Crl. P. No. 2561 of 1999,Crl. P. No. 2562 of 1999

23rd September, 1999

Petitioner Counsel: Mr. B. VISWANATHA REDDY
Other Counsel: Mr. T. MAHENDRA RAO

Cases Cited:
Modi Cements Limited Vs. Shri Kuchi Kumar, Nandi, 1998(2) ALL MR 433 (S.C.)=1998 (1) ALD (Cri) 505 (SC) [Para 6]
NEPC Micon Limited and Ors Vs. Magma Leasing Limited, (1999) 4 SCC 253 [Para 14]

JUDGMENT

JUDGMENT :- These two petitions under Section 482 Cr.P.C. have been filed for quashing the proceedings in CC No.99 of 1999 and CC No.l04 of 1999 on the file of Special Mobile Court, Kareemnagar.

2. The petitioner, who is the accused in both the cases, has been prosecuted for offence under Section 138 of Negotiable Instruments Act (for short Act) on the ground that it is the Managing Director of the Company who issued the cheque and petitioner did not issue any cheque in his personal capacity and as such the offence under Section 138 of the Act cannot be fastened to the petitioner.

3. The gist of the allegations in the complaint may be noted. The complainant has been running finance business under the name Om Sai Securities and Investments Private Limited. The accused approached the complainant for finance and requested the plaintiff to pay Rs.6,40,000/-. The complainant paid to the accused a sum of Rs.6,00,000/- through a demand draft and Rs.40,000/- in cash on 22-11-1996. The accused executed a memorandum of understanding in favour of the complainant and as per the terms of agreements he was to pay interest at 24% per annum quarterly. The accused agreed to pay entire amount within six months. The accused after receiving the amount had issued four blank cheques for Rs.6,00,000/-. The accused also agreed to issue share certificates. The . complainant after waiting for the agreed period of six months demanded the accused for payment of the amount. The accused issued two cheques for a sum ofRs.l,00,000/- each, one cheque for Rs.l,40,000/- and another cheque for Rs.3,00,000/- towards discharge of his debt.

4. The complainant presented two cheques ofRs.l,00,000/- each for collection in his Bank, namely Syndicate Bank at Kareemnagar which were sent for collection of the amount to Andhra Bank, Masab Tank, Hyderabad on which they were drawn. The cheques were returned on 31-7-1998 with an endorsement that payment was stopped by the drawer. Accordingly, the Masab Tank Branch issued returned memo on 28-7-1998 with the above endorsement. It is further stated in the complaint that within 15 days from the date of receipt of this information regarding the return of the cheques, the complainant got issued a statutory notice through his advocate to the accused on 14-8-1998 calling upon the accused to pay the amount of Rs.2,00,000/- due on the dishonoured cheques within 15 days from the date of receipt of notice. The accused received the said notice and sent his reply notice through G. Anandam, Advocate on 31-8-1998 but did not pay the amount covered by the cheques. Thus, the allegation is that the accused issued the cheques to the complainant with an intention to deliberately dishonour the cheques by issuing the stop payment direction to the Bank. Thus, the accused is said to have committed the offence under Section 138 of the Negotiable Instruments Act.

5. The contentions raised in this petition for quashing the proceedings are two fold. Firstly, it is contended by the learned Counsel for the petitioner that the cheque was issued by Vijaya Industrial Gas Limited by its Managing Director. There is no mention in the complaint that it was issued at the instance of the accused/ petitioner herein. In the complaint, the said Company Vijaya Industrial Gas Limited has not been shown as accused and the petitioner is the solitary accused in that complaint and he cannot be liable for prosecution under section 138 of the Negotiable Instruments Act.

6. The next contention canvassed by the learned Counsel for the petitioner is that it is not a case where the cheques were returned unpaid on the ground of insufficiency of funds, but the return of the cheques was on the ground of instructions to the bank not to pay by the petitioner. Therefore, it is contended that such non-payment of cheques does not constitute offence under Section 138 of the Act. But this question has been answered by three Judge Bench of the Supreme Court in the case of Modi Cements Limited v. Shri Kuchi Kumar, Nandi, 1998 (1) ALD (Cr.) 505 (SC) : 1998(2) ALL MR 433 (S.C.). The Supreme Court overruled the earlier judgments and held that even if a cheque is returned unpaid on account of the reason that the drawer has, in the meanwhile, instructed the bank not to pay, the dishonour of such cheques would nevertheless attract the provisions of section 138 of the Act. The following observations in Para 18 are significant:"

"The aforesaid propositions in both these reported judgments in our considered view, with great respect are contrary to the spirit and object of Sections 138 and 139 of Act. If we are to accept this proposition it will make Section 138 a dead letter, for, by giving instructions to the Bank to stop payment immediately after issuing a cheque against a debt or liability the drawer can easily get rid of the penal consequences notwithstanding the fact that a deemed offence was committed."

"In view of this, the contention that where cheque is dishonoured because of the instructions of the drawer to stop payment would not attract Section 138 of the Act cannot be countenanced if the other requirements of Section 138 of the Act are satisfied."

