M/S Benz Automobiles Pvt. Ltd. v. M/S Combine Motor Works & State of Kerala

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MRS. JUSTICE MARY JOSEPH** **WEDNESDAY,THE 03RD DAY OF OCTOBER 2018 / 11TH ASWINA, 1940** ## **CRL.A.No. 8 of 2006** **AGAINST THE ORDER/JUDGMENT IN CC 475/2003 of JUDICIAL FIRST CLASS MAGISTRATE'S COURT-I,KOCHI DATED 24-10-2005** ## **APPELLANT/COMPLAINANT IN C.C NO.475/2003:** **M/S.BENZ AUTOMOBILES PVT.LTD., BANERJI ROAD, COCHIN-18, A UNIT OF BENZ AUTOMOBILES PVT. LTD., (NOW KNOWN AS FOCUZ AUTOMBILES) BENZ TOWERS, EDAPPALLY P.O., COCHIN-682 024,REP.BY POWER OF ATTORNEY HOLDER SRI.C.V. JOHNY, AGED 44 YEARS, S/O.C.P. VARGHESE, ASST.MANAGER AND LEGAL SECTION IN CHARGE AND SENIOR OFFICER, BENZ TOWERS, EDAPALLY, COCHIN-682 024** **BY ADVS.SRI.AJITH MURALI SRI.C.S.DIAS** ## **RESPONDENTS/ACCUSED Nos.1 AND 2 IN C.C NO.475/2003& STATE:** **1 M/S.COMBINE MOTOR WORKS, RAJAJI ROAD, ERNAKULAM, COCHIN-682 035, REPRESENTED BY ITS MANAGING PARTNER, SRI.PRAKASHAN.** **2 SRI.PRAKASHAN MANAGING PARTNER M/S. COMBINE MOTOR WORKS, RESIDING AT, K.R.W.A.P-37, K.P. VALLON ROAD, KADAVANTHRA P.O., COCHIN-682 020.** **3 STATE OF KERALA REPRESENTED BY THE PUBLIC PROSECUTOR, HIGH COURT OF KERALA, ERNAKULAM.** ## **OTHER PRESENT:** **SR.PP. SRI. D. CHANDRASENAN** **THIS CRIMINAL APPEAL HAVING BEEN FINALLY HEARD ON 03.10.2018, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** **CRL.A.No. 8 of 2006** **2** ## **JUDGMENT** The appeal on hand is directed against judgment dated 24.10.2005, of Judicial First Class Magistrate Court I, Kochi (for short 'the court below') in C.C. No.475 of 2003. 2. The appellant is the complainant in Calendar Case No.475 of 2003 a prosecution launched by him before the court below under Section 142 of the Negotiable Instruments Act, 1881 (for short 'the Act') alleging commission of the offence punishable under Section 138 of the Act by the first respondent. The first respondent was a firm represented by it's Managing Partner, Sri.Prakashan and the second respondent was Sri.Prakashan, in his capacity as the Managing Partner of the firm. On entering appearance by the second respondent before the court below particulars of the offence were read over to him and he pleaded not guilty to those. Accordingly, trial was held before the court below. He was found not guilty for the offence under Section 138 of the Act and acquitted under Section 255 (1) of the Code of Criminal Procedure (For short 'the Cr.P.C.'). Aggreived thereby, the complainant has approached this Court in the appeal on hand seeking for reversal of the same. **CRL.A.No. 8 of 2006** **3** 3. Sri.C.S.Dias, the learned counsel for the appellant has contended that the judgment under challenge is vitiated for the illegality and the infirmity involved therein. According to him, the court below is unjustified in arriving at a finding that the accused is not guilty and undoubtedly that finding was based on improper and incorrect appreciation of evidence. It is contended by the learned counsel that, the accused had thoroughly failed to rebut the statutory presumption under Section 139 of the Act and therefore the court below is incorrect in arriving at a finding against the complainant and acquitting the accused. It is also contended by the learned counsel that though Ext.P3 cheque is disowned by the firm, evidence to substantiate the same was not adduced. According to him, the accused has also failed thoroughly to establish that issuance of the cheque was not supported by consideration. 4. It is further contended by the learned counsel relying on two decisions respectively of the Apex Court and this Court which had also been cited for reliance by the court below that reply was not sent by the accused to the statutory notice issued by the lawyer of the complainant to him as Ext.P6 and therefore, the defence **CRL.A.No. 8 of 2006** **4** taken during trial is only an afterthought. According to the learned counsel, in a circumstance of total want of evidence that the court below had arrived at a conclusion in the impugned judgment that the second accused was only a sleeping partner. The last and final argument advanced by the learned counsel was that, the complainant being a third party is unable to have any idea about the internal affairs of the firm and therefore, the court below ought to have treated the second accused, as an authorised representative of the firm and ought not to have acquitted him. Though, notice was served upon the first and second respondents, none of them made appearance either personally or through counsel. The learned counsel for the complainant addressed this Court elaborately based on contentions as stated hereinabove. 5. Complaint being lodged by a firm, the pleadings in the complaint needs to be verified in the backdrop of Section 141 of the Act. 6. In the cause title of the complaint, the first accused was referred to as the firm represented by it's Managing Partner, Sri.Prakashan. Sri.Prakashan in his capacity as the Managing Partner of the first accused was shown as the second accused. **CRL.A.No. 8 of 2006** **5** Paragraph 3 of the complaint being crucial is extracted herein below: “3. The 2[nd] accused had approached the complainant and purchased automobile spare parts on credit, from the complainant's office at Banerji Road, Ernakulam, Cochin - 682 018. In pursuance of the goods received by them and with a view to discharge the debt amount to the complainant, the 2[nd] accused issued a cheque of the 1[st] accused, bearing No.001106 dated 30.03.2002 for an amount of Rs.21,000-00 drawn on Allahabad Bank, Ernakulam - 682 035. The 2[nd] accused made the complainant believe that the 1[st] accused had sufficient money in its account in the above said bank and that the said cheque would be encashed on presentation. The complainant presented the said cheque for collection through their bank, The Federal Bank Ltd., Ernakulam North, Cochin - 682 018”. 