Section 141 NI Act Won’t Apply To Proprietorship Concerns As they Don’t Have Separate Corporate Identity: Apex Court
The Supreme Court in a recent Judgment, has observed that Section 141 of the Negotiable Instruments Act, 1881 (NI Act) will not apply to proprietorship concerns as they are owned by individuals and do not have a separate corporate identity.
The Court observed thus in a Criminal Appeal preferred against the Judgment of the Calcutta High Court by which it allowed the Criminal Revision Application and quashed the Trial Court’s Judgment of conviction.
The two-Judge Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan reiterated, “It is also pertinent to note that the High Court in the aforesaid decision also referred to the decision of this Court in Raghu Lakshminarayanan v. Fine Tubes reported in (2007) 5 SCC 103 wherein it was categorically held by this Court that Section 141 of the NI Act will have no application to proprietorship concerns as they are owned by individuals and do not have a separate corporate identity.”
The Bench said that an authorised signatory acting on behalf of the principal cannot be said to be the ‘drawer’ of the cheque “on an account maintained by him with a banker” under Section 138 NI Act.
AOR Uddyam Mukherjee appeared on behalf of the Appellant while Advocate Gaurav Kejriwal appeared on behalf of the Respondents.
Facts of the Case -
According to the Appellant/Complainant, for the purpose of operating his trade loan account, he used to frequently visit the U.B.I. Raghunathpur Branch and it was during one such visit sometime in the month of January 2006 that he came to be introduced to the Respondent/Accused by the Manager of the said branch. Thereafter, the accused maintained amicable relations with the Complainant through telephonic conversations. In February 2006, the accused was in need of some financial assistance and in such circumstances, he approached the Complainant with a request that a particular amount may be lent to him with a promise to repay on demand. Hence, the Complainant issued a bearer cheque for an amount of Rs. 7 lakhs which was then encashed by the accused.
Upon the Complainant requesting the accused to repay the amount, he issued a cheque for discharging his debt towards the Complainant. However, the said cheque was signed by him in his capacity as a Director of Shilabati Hospital Pvt. Ltd. and was drawn upon the bank account maintained in the name of the hospital. The said cheque got dishonoured for want of sufficient funds and resultantly, the Complainant issued a statutory notice to the accused. However, the accused failed to give any appropriate reply and hence, a private Complaint was filed for the offence under Section 138 NI Act. The Trial Court held the accused guilty and being aggrieved, he filed an Appeal but the same was dismissed. He then invoked the revisional jurisdiction of the High Court and his Revision Application was allowed by which he got acquitted. Therefore, the Complainant was before the Apex Court.
The Supreme Court in view of the facts and circumstances of the case, noted, “Section 138 of the NI Act does not envisage that only those cases where a cheque issued towards the discharge of the personal liability of the drawer towards the payee gets dishonoured would come within the ambit of the provision. The expression “of any debt or other liability” appearing in Section 138 when read with the Explanation to the provision is wide enough to bring any debt or liability which is legally enforceable within its fold. Thus, the requirement under the provision is that the debt or any other liability has to be legally enforceable and the emphasis is not on the existence of such debt or other liability between the drawer and the payee.”
The Court added that even those cases where a person assumes the responsibility of discharging the debt of some other person, and in furtherance thereof draws a cheque on an account maintained by him, which subsequently gets dishonoured upon being presented before the drawee, would be covered by Section 138 NI Act if the payee is able to establish that there was some sort of an arrangement by way of which the debt was assumed by the drawer.
“It follows from a conspectus of the aforesaid decisions that it is the drawer Company which must be first held to be the principal offender under Section 138 of the NI Act before culpability can be extended, through a deeming fiction, to the other Directors or persons in-charge of and responsible to the Company for the conduct of its business. In the absence of the liability of the drawer Company, there would naturally be no requirement to hold the other persons vicariously liable for the offence committed under Section 138 of the NI Act”, it further noted.
The Court emphasised that Section 138 of the NI Act being penal in nature has to be strictly construed and advertence to the object behind its enactment can only be made to supplement the language employed in the text of the statute and not to supplant it or render it overly broad and susceptible to misuse. It further reiterated that it is only the drawer of the cheque who can be held liable for an offence under Section 138 of the NI Act.
“The mere fact that the cheque signed by the accused in his capacity as a “Director” of the Company would in the normal course be honoured by the Bank to which it was presented does not satisfy the statutory requirement of Section 138 of the Act”, it enunciated.
The Court observed that Section 138 NI Act exposes the person who has drawn the cheque which has been returned for insufficiency of funds to criminal liability and hence, such a provision must be construed strictly; however, such a strict construction should not result in defeating the very purpose for which the provision has been enacted.
“At the same time, the statutory provisions creating penal liability cannot be stretched too far to embrace the persons and situations patently excluded from its purview as discernible from clear and unequivocal language used in the provision”, it concluded.
Accordingly, the Apex Court dismissed the Criminal Appeal.
Cause Title- Bijoy Kumar Moni v. Paresh Manna & Anr. (Neutral Citation: 2024 INSC 1024)
Appearance:
Appellant: AOR Uddyam Mukherjee, Advocates Swapnil Pattanayak, and Agnibha Chatterjee.
Respondents: AORs Abhijit Sengupta, Kunal Chatterji, Advocates Gaurav Kejriwal, Navneet Singh, Kuheli Mitra, Harsh Dahiya, Maitrayee Banerjee, Rohit Bansal, and Mrinalini Mukherjee.
