Raja Vijayaraghavan V., J.:— Whether the proprietor of concern can be held criminally liable under section 138 of the Negotiable Instruments Act, 1881 (‘N.I Act’, for short) for dishonor of a cheque drawn by his authorised signatory? Or alternatively can the authorized signatory who has drawn the cheque be successfully prosecuted under section 138 of the Negotiable Instruments Act notwithstanding the fact that the cheque has not been drawn on an account maintained by him? These are the subtle questions that arises for consideration in these petitions filed under section 482 of the Code of Criminal Procedure. The answers to these questions would decide the fate of these Criminal Miscellaneous Cases which have been referred to the Division Bench under section 3 of the High Courts Act by a learned Single Judge of this Court. The learned Single judge while referring the matter has disagreed with the view taken by another single Judge in Jayaprabha Harikumaran Thampi v. Don Bosco [2015 (1) KLT 1022].
2. Before dealing with the question of law involved, we may briefly advert to the allegations in the complaints which have been annexed to the petitions.
3. There are two sets of cases.
4. Crl.M.C Nos. 6719, 6725, 7133 of 2014 and Crl.M.C Nos. 8174, 8430 of 2016 are filed under section 482 of the Code of Criminal Procedure by the Chairman and Proprietor of Universal Group of Institutions, Fort Road, Kannur seeking termination of criminal proceedings initiated against him by the respective complainants. In all these cases, the allegation is that the proprietorship concern borrowed various sums of money from individuals and in discharge of the liability, the authorized signatory, who is also arrayed as a co-accused, issued cheques which when presented were dishonored.
5. Crl.M.C No. 3909 of 2016 is a petition filed under section 482 of the Code of Criminal Procedure by the 2nd accused in S.T No. 55 of 2016 on the file of the Chief Judicial Magistrate, Kottayam. The prosecution allegation is that the petitioner is the Manager of Allianz Financial Corporation, a private financial institution, of which the 1st accused is the proprietor. Towards liability due to the complainant, the petitioner in his capacity as the office manager, is alleged to have issued a cheque which was dishonored on its presentation. This has led to the institution of the prosecution under section 138 of the N.I Act.
6. In the first set of cases, the contention advanced by the learned counsel is based on Jayaprabha (supra). According to the petitioner, though he is the proprietor and he is the person who is maintaining the account, the cheque has been signed and issued by the authorised signatory. This, according to the petitioner, will not satisfy the mandate under section 138 of the N.I Act.
7. In the solitary petition filed by the office manager, in order to persuade the court to invoke its extraordinary power, it is contended that the prosecution cannot be sustained as the account is maintained by the proprietary concern and the drawer, not being the account holder, cannot be held liable.
8. Before proceeding further, we may indicate that in Jayaprabha (supra), the brief fact was that for discharge of the liability due, a cheque was issued by the authorised signatory of a proprietorship concern to its creditor. The proprietor incidentally was the wife of the power of attorney holder. The power holder was authorized to operate the bank account of the concern independently. When the cheque drawn by the power holder was dishonored, prosecution proceedings were initiated before the learned Magistrate. In the trial which followed, the wife/proprietor was convicted of the offence. The said finding was confirmed in appeal as well and the matter was taken up before this Court in revision. As the cheque was drawn by the power of attorney holder and not the proprietor, a contention was taken that the conviction arrived at by the trial court and confirmed in appeal cannot be sustained against the proprietor who admittedly had not drawn the cheque. The learned single Judge after a detailed analysis of the various provisions and precedents went on to hold that vicarious criminal liability cannot be attributed upon the principal as the cheque had been signed and issued by the power of attorney holder. It was also observed that the power of attorney holder cannot escape penal liability by contending that he had signed the cheque only on the strength of the authority given to him by his principal and not in his individual capacity. The exculpation from criminal liability of the principal for the reasons stated in the order has been doubted in this reference.
9. It appears that while doubting Jayaprabha (supra), the learned Single Judge was persuaded to follow the decision of the Madras High Court in Ravi Chandran v. Subramonium [2006 (1) KLT 611] and a few other decisions, wherein it was held that the sole proprietor/sole proprietary concern being the mandate giver and authorized signatory/power of attorney holder being the mandate holder, the liability in such cases for the offence under section 138 of the N.I Act could only be attributed to the mandate giver, who is the principal and not the mandate holder, who is only an authorized signatory/power of attorney holder.
