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Reportable  

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO.1220 of 2009

KIRSHNA TEXPORT &  CAPITAL MARKETS LTD.       …. Appellant

Versus

ILA A. AGRAWAL & ORS.    …. Respondents

J U D G M E N T  

Uday Umesh Lalit, J.

1. This appeal by Special Leave is directed against the order dated 6.5.2008

passed  by  the  High  Court  of  Judicature  at  Bombay  rejecting  Criminal

Application No. 2174 of 2007 preferred by the appellant for leave to appeal.

2. On  14.09.1996  a  notice  under  Section  138  of  the  ‘Negotiable

Instruments  Act,  1881’(hereinafter  referred  to  as  “the  Act”)  was  issued  on

behalf  of  the appellant  to M/S Indo French Bio Tech Enterprises Ltd (‘the

Company’ for short).   The notice stated that a cheque bearing No. 364776

dated 8.9.1996 drawn by the Company on Dena Bank,  New Marine Lines,

Mumbai  in  favour  of  the  appellant  was  returned  on  10.9.1996  with

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endorsement  “funds  insufficient”.  The  notice  therefore  called  upon  the

addressee to make the payment of the cheque amount within 15 days of the

receipt  of  such  notice.  No  reply  was  sent  to  the  aforesaid  notice  dated

14.9.1996.

3. The appellant thereafter filed Complaint Case No. 243/S/1996 before the

Additional Chief Metropolitan Magistrate, 5th Court at Dadar, Mumbai against

the Company, Mr. K.J. Bodiwala, the Chairman and Managing Director of the

Company and 11 other directors including respondents 1 and 2.  In so far as the

directors are concerned, it was averred that they were in-charge of the business

of  the  Company  and  its  day  to  day  affairs  and  were  liable.   During  the

pendency of said complaint case, the process issued against Accused Nos. 3 to

5, 7, 9 to 13 was recalled and due to the death of Mr. Bodiwala the proceedings

as  against  him  also  abated,  which  left  the  Company  and  the  present

respondents 1 and 2 namely Ms. Ila A. Agrawal and Mr. Prafulla Ranadive,

Accused Nos. 6 and 8 respectively in the array of accused.

4. It was submitted by the appellant that separate notices to the directors

were additionally issued but at the stage of evidence it turned out that such

individual notices to the directors were with respect to dishonour of a different

cheque. The facts as found therefore were that no individual notices were given

to the directors. The Metropolitan Magistrate by his judgment and order dated

30.4.2007 convicted the Company but acquitted respondents 1 and 2 of the

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offence punishable under Section 138 of the Act. Relying on the judgment of

the  Division  Bench of  Madras  High Court  in  B.  Raman & Ors. Vs.  M/s.

Shasun Chemicals and Drugs Ltd. reported in 2006 Cril. L.J. Page 4552, it

was observed that statutory notice under Section 138 of the Act was required to

be  issued  to  every  Director  and  for  non-  compliance  of  such  mandatory

requirement respondents 1 and 2 could not be  proceeded against.   .

5.  The appellant being aggrieved filed Criminal Application No. 2174 of

2007 in the High Court seeking leave to prefer appeal against the judgment

acquitting respondents 1 and 2.  It was submitted that it was not necessary to

serve individual notice upon the directors and it was sufficient if the notice was

served on the Company. Reliance was placed on the decision of a Single Judge

of  the  Calcutta  High  Court  in  the  case  of  Girish  Chandra  Pandey Vs.

Kanhaiyalal Chandak and Ors. reported in 1999 ALL MR (CRI) JOURNAL

3, wherein it was held that if the partnership firm failed to give the amount

within  the stipulated  time after  receipt  of  notice,  each partner  need not  be

served with a separate notice individually. So also reliance was placed on the

decision of a Single Judge of Delhi High Court in the case of Jain Associates

and  Ors. Vs.  Deepak  Chawdhary  & Co.  reported  in  80  (1999)  DLT 654,

wherein it was laid down that Section 141 of the Act does not require that each

and every partner of the firm is required to be issued notice.

Similar view was taken by High Court of Andhra Pradesh in K. Pannir

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Selvan vs. MMTC and another reported in (2000) Cr. L.J. 1002 and by Delhi

High Court in Ranjit Tiwari vs. Narender Nayyar reported in  191 (2012) DLT

318.

