- Bookmark
- Share
- CaseIQ
M/S. Coronation Prin... v. M/S. Elgi Finance Li...
Factual and Procedural Background
The first petitioner is a company and petitioners 2 to 4 are its partners. They filed an application under section 482, Cr.P.C. seeking to quash proceedings initiated by the respondent/complainant in C.C. No. 251 of 1997 on the file of Learned Judicial Magistrate No. 6, Coimbatore, for an offence under section 138 of the Negotiable Instruments Act.
The short factual matrix as set out in the opinion: the company (first accused) had availed a revolving purchase bill discounting facility (Hundi Nos. 18–22) amounting to Rs. 20,00,000. The maturity date was 19.11.1996; in case of default a penal interest of 42% applied. As on 22.4.1997 the amount due inclusive of factoring charges was Rs. 23,03,781.00. On 22.4.1997 the second petitioner issued a cheque dated 22.4.1997 drawn in favour of the complainant on Tamil Nadu Mercantile Bank, Anna Salai, Chennai for Rs. 23,03,781.00. The cheque was presented on 22.4.1997 and returned on 28.4.1997 with the endorsement "funds insufficient".
The complainant sent a legal notice on 30.4.1997 (served on the first petitioner on 2.5.1997 and on the other petitioners on 3.5.1997). There was no reply or payment, and the complainant filed the criminal complaint asserting offences under Sections 138 and 141 of the Negotiable Instruments Act. On receipt of summons in the criminal complaint, the petitioners appeared, obtained copies and, before examination of witnesses commenced, presented the present quash application under section 482 Cr.P.C.
Legal Issues Presented
- Whether a statutory notice under section 138 of the Negotiable Instruments Act is invalid if it demands, in addition to the cheque amount, incidental charges (i.e., whether including such charges in the demand vitiates the statutory notice).
- Whether the complaint can proceed against partners (petitioners 3 and 4) under section 141 of the Negotiable Instruments Act in the absence of averments that they were "incharge of and responsible" for the conduct of the company's business at the time of the offence.
Arguments of the Parties
Petitioners' Arguments (as advanced by Mr. Thangaraj)
- The statutory notice is invalid because it demanded Rs. 23,03,781 together with incidental charges of Rs. 5,770; section 138(b) permits a notice demanding the cheque amount only, and demanding more than the cheque amount vitiates the notice and thus the proceedings.
- Under section 141 of the Negotiable Instruments Act the complaint can be filed against the company and only those partners who are in charge and responsible for the day-to-day affairs. The complaint and sworn statement do not aver that petitioners 3 and 4 were in charge and responsible; they did not sign the cheque and therefore cannot be made liable.
Respondent's Arguments (as advanced by Mr. Rupert Barnabas)
- Demanding the cheque amount together with incidental charges does not invalidate the notice; there is no bar to doing so.
- All petitioners received the notice and did not reply; whether petitioners 3 and 4 were "incharge and responsible" is a matter for the trial court to determine during trial; accordingly, the quash petition should be dismissed.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Kiran v. Ghansyamdas, I.L.R. 1992 II Mad. 1060 | The fact that a notice claims an amount in excess of the cheque amount (i.e., additional incidental amounts) does not invalidate the statutory notice required by Section 138; demanding the cheque amount in the notice suffices. | The Court relied on this decision to hold that the notice in the present case (which demanded incidental charges in addition to the cheque amount) was valid; the first contention of the petitioners was answered against them. |
| Delhi Municipality v. Ram Kishan, A.I.R. 1983 S.C. 67 | Where there is no allegation, whisper or shred of evidence in the complaint showing acts by the directors (or partners) from which a reasonable inference of vicarious criminal liability can be drawn, proceedings against such directors/partners should be quashed. | The Court cited this authority to support the proposition that absent basic averments showing that partners were in charge and responsible, proceedings cannot be sustained against them; it formed a basis for quashing proceedings against petitioners 3 and 4. |
| Sham Sundar & Another v. State of Haryana, A.I.R. 1989 S.C. 1982 | Support for the principle that proceedings against partners/directors are liable to be quashed unless the complaint contains averments/material showing they were in charge and responsible. | Referenced as one of the Supreme Court decisions underpinning the view adopted in Mr. Col. R.S. Agarwal (below) and to justify quashing where requisite averments are absent. |
| N. Doraisamy v. M/s. Archana Enterprises, 1995 Crl.L.J. 2306 | Held that averments regarding the role of individual partners/directors may not be necessary (as per that earlier ruling). | The Court noted this decision was considered in later authority (Mr. Col. R.S. Agarwal) and, implicitly, distinguished or treated it as overruled/treated as not determinative for present purposes; the Court aligned with the later view that such averments are required. |
| Mr. Col. R.S. Agarwal & Ors. v. M/s. Ashok Leyland Ltd., 1998 (1) L.W. Crl. 24 | On the strength of the Supreme Court decisions (including Delhi Municipality and Sham Sundar), held that proceedings are liable to be quashed against partners unless the complaint or material on record at the time of taking the complaint on file contains averments/material showing they were in charge and responsible. | The Court expressly agreed with the reasoning in this decision and applied it to quash proceedings against petitioners 3 and 4 for lack of averments that they were in charge and responsible. |
Court's Reasoning and Analysis
The Court dealt with the two principal contentions sequentially.
