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Saturday, August 3, 2013

whether an authorised signatory of a company would be liable for prosecution under Section 138 of the Negotiable Instruments Act, 1881 (for brevity ‘the Act’) without the company being arraigned as an accused. -apex court held No = “141. Offences by companies. – (1) If the person committing an offence under section 138 is 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; Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence: Provided further that where a person is nominated as a Director of a Company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter. (2) Notwithstanding anything contained in sub-section (1), where any offence under this Act, has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.” 16. On a reading of the said provision, it is plain as day that if a person who commits offence under Section 138 of the Act is a company, the company as well as every person in charge of and responsible to the company for the conduct of business of the company at the time of commission of offence is deemed to be guilty of the offence. The first proviso carves out under what circumstances the criminal liability would not be fastened. Sub-section (2) enlarges the criminal liability by incorporating the concepts of connivance, negligence and consent that engulfs many categories of officers. It is worth noting that in both the provisions, there is a ‘deemed’ concept of criminal liability.- Resultantly, the Criminal Appeal Nos. 838 of 2008 and 842 of 2008 are allowed and the proceedings initiated under Section 138 of the Act are quashed. 46. Presently, we shall advert to the other two appeals, i.e., Criminal Appeal Nos. 1483 of 2009 and 1484 of 2009 wherein the offence is under Section 67 read with Section 85 of the 2000 Act. In Criminal Appeal No. 1483 of 2009, the director of the company is the appellant and in Criminal Appeal No. 1484 of 2009, the company. Both of them have called in question the legal substantiality of the same order passed by the High Court. In the said case, the High Court followed the decision in Sheoratan Agarwal (supra) and, while dealing with the application under Section 482 of the Code of Criminal Procedure at the instance of Avnish Bajaj, the Managing Director of the company, quashed the charges under Sections 292 and 294 of the Indian Penal Code and directed the offences under Section 67 read with Section 85 of the 2000 Act to continue. It is apt to note that the learned single Judge has observed that a prima facie case for the offence under Sections 292(2)(a) and 292(2)(b) of the Indian Penal Code is also made out against the company. 47. Section 85 of the 2000 Act is as under: - “85. Offences by companies - (1) Where a person committing a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder is a company, every person who, at the time the contravention was committed, was in charge of, and was responsible to, the company for the conduct of business of the company as well as the company, shall be guilty of the contravention and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to punishment if he proves that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention. (2) Notwithstanding anything contained in sub-section (1), where a contravention of any of the provisions of this Act or of any rule, direction or order made there under has been committed by a company and it is proved that the contravention has taken place with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly.” 48. Keeping in view the anatomy of the aforesaid provision, our analysis pertaining to Section 141 of the Act would squarely apply to the 2000 enactment. Thus adjudged, the director could not have been held liable for the offence under Section 85 of the 2000 Act. Resultantly, the Criminal Appeal No. 1483 of 2009 is allowed and the proceeding against the appellant is quashed. As far as the company is concerned, it was not arraigned as an accused. Ergo, the proceeding as initiated in the existing incarnation is not maintainable either against the company or against the director. As a logical sequeter, the appeals are allowed and the proceedings initiated against Avnish Bajaj as well as the company in the present form are quashed. 49. Before we part with the case, we must record our uninhibited and unreserved appreciation for the able assistance rendered by the learned counsel for the parties and the learned amicus curiae. 50. In the ultimate analysis, all the appeals are allowed.

                     published in   http://judis.nic.in/supremecourt/imgst.aspx?filename=39265

 IN THE SUPREME COURT OF INDIA

                       CRIMINAL APPELLATE JURISDICTION

                       CRIMINAL APPEAL NO. 838 OF 2008



Aneeta Hada                                    .....……..Appellant

                                   Versus

M/s. Godfather Travels & Tours Pvt. Ltd.          ………Respondent


                                    WITH


                      CRIMINAL  APPEAL NO. 842 OF 2008


Anil Hada                                            ……......Appellant

      Versus

M/s. Godfather Travels & Tours Pvt. Ltd.          ………Respondent


                                    WITH


                      CRIMINAL  APPEAL NO. 1483 OF 2009


Avnish Bajaj                                         ……......Appellant

      Versus

State                                             ………Respondent


                                     AND



                      CRIMINAL  APPEAL NO. 1484 OF 2009


Ebay India Pvt. Ltd.                                 ……......Appellant

      Versus

State and Anr.                                    ………Respondent





                               J U D G M E N T


DIPAK MISRA, J.


      In Criminal Appeal Nos. 838 of  2008  and  842  of  2008,  the  common
proposition of  law  that  has  emerged  for  consideration  is
whether  an
authorised signatory of a company would  be  liable  for  prosecution under Section 138 of the Negotiable Instruments Act, 1881 (for brevity ‘the  Act’) without the company being arraigned as an accused. 
 Be it noted,  these  two appeals were initially heard by a two-Judge Bench and there  was  difference of opinion between the two learned Judges in the interpretation of  Sections 138 and 141 of the Act and, therefore, the matter  has  been  placed  before us.

2.    In Criminal Appeal Nos. 1483 of 2009  and  1484  of  2009,  
the  issue involved pertains to 
the interpretation of Section 85 of the
Information Technology Act, 2000 (for short ‘the 2000 Act’)  which  is  pari materia with Section 141 of the  Act.  
 Be  it  noted,
a  director  of  the
appellant-Company was prosecuted under Section 292 of the Indian Penal  Code and Section 67 of  the  2000  Act  without  impleading  the  company  as  an accused.  

The initiation of prosecution was challenged under Section 482  of
the Code of Criminal Procedure before the High  Court  and
 the  High  Court
held that offences are made out against  the  appellant-Company  along  with
the directors under Section 67 read with Section 85 of the 2000 Act and,  on
the said base, declined to quash the proceeding.  
The core  issue  that  has emerged in these two appeals is
whether the company  could  have  been  made
liable for prosecution without being impleaded as  an  accused  and  
whether
the directors could have been prosecuted for offences punishable under  the aforesaid provisions without  the  company  being  arrayed  as  an  accused.

Regard being had to the similitude of the  controversy,  these  two  appeals
were linked with Criminal Appeal Nos. 838 of 2008 and 842 of 2008.

3.    We have already noted that there was difference of opinion in  respect
of the interpretation of Sections 138 and 141 of the Act and, therefore,  we
shall advert to the facts in Criminal Appeal No. 838 of 2008 and, thereafter, refer to the  facts  in  Criminal  Appeal  Nos. 1482 of 2009 and 1484 of 2009.

4.    The appellant, Anita Hada, 
an authorised  signatory  of  International
Travels Limited, a company registered under the Companies Act, 1956, 
 issued a cheque dated 17th January, 2011 for a sum of Rs.5,10,000/-  in  favour  of
the respondent, namely, M/s. Godfather  Travels  &  Tours  Private  Limited,
which was  dishonoured  as  a  consequence  of  which  the  said  respondent
initiated criminal  action  by  filing  a  complaint  before  the  concerned
Judicial Magistrate  under  Section  138  of  the  Act.  
 In  the  complaint
petition,  the  Company  was  not  arrayed  as  an  accused.
 However,  the Magistrate took cognizance of the offence against the accused appellant.

5.    Being aggrieved by the said order, she  invoked  the  jurisdiction  of
the High Court under Section 482 of  the  Code  of  Criminal  Procedure  for
quashing of the criminal proceeding and  the  High  Court,  considering  the
scope of Sections 138 and 139 of the Act and various other  factors,  opined
that the ground urged would be in the sphere of defence of the  accused  and
would not strengthen the edifice for  quashing  of  the  proceeding.

