Himanshu vs B. Shivamurthy

REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. 1465 OF 2009

HIMANSHU Appellant(s)

VERSUS

B. SHIVAMURTHY & ANR. Respondent(s)

JUDGMENT

Dr. Dhananjaya Y. Chandrachud, J.

A complaint under Section 138 of the Negotiable

Instruments Act, 1881 was instituted by the respondent against

the appellant. According to the complainant, the appellant had

borrowed a sum of Rs. 4,15,000/- “for his business development”

and on the same day, the appellant issued a cheque drawn on

Karnataka Bank, Hosadurga for an equivalent amount. When the

cheque was presented on 26 December 2003 for encashment to the

State Bank of Mysore, Beligere Branch, the bank returned the

cheque with an endorsement on 29 December 2003 stating that

funds were insufficient. The complainant issued a notice to the

appellant on 19 January 2004 which was served on 28 January

2004.

Signature Not Verified Digitally signed by MANISH SETHI Date: 2019.01.24

Upon the failure of the appellant to pay the amount due 16:19:04 IST Reason:

under the cheque, a complaint was instituted.

The Civil Judge, Junior Division, Tiptur took cognizance 2

on 6 July 2004 and issued summons to the appellant.

The appellant instituted a petition under Section 482 of

the Code of Criminal Procedure, 1973 (“CrPC”) before the High

Court of Karnataka. Paragraph 6 of the petition states the

ground on which the jurisdiction of the High Court was invoked.

“6. The cheque was issued by one of the directors of M/s Lakshmi Cement and Industries Ltd., i.e., on behalf of said company. The said company was public limited company and in order to demonstrate the said fact, the accused herewith produces copies of the memorandum and articles of association of the company alongwith the certification of incorporation of the company and which are marked as ANNEXURE C1, C2 AND C3 respectively.” In paragraph 7, the appellant averred thus:-

“7. … The complainant approached the learned Magistrate with a request to take cognizance against the accused stating that the accused on 23.12.2003 had issued a cheque in his favour and the said cheque was bounced on 26.12.2003 on meticulously going through the cheque dated 23.12.2005 it discloses that the cheque was issued by one of the directors of the company and that was not a cheque issued by any person in his individual capacity. If that is accepted the complaint should have been against the company and its Directors and not against the Accused.”

The appellant submitted that the cheque was issued by a

Director of Lakshmi Cement and Ceramics Industries Ltd., a

public limited company. In other words, the cheque was not

issued by the signatory in his personal capacity. Hence, it

was urged that the complaint ought to have been instituted

against the company and its Directors and not against the

appellant.

3

The High Court by its order dated 24 January 2006

dismissed the petition. The High Court rejected the submissions

urged on behalf of the appellant on the ground that the

complainant had pleaded ignorance about the existence of the

company. Moreover, in the view of the High Court, it would not

be difficult for the complainant to take steps to proceed

against the company as well as against other persons who are

responsible for the affairs of the company.

The judgment of the High Court has been questioned on two

grounds. Learned counsel appearing on behalf of the appellant

submits that firstly, the appellant could not be prosecuted

without the company being named as an accused. The cheque was

issued by the company and was signed by the appellant as its

Director. Secondly, it was urged that the observation of the

High Court that the company can now be proceeded against in the

complaint is misconceived. Learned counsel submitted that the

offence under Section 138 is complete only upon the issuance of

a notice of demand and the failure of payment within the

prescribed period. In absence of compliance with the

requirements of Section 138, it is asserted, the direction of

the High Court that the company could be impleaded/arraigned at

this stage is erroneous.

The first submission on behalf of the appellant is no

longer res integra. A decision of a three Judge Bench of this

Court in Aneeta Hada vs. Godfather Travels and Tours Private

Limited1 governs the area of dispute. The issue which fell

1 (2012) 5 SCC 661 4

for consideration was whether an authorized signatory of a

company would be liable for prosecution under Section 138 of

the Negotiable Instruments Act, 1881 without the company being

arraigned as an accused. The three Judge Bench held thus:-

“58. Applying the doctrine of strict construction, we are of the considered opinion that commission of offence by the company is an express condition precedent to attract the vicarious liability of others. Thus, the words “as well as the company” appearing in the section make it absolutely unmistakably clear that when the company can be prosecuted, then only the persons mentioned in the other categories could be vicariously liable for the offence subject to the averments in the petition and proof thereof. One cannot be oblivious of the fact that the company is a juristic person and it has its own respectability. If a finding is recorded against it, it would create a concavity in its reputation. There can be situations when the corporate reputation is affected when a director is indicted.”

In similar terms, the Court further held:

“59. In view of our aforesaid analysis, we arrive at the irresistible conclusion that for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the drag-net on the touchstone of vicarious liability as the same has been stipulated in the provision itself…. “

The judgment of the three Judge Bench has since been

followed by a two Judge Bench of this Court in Charanjit Pal

Jindal vs. L.N. Metalics2. There is merit in the second

submission which has been urged on behalf of the appellant as

2 (2015) 15 SCC 768 5

well. The proviso to Section 138 contains the pre-conditions

which must be fulfilled before an offence under the provision

is made out. These conditions are; (i) presentation of the

cheque to the bank within six months from the date on which it

is drawn or within the period of its validity, whichever is

earlier; (ii) a demand being made in writing by the payee or

holder in due course by the issuance of a notice in writing to

the drawer of the cheque within thirty days of the receipt of

information from the bank of the return of the cheques; and

(iii) the failure of the drawer to make payment of the amount

of money to the payee or the holder in due course within

fifteen days of the receipt of the notice.

