CASE TITLE:
H.N. Nagaraj Vs. Suresh Lal Hira Lal
DATE OF ORDER:
21 September 2022
JUDGES:
Justice Suraj Govindaraj
PARTIES:
Petitioner: H.N. Nagaraj
Respondent: Suresh Lal Hira Lal
SUBJECT
The Karnataka High Court held that a proprietary business is not a distinct legal body and, as such, should not be named as a separate defendant in a lawsuit brought under Section 138 of the Negotiable Instruments Act.
IMPORTANT PROVISIONS
Negotiable Instruments Act, 1881
- Section 138 -Dishonour of cheque for insufficiency, etc., of funds in the account. - Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, is returned by the bank unpaid, such person shall be deemed to have committed an offence and shall be punished with imprisonment for a term which may be extended to two years’, or with fine or with both.
- Section 141 -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.
BRIEF FACTS
- A private complaint was filed against the petitioner in this case under Section 200 of the Criminal Procedure Code, read with Sections 138 and 141 of the Negotiable Instruments Act of 1881, on the grounds that the petitioner had allegedly borrowed money from the complainant and failed to repay it, and that the cheque issued in payment of that debt had been dishonoured with the notation “account blocked.” The petitioner appeared before this Court because it was aggrieved by the same.
ISSUES RAISED
- Whether a proprietary concern is required to be arrayed as a separate party in a proceeding under Section 138 of Negotiable Instruments Act?
- Whether the sworn statement of the Special Power of Attorney holder could be recorded in a proceeding under Section 138 of Negotiable Instruments Act?
ARGUMENTS ADVANCED BY THE PETITIONER
- The learned counsel for the petitioner submitted that H.N. Nagaraja, the petitioner, and Venkateshwara Stone Crushers as a proprietary concern had to be listed as separate accused. The basis of the problem is that Section 141 of the Negotiable Instruments Act is broken by not arraigning the proprietary company separately as an accused; hence the case must be dismissed.
- The second argument was that the sworn statement of the complainant’s Special Power of Attorney holder was recorded and that this was improper and went against the ruling of the Honorable Supreme Court in the case of A.C. Narayanan vs. State of Maharashtra and another. By citing the aforementioned decision, it was argued that while a complaint under Section 138 of the Negotiable Instruments Act may be submitted via a power of attorney holder, the complainant’s name must appear on the complaint.
- The person holding the power of attorney must have actually seen the transaction as the payee or holder’s agent or have sufficient awareness of it. The SPA holder in this case could not have been questioned at the time the sworn statement was recorded since she lacked this knowledge.
- The sworn statement recorded cannot be taken into consideration, and cognizance could not have been taken because the power of attorney did not adhere to the dicta established by the Apex Court in A.C. Narayanan’s case. He contends that the aforementioned petitions must be granted and the proceedings must be overturned based on the two aforementioned justifications.
ARGUMENTS ADVANCED BY THE RESPONDENT
- The learned counsel for the respondent contended that a company would be subject to the provisions of Section 141 of the Negotiable Instruments Act. A proprietary firm cannot use the same. A proprietor is the same as a proprietary firm. They have no distinct existence and cannot be arranged as two different parties because the proprietary company has neither a registration nor a permanent seal of succession.
- Regarding the special power of attorney, she claims that he expressly stated in the complaint that he is the Proprietor’s son, the holder of that power, is aware of the circumstances of the case, and that he would be testifying in the matter. The requisite averments having been submitted, the decision in A.C. Narayanan’s case is in conformity. She argues that the petition must be rejected on this ground.
JUDGMENT
- The High Court observed that infractions by companies are covered by section 141 of the Negotiable Instruments Act. Even while it indicates that it would apply to a business, firm, or group of people, a reading of the complete section does not suggest that it would apply to a proprietary concern. A business being a corporeal entity, a firm being either registered or unregistered with two or more partners, and an association of individuals likewise consisting of two or more individuals have given birth to the necessity of Section 141 of the Negotiable Instruments Act.
- Therefore, in any of the three scenarios, there could be two or more individuals in charge of the company, firm, or group of individuals' commercial operations; as a result, in order to start the criminal process, the complainant must submit specific accusations against each of these individuals.
- Regarding a proprietary concern, as the name suggests, there can only be one proprietor, and this proprietor would be responsible for managing the affairs of the proprietary firm. Therefore, where there is just one proprietor, no formal pleading on who is in charge of a proprietary firm is necessary.A proprietary firm cannot exist in an independent or separate manner from its owner.
- It is not necessary for the proprietor and the proprietary concern to be separately arrayed as a party accused in a proceeding under Section 138 of the Negotiable Instruments Act; instead, the arraying of the proprietor as an accused or a proprietary concern represented by the proprietor would be sufficient compliance with the requirements under Section 138 of the Negotiable Instruments Act.
- A power of attorney may be used to submit a complaint under Section 138 of the N.I. Act. A Special Power of Attorney was used to file the complaint in this instance, which is adequate compliance. Also, a power of attorney could testify, confirm under oath, and demonstrate the details of the complaint, which was done.
- The lawsuit alleges that the person holding the power of attorney was a witness to the transaction as an agent; nevertheless, the veracity of this allegation would always be vulnerable to cross-examination in the proceedings. The accused may always win the case if they could prove that the power of attorney was unaware of the transactions and/or that the deposition they gave was inaccurate or dishonest. It is impossible to say or determine if the power of attorney is aware of the transactions at the time of submitting an affidavit or recording a sworn statement.
- The risk was assumed by the complainant when appointing the power of attorney holder. If it is proven that the power of attorney holder is unaware of the transaction, the complaint would be dismissed. A power of attorney may initiate actions under Section 138 of the Negotiable Instruments Act by filing a complaint, testifying to an affidavit, and recording a sworn statement.
CONCLUSION
The Punjab and Haryana High Court’s position in the matter of Sardar Bupender Singh, CRM-M-54111/2021, where the definition of a corporation was expanded to include a proprietary concern in order to argue that the proprietary concern has a separate and independent life, was rejected by the bench.The court determined that petitions without a basis must be dismissed, and as a result, Criminal Petitions were dismissed.
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