KIRSHNA TEXPORT & CAPITAL MARKETS LTD. Vs. ILA A AGRAWAL & ORS.
Negotiable Instruments Act, 1881
Section 138 - Dishonour of cheque for insufficiency, etc., of funds in the account.
Supreme Court of India (Division Bench (DB)- Two Judge)
Appeal (Crl.), 1220 of 2009, Judgment Date: May 06, 2015
Reportable
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO.1220 of 2009
KIRSHNA TEXPORT &
CAPITAL MARKETS LTD. …. Appellant
Versus
ILA A. AGRAWAL & ORS. …. Respondents
J U D G M E N T
Uday Umesh Lalit, J.
1. This appeal by Special Leave is directed against the order dated
6.5.2008 passed by the High Court of Judicature at Bombay rejecting
Criminal Application No. 2174 of 2007 preferred by the appellant for leave
to appeal.
2. On 14.09.1996 a notice under Section 138 of the ‘Negotiable
Instruments Act, 1881’(hereinafter referred to as “the Act”) was issued on
behalf of the appellant to M/S Indo French Bio Tech Enterprises Ltd (‘the
Company’ for short). The notice stated that a cheque bearing No. 364776
dated 8.9.1996 drawn by the Company on Dena Bank, New Marine Lines, Mumbai
in favour of the appellant was returned on 10.9.1996 with endorsement
“funds insufficient”. The notice therefore called upon the addressee to
make the payment of the cheque amount within 15 days of the receipt of such
notice. No reply was sent to the aforesaid notice dated 14.9.1996.
3. The appellant thereafter filed Complaint Case No. 243/S/1996 before
the Additional Chief Metropolitan Magistrate, 5th Court at Dadar, Mumbai
against the Company, Mr. K.J. Bodiwala, the Chairman and Managing Director
of the Company and 11 other directors including respondents 1 and 2. In so
far as the directors are concerned, it was averred that they were in-charge
of the business of the Company and its day to day affairs and were liable.
During the pendency of said complaint case, the process issued against
Accused Nos. 3 to 5, 7, 9 to 13 was recalled and due to the death of Mr.
Bodiwala the proceedings as against him also abated, which left the Company
and the present respondents 1 and 2 namely Ms. Ila A. Agrawal and Mr.
Prafulla Ranadive, Accused Nos. 6 and 8 respectively in the array of
accused.
4. It was submitted by the appellant that separate notices to the
directors were additionally issued but at the stage of evidence it turned
out that such individual notices to the directors were with respect to
dishonour of a different cheque. The facts as found therefore were that no
individual notices were given to the directors. The Metropolitan Magistrate
by his judgment and order dated 30.4.2007 convicted the Company but
acquitted respondents 1 and 2 of the offence punishable under Section 138
of the Act. Relying on the judgment of the Division Bench of Madras High
Court in B. Raman & Ors. Vs. M/s. Shasun Chemicals and Drugs Ltd. reported
in 2006 Cril. L.J. Page 4552, it was observed that statutory notice under
Section 138 of the Act was required to be issued to every Director and for
non- compliance of such mandatory requirement respondents 1 and 2 could not
be proceeded against. .
5. The appellant being aggrieved filed Criminal Application No. 2174 of
2007 in the High Court seeking leave to prefer appeal against the judgment
acquitting respondents 1 and 2. It was submitted that it was not necessary
to serve individual notice upon the directors and it was sufficient if the
notice was served on the Company. Reliance was placed on the decision of a
Single Judge of the Calcutta High Court in the case of Girish Chandra
Pandey Vs. Kanhaiyalal Chandak and Ors. reported in 1999 ALL MR (CRI)
JOURNAL 3, wherein it was held that if the partnership firm failed to give
the amount within the stipulated time after receipt of notice, each partner
need not be served with a separate notice individually. So also reliance
was placed on the decision of a Single Judge of Delhi High Court in the
case of Jain Associates and Ors. Vs. Deepak Chawdhary & Co. reported in 80
(1999) DLT 654, wherein it was laid down that Section 141 of the Act does
not require that each and every partner of the firm is required to be
issued notice.