7. It is relevant to notice from the Paragraph extracted above that, a plea was not taken therein that, the second accused, allegedly the Managing Partner was transacting the affairs of the firm in its ordinary course of business. Such a plea is material for a prosecution launched by a firm to sustain. In the context, the decision cited by the learned counsel for the complainant assumes relevance. 8. In _**S.M.S Pharmaceuticals Ltd. v. Neeta Bhalla**_ **CRL.A.No. 8 of 2006** **6** ## _**[2005 (4) KLT 209 (SC)]** ,_ the questions sought to be considered by a Division Bench of the Apex Court are: “ (a) whether for purpose of S.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 persons 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.” 9. The questions were elaborately dealt with by the Apex Court and arrived at that it is a compulsive postulate under Section 141 of the Act to aver in the complaint that the person arrayed as accused was in charge of and responsible for the conduct of the business carried on by the company. In the case on hand, a scrutiny of Paragraph 3 of the complaint as extracted supra would disclose to this Court that there is total lack of such a pleading. Therefore, for want of pleading of the nature in the complaint, the complaint is liable to fail. **CRL.A.No. 8 of 2006** **7** 10. The second argument of the learned counsel was that, the second accused having been incorporated in the cause title of the complaint as the Managing Partner of the first accused firm, that can be treated as compliance of the direction of the Apex Court referred to above and the complaint is not liable to be thrown out for want of pleading. According to the learned counsel, when the second accused was cited in the cause title of the complaint as the Managing Partner representing the firm it is implied that he was dealing with the affairs of the firm in the ordinary course of it's business and that would tantamount to a pleading of the nature. As per Section 141 of the Act as well as the dictum cited supra specific pleadings indicative of the involvement of the managing director/managing parter of a company/firm in the control and affairs of the company/firm are mandatory for a complaint filed by a company or a firm to sustain. Therefore the argument of the learned counsel is untenable for the reason that it goes against the spirit of Section 141 of the Act as well as the dictum cited supra and therefore, is discarded. 11. The third contention was that the complainant being an outsider and total stranger may not be able to have idea about the **CRL.A.No. 8 of 2006** **8** internal affirms of the same. It is contended by the learned counsel that, the complainant cannot have access to the deed of partnership or any other particulars available internally to ascertain who actually was in actual control of the affairs of firm in the conduct of the business run by him. 12. The learned counsel has also relied on _**N. RANGACHARI V. BHARAT SANCHAR NIGAM LTD [(2007) 5 SCC 108]**_ to support his contention. The dictum in the case cited supra is extracted for reference hereunder: “ 16. While Section 138 made a person criminally liable on dishonour of a cheque for insufficiency of funds or the circumstances referred to in the section and on the conditions mentioned therein, Section 141 laid down a special provision in respect of issuance of cheques by companies and commission of offences by companies under Section 138 of the Negotiable Instruments Act. Therein, it was provided that if the person committing an offence under Section 138 of the Act was 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. The scope of Section 141 has been authoritatively discussed in the decision in _S.M.S Pharmaceuticals Ltd_ binding on us and there is no scope for redefining it in this case. Suffice it to say, that a prosecution could be launched not only against the company on behalf of which the cheque issued has been dishonoured, but it could also be initiated against every person who at the time the offence was committed, was in charge of and was responsible for the conduct of the business of the company. In fact, Section 141 deems such persons to be guilty of such offence, liable to be proceeded against **CRL.A.No. 8 of 2006** **9** and punished for the offence, leaving it to the person concerned, to prove that the offence was committed by the company without his knowledge or that he has exercised due diligence to prevent the commission of the offence. Sub-section (2) of Section 141 also roped in Directors, Managers, Secretaries or other officers of the company, if it was proved that the offence was committed with their consent or connivance.” 