While assailing the said order before the two-Judge Bench,
 the substratum of argument was that  as  the  Company  was  not  arrayed  as  an
accused, the legal fiction created by the legislature in Section 141 of the Act would not get attracted. 
 It was canvassed that once a legal fiction  is
created by the statutory provision  against  the  Company  as  well  as  the person responsible for the acts of the  Company,  the  conditions  precedent engrafted under such deeming provisions are to be totally satisfied and  one such condition is impleadment of the principal  offender.   
S.B.  Sinha,  J.
dissected the anatomy of Sections 138 and 141 of the  Act  and  referred  to
the decisions in
Standard  Chartered  Bank  and  others  v.  Directorate  of
Enforcement and others[1]; Madhumilan Syntex  Ltd.  &  others  v.  Union  of
India and another[2]; S.M.S.  Pharmaceuticals  Ltd.   v.  Neeta  Bhalla  and
Another[3];    Sabitha     Ramamurthy     and     Another      v.     R.B.S.
Channabasavaradhya[4]; S.V. Mazumdar and others v. Gujarat State  Fertilizer
Co. Ltd. and Another[5]; Sarav Investment &  Financial  Consultancy  Private
Limited and another v. Lloyds Register of Shipping Indian Office Staff
Provident Fund and another[6]; K. Srikanth Singh v.  North  East  Securities
Ltd. and Anr.[7]; Suryalakshmi Cotton Mills Ltd. v. Rajvir  Industries  Ltd.
and  Ors.[8];  N.  Rangachari  v.  Bharat  Sanchar  Nigam  Ltd.[9];  Everest
Advertising (P) Ltd. v. State, Govt. of NCT of  Delhi  and  Ors.[10];  Saroj
Kumar Poddar v. State (NCT of Delhi) and Anr.[11];  N.K.  Wahi   v.  Shekhar
Singh and Ors.[12]; and
 took  note  of  the  two-Judge  Bench  decision  in
Sheoratan Agarwal and Another v. State of  Madhya  Pradesh[13]  wherein  the decision of the three-Judge Bench in State of  Madras  v.  C.V.  Parekh  and Another[14] was distinguished and expressed the view as follows: -
“28. With the greatest of respect to the learned judges, it is difficult to agree therewith. The findings, if taken to its logical corollary lead us to an anomalous position. The trial court, in a given case although the company is not an accused, would have to arrive at a finding that it is guilty. Company, although a juristic person, is a separate entity. Directors may come and go. 
The company remains. It has its own reputation and standing in the market which is required to be maintained. Nobody,
without any authority of law, can sentence it or find it guilty of commission of offence. Before recording a finding that it is guilty of commission of a serious offence, it may be heard. 
The Director who was in charge of the company at one point
of time may have no interest in the company. He may not even defend the company. 
He need not even continue to be its Director. He may have his own score to settle in view of change in management of the company. In a situation of that nature, the company would for all intent and purport would stand convicted, although, it was not an accused and, thus, had no opportunity to defend itself.

29. Any person accused of commission of an offence, whether natural or 
juristic, has some rights. 
If it is to be found guilty of commission of an
offence on the basis whereof its Directors are held liable, the procedures laid down in the Code of Criminal Procedure must be followed. In determining such an issue all relevant aspects of the matter must be kept in mind. 
The ground realities cannot be lost sight of. Accused persons are
being convicted for commission of an offence under Section 138 of the Act inter alia on drawing statutory presumptions.

      Various provisions contained therein lean in favour of a drawer of 
the cheque or the holder thereof and against the accused. Sections 20, 118(c), 139 and 140 of the Act are some such provisions. The Act is a penal statute. 
Unlike offences under the general law it provides for reverse
burden. The onus of proof shifts to the accused if some foundational  facts are established.

      It is, therefore, in interpreting a statute of this nature difficult

to conceive that it would be legally permissible to hold a company, the prime offender, liable for commission of an offence although it does not get an opportunity to defend
itself. 
It is against all principles of fairness and justice. It is opposed
to the Rule of Law. No statute in view of our Constitutional Scheme can be construed in such a manner so as to refuse an opportunity of being heard to a person. 
It would not only offend a common- sense, it may be held to be
unconstitutional. Such a construction, therefore, in my opinion should be avoided.

      In any event in a case of this nature, the construction which may be 
available in invoking Essential Commodities Act, Prevention of Food Adulteration Act, which affects the Society at large may not have any application when only a private individual is involved.”



6.    Thereafter, the learned Judge referred to Anil Hada v. Indian  Acrylic
Ltd.[15] and R. Rajgopal v. S.S. Venkat[16],  
distinguished the decision  in
Anil Hada and opined that the issue decided  in  the  said  case  is  to  be
understood in the factual matrix obtaining therein as the Company could  not have been prosecuted, it being under liquidation.  
The observations  to  the effect that the Company need not  be  prosecuted  against  was  regarded  as obiter dicta and not the ratio decidendi.  

Sinha J. clearly opined that  the Bench was bound by the three-Judge Bench decision in S.M.S.  Pharmaceuticals Ltd.’s case (supra) and C.V. Parekh’s case (supra).
After stating so, he observed as under: -
      “It is one thing to say that the complaint petition proceeded against the accused persons on the premise that the company had not committed the offence but the accused did, but it is another thing to say that although the company was the principal offender, it need not be made an accused at all.

      I have no doubt whatsoever in our mind that prosecution of the
company is a sine qua non for prosecution of the other persons who fall within the second and third categories of the candidates, viz., everyone who was in-charge and was responsible for the business of the company and any other person who was a director or managing director or secretary or officer of the company with whose connivance or due to whose neglect the company had committed the offence.”



7.    The learned Judge also took note of the maxim
  lex non cogit ad impossibilia and expressed thus: -
 “True interpretation, in my opinion, of the said provision would be that a company has to be made an accused  
but  applying the principle "lex non cogit ad impossibilia", i.e., if for some legal snag, the company  cannot  be  proceeded  against  without obtaining sanction of a court of law  or  other  authority,  the trial as against the other accused may be proceeded  against  if
the ingredients  of  Section  138  as  also  141  are  otherwise  fulfilled.  
In such an event, it would not be a  case  where  the company had not been made an accused but would be one where the company cannot be  proceeded  against due to existence of a legal bar.  
A distinction must be borne in mind between cases where a company had not been made an  accused and
 the one where despite making it an  accused,  it  cannot  be
proceeded against because of a legal bar.”

8.    Being of the aforesaid view, he allowed the appeals.

9.    V.S. Sirpurkar J., after narrating the facts and referring to  Section
141(2) of the Act, which deals with additional  criminal  liability,  opined
that even if the liability against the  appellant  is  vicarious  herein  on account of the offence  having  alleged  to  have  been  committed  by  M/s.International Travels, it would be presumed  that  the  appellant  had  also committed the offence and non-arraying of M/s. International Travels  as  an accused would be of no consequence.  
His Lordship further  held  that  there
is  nothing  in  Standard  Chartered  Bank  and   others   (supra),   S.M.S. Pharmaceuticals Limited (supra), Sabitha  Ramamurthy  and  another  (supra), S.V.  Muzumdar  and  others  (supra),   Sarav   Investment   and   Financial Consultants Pvt. Ltd. and another (supra) and K. Srikanth Singh  (supra)  to
suggest that unless the Company itself is made an accused, there cannot  be prosecution of the signatory of the cheque alone.