Similar view was taken by High Court of Andhra Pradesh in K. Pannir
Selvan vs. MMTC and another reported in (2000) Cr. L.J. 1002 and by Delhi
High Court in Ranjit Tiwari vs. Narender Nayyar reported in 191 (2012) DLT
318.
6. The High Court, relying on the judgment of the Division Bench of
Madras High Court B. Raman & Ors. (supra) observed that it was mandatory to
have issued separate notices to the directors. The High Court concluded
thus:-
“If the legal fiction is created by Section 141 to make directors who are
responsible for day to day affairs of the Company, punishable under Section
138, then it is necessary that they get an opportunity to rectify, the
mistake or clarify matters after service of notice. So before making the
complaint against the directors, notice necessarily must be served on them.
In my opinion without service of notice to accused Nos. 6 & 8, vicarious
liability of the offence under Section 138 cannot be fixed upon them.”
7. At this stage the decision of the Division Bench of Madras High Court
in B. Raman & others (Supra) may also be referred to. Para 2 of said
decision sets out that the matter was referred to the Division Bench as a
result of divergent views taken by Single Judges of the Court. Paras 25 and
26 of the decision are as under:-
“25. Under Section 141 (1), the persons in charge of and responsible to
the Company shall be deemed to have committed the offence. Under sub
section (2), even the persons, who are not stated to be in charge of and
responsible to the Company, can be prosecuted, if it is alleged and proved
that the offence has been committed with the consent or connivance of, or
is attributable to, any neglect on the part of any of those persons
prosecuted. So, these Sections would provide that when there are Directors,
who are responsible for the conduct of the business of the Company, and
when there are other officers, with whose consent the offence has been
committed, the complainant shall make averments to the said effect. In
that context, the complainant has to start the process of getting back the
cheque amount from those persons, who represent the Company, in order to
avoid the filing of the Complaint against them. In the said process, he
has to necessarily make a demand from those persons, who are part and
parcel of the drawer. Only when the process fails, the cause of action, as
envisaged in Section 138, would arise against them, to enable the
complainant to approach the Court, within the stipulated time. So, the
starting of the process is, the service of notice on the persons, who
represent the Company, the drawer of the cheque.
26. The object of the notice is to give a chance to the drawer of the
cheque to rectify his omission and also to protect an honest drawer.
Service of notice of demand in Clause (b) of the proviso to Section 138 is
a condition precedent for filing a complaint under Section 138. By sending
a notice to the Company as well as the persons in charge of and
responsible fore the conduct of the business of the company, he can make a
demand, asking them to pay the amount. Some may reply that they are not in
charge of and responsible for the conduct of the business of the Company.
Some may reply that they are not connected with the Company in any way and
some may rectify the omission, by making efforts to pay the amount to the
payee, in the name of the Company, in that event, the complainant may
either drop the action of filing the Complainant or, in the event of non-
payment of the cheque amount, he may choose the persons, who are really
responsible fore the commission of offence and, then, initiate prosecution
against them.”
8. It was submitted by Mr. Ajit Anekar, learned Advocate for the
appellant that Section 138 does not contemplate issuance of separate
notices to the directors and that no such requirement ought to be read into
said Section. Mr. Shree Prakash Sinha and Mr. Ashok Bhatia, learned
Advocates appearing for respondents relied upon the decision of the
Division Bench of Madras High Court in B. Raman & others (Supra). It was
submitted that though the issue whether such separate notices are
mandatorily required to be given to the Directors had not squarely arisen,
paras 10 & 11 of the decision of this Court in N.K. Wahi v Shekhar Singh[1]
did speak of such notices. We quote said paras 10 & 11:-
“10. In order to bring application of Section 138 the complaint must show:
1 That Cheque was issued;
2. The same was presented;
3. It was dishonored on presentation;
4. A notice in terms of the provisions was served on the person sought to
be made liable;
5. Despite service of notice, neither any payment was made nor other
obligations, if any, were complied with within fifteen days from the date
of receipt of the notice.
