1. This revision case is filed by the complainant in C.C. No. 904 of 2001 on the file of the IV Metropolitan Magistrate, Hyderabad filed under Section 138 of the Negotiable Instruments Act.
2. The respondent-accused is a company represented by its Director Sri Rahul Kejriwal. The revision petitioner-complainant is the proprietary concern and is a dealer in all kinds of paper products. In the year 2000 the respondent approached the revision petitioner for supply of waste paper. The complainant supplied waste paper on different dates under different invoices. The accused-company issued cheques for Rs. 20,00,000/- in September, 2000 towards consideration for the material supplied by the petitioner. The complainant deposited all the cheques with South India Bank Limited, Hyderabad and later he received an intimation from the bank that all the cheques issued by the accused-company in favour of the complainant were returned as dishonoured for insufficient funds. After receipt of the intimation, the complainant requested the company to pay the amounts covered by the cheques, but the company failed to pay the said amount. On 27-2-2001 the petitioner issued a legal notice under Section 138 of the Negotiable Instruments Act (for short 'the Act') calling for the accused-company to pay the amounts covered by the cheques within 15 days from the date of receipt of the legal notice. The company Instead of arranging payment issued a reply notice raising some contentions. Since the accused-company failed to make payment of the amount covered by the cheques, the complainant prosecuted the company by contending that the accused-company deliberately failed to pay the amounts. The learned Magistrate took cognizance of the offence and issued summons to the company. During the pendency of the said ease, the accused-company filed Criminal Misc. Petition No. "3598 of 2003 under Sections 239 and 245, Cr. P.C. for discharge and acquittal for the offence under Section 138 read with Section 141 of the Act. In the said application Sri Rahul Kejriwal. Director of the company pleaded that as the complainant did not mention anywhere in the complaint that Sri Rahul Kejriwal was personally responsible for the day-to-day business of the accused firms, he is not liable to be prosecuted. The learned Magistrate after hearing both parties dismissed the application on 8-9-2003 observing as follows :
With regard to the personal liability of the petitioner, Sri Rahul Kejriwal is not made an accused independently, but he is shown as Director representing the acused-company. ... The petition is devoid of merits.
In the result, the petition is dismissed.
3. The accused-company being aggrieved by the order of the learned Magistrate preferred Criminal Revision Petition No. 222 of 2003 on the file of the IV Additional Metropolitan Sessions Judge, Hyderabad. The respondent-company contended before the Sessions Court that the learned Magistrate erred in holding that a complaint can be lodged against the company through its Director without there being any specific allegation that the said Director was incharge of and was responsible to the company in the conduct of the business at the relevant point of time and that the offence was committed with his consent or connivance and the non-pleading of the Directors in their personal capacity is contrary to Section 141 of the Act, as such, the Director cannot be made to undergo the trial in the absence of any allegation or averment in the complaint that he was incharge of the affairs of the company. Therefore, the complaint has to be dismissed by setting aside the order of the learned Magistrate dated 8-9-2003. The learned Sessions Judge after hearing both parties and after referring to certain case law held as follows :
In the light of the clear legal position, the finding of the Magistrate that a company alone can be prosecuted under Section 138 of the Act is illegal and is liable to be set aside.
4. The learned Sessions Judge made the following further observations :
13... Evidently, the complaint is filed against the company represented by its Director Rahul Kejriwal. The said Director in his individual capacity is not impleaded as an accused. Therefore, whatever allegations are made with reference to the accused, it is understood that they are directed against the company, but not any individual. Nowhere in the complaint it is clarified that Rahul Kejriwal has issued cheques and that he was incharge of and responsible for day-to-day conduct of the business. It is also not explained how the commission of offence is attributable to the negligence of the revision petitioner in his individual capacity. ... Taking into consideration of the legal position 1 hold that taking cognizance of the offence itself is illegal and erroneous since the provisions under Section 141 of the Act are riot complied with by the complainant. The other grounds of appeal are not seriously pressed during the course of arguments.
5. The learned Sessions Judge while making the above observations allowed the revision petition by setting aside the order passed by the learned Magistrate. The learned Sessions Judge further ordered that the revision petitioner shall be discharged as prayed for.
6. The complainant being aggrieved by the order of the learned Sessions Judge dated 19-1 -2003 preferred this revision case challenging its validity and legality.
7. Sri C. Padmanabha Reddy, learned Senior Counsel representing the revision petitioner submitted that since the cheques issued by the company were dishonoured, the prosecution against the company is perfectly maintainable under Section 141 of the Act and the non-prosecution of the person in charge of the affairs of the company or other Directors in their individual capacity is no bar to maintain the prosecution against the company, therefore, requested to set aside the order of the Sessions Court dated 19-1-2003. Sri C. B. Rammohan Reddy, learned Counsel for the respondent advanced arguments in support of the order of the Sessions Court and requested to dismiss the revision case by confirming the order of the Sessions Court.