In MSR Leathers vs. S. Palaniappan3, this Court held

thus :-

“12. The proviso to Section 138, however, is all important and stipulates three distinct conditions precedent, which must be satisfied before the dishonour of a cheque can constitute an offence and become punishable. The first condition is that the cheque ought to have 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. The second condition is that the payee or the holder in due course of the cheque, as the case may be, ought to make 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. The third condition is that the drawer of such a cheque should have failed to make 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. It is only upon the satisfaction of all the three conditions

3 (2013) 1 SCC 177 6

mentioned above and enumerated under the proviso to Section 138 as clauses (a), (b) and (c) thereof that an offence under Section 138 can be said to have been committed by the person issuing the cheque.”

The importance of fulfilling these conditions has been

adverted to in a recent judgment of a two Judge Bench of this

Court in N. Harihara Krishnan vs. J. Thomas4.

Adverting to the ingredients of Section 138, the Court observed

as follows:

“26. ….Obviously such complaints must contain the factual allegations constituting each of the ingredients of the offence under Section 138. Those ingredients are: (1) that a person drew a cheque on an account maintained by him with the banker; (2) that such a cheque when presented to the bank is returned by the bank unpaid; (3) that such a cheque was presented to the bank within a period of six months from the date it was drawn or within the period of its validity whichever is earlier; (4) that the payee demanded in writing from the drawer of the cheque the payment of the amount of money due under the cheque to payee; and (5) such a notice of payment is made within a period of 30 days from the date of the receipt of the information by the payee from the bank regarding the return of the cheque as unpaid...” In the present case, the record before the Court

indicates that the cheque was drawn by the appellant for

Lakshmi Cement and Ceramics Industries Ltd., as its Director.

A notice of demand was served only on the appellant. The

complaint was lodged only against the appellant without

arraigning the company as an accused.

The provisions of Section 141 postulate that if the

person committing an offence under Section 138 is a company,

4 (2018) 13 SC 663 7

every person, who at the time when the offence was committed

was in charge of or 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.

In the absence of the company being arraigned as an

accused, a complaint against the appellant was therefore not

maintainable. The appellant had signed the cheque as a Director

of the company and for and on its behalf. Moreover, in the

absence of a notice of demand being served on the company and

without compliance with the proviso to Section 138, the High

Court was in error in holding that the company could now be

arraigned as an accused.

We, accordingly, are of the view that the High Court was

in erorr in rejecting the petition under Section 482 of the

CrPC.

We hence allow the appeal and set aside the judgment of

the High Court. In consequence, the complaint, being C.R.P No.

27/2004 shall stand quashed.

During the pendency of these proceedings, this Court on

28 November 2008 recorded the statement of the appellant that

he was willing to deposit the entire cheque, and hence issued

the following directions:

“Learned counsel appearing for the petitioner submits that petitioner is willing to deposit the entire cheque amount which was dishonoured in this Court.

Let the amount be deposited in this Court within four weeks from today and on deposit of the 8

amount within the aforesaid period, Registry to issue fresh notice to the respondent as respondent is not represented till date. The amount, so deposited, shall be invested in a fixed deposit in a nationalised bank initially for a period of six months and may be kept renewed from time to time until further orders.”

In pursuance of the aforesaid directions, the appellant

deposited an amount of Rs. 4,15,000/- on 23 February 2009.

The amount has been invested in a fixed deposit which has been

renewed periodically.

In our view, having regard to the intent of the order

which was passed by this Court on 28 November 2008, it would be

appropriate and proper if the amount deposited in this Court,

together with accrued interest, is paid over to the respondent-

complainant.

The Registry shall, accordingly, issue a communication to

the respondent intimating a copy of the present order (since

the respondent has not appeared despite service of notice. The

amount shall be disbursed to the respondent against proof of

identity.

The criminal appeal is, accordingly, disposed of.

Pending application(s), if any, shall also stand disposed

of.

...…...….......………………........J. (DR. DHANANJAYA Y. CHANDRACHUD)

…...…........……………….…........J. (HEMANT GUPTA) NEW DELHI, January 17, 2019 9

ITEM NO.103 COURT NO.11 SECTION II-C

S U P R E M E C O U R T O F I N D I A RECORD OF PROCEEDINGS

Criminal Appeal No(s). 1465/2009

HIMANSHU Appellant(s)

VERSUS

B. SHIVAMURTHY & ANR. Respondent(s)

Date : 17-01-2019 This appeal was called on for hearing today.

CORAM :

HON'BLE DR. JUSTICE D.Y. CHANDRACHUD HON'BLE MR. JUSTICE HEMANT GUPTA

For Appellant(s) Mr. Rohan Thawani, Adv.

Mr. Prashant Kumar, AOR Mr. Dhawesh Pahuja, Adv. Mr. Joseph Pookkatt, Adv.

For Respondent(s) Mr. V. N. Raghupathy, AOR Mr. Parikshit P. Angadi, Adv. Md. Apzal Ansari, Adv.

UPON hearing the counsel the Court made the following O R D E R

The criminal appeal is disposed of in terms of the signed

reportable judgment.

Pending application(s), if any, shall stand disposed of.

(MANISH SETHI) (SAROJ KUMARI GAUR) COURT MASTER (SH) BRANCH OFFICER

(Signed reportable judgment is placed on the file)