HIMANSHUversusB. SHIVAMURTHY & ANR.

                         [2019] 1 S.C.R. 991                             991


                            HIMANSHU                                     A
                                  v.
                   B. SHIVAMURTHY & ANR.
                 (Criminal Appeal No. 1465 of 2009)
                         JANUARY 17, 2019                                B
            [DR. DHANANJAYA Y CHANDRACHUD
                   AND HEMANT GUPTA, JJ.]
       Negotiable Instruments Act, 1881 – s.141 and Proviso to s.138
– Maintainability of Complaint – When cheque was drawn by a
person as a director of a Company – Appellant borrowed a sum of          C
money from respondent and issued a cheque – When cheque was
presented in the bank for encashment, it was returned with the
endorsement that funds were insufficient – Respondent issued notice
to the appellant – Upon the failure of the appellant to pay the amount
due under the cheque, a complaint was instituted – Appellant filed       D
petition u/s. 482 of the Cr.P.C. to quash the complaint – Appellant
contended that cheque was issued by one of the directors of the
company and that was not a cheque issued by any person in his
individual capacity – Submission of appellant was rejected by the
High Court and it held that company could be arraigned as an
accused, and the petition was dismissed – On appeal, held: In the        E
instant case, the record before the Court indicated that the cheque
was drawn by the appellant for ‘L’ Company, as its Director – Notice
of demand was served only on the appellant – Complaint was lodged
only against the appellant without arraigning the company as an
accused – In the absence of the company being arraigned as an            F
accused, a complaint against the appellant was therefore not
maintainable – Appellant had signed the cheque as a Director of
the company and for and on its behalf – Moreover, in the absence
of a notice of demand being served on the company and without
compliance with the proviso to s.138, the High Court was in error
in holding that the company could now be arraigned as an accused         G
– High Court erred in rejecting the petition u/s. 482 of the Cr.P.C –
Code of Criminal Procedure, 1973 – s.482.
     Complainant-respondent instituted a complaint u/s.138 of
the Negotiable Instruments Act, 1881 against the appellant.
According to the complainant, the appellant had borrowed a sum           H
                              991
992            SUPREME COURT REPORTS                       [2019] 1 S.C.R.


A     of Rs. 4,15,000/- “for his business development” and on the same
      day, the appellant issued a cheque for an equivalent amount. When
      the cheque was presented for encashment to the Bank, it was
      returned with an endorsement that funds were insufficient. The
      complainant issued a notice to the appellant, upon the failure of
      the appellant to pay the amount due under the cheque, a complaint
B
      was instituted. Appellant instituted a petition u/s.482 of Cr.P.C.
      before the High Court, which was dismissed. Hence, the present
      criminal appeal.
             Disposing of the appeal, the Court
             HELD: 1. The judgment of the High Court has been
C     questioned on two grounds. The appellant submits that firstly,
      the appellant could not be prosecuted without the company being
      named as an accused. The cheque was issued by the company
      and was signed by the appellant as its Director. Secondly, it was
      urged that the observation of the High Court that the company
D     can now be proceeded against in the complaint is misconceived.
      Appellant also submitted that the offence under Section 138 is
      complete only upon the issuance of a notice of demand and the
      failure of payment within the prescribed period. In absence of
      compliance with the requirements of Section 138, it is asserted,
      the direction of the High Court that the company could be
E     impleaded/arraigned at this stage is erroneous. [Para 7][996-C-
      D]
             2. The first submission on behalf of the appellant is no longer
      res integra. A decision of a three Judge Bench of this Court in
      Aneeta Hada v. Godfather Travels and Tours Private Limited
F     governs the area of dispute. The issue which fell for consideration
      was whether an authorized signatory of a company would be liable
      for prosecution under Section 138 of the Negotiable Instruments
      Act, 1881 without the company being arraigned as an accused.
      The three Judge Bench held that applying the doctrine of strict
      construction, the considered opinion was that commission of
G
      offence by the company is an express condition precedent to
      attract the vicarious liability of others. Thus, the words “as well
      as the company” appearing in the section make it absolutely
      unmistakably clear that when the company can be prosecuted,
      then only the persons mentioned in the other categories could
H     be vicariously liable for the offence subject to the averments in
               HIMANSHU v. B. SHIVAMURTHY                              993


