Cheque bounce - Quashing of complaint

Cause Title : S.P. Mani And Mohan Dairy vs Dr. Snehalatha Elangovan, Criminal Appeal No.1586 Of 2022, Supreme Court Of India

Date of Judgment/Order : 

Corum : J. B. Pardiwala, J.

Citied: 

1. SMS Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89
2. Gunmala Sales Pvt. Ltd. v. Anu Mehta & Ors, reported in (2015) 1 SCC 103
3. National Small Industries Corporation v. Harmeet Singh Paintal & Anr., reported in (2010) 3 SCC 330
4. Sunita Palita & Others v. M/s Panchami Stone Quarry, reported in (2022) SC Online SC 945
5. Municipa Corporation of Delhi v. Ram Kishan Rohtagi, (1983) 1 SCC 1
6. U.P. Pollution Control Board v. Modi Distillery, (1987) 3 SCC 684
7. P. Rajarathinam v. State of Maharashtra, (2000) 10 SCC 529
8. K. Bhaskaran v. Sankaran Vaidhyan Balan, (1999) 7 SCC 510
9. N Rangachari v. Bharati Sanchar Nigam Limited, AIR (2007) SC 1682
10. Anil Hada v. Indian Acrylic Ltd., (2000) 1 SCC 1
11. Monaben Ketanbhai Shah v. State of Gujarat in Criminal Appeal No. 850 of 2004
12. Assistant Commissioner, Assessment­II, Bangalore and Ors. v. Velliappa Textiles Ltd. and Ors. AIR (2004) SC 86
13. K.K. Ahuja v. V.K. Vora, (2009) 10 SCC 48
14. Ashutosh Ashok Parasrampuria v. Gharrkul Industries Pvt. Ltd. reported in (2021) S Online SC 915
15. Maharashtra State Electricity Distribution Co. Ltd. V. Datar Switchgear Ltd., (2010) 10 SCC 479
16. GHCL Employees Stock Option Trust V. India Infoline Limited, (2013) 4 SCC 505

Background

A cheque duly signed by the original accused No. 02 (partner/authorised signatory of a partnership firm) in favour of the appellant for the amount of Rs. 10,00,000/­ which was dishonoured due to insufficient balance. Despite service of notice to the firm as well as the two partners (accused persons), the amount was not paid to the appellant and therefore, the appellant was left with no other option but to file the complaint in the Judicial Magistrate Fast Track Court.

The respondent went to the High Court arguing that much before the cheque came to be issued, the firm had been dissolved. The High Court quashed the proceedings against the respondent herein mainly on the ground that there was nothing to indicate as to how and in what manner the respondent at the relevant point of time was in­charge and responsible for the conduct of the business of the firm. Appeal was filed against the High Court order.

Judgment

The Supreme Court observed that the question raised here was the issue of identifying the person(s) being in­charge of and responsible to the company “at the time the offence was committed” under the provisions of sub­section (1) of Section 141.  It would, therefore, be important to find out the “time” when the offence under Section 138 can be said to have been committed by the company. 

Different persons can be in­charge of the company when each of the series of acts of commission and omission essential to complete the commission of offence by the company were being committed. To take an example, in the case of a company, “A” might be in charge of the company at the time of drawing the cheque, “B” might be in charge of the company at the time of dishonour of cheque and “C” might be in charge of the company at the time of failure to pay within 15 days of the receipt of the demand notice. In such a case, the permissibility of prosecution of A, B and C resply or any of them would advance the purpose of the provision and, if none can be prosecuted or punished, it would frustrate the purpose of the provisions of Section 138 as well as Section 141. 

The key to this interpretation lies in the use of the phrase: “every person shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly” as it occurs in sub­section (1) of Section 141 and the use of the phrase “provided that nothing contained in this sub-section shall render any person liable to punishment if he proves...” that occurs in the first proviso. Every person who was in charge of and was responsible to the company for the conduct of its business at the time any of the components necessary for the commission of the offence occurred may be “proceeded against”, but may not be “punished” if he succeeds in proving that the offence was committed without his knowledge and despite his due diligence; the burden of proving that remaining on him. 

