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Judgment
Ali Mohd. Magrey, J.â€"This petition under Section 561-A Cr.P.C. has been filed by the petitioners with the prayer to set aside the proceedings
in the complaint titled Shah Nawaz Ahmad Bhat v. Saurabh Bhaduaria & anr, in case No. 83-A, pending before the learned Judicial Magistrate,
1st Class, Shopian, under Section 138, 142 of Negotiable Instruments Act read with Section 420 RPC. The complainant, respondent herein, filed
a complaint under Sections 138, 142 of Negotiable Instruments Act (hereinafter, for short, the Act) and Section 420 RPC against two persons,
namely, Saurabh Bhadauria and Vibhor Singhal, arraigning them as accused Nos. 1 and 2. In his complaint, the complainant alleged that he was
dealing with Veterinary Medicines and functioning as Distributor for the Company of the accused (Emberald Healthcare Pvt. Ltd.) at Nowpora
Shopian. Due to non-functioning of the runners/agents of the company, the complainant stopped the business transactions with the accused. During
the course of business transactions, the accused ended up owing a sum of Rs. 1,79,760.00 to the complainant. The named accused persons, in
discharge of the said debt, issued six cheques amounting to Rs. 1,79,760.00 to be encashed at the State Bank of India, Branch Office Shopian,
wherein the accused is maintaining account No. 651101010050031. It is alleged that the cheques bear the signature of the accused persons. The
particulars of the six cheques are given in paragraph 03 of the complaint, which is admitted by the petitioners in this petition filed under Section
561-A Cr.P.C.
In his complaint, the complaint further alleged that the cheques were presented for encashment at the said Bank, but were returned back to him
by the banker of the accused along with the return memo dated 02.02.2013 and 07.02.2013, respectively, with the remarks ""funds insufficient"".
The complainant, it is stated in the complaint, then sent legal notice dated 28.02.2013 to the accused under Section 138 of the Act bringing to their
knowledge the fact of dishonour of the cheques with request to the accused to make the payment within a period of 15 days from the date of
receipt of the notice. It is stated that the notice was served on the accused through speed post vide receipt No. 17202960 & 17202965 and duly
received by them on 15.03.2013. Despite service of the notice, the accused persons did not make the payment of the dishonoured cheques to the
complainant. It is alleged in the complaint that the payments have not been paid because of the ulterior motives of the accused, who mala fidely,
knowingly, deliberately and intentionally issued the said cheques and stopped the payment with willful intention. Therefore, the accused persons
have become liable to be prosecuted under the provisions of the Act.
In the complaint, it is also stated that the cheques were issued within the jurisdiction of the learned Judicial Magistrate, 1st Class, Shopian,
therefore, the cause of action to file the complaint has arisen within the jurisdiction of that court.
The accused petitioners have filed the present petition on the following grounds:
(i) that the complaint does not disclose the actual role played by the petitioner-company and its Directors in the commission of the alleged offence
and that in the absence of any specific role being attributed to the 2nd and the 3rd petitioner, the proceedings initiated against the petitioners are
illegal, without jurisdiction and tantamount to an abuse of the process of law;
(ii) that the principal accused, i.e., the Company has not been arrayed as an accused in the complaint; therefore, the complaint does not satisfy the
requirements of Section 141 of the Act;
(iii) that the Judicial Magistrate, Shopian, has no territorial jurisdiction to take cognizance of the offences alleged in the complaint or to try the same.
In this connection, it is stated that the cheques were drawn on Union Bank of India, Delhi, and were presented to the said drawee bank outside the
limits of Shopian. It is further stated that demand notice was not received in Shopian and was admittedly received in Delhi. The drawer did not fail
to make the payment within 15 days within the jurisdiction of court at Shopian.
I have heard learned counsel for the parties, perused the trial court record and considered the matter.
Sticking to the aforesaid three points raised in the petition, learned counsel for the petitioners, submitted that petitioner No. 1, Emberald
Healthcare, is a private limited company having its registered office at C-4/8, 2nd Floor (Opp. Of C-5 Market), Yamuna Vihar, New Delhi-
11053 and the petitioners 2 and 3 are the Directors of the Company. This fact is buttressed by the Certificate of Incorporation issued by the
Registrar of Companies, National Capital Territory of Delhi and Haryana, a photocopy whereof has been placed on record of the petition. Inviting
the attention of the Court to the requirements of Section 141 of the Act as laid down in the judgment of the Supreme Court in S.M.S.
