Kaipuzha Service Co-operative Bank Ltd. v P.P. Johnson & Others (State of Kerala)

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR. JUSTICE ALEXANDER THOMAS** **WEDNESDAY, THE 26TH DAY OF JULY 2017/4TH SRAVANA, 1939** ## **Crl.L.P..No. 245 of 2017 ()** **---------------------------CRL.A.NO. 129/2014 OF ADDL.SESSIONS COURT-II (SPECIAL), KOTTAYAM ST.NO. 8109/2013 OF JUDICIAL FIRST CLASS MAGISTRATE COURT -II(MOBILE), KOTTAYAM** **-------------------** ## **PETITIONER/1ST RESPONDENT (COMPLAINANT):** **-----------------------------------------------------------------------** **KAIPUZHA SERVICE CO-OPERATIVE BANK LTD. NO.3793, KAIPUZHA P.O., KOTTAYAM, REPRESENTED BY ITS SECRETARY.** **BY ADVS.SRI.P.C.SASIDHARAN SRI.SOJAN MICHEAL** ## **RESPONDENT(S)/ACCUSED & STATE:** **---------------------------------------------------------** **1. P.P.JOHNSON, MANAGING DIRECTOR, POONOOLI RICE & FOODS PVT. LTD. POONOOLI HOUSE, OKALA P.O., PERUMBAVOOR, KUNNATHUNADU TALUK, KOCHI. PIN-683 550** **2. M/S.POONOOLI RICE & FOODS PVT. LTD. 1/272-1, INDUSTRIAL DEVELOPMENT AREA, ALUVA, REPRESENTED BY ITS MANAGING DIRECTOR, P.P. JOHNSON. PIN-683 103** **3. STATE OF KERALA, REPRESENTED BY THE PUBLIC PROSECUTOR, HIGH COURT OF KERALA, ERNAKULAM, KOCHI-682 031.** **R1 & R2 BY ADVS. SRI.DIPU JAMES SRI.GEORGE MATHEW SRI.K.S.HARIHARAPUTHRAN SRI.SUNIL KUMAR A.G R3 BY PUBLIC PROSECUTOR SRI.JESTIN MATHEW** **THIS CRIMINAL LEAVE PETITION HAVING COME UP FOR ADMISSION ON 26-07-2017, ALONG WITH CRLP.NO. 246/2017, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** **sts** ## ALEXANDER THOMAS, J. ================== Crl.L.P.Nos. 245 & 246 of 2017 ================== Dated this the 26[th] day of July, 2017 **==> picture [100 x 15] intentionally omitted <==** The parties in these petitions are the same. The petitioner (complainant) in both these cases is the same. So also, the respondents (accused) are also the same. Both the complaints have been tried jointly and the trial court has rendered a common judgment. So also, the appellate court has also rendered a common judgment in both these cases. 2. Crl.L.P.No.245/2017 has been filed to seek special leave of this Court under Sec.378 (4) of the Cr.P.C. for filing criminal appeal before this Court to impugn the judgment dated 19.11.2016 of the appellate court (Court of Addl. Sessions Judge-II [Special] Kottayam) in Crl.Appeal No.129/2014, whereby the accused has been acquitted of the offence punishable under Sec.138 of the Negotiable Instruments Act. The Sessions Court by the said impugned judgment has reversed the conviction and sentence imposed on the accused as per the impugned judgment dated 5.5.2014 of the Judicial First Class Magistrate's Court-II, (Mobile), Kottayam, in S.T.No. 8109/2013. 3. Crl.L.P.No. 246/2017 has been filed to seek special leave of Crl.L.P.245/17 & cc - : 2 :- this Court for filing criminal appeal for impugning the judgment dated 19.11.2016 of the appellate court in Crl.Appeal No.130/2014, whereby the accused has been acquitted of the offence punishable under Sec.138 of the Negotiable Instruments Act. By the said appellate judgment, the appellate court has reversed the conviction and sentence imposed on the accused as per the impugned judgment dated 5.5.2014 in S.T.No. 8108/2013. 4. Heard Sri.Sojan Micheal, learned counsel appearing for the petitioner in these 2 cases, Sri.George Mathew, learned counsel appearing for respondents 1 & 2 and Sri.Justin Mathew, learned Prosecutor appearing for R-2 State. 5. The dishonoured cheques in these two cases are for Rs.5 lakhs in S.T.No. 8108/2013 and Rs. 6,97,406/- in S.T.No. 8109/2013. Initially, the complaints were numbered as C.C.No.528/2002 and C.C.No. 612/2002 on the file of the Chief Judicial Magistrate's Court, Kottayam. The allegations in the complaints were to the effect that the respondent No.1 herein (who is an individual styled as the Managing Director of the Poonooli Rice & & Foods Pvt. Ltd.) has executed and issued the abovesaid 2 cheques for discharging liabilities owed to the complainant and that the cheques were dishonoured, etc. The complaints were jointly tried and the trial court as per the common judgment rendered on 16.12.2003 had acquitted the accused. The trial court then found that it has come out in Crl.L.P.245/17 & cc - : 3 :- evidence that the dishonoured cheques in question were issued from an account maintained by a company (R-2 herein), viz., Poonolil Rice & Foods Pvt. Ltd., and that respondent No.1 herein happened to be the Manager of the said company, who was the authorised signatory of those cheques. The trial court held that since the drawer of the dishonoured cheques is a company, which has not been arrayed as an accused in those