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K.R.Tiruvangadam v. Dhavarachetty Cotton Company
Factual and Procedural Background
The petitioners invoked the inherent powers of this Court under Section 482 Cr.P.C. seeking quashing of the criminal proceedings in C.C. No. 160/99 pending before the Additional Judicial First Class Magistrate, Proddatur. The petitioners are accused in the complaint; they are said to be directors of Malnadu Holdings Private Limited and conducting business as Sengamalam Spinners Private Limited. The 1st respondent is alleged to be a supplier of cotton to Sengamalam Spinners; an amount of Rs. 9,63,702 was claimed due from the firm. The petitioners issued two cheques (Nos. 262394 and 505290) for Rs. 50,000 and Rs. 1,00,000 respectively, drawn on Indian Overseas Bank, Mannargudi. The cheques were presented on 16-1-1999 and 18-1-1999 and were dishonoured for insufficient funds. The 1st respondent was informed on 27-1-1999 and a telegram demanding payment was sent on 6-2-1999. After non-payment, the 1st respondent filed the criminal complaint in the magistrate's court, and the petitioners filed this criminal petition under Section 482 seeking quashing of those proceedings.
Legal Issues Presented
- Whether proceedings under the Negotiable Instruments Act (cheque dishonour) are maintainable against the directors of a company when the company itself has not been made an accused.
- Whether the tendering (offer) of the cheque amount by the accused, and the complainant's refusal to accept that tender, is a valid ground to quash the criminal complaint.
- Whether this Court should exercise its inherent powers under Section 482 Cr.P.C. to quash the proceedings in the circumstances of this case.
Arguments of the Parties
Petitioners' Arguments
- The complaint proceedings are not maintainable because the company (principal drawer) was not made an accused; only the directors were prosecuted. Reliance was placed on the decision reported as D. Chandra Reddy v. Gourisetti Prabhakar.
- Despite the accused tendering the cheque amount, the 1st respondent refused to receive it; therefore the complaint is not maintainable. Reliance was placed on Pradeep Chandran v. Nimmi Velappan.
1st Respondent's Arguments
- The petition is maintainable even though the company is not prosecuted; directors cannot escape liability by non-prosecution of the company. Reliance was placed on Anil Hada v. Indian Acrylic Limited and other decisions (Rama Bhushanam and another v. Registrar of Companies; R. Ramachandran v. Yerram Sesha Reddy and another; B. Manipal Reddy v. State of A.P.; Suraj Theatre and others v. Smt. Kakarla Bharathi and another).
- The question whether the amount was tendered and refused is essentially a question of fact to be decided on evidence at trial, and is not a ground for exercising inherent powers to quash the complaint.
Public Prosecutor's Position
- The public prosecutor submitted that this is not a fit case for exercise of the Court's inherent powers under Section 482 Cr.P.C.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| D. Chandra Reddy v. Gourisetti Prabhakar | Relied upon by petitioners to support the proposition that prosecution is not maintainable if the company is not made an accused. | The Court considered this decision but ultimately rejected the contention based on a later Supreme Court authority; it did not follow this precedent as determinative. |
| Pradeep Chandran v. Nimmi Velappan | Relied upon by petitioners for the proposition that tendering the amount and complainant's refusal to accept it bars the complaint/conviction. | The Court held that the principle contended cannot be derived from Sections 138, 141 and 142 of the Negotiable Instruments Act and that tendering during pendency does not automatically absolve penal action; the Court did not accept this precedent as a ground to quash the complaint. |
| Anil Hada v. Indian Acrylic Limited | Relied upon by the 1st respondent to support the proposition that prosecution can be maintained against directors even if the company is not prosecuted. | The Court treated this line of authority as supporting the 1st respondent's position that directors can be prosecuted without the company being impleaded; the Court upheld that view by reference to higher authority. |
| Rama Bhushanam and another v. Registrar of Companies; R. Ramachandran v. Yerram Sesha Reddy and another; B. Manipal Reddy v. State of A.P.; Suraj Theatre and others v. Smt. Kakarla Bharathi and another | These decisions were relied upon by the 1st respondent (specific principles from each decision are not detailed in the opinion). | The Court recorded that these decisions were placed before it by the 1st respondent; the opinion does not elaborate each decision's rule but uses the broader Supreme Court authority to resolve the primary contention. |
| Supreme Court decision (referred to as the "3rd cited" decision and several quoted paras) | The Supreme Court held that prosecution of a company is not a sine qua non for prosecution of its directors; explained the operation of Sections 138 and 141 of the Negotiable Instruments Act, including that a finding that the offence was committed by the company is necessary to convict officers, but prosecution of the company itself is not a prerequisite to prosecute officers. | The Court relied on the Supreme Court's authoritative exposition (quoting paras 12, 13, 5 and 18) to conclude that the complaint is maintainable against the directors even though the company was not prosecuted, and thus disagreed with the petitioners' first contention. |
| This Court's earlier decision reported as 1997 (2) ALT (Cri.) 738 (supra) | Referenced as previously stating similar principles (not fully detailed in the opinion). | The Court observed that the Supreme Court's pronouncements render some earlier decisions of this Court (including the one cited) not good law to the extent they conflict; the present Court followed the Supreme Court authority. |
Court's Reasoning and Analysis
The Court proceeded in two analytical steps corresponding to the two main contentions raised by the petitioners.
