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Andhra High Court · body

2000 DIGILAW 869 (AP)

K. Seetharam Reddy v. K. Radhika Rani

2000-11-21

T.CH.SURYA RAO

body2000
T. SURYA RAO, J. ( 1 ) 1. SINCE the parties are same and as common questions of law and fact are involved both the Criminal Petitions can be disposed of together. ( 2 ) THE petitioner is the second accused in c. C. 563 of 2000 and C. C. 506 of 2000. The first accused in both the cases is one Mr. C. J. Reddy. The complainant in both the cases is common. ( 3 ) THE petitioner seeks to quash both the cases filed against him under Section 138 of the Negotiable Instruments Act (for short "the Act") on the premise that he is arrayed in the complaint neither as a partner nor as a director of any Firm or the Company, as the case may be, and inasmuch as he has been arrayed as an individual and since the Act does not envisage any vicarious liability except under Section 141 of the said Act, the proceedings againsthim inboth the criminal cases cannot be maintained. ( 4 ) IN the complaint, filed against the petitioner, inter alia it has been averred that a-1 is the working Director and A-2 is the managing Director of S. R. L. L. firm and the first Managing Director of the company by name Dr. K. V. Surendranath entered into a memorandum of Understanding on 27-8-1999 with the petitioner wherein it was agreed inter alia to participate in the equity capital and management of the company from 27-8-1999 onwards by paying an amount of Rs. 69 lakhs to Dr. K. V. Surendranath towards net value of 50% total equity, and despite the same, the petitioner had been postponing the payment even after the said Dr. K. V. Surendranath fulfilled his part of promise. The averments made in the complaint further show that the petitioner- a-2 failed to make the payment as per the memorandum of Understanding dated 27-8-1999 despite several rounds of discussions initiated by the said Dr. K. V. Surendranath. Subsequently, the petitioner- a-2 along with A-l executed an agreement dated 11-4-2000 in favour of Dr. K. V. Surendranath and issued post dated cheques, pursuant to the terms of the agreement, bearing Nos. 374993 dt. 15-5-2000 for an amount of Rs. 4 lakhs and 374996 dated 30-4-2000 for an amount of rs. K. V. Surendranath. Subsequently, the petitioner- a-2 along with A-l executed an agreement dated 11-4-2000 in favour of Dr. K. V. Surendranath and issued post dated cheques, pursuant to the terms of the agreement, bearing Nos. 374993 dt. 15-5-2000 for an amount of Rs. 4 lakhs and 374996 dated 30-4-2000 for an amount of rs. 3,32,000/- drawn on Andhra Bank, sanathnagar branch in favour of the complainant towards the discharge of liability to the extent of the value of 62,500 and 50,000 equity shares held by her in terms of the said agreement. When those cheques were presented, they were bounced for insufficiency of funds. Thereafter the complainant after having issued a legal notice dated 29-5-2000 filed the complaint. ( 5 ) WITH these averments when both the complaints have been filed they were taken on file under Section 138 of the Act and the court after taking congnizance directed summonses to be issued. Pursuant to the summonses, the petitioner-A2 in both the cases appeared before that Court and then filed these two petitions seeking to quash the same. ( 6 ) SRI. C. Padmanabha Reddy, learned senior Counsel contends that the petitioner in both the cases is neither Managing director or Director of a Company nor managing Partner or Partner of a Firm and when the cheque was issued by A-1 on behalf of the Columbus and Brothers as proprietor thereof, the petitioner cannot be impleaded as an accused so as to fasten vicarious liability. Learned Counsel further contends that the Act envisages a personal liability on the drawer of the cheque, which cheque was bounced later and except under section 141 of the Act, when the offence is said to have been committed by a Company, no criminal liability can be fastened on others either as abettors or imputing vicarious liability. Learned Counsel further contends that the Act envisages a personal liability on the drawer of the cheque, which cheque was bounced later and except under section 141 of the Act, when the offence is said to have been committed by a Company, no criminal liability can be fastened on others either as abettors or imputing vicarious liability. ( 7 ) SRI B. Adinarayana Rao, learned counsel appearing for the 1st respondent in both the petitions on the other hand contends that although in view of the language employed under Section 138 of the act, it cannot be said that the person who is other than drawer of the cheque can be made liable for the offence under Section 138 of the Act, but on a perusal of clause (a) of explanation appended under sub-section (2) of Section 141 of the Act that company means association of individuals and inasmuch as A1 in this case issued the cheque pursuant to the terms of an agreement entered into between A-1 and a-2 on one