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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.

Upon the failure of the appellant to pay the amount due

under the cheque, a complaint was instituted.    

The Civil Judge, Junior Division, Tiptur took cognizance

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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.

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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

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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

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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

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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,

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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

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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

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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)