Supreme Court of India
S. P. MANI AND MOHAN DAIRYversusDR.SNEHALATHA ELANGOVAN
- Citation
- 2022 INSC 970
- Decided
- 16 September 2022
- Disposal
- Appeal(s) allowed
- Bench
- SURYA KANT
Holding
A partner of a firm can only escape criminal liability under Section 141 of the NI Act by adverting unimpeachable, incontrovertible evidence that he was not in charge of the firm’s affairs at the relevant time; mere denial is insufficient and the High Court may not quash the prosecution absent such proof.
Summary
The appellant, S.P. Mani and Mohan Dairy, filed a complaint under Section 138 of the Negotiable Instruments Act against a partnership firm and its partners for a dishonoured cheque. The High Court, on a petition under Section 482 of the CrPC, quashed the criminal proceedings against one partner, Dr. Snehalatha Elangovan, on the ground that the complaint contained only bare averments and that she was not in charge of the firm at the relevant time. The Supreme Court held that the complaint’s specific averments that the partners were in charge of the firm were sufficient to invoke vicarious liability under Section 141, and that the burden to prove exemption lies on the partner. The Court ruled that a partner must produce unimpeachable, incontrovertible evidence to escape liability and that the High Court cannot quash the proceeding absent such proof. Consequently, the appeal was allowed and the High Court’s order set aside.
Issues considered
- The propriety of the High Court's exercise of power under Section 482 CrPC to quash criminal proceedings against a partner of a partnership firm.
- Whether the averments in the complaint satisfy the requirements of Section 141 of the Negotiable Instruments Act to fasten vicarious liability on a partner.
- The allocation of the burden of proof for establishing non‑liability under Section 141(1).
- The effect of the partner’s failure to reply to the statutory notice on the presumption of liability.
- The standard of evidence required for a court to intervene and stay prosecution under Section 482.
Legislation cited
- Code of Criminal Procedure, 1973s. 482
- Negotiable Instruments Act, 1881s. 138, s. 141
Subjects
vicarious liabilitypartnership firmSection 138Section 141Negotiable Instruments Actcriminal liabilityquashing of criminal proceedingsSection 482 CrPCburden of proofstatutory notice
Judgment
634 [2022]REPORTS
SUPREME COURT 9 S.C.R. 634 [2022] 9 S.C.R.
A S. P. MANI AND MOHAN DAIRY
v.
DR.SNEHALATHA ELANGOVAN
(Criminal Appeal No. 1586 of 2022)
B SEPTEMBER 16, 2022
[SURYA KANT AND J. B. PARDIWALA, JJ.]
Negotiable Instruments Act, 1881 – ss.138 and 141 –
Partnership firm – Cheque dishonour case – Vicarious liability of
the partners – Held: Burden is on Board of Directors or officers in
C
charge of the affairs of the company /partners of a firm to show
that they were not liable to be convicted – Existence of any special
circumstance that makes them not liable is something that is
peculiarly within their knowledge and it is for them to establish at
the trial to show that at the relevant time they were not in charge of
D the affairs of the company or the firm – Criminal liability is attracted
only on those, who at the time of commission of the offence, were in
charge of and were responsible for the conduct of the business of
the firm – But vicarious criminal liability can be inferred against
the partners of a firm when it is specifically averred in the complaint
about the status of the partners ‘qua’ the firm – This would make
E
them liable to face the prosecution but it does not lead to automatic
conviction – Hence, they are not adversely prejudiced if they are
eventually found to be not guilty, as a necessary consequence
thereof would be acquittal.
Code of Criminal Procedure, 1973 – s.482 – Negotiable
F
Instruments Act, 1881 – s.138 and 141 – Partnership firm – Cheque
dishonour case against Director / partner of the firm – Interference
by High Court u/s.482 CrPC – Scope – Held: High Court should
not interfere u/s.482 CrPC at the instance of an accused unless it
comes across some unimpeachable and incontrovertible evidence
G to indicate that the Director/partner of a firm could not have been
concerned with the issuance of cheques – In a given case despite
the presence of basic averments, the High Court may conclude that
no case is made out against the particular Director/partner provided
the Director/partner is able to adduce some unimpeachable and
incontrovertible evidence beyond suspicion and doubt – If any
H
634
S. P. MANI AND MOHAN DAIRY v. DR.SNEHALATHA 635
ELANGOVAN
Director wants the process to be quashed by filing a petition A
u/s.482 CrPC on the ground that only a bald averment is made in
the complaint and that he/she is really not concerned with the
issuance of the cheque, he/she must in order to persuade the High
Court to quash the process either furnish some sterling
incontrovertible material or acceptable circumstances to substantiate
B
his/her contention – He/she must make out a case that making him/
her stand the trial would be an abuse of process of Court – Abuse
of Court.
Notice – Statutory Notice – Negotiable Instruments Act, 1881
– s.138 and 141 – Partnership firm – Cheque dishonour case against
a partner of the firm – No reply given by respondent-accused to C
statutory notice served upon her by appellant-complainant – Effect
– Held: It is essential for the person to whom statutory notice is
issued u/s.138 to give an appropriate reply – The person concerned
is expected to clarify his or her stance – If the person concerned
has some unimpeachable and incontrovertible material to establish D
that he or she has no role to play in the affairs of the company/firm,
then such material should be highlighted in the reply to the notice
as a foundation – Once the necessary averments are made in the
statutory notice issued by the complainant in regard to the vicarious
liability of the partners and upon receipt of such notice, if the partner
keeps quiet and does not say anything in reply to the same, then the E
complainant has all the reasons to believe that what he has stated
in the notice has been accepted by the noticee.
Negotiable Instruments Act, 1881 – s.141 – Difference
between sub-section (1) and (2) of s.141 – Discussed.
F
Allowing the appeal, the Court
HELD:1. The primary responsibility of the complainant is
to make specific averments in the complaint so as to make the
accused vicariously liable. For fastening the criminal liability,
there is no legal requirement for the complainant to show that G
the accused partner of the firm was aware about each and every
transaction. On the other hand, the first proviso to sub-section
(1) of Section 141 of the Negotiable Instruments Act, 1881 clearly
lays down that if the accused is able to prove to the satisfaction of
the Court that the offence was committed without his/her
H
636 SUPREME COURT REPORTS [2022] 9 S.C.R.
A knowledge or he/she had exercised due diligence to prevent the
commission of such offence, he/she will not be liable of punishment.
[Para 47][666-C-E]
2. The complainant is supposed to know only generally as
to who were in charge of the affairs of the company or firm, as the
B case may be. The other administrative matters would be within
the special knowledge of the company or the firm and those who
are in charge of it. In such circumstances, the complainant is
expected to allege that the persons named in the complaint are
in charge of the affairs of the company/firm. It is only the Directors
of the company or the partners of the firm, as the case may be,
C who have the special knowledge about the role they had played
in the company or the partners in a firm to show before the court
that at the relevant point of time they were not in charge of the
affairs of the company. Advertence to Sections 138 and Section
141 respectively of the NI Act shows that on the other elements
D of an offence under Section 138 being satisfied, the burden is on
the Board of Directors or the officers in charge of the affairs of
the company/partners of a firm to show that they were not liable
to be convicted. The existence of any special circumstance that
makes them not liable is something that is peculiarly within their
knowledge and it is for them to establish at the trial to show that
E at the relevant time they were not in charge of the affairs of the
company or the firm. [Para 47][666-E-H; 667-A-B]
3. Criminal liability is attracted only on those, who at the
time of commission of the offence, were in charge of and were
responsible for the conduct of the business of the firm. But
F vicarious criminal liability can be inferred against the partners of
a firm when it is specifically averred in the complaint about the
status of the partners ‘qua’ the firm. This would make them liable
to face the prosecution but it does not lead to automatic
conviction. Hence, they are not adversely prejudiced if they are
G eventually found to be not guilty, as a necessary consequence
thereof would be acquittal. [Para 47][667-C-D]
4. If any Director wants the process to be quashed by filing
a petition under Section 482 of the Code on the ground that only
H
S. P. MANI AND MOHAN DAIRY v. DR.SNEHALATHA 637
ELANGOVAN
a bald averment is made in the complaint and that he/she is really A
not concerned with the issuance of the cheque, he/she must in
order to persuade the High Court to quash the process either
furnish some sterling incontrovertible material or acceptable
circumstances to substantiate his/her contention. He/she must
make out a case that making him/her stand the trial would be an
B
abuse of process of Court. [Para 47][667-E-F]
N Rangachari v. Bharati Sanchar Nigam Limited AIR
(2007) SC 1682 : [2007] 5 SCR 329; Anil Hada v.