Thereafter, the learned Judge referred to the  decision  in  Anil  Hada  and expressed that in the said case, the decision of  C.V.  Parekh  (supra)  and Sheoratan Agarwal (supra) had been referred  to  and,  therefore,  it  is  a binding precedent and cannot be viewed as an  obiter  dicta.   
Sirpurkar  J.
further  proceeded  to  state  that  the  principle  of  lex  non  cogit  ad impossibilia would not apply.
That apart, the learned Judge  held  that  in
the case at hand, it is yet to be decided as to whether the  flaw  was  that of the Company or the appellant herself and it could not be made out  as  to whether the cheque issued by  the  accused  was  issued  on  behalf  of  the Company or to discharge her personal liability.   Eventually,  his  Lordship referred to the allegations in the complaint which are to  the  effect  that the two accused  persons,  namely,  Anil  Hada  and  Aneeta  Hada,  used  to
purchase the air tickets for their clients and they had  purchased  for  the Company from time to time and issued cheques.  The accused  No.  1  used  to conduct the business of the Company  and  she  also  used  to  purchase  the tickets from the complainant.   On  the  aforesaid  foundation  the  learned Judge opined that the basic complaint is against the two accused persons  in their individual capacity and they might be purchasing tickets for their travelling company.  Being  of  this  view,  he dismissed both the appeals.

10.   We have heard Mr. Muneesh Malhotra, learned counsel for the  appellant
in Criminal Appeal Nos. 838 and 842 of  2008,  Dr.  Abhishek  Manu  Singhvi,
learned senior counsel for the appellant in  Criminal  Appeal  No.  1483  of
2009 and for the respondent  in  Criminal  Appeal  No.  1484  of  2009,  Mr.
Sidharth Luthra, learned  senior  counsel  for  the  appellant  in  Criminal
Appeal No. 1484  of  2009,  Mr.  Rajesh  Harnal,  learned  counsel  for  the
respondents in Criminal Appeal Nos. 838 of 2008 and 842 of  2008,  Mr.  P.P.
Malhotra,  learned  Additional  Solicitor  General  for  the  respondent  in
Criminal Appeal No. 1483 of 2009 and Mr. Arun Mohan, learned Amicus Curiae.

11.   The learned senior counsel appearing for the  appellants,  in  support
of the proponement that the impleadment of  the  company  is  a  categorical
imperative  to  maintain  a  prosecution  against  the  directors,   various
signatories and other categories of officers, have canvassed as follows: -

(a)   The language of Section 141 of the  Act  being  absolutely  plain  and clear, a finding has to be returned that the 
company has committed the offence and such  a  finding  cannot  be  recorded unless the company is before the court, more so, when  it  enjoys  the status of a separate legal entity. That apart, the  liability  of  the individual as per the provision  is  vicarious  and  such  culpability arises, ipso facto and ipso jure, from the fact  that  the  individual occupies a decision making position in the corporate  entity.   It  is patent that unless the company, the principal entity, is prosecuted as an accused, the subsidiary entity,  the  individual,  cannot  be  held liable, for the language used in the provision makes the  company  the principal offender.

(b)   The essence of vicarious liability is  inextricably  intertwined  with the  liability  of  the  principal  offender.   If  both  are  treated
 separately, it would  amount  to  causing  violence  to  the  language employed in the provision.

(c)   It is a fundamental principle of criminal law that a  penal  provision must receive strict construction.   The  deeming  fiction  has  to  be applied in its complete sense to have the full effect as  the  use  of the language in the provision really ostracizes or gets away with  the concepts  like  “identification”,  “attribution”   and   lifting   the corporate veil and, in fact, puts the directors and the officers responsible  in  a  deemed concept compartment on certain guided parameters.

(d)   The company, as per Section 141 of the Act, is the principal  offender and when it is  in  existence,  its  non-impleadment  will  create  an incurable dent in the prosecution and further, if  any  punishment  is inflicted or an unfavourable finding is recorded, it would affect  the reputation of the company which is not countenanced in law.

(e)   The decision in Sheoratan Agarwal and Another (supra) has  incorrectly distinguished the  decision  in  C.V.  Parekh  (supra)  and  has  also misconstrued the ratio laid down therein.  That  apart,  in  the  said decision, a part of the provision contained in Section  10(1)  of  the Essential Commodities Act, 1955 (for brevity ‘the 1955 Act’) has  been altogether omitted as a consequence of  which  a  patent  mistake  has occurred.

(f)   The decision in Anil  Hada  (supra)  has  not  appreciated  in  proper perspective the ratio decidendi in C.V. Parekh and further there is an inherent contradiction in the judgment inasmuch as at one point, it has been stated that “the payee can succeed  in
 the case only if he succeeds in showing that the offence was  actually committed by the company” but at another place, it has been ruled that“the accused can show that the company has not committed the  offence, though such company is not made an accused”.

(g)   The terms used “as well as the company” in Section 141(1) of  the  Act cannot mean that no offence  need  be  committed  by  the  company  to attract the vicarious liability  of  the  officers  in-charge  of  the management of the company because the  first  condition  precedent  is commission of the offence by a person which is the company.

12.   The learned counsel for the  respondents,  resisting  the  submissions
propounded by the  learned  counsel  for  the  appellants,  have  urged  the
following contentions: -

(i)   If the  interpretation  placed  by  the  appellant  is  accepted,  the
      scheme, aims, objects and the purpose  of  the  legislature  would  be
      defeated inasmuch as Chapter XVII of the  Act  as  introduced  by  the
      Negotiable Instruments Laws (Amendment) Act, 1988 (66  of  1988)is  to
      promote efficacy of banking to ensure that in commercial or  contractual  transactions,  cheques
      are not  dishonoured  and  the  credibility  in  transacting  business
      through cheques is maintained.  The Chapter has been inserted with the
      object of promoting and inculcating  faith  in  the  efficacy  of  the
      banking system and its operations and giving credibility to negotiable
      instruments in business transactions.  The fundamental purpose  is  to
      discourage people from not  honouring  their  commitments  and  punish
      unscrupulous persons who  purport  to  discharge  their  liability  by
      issuing cheques without really intending to do so.  If the legislative
      intendment   is   appositely   understood   and    appreciated,    the
      interpretation of the various provisions of the Act is to be  made  in
      favour  of  the  paying-complainant.    To   bolster   the   aforesaid
      submission,  reliance  has  been  placed  on  Electronics  Trade   and
      Technology  Development  Corporation  Ltd.,  Secunderabad  v.   Indian
      Technologists and Engineers (Electronics) (P)  Ltd.  and  another[17],
      C.C. Alavi Haji v. Palapetty Mohammed and Another[18] and Vinay Devanna Nayak v. Ryot Sewa Sahakaro Bank Ltd.[19]

(ii)  The reliance placed by the appellants on the decision in  C.V.  Parekh
      (supra) is absolutely misconceived.  In the first case, the Court  was
      considering the question of acquittal or  conviction  of  the  accused
      persons after considering the  entire  evidence  led  by  the  parties
      before the trial court but in the present case, the challenge has been
      at the threshold where summons have been issued.  That apart, the 1955
      Act and the  Act  in  question  operate  in  different  fields  having
      different legislative intents, objects and purposes and  further  deal
      with offences of various  nature.   In  the  case  at  hand,  the  new
      dimensions of economic growth development  and  revolutionary  changes
      and the frequent commercial transactions by use of cheques are  to  be
      taken note of.  Further, Section 141 creates liability for  punishment
      of offences under Section 138 and it is a deemed liability whereas the
      criminal liability created for an offence under Section 7 of the  1955
      Act is not a deemed offence.