6. The  High  Court,  relying  on  the  judgment  of  the  Division  Bench  of

Madras High Court B. Raman & Ors. (supra) observed that it was mandatory

to have issued separate notices to the directors.  The High Court concluded

thus:-

“If  the  legal  fiction  is  created  by  Section  141  to  make directors who are responsible for day to day affairs of the Company,  punishable  under  Section  138,  then  it  is necessary that they get an opportunity to rectify, the mistake or clarify matters after service of notice. So before making the complaint against the directors, notice necessarily must be served on them. In my opinion without service of notice to accused Nos.  6  & 8,  vicarious liability  of  the offence under Section 138 cannot be fixed upon them.”

 7. At this stage the decision of the Division Bench of Madras High Court in

B. Raman & others (Supra) may also be referred to.  Para 2 of said decision

sets  out  that  the  matter  was  referred  to  the  Division  Bench  as  a  result  of

divergent views taken by Single Judges of the Court. Paras 25 and 26 of the

decision are as under:-

“25. Under Section 141 (1), the persons in charge of and responsible  to  the  Company  shall  be  deemed  to  have committed  the  offence.  Under  sub  section  (2),  even  the persons,  who  are  not  stated  to  be  in  charge  of  and responsible  to  the  Company,  can  be  prosecuted,  if  it  is alleged  and  proved  that  the  offence  has  been  committed with the consent or connivance of, or is attributable to, any

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neglect on the part of any of those persons prosecuted. So, these Sections would provide that when there are Directors, who are responsible for the conduct of the business of the Company, and when there are other  officers,  with whose consent the offence has been committed, the complainant shall make averments to the said effect.   In that context, the complainant  has  to  start  the  process  of  getting  back  the cheque  amount  from  those  persons,  who  represent  the Company, in  order  to  avoid  the  filing  of  the  Complaint against  them.   In  the  said  process,  he  has  to  necessarily make a demand from those persons, who are part and parcel of the drawer.  Only when the process fails, the cause of action,  as  envisaged  in  Section  138,  would  arise  against them,  to  enable  the  complainant  to  approach  the  Court, within the stipulated time.  So, the starting of the process is, the  service  of  notice  on  the  persons,  who  represent  the Company, the drawer of the cheque.

26. The object  of  the notice is  to give a  chance to the drawer of  the cheque to rectify his  omission and also to protect an honest drawer. Service of notice of demand in Clause  (b)  of  the  proviso  to  Section  138  is  a  condition precedent  for  filing  a  complaint  under  Section  138.  By sending a notice  to the Company as well as the persons in charge of and responsible fore the conduct of the business of the company, he can make a demand, asking them to pay the amount. Some may reply that they are not in charge of and  responsible  for the  conduct  of  the  business  of  the Company. Some may reply that they are not connected with the  Company  in  any  way  and  some  may  rectify  the omission, by making efforts to pay the amount to the payee, in the name of the Company, in that event, the complainant may either drop the action of filing the Complainant or, in the event of non-payment of the cheque amount, he may choose  the  persons,  who  are  really  responsible  fore  the commission  of  offence  and,  then,  initiate  prosecution against them.”

8. It was submitted by Mr. Ajit Anekar, learned Advocate for the appellant

that  Section  138  does  not  contemplate  issuance  of  separate  notices  to  the

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directors and that no such requirement ought to be read into said Section. Mr.

Shree Prakash Sinha and Mr. Ashok Bhatia, learned Advocates appearing for

respondents relied upon the decision of the Division Bench of Madras High

Court in B. Raman & others   (Supra). It was submitted that though the issue

whether  such  separate  notices  are  mandatorily  required  to  be  given  to  the

Directors had not squarely arisen, paras 10 & 11 of the decision of this Court in

N.K. Wahi v Shekhar Singh1 did speak of such notices. We quote said paras 10

& 11:-

“10. In order to bring application of Section 138 the complaint must show:  1 That Cheque was issued;  2. The same was presented;  3. It was dishonored on presentation;  4. A notice in terms of the provisions was served on the person sought to be made liable;  5. Despite service of notice, neither any payment was made nor other  obligations,  if  any, were  complied  with  within  fifteen days from the date of receipt of the notice.  

