The Supreme Court has held that when a cheque, which is drawn by a company, is dishonoured, the company will have to be made a party to the proceedings under Section 138 of Negotiable Instruments Act (NI Act) and failure to do so will vitiate the prosecution.
Importantly, a Bench of Justices Jasti Chelameswar and S Abdul Nazeer also held that the scheme of prosecution under NI Act is different from that under the Code of Criminal Procedure (CrPC) and offence under Section 138 of the NI Act is person-specific.
The decision was rendered in an appeal filed by the Director of the Drawer company, viz. Dakshin, contesting an application which was filed during the course of trial against the appellant, to implead Dakshin.
The cheque drawn by the Company, of which the appellant was the authorised signatory, was dishonoured. The respondent proceeded to initiate case under Section 138. It was only during the course of the trial that the respondent realised that Dakshin has not been made a party to the case. The respondent, therefore, moved an application to implead Dakshin.
The trial court and Madras High Court had allowed the application whereupon the appellant moved the Supreme Court
It was the appellant’s contention that he, being the Director of the company, can only be held liable vicariously and if the company is not made a party to the proceeding, the prosecution cannot be maintained successfully. He cited the case of Aneeta Hada v. Godfather Travels & Tours Private Limited, [(2012) 5 SCC 661 ]to buttress his arguments.
“Section 142(1)(a) of THE ACT inter alia stipulates that a complaint regarding the commission of the offence under Section 138 must be “made within one month of the date on which the cause of action arises under clause (c) of the proviso to Section 138”. The application under Section 319 of CrPC by which DAKSHIN is sought to be impleaded (summoned) is in substance a complaint against DAKSHIN which is filed some three years after the expiry of the period of 15 days stipulated under clause (c) of the proviso to Section 138. Therefore barred by the stipulation contained in Section 141(1)(b) of THE ACT”, the appellant argued.
The respondent submitted that the proviso to clause (b) of Section 142 of NI Act enables the Court to take cognizance of the offence even beyond the prescribed period of limitation, if the complainant satisfies the Court that he had sufficient cause for not making the complaint within the period of limitation. The respondent only got to know that the cheque in question was drawn on the account of Dakshin only during the course of trial. Therefore, the respondent made out a case for condonation of the delay.
The Court held that the logic of the High Court that since the offence is already taken cognizance of, there is no need to take cognizance of the offence against Dakshin, is flawed.
“The High Court failed to appreciate that the liability of the appellant (if any in the context of the facts of the present case) is only statutory because of his legal status as the DIRECTOR of DAKSHIN. Every person signing a cheque on behalf of a company on whose account a cheque is drawn does not become the drawer of the cheque. 13 Such a signatory is only a person duly authorised to sign the cheque on behalf of the company/drawer of the cheque. If DAKSHIN/drawer of the cheque is sought to be summoned for being tried for an offence under Section 138 of THE ACT beyond the period of limitation prescribed under THE ACT, the appellant cannot be told in view of the law declared by this Court in Aneeta Hada that he can make no grievance of that fact on the ground that DAKSHIN did not make any grievance of such summoning.”
The Court in its judgment also addressed the view of the High Court that only the offence is taken cognizance of and there is no need to take cognizance of an offence accused-wise.
Terming it as an erroneous view, the Court sought to distinguish prosecution under Section 138 of NI Act from prosecution under CrPC.
“The scheme of the prosecution in punishing under Section 138 of THE ACT is different from the scheme of the CrPC. Section 138 creates 16 an offence and prescribes punishment. No procedure for the investigation of the offence is contemplated. The prosecution is initiated on the basis of a written complaint made by the payee of a cheque. Obviously such complaints must contain the factual allegations constituting each of the ingredients of the offence under Section 138. The scheme of the prosecution in punishing under Section 138 of THE ACT is different from the scheme of the CrPC.”
It held that the offence under Section 138 is person-specific and no procedure for investigation of offence is contemplated. Hence, the concept of taking cognizance of the offence and not the offender is not appropriate in case of an offence under Section 138 of the NI Act.
“Section 138 creates an offence and prescribes punishment. No procedure for the investigation of the offence is contemplated. The prosecution is initiated on the basis of a written complaint made by the payee of a cheque. Obviously such complaints must contain the factual allegations constituting each of the ingredients of the offence under Section 138.
Because it is already held by this Court that failure to comply with any one of the steps contemplated under Section 138 would not provide “cause of action for prosecution”. Therefore, in the context of a prosecution under Section 138, the concept of taking cognizance of the offence but not the offender is not appropriate. Unless the complaint contains all the necessary factual allegations constituting each of the ingredients of the offence under Section 138, the Court cannot take cognizance of the offence. Disclosure of the name of the person drawing the cheque is one of the factual allegations which a complaint is required to contain. Otherwise in the absence of any authority of law to investigate the offence under Section 138, there would be no person against whom a Court can proceed. There cannot be a prosecution without an accused. The offence under Section 138 is person specific.”
The Court, therefore allowed the appeal and set aside the judgment of the Madras High Court.
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