13. The argument raised about the inability to have access to the deed of partnership and to have knowledge about the internal affairs of the company or firm was also elaborately dealt with by the Apex Court in Paragraph 17 and 19 of the judgment supra and are extracted hereunder: “17. A company, though a legal entity, cannot act by itself but can only act through its Directors. Normally, the Board of Directors act for and on behalf of the company. This is clear from Section 291 of the Companies Act which provides that subject to the provisions of that Act, the Board of Directors of a company shall be entitled to exercise all such powers and to do all such acts and things as the company is authorised to exercise and do. Palmer described the position thus: “ A company can only act by agents, and usually the persons by whom it acts and by whom the business of the company is carried on or superintended are termed directors............” ## It is further stated in Palmer that: “Directors are, in the eye of the law, agents of the company for which they act, and the general principles of the law of principal and agent regulate in most respects the relationship of the company and its directors.” “19. Therefore, a person in the commercial world having a transaction with a company is entitled to **CRL.A.No. 8 of 2006** **10** presume that the Directors of the company are in charge of the affairs of the company. If any restrictions on their powers are placed by the memorandum or articles of the company, it is for the Directors to establish it at the trial. It is in that context that Section 141 of the Negotiable Instruments Act provides that when the offender is a company, every person, who at the time when the offence was committed was in charge of and was responsible to the company for the conduct of the business of the company, shall also be deemed to be guilty of the offence along with the company. It appears to us that an allegation in the complaint that the named accused are Directors of the company itself would usher in the element of their acting for and on behalf of the company and of their being in charge of the company. In Gower and Davies' _Principles of Modern Company Law_ (17[th] Edn.), the theory behind the idea of identification is traced as follows: “ It is possible to find in the cases varying formulations of the underlying principle, and the most recent definitions suggest that the courts are prepared today to give the rule of attribution based on identification a somewhat broader scope. In the original formulation in _Lennard's Carrying Company case_ Lord Haldane based identification on a person 'who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation'. Recently, however, such an approach has been castigated by the Privy Council through Lord Hoffmann in _Meridian Global case_ as a misleading 'general metaphysic of companies'. The true question in each case was who as a matter of construction of the statute in question, or presumably other rule of law, is to be regarded as the controller of the company for the purpose of the identification rule.” 14. It has been held by the Apex Court that a person in the commercial world having a transaction with a company is entitled to presume that the Directors of the Company are in charge of the affairs of the company and responsible for the conduct of the business by the company. If any restrictions are imposed on their **CRL.A.No. 8 of 2006** **11** powers to transact in the normal course, either by the Memorandum or Articles of Association of the Company, the onus is on the Directors to establish that during trial. It was held so by the Apex Court, that it will not exonerate the complainant from raising a plea in the complaint filed to launch the prosecution that officer shown as the Managing partner or managing director are in the control and responsible for its affairs. Such a plea must be there in the complaint and without one of the nature being raised in the complaint, it will be legally unsustainable as laid down by the Apex Court in **S.M.S Pharmaceuticals Ltd's** case supra. Therefore, for a complaint alleging commission of an offence under Section 141 of the Act to sustain, the company as well as the Managing Director of a company, in the case of a company and Managing Partner, in the case of a firm, the firm as well as other officers who are responsible for the offence must be arrayed as parties and a specific averment that such Managing Director or Managing Partner or other officials who are arrayed as accused are in charge of and responsible for the conduct of the affairs of the company or the firm as the case may be must be incorporated therein. Without the twin requirements as above being not complied **CRL.A.No. 8 of 2006** **12** with the complaint filed under Section 141 of the Act will not sustain. 15. As rightly pointed out by the learned counsel, the complainant, a total outsider cannot have acquaintance with the internal affairs of the firm. In the case cited supra relied on by the learned counsel, the Apex Court has held that, once the name of a person is shown as Managing Partner of a firm or Managing Director of a company that along with a pleading taken in the complaint that the said person was in control of and responsible for the conduct of the business of the firm or company is sufficient to sustain a complaint under Section 141 of the Act. On a perusal of the complaint which formed the basis for launching the prosecution in the case on hand, this Court is convinced that such a plea is lacking in the complaint. Second accused was shown in the cause title as Managing Partner of the firm, but a plea that, he was in control of and managing the affairs of the firm in the ordinary course of business conducted by the firm is not incorporated in the complaint and therefore the complaint will not be sustainable. 