Indian Acrylic Ltd. (2000) 1 SCC 1 : [1999] 5 Suppl.
SCR 6; Monaben Ketanbhai Shah v. State of Gujarat
(2004) 7 SCC 15 : [2004] 3 Suppl. SCR 411; K.K. C
Ahuja v. V.K. Vora (2009) 10 SCC 48 : [2009] 9 SCR
1144; Sunita Palita v. M/s Panchami Stone Quarry
(2022) SC Online SC 945; Ashutosh Ashok
Parasrampuria v. Gharrkul Industries Pvt. Ltd. (2021)
SCC Online SC 915; Gunmala Sales Pvt. Ltd. v. Anu D
Mehta & Ors. (2015) 1 SCC103 : [2014] 10 SCR 1117;
Rallis India Ltd v. Poduru Vidya Bhusan & Ors. (2011)
13 SCC 88 : [2011] 5 SCR 289 – relied on.
SMS Pharmaceuticals Ltd. v. Neeta Bhalla (2005) 8 SCC
89 : [2005] 3 Suppl. SCR 371; National Small Industries E
Corporation v. Harmeet Singh Paintal & Anr. (2010) 3
SCC 330 : [2010] 2 SCR 805; Sunita Palita & Others
v. M/s Panchami Stone Quarry (2022) SC Online SC
945; Municipal Corporation of Delhi v. Ram Kishan
Rohtagi (1983) 1 SCC 1 : [1983] 1 SCR 884; U.P.
Pollution Control Board v. Modi Distillery (1987) 3 SCC F
684 : [1987] 3 SCR 798; P. Rajarathinam v. State of
Maharashtra (2000)10 SCC 529; K. Bhaskaran v.
Sankaran Vaidhyan Balan (1999) 7 SCC 510 : [1999]
3 Suppl. SCR 271; Assistant Commissioner, Assessment-
II Bangalore and Ors. v.Velliappa Textiles Ltd. and Ors. G
AIR (2004) SC 86 : [2003] 3 Suppl. SCR 763; Sabhitha
Ramamurthy v. RBS Channabasavaradhya AIR (2006)
SC 3086 : [2006] 6 Suppl. SCR 126; S. K. Alagh v.
State of Uttar Pradesh (2008) 5 SCC 662 : [2008] 2
H
638 SUPREME COURT REPORTS [2022] 9 S.C.R.
A SCR 1088; Maharashtra State Electricity Distribution
Co. Ltd. v. Datar Switchgear Ltd. (2010) 10 SCC 479 :
[2010] 12 SCR 551; GHCL Employees Stock Option
Trust v. India Infoline Limited (2013) 4 SCC 505 : [2013]
5 SCR 27 – referred to.
B Case Law Reference
[2005] 3 Suppl. SCR 371 referred to Para 12
[2014] 10 SCR 1117 relied on Para 13
[2010] 2 SCR 805 referred to Para 13
C [1983] 1 SCR 884 referred to Para 28
[1987] 3 SCR 798 referred to Para 28
(2000) 10 SCC 529 referred to Para 28
[1999] 3 Suppl. SCR 271 referred to Para 29
D [2007] 5 SCR 329 relied on Para 30
[1999] 5 Suppl. SCR 6 relied on Para 31
[2004] 3 Suppl. SCR 411 relied on Para 32
[2005] 3 Suppl. SCR 371 referred to Para 34
E
[2003] 3 Suppl. SCR 763 referred to Para 35
[2006] 6 Suppl. SCR 126 referred to Para 36
[2009] 9 SCR 1144 relied on Para 36
[2008] 2 SCR 1088 referred to Para 39
F
[2010] 12 SCR 551 referred to Para 39
[2013] 5 SCR 27 referred to Para 39
[2011] 5 SCR 289 relied on Para 48
CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No.
G
1586 of 2022.
From the Judgment and Orders dated 16.02.2021 of the High
Court of Judicature at Madras, in Crl. O.P. No. 1063 of 2021.
E. R. Kumar, Ms. Raghav Bansal for M/s Parekh & Co., Advs.
H for the Appellant.
S. P. MANI AND MOHAN DAIRY v. DR.SNEHALATHA 639
ELANGOVAN
Ms. Hari Priya Padmanabhan, T. Mahendhran, Raghunatha A
Sethupathy B., Ms. Jhanvi Dhubay, K. Paari Vendhan, Advs. for the
Respondent.
The Judgment of the Court was delivered by
J. B. PARDIWALA, J.
B
1. Leave granted.
2. This appeal is at the instance of the original complainant of a
complaint filed under Section 138 of the Negotiable Instruments Act,
1881 (for short, “the NI Act”) and is directed against the order passed
by the High Court of Madras dated 16.02.2021 in the Criminal Original C
Petition No. 1063 of 2021 filed by the respondent herein (accused no.03)
under Section 482 of the Code of Criminal Procedure (for short, “the
Code”), whereby the High Court allowed the application and quashed
the criminal proceedings initiated against the respondent herein in the
court of the Judicial Magistrate Fast Track Court No.-II, Erode.
D
3. There are some legal issues with a never-ending debate. The
debate on such legal issues goes on and on despite there being plethora
of case law on the subject. The NI Act by now is almost three decades
old. Section 141 of the NI Act is on the statute past more than three
decades. There are various decisions of this Court and High Courts
explaining the true purport of Section 141 of the NI Act. However, the E
debate on Section 141 of the NI Act is never ending. The present
litigation is also one in which we have been called upon to look into
Section 141 of the NI Act.
FACTUAL MATRIX
F
4. The facts of this case are plain and simple. The appellant herein
(original complainant) is engaged in the business of milk and milk products.
The respondent herein is one of the partners of a Partnership Firm running
in the name of Sira Marketing Services. The firm used to purchase milk
and milk products from the appellant/complainant on credit basis. The
appellant has to recover an amount of Rs. 10,71,434.60/- (Rs. Ten Lakh G
Seventy One Thousand Four Hundred Thirty Four and Sixty paise) from
the partnership firm. The firm issued a cheque duly signed by the original
accused No. 02 (partner/authorised signatory) in favour of the appellant
for the amount of Rs. 10,00,000/- (Rs. Ten Lakh only) dated 05.05.2017.
The cheque came to be dishonoured as there was no sufficient balance
H
640 SUPREME COURT REPORTS [2022] 9 S.C.R.
A in the account maintained by the firm. No sooner, the bank intimated the
appellant herein that the cheque could not be cleared due to insufficient
funds than the appellant herein issued a statutory notice dated 14-08-2017
to the firm and the two partners of the firm. 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
B
other option but to file the complaint in the Judicial Magistrate Fast Track
Court No. II, Erode for the offence punishable under Section 138 r/w
141 of the NI Act which came to registered as the STC No. 583 of 2017.