Pharmaceuticals Ltd. Vs. Neeta Bhalla and Another, , learned counsel submitted that the proceedings initiated in the instant case are liable to be
set aside.
In S. M.S. Pharmaceuticals Ltd. v. Neeta Bhalla (supra), a Reference was made by a two-Judge Bench of the Supreme Court for determination
of the following questions by a larger Bench:
(a) Whether for purposes of Section 141 of the Negotiable Instruments Act, 1881. it is sufficient if the substance of the allegation read as a whole
fulfill the requirements of the said section and it is not necessary to specifically state in the complaint that the person accused was in charge of, or
responsible for, the conduct of the business of the company.
(b) Whether a director of a company would be deemed to be in charge of, and responsible to, the company for conduct of the business of the
company and, therefore, deemed to be guilty of the offence unless he proves to the contrary.
(c) Even if it is held that specific averments are necessary, whether in the absence of such averments the signatory of the cheque and or the
managing directors or joint managing director, who, admittedly, would be in charge of the company and responsible to the company for conduct of
its business could be proceeded against.
The larger Bench answered the Reference as under:
(a) It is necessary to specifically aver in a complaint under Section 141 that at the time the offence was committed, the person accused was in
charge of, and responsible for the conduct of business of the company. This averment is an essential requirement of Section 141 and has to be
made in a complaint. Without this averment being made in a complaint, the requirements of Section 141 cannot be said to be satisfied.
(b) The answer to the question posed in sub-para (b) has to be in the negative. Merely being a director of a company is not sufficient to make the
person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for the
conduct of its business. The requirement of Section 141 is that the person sought to be made liable should be in charge of and responsible for the
conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a director in such
cases.
(c) The answer to Question (c) has to be in the affirmative. The question notes that the managing director or joint managing director would be
admittedly in charge of the company and responsible to the company for the conduct of its business. When that is so, holders of such positions in a
company become liable under Section 141 of the Act. By virtue of the office they hold as managing director or joint managing director, these
persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 141. So far as the
signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under sub-section
(2) of Section 141.
The law is thus no more res Integra. Unless the complaint conforms to the requirements of Section 141 of the Act as enunciated by the Supreme
Court in paragraphs (a) and (b) above, the complaint would not lie.
I have gone through the complaint filed by the respondent before the trial Magistrate. It does not contain even a whisper as to the status of the
two accused, petitioners 2 and 3 herein, in the company and what role each of them had played in the Company in course of commission of the
alleged offences. The only thing that is stated in the very first paragraph of the complaint is that, ""the complainant is a businessman and is dealing
with Veterinary Medicines as Distributor which is running at Nowpora Shopian for the company of accused (Emberald Healthcare Private
Limited"". In paragraph 3 it is stated that the accused owes an amount of Rs. 1,79,760/- (Rupees One Lac Seventy Nine Thousand and Seven
Hundred Sixty only) to the complainant, the above named accused person in discharge of the said debt issued six cheques amounting to Rs.
1,79,760/- (Rupees One Lac Seventy Nine Thousand and Seven Hundred Sixty only) bearing cheque No. ... to the complainant to be encashed at
the State Bank of India, Branch Office Shopian, wherein the accused is maintaining his account vide account No. ....and also the said cheques bear
the signature of the accused persons"".
Mr. Hussain, learned counsel for the respondent-complainant submitted that the Company, Emberald Healthcare Private Limited, has only two
Directors and a Manager and is being run by the two accused who are its two Directors. Therefore, it is they alone who in their such capacities
committed the offence.
What the learned counsel for the respondent wants this Court to believe in is not coming forth from the contents of the complaint. As already
mentioned above, such facts are not stated in the complaint. The complaint is bereft of the essential factual statements to bring it within the contours
of the law laid down by the Supreme Court. It, therefore, is held to be not in accordance with the requirements of law.
Another glaring fact that emanates from a perusal of the complaint is that the complainant has filed the complaint under Sections 138, 142 of
Negotiable Instruments Act and Section 420 RPC against petitioners 2 and 3 herein, arraigning them as accused 1 and 2 in their individual
capacities and without specifying their relationship with the Company, Emberald Healthcare Private Limited. The demand notice dated 28.02.2013
is also addressed only to the very same two petitioners-accused on their respective residential addresses without disclosing their role in the
commission of the offence. That apart, the company, Emberald Healthcare Private Limited, petitioner No. 1 herein, has not been arraigned as an
accused in the complaint. Learned counsel for the petitioners submitted that on account of that defect, the complaint is not maintainable. To
buttress his argument, learned counsel for the petitioners cited and relied upon the judgment of the Supreme Court in Aneeta Hada Vs. Godfather
Travels and Tours Pvt. Ltd., .