16. Coming to the merits of the case, oral evidence of the complainant and the documentary evidence as Exts.P1 to P11 are **CRL.A.No. 8 of 2006** **13** available. PW1 has stated that the certified copy of the resolution authorising him to represent the company was produced and marked in evidence as Ext.P1. He has also produced the power of attorney and the same is marked as Ext.P2. According to him, Ext.P5 cheque was issued by the first accused firm towards the discharge of a liability that arose on purchase of spare parts from the complainant. According to him, Ext.P3 cheque was issued by the 2[nd] accused in his capacity as the Managing Partner of the 1[st] accused firm. It has been stated by him that the cheque was presented before the Bank and returned bounced for the reason "exceeding arrangement”. According to PW1 after obtaining the dishonour memo from the bank marked in evidence as Ext.P4, a lawyer notice was caused to be served on the accused, copy of the which is marked in evidence as Ext.P6. The issuance of lawyer notice to the accused was well evidenced by the postal receipt and other relevant documents marked in evidence as Exts.P7, P8 and P9. The unclaimed notice received by the complainant was also marked in evidence as Ext.P10. The contention of the learned counsel based on the documentary evidence on record was that the complainant was successful in establishing execution of Ext.P3 **CRL.A.No. 8 of 2006** **14** cheque and contextually, the presumption under Section 139 of the Act will operate in his favour. But it is discerned from cross examination of PW1 that the defence has taken a plea of total denial of the transaction and execution of cheque. It is noticed that Ext.P3 cheque was drawn from the account of the 1[st] accused firm, but it was signed by the 2[nd] accused the alleged Managing Partner. PW1 was confronted with regard to 2[nd] accused's authority to execute Ext.P3 cheque for and on behalf of the 1[st] accused. The banker with whom an account was maintained by the accused was examined as DW1 and Ext.D1, a certificate issued by the Bank was marked in evidence. It is true that Ext.P3 cheque was drawn from the account maintained with Allahabad Bank. But DW1 stated categorically that all money transaction of the 1[st] accused firm with the Bank were dealt with by one Smt.Rajamma Bhaskaran. She was examined as DW1 on 17.10.2005, much later to the filing of the complaint to launch the prosecution in the case on hand. The version of DW1 is relevant to draw a conclusion that the monetary transactions of the accused firm with the bank till 17.10.2005 were held only through Smt.Rajamma Bahaskaran. While DW1 is being cross examined, a suggestion was put by the learned counsel for **CRL.A.No. 8 of 2006** **15** the complainant about authorisaction of Mr.Prakashan to deal with the monetary affairs of the 1[st] accused, that was abruptly denied by DW1. Therefore, it is clear from the evidence of DW1 that apart from Smt.Rajamma Bhaskaran, none else and to be specific, the 2[nd] accused was not authorised to deal with the affairs of the firm. In the case on hand, the execution of Ext.P3 cheque for the transaction as averred by the complainant was out-rightly denied by the accused. The burden in such circumstances is strictly on the complainant to establish the execution of the cheque. Only when that burden is discharged, the presumption under Section 139 of the Act will be available in favour of the complainant. In the case on hand, the complainant has thoroughly failed to establish the execution of Ext.P3 cheque. Such being the circumstances, there is no scope for raising an argument that the presumption under Section 139 of the Act will operate in favour of the complainant. 17. Apart from all the above, though the accused was not supposed to disprove the transaction by adducing positive evidence in the case on hand, he had adduced evidence to establish that the accounts of the 1[st] accused was permitted to be operated only by one Smt.Rajamma Bhaskaran, the authorised representative of the **CRL.A.No. 8 of 2006** **16** firm to transact monetary affairs of the 1[st] accused. When the complainant is unsuccessful in establishing the execution, it is not necessary to deal with the other aspects, especially regarding compliance of statutory formalities for a prosecution launched under Section 141 of the Act to be successful and sustainable. The complaint itself is vitiated for want of pleadings incorporated therein that the 2[nd] accused has the control of the firm and was dealing with the affairs of the firm. Pleadings of the nature are mandatory for a prosecution launched under Section 141 of the Act to sustain. In view of the discussion as aforesaid, the appeal is liable to fail. In the result, the appeal fails and is dismissed. ## **Sd/-** ## **MARY JOSEPH** **JUDGE** NAB/ttb