5. The respondent herein (original accused No. 03/partner)
preferred an application under 482 of the Code in the High Court and
C prayed that the criminal proceedings instituted against her may be quashed
as she has no liability under the law. The principal argument of the
respondent herein before the High Court was that much before the cheque
came to be issued, the firm had been dissolved. The accounts of the firm
were also settled on 13-02-2017 following the dissolution. The High Court
D 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 in-charge and responsible
for the conduct of the business of the firm. The High Court took the
view that the complaint can be prosecuted as against the respondent
herein only if the allegations made in the complaint fulfils the requirements
E of Section 141 of the NI Act. The High Court took the view that merely
by reciting the words used under Section 141 of the NI Act in the complaint
no vicarious liability can be fastened on the partner of the firm.
6. In such circumstances above, the High Court allowed the
application filed by respondent herein and terminated the proceedings as
F far as the respondent is concerned.
7. In view of the aforesaid, the appellant (original complainant) is
here before this Court with the present appeal.
Submissions on behalf of the Appellant
G 8. The learned counsel, Mr. E.R. Kumar appearing for the appellant
vehemently submitted that the High Court committed a serious error in
passing the impugned Order quashing the proceedings against the
respondent herein. He would submit that the entire premise on which
the High Court proceeded could be termed as erroneous in law. The
learned counsel would submit that in the statutory notice issued to the
H
S. P. MANI AND MOHAN DAIRY v. DR.SNEHALATHA 641
ELANGOVAN [J. B. PARDIWALA, J.]
respondent as well as in the body of the complaint, there are specific A
averments that the accused Nos. 02 and 03 respectively, being the
partners of the partnership firms, are in-charge and responsible for the
day-to- day affairs of the firm. He pointed out there are specific averments
made in the complaint that the partners which include the respondent
herein are regularly looking after and actively taking part in the day-to-day
B
business of the firm. He further pointed out that there is a specific averment
that in order to discharge the liability, the original accused No. 02 had
issued the cheque within the knowledge and consent of the respondent
herein. It is argued that if the substance of the allegation made in the
complaint fulfil the requirements of Section 141 of the NI Act, the complaint
is to proceed and is required to be tried with. The learned counsel C
vociferously argued that while construing a complaint the Court should
not adopt a hyper-technical approach and quash the same.
9. The learned counsel further pointed out that three individual
notices were issued under Section 138 of the NI Act before the filing of
the complaint. He would submit that the statutory notice was duly served D
upon the respondent herein. However, the respondent thought fit not to
give any reply to the notice. It is argued that if the respondent had anything
to say as regards her role in the firm, she could have given an appropriate
reply that she is a sleeping partner and not involved into the day- to-day
affairs of the firm. It is argued that respondent herein could also have
clarified in her reply that the firm had already been dissolved much before E
the cheque was issued and in such circumstances, no liability could be
fastened on her. In the absence of any reply to the statutory notice, the
respondent could not have argued before the High Court for the first
time about her involvement in the affairs of the firm. The learned counsel
would submit that the High Court committed a serious error in accepting F
such submission canvassed on behalf of the respondent at the preliminary
stage.
10. The learned counsel further submitted that once the necessary
averments are made in the complaint, the onus thereafter would shift on
the accused to establish by producing some unimpeachable and G
incontrovertible evidence which may clearly indicate that the respondent
herein as one of the partners of the firm, could not have been concerned
with the issuance of the cheque in question.
11. In such circumstances referred above, the learned counsel
appearing for the appellant prays that there being merit in his appeal, the H
642 SUPREME COURT REPORTS [2022] 9 S.C.R.
A same may be allowed and the impugned order passed by the High Court
may be quashed.
Submissions on behalf of the Respondent:
12. Ms. Hari Priya Padmanabhan, the learned counsel appearing
for the respondent (accused) on the other hand has vehemently opposed
B the present appeal submitting that no error, not to speak of any error of
law, could be said to have been committed by the High Court in passing
the impugned order. She would submit that mere bald averments in the
complaint are not sufficient to fasten the vicarious lability on the partner
of the firm as envisaged under Section 141 of the NI Act. The learned
C counsel would submit that the case on hand is squarely covered by the
decision of this Court in the case of SMS Pharmaceuticals Ltd. v.
Neeta Bhalla, (2005) 8 SCC 89. Relying on the said decision of this
Court, the learned counsel would submit that the deeming fiction creating
criminal lability and vicarious lability are a departure from the usual
principles of criminal law and that a clear case should be spelt out and
D the accused person should be made aware of the case alleged against
him or her. The learned counsel would submit that this would therefore
necessarily require averments in addition to the statement that the accused
is in-charge of and responsible for the affairs of the company/firm.
13. The learned counsel appearing for the respondent in support
E of her aforesaid submissions has placed strong reliance on the following
decisions:
(i) Gunmala Sales Pvt. Ltd. v. Anu Mehta & Ors, reported in
(2015) 1 SCC 103;
F (ii) National Small Industries Corporation v. Harmeet Singh
Paintal & Anr., reported in (2010) 3 SCC 330;
(iii) Sunita Palita & Others v. M/s Panchami Stone Quarry,
reported in (2022) SC Online SC 945.
14. In such circumstances referred above, the learned counsel
G appearing for the respondent prays that there being no merit in this
appeal, the same may be dismissed.
Analysis
15. Having heard the learned counsel appearing for the parties
and having gone through the materials on record the only question that
H
S. P. MANI AND MOHAN DAIRY v. DR.SNEHALATHA 643
ELANGOVAN [J. B. PARDIWALA, J.]
falls for our consideration is whether the High Court committed any A
error in passing the impugned order?
16. Since the arguments of both the sides have proceeded mainly
on the averments made in the complaint and to analyze the case before
us in proper perspective, it is necessary to scrutinize the statutory notice
as well as the complaint. The statutory notice dated 14.08.2017 reads B
thus:-
“To,
1. Sira Marketing Service,
Represented by it’s Partner/ Authorized Signatory,
Rajesh, Old No.60, New No.30, C
28th Cross St, Indhira Nagar,
Adyar, Chennai-20.
2. Rajesh,
Partner/ Authorized Signatory,
Sira Marketing Service, D
Old No.60, New No. 30,
28th Cross St, Indhira Nagar,
Adyar, Chennai-20.
3. Dr. Mrs. Snehalatha Elangovan,
W/o. Elangovan, E
Partner / Authorized Signatory,
Sira Marketing Service,
Old No.60, New No.30,
28th Cross St, Indhira Nagar,
Adyar, Chennai-20. F
Sir,
Please take notice that we are instructed by our client S.P.
Mani and Mohan Dairy, Represented by its Managing Partner:
R.Mohanasundaram, No.34 & 84, Jeevanantham Street,
Kollampalayam, Erode-638 002 to issue this notice to you. G
You No.1 is a Partnership Firm, You No.2 and 3 are Partners
and incharge and responsible for the day-to-day affairs of
You No. 1, you No.2 and 3 are regularly looking after and
actively taking part in the day-to-day business of You No.1.
H
644 SUPREME COURT REPORTS [2022] 9 S.C.R.
A Our client is doing business in Milk and Milk Products: You
used to purchase Milk and Milk Products from our client on
credit basis. Our client is maintaining true and correct
accounts. As per accounts maintained by our client you have
to pay a balance of Rs. 10,71,434.60 to our client. In order
to discharge the part of the said balance amount and liability
B
you No.2 on behalf of you No.1 and with the knowledge and
consent of you No.3 issued the following cheque which is
drawn on TamilNad Mercantile Bank Ltd., Thiruvanmiyur
Branch, Chennai- 41.
S.No. Cheque Date Cheque No. Cheque Amount
C
1. 05.05.2017 411618 Rs. 10,00,000/-
On your request our client presented the above said cheque
for collection on 13.06.2017 through HDFC Bank Ltd., Sathy
Road Branch, Erode and the same was returned as “Funds
D Insufficient” on 14.06.2017. Again on your request our client
presented the above said cheque for collection on 20.07.2017
through HDFC Bank Ltd., Sathy Road Branch, Erode and the
same was returned as “Funds Insufficient” on 21.07.2017.