the petition and proof thereof. One cannot be oblivious of the         A
fact that the company is a juristic person and it has its own
respectability. Further, the Court held that the for maintaining
the prosecution under Section 141 of the Act, arraigning of a
company as an accused is imperative. [Para 8][996-E-H; 997-A-
B]
                                                                       B
      Aneeta Hada v. Godfather Travels and Tours Private
      Limited (2012) 5 SCC 661 : [2012] 5 SCR 503 – relied
      on.
       3. There is merit in the second submission which has been
urged on behalf of the appellant as well. The proviso to Section       C
138 contains the pre-conditions which must be fulfilled before an
offence under the provision is made out. These conditions are;
(i) presentation of the cheque to the bank within six months from
the date on which it is drawn or within the period of its validity,
whichever is earlier; (ii) a demand being made in writing by the
payee or holder in due course by the issuance of a notice in writing   D
to the drawer of the cheque within thirty days of the receipt of
information from the bank of the return of the cheques; and (iii)
the failure of the drawer to make payment of the amount of money
to the payee or the holder in due course within fifteen days of the
receipt of the notice. [Para 9][997-D-E]                               E
      Charanjit Pal Jindal v. L.N. Metalics (2015) 5 SCALE
      16; MSR Leathers v. S. Palaniappan (2013) 1 SCC 177
      : [2012] 9 SCR 165 – referred to.
      4. In the present case, the record before the Court indicates
that the cheque was drawn by the appellant for ‘L’ Ltd. company,       F
as its Director. A notice of demand was served only on the
appellant. The complaint was lodged only against the appellant
without arraigning the company as an accused. [Para 12][998-G]
     5. The provisions of Section 141 postulate that if the person
committing an offence under Section 138 is a company, every            G
person, who at the time when the offence was committed was in
charge of or 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. [Para 13][998-G-H; 999-A]
                                                                       H
994            SUPREME COURT REPORTS                         [2019] 1 S.C.R.


A           6. In the absence of the company being arraigned as an
      accused, a complaint against the appellant was therefore not
      maintainable. The appellant had signed the cheque as a Director
      of the company and for and on its behalf. Moreover, in the
      absence of a notice of demand being served on the company and
      without compliance with the proviso to Section 138, the High
B
      Court was in error in holding that the company could now be
      arraigned as an accused.[Para 14][999-B]
            N. Harihara Krishnan v. J. Thomas (2018) 13 SCC 663
            : [2017] 9 SCR 324– referred to.
C                             Case Law Reference
            [2012] 5 SCR 503                   relied on        Para 8
            (2015) 5 SCALE 16                  referred to      Para 9
            [2012] 9 SCR 165                   referred to      Para 10
D           [2017] 9 SCR 324                   referred to      Para 11
            CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No.
      1465 of 2009.
            From the Judgment and Order dated 24.01.2006 of the High
      Court of Karnataka at Bangalore in Criminal Petition No. 4467 of 2005.
E
           Rohan Thawani, Prashant Kumar, Dhawesh Pahuja, Joseph
      Pookkatt, Advs. for the appellant.
             V. N. Raghupathy, Parikshit P. Angadi, Md. Apzal Ansari, Advs.
      for the respondents.
F           The Judgment of the Court was delivered by
             DR. DHANANJAYA Y CHANDRACHUD, J. 1.A complaint
      under Section 138 of the Negotiable Instruments Act, 1881 was instituted
      by the respondent against the appellant. According to the complainant,
      the appellant had borrowed a sum of Rs. 4,15,000/- “for his business
G     development” and on the same day, the appellant issued a cheque drawn
      on Karnataka Bank, Hosadurga for an equivalent amount. When the
      cheque was presented on 26 December 2003 for encashment to the
      State Bank of Mysore, Beligere Branch, the bank returned the cheque
      with an endorsement on 29 December 2003 stating that funds were
H
                HIMANSHU v. B. SHIVAMURTHY                                     995
           [DR. DHANANJAYA Y CHANDRACHUD, J.]

insufficient. The complainant issued a notice to the appellant on 19 January   A
2004 which was served on 28 January 2004.
      2. Upon the failure of the appellant to pay the amount due under
the cheque, a complaint was instituted.
      3. The Civil Judge, Junior Division, Tiptur took cognizance on 6
July 2004 and issued summons to the appellant.                                 B