-
On the contention that prosecution is not maintainable because the company was not made an accused:
- The Court relied on a Supreme Court decision (referred to in the opinion and quoted at length) which explains the operation of Sections 138 and 141 of the Negotiable Instruments Act. The Supreme Court held that while a company may be the principal offender under Section 138, the statute creates a legal fiction by which persons in charge of and responsible for the company's conduct can also be prosecuted. The proviso to Section 141 affords a defence to those who can prove absence of knowledge or that they exercised due diligence, but the statute does not mandate that the company must always be prosecuted along with its officers.
- Therefore, prosecution of a company is not a sine qua non for prosecuting its directors; officers can be prosecuted even if the company is not impleaded. The ultimate test is whether it can be shown that the offence was actually committed by the company (a matter which can be gone into even if the company is not an accused).
- Applying that authority, the Court found the petitioners' argument unsustainable and held that the complaint is maintainable against the directors.
-
On the contention that tendering the cheque amount (and complainant's refusal) bars the complaint:
- The Court observed that the question of tendering and refusal involves appreciation of evidence and is thus a factual matter to be decided at trial.
- The Court held that the provisions of Sections 138, 141 and 142 of the Negotiable Instruments Act do not support a categorical principle that a tender during the pendency of a criminal complaint, followed by the complainant's refusal to accept payment, automatically prevents conviction or mandates quashing of proceedings.
- The Court accepted that tendering might be a factor for leniency at the stage of sentencing or may be relevant where the offence is susceptible to compounding, but it cannot operate as a ground for completely absolving penal liability under Section 141. Where parties are agreeable, compounding or Lok Adalat settlement is a route for quick resolution; the Court directed the lower court to consider Lok Adalat where appropriate.
Having applied the legal principles (particularly those declared by the Supreme Court) and noting that the matter of tender is one of factual determination, the Court concluded that exercise of inherent jurisdiction under Section 482 was not warranted in the circumstances of the case.
Holding and Implications
DISMISSED — The criminal petition under Section 482 Cr.P.C. seeking quashing of proceedings in C.C. No. 160/99 was dismissed.
Direct Consequences
- The complaint filed before the Additional Judicial First Class Magistrate, Proddatur, will proceed; there is no order quashing the proceedings.
- The Court held that prosecution of a company is not a precondition to prosecuting its directors — the complaint is maintainable against the petitioners (directors) even though the company was not impleaded.
- The fact of tendering the cheque amount (and any refusal to accept) is a factual issue to be determined on evidence; tendering does not automatically absolve the accused from penal action under the Negotiable Instruments Act.
- The Court suggested lower courts may consider Lok Adalat or compounding where parties are agreeable to facilitate quick resolution, but declined to quash proceedings on the basis of tender alone.
Broader Implications
The Court relied on Supreme Court authority to clarify that Sections 138 and 141 must be read to permit prosecution of officers-in-default without necessitating that the company be prosecuted simultaneously; this reinforces that officers may be held independently liable subject to the statutory defenses. The opinion declines to follow earlier inconsistent decisions of this Court to the extent they conflict with the Supreme Court pronouncements.