Without sufficient funds in your account, you have issued the
above said cheque.
E
You issued the above said cheque assuring payment on
presentation of the same. At the time of issuing the said
cheque, you represented that you are having an account in
which you will have sufficient amount in your account. But
you purposely allowed the same to be dishonoured with an
F intention to cheat and defraud our client. Therefore, you have
committed an offence punishable U/S 138 of the Negotiable
Instruments Act.
You are hereby called upon to pay the above said amount of
Rs.10,00,000/-due under the above said cheque dated
G 05.05.2017 within is days from the date of receipt of this
notice. Please note that on your failure to make the payment
within the above-mentioned time, legal action will be taken
against you under section 138 of the Negotiable Instruments
Act 1881 and thereupon you will be held liable for all the
costs and consequences arising thereof.” [Emphasis supplied]
H
S. P. MANI AND MOHAN DAIRY v. DR.SNEHALATHA 645
ELANGOVAN [J. B. PARDIWALA, J.]
17. At the cost of repetition, we may state that there is no dispute A
that the aforesaid notice issued to the respondent was duly acknowledged
by her, however, the respondent thought fit not to give any reply to the
same. The acknowledgement receipt has also been placed on record.
The learned counsel appearing for the respondent fairly submitted that
her client was in receipt of the notice however, no reply has been given
B
to the same.
18. The complaint filed under Section 138 of the NI Act reads
thus:-
“The complainant is a Partnership Firm registered under the
Partnership act and carrying on business in the above said C
address. The Partners of the said firm resolved that D.
Gokulnath, S/o. M. Dhanapal the Manager of the said
complainant who knows personally about each and every
transaction of this case to be and he is authorized to represent
the firm in this case. A copy of power of attorney is produced
herewith. D
The accused No.1 is a Partnership Firm, the accused No.2
and 3 are Partners and in-charge and responsible for the
day-to-day affairs of the accused No.1, the accused No.2 and
3 are regularly looking after and actively taking part in the
day-to-day business of the accused No.1. E
The complainant is doing business in Milk and Milk Products.
The accused used to purchase Milk and Milk Products from
the complainant on credit basis. The complainant is
maintaining true and correct accounts. As per accounts
maintained by the complainant, the accused have to pay a F
balance of Rs.10,71,434.60 to the complainant. In order to
discharge the part of the said balance amount and liability
the accused No.2 on behalf of the accused No. 1 and with the
knowledge and consent of the accused No.3 issued the
following cheque which is drawn on TamilNad Mercantile G
Bank Ltd., Thiruvanmiyur Branch, Chennai-41.
S.No. Cheque Date Cheque No. Cheque Amount
1. 05.05.2017 411618 Rs. 10,00,000/-
H
646 SUPREME COURT REPORTS [2022] 9 S.C.R.
A On the request of the accused the complainant presented the
above said cheque for collection on 13.06.2017 through
HDFC Bank Ltd., Sathy Road Branch, Erode and the same
was returned as “Funds Insufficient” on 14.06.2017. Again,
on the request of the accused the complainant presented the
above said cheque for collection on 20.07.2017 through
B
HDFC Bank Ltd., Sathy Road Branch, Erode and the same
was returned as “Funds Insufficient” on 21.07.2017. Without
sufficient funds in their account accused have issued the
above said cheque.
The accused issued the above said cheque assuring payment
C on presentation of the same. At the time of issuing the said
cheque, the accused represented that they are having an
account in which they will have sufficient amount in their
account. But the accused purposely allowed the same to be
dishonoured with an intention to cheat and defraud the
D complainant. Therefore, the accused have committed an
offence punishable u/s 138 of the Negotiable Instruments Act.
Thereupon the complainant issued a lawyer notice on
14.08.2017 to the accused calling upon them to pay the above
said sum of Rs.10,00,000/- due under the said cheque dated
E 05.05.2017 within 15 days from the date of receipt of this
notice. The accused received the above said notice on
16.08.2017. But they failed to pay the above said cheque
amount within 15 days. Hence the accused has committed an
offence punishable u/s 138 r/w. 142 of Negotiable Instruments
Act 1881 as amended by Act 55 of 2002.
F
The complainant submits that he had produced the relevant
documents relating to this offence.
He further submits that he has filed this complaint within one
month from the date of expiry of 15 days grace time given in
the notice for the payment of above said cheque’s amount.
G The above said cheque was presented for collection through
HDFC Bank Ltd., Sathy Road Branch, Erode which is situated
in Erode Karungalpalayam Police Station limit. Hence this
Hon’ble court is having jurisdiction to cognizance the offence.
A court fee of Rs.5,000/- is paid under Tamilnadu Court Fee
H Act.
S. P. MANI AND MOHAN DAIRY v. DR.SNEHALATHA 647
ELANGOVAN [J. B. PARDIWALA, J.]
It is therefore, prayed that this Hon’ble Court may be pleased A
to take this case on file, issue summon to the accused, enquire
the matter, punish the accused with maximum sentence and
direct the accused to pay compensation to the complainant
u/s 357 CPC and render justice.” [Emphasis supplied]
19. Thus, from the aforesaid the following averments in the B
complaint are evident:-
(a) Accused No.1 is a Partnership Firm, the accused Nos. 2 and
3 resply are the partners and in charge and responsible for the
day-to-day affairs of the firm, the accused Nos. 2 and 3 are
regularly looking after and actively taking part in the day-to-day C
business of the firm;
(b) In order to discharge the part liability, the accused No. 2 on
behalf of the firm and with the consent and knowledge of the
accused No. 3 issued the cheque drawn on the Tamilnad
Mercantile Bank Ltd., Thiruvanmiyur Branch, Chennai-41. D
20. The aforesaid averments are not only found to be read in the
complaint but in the notice too.
21. We shall now proceed to look into the impugned order passed
by the High Court. The same order reads thus:-
E
“This criminal original petition has been filed to quash the
proceedings in STC No. 583 of 2017, pending on the file of
the Judicial Magistrate Fast Track Court No.II Erode.
2. The respondent has filed a complaint under Section 138 of
the Negotiable Instruments Act. The petitioner has been arrayed
F
as A~ 3 in the complaint. This quash petition has been filed
primarily on two grounds. The first ground is that the
Partnership Firm was dissolved during February 2017 and
the subject cheque is said to have been issued by A~2 on
05.05.2017, after the dissolution of the Partnership Firm. The
2nd ground that has been raised is that the allegations made G
in the complaint does not satisfy the requirements of Section
141 of the Negotiable Instruments Act.
3. Heard Mr. K. Kannan, learned counsel for the petitioner
and Mr. M. Guruprasad, learned counsel for the respondent.
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648 SUPREME COURT REPORTS [2022] 9 S.C.R.
A 4. Insofar as the first issue that is raised by the petitioner, the
same cannot be gone into by this Court and it is a factual
issue which can be decided only in the course of trial.
5. Insofar as the second issue is concerned, it will be beneficial
to extract the relevant portion from the complaint filed by the
B respondent hereunder:
“The accused No. 1 is a Partnership Firm, the accused
No.2 and 3 are Partners and in-charge and responsible
for the day-to-day affairs of the accused No. 1, the accused
No.2 and 3 are regularly looking after and actively taking
C part in the day-to-day business of the accused No. 1.
The complainant is doing business in Milk and Milk
Products. The accused used to purchase Milk and Milk
Products from the complainant on credit basis. The
complainant is maintaining true and correct accounts. As
D per accounts maintained by the complainant, the accused
have to pay a balance of Rs. 10,71,434. 60/- to the
complainant. In order to discharge the part of the said
balance amount and liability the accused No.2 on behalf
of the accused No.1 and with the knowledge and consent
of the accused No. 3 issued the following cheque which is
E drawn on Tamil Nadu Mercantile Bank Ltd., Thiruvanmiyur
Branch, Chennai-41.”