11.  Section  141  of  the  Act  in  terms  postulates  constructive liability  of  the  Directors  of  the  company  or  other  persons responsible for its conduct or the business of the company.”  

9. The question, therefore, is whether notice under Section 138 of the Act is

mandatorily  required  to  be  sent  to  the  directors  of  a  Company  before  a

complaint could be filed against such directors along with the Company.  At

the outset we must consider whether the decision of this Court in N.K. Wahi

(supra)  had considered and concluded that  it  is  obligatory to issue separate

1  (2007)9 SCC 481

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notices  to  the  Directors  in  addition  to  the  Company, before  initiating  any

proceedings against them.  We have perused the decision and find that no such

issue  had  arisen  for  consideration  in  that  case.   We,  therefore,  proceed  to

consider the question.   Before we deal with the matter, Sections 138 and 141

of the Act may be quoted:-

“138.  Dishonour  of  cheque  for  insufficiency,  etc.,  of funds in the accounts

Where any cheque drawn by a person on an account maintained  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 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 extend to two 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 induce 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 cheques 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

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be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.

Explanation: For the purpose of this section, “debt or other liability” means a legally enforceable debt or other liability.

141. Offences by companies- (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 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.

“Provided further  that  where  a  person is  nominated  as  a Director of a Company by virtue of his holding any office or  employment  in  the  Central  Government  or  State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.

(2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a Company  and  it  is  proved  that  the  offence  has  been committed with the consent or connivance of, or is attribute to,  any  neglect  on  the  part  of,  any  director,  Manager, secretary, or  other  office  of  the  Company, such  director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against  and  punished  accordingly.  Explanation:  For  the purpose of this section. –

(a) “Company” means any body corporate and includes a firm or other association of individuals; and

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(b) “Director”, in relating to a firm, means a partner in the firm.”

The expression “drawer” used in Section 138 has to be understood in the

light of the definition in Section 7 of the Act which is to the following effect :-

“..The maker of a bill of exchange or cheque is called the “drawer”; the person thereby directed to pay is called the ‘drawee.”

10. Since  the  High  Court  has  read  into  Section  138  of  the  Act  the

requirement that separate notices ought to be given to the directors, without

which  they  cannot  be  made  vicariously  liable,  the  principles  concerning

interpretative function of the Court may be adverted to.  In Kanai Lal Sur v.

Paramnidhi Sadhukhan2  it was observed,

“In support of his argument Mr. Chatterjee has naturally relied on the observations made by Barons of the Exchequer in Heydon’s case.   Indeed these  observations  have  been so  frequently  cited with  approval  by  courts  administering  provisions  of  welfare enactments that they have now attained the status of a classic on the subject and their validity cannot be challenged. However, in applying these  observations  to  the  provisions  of  any statute,  it must always be borne in mind that the first and primary rule of construction is that the intention of the Legislature must be found in the words used by the Legislature itself. If the words used are capable of one construction only then it would not be open to the courts to adopt any other hypothetical construction on the ground that  such hypothetical  construction  is  more  consistent  with  the alleged  object  and  policy  of  the  Act.  The  words  used  in  the material provisions of the statute must be interpreted in their plain grammatical meaning and it is only when such words are capable of two constructions that the question of giving effect to the policy or  object  of  the  Act  can  legitimately  arise.  When  the  material words are capable of two constructions, one of which is likely to defeat or impair the policy of the Act whilst the other construction

2  (1958) SCR 360

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is  likely  to  assist  the  achievement  of  the  said  policy, then the courts would prefer to adopt the latter construction. It is only in such cases that it becomes relevant to consider the mischief and defect which the, Act purports to remedy and correct.”

11. In Nasiruddin and others v. Sita Ram Agarwal3 this Court stated the law

in the following terms:  

“37. The court’s jurisdiction to interpret a statute can be invoked when the same is ambiguous. It is well known that in a given case the court can iron out the fabric but it cannot change the texture of the fabric. It cannot enlarge the scope of legislation or intention when the language of the provision is plain and unambiguous. It cannot add or subtract words to a statute or read something into it which is not there. It cannot rewrite or recast legislation. It is also necessary  to  determine that  there  exists  a  presumption that  the legislature has not used any superfluous words. It is well settled that the real intention of the legislation must be gathered from the language used……...”

