced.

11. The next ground on which the proceedings are sought to be quashed is that admittedly the petitioner is only a commercial manager of accused No. 1-company and he is not even a director of the said company.

12. According to learned counsel, the commercial manager may be assigned some duties which may be considered very important and may take active part in the trading transactions of the company. But that itself will not be sufficient to mulct him with criminal liability under Section 158 of the Negotiable Instruments Act.

13. Learned counsel for the respondent on the other hand contends that the complaint has laid sufficient basis for rendering the petitioner liable for the offence attributable to the company in view of Section 141 of the Act. Section 141 of the Act contemplates that if a person committing an offence under Section 138 of the Act is a company then not only the said company is liable but every person who at the time offence was committed "was in charge of, and was responsible to, the conduct of the business of the company" shall be deemed to be guilty of the offence and can be proceeded against and punished accordingly.

14. In this case, in para. 4 of the complaint, there is a specific averment in this regard as follows :

"When the facts were brought to the notice of accused Nos. 2 to 7 who are in charge of the affairs of the accused company relating to the transaction under reference, they requested the complainant to represent ..."

Again, in para. 6 of the complaint, the following assertion is found :

"The second accused being the managing director and signatory of the cheque and the fifth accused (sixth accused ?) as commercial manager who requested time with a promise to make the funds available and accused Nos. 3 to 5 being the other directors in charge of the day-to-day affairs are responsible to see that the cheque is duly honoured when presented by the complainant."

15. Learned counsel for the petitioner points out that in the averment referred to above in para. 6, the statement as to being in charge of the day-to-day affairs is referable to only accused Nos. 3 to 5 who are the directors but not to accused No. 5 (accused No. 6 ?) who has been shown as the commercial manager.

16. It is debatable whether the reference in question is only to accused Nos. 3 to 5 and it also includes accused No. 5 (accused No. 6) shown as commercial manager. In a petition under Section 482 of the Criminal Proce-. dure Code for quashing the proceedings a minute dissection as to the meaning of a particular statement in the complaint cannot be undertaken and if two interpretations are possible, the criminal proceedings cannot be quashed on the basis of one such interpretation. The question as to which of the interpretations is more possible has to be left to the trial court to be decided in the light of other circumstances and facts brought on record during the trial. At any rate, in para. 4 of the complaint referred to above, there is a specific mention that accused Nos. 2 to 7 are in charge of the affairs of the accused-company.

17. Thus, there is no scope for arguments based on the contents of the complaint that the allegations do not satisfy the requirements of Section 141 of the Negotiable Instruments Act. When there is a specific assertion that a particular accused along with others was in charge of the affairs o.f the company, the mere fact that the exact words of Section 141 of the Act to the effect

"was in charge of, and was responsible to, the company for the conduct of the business of the company"
are not reproduced in the complaint does not justify the quashing of the proceedings. At any rate, in this case there is not only an assertion that the petitioner as a commercial manager was in charge of the affairs of the company, there is further elaboration in regard to his role in as much as it is stated that it was the petitioner who requested time for payment with, a promise to make the funds available.

18. As observed by the Supreme Court in the case of Rajesh Bajaj v. State NCT of Delhi, , in a petition under Section 482 of the Criminal Procedure Code, it is not permissible to adopt a strictly hyper-technical 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 for 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. The trial court will come to its own conclusion on this aspect and the observations in this order shall not be related as findings of fact.

19. In the result, the criteria laid down by the Supreme Court in the case of State of Haryana v. Bhajan Lal be said to have been satisfied in this case.

20. In the result, this petition is dismissed.

21. However, it is open to the petitioner to move the trial court for dispensing with his personal attendance inasmuch as it is now stated that he has left the company and has accepted a job in some other place and there is no reason for the trial court for not considering such a request subject to the requirement that he is represented by someone and subject to the requirement of his presence on the specific dates of hearing as directed by the trial court.