complaints, will render those complaints not maintainable and that the complaints are liable to be dismissed on the sole ground that the drawer company has not been arrayed as an accused in those complaints. The said common judgment of the trial court was challenged in Crl.Appeal Nos. 2063/2003 and 2096/2003 before this Court. This Court in the common judgment rendered on 24.8.2011 in those two criminal appeals, held that an opportunity should be given to the complainant Co-operative Society to implead the drawer company, if necessary and to proceed with the matter. On this basis, the impugned judgment of acquittal rendered by the trial court was set aside and this Court further held that the question whether the company would be liable to face prosecution without notice under Sec.138 proviso (b) or as to whether notice issued to the 1[st] respondent Director would be sufficient or binding on the company, are matters to be considered by the court below untrammelled by any of the observations made by this Court. It will be profitable to refer to para 5 of the common judgment dated 24.8.2011 Crl.L.P.245/17 & cc - : 4 :- of this Court in Crl.Appeal Nos.2063 and 2096 of 2003, which reads as ## follows: “5. The learned counsel for the accused would submit that admittedly no notice was sent to the company as provided under proviso (b) to Sec.138 of the N.I.Act. Even when this contention was raised by the learned counsel for the accused before the court below the complainant did not think of causing amendment to the complaint or to implead the company as an accused. What more, even the accused was not correctly described; whether he is the Managing Partner of a firm or the Managing Director of a company. The learned counsel for the complainant bank would submit that there was arbitration proceedings initiated under Sec.69 r/w Sec.100 of the Co-operative Societies Act and that an award was already passed. But the learned counsel submits that the award so passed was against the company and the Managing Director and other directors in their official capacity. However, it is not disputed that the amount due to the Cooperative Bank was hither to not paid. Taking note of all these facts, I find that an opportunity has to be given to the complainant bank to implead the company if necessary and to proceed with the matter. The judgment of acquittal is set aside. The question whether the company would be liable without notice under the proviso (b) to Sec.138 or whether the notice issued to the first respondent would be sufficient or binding on the company are matters to be considered by the court below untrammelled by any of the observations made by this Court. Parties will appear before the court below on 4.10.2011. On the basis of the abovesaid judgment of this Court rendered on 24.8.2011, the matters were remitted to the trial court for fresh disposal. Thereupon, the complaints were made over by the learned Chief Judicial Magistrate to the Judicial First Class Magistrate's Court-II (Mobile), Kottayam, where the said court has renumbered the complaints as S.T.Nos.8108/2013 and 8109/2013. 6. The complaints were jointly tried and the trial court as per the common judgment rendered on 5.5.2014. The drawer company (respondent No.1 herein) was arrayed as an accused in both the complaints. The trial court by the abovesaid common judgment has Crl.L.P.245/17 & cc - : 5 :- convicted respondents 1 and 2 for the abovesaid offence and has also imposed sentence on respondents 1 and 2 herein. The trial court found that though statutory demand notice was not issued to respondent No.1 (company), notice issued to respondent No.2 (Managing Director of the company) would amount to deemed notice to respondent No.1 company. On the merits of the matter the trial court found that the complainant has proved his case and that respondents 1 and 2 herein are liable to be convicted for the abovesaid offence. 7. The said conviction and sentence rendered by the trial court on 5.5.2014 was impugned by respondents 1 and 2 herein by filing Crl.Appeal No.129/2014 and Crl.Appeal No. 130/2014 before the Court of Addl. Sessions Judge-II, (Special), Kottayam. The appellate court found that the notice to respondent 1 herein would amount to deemed notice on respondents 1 and 2 and has said that the complaints are maintainable as against respondent No.2 herein even though statutory demand notice was not issued to the respondent company within the stipulated time limit, in terms of the provisions contained in Sec.138 proviso (b). However, the appellate court on an appreciation of evidence held that, on the merits of the matter, there is no sufficient evidence to convict the accused persons and has acquitted them as per the impugned common judgment rendered on 19.11.2016. It is these common judgments of the appellate court rendered on 19.11.2016 that are the Crl.L.P.245/17 & cc - : 6 :- subject matter of the present leave petitions. 