       4. The appellant instituted a petition under Section 482 of the Code
of Criminal Procedure, 1973 (“CrPC”) before the High Court of
Karnataka. Paragraph 6 of the petition states the ground on which the
jurisdiction of the High Court was invoked.
                                                                               C
      “6. The cheque was issued by one of the directors of M/s Lakshmi
      Cement and
      Industries Ltd., i.e., on behalf of said company. The said company
      was public limited company and in order to demonstrate the said
      fact, the accused herewith produces copies of the memorandum             D
      and articles of association of the company alongwith the
      certification of incorporation of the company and which are marked
      as ANNEXURE C1, C2 AND C3 respectively.”
      In paragraph 7, the appellant averred thus:-
      “7. …                                                                    E
      The complainant approached the learned Magistrate with a request
      to take cognizance against the accused stating that the accused
      on 23.12.2003 had issued a cheque in his favour and the said
      cheque was bounced on 26.12.2003 on meticulously going through
      the cheque dated 23.12.2005 it discloses that the cheque was             F
      issued by one of the directors of the company and that was not a
      cheque issued by any person in his individual capacity. If that is
      accepted the complaint should have been against the company
      and its Directors and not against the Accused.”
       5. The appellant submitted that the cheque was issued by a Director     G
of Lakshmi Cement and Ceramics Industries Ltd., a public limited
company. In other words, the cheque was not issued by the signatory in
his personal capacity. Hence, it was urged that the complaint ought to
have been instituted against the company and its Directors and not against
the appellant.
                                                                               H
996               SUPREME COURT REPORTS                            [2019] 1 S.C.R.


A            6. The High Court by its order dated 24 January 2006 dismissed
      the petition. The High Court rejected the submissions urged on behalf of
      the appellant on the ground that the complainant had pleaded ignorance
      about the existence of the company. Moreover, in the view of the High
      Court, it would not be difficult for the complainant to take steps to proceed
      against the company as well as against other persons who are responsible
B
      for the affairs of the company.
              7. The judgment of the High Court has been questioned on two
      grounds. Learned counsel appearing on behalf of the appellant submits
      that firstly, the appellant could not be prosecuted without the company
      being named as an accused. The cheque was issued by the company
C     and was signed by the appellant as its Director. Secondly, it was urged
      that the observation of the High Court that the company can now be
      proceeded against in the complaint is misconceived. Learned counsel
      submitted that the offence under Section 138 is complete only upon the
      issuance of a notice of demand and the failure of payment within the
D     prescribed period. In absence of compliance with the requirements of
      Section 138, it is asserted, the direction of the High Court that the
      company could be impleaded/arraigned at this stage is erroneous.
            8. The first submission on behalf of the appellant is no longer res
      integra. A decision of a three Judge Bench of this Court in Aneeta
E     Hada vs. Godfather Travels and Tours Private Limited 1 governs the
      area of dispute. The issue which fell for consideration was whether an
      authorized signatory of a company would be liable for prosecution under
      Section 138 of the Negotiable Instruments Act, 1881 without the company
      being arraigned as an accused. The three Judge Bench held thus:-

F              “58. Applying the doctrine of strict construction, we are of the
               considered opinion that commission of offence by the company is
               an express condition precedent to attract the vicarious liability of
               others. Thus, the words “as well as the company” appearing in
               the section make it absolutely unmistakably clear that when the
               company can be prosecuted, then only the persons mentioned in
G              the other categories could be vicariously liable for the offence
               subject to the averments in the petition and proof thereof. One
               cannot be oblivious of the fact that the company is a juristic person
               and it has its own respectability. If a finding is recorded against it,
               it would create a concavity in its reputation. There can be situations
      1
          (2012) 5 SCC 661
H
                  HIMANSHU v. B. SHIVAMURTHY                                      997
             [DR. DHANANJAYA Y CHANDRACHUD, J.]

         when the corporate reputation is affected when a director is             A
         indicted.”
         In similar terms, the Court further held:
         “59. In view of our aforesaid analysis, we arrive at the irresistible
         conclusion that for maintaining the prosecution underSection 141of
         the Act, arraigning of a company as an accused is imperative.            B
         The other categories of offenders can only be brought in the drag-
         net on the touchstone of vicarious liability as the same has been
         stipulated in the provision itself…. “
       9. The judgment of the three Judge Bench has since been followed
by a two Judge Bench of this Court in Charanjit Pal Jindal vs. L.N.               C
Metalics2. There is merit in the second submission which has been
urged on behalf of the appellant as well. The proviso to Section 138
contains the pre-conditions which must be fulfilled before an offence
under the provision is made out. These conditions are; (i) presentation of
the cheque to the bank within six months from the date on which it is             D
drawn or within the period of its validity, whichever is earlier; (ii) a demand
being made in writing by the payee or holder in due course by the issuance
of a notice in writing to the drawer of the cheque within thirty days of
the receipt of information from the bank of the return of the cheques;
and (iii) the failure of the drawer to make payment of the amount of
money to the payee or the holder in due course within fifteen days of the         E
receipt of the notice.
         10. In MSR Leathers vs. S. Palaniappan3, this Court held thus :-
         “12. The proviso to Section 138, however, is all important and
         stipulates three distinct conditions precedent, which must be            F
         satisfied before the dishonour of a cheque can constitute an offence
         and become punishable. The first condition is that the cheque
         ought to have 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. The second condition is that the
         payee or the holder in due course of the cheque, as the case may         G
         be, ought to make 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
2
    (2015) 15 SCC 768
3
    (2013) 1 SCC 177                                                              H
998               SUPREME COURT REPORTS                           [2019] 1 S.C.R.


