IMPORTANT POINT
Authorised signatory of a Company cannot be proceeded against under NI Act without arraigning the Company as an accused.

JUDGMENT :

Dhananjaya Y. Chandrachud, J.

1. A complaint under Section 138 of the Negotiable Instruments Act, 1881 was instituted by the respondent against the appellant. According to the complainant, the appellant had borrowed a sum of Rs. 4,15,000/- “for his business development” and on the same day, the appellant issued a cheque drawn on Karnataka Bank, Hosadurga for an equivalent amount. When the cheque was presented on 26 December, 2003 for encashment to the State Bank of Mysore, Beligere Branch, the bank returned the cheque with an endorsement on 29 December, 2003 stating that funds were insufficient. The complainant issued a notice to the appellant on 19 January, 2004 which was served on 28 January, 2004.

2. Upon the failure of the appellant to pay the amount due under the cheque, a complaint was instituted.

3. The Civil Judge, Junior Division, Tiptur took cognizance on 6 July, 2004 and issued summons to the appellant.

4. The appellant instituted a petition under Section 482 of the Code of Criminal Procedure, 1973 (“CrPC”) before the High Court of Karnataka. Paragraph 6 of the petition states the ground on which the jurisdiction of the High Court was invoked.

“6. The cheque was issued by one of the directors of M/s Lakshmi Cement and Industries Ltd., i.e., on behalf of said company. The said company was public limited company and in order to demonstrate the said fact, the accused herewith produces copies of the memorandum and articles of association of the company alongwith the certification of incorporation of the company and which are marked as ANNEXURE C1, C2 AND C3 respectively.”

5. In paragraph 7, the appellant averred thus:-

“7. …

The complainant approached the learned Magistrate with a request to take cognizance against the accused stating that the accused on 23.12.2003 had issued a cheque in his favour and the said cheque was bounced on 26.12.2003 on meticulously going through the cheque dated 23.12.2005 it discloses that the cheque was issued by one of the directors of the company and that was not a cheque issued by any person in his individual capacity. If that is accepted the complaint should have been against the company and its Directors and not against the Accused.”

6. The appellant submitted that the cheque was issued by a Director of Lakshmi Cement and Ceramics Industries Ltd., a public limited company. In other words, the cheque was not issued by the signatory in his personal capacity. Hence, it was urged that the complaint ought to have been instituted against the company and its Directors and not against the appellant.

7. The High Court by its order dated 24 January, 2006 dismissed the petition. The High Court rejected the submissions urged on behalf of the appellant on the ground that the complainant had pleaded ignorance about the existence of the company. Moreover, in the view of the High Court, it would not be difficult for the complainant to take steps to proceed against the company as well as against other persons who are responsible for the affairs of the company.

8. The judgment of the High Court has been questioned on two grounds. Learned counsel appearing on behalf of the appellant submits that firstly, the appellant could not be prosecuted without the company being named as an accused. The cheque was issued by the company and was signed by the appellant as its Director. Secondly, it was urged that the observation of the High Court that the company can now be proceeded against in the complaint is misconceived. Learned counsel submitted that the offence under Section 138 is complete only upon the issuance of a notice of demand and the failure of payment within the prescribed period. In absence of compliance with the requirements of Section 138, it is asserted, the direction of the High Court that the company could be impleaded/arraigned at this stage is erroneous.

9. The first submission on behalf of the appellant is no longer res integra. A decision of a three Judge Bench of this Court in Aneeta Hada vs.