10. We have had the advantage of hearing Sri. Saiju Hassan, the learned counsel appearing for the petitioner in Crl.M.C Nos. 6719, 6725 & 7133 of 2014, 8174, 8430 of 2016 and Sri. V.K Sunil, the learned counsel appearing for the petitioner in Crl.M.C No. 3909 of 2016. Sri. P. Chandrasekhar, Sri. K.P Sreekumar and Sri. V.A Satheesh advanced arguments for and on behalf of the respondents.
11. Sri. Saiju Hassan, the learned counsel for the petitioner, submitted that the Act was enacted and Section 138 was incorporated with a specified object of making a special provision by incorporating a strict liability, so far as the cheques, a negotiable instrument is concerned. According to the learned counsel, unless the conditions set out in Section 138 of the N.I Act are satisfied, no criminal liability can be fastened. Elaborating further, it is submitted that the petitioner had given franchises of his proprietary concern to different persons in different areas and the franchisees were authorized to function independently. The petitioner had only authorized them to use the label, logo and name of the proprietorship firm. The said franchisees had, in their individual capacity, signed and issued cheques to the respective complainants. In that view of the matter, the prosecution proceeding is nothing but an abuse of process as the very basic ingredient of the offence, that the cheque has to be drawn on an account maintained by the person issuing the cheque, has not been satisfied. Reliance was placed on the decision of a single Judge of the Gujarat High Court in Krishna Trading Company, Proprietorship Firm v. State of Gujarat [2017 GLH (2) 87] to contend that the view taken by this Court in Jayaprabha (supra) has been referred to and relied on by other courts as well. The learned counsel appearing for the petitioner in Crl.M.C No 3909 of 2016 on the other hand contended that the power of attorney, not being the person who maintains the account, cannot be held penally liable when the cheque is dishonored for want of funds.
12. The learned counsel appearing for the respondents on the other hand would contend that the authorised signatory/power of attorney holder is not the drawer of the cheque in the real sense nor is he the account holder. According to the learned counsel, the mandate giver, who is the petitioner cannot shrug off the liability under the Act by harping on the fact that he is not the signatory of the cheque. It is further contended that Jayaprabha (supra) does not lay down the correct law. Reliance was placed on the decisions of a Single Judge of the Madras High Court in G. Rukkumani v. K. Rajendran [2001 CriLJ 3120], and Ravi Chandran v. Subramanian [2006 (1) KLT 611] and that of the Calcutta High Court in Sova Mukherjee v. Rajiv Mehra [1997 Current Criminal Reports 313] to bring home their point.
13. The learned counsel appearing for the respondents in Crl.M.C No. 3909 of 2016 would contend that ‘power of attorney’ is an instrument by which a person is authorized to act as the agent of the person granting it. Referring to section 26 of the N.I Act, it is submitted that every person capable of contracting according to law, may bind himself, and therefore when the power holder was empowered to sign the cheque, he cannot escape from the liability by contending that he had signed the cheque only on the strength of the authority granted to him and not in his individual capacity. It is further contended that the learned Single Judge in Jayaprabha (supra) had held that the power of attorney holder, who ordered payment, and signed the cheque is liable to be proceeded against and hence sought for dismissal of the petition.
14. We have considered the submissions advanced. For understanding the nuances of the question involved we may directly refer to Section 138 of the N.I Act which reads as follows:—
138. Dishonour of cheque for insufficiency, etc., of funds in the account. - Where any cheque drawn by a person on an amount maintained by him with a banker for the 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 that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may be extend to two years, 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 us 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 thirty 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”.
(emphasis supplied)
15. The main part of the penal provision can be segregated into three compartments, namely,
(i) the cheque is drawn by a person,
(ii) the cheque drawn on an account maintained by him with the 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 a debt or other liability, is returned unpaid, either because the amount of money standing to the credit of that account is insufficient to honour the cheque or it exceeds the amount arranged to be paid from that account by an arrangement made with the bank; and
(iii) such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of the Act, be punished with imprisonment for a term which may extend to two years or with fine which may extend to twice the amount of the cheque or with both. The proviso to the said section postulates under what circumstances the section shall not apply.
