K.P. Varghese v. Richan P. J. and Joy and State of Kerala

## `IN THE HIGH COURT OF KERALA AT ERNAKULAM` ``` PRESENT ``` ``` THE HONOURABLE MRS. JUSTICE MARY JOSEPH ``` ``` FRIDAY, THE 3[RD] DAY OF JUNE 2022 / 13TH JYAISHTA, 1944 ``` ## `CRL.A NO. 588 OF 2021` ``` AGAINST THE JUDGMENT DATED 05.05.2016 IN STC.NO. 819/2014 OF JUDICIAL FIRST CLASS MAGISTRATE COURT -II, MANANTHAVADY ``` ``` (LEAVE GRANTED AS PER ORDER DATED 01.09.2021 IN Crl.L.P.NO. 53/2021) ``` ## `APPELLANT/COMPLAINANT:` ``` K.P. VARGHESE, AGED 71 YEARS, S/O PAULOSE, KAVANAMATTAM HOUSE, ASAMANOOR POST-683549, KUNNATHUNADU TALUK, PRESENTLY RESIDING AT SREEVALSAM QUARTERS, NEAR FEDERAL BANK, MANNANTHAVADY, WAYANAD-670645 ``` ``` BY ADVS.SRI.GEORGE MATHEW SRI.DIPU JAMES SRI.M.D.SASIKUMAR SRI.A.G.SUNIL KUMAR ``` ## `RESPONDENTS/ACCUSED & STATE:` ``` 1RARICHAN P.J., AGED 52 YEARS, S/O. JOSEPH, DIRECTOR, ASTERN CHIT PRIVATE LIMITED, PALAMATTAM VEEDU, PAYYAMPALLY POST, MANANTHAVADY - 670646. 2JOY, AGED ABOUT 52 YEARS, S/O VARGHESE, DIRECTOR, ASTERN CHIT PRIVATE LIMITED, MADAVANA VEEDU, PAYYAMPALLY POST, MANANTHAVADY TALUK- 670646. 3STATE OF KERALA REPRESENTED BY PUBLIC PROSECUTOR, HIGH COURT OF KERALA, ERNAKULAM - 682031. R1 AND R2 BY ADVS.SRI.V.SHYAM SRI.P.ARUN ``` ``` R3 BY SENIOR PUBLIC PROSECUTOR SRI.RENJITH GEORGE ``` ``` THIS CRIMINAL APPEAL HAVING BEEN FINALLY HEARD ON 03.06.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ``` ``` Crl.Appeal No.588 of 2021 2 ``` ## **`JUDGMENT`** ## **`Dated this the 3[rd] day of June, 2022`** This appeal is directed against the judgment dated 05.05.2016 in S.T.C.No.819 of 2014 of Judicial First Class Magistrate Court-II, Mananthavady ( for short ‘the trial court’). The trial court has dismissed the complaint and acquitted the accused under Section 255 (1) of the Code of Criminal Procedure, 1973 (for short ‘Cr.P.C’) for an offence punishable under Section 138 of the Negotiable Instruments Act, 1881 (for short the ‘NI Act’). 2. The trial court had framed the following points for adjudication. “(i) Whether the complaint is bad for non impleadment of M/s. Astern Chits Private Limited as a party to the proceedings? (ii) Whether Ext.P1 cheque was drawn and delivered by the accused to the complainant in discharge of legally enforceable debt? ## **`Crl.Appeal No.588 of 2021 3`** (iii) Whether Ext.P1 cheque was bounced for insufficiency of funds in the account of the accused? (iv)Whether the complainant has complied with statutory formalities directed by sections 138 (b) and 142(b) of the Negotiable Instruments Act? (v) Whether the accused are guilty of the offence punishable under Section 138 of the Negotiable Instruments Act? (vi) If so, what is the order or sentence to be passed to meet the ends of justice?” 3. Evidence was adduced by both parties. The complainant was examined as PW1 and Exts. P1 to P5 series and P6 and P7 were marked. On the side of the accused DWs 1 to 4 were examined and Ext.D1 was marked. Point No.(i) was found against the complainant and point Nos. (ii), (iii) and (iv) were found in favour of the complainant. Based on finding under Point No.1 the trial court had found that the complainant had failed to prove the offence under Section 138 of the N.I Act against the accused and therefore the latter are not liable to be punished and accordingly passed the judgment acquitting them. 4. The trial court has found that the complainant failed to array the company as accused in the case and to issue ## **`Crl.Appeal No.588 of 2021 4`** statutory notice to it and that is fatal. According to it complaint is bad for non-arraignment of the company as an accused in the case. Thus the trial court found point No.(i) against the complainant. 5. True that the company is not made as accused in the prosecution on hand. Since the available accused were acquitted for non-arraignment of the company as accused, the question that whether company is a necessary party in the prosecution or not is crucial for consideration in the case on hand. For that the pleadings of the complainant in the complaint are relevant. According to the complainant accused are Directors of M/s. Astern Chit Private Limited and the complainant has subscribed three chits with the Company for Rs.3,00,000/-, Rs.2,00,000/and Rs.1,00,000/-, respectively. Installment dues under the chits were paid by the complainant. The complainant approached M/s.Astern Chits Pvt.Limited for obtaining Rs.4,85,000/- due to him. The accused issued a cheque for Rs.4,85,000/- drawn on State Bank of India, Mananthavady Branch to the complainant. The cheque was presented for collection but the same was returned for the reason ‘funds ## **`Crl.Appeal No.588 of 2021 5`** insufficient’. On 14.03.2013 a notice was issued by the complainant through his lawyer to the accused intimating him that the cheque was returned bounced. The amount covered by the cheque was also demanded. The notice taken up for service was evaded by both accused and therefore it was returned by the postal authorities with endorsement ‘unclaimed’. Despite receipt of notice the accused failed to pay the amount covered by the cheque. Therefore, alleging commission of the offence punishable under Section 138 N.I.Act, complaint was filed to launch the prosecution. 