(1) The petitioners invoke the inherent powers of this court under section 482 cr. P. C. For quashing of the proceedings in c. C. No. 160/99 on the file of addl. Judl. First class magistrate, proddatur.
(2) A brief resume of background of facts is necessary. The petitioners are the accused in c. C. No. 160/99. The petitioners are said to be the directors of malnadu holdings private limited and they are dealing business in the name and style of sengamalam spinners private limited. 1st respondent is the supplier of cotton to sangambalam spinners private limited. It appears that an amount of rs. 9,63,702 - 00 was due from the said firm. Thereupon, the petitioners gave two cheques bearing no. 262394 and 505290 for a sum of rs. 50,000/ - and rs. 1,00,000/ - respectively, drawn on indian overseas bank limited, mannergudi. They are said to have been presented for collection on 16 - 1 - 1999 and 18 - 1 - 1999 respectively and the same were dishonoured due to insufficient funds. The said fact has been informed to the 1st respondent on 27 - 1 - 1999. A telegram was issued on 6 - 2 - 1999 demanding the cheque amount. As the amount was not paid 1st respondent filed the complaint before the i addl. Judicial first class magistrate, proddatur. Aggrieved by the same, the petitioners have preferred this criminal petition.
(3) The learned senior counsel for the petitioners sri p. Gangaiah naidu, assails the proceedings on two grounds. Firstly, he contends that company is not made as an accused to the impugned proceedings and therefore, the petition is not maintainable against the directors of the company. In support his contention, he relied on a decision reported in d. Chandra reddy v. Gourisetti prabhakar. It is also contended by the senior counsel for the petitioners that inspite of tendering the amount by the accused, 1st respondent refused to receive the same and the complaint is not maintainable. Reliance is placed on a decision reported in pradeep chandran v. Nimmi velappan. On the other hand, the learned counsel for the 1st respondent has placed reliance on a decision reported in anil hada v. Indian acrylic limited, and contends that the petition is maintainable though company is not prosecuted, the other directors cannot escape the liability. He has also placed reliance on the following decisions. Rama bhushanam and another v. Registrar of companies, r. Ramachandran v. Yerram sesha reddy and another, b. Manipal reddy v. State of a. P. Suraj theatre and others v. Smt. Kakarla bharathi and another. It is also contended by the learned counsel for the 1st respondent that the question of tendering the amount is a question of fact to be decided on evidence and in that view of the matter the inherent powers cannot be exercised in this case. The learned public prosecutor contends that it is not a fit case to exercise the inherent powers of this court.
(4) Adverting to the 1st contention canvassed by the learned counsel for the petitioners, the supreme court has categorically stated in a decision 3rd cited that the prosecution of a company is not a sine qua non for prosecution of its directors. It is further observed that if the company could not be prosecuted for some reason or other, the other accused cannot escape the liability as can be seen from paragraphs 12 and 13. The relevant portions at paras 12 and 13 read as follows: paras 12 and 13: "when the drawer of the cheque who falls within the ambit of section 138 of the act is a human being or a body corporate or even firm, prosecution proceedings can be initiated against such drawer. In this context the phrase "as well as " used in sub - sec. (l) of sec. 141 of the act has some importance. The said phrase would embroil the persons mentioned in the first category within the tentacles of the offence on par with the offending company. Similarly the words "shall also" in sub - section (2) are capable of bringing the third category persons additionally within the dragnet of the offence on an equal par. The effect of reading section 141 is that when the company is the drawer of the cheque such company is the principal offender under section 138 of the act and the remaining persons are made offenders by virtue of the legal fiction created by the legislature as per the section. Hence the actual offence should have been committed by the company, and then alone the other two categories of persons can also become liable for the offence. If the offence was committed by a company it can be punished only if the company is prosecuted. But instead of prosecuting the company if a payee opts to prosecute only the persons falling within the second or third category the payee can succeed in the case only if he succeeds in showing that the offence was actually committee by the company. In such a prosecution the accused can show that the company has not committed that offence, though such company is not made an accused, and hence the prosecuted accused is not liable to be punished. The provisions do not contain a condition that prosecution of the company is sine qua non for prosecution of the other persons who fall within the second and the third categories mentioned above. No doubt a finding that the offence was committed by the company is sine qua non for convicting those other persons. But if a company is not prosecuted due to any legal snag of otherwise, the other prosecuted persons cannot, on that score alone, escape from the penal liability created through the legal fiction envisaged in section 141 of the act. Suffice it to say that the same principles have been laid down in 1997 (2) alt (cri.) 738 (supra) by this court. It is also observed in a decision (supra) rendered by this court at para 5 as follows: para 5:
"from a reading of section 141 of the act it will be evident that if the person committing an offence under section 138 is a company, then every person, who at the time the offence was committed was in - charge of and was responsible to the company for conducting its business, shall be deemed to be guilty as also the company itself, of the offence and both of them shall be liable to be proceeded against the punished accordingly. It is the proviso which really gives defence to a person, who in in - charge of and responsible to the company for conduct of the business. The proviso says that any person, who proves that the offence was committed without his knowledge or if he proves that he exercised all due diligence to prevent commission of such offence would not be liable for punishment even if he is in - charge of and responsible to the company for the conduct of the business. The section nowhere says that the prosecution shall always be against the company along with, the person in - charge of and responsible to the conduct of the business of the company. Therefore, their liability is dependent. Each of them is independently liable for punishment. As this is the true purport of the section, the court fails to understand as to how it can be urged that the prosecution has to be against both to make it maintainable. When the liability is of each one of them it is perfectly permissible that both can be prosecuted jointly or only one can be prosecuted or both can be prosecuted. "
All the above aspects have been considered by this court in a decision (supra) at para 18 and it reads as follows: para 18:
"a plain reading of section 58 - a (6) (b) of the act would make it clear that it does not contain a condition that the prosecution of the company is sine qua non for prosecution of every officer of the company who is in default. No doubt, a finding that the offence was committed by the company is sine qua non for convicting every officer of the company who is in default. In the absence of a finding that the offence was committed by the company, the officers of the companyalone cannot be convicted. Such findings can be recorded even in the absence of the company being arrayed as an accused in the complaint. It shall always be open to the officers of the company to plead and take defence and contend that the company itself has not committed the alleged offence even in the absence of the company being impleaded as one of the accused. "
In view of the principles laid down in a decision rendered by the supreme court, the decision rendered by this court (supra) cannot be treated as good law. In view of the supreme court decision, i find that the complaint is maintainable against the directors and prosecution of a company is not sine qua non. In that view of the matter, i respectfully disagree with the contention of the learned counsel for the petitioners.
(5) Coming to the aspect of tendering of the amount, it require appreciation of evidence which can be decided at the time of hearing. The principles mentioned in the decision (supra) cannot be followed since the same cannot be culled out from the provisions of sections 138, 141 and 142 of n. i. act. It is not stated under section 142 of n. i. act that if an amount is tendered during the pendency of the criminal complaint and the complainant refuses to accept, no conviction can be given against the accused. Such a principle cannot be culled out from the provisions of sections 138 and 141 of n. i. act. The language of sections 138 and 141 of n. i. act is express and explicit and does not admit of any doubt. It may be a consideration for taking lenient view while awarding punishment and that cannot be a ground for totally giving a clean chit to the accused and discharge from the penal action contemplated under section 141 of n. i. act. In that view of the matter, i respectfully disagree with the principles laid down in the decision (supra) by this court which are not in accordance with the provisions of sections 138,141 and 142 of n. i. act. I am of considered opinion that offering of the amount during the pendency of a case does not absolve any penal action as contemplated under sec. 141 of n. I. Act. It is a different case where both parties are prepared to compound the offence. In any view of the matter, the lower court is directed to look into such matters where the amount is offered and use the services of lok adalat for rendering quick justice, if the offence is compoundable. There is no illegality in taking cognizance of the offence against the petitioners. It is a fit case where inherent powers cannot be exercised in view of my findings stated supra. Moreover, the 1st petitioner being drawer of the cheque is always liable for the offence charged for the above reasons.
(6) In the result, this criminal petition is dismissed.
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