1. Validity of the notice demanding incidental charges in addition to the cheque amount:
- The Court observed that the complainant has remedies in both criminal and civil jurisdictions — criminal for punishment under section 138 and civil for recovery (Order 7, Rule 1 / Order 37, Rule 1 C.P.C. cited by the Court).
- There is no legal requirement that separate notices be issued for criminal and civil proceedings; Section 138(b) requires merely that the drawee be given a notice within 15 days demanding payment of the cheque amount, which may be the cheque amount or include it within a larger demand.
- The Court held that a notice which demands the cheque amount together with incidental charges satisfies the statutory requirement; this conclusion was fortified by the decision in Kiran v. Ghansyamdas which held that claiming an amount in excess of the cheque amount in the notice does not invalidate it so long as the cheque amount was demanded.
- Result: the first contention of the petitioners (that the notice was invalid) was rejected.
2. Liability of partners (petitioners 3 and 4) under Section 141:
- The Court noted that Section 141 creates a deeming provision but emphasized that it is the duty of the complainant to set out the role of each accused in the complaint (i.e., to make relevant averments showing that particular partners were "incharge of and responsible" for the conduct of business at the relevant time).
- The Court stressed a fundamental criminal law principle: criminal liability is not vicarious; therefore Section 141 does not automatically render all partners liable regardless of their participation in or knowledge of business affairs.
- The Court drew attention to the existence of sleeping partners, ladies and minors who may be admitted to partnership without participating in business, noting it would be unjust to prosecute all partners and require them to invoke the proviso to Section 141 without the complainant first establishing the partners' active role.
- The Court relied on the Supreme Court's approach in Delhi Municipality v. Ram Kishan and subsequent decisions, and on the reasoning in Mr. Col. R.S. Agarwal v. M/s. Ashok Leyland Ltd., concluding that in the absence of averments or material showing petitioners 3 and 4 were in charge and responsible, the complaint could not be legally sustained against them.
- Result: the Court found force in the second contention and quashed the proceedings against petitioners 3 and 4 while allowing the trial to continue against petitioners 1 and 2 (since the second petitioner issued the cheque on behalf of the company).
Holding and Implications
Core Ruling: The criminal original petition is PARTLY ALLOWED.
Direct consequences:
- The proceedings in C.C. No. 251 of 1997 are quashed insofar as they are directed against petitioners 3 and 4 (the partners for whom no averments were made that they were in charge and responsible).
- The proceedings against petitioners 1 and 2 (the company and the partner who signed the cheque) are not quashed; the trial court is directed to proceed with the trial against petitioners 1 and 2 and dispose of the matter in accordance with law.
- As recorded in the opinion: "With the above observations, the Criminal original petition is partly allowed. Consequently, Crl.M.P No. 4641 of 1997 stands dismissed."
Broader implications: The opinion applies existing precedents to confirm that (a) a statutory notice that demands the cheque amount together with incidental charges does not thereby become invalid, and (b) complainants must plead averments showing that specific partners/directors were in charge and responsible before criminal proceedings can be sustained against them under Section 141. The opinion does not state that it establishes any new legal precedent beyond applying and following the cited authorities.
1. The first petitioner, the company and the petitioners 2 to 4, the partners have filed this application under section 482, Cr.P.C seeking to quash the proceedings initiated in the private complaint at the instance of the respondent/complainant in C.C No. 251 of 1997 on the file of learned Judicial Magistrate No. 6, coimbatore for the offence under section 138 of the Negotiable Instruments Act.