16. It will not be out of place to state that the main part of the provision deals with the basic ingredients and the proviso deals with certain circumstances and lays certain conditions where it will not be applicable. The emphasis has been laid on the factum that the cheque has to be drawn by a person on an account maintained by him and he must have issued the cheque in discharge of any debt or other liability. Section 7 of the NI Act defines ‘drawer’ to mean the maker of a bill of exchange or a cheque. In Black's Law Dictionary, Ninth Edition, “drawer” is defined as “One who directs a person or entity, usu. a bank, to pay a sum of money stated in an instrument - for example, a person who writes a cheque; the maker of a note or draft”. “Maker” is defined in Black's dictionary as “a person who signs a promissory note”. The drawer under section 7 of the Act can be a natural person or an incorporated person or a body of persons whether incorporated or not.
17. We must immediately note that we are only concerned with cases wherein cheques have been issued by authorized signatories for and on behalf of the proprietary concern. As contrasted from a company incorporated under the Companies Act, 1956 which is a legal entity distinct from its share holders, a proprietary concern is not a legal entity distinct from its proprietor. A proprietary concern is nothing but an individual trading under a trade name. A person may carry on business in the name of a business concern, but he being proprietor thereof, would be solely responsible for conduct of its affairs.
18. The normal rule in cases involving criminal liability is against vicarious liability, that is, no one is to be held criminally liable for an act of another. This normal rule is, however, subject to exception on account of specific provision being made in the statutes extending liability to others.
19. However, in the case of companies and body corporate, Section 141 of the N.I Act extends such criminal liability to every person who at the time of the offence, was in charge of and was responsible for the conduct of the business of the Company or the body corporate. By a deeming provision contained in Section 141, such a person is vicariously liable to be held guilty for the offence under Section 138 of the N.I Act and punished accordingly. The word ‘deemed’ used in S.141 of the Act applies to the company and the persons responsible for the acts of the company. It crystallizes the corporate criminal liability and vicarious liability of a person who is in charge of the company at the time when the offence is said to have been committed. The criminal liability on account of dishonour of a cheque primarily falls on the drawer company and is extended to its officers. S.141 contains conditions which have to be satisfied before the liability can be extended to officers of a company even though they are not the signatory of the cheque. Since the provision creates criminal liability, the conditions have to be strictly complied with. The conditions are intended to ensure that a person who is sought to be made vicariously liable for an offence of which the principal accused is the company, had a role to play in relation to the incriminating act and further that such a person should know what is attributed to him to make him liable. These principles have been reiterated by the Apex Court in Raghu Lakshminarayanan v. Fine Tubes [(2007) 5 SCC 103]; Shankar Finance and Investments v. State of Andra Pradesh [(2008) 8 SCC 536], and in Aneeta Hada v. Godfather Travels and Tours Private Ltd. [(2012) 5 SCC 661].
20. It appears from the complaints, which fact is not disputed before us, that in all the cases the authorized signatory had ordered payment, signed and issued the cheques purportedly on the authority granted by the principal. It has to be borne in mind that a criminal prosecution under section 138 of the N.I Act is neither for recovery of money nor for enforcement of any security etc. Section 138 of the N.I Act is a penal provision the commission of which offence entails a conviction and sentence on proof of the guilt in a duly conducted criminal proceedings. Once the offence under Section 138 of the N.I Act is completed, the prosecution proceedings can be initiated not for recovery of the amount covered by the cheque but for punishing the offender. The offender can be punished with imprisonment for a period upto two years or he can be imposed with fine which may extend to twice the amount of the cheque. In other words, the jurisdictional court trying the offence is concerned with a criminal liability under penal provision and not a civil liability. The penal provision, needless to say, must be strictly construed in the first place. Secondly, there is no vicarious liability in criminal law unless the statute takes that also within its fold. In other words, a person can be held liable only if his action squarely falls within the four walls of the penal provision and not otherwise. Section 138 of the NI Act creates a penal liability and as a natural corollary, the same should also receive a strict interpretation.
21. In Aneeta Hada v. Godfather Travels and Tours Private Ltd. [(2012) 5 SCC 661], the Apex Court had this to say while emphasizing that a strict construction of the provision is warranted when the liability is penal in nature.
53. ……………..There can be no dispute that as the liability is penal in nature, a strict construction of the provision would be necessitous and, in a way, the warrant.
54. In this context, we may usefully refer to S.263 of Francis Bennion's Statutory Interpretation where it is stated as follows:
‘A principle of statutory interpretation embodies the policy of the law, which is in turn based on public policy. The Court presumes, unless the contrary intention appears, that the legislator intended to conform to this legal policy. A principle of statutory interpretation can therefore be described as a principle of legal policy formulated as a guide to legislative intention.