11. Section 141 of the Act in terms postulates constructive liability of
the Directors of the company or other persons responsible for its conduct
or the business of the company.”
9. The question, therefore, is whether notice under Section 138 of the
Act is mandatorily required to be sent to the directors of a Company before
a complaint could be filed against such directors along with the Company.
At the outset we must consider whether the decision of this Court in N.K.
Wahi (supra) had considered and concluded that it is obligatory to issue
separate notices to the Directors in addition to the Company, before
initiating any proceedings against them. We have perused the decision and
find that no such issue had arisen for consideration in that case. We,
therefore, proceed to consider the question. Before we deal with the
matter, Sections 138 and 141 of the Act may be quoted:-
“138. Dishonour of cheque for insufficiency, etc., of funds in the accounts
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, 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 agreement made with that 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 extend to two
year”, or with 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 induce 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
cheques as unpaid, and
(c) The drawer of such cheque fails to make the payment of the 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.
Explanation: For the purpose of this section, “debt or other liability”
means a legally enforceable debt or other liability.
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 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 attribute to, any neglect on the part of, any director, Manager,
secretary, or other office 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. Explanation: For the purpose of this section. –
(a) “Company” means any body corporate and includes a firm or other
association of individuals; and
(b) “Director”, in relating to a firm, means a partner in the firm.”
The expression “drawer” used in Section 138 has to be understood in the
light of the definition in Section 7 of the Act which is to the following
effect :-
“..The maker of a bill of exchange or cheque is called the “drawer”; the
person thereby directed to pay is called the ‘drawee.”
10. Since the High Court has read into Section 138 of the Act the
requirement that separate notices ought to be given to the directors,
without which they cannot be made vicariously liable, the principles
concerning interpretative function of the Court may be adverted to. In
Kanai Lal Sur v. Paramnidhi Sadhukhan[2] it was observed,
“In support of his argument Mr. Chatterjee has naturally relied on the
observations made by Barons of the Exchequer in Heydon’s case. Indeed
these observations have been so frequently cited with approval by courts
administering provisions of welfare enactments that they have now attained
the status of a classic on the subject and their validity cannot be
challenged. However, in applying these observations to the provisions of
any statute, it must always be borne in mind that the first and primary
rule of construction is that the intention of the Legislature must be found
in the words used by the Legislature itself. If the words used are capable
of one construction only then it would not be open to the courts to adopt
any other hypothetical construction on the ground that such hypothetical
construction is more consistent with the alleged object and policy of the
Act. The words used in the material provisions of the statute must be
interpreted in their plain grammatical meaning and it is only when such
words are capable of two constructions that the question of giving effect
to the policy or object of the Act can legitimately arise. When the
material words are capable of two constructions, one of which is likely to
defeat or impair the policy of the Act whilst the other construction is
likely to assist the achievement of the said policy, then the courts would
prefer to adopt the latter construction. It is only in such cases that it
becomes relevant to consider the mischief and defect which the, Act
purports to remedy and correct.”
11. In Nasiruddin and others v. Sita Ram Agarwal[3] this Court stated the
law in the following terms:
“37. The court’s jurisdiction to interpret a statute can be invoked when
the same is ambiguous. It is well known that in a given case the court can
iron out the fabric but it cannot change the texture of the fabric. It
cannot enlarge the scope of legislation or intention when the language of
the provision is plain and unambiguous. It cannot add or subtract words to
a statute or read something into it which is not there. It cannot rewrite
or recast legislation. It is also necessary to determine that there exists
a presumption that the legislature has not used any superfluous words. It
is well settled that the real intention of the legislation must be gathered
from the language used……...”
