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2019 DIGILAW 564 (HP)

Bhagra Steel Pvt. Ltd. v. Vivek Sharma

2019-05-06

TARLOK SINGH CHAUHAN

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JUDGMENT : Tarlok Singh Chauhan, J. Aggrieved by the judgment dated 7.7.2018 passed by the learned Sessions Judge, Forest, Shimla, in appeal, whereby he set aside the judgment of conviction and order of sentence passed by the learned trial court on 29.4.2017/5.5.2017, the complainant/appellant has filed the instant appeal. 2. It is not in dispute that a complaint under Section 138 of the Negotiable Instruments Act (in short, the Act) was filed by the appellant against one Vivek Sharma and M/s Edge India Agrotech. Ltd. on the ground that the appellantfirm supplied steel to Vivek Sharma from time to time upto 13.6.2012. Though some payment was made, but after settlement, Vivek Sharma, issued two cheques i.e. Cheque No.804595 dated 6.10.2012 amounting to Rs. 6,75,000/ and Cheque No. 804597, dated 6.11.2012 amounting to Rs.6,75,000/ to discharge the liability for the balance amount. 3. As regards Vivek Sharma, his prosecution was sought on the ground that he was Managing Director-cum-Director of M/s Edge India Agrotech. Ltd. 4. The learned trial court acquitted Vivek Sharma, whereas M/s Edge India Agrotech. Ltd. was convicted for an offence punishable under Section 138 of the Act and directed to pay compensation of Rs.13,70,000/ to the appellant. 5. As regards acquittal of Vivek Sharma, the findings of acquittal have attained finality and, therefore, he wrongly appears to have been arrayed as party respondent in the instant appeal. However, as regards M/s Edge India Agrotech. Ltd., it appears that the learned Sessions Judge (Forest) set aside the judgment of conviction and even the order of sentence qua M/s Edge India Agrotech. Ltd. only on the ground that no notice of accusation was put to the company and further no statement under Section 313 Cr.P.C. was recorded in its behalf and therefore, the company had been convicted without affording an opportunity of being heard to it. 6. To say the least, the findings of the learned Sessions Judge (Forest) are absolutely perverse inasmuch as even the appeal before the learned Sessions Judge (Forest) was being prosecuted on behalf of Vivek Sharma not only in the capacity of Managing Director-cum-Director, but even as an authorized signatory of the company. 7. 6. To say the least, the findings of the learned Sessions Judge (Forest) are absolutely perverse inasmuch as even the appeal before the learned Sessions Judge (Forest) was being prosecuted on behalf of Vivek Sharma not only in the capacity of Managing Director-cum-Director, but even as an authorized signatory of the company. 7. Once, the learned Sessions Judge (Forest) came to a firm conclusion that it was the company who was the prime accused, then obviously, it was for the company to have defended itself, more particularly, in view of the presumption attached to the negotiable instrument under Section 118(a) and 139 of the Act. 8. Section 141 of the Act, which deals with offences by companies is reproduced below: "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 punished accordingly; Provided that nothing contained in this subsection 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 subsection (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." 9. Three categories can be discerned from the above provision, which are brought within the purview of the penal liability through the legal obligation envisaged in this section and they are: (1) the company, principal offender, who commits an offence; (2) everyone, who was in charge of, and was responsible for business of the company; and (3) any other person who was a Director or Managing Director or Secretary or Officer of the company with whose connivance or due to whose neglect the company has committed the offence. 10. Thus, it is the company, which is the prime accused, whereas other persons(s) can only be roped in by virtue of vicarious liability. 11. Section 141 of the Act uses the term person and refers it to a company. There is no trace of doubt that the company is a juristic person and is liable to be prosecuted and punished for criminal offences even though criminal acts may have been committed through its agent. 12. In Standard Chartered Bank and ors. Vs Directorate of Enforcement and ors, 2005 4 SCC 530 , the Honble Supreme Court observed as under: "6. There is no dispute that a company is liable to be prosecuted and punished for criminal offences. Although there are earlier authorities to the effect that corporations cannot commit a crime, the generally accepted modern rule is that except for such crimes as a corporation is held incapable of committing by reason of the fact that they involve personal malicious intent, a corporation may be subject to indictment or other criminal process, although the criminal act is committed through its agents." 13. There can be no dispute that a company is liable to be prosecuted and punished for criminal offences. Although there are earlier authorities to the fact that the corporation cannot commit a crime, the generally accepted modern rule is that a corporation may be subject to indictment and other criminal process although the criminal act may be committed through its agent. There is no immunity to the companies from prosecution merely because the prosecution is in respect of offences for which the punishment is mandatory imprisonment and fine. 14. There is no immunity to the companies from prosecution merely because the prosecution is in respect of offences for which the punishment is mandatory imprisonment and fine. 14. Thus, it stands settled that a company can have criminal liability and under Section 141 it is the company alone, which is principally liable to pay amount, whereas it is the person, who is in charge of the company, on whom the vicarious liability can be fastened. 15. The word deemed used in Section 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. 16. The legal position was summed up by Three Judge Bench decision of Honble Supreme Court in S.M.S. Pharmaceuticals Ltd. Vs. Neeta Bhalla and others, (2005) 8 SCC 89 , wherein in para 4, it was observed as under: "4. In the present case, we are concerned with criminal liability on account of dishonour of cheque. It primarily falls on the drawer company and is extended to officers of the Company. The normal rule in the 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 statutes extending liability to others. Section 141 of the Act is an instance of specific provision which in case an offence under Section 138 is committed by a Company, extends criminal liability for dishonour of cheque to officers of the Company. Section 141 contains conditions which have to be satisfied before the liability can be extended to officers of a company. 