8. The learned counsel appearing the petitioner would argue that notice to R-1 herein (Managing Director of the company) will constitute deemed notice on R-2 and further that the appellate Sessions Court has egregiously erred in holding that there is no sufficient evidence to convict the accused persons. 9. Per contra, Sri.George Mathew, learned counsel appearing for respondents 1 and 2 would contend that it is by now well established that without arraying the drawer company as an accused in the complaint, no prosecution for offence under Sec.138 of the N.I. Act is maintainable and further that the statutory demand notice under Sec. 138 proviso (b) should mandatorily be served on the drawer company and such notice on the company will certainly be deemed notice on the individual directors and that no separate notices need be served on the individual directors who are sought to be vicariously liable. It is also argued by respondents 1 and 2 that the reverse position is not correct and that notice sent to the individual directors cannot be deemed to be notice served on the drawer company, as the person, who can commit the offence under Sec. 138 of the N.I. Act is the drawer of the cheque and in case the dishonoured has been issued from an account maintained by a company, then statutory demand notice to the company is mandatory and failure to issue such a notice to the company would lead to the throwing Crl.L.P.245/17 & cc - : 7 :- out of the complaint on that ground alone. It is also argued that on the merits of the matter, the appellate Sessions Court is fully correct in finding that there is no sufficient evidence to convict the accused persons. 10. After hearing both sides, this Court is of the firm opinion that the matter in issue is no longer res integra and is covered by the common judgment dated 22.6.2017 rendered by this Court in Crl.Appeal No. 552, 553 and 555 of 2015 rendered in a similar situation. 11. A 2-Judge Bench of the Apex Court in the judgment dated 26.11.1999 in Anil Hada v. Indian Acrylic Ltd. reported in (2000) 1 SCC 1 has held that even if a dishonoured cheque has been drawn from an account maintained by the company, the prosecution will still lie against the individual director of the company even without arraying the company as an accused in such complaints. Later, as per the judgment dated 27.4.2012 rendered by a 3-Judge Bench of the Apex Court in the case in Aneeta Hada v. Godfather Travels & Tours Pvt. Ltd. reported in (2012) 5 SCC 661, the said position laid down in Anil Hada's case was reversed and the 3-Judge Bench held in Aneeta Hada's case supra that so long as as the cheque is drawn from an account maintained by the company, the offence under Sec.138 of the N.I. Act is committed by the drawer of the cheque and so the company being the drawer, is the principal offender in such an offence and that a criminal complaint alleging offence under Sec. Crl.L.P.245/17 & cc - : 8 :- 138 of the Negotiable Instruments Act can be maintained only by arraying the company, who is drawer of the cheque as an accused. That other directors who are in charge of and responsible for the business of the company as conceived in Sec.149 of the N.I. Act would also be arrayed as co-accused. On this basis, the 3-Judge Bench decision in Aneeta Hada's case supra has overruled the earlier view taken by the 2-Judge Bench decision of the Apex Court in Anil Hada's case supra. 12. Further it is also relevant to note that it has been conclusively held by the Apex Court in the case Kirshna Texport & Capital Markets Ltd. v. Ila A. Agrawal, reported in (2015) 8 SCC 28 that Sec. 141 of the N.I. Act states that if the person committing an offence under Sec. 138 is a company, then every director of such company, who was in charge of, and was responsible to that company for the conduct of its business shall also be deemed to be guilty of the offence and the reason for creating vicarious liability is plainly that a juristic entity i.e. a company would be run by living persons, who are in charge of its affairs and who guide the actions of that company and that if such juristic entity is guilty, those who were so responsible for its affairs and who guided actions of such juristic entity must be held responsible and ought to be proceeded against. That Sec.141 does not lay down any requirement that in such eventuality the individual directors must individually be issued separate notices under Sec.138 of the N.I. Act and that the persons who