Section 138 of N.I Act
R Murali
(Querist) 14 March 2008
This query is : Resolved
"X" filed a complaint before the Metropolitan Magistrate for an offence under Sec. 138 of NI Act against "Y" a limited company & its directors "A" & "B". In the complaint, it was alleged by "X" that a cheque for Rs. 10 lacs was issued on behalf of accused company for the debts due to the complainant & said cheque was dishonoured on the ground of insufficency of funds and statutory notice was issued to the accused company as well as to the directors but no amount was paid. The Magistrate took cognizance against the company & its directors. The accused company raised objections that winding up proceedings have been order by the company court and hence no prosecution could be co0ntinued against the company. The magistrate dropped the proceedings against the company but proceeded against the directors. The directors filed an application for dropping of proceedings against them on the ground that the complaint was not maintainable without prosecuting the company. The magistrate dismissed this application, Challenging the order, the directors filed revision before the session court.
How to prepare a memorial offer on behalf the complainant company or Director to argue the case
R Murali
(Querist) 14 March 2008
How to prepare a memorial offer on behalf the complainant company or Director to argue the case
Prakash Yedhula
(Expert) 18 March 2008
The question for consideration is as to whether the complaint is maintainable against the Directors. If the complaint was filed prior to the winding up orders passed against the company, even if the company is to be dropped from the proceedings after the winding up orders are passed, such criminal proceedings can continue against the Directors. That is the legal position settled by the Supreme Court in the case of Anil Hada Vs. Indian Acrylic Ltd. 2000 Crl.L.J. 373. In this case the Court held that offender under Section 138 of the Negotiable Instruments Act is the drawer of the cheque which alone would have been the offender thereunder, if the Act did not contain other provisions. Therefore, normally, in the case of a company incorporated under the Companies Act it is the company which would be the
offender. However, by virtue of Section 141 of the Act, penal liability under Section 138 is cast upon other persons connected with the company. Therefore, those persons also become liable for penal action in addition to the company. It further held that if the offence is committed by a company it can be punished only if the company is prosecuted. However, if, instead of prosecuting the company, a payee opts to prosecute other persons falling within the description of Section 141, it is permissible for him to do so. It would be of interest to reproduce the discussion as contained in this judgment on the aforesaid aspect.
10.“Three categories of persons can be discerned from the said provision who are brought within the purview of the penal liability through the legal fiction envisaged in the section. They are: (1) The company which committed the offence. (2) Everyone who was in-charge of and was responsible for the business of the company, (3) Any other person who is a director or a manager or a secretary or officer of the company, with whose connivance or due to whose neglect the company has committed the offence.
11 Normally an offence can be committed by human beings who are natural persons. Such offence can be tried according to the procedure established by law. But there are offences which could be attributed to juristic persons also. If the drawer of a cheque happens to be a juristic person like a body corporate if can be prosecuted for the offence under S. 138 of the Act. Now there is no scope for doubt regarding that aspect in view of the clear language employed in S. 141 of the Act. In the expanded ambit of the word “company” even firms or any other associations of persons are included and as a necessary adjunct thereof a partner of the firm is treated as director of that company.
12.Thus when the drawer of the cheque who falls within the ambit of S.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 S. 141 of the Act has some importance. The said phrase would embroll 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 of persons additionally within the dragnet of the offence on an equal part. The effect of reading S. 141 is that when the company is the drawer of the cheque such company is the principal offender
under S. 138 of the Act and the remaining persons are made offenders by virtue of the legal fiction created by the Legislatures 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