(iii)  After  the  amendment  of  the  Act,  the  unscrupulous  drawers  had
      endeavoured hard to seek many an escape route to  avoid  the  criminal
      liability but this Court with appropriate interpretative  process  has
      discouraged the innovative pleas  of  such  accused  persons  who  had
      issued cheques  as  the  purpose  is  to  eradicate  mischief  in  the
      commercial  world.   To  buttress  the  aforesaid  submission,   heavy
      reliance has been placed on D. Vinod Shivappa v. Nanda  Belliappa[20],
      M/s. Modi Cement Ltd. v. Shri Kuchil Kumar  Nandi[21],  Goaplast  Pvt.
      Shri Ltd. v. Chico Ursula D’souza and Anr.[22],  NEPC  Micon  Ltd  and
      Ors. v. Magma Leasing Ltd.[23], Dalmia Cement (Bharat)  Ltd.  v.  M/s.
      Galaxy Traders and Agencies Ltd and Ors.[24], I.C.D.C. Ltd.  v.  Beena
      Shabeer  and  Anr.[25]  and  S.V.  Majumdar  and  others  v.   Gujarat
      Fertilizers Co. Ltd and Anr.[26]

(iv)  The company being a legal entity acts through its directors  or  other
      authorized officers and it authorizes its directors or other  officers
      to sign and issue cheques and intimate the

bank to honour the cheques if signed by such persons.   The  legislature  in
      its wisdom has used the word ‘drawer’ in Sections 7 and 138 of the Act
      but not “an account holder”.  A notice issued to the Managing Director
      of the company who has signed the cheques is liable  for  the  offence
      and  a  signatory  of  a  cheque  is  clearly  responsible   for   the
      incriminating act and, therefore, a complaint under Section 138 of the
      Act against the director or authorized  signatory  of  the  cheque  is
      maintainable.  In this regard,  reliance  has  been  placed  upon  M/s
      Bilakchand Gyanchand Co. v. A. Chinnaswami[27], Rajneesh  Aggarwal  v.
      Amit J. Bhalla[28], SMS Pharmaceuticals Ltd. v. Neeta Bhalla  (supra),
      Anil Hada v. Indian Acrylic Ltd.  (supra)  and  R.  Rajgopal  v.  S.S.
      Venkat[29].

(v)   There is no postulate under Section 141 of the Act that  the  director
      or the signatory of the cheque cannot be separately prosecuted  unless
      the company is arrayed as an accused.  The company, as is  well-known,
      acts through its directors or authorised officers and they cannot seek
      an escape route by

seeking quashment of the proceedings  under  Section  482  of  the  Code  of
      Criminal Procedure solely on the foundation that the company  has  not
      been impleaded as an accused.  The words  “as  well  as  the  company”
      assumes significance inasmuch as the deemed  liability  includes  both
      the company and the  officers  in-charge  and  hence  prosecution  can
      exclusively be maintained against the directors or officers  in-charge
      depending on the averments made in the complaint petition.

13.   The gravamen of the controversy is
  whether any  person  who  has  been
mentioned in Sections 141(1)  and  141(2)  of  the  Act  can  be  prosecuted without the company being  impleaded  as  an  accused.
To  appreciate  the
controversy, certain provisions need to be referred to.  Section 138 of  the
Act, which deals with the ingredients of the offence for  dishonour  of  the
cheque and the consequent non-payment of the amount due  thereon,  reads  as
follows: -

           “138. Dishonour of cheque for insufficiency, etc,  of  funds  in the account – 
Where any cheque drawn  by  a  person  on  account
       maintained by him with a banker for the payment of any amount of
           money to another  person  from  out  of  that  account  for  the
           discharge, in whole or in part, of any debt or other  liability,
           is returned  by the bank unpaid,  either  because  of  the  amount  of  money
           standing to the credit of that account is insufficient to honour
           the cheque or that it exceeds the amount  arranged  to  be  paid
           from that account by an arrangement made  with  the  bank,  such
           person shall be deemed to have committed an  offence  and  shall
           without prejudice to  any  other  provisions  of  this  Act,  be
           punished with imprisonment for a term which may be  extended  to
           two years, or with a fine which may extend to twice  the  amount
           of the cheque, or with both:

                 Provided that nothing  contained  in  this  section  shall
           apply unless –

           (a)   the cheque has been presented to the bank within a  period
                 of six months from the date on which it is drawn or  within
                 the period of its validity, whichever is earlier,

           (b)   the payee or the holder in due course of  the  cheque,  as
                 the case may be, makes a demand for the payment of the said
                 amount of money by giving a  notice,  in  writing,  to  the
                 drawer of the cheque, within thirty days of the receipt  of
                 information by him from the bank regarding  the  return  of
                 the cheque as unpaid, and

           (c)   the drawer of such cheque fails to  make  the  payment  of
                 said amount of money to the payee or, as the case  may  be,
                 to the holder in due course of the cheque,  within  fifteen
                 days of the receipt of the said notice.”



14.    The  main  part  of  the  provision  can  be  segregated  into  three
compartments, namely,
(i) the cheque is drawn by a person,
 (ii)  the  cheque
drawn on an account maintained by him with the
banker for payment of any amount of money to  another  person  from  out  of
that account for the discharge, in whole or in part,  of  a  debt  or  other
liability, is returned unpaid, either because the amount of  money  standing
to the credit of that account is insufficient to honour  the  cheque  or  it
exceeds the amount arranged to be paid from that account by  an  arrangement
made with the bank and
(iii) such person shall be deemed to  have  committed
an offence and shall, without prejudice to any other provision of  the  Act,
be punished with imprisonment for a term which may extend to  two  years  or
with fine which may extend to twice the amount of the cheque or  with  both.

The proviso to the said section  postulates  under  what  circumstances  the
section shall not apply.
In the case at hand, we  are  not  concerned  with
the said aspect.
It will not be out of place to state that  the  main  part
of the provision deals with the basic  ingredients  and  the  proviso  deals
with certain circumstances and lays certain conditions where it will not  be
applicable.
The emphasis has been laid on the factum that  the  cheque  has
to be drawn by a person on the account maintained by him and  he  must  have
issued the cheque in discharge of any debt or other  liability.
Section  7
of the Act defines ‘drawer’ to mean the maker of a bill of
exchange or a cheque.
An  authorised  signatory  of  a  company  becomes  a
drawer as he has been  authorised  to  do  so  in  respect  of  the account maintained by the company.

15.   At this juncture, we  may  refer  to  Section  141  which  deals  with
offences by companies.  As the spine of the controversy rests  on  the  said
provision, it is reproduced below: -

           “141. Offences by companies. – 
(1) If the person  committing  an
           offence under section 138 is 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;

                 Provided that nothing contained in this sub-section  shall
           render any person liable to punishment if  he  proves  that  the
           offence was committed without his  knowledge,  or  that  he  had
           exercised all due diligence to prevent the  commission  of  such
           offence:

                 Provided further that where a person  is  nominated  as  a
           Director of a Company by virtue of his  holding  any  office  or
           employment in the Central Government or State  Government  or  a
           financial  corporation  owned  or  controlled  by  the   Central
           Government or the State Government, as the case may be, he shall
           not be liable for prosecution under this Chapter.

           (2)   Notwithstanding anything  contained  in  sub-section  (1),
           where any offence under  this  Act,  has  been  committed  by  a
           company and
it is proved  that  the  offence  has  been  committed  with  the  consent  or
           connivance of, or is attributable to, any neglect  on  the  part
           of, any director, manager, secretary or  other  officer  of  the
           company, such director,  manager,  secretary  or  other  officer
           shall also be deemed to be guilty of that offence and  shall  be
           liable to be proceeded against and punished accordingly.”