2. The short facts are:- The first accused is the partnerships Finance Company and the others are its partners. The company is carrying on financing business. The accused approached the complainant company/and requested it to extend revolving purchase bill discounting facility. Accordingly, the complainant extended revolving purchase bill discounting facility to the accused vide Hundi Nos. 18, 19, 20, 21 and 22 amounting to Rs. 20,00,000. The maturity date for repayment of the above amount was 19.11.1996 In the event of failure to make payment within the stipulated time, the accused have to pay the amount along with 42% penal interest. As on 22.4.1997, the accused were liable to pay Rs. 23,03,781.00 inclusive of additional factoring charges. Hence, on behalf of the first petitioner, the company, the second petitioner had issued a cheque dated 22.4.1997 drawn in favour of the complainant company on Tamil Nadu Mercantile Bank Limited, Anna Salai, Chennai for the said sum.
The said cheque was presented in the Bank on 22.4.1997 The same was returned to the complainant on 28.4.1997 with an endorsement “funds insufficient”. So the complainant issued legal notice on 30.4.1997 and the same was served on the first petitioner on 2.5.1997 and on others on 3.5.1997 There was neither reply nor payment. Hence, the complainant filed the above said complaint for the offences under Sections 138 and 141 of the Negotiable Instruments Act. On receipt of the summons in the above complaint in C.C No. 251 of 1997 on the file of learned Judicial Magistrate No. 6, Coimbatore, the petitioners appeared before the Court and received the copies. Challenging the above proceedings before the commencement of the examination of the witnesses, the petitioners have presented this application to quash the same before this Court.
3. Mr. Thangaraj, the counsel appearing for the petitioners, would press into service the following contentions:-
(i) The cheque amount was only a sum of Rs. 23,03,781. But the statutory notice was sent calling upon the petitioners to pay a sum of Rs. 23,03,781 together with the incidental charges of Rs. 5,770 spent on the said cheque on its presentation to the Bank within 15 days from the Act, the complainant is entitled to send the legal notice only for the said cheque amount and not more than that. Since the notice in the instant case was sent demanding more amount, the notice has become invalid and as such, the proceedings are vitiated.
(ii) The cheque was issued by the Company, the first petitioner signed by the second petitioner. The other two petitioners are mere partners. As per Section 141 of the Negotiable Instruments Act, the complaint could be filed against the company as well as against the partners who are incharge and responsible for the day-to-day affairs of the company. Both in the complaint and the sworn statement there are no averments that the petitioners 3 and 4 are incharge and responsible for the conduct and affairs of the company. Though the first petitioner being the company and the second petitioner being the partner, who had signed the cheque, may be liable to be tried for the said offence, the petitioners 3 and 4 cannot be made liable.
4. Mr. Rupert Barnabas, counsel appearing for the respondent, would contend that the notice demanding the cheque amount together with the incidental charges would not make the notice invalid, since there is no bar, that all the petitioners received the notice, but they have not chosen to reply for the same and that therefore, the trial Court has to find out whether all the petitioners are incharge and responsible only during the course of trial and as such, the petition for quashing is liable to be dismissed.
5. Regarding the first point, I must at the very outset say that the statutory notice demanding the cheque amount as well as the incidental charges, is perfectly valid in law, inasmuch as the complainant has got both the remedies by approaching the criminal Court as well as the civil court. For punishing the accused for the offences committed, the complainant can resort to the penal action by approaching criminal Court under section 138 of the Negotiable Instruments Act. Similarly, in order to get the relief of recovery of the cheque amount, incidental charges and interest, the complainant is at liberty to approach the civil Court under Order 7, Rule 1 of Order 37, Rule 1 of C.P.C Under such circumstances, the notice issued in the instant case by the complainant is perfectly valid, as the complainant can avail of both the remedies in both the jurisdictions, as he has got a legal right to proceed against the petitioners before the criminal Court and other before the Civil court.
6. No law contemplates that there should be separate notices, one to be used before the Criminal Court and other before the Civil Court. What all Section 138(b) of the Act requires is that the drawee of the cheque should make a demand for the payment of the cheque amount by giving notice within 15 days from the receipt of intimation from the Bank. It may be the cheque amount or inclusive of the cheque amount.
7. In the present case, the respondent/complainant had notified to the petitioners about the bouncing of the cheque and demand for payment of the cheque amount as well as the incidental charges occurred on the presentation of the said cheque within time. Therefore, demand of the payment of the amount relating to the cheque though it is more than the cheque amount, is legally permissible, as it would certainly satisfy the requirements of the statutory notice as contemplated under section 138(b) of the Act.
8. The above view of mine has been fortified by this Court in the decision in Kiran v. Ghansyamdas, I.L.R 1992 II Mad. 1060. The relevant observation by Hon'ble Justice Pratap Singh as he then was is this:-
“Regarding the third submission, I have to only say that because some more amount is claimed in the notice apart from the amount which the cheque bears, that would be a superfluous one but it will not invalidate the notice. If the amount mentioned in the cheque has been demanded in the notice, that would suffice and satisfy the requirement of clause (b) of the proviso to Section 138 of the Act.”
