VERY IMPORTANT POINTS
Prosecution of Company is not a sine qua nor for prosecution of its directors ou/s 138 of Negotiable Instruments Act. Even if the prosecution proceedings against the company were not taken or could not be continued, it is no bar for proceeding against the other persons falling within the purview of sub-sections (1) and (2) of Section 141 of the Act..

Headnote:Negotiable Instruments Act, 1881-Section 138 r/w Section 141-Dishonour of Cheque-Offence by Company-Prosecution of-Complaint against Company and its directors - Complaint against Company suspended/further proceedings dropped since winding up proceedings ordered by Company court-Directors petition to drop complaint against them on plea that without prosecuting Company they could not be prosecuted-Not tenable-Prosecution of Company is not sine qua non for prosecuting its directors-Even of prosecution proceedings against Company are not taken or Could not be continued, it is no bar for proceeding against other persons falling within purview of sub-section (1) and (2) of Section 141.
       Held : The offender in Section 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 Section 141 of the Act that penal liability under Section 133 is cast on other persons connected with the company. Three categories of persons can be discerned from the provision of Section 141 who are brought within the purview of the penal liability through the legal fiction envisaged in the Section. They are : (1) The company which committed the offence, (2) Everyone who was in charge of and was responsible for the business of the company, (3) any other person who is a director or a manager or a secretary or officer of the company, with whose connivance or due to whose neglect the company has committed the offence. (Paras 8 & 9).
       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 sub-section (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 then alone the other two categories of persons can also become liable for the offence. (Para 11)
       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. In such a prosecution the accused can show that the company has not committed that 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 within 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. (Para 12)
       It is not mentioned in Section 139 that the presumption stated therein would operate only against the drawer. After all a presumption is only for casting the burden of proof as to who should adduce evidence in a case. It is open to any one of the accused to adduce evidence to rebut the said presumption. In a prosecution where both the drawer company and its office bearers are arrayed as accused, and if the drawer company does not choose to adduce any rebuttal evidence it is open to the other ofice bearers-accused to adduce such rebuttal evidence.If that be so, even in a case where the drawer company is not made an accused but the office bearers of the company alone are made the accused such office bearers-accused are well within their rights to adduce rebuttal evidence to establish that the company did not issue the cheque towards any antecedent liability. (Para 14)
       Hence we are not impressed by the contention that Section 139 of the Act would afford support to the plea that prosecution of the company is sine qua non for persecuting its directors under Section 141 of the Act. (Para 15)
       Even if the prosecution proceedings against the company were not taken or could not be continued, it is no bar for proceeding against the other persons falling within the purview of sub-sections (1) and (2) of Section 141 of the Act. (Para 20)

JUDGMENT

Thomas, J. -Special leave granted.

2.When a company, which committed the offence under Section 138 of the Negotiable Instruments Act, (hereinafter referred to as the Act ) eludes from being prosecuted thereof, can the Directors of that company be prosecuted for that offence? This is the nub of the issue mooted before us by one of the Directors of the Company. He approached the High Court of Punjab and Haryana with the contention that prosecution in such a situation is not maintainable as against the directors. But a single judge of the High Court spurned down the contention by the judgment which is now being challenged in this appeal.

3. M/s Rama Fibres Ltd. is a public limited company of which the present appellant is one of the directors. five complaints were failed by another company (which is hereinafter referred to as the complainant ) before a Judicial Magistrate of First Class Chandigarh against M/s. Rama Fibres Ltd. (hereinafter referred to as the accused company ) and 11 other persons who are shown as directors of the accused company. The complaints contained the allegations that cheques were issued on behalf of the accused company for the debts due to the complainant and such cheques were dishonoured by the drawee bank on the ground of insufficiency of funds in the account, and notices were issued to the accused company as well as to the directors demanding payment of the amounts covered by the cheques, but no amount was paid. Hence the complainant alleged that all the accused have committed the offence under Section 138 of the Negotiable Instruments Act in respect of each of the cheques.

3. The magistrate took cognizance of the offence on each of the complaints and issued process against the accused. Objections were raised by the accused company on the premise that winding up proceedings have been ordered by the court on the accused company and hence no prosecution proceedings could be continued against the accused company. It appears that the magistrate had accepted the said contention and in respect of three complaints the magistrate ordered the complaint to remain in suspense against the accused company until leave is obtained from the Court concerned to continue with the prosecution proceedings. In respect of the remaining two complaints learned magistrate dropped further proceedings as against the accused company on the same premise.

4. It was in the aforesaid background that the present appellant, who is arraigned as second accused in all the complaints, moved the trial Court for dropping the criminal prosecution against him also. The trial magistrate dismissed the petitions holding that prosecution against the directors of the company, who were in charge of the business of the company, could be maintained even without prosecuting the company itself. Revision petitions filed by the appellant in challenge of the aforesaid orders of the magistrate were dismissed by the learned single judge of the High Court as per the order, which is under challenge now.

5. Smt. Indira Jaising, learned senior counsel who argued for the appellant, contended that under Section 141 of the Act the company could be the principal offender and the directors are merely deemed offenders and hence a finding that the company is guilty of the offence is sine qua non for operation of the deeming provision to the prejudice of the directors. Learned senior counsel referred us to Section 139 of the Act which contains the legal presumption that a holder of cheque had received it in discharged of a pre-existing debt or liability and submitted that it is for the company to rebut the presumption and not for anybody else. Reliance was placed by the learned senior counsel on the decision of a two Judge Bench of this Court in State of Madras v. C.V. Parekh & Anr.1. A brief written submission prepared by the counsel has been presented to us.

6. Shri Nidesh Gupta, learned counsel for the complainant company referred us to certain provisions of t

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1999 Supreme(SC) 1380

Cases Referred (3)