S.No. Cheque Date Cheuqe No. Cheque Amount
1. 05.05.2017 411618 Rs. 10,00,000/-
F 6. In the present case, A~ 1 is the Partnership Firm and A~2
who is the partner is the signatory of the cheque. The petitioner
A~ 3 has been roped in as an accused since she is a partner
of A~ 1 Firm. The complaint can be prosecuted as against the
petitioner only if the allegations made in the complaint satisfies
the requirements of Section 141 of the Negotiable Instruments
G
Act.
7. In the present case, the respondent has merely repeated the
words used under Section 141 of the Negotiable Instruments
Act and there is absolutely no allegation as to how and in
what manner the petitioner is in-charge and responsible for
H
S. P. MANI AND MOHAN DAIRY v. DR.SNEHALATHA 649
ELANGOVAN [J. B. PARDIWALA, J.]
the conduct of the business. In the absence of such an A
allegation, the complaint is not maintainable as against the
petitioner. The law on this issue is well settled.
8. In the result, the proceedings in STC No. 583 of 2017, on
the file of the Judicial Magistrate Fast Track Court No.II,
Erode, is hereby quashed insofar as the petitioner is B
concerned. The Court below is directed to complete the
proceedings in STC No.583 of 2017, against the other accused
persons within a period of three months from the date of receipt
of a copy of this order.
9. This criminal original petition is allowed with the above C
directions. Consequently, connected miscellaneous petitions
are closed.”
22. Thus, the plain reading of the impugned order passed by the
High Court as aforesaid would indicate that the proceedings came to be
quashed essentially on the ground that there was nothing to indicate that D
in what manner the respondent herein was in-charge and responsible for
the day-to-day affairs of the firm so as to make her vicariously liable for
the alleged offence with the aid of Section 141 of the NI Act. To put it
in other words, the High Court proceeded on the footing that mere
averments in the complaint as regards the role of the respondent as a
partner in the firm is not sufficient. E
Analysing Section 141 of the Negotiable Instrument Act,
1881
23. The provisions of Section 138 and Section 141 resply of the
NI Act read as under:- F
“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 G
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
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650 SUPREME COURT REPORTS [2022] 9 S.C.R.
A bank, such person shall be deemed to have committed an
offence and shall, without prejudice to any other provision of
this Act, be punished with imprisonment for a term which may
be extended to two years, or with fine which may extend to
twice the amount of the cheque or with both:
B 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;
C (b) the payee or the holder in due 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
D of the cheque 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.
E Explanation: For the purposes of this Section, “debt or other
liability” means a legally enforceable debt or other liability.”
“Section 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
F
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.”
G 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.
H
S. P. MANI AND MOHAN DAIRY v. DR.SNEHALATHA 651
ELANGOVAN [J. B. PARDIWALA, J.]
Provided further that where a person is nominated A
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
B
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
attributable to, any neglect on the part of, any director, C
manager, secretary or other officer 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 purposes of this Section— D
(a) “company” means any body corporate and includes
a firm or other association of individuals; and
(b) “director”, in relation to a firm, means a partner in
the firm.” E
24. Evidently, the gist of Section 138 is that the drawer of the
cheque shall be deemed to have committed an offence when the cheque
drawn by him is returned unpaid on the prescribed grounds. The conditions
precedent and the conditions subsequent to constitute the offence are
drawing of a cheque on the account maintained by the drawer with a F
banker, presentation of the cheque within the prescribed period, making
of a demand by the payee by giving a notice in writing within the
prescribed period and failure of the drawer to pay within the prescribed
period. Upon fulfilment of these requirements, the commission of the
offence which may be called the offence of ‘dishonour of cheque’ is
complete. If the drawer is a company, the offence is primarily committed G
by the company. By virtue of the provisions of sub-section (1) of Section
141, the guilt for the offence and the liability to be prosecuted and punished
shall be extended to every person who, at the time the offence was
committed, was in charge of and was responsible to the company for
the conduct of its business; irrespective of whether such person is a
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652 SUPREME COURT REPORTS [2022] 9 S.C.R.
A director, manager, secretary or other officer of the company. It would be
for such responsible person, in order to be exonerated in terms of the
first proviso, to prove that the offence was committed without his
knowledge or despite his due diligence.
25. Under the separate provision of sub-section (2), if it is proved
B that the offence was committed with the consent or connivance of or
was attributable to the neglect on the part of any director, manager,
secretary or other officer of the company, such person would also be
deemed to be guilty for that offence. Obviously, the burden of alleging
and proving consent, connivance or neglect on the part of any director,
etc. would rest upon the complainant. The non obstante clause with
C which the sub-section (2) opens indicate that the deeming provision is
distinct and different from the deeming provision in sub-section (1) in
which the office or designation of the person in charge of and responsible
to the company for the conduct of its business is immaterial.
26. While the essential element for implicating a person under
D sub-section (1) is his or her being in charge of and responsible to the
company in the conduct of its business at the time of commission of the
offence, the emphasis in sub-section (2) is upon the holding of an office
and consent, connivance or negligence of such officer irrespective of his
or her being or not being actually in charge of and responsible to the
E company in the conduct of its business. Thus, the important and
distinguishing feature in sub-section (1) is the control of a responsible
person over the affairs of the company rather than his holding of an
office or his designation, while the liability under sub-section (2) arises
out of holding an office and consent, connivance or neglect. While all the
persons covered by sub-section (1) and sub- section (2) are liable to be
F proceeded against and also punished upon the proof of their being either
in charge of and responsible to the company in the conduct of its business
or of their holding of the office and having been guilty of consent,
connivance or neglect in the matter of commission of the offence by the
company, the person covered by sub-section (1) may, by virtue of the
G first proviso, escape only punishment if he proves that the offence was
committed without his knowledge or despite his due diligence.
27. As for the requisite evidence, the burden upon the prosecution
would be discharged under sub-section (1) when a person is proved to
be in charge of and responsible to the company in the conduct of its
H business and would shift upon the accused to prove that he was ignorant
S. P. MANI AND MOHAN DAIRY v. DR.SNEHALATHA 653
ELANGOVAN [J. B. PARDIWALA, J.]
or diligent, if that be his defence; whereas under sub-section (2) the A
prosecution would be required to allege and prove the consent, connivance
or neglect and holding of the office by the accused. There is nothing to
suggest that the same person cannot be made to face the prosecution
either under sub-section (1) or sub-section (2) or both. A director or
manager can be arraigned and proved to be guilty as the person in charge
B
of and responsible to the company as well as the director of the company
who, as such, might have consented to, connived at or been negligent in
respect of the offence of dishonour of cheque, be logically deduced that
a person can be arraigned in a complaint as the accused along with the
company if it prima facie appears that he was in charge of and
responsible to the company for the conduct of its business, although he C
may or may not be or may not have continued to be a director or other
officer of the company, as mentioned in sub- section (2). It would be
sufficient if the complaint indicates that such person has been arraigned
on the basis of averments which disclose him or her to be the person in
charge of and responsible to the company in the conduct of its business
D
at the time the offence was committed. Evidently, a person who signs
the cheque or who has the authority to sign the cheque for and on
behalf of the company, regardless of his office or capacity, can, prima
facie, be assumed to be in charge of and responsible to the company in
the conduct of its business. And, where such person is prosecuted, then,
if it be his defence that the offence was committed without his or her E
knowledge or that he or she has exercised all due diligence to prevent
the commission of such offence, the burden to prove that would be on
him or her and can only be discharged at the stage of evidence.
