IMPORTANT POINT
An allegation in the complaint filed under Section 138 of the Negotiable Instruments Act, that the named accused are Directors of the company itself would usher in the element of their acting for and on behalf of the company and of their being incharge of the company.

Headnote:(i) Negotiable Instruments Act, 1881 — Sections 138 and 141 — Complaint against company and its Officers — Essential requirement of Section 141 — When the offender is a company, every person, who at the time when the offences was committed was incharge of and was responsible to the company for the conduct of the business of the company, shall also be deemed to be guilty of the offence along with the company — Companies Act, 1956 — Section 291.
       Held : While Section 138 made a person criminally liable on dishonour of a cheque for insufficiency of funds or the circumstances referred to in the Section and on the conditions mentioned therein, Section 141 laid down a special provision in respect of issuance of cheques by companies and commission of offences by companies under Section 138 of the Negotiable Instruments Act. Therein, it was provided that if the person committing an offence under Section 138 of the Act was 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. The scope of Section 141 has been authoritatively discussed in the decision in S.M.S. Pharmaceuticals Ltd. (supra) binding on us and there is no scope for redefining it in this case. Suffice it to say, that a prosecution could be launched not only against the company on behalf of which the cheque issued has been dishonoured, but it could also be initiated against every person who at the time the offence was committed, was in charge of and was responsible for the conduct of the business of the company. In fact, Section 141 deems such persons to be guilty of such offence, liable to be proceeded against and punished for the offence, leaving it to the person concerned, to prove that the offence was committed by the company without his knowledge or that he has exercised due diligence to prevent the commission of the offence. Sub-section (2) of Section 141 also roped in Directors, Managers, Secretaries or other officers of the company, if it was proved that the offence was committed with their consent or connivance. (Para 12)
       A Company, though a legal entity, cannot act by itself but can only act through its directors. Normally, the Board of Directors act for and on behalf of the company. This is clear from Section 291 of the Companies Act which provides that subject to the provisions of that Act, the Board of Directors of a Company shall be entitled to exercise all such powers and to do all such acts and things as the Company is authorized to exercise and do. (Para 13)
       Therefore, a person in the commercial world having a transaction with a company is entitled to presume that the directors of the company are incharge of the affairs of the company. If any restrictions on their powers are placed by the memorandum or articles of the company, it is for the directors to establish it at the trial. It is in that context that Section 141 of the Negotiable Instruments Act provides that when the offender is a company, every person, who at the time when the offence was committed was incharge of and was responsible to the company for the conduct of the business of the company, shall also be deemed to be guilty of the offence along with the company. It appears to us that an allegation in the complaint that the named accused are directors of the company itself would usher in the element of their acting for and on behalf of the company and of their being incharge of the company. (Para 13)
       A person normally having business or commercial dealings with a company, would satisfy himself about its creditworthiness and reliability by looking at its promoters and Board of Directors and the nature and extent of its business and its Memorandum or Articles of Association. Other than that, he may not be aware of the arrangements within the company in regard to its management, daily routine, etc. Therefore, when a cheque issued to him by the company is dishonoured, he is expected only to be aware generally of who are incharge of the affairs of the company. It is not reasonable to expect him to know whether the person who signed the cheque was instructed to do so or whether he has been deprived of his authority to do so when he actually signed the cheque. Those are matters peculiarly within the knowledge of the company and those in charge of it. So, all that a payee of a cheque that is dishonoured can be expected to allege is that the persons named in the complaint are in charge of its affairs. The Directors are prima facie in that position. (Para 14)
       (ii) Negotiable Instruments Act, 1881 — Sections 138 and 141 — Complaint against company and its officers — Quashing petition claiming that appellant was no longer the Chairman or Director of the company — Maintainability — On behalf of a company, two cheques were issued to BSNL — Dishonour of cheques for insufficiency of funds — Prosecution of company and its Directors alleging that appellant and respondent 2 in the complaint were the Directors of accused company and they were incharge of and responsible for conduct of business of that company — Appellant claiming that he was no longer the Chairman or Director of the accused company and that accused 2 was not aware of issuance of the cheques — Whether prosecution against appellant is liable to be quashed — (No) — Contentions sought to be raised by appellant can only be dealt with after conclusion of trial.
       Held : In the case on hand, reading the complaint as a whole, it is clear that the allegations in the complaint are that at the time at which the two dishonoured cheques were issued by the company, the appellant and another were the Directors of the company and were incharge of the affairs of the company. It is not proper to split hairs in reading the complaint so as to come to a conclusion that the allegations as a whole are not sufficient to show that at the relevant point of time the appellant and the other are not alleged to be persons incharge of the affairs of the company. Obviously, the complaint refers to the point of time when the two cheques were issued, their presentment, dishonour and failure to pay in spite of notice of dishonour. We have no hesitation in overruling the argument in that behalf by the learned Senior Counsel for the appellant. (Para 18)
       We think that, in the circumstances, the High Court has rightly come to the conclusion that it is not a fit case for exercise of jurisdiction under Section 482 of the Code of Criminal Procedure for quashing the complaint. In fact, an advertence to Sections 138 and 141 of the Negotiable Instruments Act shows that on the other elements of an offence under Section 138 being satisfied, the burden is on the Board of Directors or the Officers incharge of the affairs of the company to show that they are not liable to be convicted. Any restriction on their power or existence of any special circumstance that makes them not liable is something that is peculiarly within their knowledge and it is for them to establish at the trial such a restriction or to show that at the relevant time they were not incharge of the affairs of the company. Reading the complaint as a whole, we are satisfied that it is a case where the contentions sought to be raised by the appellant can only be dealt with after the conclusion of the trial. (Para 19)