16.   On a reading of the said provision, it is  plain  as  day  that  if  a
person who commits offence under Section 138 of the Act is  a  company,  the
company as well as every person in charge of and responsible to the  company
for the conduct of business of the company at  the  time  of  commission  of
offence is deemed to be guilty of the offence.   The  first  proviso  carves
out under what circumstances the criminal liability would not  be  fastened.
Sub-section  (2)  enlarges  the  criminal  liability  by  incorporating  the
concepts of connivance, negligence and consent that engulfs many  categories
of officers.  It is worth noting that in both the  provisions,  there  is  a
‘deemed’ concept of criminal liability.

17.   Section 139 of the Act creates a presumption in favour of the  holder.
 The said provision has to be read in conjunction with Section 118(a)  which
occurs in Chapter  XIII  of  the  Act  that  deals  with  special  rules  of
evidence.  Section 140 stipulates the defence which may not be allowed in  a
prosecution under Section 138 of the  Act.
Thus,  there  is  a  deemed  fiction  in  relation  to  criminal
liability, presumption in favour of the holder, and denial of a  defence  in
respect of certain aspects.

18.   Section 141 uses the term ‘person’ and refers it to a company.
 There
is no trace of doubt that the company is a juristic person.  The concept  of
corporate criminal liability is attracted to a corporation and  company  and
it is so luminescent from the language employed under  Section  141  of  the
Act.
 It is apposite to note that the present enactment  is  one  where  the
company itself and certain categories of officers in  certain  circumstances
are deemed to be guilty of the offence.

19.    In Halsbury’s Laws of England, Volume 11(1), in paragraph 35, it  has
been laid down that in general, a corporation is in  the  same  position  in
relation to criminal liability as a natural person and may be  convicted  of
common law and statutory offences including those requiring mens rea.

20.   In 19 Corpus Juris Secundum, in paragraph  1358,  while  dealing  with
liability in respect of  criminal prosecution, it has  been  stated  that  a
corporation shall be liable for criminal prosecution for  crimes  punishable
with fine; in certain

jurisdictions, a corporation cannot  be  convicted  except  as  specifically
provided by statute.

21.   In H.L. Bolton (Engineering) Co. Ltd. vs. T.J. Graham & Sons  Ltd.[30]
Lord Denning, while  dealing  with  the  liability  of  a  company,  in  his
inimitable style, has expressed that a company may in many ways  be  likened
to a human body.  It has a brain and nerve centre  which  controls  what  it
does.  It also has hands which hold the tools and  act  in  accordance  with
directions from the centre.  Some of the people  in  the  company  are  mere
servants and agents who are nothing more than  hands  to  do  the  work  and
cannot be said to represent the mind or  will.   Others  are  directors  and
managers who represent the directing mind  and  will  of  the  company,  and
control what it does.  The state of mind of these managers is the  state  of
mind of the company and is treated by the law as such.   In  certain  cases,
where the law requires personal fault as a condition of liability  in  tort,
the fault of the manager will be the personal fault  of  the  company.   The
learned Law Lord referred to Lord Haldane’s  speech  in  Lennard’s  Carrying
Co. Ltd. v. Asiatic Petroleum Co. Ltd.[31].   Elaborating  further,  he  has
observed that in criminal law, in cases where the

law requires a guilty mind as a condition of a criminal offence, the  guilty
mind of the directors  or  the  managers  will  render  the  company  itself
guilty.

22.   It may be appropriate at this stage to notice  the  observations  made
by MacNaghten, J. in Director of Public  Prosecutions  v.  Kent  and  Sussex
Contractors Ltd.[32] : (AC p. 156.)

                 “A body corporate is  a  “person”  to  whom,  amongst  the
           various attributes it may have,  there  should  be  imputed  the
           attribute of a mind capable of knowing and forming an  intention
           – indeed it is much too late in the day to suggest the contrary.
            It can only know or form an intention through its human agents,
           but circumstance may be such that the  knowledge  of  the  agent
           must  be  imputed  to  the  body  corporate.   Counsel  for  the
           respondents says that, although a body corporate may be  capable
           of having an intention, it is not capable of having  a  criminal
           intention.  In  this  particular  case  the  intention  was  the
           intention to deceive.  If, as  in  this  case,  the  responsible
           agent of a body corporate puts forward a document knowing it  to
           be false and intending that it  should  deceive.   I  apprehend,
           according to the authorities that  Viscount  Caldecote,  L.C.J.,
           has cited, his knowledge and intention must be  imputed  to  the
           body corporate.




23.   In this regard, it is profitable to refer to the decision  in  Iridium
India Telecom Ltd. v. Motorola Inc and Ors.[33] wherein  it  has  been  held
that in all jurisdictions across the world governed  by  the  rule  of  law,
companies and corporate houses can no longer claim  immunity  from  criminal
prosecution on the ground that  they  are  not  capable  of  possessing  the
necessary mens rea  for  commission  of  criminal  offences.   It  has  been
observed that the legal position in England and United States has  now  been
crystallized to leave no manner of  doubt  that  the  corporation  would  be
liable for crimes of intent.  In the said decision, the two-Judge Bench  has
observed thus:-

             “The courts in England have emphatically rejected  the  notion
           that a body corporate could not commit a criminal offence  which
           was an outcome of an act of will needing a particular  state  of
           mind.  The aforesaid notion has been rejected  by  adopting  the
           doctrine of attribution and imputation.   In  other  words,  the
           criminal intent of the “alter ego” of the company/body corporate
           i.e. the person or group of persons that guide the  business  of
           the company, would be imputed to the corporation.”

24.   In Standard Charted Bank (supra), the majority has laid down the  view
that there is no dispute that a company  is  liable  to  be  prosecuted  and
punished for criminal offences.  Although

there are earlier authorities  to  the  fact  that  the  corporation  cannot
commit a crime, the generally accepted modern rule  is  that  a  corporation
may be subject  to  indictment  and  other  criminal  process  although  the
criminal act may be committed through its agent.  It has also been  observed
that there is no immunity to the companies from prosecution  merely  because
the prosecution is in respect  of  offences  for  which  the  punishment  is
mandatory imprisonment and fine.

25.   We have referred to the aforesaid authorities to  highlight  that  the
company can have criminal liability and further, if a group of persons  that
guide the business of the companies have the criminal intent, that would  be
imputed to the body corporate.  In this backdrop, Section  141  of  the  Act
has to be understood.  The said provision clearly  stipulates  that  when  a
person which is a company commits an offence,  then  certain  categories  of
persons in charge as well as the company would be deemed to  be  liable  for
the  offences  under  Section  138.   Thus,  the  statutory  intendment   is
absolutely plain.

26.   As is perceptible, the  provision  makes  the  functionaries  and  the
companies to be liable and that is by deeming fiction.   A  deeming  fiction
has its own signification.



27.   In this context, we may refer with profit to the observations made  by
Lord Justice James  in  Ex  Parte  Walton,  In  re,  Levy[34], which  is  as
follows:

           “When a statute enacts that something  shall  be deemed to  have
           been done, which, in fact and truth was not done, the  Court  is
           entitled and bound to ascertain for what  purposes  and  between
           what persons the statutory fiction is to be resorted to.”