 12. In  Nathi Devi v. Radha Devi Gupta4 a Constitution Bench of this Court

was called upon to consider, inter  alia,  whether  the expression,  “where the

landlord is a widow and the premises let out by her, or by her husband, are

required by her for her own residence” appearing in Section 14-D of the Delhi

Rent Control Act would include every widow so as to entitle her to obtain

immediate possession of the premises owned by her.  While holding that the

benefit under Section 14-D is available only to a widow, where premises are let

out by her or by her husband, this Court repelled the contention that a widow

3  (2003) 2 SCC 577 4  (2003) 2 SCC 577

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who had acquired tenanted premises by sale or transfer could also invoke the

provisions  of  Section  14-D.    During the  course  of  its  decision  this  Court

observed:  

“The interpretative function of the court is  to discover the true legislative intent. It is trite that in interpreting a statute the court must, if  the words are clear, plain, unambiguous and reasonably susceptible to only one meaning, give to the words that meaning, irrespective of the consequences. Those words  must  be  expounded  in  their  natural  and  ordinary sense.  When  the  language  is  plain  and  unambiguous  and admits of only one meaning, no question of construction of statute arises, for the Act speaks for itself. Courts are not concerned with the policy involved or  that  the results  are injurious or otherwise, which may follow from giving effect to the language used.  If  the words  used are  capable of  one construction only then it would not be open to the courts to adopt any other hypothetical construction on the ground that such construction is more consistent with the alleged object and  policy  of  the  Act.  In  considering  whether  there  is ambiguity, the court must look at the statute as a whole and consider the appropriateness of the meaning in a  particular context  avoiding  absurdity  and  inconsistencies  or unreasonableness  which  may  render  the  statute unconstitutional.”

13. With  these  principles  in  mind,  we  now  consider  the  provisions  in

question. According to Section 138, where any cheque drawn by a person on

an account  maintained by him is  returned by the  Bank unpaid  for  reasons

mentioned in said Section such person shall be deemed to have committed an

offence.   The  proviso  to  the  Section  stipulates  three  conditions  on  the

satisfaction of which the offence is said to be completed.  The proviso inter alia

obliges the payee to make a demand for the payment of said amount of money

by giving a notice in writing to “the drawer of the cheque” and if “the drawer

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of the cheque” fails to make the payment of the said amount within 15 days of

the receipt of said notice, the stages stipulated in the proviso stand fulfilled.

The notice under Section 138 is required to be given to “the drawer” of the

cheque  so  as  to  give  the  drawer  an  opportunity  to  make  the  payment  and

escape the penal consequences. No other person is contemplated by Section

138 as being entitled to be issued such notice.  The plain language of Section

138 is very clear and leaves no room for any doubt or ambiguity.  There is

nothing in Section 138 which may even remotely suggest issuance of notice to

anyone other than the drawer.

14. Section 141 states that if the person committing an offence under Section

138 is a Company, every director of such Company who was in charge of and

responsible to that Company for conduct of its business shall also be deemed to

be guilty. The reason for creating vicarious liability is plainly that a juristic

entity i.e. a Company would be run by living persons who are in charge of its

affairs and who guide the actions of that Company and that if  such juristic

entity is guilty, those who were so responsible for its affairs and who guided

actions  of  such  juristic  entity  must  be  held  responsible  and  ought  to  be

proceeded against. Section 141 again does not lay down any requirement that

in such eventuality the directors must individually be issued separate notices

under  Section  138.   The  persons  who  are  in  charge  of  the  affairs  of  the

Company  and  running  its  affairs  must  naturally  be  aware  of  the  notice  of

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demand under Section 138 of the Act issued to such Company.  It is precisely

for this reason that no notice is additionally contemplated to be given to such

directors.   The  opportunity  to  the  ‘drawer’  Company  is  considered  good

enough for those who are in charge of the affairs of such Company. If it is their

case that the offence was committed without their knowledge or that they had

exercised due diligence to prevent such commission, it would be a matter of

defence to be considered at the appropriate stage in the trial and certainly not at

the stage of notice under Section 138.