6. As the averments of the complainant in the complaint stand, money was due from the accused who are Directors of M/s.Astern Chits Pvt. Limited. According to him he approached the accused for return of Rs.4,85,000/- and they issued a cheque. The disputed cheque is marked in evidence as Ext.P1. A perusal of the cheque would reveal that it was signed by both accused in their personal capacity. The complainant also does not have a case that the Company is an accused in the case. In the context above, it cannot be inferred that the company is an accused. ``` Crl.Appeal No.588 of 2021 6 ``` 7. An offence under Section 138 N.I.Act would be attracted when the cheque issued for payment of money is bounced for any of the reasons enumerated under the provision. In the case on hand both accused are signatory to Ext.P1 cheque and the cheque on presentation was bounced for the reason ‘funds insuffient.’ As per the averment of the complainant, the cheques were returned bounced for the reason that fund was insufficient in the account of the accused. The complainant does not have a case that the disputed cheque was issued by the accused for and on behalf of the company. He does not even has a case that at the time when the offence was committed, the accused were in charge of and responsible to the company for the conduct of it’s business. When the complainant has no claim that the offence under Section 138 was committed by the company then there is no necessity for the company to be arraigned as the accused. Only when the complainant has a case that the company is primarily guilty of the offence under Section 138 N.I.Act, then alone the persons in charge of and responsible for the conduct of the business of the company shall be deemed to be guilt of the offence under the principle of vicarious liability and shall be proceeded against and punished ## **`Crl.Appeal No.588 of 2021 7`** accordingly. 8. In the case on hand the specific case of the complainant was that money was due to him under chit transactions, which are concluded. According to him money is due from accused persons and on approaching them the cheque in question was given. According to the complainant the cheque in question was drawn on the account of the accused maintained at State Bank of India, Mananthavady Branch. Section 141 N.I.Act being relevant in the context is extracted hereunder: “ **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 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: 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: [Provided further that where a person is nominated 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 for prosecution ## **`Crl.Appeal No.588 of 2021 8`** 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, 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,— (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.” 9. 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 conduct of it’s business as well as the company, shall be deemed to be guilty of the offence and shall be liable to to be proceeded against and punished accordingly. Therefore, only when the complaint incorporates in it an allegation that the offence under Section 138 N.I Act was committed by the company, then alone the person in charge of and responsible to the company for the conduct of the business of the company can be proceeded against and punished. ``` Crl.Appeal No.588 of 2021 9 ``` 10. The complainant as PW1 has stated that Ext.P1 cheque was issued from an account maintained by the accused with SBI, Mananthavady Branch. The said cheque was marked in the case as Ext.P1. Ext.P1 was presented for collection and it was dishonoured for the reason ‘funds insufficient.’ The offence under Section 138 N.I.Act would only be attracted when a cheque issued towards discharge of a legally enforceable debt or other liability was 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 bank. In the case on hand Ext.P1 was signed by the accused not in their status as Directors of M/s. Astern Pvt. Ltd but only in their personal capacity. Cheque was presented for collection and and it was returned for the reason ‘insufficiency of funds’ to honor it in the account of the accused. Therefore the offence under Section 138 can only be attracted against the accused and not against the company. 11. The court below while arriving at point No.1 , has also relied on Aneeta Hada v. Godfather Travels and Tours (P) Ltd. [2012 (2) KLT 736 (SC)] , Vardanan P. R. and Another v. ``` Crl.Appeal No.588 of 2021 10 ``` Vidhayadaran and Another [2014 (2)KLJ 392] and Mahesh Kumar v. Taxi Drivers Co-op. Society Ltd. and Others [2010 (4) KHC 417]. 