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Sunil Somnath Ghumare v. Fil Industries & Anr.
Structured Summary of the Opinion
Factual and Procedural Background
The petitioner invoked the jurisdiction of this Court under Section 561-A of the Criminal Procedure Code to quash proceedings in a complaint titled FIL Industries Limited v. Vasundhara Seeds framed under Section 138 of the Negotiable Instruments Act. The complaint was before the Judicial Magistrate 1st Class (Sub-Registrar), Srinagar, and the petitioner challenged orders dated 14 October 2004 and 5 February 2005.
The complaint alleged that a cheque for Rs. 3,45,772/- drawn at Devayana Sahakri Bank Limited, Kopergaon, was presented before UCO Bank, Budshah Chowk, Srinagar on 9 April 2002 and returned unpaid due to "insufficient funds". The complainant was informed by the bank, issued a statutory demand notice, and then filed a complaint under Section 138 of the Negotiable Instruments Act before the Chief Judicial Magistrate, Srinagar; the matter was transferred to the Judicial Magistrate 1st Class (Sub-Registrar), Srinagar. The trial court took cognizance and issued process against the accused by order dated 25 July 2002.
The petitioner's principal pleaded grounds (summarized by the Court) were: (i) the trial court lacked territorial jurisdiction to try the case; (ii) the cause of action did not accrue at Srinagar in terms of Section 138; and (iii) the petitioner (accused No. 2) was neither proprietor of the firm nor responsible for the firm's conduct of business.
Legal Issues Presented
- Whether the trial Court (Judicial Magistrate 1st Class, Srinagar) had territorial jurisdiction to try the Section 138 complaint.
- Whether the cause of action under Section 138 of the Negotiable Instruments Act accrued at Srinagar.
- Whether cognizance taken and process issued against accused No. 2 (the petitioner) were legally correct and maintainable in the absence of averments that he was in charge of and responsible for the conduct of the firm's business (i.e., liability under Section 141 of the Negotiable Instruments Act).
Arguments of the Parties
Petitioner's Arguments
- The trial court at Srinagar did not have territorial jurisdiction to try the complaint.
- The cause of action under Section 138 did not accrue at Srinagar.
- The petitioner (accused No. 2) was neither the proprietor of the firm nor responsible for the conduct of the firm's business; therefore Section 141 vicarious liability could not be fastened on him.
- The petitioner produced a bank-issued certificate indicating he was neither proprietor nor signatory of the cheque.
Complainant's Allegations / Case as Pleaded
- A cheque for Rs. 3,45,772/- was drawn and was presented at UCO Bank, Budshah Chowk, Srinagar on 9 April 2002.
- The cheque was returned unpaid by the bank due to "insufficient funds", and the bank informed the complainant.
- Following the bank's intimation, the complainant issued the statutory demand notice and filed a complaint under Section 138 of the Negotiable Instruments Act; the trial court took cognizance and issued process against the accused.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| K. Bhaskaran v. Sankaran Vaidyyan Balan, (1999) 7 SCC 510 | The offence under Section 138 consists of a concatenation of acts: (1) drawing the cheque, (2) presentation of the cheque, (3) return of the cheque unpaid by the drawee bank, (4) giving notice demanding payment, and (5) failure to make payment within 15 days of the notice. | The Court applied this principle to conclude that a complaint under Section 138 can be presented where any one of these component acts occurred; because presentation and the bank's actions occurred at Srinagar (UCO Bank, Budshah Chowk), cause of action also arose at Srinagar. |
| Monaben v. State of Gujarat, (2004) 7 SCC 15 (AIR 2004 SC 4274) | Vicarious/criminal liability under Section 141 is fastened only on persons who, at the time of the offence, were in charge of and responsible to the company/firm for the conduct of its business; complaint must contain specific averments to that effect. | The Court relied on this to hold that the complaint was defective for failing to aver that accused No. 2 was in charge of and responsible for the firm's business, and therefore proceedings against him could not be maintained. |
| Katta Sujatha v. Fertilizers & Chemicals Travancore Ltd., (2002) 7 SCC 655 | A partner is liable for an offence committed by the firm only if he was in charge of and responsible for the conduct of the firm's business, or if the offence was committed with his consent or connivance or attributable to his neglect. | The Court invoked this principle to reinforce that mere naming of a partner in the title or filing partnership documents later does not suffice; specific averments are required in the complaint to fasten liability on a partner. |
| K.P.G. Nair v. Jindal Menthol India Ltd., (2001) 10 SCC 218 | If a complaint does not allege that the accused was in charge of and responsible for the conduct of company's/firm's business at the time of the offence, proceedings against such person are liable to be quashed. | The Court applied this authority to conclude that since the complaint lacked allegations that accused No. 2 was in charge and responsible, cognizance and process against him were liable to be quashed. |
Court's Reasoning and Analysis
The Court first examined Section 138 of the Negotiable Instruments Act and reproduced its text to identify the statutory ingredients that constitute the offence: drawing of the cheque, presentation to the bank, dishonour/return by the bank, issuance of the demand notice, and failure to pay within 15 days of the notice.