12. In Nathi Devi v. Radha Devi Gupta[4] a Constitution Bench of this
Court was called upon to consider, inter alia, whether the expression,
“where the landlord is a widow and the premises let out by her, or by her
husband, are required by her for her own residence” appearing in Section 14-
D of the Delhi Rent Control Act would include every widow so as to entitle
her to obtain immediate possession of the premises owned by her. While
holding that the benefit under Section 14-D is available only to a widow,
where premises are let out by her or by her husband, this Court repelled
the contention that a widow who had acquired tenanted premises by sale or
transfer could also invoke the provisions of Section 14-D. During the
course of its decision this Court observed:
“The interpretative function of the court is to discover the true
legislative intent. It is trite that in interpreting a statute the court
must, if the words are clear, plain, unambiguous and reasonably susceptible
to only one meaning, give to the words that meaning, irrespective of the
consequences. Those words must be expounded in their natural and ordinary
sense. When the language is plain and unambiguous and admits of only one
meaning, no question of construction of statute arises, for the Act speaks
for itself. Courts are not concerned with the policy involved or that the
results are injurious or otherwise, which may follow from giving effect to
the language used. If the words used are capable of one construction only
then it would not be open to the courts to adopt any other hypothetical
construction on the ground that such construction is more consistent with
the alleged object and policy of the Act. In considering whether there is
ambiguity, the court must look at the statute as a whole and consider the
appropriateness of the meaning in a [pic]particular context avoiding
absurdity and inconsistencies or unreasonableness which may render the
statute unconstitutional.”
13. With these principles in mind, we now consider the provisions in
question. According to Section 138, where any cheque drawn by a person on
an account maintained by him is returned by the Bank unpaid for reasons
mentioned in said Section such person shall be deemed to have committed an
offence. The proviso to the Section stipulates three conditions on the
satisfaction of which the offence is said to be completed. The proviso
inter alia obliges the payee to make a demand for the payment of said
amount of money by giving a notice in writing to “the drawer of the cheque”
and if “the drawer of the cheque” fails to make the payment of the said
amount within 15 days of the receipt of said notice, the stages stipulated
in the proviso stand fulfilled. The notice under Section 138 is required
to be given to “the drawer” of the cheque so as to give the drawer an
opportunity to make the payment and escape the penal consequences. No other
person is contemplated by Section 138 as being entitled to be issued such
notice. The plain language of Section 138 is very clear and leaves no room
for any doubt or ambiguity. There is nothing in Section 138 which may even
remotely suggest issuance of notice to anyone other than the drawer.
14. Section 141 states that if the person committing an offence under
Section 138 is a Company, every director of such Company who was in charge
of and responsible to that Company for conduct of its business shall also
be deemed to be guilty. The reason for creating vicarious liability is
plainly that a juristic entity i.e. a Company would be run by living
persons who are in charge of its affairs and who guide the actions of that
Company and that if such juristic entity is guilty, those who were so
responsible for its affairs and who guided actions of such juristic entity
must be held responsible and ought to be proceeded against. Section 141
again does not lay down any requirement that in such eventuality the
directors must individually be issued separate notices under Section 138.
The persons who are in charge of the affairs of the Company and running its
affairs must naturally be aware of the notice of demand under Section 138
of the Act issued to such Company. It is precisely for this reason that no
notice is additionally contemplated to be given to such directors. The
opportunity to the ‘drawer’ Company is considered good enough for those who
are in charge of the affairs of such Company. If it is their case that the
offence was committed without their knowledge or that they had exercised
due diligence to prevent such commission, it would be a matter of defence
to be considered at the appropriate stage in the trial and certainly not at
the stage of notice under Section 138.
