A company must be arraigned as an accused for vicarious liability to apply under Section 138 of the N.I. Act; thus, prosecution of directors is invalid without this requirement.

ORDER :

S. VISHWAJITH SHETTY, J.

1. The petitioner is before this Court with a prayer to quash the entire proceedings as against him in C.C. No.1020/2021 pending before the Court of the Senior Civil Judge and JMFC, Hirekerur, for the offence punishable under Section 138 of the N.I. Act.

2. Learned counsel for the petitioner submits that the cheque in question was issued on the account of the Company, which is not arraigned as an accused before the trial Court. He submits that in the absence of the Company being arraigned as an accused, the petitioner who is the Managing Director of the Company cannot be prosecuted. Under similar circumstances, this Court has quashed the proceedings as against accused No.2, who is the wife of the petitioner herein. Accordingly, he prays to allow the petition.

3. Per contra, learned counsel for the respondent who has opposed the petition submits that the complainant may be given the liberty to initiate fresh proceedings as against the accused after impleading the Company as a party to the proceedings.

4. Accused Nos.1 and 2 in the impugned proceedings are the Managing Director and the Director of the Company known as Arunodaya Seeds Private Limited. The cheque in question has been issued on the bank account of the aforesaid Company and after the same was dishonoured by the drawee bank, the respondent had initiated the impugned criminal proceedings against accused Nos.1 and 2 for the offence punishable under Section 138 of the N.I. Act.

5. Challenging the said proceedings, accused No.2 had approached this Court in Crl.P. No.102192/2021, which was allowed on 17^th February 2022. In paragraph No.3 of the said order, it is observed as follows:

“3. The facts of the case need not be gone into at this juncture as it is undisputed that the petitioner is a Director of Arunodaya Seeds Private Limited, which is a company in whose name the alleged cheque has been issued. The complaint is registered invoking Section 138 of the N.I.Act without arraigning the Company as an accused in the proceedings, the issue with regard to the Company to be arrayed as an accused, or otherwise need not detain this Court for long as the issue is no longer res integra. The Hon’ble Apex Court in the case of Aneeta Hada vs. Godfather Travels & Tours Pvt. Ltd., reported in (2012) 5 SCC 661 , has held as follows :

53. 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. As has been stated by us earlier, the vicarious liability gets attracted when the condition precedent laid down in Section 141 of the Act stands satisfied. There can be no dispute that as the liability is penal in nature, a strict construction of the provision would be necessitous and, in a way, the warrant.

56. We have referred to the aforesaid passages only to highlight that there has to be strict observance of the provisions regard being had to the legislative intendment because it deals with penal provisions and a penalty is not to be imposed affecting the rights of persons whether juristic entities or individuals, unless they are arrayed as accused. It is to be kept in mind that the power of punishment is vested in the legislature and that is absolute in Section 141 of the Act which clearly speaks of commission of offence by the company. The learned counsel for the respondents have vehemently urged that the use of the term “as well as” in the Section is of immense significance and, in its tentacle, it brings in the company as well as the director and/or other officers who are responsible for the acts of the company and, therefore, a prosecution against the directors or other officers is tenable even if the company is not arraigned as an accused. The words “as well as” have to be understood in the context.

59. In view of our aforesaid analysis, we arrive at the irresistible conclusion that for maintaining the prosecution und