55. It will be seemly to quote a passage from Maxwell's The Interpretation of Statutes (12th Edition):
‘The strict construction of penal statutes seems to manifest itself in four ways: in the requirement of express language for the creation of an offence; in interpreting strictly words setting out the elements of an offence; in requiring the fulfilment to the letter of statutory conditions precedent to the infliction of punishment; and in insisting on the strict observance of technical provisions concerning criminal procedure and jurisdiction.’
22. We may now refer to some decisions of the Apex Court which would shed ample light on the questions raised.
23. In Mrs. Aparana A. Shah v. Sheth Developers Pvt. Ltd. ((2013) 8 SCC 71 : AIR 2013 SC 3210), the Apex Court while interpreting the provisions of section 138 of the N.I Act, has held that a prosecution under the Act can only be sustained against the drawer. That was a case wherein the husband had drawn the cheque on an account jointly maintained with his wife. The Apex Court held that in case of issuance of a cheque from joint account, a joint account holder cannot be prosecuted unless the cheque has been signed by him or her though he was a joint account holder. It was held as follows:
“We also hold that under Section 138 of the N.I Act, in case of issuance of cheque from joint accounts, a joint account holder cannot be prosecuted unless the cheque has been signed by each and every person who is a joint account holder. The said principle is an exception to Section 141 of the N.I Act which would have no application in the case on hand. The proceedings filed under Section 138 cannot be used as an arm twisting tactics to recover the amount allegedly due from the appellant. It cannot be said that the complainant has no remedy against the appellant but certainly not under Section 138. The culpability attached to dishonour of a cheque can, in no case “except in case of Section 141 of the N.I Act” be extended to those on whose behalf the cheque is issued. This Court reiterates that it is only the drawer of the cheque who can be made an accused in any proceeding under Section 138 of the Act.
… ………(emphasis supplied)
24. Thus it was held in unmistakable terms that the culpability attached to dishonor of a cheque can in no case “except in case of section 141 of the NI Act” be extended to those on whose behalf the cheque is issued. This according to us will seal the issue and by no stretch of imagination can a non drawer be held liable for a cheque on the sole ground that the cheque was issued for and on his behalf.
25. In Jugesh Sehgal v. Shamsher Singh Gogi [(2009) 14 SCC 683], four members of a family were proceeded against for having committed the offence under section 138 of the N.I Act. The cheque was admittedly drawn by one of the accused though on an account maintained by a third person. The proceedings against the non signatories of the cheque were quashed by the High Court. However, qua the appellant, holding that disputed questions were involved, the High Court refused to invoke its extraordinary inherent powers under section 482 of the Code. While allowing the appeal, it was held by the Apex Court as follows:
9. It is manifest that to constitute an offence under S.138 of the Act, the following ingredients are required to be fulfilled:
(i) a person must have drawn a cheque on an account maintained by him in a bank for payment of a certain amount of money to another person from out of that account;
(ii) The cheque should have been issued for the discharge, in whole or in part, of any debt or other liability;
(iii) that 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;
(iv) that cheque is returned by the bank unpaid, either because of the amount of money standing to the credit of the 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;
(v) the payee or the holder in due course of the cheque 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 15 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid;
(vi) the drawer of such cheque fails to make payment of the said amount of money to the payee or the holder in due course of the cheque within 15 days of the receipt of the said notice;
10. Being cumulative, it is only when all the aforementioned ingredients are satisfied that the person who had drawn the cheque can be deemed to have committed an offence under S.138 of the Act.
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17. As already noted hereinbefore, in para 3 of the complaint, there is a clear averment that the cheque in question was issued from an account which was non existent on the day it was issued or that the account from where the cheque was issued ‘pertained to someone else’. As per complainant's own pleadings, the bank account from where the cheque had been issued, was not held in the name of the appellant and therefore, one of the requisite ingredients of S.138 of the Act was not satisfied. Under the circumstances, continuance of further proceedings in the complaint under S.138 of the Act against the appellant, would be an abuse of the process of the Court. In our judgment, therefore, the decision of the High Court cannot be sustained.
(emphasis supplied)
26. In other words, only when all the ingredients of the offence are satisfied can the person who has drawn the cheque be deemed to have committed the offence under section 138 of the Act. It was specifically held that when the bank account, from where the cheque was issued was not held in the name of the issuer, the said person cannot be held liable for the offence under the Act.