15. If the requirement that such individual notices to the directors
must additionally be given is read into the concerned provisions, it will
not only be against the plain meaning and construction of the provision but
will make the remedy under Section 138 wholly cumbersome. In a given case
the ordinary lapse or negligence on part of the Company could easily be
rectified and amends could be made upon receipt of a notice under Section
138 by the Company. It would be unnecessary at that point to issue notices
to all the directors, whose names the payee may not even be aware of at
that stage. Under Second proviso to Section 138, the notice of demand has
to be made within 30 days of the dishonour of cheque and the third proviso
gives 15 days time to the drawer to make the payment of the amount and
escape the penal consequences. Under clause (a) of Section 142, the
complaint must be filed within one month of the date on which the cause of
action arises under the third proviso to Section 138. Thus a complaint can
be filed within the aggregate period of seventy five days from the
dishonour, by which time a complainant can gather requisite information as
regards names and other details as to who were in charge of and how they
were responsible for the affairs of the Company. But if we accept the
logic that has weighed with the High Court in the present case, such period
gets reduced to 30 days only. Furthermore, unlike proviso to clause (b) of
Section 142 of the Act, such period is non-extendable. The summary remedy
created for the benefit of a drawee of a dishonoured cheque will thus be
rendered completely cumbersome and capable of getting frustrated.
16. In our view, Section 138 of the Act does not admit of any necessity
or scope for reading into it the requirement that the directors of the
Company in question must also be issued individual notices under Section
138 of the Act. Such directors who are in charge of affairs of the Company
and responsible for the affairs of the Company would be aware of the
receipt of notice by the Company under Section 138. Therefore neither on
literal construction nor on the touch stone of purposive construction such
requirement could or ought to be read into Section 138 of the Act.
Consequently this appeal must succeed. The order passed by the High Court
is set aside. Since the matter was at the stage of considering application
for leave to appeal and the merits of the matter were not considered by the
High Court, we remit the matter to the High Court for fresh consideration
which may be decided as early as possible. Concluding so, we must record
that the decision of the Division Bench of the Madras High Court in B.
Raman & Ors. Vs. M/s. Shasun Chemicals and Drugs Ltd. (supra) was incorrect
and it stands overruled. The appeal is allowed in these terms.
……………………….J
(Pinaki Chandra Ghose)
……………………….J
(Uday Umesh Lalit)
New Delhi,
May 06, 2015
ITEM NO.1C COURT NO.11 SECTION IIA
(for Judgment)
S U P R E M E C O U R T O F I N D I A
RECORD OF PROCEEDINGS
Criminal Appeal No(s). 1220/2009
KIRSHNA TEXPORT & CAPITAL MARKETS LTD. Appellant(s)
VERSUS
ILA A AGRAWAL & ORS. Respondent(s)
Date : 06/05/2015 This appeal was called on for pronouncement of
judgment today.
For Appellant(s) Mr. Ajit Anekar, Adv.
Mr. Satyajit A. Desai, Adv.
Ms. Indu Sharma, Adv.
For Respondent(s) Mr. Shree Prakash Sinha, Adv.
Mr. Ashok Bhatia, Adv.
Mr. Shekhar Kumar, Adv.
Mr. Aniruddha P. Mayee, Adv.
Mr. Charudatta Mahindrakar, Adv.
Mr. Selvin Raja, Adv.
Mr. Mahaling Pandarge, Adv.
Mr. Nishant Katneswarkar, Adv.
Ms. Asha Gopalan Nair, Adv. (NP)
Hon'ble Mr. Justice Uday Umesh Lalit pronounced the reportable
judgment of the Bench comprising Hon'ble Mr. Justice Pinaki Chandra Ghose
and His Lordship.
The appeal is allowed in terms of the signed reportable judgment.
(R.NATARAJAN) (SNEH LATA SHARMA)
Court Master Court Master
(Signed reportable judgment is placed on the file)
-----------------------
[1] (2007)9 SCC 481
[2] (1958) SCR 360
[3] (2003) 2 SCC 577
[4] (2003) 2 SCC 577