28. While dealing with a reference to resolve the apparent conflict
between the judgments of this Court in the Municipal Corporation of F
Delhi v. Ram Kishan Rohtagi, (1983) 1 SCC 1, and the U.P. Pollution
Control Board v. Modi Distillery, (1987) 3 SCC 684, in the context of
vicarious liability under the provisions of Section 141 of the NI Act, this
Court in P. Rajarathinam v. State of Maharashtra, (2000) 10 SCC
529, pertinently observed as under:
G
“4. A bare reading of the provision mandates that some facts
must come on the record in order to figure as to who should
answer the charge ultimately. Necessarily, pre-charge evidence
assumes importance. The complainant will have to put his
side of the case as given out in the complaint and the persons
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654 SUPREME COURT REPORTS [2022] 9 S.C.R.
A summoned would have to put on the record all what is material
to extricate themselves out. In any case, the crucial time would
be when framing charge whereat a decision in that respect
would be required to be made by the court. Presently, it appears
to us premature to be resolving the conflict and the ratio
deduced thereby, may turn out to be obiter. Therefore, we think
B
that we need not resolve such conflict at present and leave it
to the court concerned to pass appropriate orders at the time
of framing of charge. In this manner, we dispose of these
appeals.”
[Emphasis supplied]
C
29. The seminal issue raised and requires to be settled in the present
case is one relating to a person liable to be proceeded against under the
provisions of sub-section (1) of Section 141 for being in-charge of and
responsible to the company “at the time the offence was committed.” It
would, therefore, be important to find out the “time” when the offence
D under Section 138 can be said to have been committed by the company.
It is common place that an offence means an aggregate of facts or
omissions which are punishable by law and, therefore, can consist of
several parts, each part being committed at different time and place
involving different persons. The provisions of Section 138 would require
E a series of acts of commission and omission to happen before the offence
of, what may be loosely called “dishonour of cheque” can be constituted
for the purpose of prosecution and punishment. It is held by the Supreme
Court in K. Bhaskaran v. Sankaran Vaidhyan Balan, (1999) 7 SCC
510, that:-
F “14. The offence under Section 138 of the Act can be completed
only with the concatenation of a number of acts. The following
are the acts which are components of the said offence: (1)
drawing of the cheque, (2) presentation of the cheque to the
bank, (3) returning the cheque unpaid by the drawee bank,
(4) giving notice in writing to the drawer of the cheque
G demanding payment of the cheque amount, (5) failure of the
drawer to make payment within 15 days of the receipt of the
notice.”
30. Different persons can be in-charge of the company when
each of the series of acts of commission and omission essential to complete
H
S. P. MANI AND MOHAN DAIRY v. DR.SNEHALATHA 655
ELANGOVAN [J. B. PARDIWALA, J.]
the commission of offence by the company were being committed. To A
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
B
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 C
occurs in sub-section (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
D
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 E
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
F
culminating into the commission of offence by the company were taking
place. As to what this ‘relevant time’ is, was a question that this Court
was called to answer, inter alia, in N Rangachari v. Bharati Sanchar
Nigam Limited, AIR (2007) SC 1682. In this case, Data Access, a
company had issued two cheques to the BSNL, which were duly
presented, but were dishonoured for insufficiency of funds. A complaint G
under Section 138 of the NI Act was filed. While the BSNL held the
directors liable, the appellant, a chairman in the company contended that
he being a nominated chairman and holding an Honorary post in the
Company, was never assigned with any of the company’s financial or
other business activities. He was the Chairman for name sake and was
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656 SUPREME COURT REPORTS [2022] 9 S.C.R.
A never entrusted with any job or business or constituted a signing authority.
Resolving the issue of when the liability could be fastened, this Court
said:-
“In the case on hand, reading the complaint as a whole, it is
clear that the allegations in the complaint are that at the time
B at which the two dishonoured cheques were issued by the
company, the appellant and another were the Directors of the
company and were in charge of the affairs of the company. It
is not proper to split hairs in reading the complaint so as to
come to a conclusion that the allegations as a whole are not
sufficient to show that at the relevant point of time the
C appellant and the other are not alleged to be persons in-charge
of the affairs of the company. Obviously, the complaint refers
to the point of time when the two cheques were issued, their
presentment, dishonour and failure to pay in spite of notice
of dishonour.”
D [Emphasis supplied]
31. As held by this Court in Anil Hada v. Indian Acrylic Ltd.,
(2000) 1 SCC 1, the phrase “as well as” used in sub-section (1) of
Section 141 of the NI Act would embroil the persons mentioned therein
within the tentacles of the offence on par with the offending company.
E Therefore, 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,
F 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. Borrowing
again from K. Bhaskaran (supra), the court should not adopt an
interpretation which helps a dishonest evader and clips an honest payee
G as that would defeat the very legislative measure.
32. In the aforesaid context, we may straight away proceed to
look into the following observations made by this Court in the case of
Monaben Ketanbhai Shah v. State of Gujarat in Criminal Appeal No.
850 of 2004 decided on 10.08.2004 reported in (2004) 7 SCC 15:-
H
S. P. MANI AND MOHAN DAIRY v. DR.SNEHALATHA 657
ELANGOVAN [J. B. PARDIWALA, J.]
“Section 138 of the Act makes dishonour of the cheque an A
offence punishable with imprisonment or fine or both. Section
141 relates to offences by the company. It provides that 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
B
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. Thus, vicarious liability has been fastened on
those who are in- charge of and responsible to the company
for the conduct of its business. For the purpose of Section C
141, a firm comes within the ambit of a company. It is not
necessary to reproduce the language of Section 141 verbatim
in the complaint since the complaint is required to be read as
a whole. If the substance of the allegations made in the
complaint fulfill the requirements of Section 141, the
D
complaint has to proceed and is required to be tried with. It is
also true that in construing a complaint a hyper-technical
approach should not be adopted so as to quash the same. The
laudable object of preventing bouncing of cheques and
sustaining the credibility of commercial transactions resulting
in enactment of Sections 138 and 141 has to be borne in mind. E
These provisions create a statutory presumption of dishonesty
exposing a person to criminal liability if payment is not made
within statutory period even after issue of notice. It is also
true that the power of quashing is required to be exercised
very sparingly and where, read as a whole, factual foundation
F
for the offence has been laid in the complaint, it should not
be quashed. All the same, it is also to be remembered that it
is the duty of the Court to discharge the accused if taking
everything stated in the complaint as correct and construing
the allegations made therein liberally in favour of the
complainant, the ingredients of the offence are altogether G
lacking.”
[Emphasis supplied]
33. Thus, the legal principles discernible from the aforesaid decision
of this Court may be summarised as under:-
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658 SUPREME COURT REPORTS [2022] 9 S.C.R.
A (a) Vicarious liability can be fastened on those who are in-
charge of and responsible to the company or firm for the
conduct of its business. For the purpose of Section 141,
the firm comes within the ambit of a company;
(b) It is not necessary to reproduce the language of Section
B 141 verbatim in the complaint since the complaint is required
to be read as a whole;
(c) If the substance of the allegations made in the complaint
fulfil the requirements of Section 141, the complaint has to
proceed in regards the law.
C (d) In construing a complaint a hyper-technical approach
should not be adopted so as to quash the same.
(e) The laudable object of preventing bouncing of cheques and
sustaining the credibility of commercial transactions
resulting in the enactment of Sections 138 and 141
D respectively should be kept in mind by the Court
concerned.
(f) These provisions create a statutory presumption of
dishonesty exposing a person to criminal liability if payment
is not made within the statutory period even after the issue
E of notice.
(g) The power of quashing should be exercised very sparingly
and where, read as a whole, the factual foundation for the
offence has been laid in the complaint, it should not be
quashed.
F
(h) The Court concerned would owe a duty to discharge the
accused if taking everything stated in the complaint is
correct and construing the allegations made therein liberally
in favour of the complainant, the ingredients of the offence
are altogether lacking.