12. In Aneeta supra question raised for consideration was whether for maintaining the prosecution under Section 141, arraigning of a company as an accused is imperative and the court held in the affirmative. The factual matrix in the case cited is different from those in the case on hand. 13. Wordings of Section 141 extracted supra is unambiguous. When the complainant has an allegation that the offence under Section 138 has been committed by the company, then the company must be arraigned as an accused. The company being a legal entity the persons in charge of and responsible for the conduct of the business of the company could also be arraigned as accused, representing the company. 14. In Vardanan P.R . supra relied on by the court, a Single Bench has held that when the disputed cheque was allegedly issued by a company and when the company was not made an accused in the complaint, deemed liability under Section 141 of the NI Act will not be attracted. It was further held that if company is not made an accused, criminal liability ## **`Crl.Appeal No.588 of 2021 11`** cannot be extended to its officers who are also arrayed as accused persons. 15. In Mahesh Kumar supra relied on by the learned counsel, a Single Bench of this Court has held that when a cheque issued by the Society was dishonored and a prosecution was launched, non issuance of notice to the Society would be fatal to the prosecution and Society cannot be made liable and consequently its President and Secretary cannot be made liable for an offence under Section 138 N.I.Act. 16. All the above decisions referred to a common situation where the company was allegedly committed an offence under Section 138 N.I Act. In the case on hand, the complainant has no case that M/s. Astern Chits Pvt.Ltd. has committed the offence under Section 138 N.I.Act. Ext.P1 cheque was not issued by the accused for and on behalf of M/s.Astern Chits Pvt.Ltd. It was also not issued by the accused in their capacity as Directors of M/s. Astern Chits Pvt.Ltd. On the contrary Ext.P1 cheque was found signed by the accused in their personal capacity. It was returned bounced on presentation for collection, due to deficiency of funds in the account maintained by the accused themselves with their Bank. The complainant ## **`Crl.Appeal No.588 of 2021 12`** has no case that the disputed cheque was drawn from an account maintained by the company with a banker. 17. In the above context, answers given by accused while being examined under Section 313 (1) (b) Cr.P.C with reference to the incriminating circumstances put to them are relevant. The accused has admitted their status as Directors of M/s. Astern Chits Pvt.Ltd Mananthavady, but have denied the averment of the complainant as PW1 that he has subscribed Chits in Astern Chits Pvt.Ltd. run by the accused. When the accused had put a suggestion to the complainant during examination that the cheque in question was given as security while advancing money to them the complainant has denied the same. Therefore the specific stand of the accused in defence was that Ext.P1 cheque was issued as security at a time when money was borrowed from the complainant and not towards repayment of subscription towards chit transaction. 18. From the discussion above, it is found that Company was not alleged in the complaint as committed an offence under Section 138 N.I.Act and therefore the company was not arraigned as an accused. The prosecution in question is not filed under Section 141 N.I.Act. It was purely a prosecution launched ## **`Crl.Appeal No.588 of 2021 13`** against the accused for commission of offence under Section 138 N.I.Act in their personal capacity. In the above circumstances, the trial court is not justified in holding that the complaint is defeated for non impleadment of the company, in the array of the accused. The court below has gone perfectly wrong in acquitting the accused for non impleadment of the company as the first accused in the complaint. Therefore the judgment assailed is liable to be set aside. 19. Point Nos.(ii), (iii) and (iv) stand answered by the trial court in favour of the complainant. Since finding under point No.(i) is reversed and other findings under point Nos.(ii), (iii) and (iv) are maintained, the judgment under challenge is set aside and guilt is found against the accused. 20. In the result, Crl.Appel is allowed. The judgment under challenge is set aside and the complaint is allowed. Accused 1 and 2 are found guilty for the offence under Section 138 N.I Act and are convicted. The case is remitted to the trial court solely for hearing the accused on sentence and to impose punishment. Both accused shall appear before the trial court on 26.07.2022 to be heard on imposition of sentence. ``` Crl.Appeal No.588 of 2021 14 ``` The trial court shall issue appropriate orders imposing punishment on the accused, within a period of one month from the date on which parties to the appeal on hand appear there. Sd/- ``` MARY JOSEPH JUDGE ``` ``` MJL ```