Therefore, the first point is answered against the petitioners.
9. Regarding the second point, the counsel for petitioners would state that the proceedings as against the petitioners 3 and 4, at any rate, have got to be quashed inasmuch as there are no averments that they are incharge and responsible for the conduct and day-to-day affairs of the Company.
10. This contention, in my view, has got some force. Admittedly, the petitioners 3 and 4 have not signed the cheque. There is no material as on date through the complaint, sworn statement and other documents filed before the Court that the petitioners 3 and 4 were incharge and responsible. To be made liable, the complainant must first show that the petitioners were incharge of and responsible to the company at the time when the offence was committed. Whatever be the liability of other petitioners to pay the amount under the cheque, in the absence of any averment in the complaint that the petitioners were incharge of and responsible to the company, the complaint cannot be legally sustained as against those petitioners.
11. On a similar situation, the Apex Court in the decision in Delhi Municipality v. Ram Kishan, A.I.R 1983 S.C 67 while confirming the order of the High Court quashing the proceedings as against the Directors, would observe as follows:
“So far as the Directors are concerned, there is not even a whisper nor a shred of evidence nor anything to show, apart from the presumption drawn by the complainant that there is any act committed by the Directors from which a reasonable inference can be drawn that they could also be vicariously liable. In these circumstances, therefore, we find ourselves in complete agreement with the argument of the High Court that no case against the Directors accused Nos. 4 to 7 has been made out ex facie on the allegations made in the complaint and the proceeding against them were rightly quashed.”
12. In the light of the above observation, it is clear that unless there is a basic foundation through the relevant averments as against the partners, as indicated above, it cannot be said that all the partners shall be proceeded with, though they have not signed the cheque and have not participated in the day-to-day affairs of the company.
13. It is brought to my notice that this Court in N. Doraisamy v. M/s. Archana Enterprises, 1995 Crl.L.J 2306 held that those averments are not necessary. However, this judgment has been considered in Mr. Col. R.S Agarwal and 4 Others v. M/s. Ashok Leyland Ltd., Etc., 1998(1) L.W Crl. 24, on the strength of the decisions in Delhi Municipality v. Ram Kishan, A.I.R 1983 SC. 1967 and Sham Sundar Another v. State of Haryana, A.I.R 1989 SC. 1982 and it has been held that the proceedings are liable to be quashed against the partners, unless it is mentioned in the complaint or any material shown before the Court at the time of taking the complaint on file. I am in entire agreement with the reasonings given in Mr. Col. R.S Agarwal and 4 Others v. M/s. Ashok Leyland Ltd., Etc., 1998 (1) L.W Crl. 24.
14. I may add some reasonings to arrive at the said conclusion.
15. Section 141 of the Negotiable Instruments Act deals with the offences by Companies which includes the firm or the other association of the individuals, which reads as follows: -
“141. Offences by Companies:- (1) If the person committing an offence under S. 138 is a company, every person who, at the time the offence was committed, was incharge 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 the 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.
16. Though there is a deeming provision with reference to the guilt of the offence, it shall be the duty of the complainant to first make a mention about the role of each of the accused with reference to the offence. It must be pointed out that in criminal cases, the court is concerned with the criminal liability on the basis of the part played by each of the partners or directors of the Company, as it is not a civil liability and there is no vicarious liability in criminal law. Therefore, Section 141 does not make all the partners liable for the offence whether they do business or not.
17. The Apex Court, while dealing with such a situation, would give an emphatic note of caution stating that there may be partners, better known as sleeping partners who are not required to take part in the business of the firm and that there may be ladies and minors who were admitted for the benefit of partnership and that they may not know anything about the business of the firm.
18. Therefore, it would be travesty of justice to prosecute all the partners including the ladies and minors and ask them to prove under the proviso to-sub-section (1) of Section 141 that the offence was committed without their knowledge. In other words, it is for the accused to establish under the proviso that the offence took place without his knowledge, only when the complainant establishes the said condition mentioned in sub-section (1) namely active role of the partners is established.
19. So on these reasons, I am of the view that the proceedings as against the petitioners 3 and 4 are liable to be quashed and accordingly quashed.
20. As far as the petitioners 1 and 2 are concerned, since the second petitioner issued the cheque on behalf of the first petitioner, they are liable to face the trial. So, the trial Court is directed to go on with the trial insofar as the petitioners 1 and 2 are concerned and dispose of the same in accordance with law.
21. With the above observations, the Criminal original petition is partly allowed Consequently, Crl.M.P No. 4641 of 1997 stands dismissed.
Alert