are in Crl.L.P.245/17 & cc - : 9 :- charge of the affairs of the company and running its affairs must naturally be aware of the notice of demand under Sec. 138 of the Act issued to such company and it is precisely for this reason that no notice is additionally contemplated to be given to such directors. Further it was held therein that the opportunity to the ‘drawer’ by issuing statutory demand notice is considered good enough for those who are in charge of the affairs of the business of the company and if it is their case that the offence was committed without their knowledge or that they had exercised due diligence to prevent such commission, it would be a matter of defence to be considered at the appropriate stage, etc. Therefore, it is crystal clear that in a case where the dishonoured cheque is of a company, then statutory demand notice should mandatorily be served to the drawer company, who is the principal offender and that separate individual notices to the individual directors and officials of the company, is not mandatory. Therefore, going by the legal principles laid down by the Apex Court in Aneeta Hada's case reported in (2012) 5 SCC 661 and in Kirshna Texport & Capital Markets Ltd's case supra reported in (2015) 8 SCC 28, it is crystal clear that where the drawer of the dishonoured cheque is a company, then the prosecution for offence under Sec.138 of the N.I. Act is not maintainable, without arraying the principal offender (drawer of the cheque) as an accused in such complaint. Further that even if the principal offender company is arrayed Crl.L.P.245/17 & cc - : 10 :- as an accused in such complaint, the same would be maintainable only if all the other conditions for valid institution of the complaint as envisaged in Sec. 138 and its proviso are fulfilled. In other words, fulfillment of the requirement of serving statutory demand notice to the company prior to the institution of the complaint in the manner prescribed in Sec. 138 proviso (b), would be mandatory and without such notice, there is no question of maintaining any such complaint irrespective as to whether the drawer of the cheque is a company or an individual. 13. It is common ground that statutory demand notice as envisaged in Sec. 138 proviso (b) of the N.I. Act was never issued to respondent No.2 drawer company and that notice was issued only to respondent No.1 (individual director). Moreover, learned counsel appearing for respondent Nos.1 and 2 has pointed out that the statutory demand notice served on respondent No.1 is not showing the correct full name and respondent No.1 has been described as the Managing Partner and not as the Managing Director, etc. 14. Therefore, in the light of these aspects, this Court is constrained to take the view that the prosecution for offence under Sec.138 of the N.I. Act is not maintainable as against respondent No.2 company. Since that is the position, the individual director cannot be vicariously roped in for liability as envisaged in Sec.141 of the N.I. Act and the entire prosecution should crumble to the ground. In the light of Crl.L.P.245/17 & cc - : 11 :- this position there is no necessity for this Court to make any further assessment as to the other finding of the appellate Sessions Court that there is no sufficient evidence to convict the accused persons. 15. In the case State of Rajasthan v. Darshan Singh @ Darshan Lal reported in (2012) 5 SCC 789 = 2012(4) Supreme 72, the Apex Court has held as follows:- “In exceptional cases where there are compelling circumstances and the judgment under appeal is found to be perverse, the appellate court can interfere with the order of acquittal. The appellate court should bear in mind the presumption of innocence of the accused and further that the trial court's acquittal bolsters the presumption of his innocence.” Further, in the case Pudhu Raja and another Vs. State reported in (2012) 11 SCC 196 = (2013) 1 SCC (Cri) 430, the Apex Court has held that, “ _The Appellate court can interfere only in exceptional cases where there are compelling circumstances and the judgment in appeal is found to be perverse. The Appellate court should bear in mind the presumption of innocence of the accused and further that the trial court's order of acquittal bolsters the presumption of innocence_ ”. 16. In the light of these aspects, this Court is of the view that even if an appeal is entertained, there is no scope for overturning the considered judgment of acquittal of the appellate Sessions Court in these cases and accordingly, the leave petitions are bereft of any substance and the same would stand dismissed. sdk+ Sd/ALEXANDER THOMAS, JUDGE ///True Copy/// P.S. to Judge Crl.L.P.245/17 & cc - : 12 :-