JUDGMENT

P.K. Balasubramanyan, J. — Leave granted.

2. Heard both sides.

3. On behalf of the Data Access (India) Limited, two cheques were issued to the respondent – Bharat Sanchar Nigam Limited (hereinafter referred to as, “B.S.N.L.”). The cheques were dated 31.8.2004. The cheques were duly presented by the B.S.N.L. but were dishonoured for insufficiency of funds. B.S.N.L. thereupon issued requisite notices calling upon the Data Access (India) Limited to pay the amounts due under the cheques. The payments not having been made, B.S.N.L. filed a compliant under Section 138 of the Negotiable Instruments Act.

4. In the complaint, B.S.N.L. alleged that the cheques were issued to it by the Data Access (India) Limited in discharge of a pre-existing liability based on the business transactions between the companies. The appellant herein and respondent No. 2 in the complaint were the Directors of respondent No. 1 Company and they were in charge of and responsible for the conduct of the business of Data Access (India) Limited. The relevant statement in the complaint read:

“That accused No. 1 is a company incorporated under the Companies Act. Accused Nos. 2 and 3 are its Directors. They are incharge of and responsible to accused No.1 for conduct of business of accused No. 1 Company. They are jointly and severally liable for the acts of accused No. 1.”

The complaint also stated that in response to the notice issued by B.S.N.L., a reply had been sent claiming that the appellant was no longer the Chairman or Director of Data Access (India) Limited and accused No. 2 was not aware of the issuance of the cheques. These statements were false and by not keeping sufficient funds in their account and failing to pay the cheque amount on the service of the notice, all the accused committed an offence as contemplated in Section 138 of the Negotiable Instruments Act and they were liable to be proceeded against. The complaint also asserted that all the accused were guilty of the offence in terms of Section 138 of the Negotiable Instruments Act and were liable to be punished therefor.

5. The appellant herein moved the High Court under Section 482 of the Code of Criminal Procedure seeking the quashing of the complaint insofar as it related to him. The appellant pleaded that he was nominated as Honorary Chairman without any remuneration, sitting fee etc. by the investors and promoters of the Company of Data Access (India) Limited on 24.7.2004 and he was designated as Chairman of the Company. Being a nominated Chairman and holding an Honorary post in the Company, he was never assigned with any of the Company’s financial or other business activities. He was the Chairman for name sake and was never entrusted with any job or business or constituted a signing authority. He had resigned effectively on 26.8.2004 when problems between the promoters and investors of Data Access (India) Limited started developing. The two cheques that were the subject matter of the complaint, were dated 31.8.2004, after the appellant had effectively resigned. He had not signed those cheques. He was not liable. According to him, the Data Access (India) Limited had two Managing Directors at the relevant time and they were the ones who were invested with substantial powers of management of the Company and as such the Managing directors were involved in the day to day affairs of the Company and not himself, who had only acted for a short period as Honorary Chairman. The complaint did not contain adequate averments to justify initiation of a criminal proceeding against him and hence the complaint was liable to be quashed.

6. On behalf of B.S.N.L., it was contended that the Petition under Section 482 of the Code of Criminal Procedure was not maintainable and that the questions sought to be raised by the appellant were questions that had to be decided at the trial. The complaint disclosed sufficient materials justifying the commencement of the proceedings against Data Access (India) Lim

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2007 Supreme(SC) 536

IMPORTANT POINTAn allegation in the complaint filed under Section 138 of the Negotiable Instruments Act, that the named accused are Directors of the company itself would usher in the element of their acting for and on behalf of the company and of their being incharge of the company.

Cases Referred (8)

IMPORTANT POINT
An allegation in the complaint filed under Section 138 of the Negotiable Instruments Act, that the named accused are Directors of the company itself would usher in the element of their acting for and on behalf of the company and of their being incharge of the company.