28.   Lord Asquith, in East end  Dwellings  Co.  Ltd.  v.  Finsbury  Borough
Council[35] , had expressed his opinion as follows:

           “If you are bidden to treat an imaginary  state  of  affairs  as
           real, you must surely, unless prohibited  from  doing  so,  also
           imagine as real the consequences and incidents,  which,  if  the
           putative state of affairs had in fact existed,  must  inevitably
           have flowed from or accompanied it.... The statute says that you
           must imagine a certain state of affairs; it does  not  say  that
           having done so, you must cause or  permit  your  imagination  to
           boggle when it comes to the inevitable corollaries of that state
           of affairs.”

29.   In The Bengal Immunity Co. Ltd. v. State of Bihar and others[36],  the
majority in the Constitution Bench  have  opined  that  legal  fictions  are
created only for some definite purpose.


30.   In Hira H. Advani Etc. v.  State  of  Maharashtra[37],  while  dealing
with a proceeding under the  Customs  Act,  especially  sub-section  (4)  of
Section 171-A wherein an enquiry by the custom  authority  is  referred  to,
and the language employed therein, namely, "to be deemed to  be  a  judicial
proceeding within the meaning of Sections 193 and 228 of  the  Indian  Penal
Code", it has been opined as follows:

           “It was argued that the Legislature might  well  have  used  the
           word "deemed" in Sub-section (4) of Section171 not in the  first
           of the above senses but in the second, if not the third. In  our
           view the meaning to be attached to the word "deemed" must depend
           upon the context in which it is used.”

31.   In State of Tamil Nadu v. Arooran Sugars  Ltd.[38],  the  Constitution
Bench, while dealing with the deeming provision in  a  statute,  ruled  that
the role of a  provision  in  a  statute  creating  legal  fiction  is  well
settled.  Reference was made to The Chief Inspector of Mines and another  v.
Lala Karam Chand Thapar Etc.[39], J.K. Cotton  Spinning  and  Weaving  Mills
Ltd. and anr. v. Union of India and others[40], M. Venugopal v.


Divisional Manager, Life Insurance  Corporation  of  India[41]   and  Harish
Tandon v. Addl. District Magistrate, Allahabad[42] and  eventually,  it  was
held that when a statute creates  a  legal  fiction  saying  that  something
shall be deemed to have been done which in  fact  and  truth  has  not  been
done, the Court has to examine and ascertain as  to  for  what  purpose  and
between which persons such a statutory fiction is  to  be  resorted  to  and
thereafter, the courts have to give full effect to such a statutory  fiction
and it has to be carried to its logical conclusion.

32.   From the aforesaid pronouncements, the principle that  can  be  culled
out is that it is the bounden duty  of  the  court  to  ascertain  for  what
purpose the legal fiction has been created. It  is  also  the  duty  of  the
court to imagine the  fiction  with  all  real  consequences  and  instances
unless prohibited from doing so. That apart, the use of  the  term  'deemed'
has to be read in its context and further the fullest  logical  purpose  and
import are to be understood. It is because in modern legislation,  the  term
'deemed' has been used for manifold purposes. The object of the  legislature
has to be kept in mind.



33.   The word ‘deemed’ used in Section  141  of  the  Act  applies  to  the
company and the persons  responsible  for  the  acts  of  the  company.   It
crystallizes the corporate criminal liability and vicarious liability  of  a
person who is in charge of the company.  What averments should  be  required
to  make  a  person  vicariously  liable  has  been  dealt   with   in   SMS
Pharmaceuticals Ltd. (supra).  In the said case, it  has  been  opined  that
the criminal liability on account of dishonour of cheque primarily falls  on
the drawee company and is extended to the officers of  the  company  and  as
there is a specific provision extending the liability to the  officers,  the
conditions incorporated in Section 141 are to  be  satisfied.  It  has  been
ruled as follow:-

           “It primarily falls on the drawer company  and  is  extended  to
           officers of the company.  The normal rule in the cases involving
           criminal liability is against vicarious liability, that  is,  no
           one is to be held criminally liable for an act of another.  This
           normal rule is, however, subject  to  exception  on  account  of
           specific  provision  being  made  in  the   statutes   extending
           liability to others.  Section 141 of the Act is an  instance  of
           specific provision which in case an offence under Section 138 is
           committed by a company, extends criminal liability for  dishonor
           of a cheque to officers of the company.   Section  141  contains
           conditions which have to be satisfied before the  liability  can
           be extended to officers  of  a  company.   Since  the  provision
           creates criminal liability, the conditions have to  be  strictly
           complied with.  The conditions

           are intended to ensure that a person who is sought  to  be  made
           vicariously liable for an offence of which the principal accused
           is  the  company,  had  a  role  to  play  in  relation  to  the
           incriminating act and further that such  a  person  should  know
           what is attributed to him to make him liable.”

      After so stating, it  has  been  further  held  that  while  analyzing
Section 141 of the Act, it will be seen that it operates in cases  where  an
offence under Section 138 is committed by a company.   In  paragraph  19  of
the judgment, it has been clearly held as follows: -

           “There is  almost  unanimous  judicial  opinion  that  necessary
           averments ought to be contained in a complaint before  a  person
           can be subjected to criminal process.  A liability under Section
           141 of the Act is sought to be fastened vicariously on a  person
           connected with  a  Company,  the  principal  accused  being  the
           company itself.  It is a departure from the rule in criminal law
           against vicarious liability.”

34.   Presently, we shall deal with the ratio laid down in the case of  C.V.
Parekh (supra).  In the said case,  a  three-Judge  Bench  was  interpreting
Section 10 of the 1955 Act.  The respondents, C.V. Parekh and another,  were
active participants in the management of the company.  The trial  court  had
convicted them on the ground the goods were disposed of at  a  price  higher
than the control price by Vallabhadas Thacker with the aid of Kamdar

and the same could not  have  taken  place  without  the  knowledge  of  the
partners of the firm.  The High Court set aside the order of  conviction  on
the ground that there was no material on the basis of which a finding  could
be recorded that the respondents knew  about  the  disposal  by  Kamdar  and
Vallabhadas Thacker.  A contention was raised before this  Court  on  behalf
of the State of Madras that the conviction could be made  on  the  basis  of
Section 10 of the 1955 Act.  The three-Judge Bench repelled  the  contention
by stating thus: -

                  “Learned  counsel  for  the  appellant,  however,  sought
           conviction of the two respondents on the basis of Section 10  of
           the  Essential  Commodities  Act  under  which,  if  the  person
           contravening an order made under  Section  3  (which  covers  an
           order under the Iron  and  Steel  Control  Order,  1956),  is  a
           company, every person who, at the  time  the  contravention  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  contravention  and
           shall  be  liable  to  be   proceeded   against   and   punished
           accordingly.  It was urged that  the  two  respondents  were  in
           charge of, and were responsible to, the Company for the  conduct
           of the business of the Company and, consequently, they  must  be
           held responsible for the sale  and  for  thus  contravening  the
           provisions of clause (5) of the Iron and  Steel  Control  Order.
           This argument cannot be accepted, because it ignores  the  first
           condition

           for the applicability of Section  10  to  the  effect  that  the
           person contravening the order must be a company itself.  In  the
           present case, there is no finding either by the Magistrate or by
           the High Court that the sale in contravention of clause  (5)  of
           the Iron and Steel Control Order was made by  the  Company.   In
           fact, the Company was not charged with the offence at all.   The
           liability of the persons in charge of the  Company  only  arises
           when the contravention is by the Company itself.  Since, in this
           case, there is no evidence  and  no  finding  that  the  Company
           contravened clause (5) of the Iron and Steel Control Order,  the
           two respondents could  not  be  held  responsible.   The  actual
           contravention was by Kamdar  and  Vallabhadas  Thacker  and  any
           contravention by them would not  fasten  responsibility  on  the
           respondents.”