A              bank regarding the return of the cheque as unpaid. The third
               condition is that the drawer of such a cheque should have failed
               to make 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. It is only upon the
               satisfaction of all the three conditions mentioned above and
B
               enumerated under the proviso to Section 138 as clauses (a),
               (b) and (c) thereof that an offence under Section 138 can be
               said to have been committed by the person issuing the
               cheque.”
            11. The importance of fulfilling these conditions has been
C     adverted to in a recent judgment of a two Judge Bench of this Court
      in N. Harihara Krishnan vs. J. Thomas4.
             Adverting to the ingredients of Section 138, the Court observed
      as follows:
D              “26.      ….Obviously such complaints must contain the factual
               allegations constituting each of the ingredients of the offence under
               Section 138. Those ingredients are: (1) that a person drew a
               cheque on an account maintained by him with the banker; (2) that
               such a cheque when presented to the bank is returned by the
               bank unpaid; (3) that such a cheque was presented to the bank
E              within a period of six months from the date it was drawn or within
               the period of its validity whichever is earlier; (4) that the payee
               demanded in writing from the drawer of the cheque the payment
               of the amount of money due under the cheque to payee; and (5)
               such a notice of payment is made within a period of 30 days from
F              the date of the receipt of the information by the payee from the
               bank regarding the return of the cheque as unpaid...”
            12. In the present case, the record before the Court indicates that
      the cheque was drawn by the appellant for Lakshmi Cement and
      Ceramics Industries Ltd., as its Director. A notice of demand was
G     served only on the appellant. The complaint was lodged only against the
      appellant without arraigning the company as an accused.
           13. The provisions of Section 141 postulate that if the person
      committing an offence under Section 138 is a company, every person,
      who at the time when the offence was committed was in charge of or
      4
          (2018) 13 SC 663
H
                HIMANSHU v. B. SHIVAMURTHY                                    999
           [DR. DHANANJAYA Y CHANDRACHUD, J.]

was responsible to the company for the conduct of the business of the         A
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.
       14. In the absence of the company being arraigned as an accused,
a complaint against the appellant was therefore not maintainable. The
appellant had signed the cheque as a Director of the company and for          B
and on its behalf. Moreover, in the absence of a notice of demand being
served on the company and without compliance with the proviso to Section
138, the High Court was in error in holding that the company could now
be arraigned as an accused.
       15. We, accordingly, are of the view that the High Court was in        C
erorr in rejecting the petition under Section 482 of the CrPC.
       16. We hence allow the appeal and set aside the judgment of the
High Court. In consequence, the complaint, being C.R.P No. 27/2004
shall stand quashed.
       17. During the pendency of these proceedings, this Court on 28         D
November 2008 recorded the statement of the appellant that he was
willing to deposit the entire cheque, and hence issued the following
directions:
      “Learned counsel appearing for the petitioner submits that petitioner
      is willing to deposit the entire cheque amount which was                E
      dishonoured in this Court.
      Let the amount be deposited in this Court within four weeks from
      today and on deposit of the amount within the aforesaid period,
      Registry to issue fresh notice to the respondent as respondent is
      not represented till date. The amount, so deposited, shall be           F
      invested in a fixed deposit in a nationalised bank initially for a
      period of six months and may be kept renewed from time to time
      until further orders.”
      18. In pursuance of the aforesaid directions, the appellant deposited
an amount of Rs. 4,15,000/- on 23 February 2009. The amount has               G
been invested in a fixed deposit which has been renewed periodically.
       19. In our view, having regard to the intent of the order which
was passed by this Court on 28 November 2008, it would be appropriate
and proper if the amount deposited in this Court, together with accrued
interest, is paid over to the respondent-complainant.                         H
1000                SUPREME COURT REPORTS                      [2019] 1 S.C.R.


 A            20. The Registry shall, accordingly, issue a communication to the
       respondent intimating a copy of the present order (since the respondent
       has not appeared despite service of notice. The amount shall be disbursed
       to the respondent against proof of identity.
             21. The criminal appeal is, accordingly, disposed of.
 B           Pending application(s), if any, shall also stand disposed of.


       Ankit Gyan                                                Appeal disposed of.



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