Citing the apex court decision in K. Bhaskaran, the Court emphasized that the offence is made up of a series of acts and that it is not necessary for all component acts to occur within the same territorial jurisdiction; a complaint under Section 138 may be presented in any court where any one of those acts took place. Applying this test to the facts, the Court observed that the cheque was presented at UCO Bank, Budshah Chowk, Srinagar, and that the bank processed and forwarded the cheque to the drawee bank and informed the complainant of the dishonour. On that basis, the Court found that cause of action had arisen at Srinagar and that the venue of presentation/communication there was sufficient to give jurisdiction to courts at Srinagar for the complaint generally.
The Court then turned to the specific question whether cognizance and process against accused No. 2 (petitioner) were legally correct. The Court focused on Section 141 of the Negotiable Instruments Act which imposes vicarious liability on companies (and by extension firms) on persons who were "in charge of, and ... responsible to the company for the conduct of the business" at the time the offence was committed. The Court held that Section 141 requires specific averments in the complaint to fasten criminal liability on partners/managers/directors who were in charge and responsible.
Relying on decisions in Monaben, Katta Sujatha and K.P.G. Nair, the Court emphasized the consistent principle that mere naming of a partner or later-filings (e.g., partnership deed) do not substitute for the necessary averments in the complaint. The Court observed that the complaint contained no averment that accused No. 2 was in charge of and responsible for the firm's business at the relevant time. The petitioner also filed a bank-issued certificate indicating he was neither proprietor nor signatory of the cheque. On these bases, the Court concluded that cognizance drawn and process issued against accused No. 2 were illegal, without material and amounted to an abuse of the process of law.
Holding and Implications
Holding: The petition is allowed and the cognizance drawn and process issued against accused No. 2 (the petitioner) are hereby quashed.
Implications:
- Direct effect: Accused No. 2 is relieved of the criminal proceedings in the complaint FIL Industries Limited v. Vasundhara Seeds to the extent that cognizance and process against him have been quashed; the petition was allowed and the record is to be sent down along with a copy of the order.
- Broader precedent: The opinion applies established principles from cited Apex Court authorities regarding (a) the composite nature of the Section 138 offence and territorial considerations for cause of action, and (b) the requirement of specific averments under Section 141 to fasten vicarious liability. The opinion does not assert that it is laying down new law beyond applying those precedents to the facts of this case.
Order: Petition allowed; cognizance and process against accused No. 2 quashed; record to be sent down with a copy of the order.
1. Petitioner has invoked the jurisdiction of this Court in terms of Section 561-A of Criminal Procedure Code for quashing the, proceedings drawn in complaint titled FIL Industries Limited v. Vasundhara Seeds, under Section 138 of Negotiable Instrument Act, by Judicial Magistrate 1st Class (Sub-Registrar), Srinagar, and, orders dated 14th October, 2004 and 5th Feb., 2005, passed in the said complaint, on the grounds taken in the petition, which can be aptly and precisely summarized as under:—
That the trial Court i.e Judicial Magistrate 1st Class (Sub-Registrar), Srinagar, is not having territorial jurisdiction to try the case.
2. The cause of action has not accrued in terms of Section 138 of the Negotiable Instruments Act, at Srinagar. Petitioner (alleged accused No. 2) is neither proprietor of the firm nor responsible for conduct of the business of the firm in any way.
3. Heard.
4. It is alleged in the complaint that accused issued cheque for an amount of Rs. 3,45,772/- which was to be drawn at Devayana Sahakri Bank Limited, Kopergaon. Complainant presented it before UCO Bank, Budshah Chowk, Srinagar, on 9th April, 2002. The complainant was informed by the Bank authorities that cheque was received back due to “insufficient funds” and was returned to him which constrained him to serve a notice upon accused as per the mandate of law, and accordingly presented the complaint under Section 138 of Negotiable Instruments Act, hereinafter for short the Act, before the learned Chief Judicial Magistrate, Srinagar which came to be transferred to the Court of Judicial Magistrate 1st Class (Sub-Registrar), Srinagar. The trial Court has drawn cognizance and issued process against the accused vide order dated 25th July, 2002.
5. I am of the considered view that the series of steps give cause of action to the complainant for presenting a complaint in terms of Section 138 of the Act. It is profit able to reproduce Section 138 of the Act, herein, which reads as under:—
“138, Dishonour of cheque for insufficiency, etc., of funds in the account.—Where any cheque drawn by a person on an account maintain by him with a 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 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 or that it exceeds the amount arranged to be paid from that account by an agreement made with the bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may extend to one year, or with 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 fifteen 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 the 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.”
6. While going through this provision of law, it is crystal clear that drawing of cheque, presentation of cheque, dishonour of cheque, issuance of demand notice and failure of the drawer to make payment within 15 days from the date of notice are the ingredients which constitute the commission of offence and give jurisdiction to the Court. It is not necessary that all the five acts should be committed within one jurisdiction. The complaint under Section 138 of the Act can be presented before any Court having jurisdiction where one of the aforesaid act (s) came to be committed.