                                                         (emphasis supplied)


      The aforesaid paragraph clearly lays down that the first condition  is
that the company should be held to be liable; a charge has to be  framed;  a
finding has to be recorded, and the liability of the persons  in  charge  of
the company only arises when the contravention is  by  the  company  itself.
The said decision has been distinguished in the case  of  Sheoratan  Agarwal
and another (supra).  The two-Judge Bench  in  the  said  case  referred  to
Section 10 of the 1955  Act  and  opined  that  the  company  alone  may  be
prosecuted or the person in charge only may be prosecuted since there is  no
statutory compulsion that the


person in charge or an officer of the company may not be  prosecuted  unless
he be ranged alongside the company  itself.   The  two-Judge  Bench  further
laid down that Section 10 of the 1955 Act indicates the persons who  may  be
prosecuted where the contravention is made by the company but  it  does  not
lay down any condition that the  person  in-charge  or  an  officer  of  the
company may not be separately  prosecuted  if  the  company  itself  is  not
prosecuted.  The two-Judge Bench referred to the paragraph from C.V.  Parekh
(supra), which we have reproduced hereinabove,  and  emphasised  on  certain
sentences therein and came to hold as follows: -


           “The sentences underscored by us  clearly  show  that  what  was
           sought to be emphasised was that there should be a finding  that
           the contravention was by the company before the accused could be
           convicted and not that  the  company  itself  should  have  been
           prosecuted along with the accused.  We are therefore clearly  of
           the view that the prosecutions are maintainable and  that  there
           is nothing in Section 10 of the Essential Commodities Act  which
           bars such prosecutions.”



      For the sake of completeness, we think it apposite  to  refer  to  the
sentences which have been underscored by the two-Judge Bench:-





           “because it ignores the first condition for the applicability of
           Section 10 to the effect that the person contravening the  order
           must be a company itself.  In the  present  case,  there  is  no
           finding either by the Magistrate or by the High Court  that  the
           sale in contravention of  clause  (5)  of  the  Iron  and  Steel
           Control Order was made by the Company and there is  no  evidence
           and no finding that the Company contravened clause  (5)  of  the
           Iron and Steel Control Order, the two respondents could  not  be
           held responsible.”

35.   With greatest respect to  the  learned  Judges  in  Sheoratan  Agarwal
(supra), the authoritative pronouncement in  C.V.  Parekh  (supra)  has  not
been appositely appreciated.  The decision has  been  distinguished  despite
the clear dictum that the first condition for the applicability  of  Section
10 of the 1955 Act is that there has to be a contravention  by  the  company
itself.  In our humblest view, the said  analysis  of  the  verdict  is  not
correct.  Quite apart,  the  decision  in  C.V.  Parekh  (supra)  was  under
Section 10(a) of the 1955 Act and rendered by a  three-Judge  Bench  and  if
such a view was going to be expressed, it would  have  been  appropriate  to
refer the matter to a larger Bench.  However, the two-Judge Bench  chose  it
appropriate  to  distinguish  the  same  on  the  rationale  which  we  have
reproduced hereinabove.  We repeat with the  deepest  respect  that  we  are
unable to agree with the aforesaid view.



36.   In the case of Anil  Hada  (supra),  the  two-Judge  Bench  posed  the
question: when a company, which committed the offence under Section  138  of
the Act eludes from being prosecuted thereof,  can  the  directors  of  that
company be prosecuted for that offence.  The Bench referred to  Section  141
of the Act and expressed the view as follows: -

           “12.  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.

           13.   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 the 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.”

      On a reading of both the paragraphs, it is  evincible  that  the  two-
Judge Bench expressed the view that 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 and, thereafter, proceeded  to  state
that if the company is not prosecuted due to legal snag  or  otherwise,  the
prosecuted person cannot,  on  that  score  alone,  escape  from  the  penal
liability created through the legal fiction and this is envisaged in

Section 141 of the Act.   If  both  the  paragraphs  are  appreciated  in  a
studied manner, it can safely be  stated  that  the  conclusions  have  been
arrived at regard  being  had  to  the  obtaining  factual  matrix  therein.
However, it is noticeable that the Bench thereafter referred to  the  dictum
in Sheoratan Agarwal (supra) and eventually held as follows: -

           “We, therefore, hold that 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.”

37.   We have already opined that the decision in Sheoratan Agarwal  (supra)
runs counter to the ratio laid down in  the  case  of  C.V.  Parekh  (supra)
which is by a larger Bench and  hence,  is  a  binding  precedent.   On  the
aforesaid ratiocination, the  decision  in  Anil  Hada  (supra)  has  to  be
treated as not laying down the correct law as far  as  it  states  that  the
director or any other officer can be prosecuted without impleadment  of  the
company.  Needless to emphasize, the matter would stand on a different
footing where there is some legal impediment and the  doctrine  of  lex  non
cogit ad impossibilia gets attracted.

38.   At this juncture, we may  usefully  refer  to  the  decision  in  U.P.
Pollution Control Board v. M/s. Modi  Distillery  and  others[43].   In  the
said case, the company was not arraigned as an accused and, on  that  score,
the High Court quashed the  proceeding  against  the  others.   A  two-Judge
Bench of this Court observed as follows: -

           “Although as a pure proposition  of  law  in  the  abstract  the
           learned single Judge’s view  that  there  can  be  no  vicarious
           liability of the Chairman, Vice-Chairman, Managing Director  and
           members of the Board of Directors under sub-s.(1) or (2) of S.47
           of the Act unless there was a prosecution against  Messers  Modi
           Industries Limited, the Company owning the industrial unit,  can
           be termed as correct, the objection raised  by  the  petitioners
           before the High Court ought to have been viewed not in isolation
           but in the conspectus of facts and events and not in vacuum.  We
           have  already  pointed  out  that  the  technical  flaw  in  the
           complaint is attributable to the failure of the industrial  unit
           to furnish the requisite information called for  by  the  Board.
           Furthermore, the legal infirmity is of such a

           nature which could be easily cured.  Another circumstance  which
           brings out the narrow perspective of the learned single Judge is
           his  failure  to  appreciate  the  fact  that  the  averment  in
           paragraph 2 has to be construed in the light  of  the  averments
           contained in paragraphs 17, 18 and 19 which are  to  the  effect
           that the Chairman, Vice-Chairman, Managing Director and  members
           of the Board of Directors  were  also  liable  for  the  alleged
           offence committed by the Company.”

      Be it noted, the two-Judge Bench has correctly stated that  there  can
be no vicarious liability unless there is a prosecution against the  company
owning the industrial unit but, regard being  had  to  the  factual  matrix,
namely, the technical fault on the  part  of  the  company  to  furnish  the
requisite information called for by the Board, directed for making a  formal
amendment by the applicant and substitute the name of the owning  industrial
unit.  It is worth noting that in the said case, M/s. Modi distilleries  was
arrayed as a party instead of M/s Modi Industries Limited.  Thus, it  was  a
defective complaint which was curable but, a  pregnant  one,  the  law  laid
down as regards the primary  liability  of  the  company  without  which  no
vicarious liability can be imposed has been appositely stated.

39.   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.

40.   In this context, we may usefully  refer  to  Section  263  of  Francis
Bennion’s Statutory Interpretation where it is stated as follows: -
                 “A principle  of  statutory  interpretation  embodies  the
           policy of the law, which is in turn based on public policy.  The
           court presumes, unless the contrary intention appears, that  the
           legislator  intended  to  conform  to  this  legal  policy.    A
           principle of statutory interpretation can therefore be described
           as a  principle  of  legal  policy  formulated  as  a  guide  to
           legislative intention.