G 34. The inter-relationship between the Sections 138 and 141
respectively of the NI Act has been succinctly explained by this Court in
SMS Pharmaceuticals v. Neeta Bhalla, AIR (2005) 3512, in the
following words:-
H
S. P. MANI AND MOHAN DAIRY v. DR.SNEHALATHA 659
ELANGOVAN [J. B. PARDIWALA, J.]
“It will be seen from the above provisions that Section 138 A
casts criminal liability punishable with imprisonment or fine
or with both on a person who issues a cheque towards
discharge of a debt or liability as a whole or in part and the
cheque is dishonoured by the Bank on presentation. Section
141 extends such criminal liability in case of a Company to
B
every person who at the time of the offence, was in-charge of
and was responsible for the conduct of the business of the
Company. By a deeming provision contained in Section 141
of the Act, such a person is vicariously liable to be held guilty
for the offence under Section 138 and punished accordingly.”
Who is liable? Vicarious liability: C
35. This Court in Assistant Commissioner, Assessment-II,
Bangalore and Ors. v. Velliappa Textiles Ltd. and Ors. AIR (2004)
SC 86, introduced the concept of ego and alter ego in relation to the
employee and the employer corporation. The Court elucidated this
principle in the following words:- D
“In order to trigger corporate criminal liability for the actions
of the employee (who must generally be liable himself), the
actor-employee who physically committed the offence must
be the ego, the centre of the corporate personality, the vital
organ of the body corporate, the alter ego of the employer E
corporation or its directing mind. Since the company/
corporation has no mind of its own, its active and directing
will must consequently be sought in the person of somebody
who for some purposes may be called an agent, but who is
really the directing mind and will of the corporation, the very F
ego and centre of the personality of the corporation. To this
extent there are no difficulties in our law to fix criminal liability
on a company. The common law tradition of alter ego or
identification approach is applicable under our existing laws.”
36. Now, the logical question that would follow is who would be G
liable through the company for this offence? Can the company itself be
prosecuted for this offence? Answering this question, the Section 141
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. This concept of vicarious liability has been explained by this
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660 SUPREME COURT REPORTS [2022] 9 S.C.R.
A Court in Sabhitha Ramamurthy v. RBS Channabasavaradhya, AIR
(2006) SC 3086, as:-
“Section 141 raises a legal fiction. By reason of the said
provision, a person although is not personally liable for
commission of such an offence would be vicariously liable
B therefor. Such vicarious liability can be inferred so far as a
company registered or incorporated under the Companies Act,
1956 is concerned only if the requisite statements, which are
required to be averred in the complaint petition, are made so
as to make the accused therein vicariously liable for the
offence committed by the company. Before a person can be
C made vicariously liable, strict compliance with the statutory
requirements would be insisted.”
[Emphasis supplied]
37. At this stage, we should look into the decision of this Court in
D the case of K.K. Ahuja v. V.K. Vora, (2009) 10 SCC 48, in K.K. Ahuja
(supra), wherein this Court discussed the principles of vicarious liability of
the officers of a company in respect of dishonour of a cheque and held-
“27. The position under section 141 of the Act can be
summarized thus:
E (i) If the accused is the Managing Director or a Joint
Managing Director, it is not necessary to make an averment
in the complaint that he is in charge of, and is responsible
to the company, for the conduct of the business of the
company. It is sufficient if an averment is made that the
F accused was the Managing Director or Joint Managing
Director at the relevant time. This is because the prefix
“Managing” to the word “Director” makes it clear that
they were in- charge of and are responsible to the company,
for the conduct of the business of the company.
(ii) In the case of a director or an officer of the company
G
who signed the cheque on behalf of the company, there is
no need to make a specific averment that he was in charge
of and was responsible to the company, for the conduct of
the business of the company or make any specific allegation
about consent, connivance or negligence. The very fact
H that the dishonoured cheque was signed by him on behalf
S. P. MANI AND MOHAN DAIRY v. DR.SNEHALATHA 661
ELANGOVAN [J. B. PARDIWALA, J.]
of the company, would give rise to responsibility under A
sub-section (2) of Section 141.
(iii) In the case of a Director, Secretary or Manager (as
defined in Section 2(24) of the Companies Act) or a person
referred to in clauses (e) and (f) of section 5 of Companies
Act, an averment in the complaint that he was in charge B
of, and was responsible to the company, for the conduct
of the business of the company is necessary to bring the
case under section 141(1) of the Act. No further averment
would be necessary in the complaint, though some
particulars will be desirable. They can also be made liable
under Section 141(2) by making necessary averments C
relating to consent and connivance or negligence, in the
complaint, to bring the matter under that sub-section.
(iv) Other Officers of a company cannot be made liable
under sub-section (1) of Section 141. Other officers of a
company can be made liable only under sub-section (2) of D
Section 141, by averring in the complaint their position
and duties in the company and their role in regard to the
issue and dishonour of the cheque, disclosing consent,
connivance or negligence.”
[Emphasis supplied] E
38. In a very recent pronouncement in the case of Sunita Palita
v. M/s Panchami Stone Quarry (2022) SC Online SC 945, this Court,
after referring to K.K. Ahuja (supra) referred to above, observed as
under:
F
“When the accused is the Managing Director or a Joint
Managing Director of a company, it is not necessary to make
an averment in the complaint that he is in charge of, and is
responsible to the company for the conduct of the business of
the company. This is because the prefix “Managing” to the
word “Director” makes it clear that the Director was in charge G
of and responsible to the company, for the conduct of the
business of the company. A Director or an Officer of the
company who signed the cheque renders himself liable in case
of dishonour. Other officers of a company can be made liable
only under sub-section (2) of Section 141 of the NI Act by
H
662 SUPREME COURT REPORTS [2022] 9 S.C.R.
A averring in the complaint, their position and duties, in the
company, and their role in regard to the issue and dishonour
of the cheque, disclosing consent, connivance or negligence.”
39. In yet one another recent pronouncement in the case of
Ashutosh Ashok Parasrampuria v. Gharrkul Industries Pvt. Ltd.
B reported in (2021) SCC Online SC 915, this Court after due consideration
of the decisions in the case of SMS Pharmaceuticals (supra); S.K.
Alagh v. State of Uttar Pradesh (2008) 5 SCC 662; Maharashtra State
Electricity Distribution Co. Ltd. v. Datar Switchgear Ltd., (2010) 10
SCC 479, and GHCL Employees Stock Option Trust v. India Infoline
Limited, (2013) 4 SCC 505, observed as under:-
C
“In the light of the ratio in SMS Pharmaceuticals Ltd. (supra)
and later judgments of which a reference has been made what
is to be looked into is whether in the complaint, in addition to
asserting that the appellants are the Directors of the Company
and they are in-charge of and responsible to the Company
D for the conduct of the business of the Company and if statutory
compliance of Section 141 of the NI Act has been made, it
may not open for the High Court to interfere under Section
482 CrPC unless it comes across some unimpeachable,
incontrovertible evidence which is beyond suspicion or doubt
E 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 abused of process of Court. Despite the presence of basic
averment, it may come to a conclusion that no case is made
out against the particular Director for which there could be
F various reasons.”
[Emphasis supplied]
40. The principles discernible from the aforesaid decision of this
Court in the case of Ashutosh Ashok Parasrampuriya (supra) is that
G the High Court should not interfere under Section 482 of the Code at
the instance of an accused unless it comes across some unimpeachable
and incontrovertible evidence to indicate that the Director/partner of a
firm could not have been concerned with the issuance of cheques. This
Court clarified that in a given case despite the presence of basic
averments, the High Court may conclude that no case is made out against
H
S. P. MANI AND MOHAN DAIRY v. DR.SNEHALATHA 663
ELANGOVAN [J. B. PARDIWALA, J.]
the particular Director/ partner provided the Director/partner is able to A
adduce some unimpeachable and incontrovertible evidence beyond
suspicion and doubt.