7. Apex Court in case titled as K. Bhaskaran v. Sankaran Vaidyyan Balan reported in (1999) 7 SCC 510 : 1999 Cri LJ 4606, has observed as under:—
“14. The offence under Section 138 of the Act can be completed only with the concatenation of a number of acts. The following are the acts which are components of the said offence: (1) drawing of the cheque, presentation of the cheque to the bank, returning the cheque unpaid by the drawee bank, (4) giving notice in writing to the drawer of the cheque demanding payment of the cheque amount, (5) failure of the drawer to make payment within 15 days of the receipt of the notice.”
8. Applying the test to the case in hand, it is alleged, as discussed hereinabove, that cheque came to be presented before UCO Bank Branch Budshah Chowk, Srinagar, and the said bank after following codel formalities forwarded the cheque to Devayana Sahakri Bank Limited, Kopergaon and received the cheque back as bounced due to insufficient funds and accordingly, UCO bank informed the complainant. In the given circumstances, cause of action has also arisen at Srinagar.
9. The question is whether the cognizance drawn and process issued against the accused No. 2, petitioner herein, is legally correct?
10. I am of the considered view that cognizance drawn and process issued against the petitioner, accused No. 2, is illegal and without any material and is virtually abuse of the process of law for the following reasons.
11. The complainant has nowhere pleaded that petitioner, accused No. 2, was responsible for the conduct of business of the firm at the relevant point of time. It is profitable to reproduce Section 141 of Negotiable Instruments Act, herein, which reads as under:—
“141. (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.”
12. While going through this provision of law, it mandates that the liability can be fastened on those partners, managers/directors who at the time of commission of offence were in charge of and responsible to firm for the conduct of its business. The complaint must contain specific averment that the accused was at the relevant point of time in charge of and responsible to the firm for the conduct of its business. If such an averment is lacking in the complaint, the complaint is not maintainable and is to be dismissed.
13. Apex Court in case titled Monaben v. State of Gujarat reported in (2004) 7 SCC 15 : AIR 2004 SC 4274 : 2004 Cri LJ 4249 has observed that vicarious liability has to be fastened on those who are in charge of and responsible to the Company for the conduct of business. It is profitable to reproduce Paras 3 and 6 of the said Judgment herein, which reads as under:—
“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, 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. 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.
6. From the above, it is evident that in the complaint there are no averments against the appellant except stating in the title that they are partners of the firm. Learned counsel for the respondents/complainant contended that a copy of the partnership deed was also filed which would show that the appellants were active in the business. No such document was filed with the complaint or made part thereof. The filing of the partnership deed later is of no consequence for determining the point in issue. Section 141 does not make all partners liable for the offence. The Criminal liability has been fastened on those who, at the time of the commission of the offence, was in-charge of and was responsible to the firm for the conduct of the business of the firm. These may be sleeping partners who are not required to take any part in the business of the firm; they may be ladies and others who may not know anything about the business of the firm. 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 obligation of the appellants to prove that at the time the offence was committed they were not in-charge of and were not responsible to the firm for the conduct of the business of the firm, would arise only when first the complainant makes necessary averments in the complaint and establishes that fact. The present case is of total absence of requisite averments in the complaint.”
14. The same view is taken by the Apex Court in case titled Katta Sujatha v. Fertilizers & Chemicals Travancore Ltd., reported in (2002) 7 SCC 655. It is profitable to reproduce Para 5 of the said Judgment herein:—
“5. In short the partner of a firm is liable to be convicted for an offence committed by the firm if he was in charge of and was responsible to the firm for the conduct of the business of the firm or if it is proved that the offence was committed with the consent or connivance of, or was attributable to any neglect on the part of the partner concerned.”
15. The Apex Court also held in a case titled K.P.G Nair v. Jindal Menthol India Ltd.., reported in (2001) 10 SCC 218, that if it is not alleged in the complaint that accused was at the time of commission of the offence in-charge of and responsible to the company for the conduct of business, the proceedings are liable to be quashed. It is profitable to reproduce Paras 7 and 8 of the said judgment herein which reads as under:—
“7. From a perusal of the excerpts of the complaint it is seen that nowhere is it stated that on the date when the offence is alleged to have been committed, the appellant was in charge of or was responsible to the accused Company for the conduct of its business. Here it will be appropriate to note subsection (1) of Section 141 which is in the following terms:
………………………………………
8. From a perusal of Section 141, it is evident that in a case where a company committed offence under Section 138 then not only the company but also every person who at the time when 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 and liable to be proceeded against and punished accordingly. It follows that 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.”
16. It is not alleged in the complaint that accused No. 2, petitioner herein, was in-charge of and responsible for the conduct of business at the relevant point of time.
17. Petitioner has also filed a certificate which appears to have been issued by concerned bank which discloses that accused No. 2, petitioner herein, is neither proprietor nor signatory of the cheque.
18. Keeping in view the above discussion, I am of the considered view that cognizance drawn and process issued against accused No. 2 is liable to be quashed.
19. Accordingly, this petition is allowed and cognizance drawn and process issued against accused No. 2 is hereby quashed.
20. Petition is accordingly allowed.
21. Send down the record along with a copy of this order.
22. Petition allowed.
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