8. In the light of the rival contentions, the point for consideration is :
Whether the respondent-company is liable to be prosecuted under Section 138 of the Negotiable Instruments Act by virtue of Section 141 of the Act in the absence of prosecution of the person incharge of the affairs or other Directors of the company?
Point :
9. The issuing of cheques on behalf of the respondent-company and the dishonour of those cheques is not in dispute. The only question that is raised before this Court is regarding the maintainability of the complaint against the respondent-company.
10. The learned Counsel for the respondent submitted that when a cheque issued by the company was dishonoured, the company may be liable for prosecution under Section 138 of the Act, but the liability cannot be fastened on Sri Rahul Kejriwal as a person representing the company, therefore, the appellate Court was right in coming to a conclusion that without prosecuting the person who is directly responsible for issuing the cheque, the prosecution against the company represented by Sri Rahul Kejriwal cannot be maintained.
11. Section 141 of the Negotiable Instruments Act, 1862 reads as follows :
Section 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 sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence.
[Provided further that where a person is nominated as a Director of a Company by virtue of his holding any office or employment in the Central Government or State Government or a financial Corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.) (2) Notwithstanding anything contained in Sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
Explanation.-- For the purposes of this section--
(a) "company" means any body corporate and includes a firm or other association of individuals; and
(b) "director", in relation to a firm, means a partner in the firm.
12. The above provision makes it clear that the company as well as the person in-charge of the affairs of the company is liable to be prosecuted. The liability envisaged in Section 141(1) on the person so incharge of and responsible for the conduct of the business of the company is directly responsible for the offence. He can escape from his liability only if he proves that the offence was committed without his knowledge or that he has exercised his powers with due diligence to prevent commission of such offence. Where the offence is committed by a company, the company as well as the person incharge of the business of the company are liable to be prosecuted for the offence under Section 138 of the Act. Though the company is an artificial person handicapped of committing any crime personally, if certain crimes are committed by its officials, the company is liable for prosecution. But, when the company is convicted, the liability can be only in terms of fine as the company is responsible for the acts of commissions and omissions of the persons working for it.
13. The learned Counsel for the respondent tried to impress upon this Court that the order of the appellate Court was right by placing reliance on the following judgments :
14. In K.P.J. Nair v. Jindal Menthol India Ltd., , the Supreme Court held as follows :
In view of Section 141 a person other than the company can be proceeded against under those provisions only if that person was in charge of and was responsible to the company for the conduct of its business. Though words of Section 141(1) need not be incorporated in a complaint as magic words but substance of the allegations read as a whole should answer and fulfill the requirements of the ingredients of the said provision (for being proceeded against for an offence which he is alleged to have committed). On the above premise, it is clear that the allegations made in the complaint do not either in express words or with reference to the allegations contained therein make out a case that at the time of commission of the offence the appellant was in charge of and was responsible to the company for 1 he conduct of its business. Therefore, in this case the High Court has misdirected itself and committed an error in coming to the conclusion that the requirements of Section 141 are prima facie satisfied insofar as the appellant is concerned. The proceedings in question for the alleged offence under Section 138 as against the appellant are quashed.
15. In Katta Sujatha v. Fertilizers and Chemicals Travancore Ltd., , the Supreme Court while dealing with Sections 138 and 141 of the Negotiable Instruments Act considered the aspect regarding the maintainability of the complaint against a partner to whom no particular act was specifically attributed. In the said complaint under Section 138, the allegations were levelled against the firm and its partners, including a partner to whom no particular act was specifically attributed. No allegation was made in the complaint that the said partner was incharge of and was responsible to the firm for the conduct of the business of the firm and there is no allegation that the offence was committed with the consent or connivance of the said partner or that the same was attributable to any negligence on her part in the matter of issuance of the cheque. In the above circumstances, the Supreme Court held that in such circumstances it can be said that no case is made out against the partner. Hence, the complaint against her is not maintainable.
16. In Monaben Ketanbhai Shah v. State of Gujarat, , the Supreme Court held that the primary responsibility is on the complainant: to make necessary averments in the complaint so as to make the accused vicariously liable. For fastening the criminal liability there is no presumption that every partner knows about the transaction. The Supreme Court further held as follows (Para 3) :
3. Section 138 of the Act makes dishonour of the cheque an offence punishable with imprisonment or fine or both. Section 141 relates to offences by the company. It provides that 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, arid 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. Thus, vicarious liability has been fastened on those who are in charge of and responsible to the company for the conduct of its business. For the purpose of Section 141, a firm comes within the ambit of a company.