7. The contention of the learned Counsel for the petitioner is that even if the petitioner had signed the cheque, it was as the Managing Director of the said company, Vijaya Industrial Gases Limited and not in his personal capacity and as such cannot be prosecuted in his personal capacity.

8. The learned Counsel for the respondent contends that even if the petitioner has issued the cheque as Managing Director of the said Company, he can be criminally liable, at any rate, as Managing Director of that Company.

9. What is pertinent to note in this case is that the Company in question is not an accused and it is an individual who is an accused in this case. Obviously, Section 141 of the Negotiable Instruments Act (for short 'the Act') contemplates that if a person committing the offence is a Company, every person 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 accordingly. When the Company is not itself proceeded against for an offence under section 138 of the Negotiable Instruments Act, and in the absence of any allegation that the accused was in charge of and was responsible to the Company, the question of proceeding against any Director of the Company would not arise.

10. What is significant in this case is that apart from the fact that the Company itself is not shown as an accused, the solitary accused in this case has not been shown or described as Managing Director of the Company, namely, Vijaya Industrial Gases Limited. All the allegations in the complaint, a copy of which has been filed with the petition, show that they have been made against the solitary accused-petitioner herein in his individual capacity. But, as seen from the cheque itself a photo-state copy of which has been filed, it was issued by the Company, namely, Vijaya Industrial Gases Limited as evident from the words "For Vijaya Industrial Gasses Limited" above the signature and the words "Managing Director" below the signature. There can be no manner of doubt that the cheque was issued on behalf of Vijaya Industrial Gasses Limited. It was not issued by the accused in his personal capacity on his personal account.

11. Section 138 of the Act contemplates that for commission of an offence under Section 138 of the Negotiable Instruments Act in respect of a cheque which was returned unpaid on the ground of insufficiency of funds etc., the cheque must have been issued by the accused "on an account maintained by him with a Banker".

12. As stated above, in this case, the accused petitioner is sought to be prosecuted in his individual capacity. He has not even been described as Managing Director of the Company. Even assuming that he has signed the cheque in question, inasmuch as the cheque was drawn not on an account maintained by him with a Banker but was issued on an account maintained by the Company, namely, Vijaya Industrial Gasses Limited, the requirement of Section 138 of the Act cannot he said to have been complied with.

13. If the accused was prosecuted in his capacity as a Managing Director of the Company, then, the cheque drawn by him on an account maintained by the Company would have satisfied the requirement of Section 138 of the Act but as the accused is said to have been proceeded against for an offence under Section 138 of the Act in his individual capacity and inasmuch as the cheque dishonoured for insufficiency of funds was drawn on the account maintained by the Company, namely, Vijaya Industrial Gasses Limited and not by the accused petitioner herein, no offence can be said to have been committed under Section 138 of the Act. The requirement of Section 138 of the Act is that for fastening criminal liability on the accused, the cheque which was dishonoured for insufficiency of funds etc., must have been drawn on an account maintained by the accused. The mere fact that the cheque signed by the accused in his capacity as a "Managing Director" of the Company would in the normal course be honoured by the Bank to which it was presented does not satisfy the statutory requirement of Section 138 of the Act.

14. Section 138 of the Act exposes the person who has drawn the cheque and which has been returned for insufficiency of funds to criminal liability. The provision, therefore, must be construed strictly. However, such a strict construction should not result in defeating the very purpose for which the provision has been enacted as held by the Supreme Court in the case of NEPC Micon Limited and others v. Magma Leasing Limited, (1999) 4 SCC 253. At the same time, statutory provisions creating penal liability cannot be stretched too far to embrace the persons and situations patently excluded from its purview as deduced from clear and unequivocal language used in the provision.

15. In this case Section 138 of the Act clearly postulates that the cheque returned for insufficiency of funds should have been drawn by a person on an account maintained by him. It will be doing violence to the language of the statute if Section 138 of the Act is interpreted to mean that even if a person draws a cheque on an account not maintained by him, he shall be liable if the cheque is returned for insufficiency of funds. Such an interpretation will lead to absurd and wholly unintended results. In Banking practice a person holding an account can nominate any person as a mandate holder who can operate the account on his behalf. If such mandate holder draws a cheque in respect of his personal liabilities on the account maintained by principal account holder to whom the funds really belong and in which the mandate holder has no title to the funds, such a mandate holder will be liable under Section 138 of the Act even if the original account holder withdraws the amount or does any other act which leads to insufficiency of funds in that account. Such cannot be the intention of the Legislature in enacting Section 135 of the Act.

16. In view of this, it is obvious that the petitioner who is the solitary accused in these cases cannot be proceeded against under Section 138 of the Act.

17. In the result, the Criminal Petition Nos.2561 and 2562 of 1999 are allowed and the proceedings in CC Nos 104 and 99 of 1999 on the file of Special Mobile Court, Karimnagar are quashed in respect of offence under Section 138 of the Negotiable Instruments Act.

Petition allowed.