15.  If  the  requirement  that  such individual notices to the directors must

additionally be given is read into the concerned provisions, it will not only be

against the plain meaning and construction of the provision but will make the

remedy under Section 138 wholly cumbersome. In a given case the ordinary

lapse  or  negligence  on  part  of  the  Company  could  easily  be  rectified  and

amends could be  made upon receipt  of  a  notice  under  Section  138 by the

Company.  It  would be unnecessary at that point to issue notices to all  the

directors,  whose  names the payee may not  even be aware of  at  that  stage.

Under Second proviso to Section 138, the notice of demand has to be made

within 30 days of the dishonour of cheque and the third proviso gives 15 days

time to the drawer to make the payment of the amount and escape the penal

consequences.  Under clause (a) of Section 142, the complaint must be filed

within one month of the date on which the cause of action arises under the

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third  proviso  to  Section  138.  Thus  a  complaint  can  be  filed  within  the

aggregate period of seventy five days from the dishonour, by which time a

complainant  can  gather  requisite  information  as  regards  names  and  other

details as to who were in charge of and how they were responsible for the

affairs of the Company.  But if we accept the logic that has weighed with the

High Court  in  the  present  case,  such period gets  reduced to  30 days  only.

Furthermore,  unlike  proviso  to  clause  (b)  of  Section  142  of  the  Act,  such

period is non-extendable. The summary remedy created for the benefit  of a

drawee of a dishonoured cheque will thus be rendered completely cumbersome

and capable of getting frustrated.

16. In our view, Section 138 of the Act does not admit of any necessity or

scope for reading into it the requirement that the directors of the Company in

question must also be issued individual notices under Section 138 of the Act.

Such directors who are in charge of affairs of the Company and responsible for

the affairs of the Company would be aware of  the receipt  of  notice by the

Company under Section 138. Therefore neither on literal construction nor on

the touch stone of purposive construction such requirement could or ought to

be read into Section 138 of the Act. Consequently this appeal must succeed.

The order passed by the High Court is set aside. Since the matter was at the

stage of considering application for leave to appeal and the merits of the matter

were not considered by the High Court, we remit the matter to the High Court

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for fresh consideration which may be decided as early as possible.  Concluding

so, we must record that the decision of the Division Bench of the Madras High

Court  in  B.  Raman  & Ors. Vs.  M/s.  Shasun  Chemicals  and  Drugs  Ltd.

(supra) was incorrect and it stands overruled. The appeal is allowed in these

terms.

……………………….J                      (Pinaki Chandra Ghose)

……………………….J (Uday Umesh Lalit)

New Delhi, May 06, 2015

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ITEM NO.1C               COURT NO.11               SECTION IIA (for Judgment)                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).  1220/2009 KIRSHNA TEXPORT & CAPITAL MARKETS LTD.             Appellant(s)                                 VERSUS ILA A AGRAWAL & ORS.                               Respondent(s)

Date : 06/05/2015 This appeal was called on for pronouncement of  judgment today.

For Appellant(s) Mr. Ajit Anekar, Adv. Mr. Satyajit A. Desai, Adv.

                 Ms. Indu Sharma, Adv.                       For Respondent(s) Mr. Shree Prakash Sinha, Adv.

Mr. Ashok Bhatia, Adv.                   Mr. Shekhar Kumar, Adv.

Mr. Aniruddha P. Mayee, Adv. Mr. Charudatta Mahindrakar, Adv. Mr. Selvin Raja, Adv. Mr. Mahaling Pandarge, Adv. Mr. Nishant Katneswarkar, Adv.

                 Ms. Asha Gopalan Nair, Adv. (NP)                         

Hon'ble Mr. Justice Uday Umesh Lalit pronounced the reportable judgment  of  the  Bench  comprising  Hon'ble  Mr.  Justice  Pinaki Chandra Ghose and His Lordship.  

The  appeal  is  allowed  in  terms  of  the  signed  reportable judgment.

(R.NATARAJAN)        (SNEH LATA SHARMA)  Court Master       Court Master

(Signed reportable judgment is placed on the file)