In Aneeta Hada v. Godfather Travels & Tourists (P) Ltd. (supra), while interpreting the provision of Section 141 of the Act, the Supreme
Court, in paragraphs 58 and 59 of the judgment, has laid down as under:
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 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 when the
corporate reputation is affected when a Director is indicted.
In view of our aforesaid analysis, we arrive at the irresistible conclusion that for maintaining the prosecution under Section 141 of the Act,
arraigning of a company as an accused is imperative. 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. We say so on the basis of the ratio laid down in C.V. Parekh which is a
three-Judge Bench decision. Thus, the view expressed in Sheoratan Agarwal does not correctly lay down the law and, accordingly, is hereby
overruled. The decision in Anil Hada is overruled with the qualifier as stated in para 51. The decision in Modi Distillery has to be treated to be
restricted to its own facts as has been explained by us hereinabove.
There is another striking factor attendant in the present case. Perusal of the original records reveals that the complaint was initially presented
before the Chief Judicial Magistrate, Shopian, on 19.03.2013 for the commission of offences punishable under Sections 138, 142 of the Act and
Section 420 RPC. The learned Chief Judicial Magistrate, after recording the preliminary statements of the complainant and one of his witnesses in
support of the complaint, took cognizance only under Section 138 of the Act and ordered issuance of summons by registered post. The learned
Magistrate seems to have proceeded in the matter in a mechanical manner, without applying its mind to the facts as pleaded in he complaint and
has taken cognizance under Section 138 of the Act, when there is a specific factual assertion made in the complaint by the complainant-respondent
that he was dealing with Veterinary Medicines as Distributor for the company, Emberald Healthcare Private Limited. The said company has not
been impleaded as an accused in the complaint. It was imperative for the complainant to have impleaded the company as the principal accused and
sought prosecution under Section 141 of the Act as well, since the accused named in the complaint could at best be vicariously liable subject to the
necessary averments in the complaint. Applying the law laid down by the Supreme Court in Aneeta Hada v. Godfather Travels & Tourist (P) Ltd.
(supra), the complaint is not maintainable. Resultantly, the cognizance order passed by the learned Magistrate and the subsequent proceedings
conducted therein are nothing more than an abuse of the process of law.
Coming to the question whether the prosecution could be launched at Shopian, within the territorial jurisdiction of the trial Magistrate, learned
counsel on both sides have relied on the judgment of this Court in Rohit Motors and Others Vs. Punjab Tractors Ltd. and Others, . It has been
held therein that complaint under Section 138 of the Act may be filed in a court within the local limits of whose jurisdiction any of the following acts
are done:
i) cheque is drawn;
ii) the cheque is presented to the drawee Bank and returned unpaid;
iii) the demand notice is given and received or presumed to have been received and, where the notice is dispatched from a place different from the
place where it be received, where the notice is received or presumed to have been received;
iv) where the drawer fails to make the payments within 15 days of the receipt of the notice.
Recently, a larger Bench of the Supreme Court in its decision in Dashrath Rupsingh Rathod v. State of Maharashtra, decided on 01.08.2014,
which is available on the Supreme Court Website, after taking note of its numerous earlier judgments has held as under:
To sum up:
(i) An offence under Section 138 of the Negotiable Instruments Act, 1881 is committed no sooner a cheque drawn by the accused on an account
being maintained by him in a bank for discharge of debt/liability is returned unpaid for insufficiency of funds or for the reason that the amount
exceeds the arrangement made with the bank;
(ii) Cognizance of any such offence is however forbidden under Section 142 of the Act except upon a complaint in writing made by the payee or
holder of the cheque in due course within a period of one month from the date the cause of action accrues to such payee or holder under clause (c)
of proviso to Section 138;
(iii) The cause of action to file a complaint accrues to a complainant/payee/holder of a cheque in due course if:
(a) the dishonoured cheque is presented to the drawee bank within a period of six months from the date of its issue;
(b) if the complainant has demanded payment of cheque amount within thirty days of receipt of information by him from the bank regarding the
dishonour of the cheque; and
(c) if the drawer has failed to pay the cheque amount within fifteen days of receipt of such notice.