17. The learned Counsel also cited the following decisions rendered by this High Court in Neeta Bhalla v. S.M.S. Pharmaceuticals Limited, Hyderabad, (2002) 1 Andh LD (Cri) 225 and Secunderabad Health Care Ltd. v. Secunderabad Hospitals Pvt. Ltd., (1998) 4 Crimes 74 : (1998 Cri LJ 4521) on the same proposition.
18. The above decisions cited by the learned Counsel for the respondent-accused relate to the aspect whether a partner of a firm or Director of a company can be automatically made liable for prosecution without any specific allegations that such partner or Director was managing and looking after the affairs of the company or firm. In the case on hand, the prosecution was lodged against the company and it has to be considered whether such prosecution makes the Director representing the company personally liable for the offence under Section 138 of the Act, therefore, the principle laid down in the above decisions is not applicable to the issue involved in the present case.
19. Sri C. Padmanabha Reddy, the learned Senior Counsel representing the revision petitioner submitted that the plea of the respondent that the company represented by him cannot be prosecuted has no locus to stand in the light of the present legal position. He also submitted that the conviction given by the trial Court was only against the company and not against the respondent in his individual capacity. Therefore, no prejudice is going to be caused to Sri Rahul Kejriwal due to the conviction of the company for the offence under Section 138 of the Act. He submitted that if the second respondent is not inclined to represent the company in this case, he has every liberty to make an application under Section 305, Cr. P.C. requesting the Court to delete his name and to direct the complainant to show the name of such person who is managing the affairs of the company as the person representing the company. He further submitted that the appellate Court came to an erroneous conclusion that unless the person who is incharge of the affairs of the company is prosecuted, the company alone cannot be prosecuted.
20. The learned Counsel for the revision petitioner further submitted that a provision covered by Section 10 of the Essential Commodities Act is similar to Section 141 of the Negotiable Instruments Act and the Supreme Court while considering the scope of Section 10 of the Essential Commodities Act held that separate prosecution of person in charge or officer of company without prosecuting the company is also permissible. He placed reliance on the following judgment of the Supreme Court in Sheoratan Agarwal v. State of M.P., , wherein the Supreme Court held as follows (Para 5) :
Section 10 does not state that if the person contravening the Order made under the Essential Commodities Act is a Company, the prosecution of the Directors, the Officers, and servants of the Company or other persons is precluded unless the Company itself is prosecuted. There is no statutory compulsion that the person in charge or any officer of the Company may not be prosecuted unless he be ranged alongside of the Company itself. Section 10 indicates the persons who may be prosecuted where the contravention is made by the Company. It does riot 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. Each or any of them may be separately prosecuted or along with the Company. Section 10 lists the person who may be held guilty and punished when It is a Company that contravenes an order made under Section 3 of the Essential Commodities Act. Naturally, before the person in charge or an officer of the Company is held guilty in that capacity, it must be established that there has been a contravention of the Order by the Company.
21. He also placed reliance on the following judgment in support of the above contention.
22. In State of Punjab v. Kasturi Lal, , the Supreme Court while deciding an appeal filed by the State against the order quashing the charge framed under Section 10 of the Essential Commodities Act against the Directors on the ground that there is no material showing that Directors were in charge of or running business on behalf of the company held that the provision enlists persons who may be prosecuted, therefore, each or any of them can be prosecuted separately or along with company. The Supreme Court further held as follows (Para 7) :
If the contravention of the order made under Section 3 is by a company, the persons who may be held guilty and punished are (1) the company itself; (2) 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, and (3) any director, manager, secretary or other officer of the company with whose consent or connivance or because of neglect attributable to whom the offence has been committed. Any one or more or all of them may be prosecuted and punished. The company alone may be prosecuted. The person-in-charge only may be prosecuted. The conniving officer may individually be prosecuted. One, some or all may be prosecuted. There is no statutory compulsion that the person-in-chargc of an officer of the company may not be prosecuted unless he be ranged alongside the company Itself. Section 10 indicates the persons who may be prosecuted where the contravention is made by the company. It does not lay down any condition that the person-in-chargc or an officer of the company may not be separately prosecuted if the company itself is not prosecuted. Each or any of them may be separately prosecuted or along with the company.
