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
-----------------------
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[46]
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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
-----------------------
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