(iv) The facts constituting cause of action do not constitute the ingredients of the offence under Section 138 of the Act;
(v) The proviso to Section 138 simply postpones/defers institution of criminal proceedings and taking of cognizance by the Court till such time
cause of action in terms of clause (c) of proviso accrues to the complainant;
(vi) Once the cause of action accrues to the complainant, the jurisdiction of the Court to try the case will be determined by reference to the place
where the cheque is dishonoured;
(vii) The general rule stipulated under Section 177 of Cr.P.C. applies to cases under Section 138 of the Negotiable Instruments Act. Prosecution
in such cases can, therefore, be launched against the drawer of the cheque only before the Court within whose jurisdiction the dishonour takes
place except in situations where the offence of dishonour of the cheque punishable under Section 138 is committed along with other offences in a
single transaction within the meaning of Section 220 (1) read with Section 184 of the Code of Criminal Procedure or is covered by the provisions
of Section 182(1) read with Sections 184 and 220 thereof.
Before parting with this aspect of the matter, we need to remind ourselves that an avalanche of cases involving dishonour of cheques has come
upon the Magistracy of this country. The number of such cases as of October 2008 was estimated to be more than 38 lakhs by the Law
Commission of India in its 213th Report. The result is that cases involving dishonour of cheque is in all major cities choking the criminal justice
system at the Magistrate's level. Courts in the four metropolitan cities and other commercially important centres are particularly burdened as the
filing of such cases is in very large numbers. More than five lakh such cases were pending in criminal courts in Delhi alone as of 1st June 2008. The
position is no different in other cities where large number of complaints are filed under S.138 not necessarily because the offence is committed in
such cities but because multinational and other companies and commercial entities and agencies choose these places for filing the complaints for no
better reason than the fact that notices demanding payment of cheque amounts were issued from such cities or the cheques were deposited for
collection in their banks in those cities. Reliance is often placed on Bhaskaran's case to justify institution of such cases far away from where the
transaction forming basis of the dishonoured cheque had taken place. It is not uncommon to find complaints filed in different jurisdiction for
cheques dishonoured in the same transaction and at the same place. This procedure is more often than not intended to use such oppressive
litigation to achieve the collateral purpose of extracting money from the accused by denying him a fair opportunity to contest the claim by dragging
him to a distant place. Bhaskaran's case could never have intended to give to the complainant/payee of the cheque such an advantage. Even so,
experience has shown that the view taken in Bhaskaran's case permitting prosecution at any one of the five different places indicated therein has
failed not only to meet the approval of other benches dealing with the question but also resulted in hardship, harassment and inconvenience to the
accused persons. While anyone issuing a cheque is and ought to be made responsible if the same is dishonoured despite compliance with the
provisions stipulated in the proviso, the Court ought to avoid an interpretation that can be used as an instrument of oppression by one of the
parties. The unilateral acts of a complainant in presenting a cheque at a place of his choice or issuing a notice for payment of the dishonoured
amount cannot in our view arm the complainant with the power to choose the place of trial. Suffice it to say, that not only on the Principles of
Interpretation of Statutes but also the potential mischief which an erroneous interpretation can cause in terms of injustice and harassment to the
accused the view taken in the Bhaskaran's case needs to be revisited as we have done in foregoing paragraphs.
(Underlining supplied)
In the instant case, perusal of the cheques, which have been placed on record of the trial court, reveal that the same have been drawn on Union
Bank, Gopalpur Branch, Delhi-110094. The complainant has made a wrong statement in the complaint that the accused petitioners issued the six
cheques to him to be encashed at the State Bank of India, Branch Office, Shopian. The complainant may have presented the cheques at State
Bank of India, Branch Office, Shopian, but that is not the drawee Bank of the company. Further more, the demand notices, admittedly, have been
sent at the residential addresses of the two accused-petitioners, being D-578, D-Block, Harsh Vihar, Delhi-110034 and B-23, Gali No. 1, West
Jyoti Nagar, Shahdara, Delhi-110094, respectively. Naturally, these could not have been received by them within the jurisdiction of the trial
Magistrate at Shopian.
In view of the aforesaid settled position of law, it is held that the trial Magistrate did not have the jurisdiction to entertain the complaint and to
take cognizance of the offence, since none of the key events essential to the commission and completion of the offence under Section 138 of the
Act had taken place within its local limits.
In view of the above discussion, this petition is allowed. The complaint filed by the respondent is set aside. Consequently, the order of
cognizance passed by the trial Magistrate and the subsequent proceedings conducted by it are set aside.
Registry will return the trial court records with a copy of this judgment to the court concerned. No orders as to costs.