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. In other words, persons who had nothing to do with the matter need not be roped in. A company being a juristic person, all its deeds and functions are result of acts of others. In other words, persons who had nothing to do with the matter need not be roped in. A company being a juristic person, all its deeds and functions are result of acts of others. Therefore, officers of a Company who are responsible for acts done in the name of the Company are sought to be made personally liable for acts which result in criminal action being taken against the Company. It makes every person who, at the time the offence was committed, was incharge of, and was responsible to the Company for the conduct of business of the Company, as well as the Company, liable for the offence. The proviso to the subsection contains an escape route for persons who are able to prove that the offence was committed without their knowledge or that they had exercised all due diligence to prevent commission of the offence." And thereafter, in para 18, it was observed as under: "18. To sum up, there is almost unanimous judicial opinion that necessary averments ought to be contained in a complaint before a persons can be subjected to criminal process. A liability under Section 141 of the Act is sought to be fastened vicariously on a person connected with a Company, the principal accused being the company itself. It is a departure from the rule in criminal law against vicarious liability. A clear case should be spelled out in the complaint against the person sought to be made liable. Section 141 of the Act contains the requirements for making a person liable under the said provision. That respondent falls within parameters of Section 141 has to be spelled out. A complaint has to be examined by the Magistrate in the first instance on the basis of averments contained therein. If the Magistrate is satisfied that there are averments which bring the case within Section 141 he would issue the process. We have seen that merely being described as a director in a company is not sufficient to satisfy the requirement of Section 141. Even a non director can be liable under Section 141 of the Act. The averments in the complaint would also serve the purpose that the person sought to be made liable would know what is the case which is alleged against him. This will enable him to meet the case at the trial." 17. Even a non director can be liable under Section 141 of the Act. The averments in the complaint would also serve the purpose that the person sought to be made liable would know what is the case which is alleged against him. This will enable him to meet the case at the trial." 17. From the aforesaid discussion, it is evidently clear that when the actual offence has been committed by the company then alone the other two categories of persons can also become liable for the offence. If the offence was committed by a company it can be punished only if the company is prosecuted. 18. This question was duly considered by the Honble Supreme Court in Anil Hada vs. Indian Acrylic Ltd. (2000) 1 SCC 1 and it was held as under: "12. Thus when the drawer of the cheque who falls within the ambit of section 138 of the Act is a human being or a body corporate or even firm, prosecution proceedings can be initiated against such drawer. In this context the phrase "as well as" used in subsection (1) of section 141 of the Act has some importance. The said phrase would embroil the persons mentioned in the first category within the tentacles of the offence on a par with the offending company. Similarly the words "shall also" in sub section (2) are capable of bringing the third category persons additionally within the dragnet of the offence on an equal par. The effect of reading section 141 is that when the company is the drawer of the cheque such company is the principal offender under section 138 of the Act and the remaining persons are made offenders by virtue of the legal fiction created by the legislature as per the section. Hence the actual offence should have been committed by the company, and men alone the other two categories of persons can also become liable for the offence. 13. If the offence was committed by a company it can be punished only if the company is prosecuted. But instead of prosecuting the company if a payee opts to prosecute only the persons falling within the second or third category the payee can succeed in the case only if he succeeds in showing that the offence was actually committed by the company. But instead of prosecuting the company if a payee opts to prosecute only the persons falling within the second or third category the payee can succeed in the case only if he succeeds in showing that the offence was actually committed by the company. In such a prosecution the accused can show that the company has not committed the offence, though such company is not made an accused, and hence the prosecuted accused is not liable to be punished The provisions do not contain a condition that prosecution of the company is sine qua non for prosecution of the other persons who fall with in the second and the third categories mentioned above. No doubt a finding that the offence was committed by the company is sine qua non for convicting those other persons. But if a company is not prosecuted due to any legal snag or otherwise, the other prosecuted persons cannot, on that score alone, escape from the penal liability created through the legal fiction envisaged in section 141 of the Act." 19. It is to be borne in mind that Section 141 of the Act is concerned with the offences by the company. It makes the other persons vicariously liable for commission of an offence on the part of the company. The vicarious liability can be attracted when the condition precedent laid down in Section 141 of the Act stands satisfied. 20. In view of the aforesaid discussion, I find merit in the instant appeal and the same is accordingly allowed. Consequently, the impugned judgment dated 7.7.2018 is set aside and the matter is remanded back to the learned Sessions Judge (Forest) for fresh decision in accordance with law. 21. The parties through their respective counsel to appear before the learned Sessions Judge (Forest) on 27.5.2019. 22. Pending applications, if any, also stands disposed of.