41.    It  will  be  seemly  to  quote  a   passage   from   Maxwell’s   The
Interpretation of Statutes (12th Edition) : -
                 “The  strict  construction  of  penal  statutes  seems  to
           manifest itself in four ways:  in  the  requirement  of  express
           language  for  the  creation  of  an  offence;  in  interpreting
           strictly words setting  out  the  elements  of  an  offence;  in
           requiring the fulfilment to the letter of  statutory  conditions
           precedent to the infliction of punishment; and in  insisting  on
           the strict observance of technical
           provisions concerning criminal procedure and jurisdiction.”

42.   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.  In Reserve Bank of India v. Peerless  General  Finance  and
Investment Co. Ltd. and others[44]  it has been laid down  that  the  entire
statute must be first read as a whole,

then section by section, clause by clause, phrase  by  phrase  and  word  by
word.  The same principle has been reiterated in Deewan Singh and others  v.
Rajendra Prasad Ardevi and others[45] and Sarabjit Rick Singh  v.  Union  of
India[46].  Applying the doctrine of strict  construction,  we  are  of  the
considered opinion that commission of offence by the company is  an  express
condition precedent to attract the vicarious  liability  of  others.   Thus,
the words “as well  as  the  company”  appearing  in  the  Section  make  it
absolutely unmistakably clear that when the company can be prosecuted,  then
only the persons mentioned in the  other  categories  could  be  vicariously
liable for the offence subject to the averments in the  petition  and  proof
thereof.  One cannot be  oblivious  of  the  fact  that  the  company  is  a
juristic person and  it  has  its  own  respectability.   If  a  finding  is
recorded against it, it would create a concavity in its  reputation.   There
can be situations when the corporate reputation is affected when a  director
is indicted.

43.   In view of our aforesaid  analysis,  we  arrive  at  the  irresistible conclusion that for maintaining the prosecution under  Section  141  of  the Act, arraigning of a company as an accused is imperative.  
The other categories of offenders can only be  brought  in  the
dragnet on the touchstone of  vicarious  liability  as  the  same  has  been
stipulated in the provision itself.
We say so on the  basis  of  the  ratio
laid down in C.V. Parekh (supra) which  is  a  three-Judge  Bench  decision.
Thus, the view expressed in Sheoratan Agarwal  (supra)  does  not  correctly lay down the law and, accordingly, is hereby  overruled.  
The  decision  in Anil Hada (supra) is overruled with the qualifier  as  stated  in  paragraph
37. The decision in Modi Distilleries  (supra)  has  to  be  treated  to  be restricted to its own facts as has been explained by us hereinabove.

44.   We will be failing in our duty  if  we  do  not  state  that  all  the
decisions cited by  the  learned  counsel  for  the  respondents  relate  to
service of notice, instructions for stopping of payment  and  certain  other
areas covered under Section 138 of the Act.  The same really do  not  render
any aid or assistance to the case of  the  respondents  and,  therefore,  we
refrain ourselves from dealing with the said authorities.

45.   Resultantly, the Criminal Appeal Nos. 838 of 2008 and 842 of 2008  are allowed and the proceedings initiated under  Section  138  of  the  Act  are quashed.



46.   Presently, we shall advert to the other two  appeals,  i.e.,  Criminal
Appeal Nos. 1483 of 2009 and 1484 of  2009
wherein  the  offence  is  under
Section 67 read with Section 85 of the 2000 Act.
 In  Criminal  Appeal  No. 1483 of 2009,
the director of the company is the appellant 
and  in  Criminal Appeal No. 1484 of 2009,  the company.
Both of them have called in  question
the legal substantiality of the same order passed by  the  High  Court.
In the said case, the High Court followed the  decision  in  Sheoratan  Agarwal
(supra) and, while dealing with the application under  Section  482  of  the
Code of Criminal Procedure at the instance of  Avnish  Bajaj,
the  Managing Director of the company, quashed the charges under Sections 292 and  294  of the Indian Penal Code and directed the offences under Section 67  read  with Section 85 of the 2000 Act to continue.  
It is apt to note that the  learned single Judge has observed that a prima  facie  case  for  the  offence  under Sections 292(2)(a) and 292(2)(b) of the Indian Penal Code is also  made  out
against the company.

47.   Section 85 of the 2000 Act is as under: -
           “85.   Offences by companies -
(1) Where a person  committing  a contravention of any of the provisions of this  Act  or  of  any rule, direction or order made thereunder  is  a  company,  every person who, at the time the contravention was committed, was in charge of, and was responsible to, the company for the conduct of business  of  the  company  as  well  as the company, shall be guilty  of  the  contravention  and  shall  be liable to be proceeded against and punished accordingly:
                
 Provided that nothing contained in this sub-section  shall
render any such person liable to punishment if  he  proves  that
the contravention took place without his knowledge  or  that  he
 exercised all due diligence to prevent such contravention.
           
(2) Notwithstanding anything contained in sub-section (1), where
  a contravention of any of the provisions of this Act or  of  any
 rule, direction or order made there under has been committed by a
company and it is proved that the contravention has taken  place
with the consent or connivance of, or  is  attributable  to  any
neglect on the part of,  any  director,  manager,  secretary  or other officer of the company, such director, manager,  secretary
 or other officer shall also  be  deemed  to  be  guilty  of  the
contravention and shall be liable to be  proceeded  against  and
 punished accordingly.”
48.   Keeping in view the anatomy of the aforesaid provision,  our  analysis pertaining to Section 141 of the  Act  would  squarely  apply  to  the  2000 enactment.  
Thus adjudged, the director could not have been held liable  for
the offence under Section 85 of the 2000  Act.   
Resultantly,  the  Criminal Appeal No. 1483 of 2009 is allowed and the proceeding against the  appellant is quashed.  
As far as the company is concerned, it was not arraigned as  an
accused.  Ergo, the proceeding as initiated in the existing
incarnation is not maintainable either against the company  or against  the director. As  a  logical  sequeter,  the  appeals  are  allowed  and   the proceedings initiated against Avnish Bajaj as well as  the company  in  the present form are quashed.
49.   Before we part with the case,  we  must  record  our  uninhibited  and
unreserved appreciation for the able  assistance  rendered  by  the  learned
counsel for the parties and the learned amicus curiae.
50.   In the ultimate analysis, all the appeals are allowed.

                    ......................................................J.
                                                          [Dalveer Bhandari]






                                                      ……………………….…..……….………J.
                                               [Sudhansu Jyoti Mukhopadhaya]






                    ......................................................J.
                                                               [Dipak Misra]
New Delhi;

April 27, 2012



-----------------------
[1]

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[2]

      AIR 2007 SC 1481 : (2007) 11 SCC 297


[3]

      (2005) 8 SCC 89


[4]

      (2006) 10 SCC 581


[5]

      (2005) 4 SCC 173


[6]

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[7]

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[8]

      (2008)13 SCC 678


[9]

      (2007) 5 SCC 108


[10]

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[11]

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[12]

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[13]

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[14]

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[15]

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[16]

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[17]

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[18]

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[19]

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[20]

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[21]

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[22]

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[23]

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[24]

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[25]

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[26]

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[27]

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[28]

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[29]

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[30]

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[31]

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[32]

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[33]

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[34]

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[35]

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[36]

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[37]

      AIR 1971 SC 44


[38]

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[39]

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[40]

      AIR 1988 SC 191


[41]

      (1994) 2 SCC 323


[42]

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[43]

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[44]

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[45]

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[46]

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