Specific Averments in the complaint:
41. In Gunmala Sales Private Limited (supra), this Court after
an exhaustive review of its earlier decisions on Section 141 of the NI B
Act, summarized its conclusion as under:-
“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 C
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 D
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 E
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 F
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 G
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
H
664 SUPREME COURT REPORTS [2022] 9 S.C.R.
A 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
B
cannot be quashed;
d) No restriction can be placed on the High Court’s powers
under Section 482 of the Code. The High Court always uses
and must use this power sparingly and with great
circumspection to prevent inter alia the abuse of the process
C of the Court. There are no fixed formulae to be followed by
the High Court in this regard and the exercise of this power
depends upon the facts and circumstances of each case. The
High Court at that stage does not conduct a mini trial or roving
inquiry, but nothing prevents it from taking unimpeachable
D evidence or totally acceptable circumstances into account
which may lead it to conclude that no trial is necessary qua a
particular Director.”
42. The principles of law and the dictum as laid in Gunmala Sales
Private Limited (supra), in our opinion, still holds the field and reflects
E the correct position of law.
43. In the case on hand, we find 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. In
F our view, this was sufficient to put the respondent herein to trial for the
alleged offence. We are saying so because 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
G 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
H
S. P. MANI AND MOHAN DAIRY v. DR.SNEHALATHA 665
ELANGOVAN [J. B. PARDIWALA, J.]
the vicarious liability upon the respondent by virtue of Section 141 of the A
NI Act.
44. We may also examine this appeal from a different angle. It is
not in dispute, as noted above, that no reply was given by the respondent
to the statutory notice served upon her by the appellant. In the proceedings
of the present type, it is essential for the person to whom statutory B
notice is issued under Section 138 of the NI Act to give an appropriate
reply. The person concerned is expected to clarify his or her stance. If
the person concerned has some unimpeachable and incontrovertible
material to establish that he or she has no role to play in the affairs of the
company/firm, then such material should be highlighted in the reply to
the notice as a foundation. If any such foundation is laid, the picture C
would be more clear before the eyes of the complainant. The complainant
would come to know as to why the person to whom he has issued notice
says that he is not responsible for the dishonour of the cheque. Had the
respondent herein given appropriate reply highlighting whatever she has
sought to highlight before us then probably the complainant would have D
undertaken further enquiry and would have tried to find out what was
the legal status of the firm on the date of the commission of the offence
and what was the status of the respondent in the firm. The object of
notice before the filing of the complaint is not just to give a chance to the
drawer of the cheque to rectify his omission to make his stance clear
so far as his liability under Section 138 of the NI Act is concerned. E
45. Once the necessary averments are made in the statutory notice
issued by the complainant in regard to the vicarious liability of the partners
and upon receipt of such notice, if the partner keeps quiet and does not
say anything in reply to the same, then the complainant has all the reasons
to believe that what he has stated in the notice has been accepted by F
the noticee. In such circumstances what more is expected of the
complainant to say in the complaint.
46. When in view of the basic averment process is issued the
complaint must proceed against the Directors or partners as the case
may be. But, if any Director or Partner wants the process to be quashed G
by filing a petition under Section 482 of the Code on the ground that
only a bald averment is made in the complaint and that he is really not
concerned with the issuance of the cheque, he must in order to persuade
the High Court to quash the process either furnish some sterling
incontrovertible material or acceptable circumstances to substantiate his H
666 SUPREME COURT REPORTS [2022] 9 S.C.R.
A contention. He must make out a case that making him stand the trial
would be an abuse of process of court. He cannot get the complaint
quashed merely on the ground that apart from the basic averment no
particulars are given in the complaint about his role, because ordinarily
the basic averment would be sufficient to send him to trial and it could
be argued that his further role could be brought out in the trial. Quashing
B
of a complaint is a serious matter. Complaint cannot be quashed for the
asking. For quashing of a complaint, it must be shown that no offence is
made out at all against the Director or Partner.
47. Our final conclusions may be summarised as under:-
C a.) The primary responsibility of the complainant is to make
specific averments in the complaint so as to make the
accused vicariously liable. For fastening the criminal liability,
there is no legal requirement for the complainant to show
that the accused partner of the firm was aware about each
and every transaction. On the other hand, the first proviso
D to sub-section (1) of Section 141 of the Act clearly lays
down that if the accused is able to prove to the satisfaction
of the Court that the offence was committed without his/
her knowledge or he/she had exercised due diligence to
prevent the commission of such offence, he/she will not be
E liable of punishment.
b.) The complainant is supposed to know only generally as to
who were in charge of the affairs of the company or firm,
as the case may be. The other administrative matters would
be within the special knowledge of the company or the firm
F and those who are in charge of it. In such circumstances,
the complainant is expected to allege that the persons named
in the complaint are in charge of the affairs of the company/
firm. It is only the Directors of the company or the partners
of the firm, as the case may be, who have the special
knowledge about the role they had played in the company
G or the partners in a firm to show before the court that at the
relevant point of time they were not in charge of the affairs
of the company. Advertence to Sections 138 and Section
141 respectively of the NI Act shows that on the other
elements of an offence under Section 138 being satisfied,
H the burden is on the Board of Directors or the officers in
S. P. MANI AND MOHAN DAIRY v. DR.SNEHALATHA 667
ELANGOVAN [J. B. PARDIWALA, J.]
charge of the affairs of the company/partners of a firm to A
show that they were not liable to be convicted. The existence
of any special circumstance that makes them not liable is
something that is peculiarly within their knowledge and it is
for them to establish at the trial to show that at the relevant
time they were not in charge of the affairs of the company
B
or the firm.
c.) Needless to say, the final judgement and order would depend
on the evidence adduced. Criminal liability is attracted only
on those, who at the time of commission of the offence,
were in charge of and were responsible for the conduct of
the business of the firm. But vicarious criminal liability can C
be inferred against the partners of a firm when it is
specifically averred in the complaint about the status of the
partners ‘qua’ the firm. This would make them liable to
face the prosecution but it does not lead to automatic
conviction. Hence, they are not adversely prejudiced if they D
are eventually found to be not guilty, as a necessary
consequence thereof would be acquittal.
d.) If any Director wants the process to be quashed by filing a
petition under Section 482 of the Code on the ground that
only a bald averment is made in the complaint and that he/ E
she is really not concerned with the issuance of the cheque,
he/she must in order to persuade the High Court to quash
the process either furnish some sterling incontrovertible
material or acceptable circumstances to substantiate his/
her contention. He/she must make out a case that making
him/her stand the trial would be an abuse of process of F
Court.
48. We reiterate the observations made by this Court almost a
decade back in the case of Rallis India Ltd v. Poduru Vidya Bhusan
& Ors., (2011) 13 SCC 88, as to how the High Court should exercise its
power to quash the criminal proceeding when such proceeding is related G
to offences committed by the companies. “The world of commercial
transactions contains numerous unique intricacies, many of which
are yet to be statutorily regulated. More particularly, the principle
laid down in Section 141 of the NI Act (which is pari materia with
identical sections in other Acts like the Food Safety and Standards H
668 SUPREME COURT REPORTS [2022] 9 S.C.R.
A Act, 2006; the erstwhile Prevention of Food Adulteration Act, 1954;
etc.) is susceptible to abuse by unscrupulous companies to the
detriment of unsuspecting third parties.”
49. In the result, this appeal succeeds and is hereby allowed with
no order as to costs. The impugned order passed by the High Court is
B hereby set aside.
50. Pending application, if any, also stands disposed of.
Bibhuti Bhushan Bose Appeal allowed.
(Assisted by : Neha Sharma, LCRA)
C
D
E
F
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