Section 138 NI Act

It is clear that the person (Director/Managing Director/Joint Director/other officers and employees) of company can not be prosecuted under Section 138 of N.I. Act unless the company is impleaded as an accused.

THE HIGH COURT OF MADHYA PRADESH

PRINCIPAL SEAT AT JABALPUR

Bench : HON’BLE SHRI JUSTICE RAJENDRA KUMAR SRIVASTAVA

M.Cr.C No.735/2020

Bhupendra Suryawanshi

VS.

Sai Traders

In the present case, although, the respondent stated that the petitioner borrowed money from him on account of personal need of his business but looking to the fact that the respondent has accepted his business relation with the petitioner and the disputed cheque was given by the petitioner on behalf of the Company.

           A demand notice was served only on the petitioner/accused, there was no demand notice against company, therefore, without arraying the company as an accused in complaint case, the petitioner can not be prosecuted for the offence of Section 138 N.I. Act. In this regard in the case of Himanshu Vs. B. Shivamurthy and another reported in(2019) 3 SCC 797, the Hon’ble Supreme Court has clarified the necessary condition to make out offence under Section 138 of NI Act,the relevant paras are quoted as under:-

8. The judgment of the three-Judge Bench has since been followed by a two-Judge Bench of this Court in Charanjit Pal Jindal v. L.N. Metalics [Charanjit Pal Jindal v. L.N. Metalics, (2015) 15 SCC 768 : (2016) 3SCC (Civ) 447 : (2016) 3 SCC (Cri) 400] . There is merit in the second submission which has been urged on behalf of the appellant as well. The proviso to Section 138 contains the preconditions which must be fulfilled before an offence under the provision is made out. These conditions are: (i) presentation of the cheque to the bank within six months from the date on which it is drawn or within the period of its validity,whichever is earlier; (ii) a demand being made in writing by the payee or holder in due course by the issuance of a notice in writing to the drawer of the cheque within thirty days of the receipt of information from the bank of the return of the cheques; and (iii) the failure of the drawer to make payment of the amount of money to the payee or the holder in due course with in fifteen days of the receipt of the notice.

9. In MSR Leathers v. S. Palaniappan [MSR Leathersv. S. Palaniappan, (2013) 1 SCC 177 : (2013) 1 SCC(Civ) 424 : (2013) 2 SCC (Cri) 458] , this Court held thus: (SCC p. 188, para 12)

“12. The proviso to Section 138, however, is all important and stipulates three distinct conditions precedent, which must be satisfied before the dishonour of a cheque can constitute an offence and become punishable.

The first condition is that the cheque ought to have been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, which ever is earlier.

The second condition is that the payee or the holder in due course of the cheque, as the case may be,ought to make a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid.

The third condition is that the drawer of such a cheque should have failed to make payment of the said amount of money to the payee or as the case may be, to the holder in due course of the cheque within fifteen days of the receipt of the said notice.

It is only upon the satisfaction of all the three conditions mentioned above and enumerated under the proviso to Section 138 as clauses (a), (b)and (c) there of that an offence under Section 138 can be said to have been committed by the person issuing the cheque.”  (emphasis supplied)

10. The importance of fulfilling these conditions has been adverted to in a recent judgment of a two-Judge Bench of this Court in N. Harihara Krishnan v. J.Thomas [N. Harihara Krishnan v. J. Thomas, (2018)13 SCC 663 : (2018) 4 SCC (Civ) 440 : (2018) 3 SCC(Cri) 826] . Adverting to the ingredients of Section 138, the Court observed as follows:

       “26. … Obviously such complaints must contain the factual allegations constituting each of the ingredients of the offence under Section 138. Those ingredients are: (1) that a person drew a cheque on an account maintained by him with the banker; (2) that such a cheque when presented to the bank is returned by the bank unpaid; (3) that such a cheque was presented to the bank within a period of six months from the date it was drawn or within the period of its validity which ever is earlier; (4) that the payee demanded in writing from the drawer of the cheque the payment of the amount of money due under the cheque to payee;and (5) such a notice of payment is made within a period of 30 days from the date of the receipt of the information by the payee from the bank regarding there turn of the cheque as unpaid.

”11. In the present case, the record before the Court indicates that the cheque was drawn by the appellant for Lakshmi Cement and Ceramics Industries Ltd., as its Director. A notice of demand was served only on the appellant. The complaint was lodged only against the appellant without arraigning the company as an accused.

12. The provisions of Section 141 postulate that if the person committing an offence under Section 138 is a company, every person, who at the time when the offence was committed was in charge of or 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 beliable to be proceeded against and punished.

13.In the absence of the company being arraigned as an accused, a complaint against the appellant was therefore not maintainable. The appellant had signed the cheque as a Director of the company and for and on its behalf. Moreover, in the absence of a notice of demand being served on the company and without compliance with the proviso to Section 138, the High Court was in error in holding that the company could now be arraigned as an accused.  Emphasis supplied

14. We, accordingly, are of the view that the High Court was in error in rejecting the petition under Section 482 CrPC. We hence allow the appeal and set aside the judgment of the High Court. In consequence,the complaint, being CRP No. 27 of 2004 shall stand quashed.

16.Hence, this petition is allowed. Consequently, the impugned order dated 20.05.2019 in case No. SC NIA 1582018passed by learned JMFC Narsinghpur is hereby set aside. However,petitioner is free to avail any other remedy available in this regard.

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