P.V. Sebastian v. K.K. Philip and State of Kerala

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR. JUSTICE A.HARIPRASAD** ## **WEDNESDAY, THE 19TH DAY OF MARCH 2014/28TH PHALGUNA, 1935** ## **CRL.A.No. 1210 of 2004 ( ) ---------------------------** **AGAINST THE ORDER IN Crl.L.P. 334/2004 of HIGH COURT OF KERALA DATED 07-06-2004** **AGAINST THE ORDER/JUDGMENT IN CC 203/2000 of C.J.M.,KOTTAYAM DATED 01-03-2004** ## **APPELLANT(S)/COMPLAINANT:** **------------------------** **P.V.SEBASTIAN, S/O.VARGHESE, RESIDING AT PALLIVATHUKKAL HOUSE, KADUVAKKULAM, KOLLAD P.O., KOTTAYAM DISTRICT.** **BY ADV. SRI.BENNY JOSEPH.** ## **RESPONDENT(S)/ACCUSED/STATE.:** **---------------------------** **1. K.K.PHILIP, MANAGING DIRECTOR, NATIONAL INSTITUTIONS, HEAD OFFICE KANIYANTHARA TOWERS, S.C.S. JUNCTION, THIRUVALLA PIN-689101, RESIDING AT, KOLABHAGATHU HOUSE THADIYOOR P.O., THIRUVALLA, PATHANAMTHITTA DISTRICT.** **2. STATE OF KERALA, REP: PUBLIC PROSECUTOR, HIGH COURT OF KERALA, ERNAKULAM.** **R1 BY ADVS. SRI.ARUN.B.VARGHESE SRI.JAYKAR.K.S. R2 BY PUBLIC PROSECUTOR SMT.JASMINE.** **THIS CRIMINAL APPEAL HAVING BEEN FINALLY HEARD ON 19-032014, ALONG WITH CRA. 857/2005 AND CRA.1216/2004, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **amk** ## **A.HARIPRASAD, J.** **------------------------------------------------** **Crl. Appeal Nos.1210/2004, 1216/2004 & 857/2005 -----------------------------------------------Dated this the 19[th] day of March, 2014.** ## **C O M M O N J U D G M E N T** Appeals are filed under Section 378(4) Cr.P.C. The questions arising in these appeals are common to all cases. Therefore, they have been heard together and disposed by this common judgment. 2. Appellants in all the three appeals are different persons. But the fist respondent is the same. Second respondent is the State. 3. Appellants filed complaints against the first respondent under Section 138 of the Negotiable Instruments Act, 1881 (hereinafter referred to as 'the N.I Act'). For the sake of clarity, the parties are referred to as the complainants and accused hereinafter. Common allegations in the complaints in brief are as follows : In the complaint two persons are arraigned as accused. Second accused absconded and hence could not be **Crl. Appeal Nos.1210/2004, 1216/2004 & 857/2005 2** tried. Accused persons represented that the first accused is the Managing Director and the second accused is the Director of a company incorporated under the name and style 'National Institutions', Thiruvalla. The complainants were made to believe that the company will give high returns for depositors. The company allegedly published Ext.P1 brochure. It shows that the company was about to start National Public Schools at various places and as part of that venture, they were planning to receive deposits from public, offering attractive rates of interest. Lured by the advertisement, the complainants and others made deposits in the company allegedly started by the accused persons. After some time, the complainants demanded back their money. In discharge of that liability, the cheques involved in the cases were issued. The point to be noted here is that the cheques were issued by the second accused as proprietor of National Institutions. When the cheques were presented for collection, all **Crl. Appeal Nos.1210/2004, 1216/2004 & 857/2005 3** of them were dishonoured for the reason that the account was closed. Thereafter, the complainants caused to issue statutory notices under Section 138 (b) of the N.I Act. The second accused evaded the notice. Two notices were issued in the name of the first accused, one in the residential address and the other in the address of the so called company. It is seen that both the notices were received by the first accused. Complainants have a case that the notice sent to the first accused in the capacity as Managing Director was redirected to his residential address and that notice was also received by him. Complainants therefore contended that both the accused are liable under Section 138 of the N.I Act even though the cheques were issued by the second accused in the capacity as proprietor of the business concern. It is pertinent to note that the second accused was found to be absconding at the time of trial and he did not face the trial. The first accused alone stood the trial. ## **Crl. Appeal Nos.1210/2004, 1216/2004 & 857/2005 4** 4. Learned Magistrate, after considering the evidence, found that the complainants failed to establish that the first accused is the Managing Director of a company allegedly involved in the business, National Institutions. Reliance is placed on the documents produced by the defence to find that the absconding second accused issued the disputed cheques in his personal capacity and the first accused could not be roped in the offence on the basis of the cheques issued by the second accused. On that reasoning, the complaints were dismissed and the first accused in each case was acquitted. 5. Heard the learned counsel for the appellants and the learned counsel for the accused in Criminal Appeal No.1210/2004. There was no representation for the accused in the other appeals. Learned Public Prosecutor was also heard. I have carefully perused the records. 6. Complainants were examined and various documents ## **Crl. Appeal Nos.1210/2004, 1216/2004 & 857/2005 5** were marked on their side. Likewise, defence evidence was also adduced in all the cases. 7. After hearing the learned counsel for the complainants and the accused, it is seen that the only question arising for consideration in these appeals is whether the first accused can be implicated in the case by virtue of the provisions in Section 141 of N.I Act. 8. Section 141 of N.I Act deals with the offences committed by the companies. It reads as follows : _**“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, an 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_ ## **Crl. Appeal Nos.1210/2004, 1216/2004 & 857/2005 6** _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 his or of holding any office 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 under this Chapter._ _(2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company_ ## **Crl. Appeal Nos.1210/2004, 1216/2004 & 857/2005 7** _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 shall 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. Learned counsel for the complainants contended that even if the business establishment is not proved to be run by a company incorporated under the Companies Act, nor by a firm **Crl. Appeal Nos.1210/2004, 1216/2004 & 857/2005 8** registered under the provisions of the Partnership Act, if it is proved to be run by association of individuals, then the dishonour of cheques issued by such an entity will fall within the mischief of Section 141 of N.I Act for the reason that the accused persons should be treated as association of individuals. 