Therefore, it also has to be held that the time of commission of the offence of dishonour of cheque cannot be on the stroke of a clock or during 15 days after the demand notice has to be construed as the time when each of the acts of commission and omission essential to constitute the offence was committed. The word “every” points to the possibility of plurality of responsible persons at the same point of time as also to the possibility of a series of persons being in charge when the sequence of events culminating into the commission of offence by the company were taking place. 

The Court referring to judgment in N Rangachari v. Bharati Sanchar Nigam Limited, AIR (2007) SC 1682, where what this ‘relevant time’ was addressed to and it was held that when the company or firm is the drawee of the cheque, such company or firm is the principal offender and the fiction created by the legislature. When the offence is attributed to a juristic person or a body made up of several individuals and the liability to be prosecuted and punished is extended to embroil by legal fiction certain human beings, that legal fiction has to be so interpreted and applied that the individuals intended to be embroiled may not escape the liability by mere fact of having not been in charge at the time when one of the other of the events essential to complete the offence by the company happened. 

On the issue of vicarious liability, the Court referred to the Section 141 which says, ‘every person who was in charge of’ and ‘was responsible to the company for the conduct of the business’ shall be deemed to be guilty of the offence. For the purpose of Section 141, the firm comes within the ambit of a company.

Referring to judgment in Gunmala Sales Private Limited (supra), this Court held:

a) Once in a complaint filed under Section 138 read with Section 141 of the NI Act the basic averment is made that the Director was in charge of and responsible for the conduct of the business of the company at the relevant time when the offence was committed, the Magistrate can issue process against such Director;

b) If a petition is filed under Section 482 of the Code for quashing of such a complaint by the Director, the High Court may, in the facts of a particular case, on an overall reading of the complaint, refuse to quash the complaint because the complaint contains the basic averment which is sufficient to make out a case against the Director;

c) In the facts of a given case, on an overall reading of the complaint, the High Court may, despite the presence of the basic averment, quash the complaint because of the absence of more particulars about role of the Director in the complaint. It may do so having come across some unimpeachable, incontrovertible evidence which is beyond suspicion or doubt or totally acceptable circumstances which may clearly indicate that the Director could not have been concerned with the issuance of cheques and asking him to stand the trial would be abuse of the process of the court.

Despite the presence of basic averment, it may come to a conclusion that no case is made out against the Director. Take for instance a case of a Director suffering from a terminal illness who was bedridden at the relevant time or a Director who had resigned long before issuance of cheques. In such cases, if the High Court is convinced that prosecuting such a Director is merely an arm-twisting tactics, the High Court may quash the proceedings. It bears repetition to state that to establish such case unimpeachable, incontrovertible evidence which is beyond suspicion or doubt or some totally acceptable circumstances will have to be brought to the notice of the High Court. Such cases may be few and far between but the possibility of such a case being there cannot be ruled out. In the absence of such evidence or circumstances, complaint cannot be quashed;

The court observed that in the case on hand, there is clear and specific averments not only in the complaint but also in the statutory notice issued to the respondent. There are specific averments that the cheque was issued with the consent of the respondent herein and within her knowledge. This was sufficient to put the respondent herein to trial for the alleged offence. The case of the respondent that at the time of issuance of the cheque or at the time of the commission of the offence, she was in no manner concerned with the firm or she was not in-charge or responsible for day-to-day affairs of the firm cannot be on the basis of mere bald assertion in this regard. The same is not sufficient. To make good her case, the respondent herein is expected to lead unimpeachable and incontrovertible evidence. Nothing of the sort was adduced by the respondent before the High Court to get the proceedings quashed. The High Court had practically no legal basis to say that the averments made in the complaint are not sufficient to fasten the vicarious liability upon the respondent by virtue of Section 141 of the NI Act.