23. Section 141 is specifically incorporated to prosecute the companies for the offence under Section 138 of the Act. The mandate of the section clearly indicates that the company is liable for prosecution when a cheque is Issued on its behalf and bounced on presentation of such cheque. The intendment of the section is not to give scope for individuals to escape by issuing cheques in the names of the companies. Therefore, when cheques are issued in the name of the company, the company is invariably liable for prosecution for the offence under Section 138 of the Act. Regarding the prosecution of the Directors of the company, the legal position makes it clear that the person who is in charge of and was responsible to the company in conduct of its business at the material time is also liable to be prosecuted. But, the non-prosecution of any of the Directors is no bar to prosecute the company. The revision petitioner is pleading that he is prejudiced on account of mentioning of his name as the person representing the company. The prosecution never intended to prosecute Sri Rahul Kejrlwal in his Individual capacity. The Courts below also made it clear that Sri Rahul Kejrlwal is not personally liable for prosecution on account of the absence of specific allegations that he is in charge of the affairs of the company or managing its affairs. The judgments placed on behalf of the revision petitioner are only regarding the aspect whether a Director or Directors arc liable to be prosecuted when there are no specific allegations that he or they were in charge of and were responsible to the company in conduct of its business. In the light of the above circumstances. I find sufficient force in the grounds of revision. The company is liable for prosecution despite non-prosecution of the Director or Directors responsible for the management of the affairs of the company or in charge of its affairs.
24. The learned senior counsel further submitted that since the offence under Section 138 is a summons case, the trial has to be conducted as per the procedure prescribed under Chapter XX of the Code of Criminal Procedure. Since the respondent filed an application for discharge as per the procedure contemplated under Chapter XIX of the Code of Criminal Procedure, the application itself is not maintainable under law and it is liable to be dismissed. The learned Counsel in support of his contentions placed reliance on the following judgment :
25. In Subramanium Sethuraman v. State of Maharashtra, (2005) 1 Andh LD (Cri) 124 : (2004 Cri LJ 4609), the Supreme Court while dealing with Section 252, Cr. P.C. held that the summons case is triable as per the procedure prescribed under Chapter XX of the Code of Criminal Procedure, which does not contemplate a stage of discharge like Section 259, Cr. P.C. which provides a discharge in a warrant case. Therefore, when once the plea of the accused is recorded under section 252 of the code, the procedure contemplated under Chapter XX has to be followed, which is to take the trial to its logical conclusion.
26. Though the application was made by the accused under Sections 239 and 245, Cr. P.C. for discharge, the trial Court may treat the said application as one under Section 258, Cr. P.C. and if the Court finds that there is no material to proceed with the trial, it may stop further proceedings and it may amount to discharge. Section 258, Cr. P.C. reads as follows :
258. Power to stop proceedings in certain cases : In any summons case instituted otherwise than upon complaint, a Magistrate of First Class, or with the previous sanction of the Chief Judicial Magistrate, any other Judicial Magistrate, may, for reasons to be recorded by him, stop the proceedings at any stage without pronouncing any judgment and where such stoppage of proceedings is made after the evidence of the principal witnesses has been recorded, pronounce a judgment of acquittal and, in any other case, release the accused, and such release shall have the effect of discharge.
27. In K.M. Mathew v. State of Kerala, , the Supreme Court held as follows (Paras 7 and 8) :
... When the accused enters appearance in response to the summons, the Magistrate has to take proceedings under Chapter XX of the Code. But the need to try the accused arises when there is allegation in the complaint that the accused has committed the crime. If there is no allegation in the complaint involving the accused in the commission of the crime, it is implied that the Magistrate has no jurisdiction to proceed against the accused.
It is open to the accused to plead before the Magistrate that the process against him ought not to have been issued. The Magistrate may drop the proceedings if he is satisfied on reconsideration of the complaint that there is no offence for which the accused could be tried. It is his judicial discretion. No specific provision is required for the Magistrate to drop the proceedings or rescind the process. The order issuing the process is an interim order and not a judgment. It can be varied or recalled. The fact that the process has already been issued is no bar to drop the proceedings if the complaint on the very face of it does not disclose any offence against the accused.
28. In the light of the above judgment of the Supreme Court it can be concluded that if the material on record discloses that the complaint is not maintainable, the Court is perfectly justified in discharging the accused and the petition cannot be dismissed on the ground of mentioning of wrong provision of law. But, in the present case, the trial Court held that there is sufficient material to proceed with the trial.
29. In view of the above discussion, the order of the Sessions Court is liable to be set aside.
30. In the result, the revision petition is allowed. The order of the Sessions Court in Criminal Revision Petition No. 222 of 2003 is set aside by confirming the order of the IV Metropolitan Magistrate dated 8-9-2003 in Criminal Miscellaneous Petition No. 3598 of 2003.