hand and the G. P. A of the first respondent-Complainant on the other hand, a-2 can consequently be brought within the definition of the company as embodied in section 141 of the Act. ( 8 ) IN view of the contentions raised on either side, the short question that falls for determination in these cases is whether the petitioner, who has been arrayed as A-2 in both the cases, can be vicariously made liable along with A1 for the offence punishable under Section 138 of the Act. ( 9 ) FOR brevity and better understanding of the matter, it is expedient at the outset to consider Section 138 of the Act, which may be extracted hereunder in so far as it is relevant to the present purpose, thus: 138. ( 9 ) FOR brevity and better understanding of the matter, it is expedient at the outset to consider Section 138 of the Act, which may be extracted hereunder in so far as it is relevant to the present purpose, thus: 138. Dishonour of cheque for insufficiency, etc, of funds in the account:- 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, or 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 provision of this Act, be punished with imprisonment for a term whichmay extend to one year, or with fine which may extend to twice the amount of the cheque, or with both: (emphasis is mine) ( 10 ) IT is also necessary in this context to consider the other Section 141 of the Act which makes the Partners or the Directors also liable for the acts of the Company or the firm, as the case may be. Section 141 may be extracted hereunder, thus: 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 published 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. (2) Not with standing any thing 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 attributable to, any neglect on the part of, any director, manager, secretary or other officer 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 b) "director", in relation to a firm, means a partner in the firm. ( 11 ) A plain reading of Section 138 of the act makes it manifest that if a cheque is drawn by a person on an account maintained by him and issued for the discharge of an existing debt and the cheque is bounced either on account of insufficiency of the funds in the account or on account of a fact that it exceeds the amount arranged to be paid from that account, that person is deemed to have committed an offence. The section leaves no doubt and makes it manifest that the person who has drawn the cheque on his account is alone liable in the event of that cheque drawn by him is bounced. ( 12 ) THE Act has not envisaged any penal consequences for the conspiracy, abetment and attempt to commit the said offence. The expressions used in Sec. 138, viz by a person , on an account maintained by him , and such person make it manifest that the person who has drawn the cheque on an account maintained by him alone is liable. However, Sec. 141 of the Act envisages a situation where if the person who has drawn the cheque is a juristic person, like a company, firm or other association of individuals. It makes it clear that if the person who has drawn the cheque is the company not only the company but also every person who at the time of the offence was committed, was in-charge of, and was responsible to the company for the conduct of the business of the company is liable. It makes it clear that if the person who has drawn the cheque is the company not only the company but also every person who at the time of the offence was committed, was in-charge of, and was responsible to the company for the conduct of the business of the company is liable. On a perusal of Sec. 141 of the Act in its entirety, three categories of persons are discernable who are liable for the penal consequences through legal fiction envisaged in the section. They are (1) the company which committed the offence, (2) every one who was in-charge of and was responsible for the business of the company and (3) any other person who is a Director or a Manager or secretary or an Officer of the company with whose connivance or due to whose neglect the company had committed the offence. I am fortified in my above view by a judgment of the Apex Court in Anil Hada vs. Indian acrylic Limited ( 1999 (7) Scale 209 ). It is apposite here to profitably extract the relevant observation of the Apex Court in para 9 of the said judgment thus:"it must be pointed out at the outset that the offender under Sec. 138 of the Act is the drawer of the cheque, he alone would have been the offender thereunder if the Act did not contain other provisions. It is because of Sec. 141 of the Act that penal liability under sec. 138 is cast on other persons connected with the company. "even looking at the background in which the chapter contained Secs. 138 and 141 came to be incorporated, it is obvious that so as to allow the banking transactions to run smoothly penal consequences have been envisaged. The learned Counsel for the petitioner in this regard seeks to rely upon the judgment of this Court in