10. Learned counsel for the first accused in C.C No.203/2000 contended that the cheques in question were issued by the second accused in his capacity as proprietor of the business establishment. According to him, there is no evidence, except Ext.P1 brochure, to connect the first accused with the business establishment. It is also contended that Ext.P1 brochure has no legal sanctity as it can be brought out by anyone. There is no material in Ext.P1 to show that the brochure was released with the consent or knowledge of the first accused. 11. Learned counsel for the complainants submitted that the words 'association of individuals' are appearing in various **Crl. Appeal Nos.1210/2004, 1216/2004 & 857/2005 9** other statutes. There are decisions of the Apex court and other courts interpreting the words meaning that the persons, who are not in a jural relationship like that in the case of an incorporated company or firm are also bound by the individual acts. In order to buttress this contention, the learned counsel for the complainants placed reliance on _**Food Inspector, Calicut Corporation v. Hemathlal Chowdgar ( 1966 K.L.T 311)**_ . That is the case wherein a learned Single Judge of this court considered Section 17 of the Prevention of Food Adulteration Act, 1954. In that prosecution, the allegation was that the accused 2 and 3 were the proprietors of the company. This court noticed with the fact that there was no evidence that they were in charge of or they were responsible to the company for the conduct of its business. It was also noticed that mere fact that the license stood in the name of the accused 2 and 3 and they were shown in the complaint as owners or proprietors would not show that they are **Crl. Appeal Nos.1210/2004, 1216/2004 & 857/2005 10** liable as a body of individuals. 12. Another decision relied on by the learned counsel for the is _**Meera and Ludhiana v.**_ appellant _**Company, Commissioner of Income Tax, Punjab, Jandk and Chandigarh, Patiala (AIR 1997 SC 1973)**_ . The question posed for determination was whether on the facts and circumstances of the case, the findings of the High Court that a particular business concern is a body of individual and is assessable as such for income tax. In that context, the Supreme Court held as follows : _“ WE are of the view that the High Court has come to a correct decision. It is not necessary to refer to the large number of cases that have been cited before us but it is well settled by this Court under the Act of 1922, by a series of judgments that 'association must be an of persons' association which is formed by volition of the parties for the purpose of generation of_ **Crl. Appeal Nos.1210/2004, 1216/2004 & 857/2005 11** _income. This is the basic test.”_ 13. Learned counsel for the complainants placed reliance on _**Jagadish Rai Agarwal and others v. The State of A.P and others ( 2005 CRL.L.J 314)**_ , a decision rendered by Andhra Pradesh High Court. Facts therein would show that certain persons jointly agreed to purchase property and issued cheques towards consideration. In that context, it was held that the cheque issued by Kartha of Hindu undivided family is almost akin to that of Directors of a Company and sons can be made liable for the offence under Section 138 of N.I Act. On facts, the decision has no similarity with the case in our hand. Bombay High Court in _**Dadasaheb Rawal Co-operative Bank of Dondaicha Ltd. v. Ramesh and Others**_ ( _**2009 K.H.C 169 )**_ held that the term 'association of individuals' in the context of Sections 138 and 141 of N.I Act will include Hindu undivided family also. This decision is also distinguishable on facts. **Crl. Appeal Nos.1210/2004, 1216/2004 & 857/2005 12** 14. Learned counsel for the accused relied on _**Varghese.V.A v. State of Kerala (2007 K.H.C 3497)**_ to contended that the first accused cannot be termed as drawer as there is no reliable evidence to link the first accused with the cheques in question. 15. The learned Magistrate based on Exts.D1 to D4 found that the cheques were issued by the second accused as proprietor of a business concern. Exts.D2 to D4 are the account opening forms, promissory note, request for O.D facilities, etc., and all submitted by the second accused. In all these documents, he depicted himself as the 'proprietor' of the business concern. To prove Exts.D2 to D4, DW1, the Manager of the Bank in which the second accused maintained the account was examined. Another piece of evidence relied on by the court below is the testimony of PW3. PW3 was working as the Post Mistress in Thiruvalla Post Office at the material time. She **Crl. Appeal Nos.1210/2004, 1216/2004 & 857/2005 13** stated that the first accused did not give any instruction to redirect letters to his residential address. According to PW3, somebody in charge of National Institution gave a letter to redirect the letters to the residential address of the first accused. The identity of the person, who allegedly instructed for redirection of letters have not been revealed. Further, no documentary evidence is forthcoming to establish this fact. First accused has a definite case that he has no connection with the business concern. He also contended that he never instructed the post office concerned to redirect letters to his residential address. Therefore, the learned Magistrate was perfectly justified in finding that the first accused cannot be mulcted with criminal liability under Section 138 of N.I Act, in the absence of clinching evidence that he was in any way connected with the affairs of the institution. Further, the findings of the trial court that the second accused issued the cheque in his personal **Crl. Appeal Nos.1210/2004, 1216/2004 & 857/2005 14** capacity is more probable. In the result, the appeals are found to be devoid of any merit and hence they are dismissed. All pending interlocutory applications will stand dismissed. **Sd/-** **A.HARIPRASAD, JUDGE.** //True Copy// P.A to Judge amk