27. In the case of liability of the manager/power of attorney holder/authorized signatory, who draws the cheque, the Gujarat High Court in Krishna Trading Company (supra) as well as this Court in Jayaprabha (supra) has held that the person who ordered payment and signed the cheque is primarily liable to be proceeded against for the commission of the offence under section 138 of the N.I Act. We are unable to accept the said view.
28. Admittedly the account is not maintained by the power of attorney/mandate holder. It is one thing to say that a complaint can be filed by the power of attorney holder for and on behalf of the principal. That principle has been evolved on different considerations arising from civil law implications of agency. Reference can be made to the decision of the Apex Court in A.C Narayanan v. State of Maharashtra [(2014) 11 SCC 790 : AIR 2014 SC 630]. However, it is yet another thing to say that the mandate holder can be convicted for the penal liability incurred by the principal. There cannot be any doubt that the deemed liability under section 141 will not apply in the case of an individual or a proprietorship concern. Further the principle of agency is a concept of Civil liability which cannot be extended to fix penal liability when the penal provision does not allow the court to do so.
29. Accordingly, we hold that under section 138 of the N.I Act, when the prosecution is initiated against an individual or a proprietary concern, it is only the drawer of the cheque who can be prosecuted, provided that the account is maintained by the said person. Neither the non signatory can be prosecuted nor can prosecution be sustained against a person in whose name the account is not maintained. The cumulative ingredients of the offence as laid down in Jugesh Sehgal (supra) will have to be strictly satisfied.
30. The next question for consideration is whether or not in the light of the aforementioned factual and legal position, the petitioners have made out a case for invocation of powers under S.482 of the Code.
31. The scope and ambit of powers of the High Court under S.482 of the Code has been enunciated and reiterated by the Apex Court and it would be necessary for us to burden this order with citations. It would suffice to state that though the powers possessed by this Court under the said provision are very wide but these should be exercised only in appropriate cases, ex debito justitiae to do real and substantial justice for the administration of which alone the Courts exist. The inherent powers do not confer an arbitrary jurisdiction on the High Court to act according to whim or caprice. The powers have to be exercised sparingly, with circumspection and in the rarest of rare cases, where the Court is convinced, on the basis of material on record, that allowing the proceedings to continue would be an abuse of the process of the Court or that the ends of justice require that the proceedings ought to be quashed. (See - Janata Dal v. H.S Chowdhary [(1992) 4 SCC 305], Kurukshetra University v. State of Haryana [(1977) 4 SCC 451] and State of Haryana v. Bhajan Lal [1992 Supp (1) SCC 335].
32. The purport of the expression ‘rarest of rare cases’ has been explained very in Som Mittal v. Government Of Karnataka [(2008) 3 SCC 574], wherein it was held that the power under S.482 to quash the proceedings should not be used mechanically or routinely, but with care and caution, only when a clear case for quashing is made out and failure to interfere would lead to a miscarriage of justice.
33. Bearing in mind the above legal position, we are of the opinion that the petitioners have clearly made out a case for quashing the proceedings under section 482 of the Code.
34. In view of the above discussion, we hold that the petitioner in Crl.M.C Nos. 6719, 6725, 7133 of 2014 & 8174, 8430 of 2016, who being the proprietor of M/s. Universal Group of Institutions, being a non signatory to the cheques issued by the Executive Director, cannot be held liable for the offence under section 138 of the N.I Act. To that extent, we affirm the view of the learned Single Judge in Jayaprabha (supra).
35. In Crl.M.C.3909 of 2016, as the cheque has not been drawn on an account maintained by the drawer but on an account maintained by the concern, the prosecution against the petitioner cannot be sustained.
36. In the result,
i) All petitions are allowed.
ii) All proceedings pending against the petitioner in Crl.M.C Nos. 6719, 6725, 7133 of 2014 & 8174, 8430 of 2016 who is the 1 accused in S.T Nos. 1332, 1333 and the 2 accused in S.T No. 2535 of 2013 on the file of the Judicial Magistrate of First Class-I, Kannur and in S.T Nos. 1432 of 2013, 3475 of 2015 on the file of the Judicial Magistrate of First Class, Thaliparamba are quashed.
iii) All proceedings pending against the petitioner in Crl.M.C No. 3909 of 2016, who is the 2 accused in S.T No. 55 of 2016 on the file of the Chief Judicial Magistrate, Kottayam are quashed.
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