G. Surya prabhavathi Peti vs. N. Subramanyeswara Rao. It has been held in the said judgment that the prosecution can be launched only against the person who is the drawer of the cheque and none else can be prosecuted except the persons envisaged in Sec. 141 of the Act. The invariable conclusion that emerges from the above discussion is that the Act has not envisaged any vicarious liability. It has been held in the said judgment that the prosecution can be launched only against the person who is the drawer of the cheque and none else can be prosecuted except the persons envisaged in Sec. 141 of the Act. The invariable conclusion that emerges from the above discussion is that the Act has not envisaged any vicarious liability. In the event of the drawer of the cheque being a juristic person the juristic person as well as the persons in-charge of and are responsible to the juristic person for the conduct of the business are liable. ( 13 ) SRI B. Adinarayana Rao, learned counsel also fairly concedes the above legal position. The learned Counsel however contends that since A-1 and A-2 as joint promissors entered into an agreement with the general power of attorney holder of the complainant and pursuant to the terms mentioned therein both of them obliged to pay the amount to the promisee namely the general power of attorney of the complainant and therefore for the purpose of Sec. 141 while construing the definition of company these two associates shall be considered as a company. Section 141 of the act seeks to define the expression company by adding an explanation to that section. Clause (a) of the explanation appended under Sec. 141 is germane for consideration in this context. According to this clause the company means any body corporate and includes a firm, or other association of individuals. Laying emphasis on the words other association of individuals it is the contention of the learned Counsel for the respondent that A-1 and A-2 having together entered into an agreement they come "within the ambit of the expression other association of individuals . It is no doubt true that the definition of company as given in clause (a) of the explanation under sec. 141 is. an inclusive definition. On a perusal of clause (a) it is obvious that the specific words "body corporate" and "a firm" are followed up by a general expression other association of individuals . The expression other association of individuals shall have to be construed in the context in which it has come to be incorporated. 141 is. an inclusive definition. On a perusal of clause (a) it is obvious that the specific words "body corporate" and "a firm" are followed up by a general expression other association of individuals . The expression other association of individuals shall have to be construed in the context in which it has come to be incorporated. Sec. 141 of the Act takes care of the situation where an offence is perpetrated by a juristic person as afore discussed, such a juristic person may be either a company or a firm or other association of individuals. The expression other association of individuals shall have to be understood in my considered view in the context along with the other expressions like company or firm , which are juristic persons. When particular words pertaining to a class, category or genus are followed by general words the general words are to be construed as limited to things of the same kind as specified. Therefore, the expression other association of individuals shall be construed Ejusdem generis along with other expressions company or firm in the context in which they have come to be incorporated in clause (a) of the explanation under Sec. 141. It is obvious that the expression other association of individuals must also be a juristic person like that of the company or a firm. ( 14 ) TURNING to the instant case, A-1 and a-2 together entered into an agreement with the general power of attorney holder of the complainant. Therefore there is no association of individuals, which can be called as a juristic person. At best they are only the joint promissors. Therefore, in my considered view, they cannot come within the expression other association of individuals . The contention of the learned counsel in this regard cannot be countenanced. ( 15 ) SINCE A-2 in this case is obviously not a drawer of the cheque and as the cheque has been drawn by A1 in the capacity of the proprietor of Columbus and Brothers on the account maintained in regard thereto, a fortiori, the contention cannot be accepted for the simple reason that the account has not been maintained by the group of individuals. In any view of the matter, no criminal liability as enjoined under section 138 of the Act can be fastened on a person who is not the drawer of the cheque, except in accordance with Section 141 of the act. ( 16 ) FOR the foregoing reasons, the complaint against the petitioner, who is a-2, cannot legally be sustained and therefore liable to be quashed. The petitions are allowed accordingly.