S. Velayudhan Pillai v. Chellath Franklin

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT** **THE HONOURABLE MR.JUSTICE N.ANIL KUMAR** **MONDAY, THE 14[TH] DAY OF JUNE 2021 / 24TH JYAISHTA, 1943** **CRL.REV.PET NO. 1906 OF 2014** **[AGAINST THE ORDER/JUDGMENT IN CRA 97/2014 OF I ADDITIONAL DISTRICT COURT, ERNAKULAM, AGAINST THE JUDGMENT IN ST 1985/2008 BEFORE THE COURT JUDICIAL FIRST CLASS MAGISTRATE-VI, ERNAKULAM DTD.17.1.2014]** ## **REVISION PETITIONER/APPELLANT/FIRST ACCUSED:** S.VELAYUDHAN PILLAI MANAGING PARTNER, M/S.K.VELAYUDHAN PILLAI, GLASS MERCHANT, BROADWAY, ERNAKULAM DISTRICT682031. BY ADVS. SRI.O.RAMACHANDRAN NAMBIAR SRI.BABU SHANKAR SRI.CIBI THOMAS SRI.GEEN T.MATHEW ## **RESPONDENTS/RESPONDENTS/COMPLAINANT:** 1 CHELLATH FRANKLIN S/O.XAVIER, ADVOCATE, GANDHINAGAR, KALOOR POST- 682017, ERNAKULAM DISTRICT. 2 STATE OF KERALA REPRESENTED BY THE PUBLIC PROSECUTOR, HIGH COURT OF KERALA, ERNAKULAM DISTRICT-682031. BY ADV SHRI.M.V.S.NAMPOOTHIRY THIS CRIMINAL REVISION PETITION HAVING COME UP FOR ADMISSION ON 03.03.2021, THE COURT ON 14.06.2021 ORDERED THE FOLLOWING: Crl.R.P.No.1906 of 2014 ..2.. Crl.R.P.No.1906 of 2014 **O R D E R [C.R.]** [Dated this the 14[th] day of June, 2021] The revision petitioner is the first accused in S.T.No.1985/2008 of the Judicial First Class Magistrate Court-IV, Ernakulam. The first respondent is the complainant in the above case. The revision petitioner is aggrieved by the judgment dated 29.8.2014 passed by the Sessions Court, Ernakulam holding that the appellant is guilty of the offence under Section 138 of the Negotiable Instruments Act,1881 (hereinafter referred to as 'the N.I. Act') after confirming the finding of conviction and sentence passed by the trial court by its judgment dated 17[th] January, 2014. The parties are hereinafter referred to as 'the complainant' and 'the accused' according to their status in Crl.R.P.No.1906 of 2014 ..3.. the trial court unless otherwise stated. 2. The brief facts of the case, which emanate from the records, are that the revision petitioner borrowed an amount of Rs.8,00,000/- from the complainant and executed a cheque dated 31.1.2008 for an amount of Rs.8,00,000/- in the name of the complainant from the State Bank of Travancore, Ernakulam Broadway branch. The complainant presented the cheque for collection through Catholic Syrian Bank, Market Road branch. The cheque on presentation was returned due to insufficiency of funds in the account of the accused. A legal notice was sent by the complainant to the accused. The notice was duly served, but the accused neither responded to the notice nor made any payment in furtherance thereto within the statutory period. The first accused is the Managing Partner of the firm and the second Crl.R.P.No.1906 of 2014 **==> picture [22 x 8] intentionally omitted <==** accused is the partner of the firm under name and style M/s.K.Velayudhan Pillai, Glass Merchant, Broadway, Ernakulam. 3. The first respondent/complainant recorded preliminary evidence before the trial court and thereafter, the accused was directed to be summoned for the offence punishable under Section 138 of the N.I.Act. Pursuant to the summons, the first accused entered appearance and the second accused was reported dead. After securing the presence of the first accused, the particulars of the offence allegedly committed by the first accused under Section 138 of the N.I.Act were read over to him, whereto he pleaded not guilty and claimed for trial. Thereafter, PWs.1 to 4 were examined and marked Exts.P1 to P8 on the complainant's side. On conclusion of the recording of the complainant's Crl.R.P.No.1906 of 2014 **==> picture [22 x 8] intentionally omitted <==** evidence, the accused was questioned under Section 313(1) (b) of the Code of Criminal Procedure (hereinafter referred to as 'the Cr.P.C.') by the trial court for the purpose of enabling him to explain any circumstance appearing in the evidence against him whereby the revision petitioner/accused denied all the incriminating circumstances appearing in the evidence against him and claimed innocence. DW1 was examined on the side of the accused and duly exhibited Exts.D1 to D5. 4. The first appellate court, on re-appraisal of the evidence on record, affirmed that the complainant proved that Ext.P1 cheque was issued for a legally enforceable debt and it was for the revision petitioner/accused to discharge his burden to rebut the presumption under Sections 118 and 139 of the N.I.Act. Crl.R.P.No.1906 of 2014 **==> picture [22 x 9] intentionally omitted <==** 5. After considering the evidence adduced by the parties and hearing the parties, the trial court and first appellate court concurrently found that the accused was guilty of the offence under Section 138 of the N.I.Act and accordingly, he was convicted thereunder. The revision petitioner/first accused was convicted and sentenced to pay a fine of Rs.8,20,000/- and in default of payment of fine, to undergo simple imprisonment for a period of six months. It was directed that the fine amount, if realised, an amount of shall be to the as Rs.8,10,000/- paid complainant compensation under Section 357(1)(b) of the Cr.P.C. 6. The first accused in this case is Sri.K.Velayudhan Pillai, Managing Partner, M/s.K.Velayudhan Pillai Glass Merchant, Broadway, Ernakulam and the second accused is one of the partners of Crl.R.P.No.1906 of 2014 **==> picture [22 x 8] intentionally omitted <==** the firm. Learned counsel for the revision petitioner contended that the findings of the trial court and appellate court, if taken to its logical conclusion, would lead to an incorrect legal proposition in interpreting the statutory provision under section 141 of the Act, that the company or firm is not a sine qua non for prosecution of the other persons, who fall within the second and third categories, that is every one who was in charge of, and was responsible for the business of the company and any other person, who was a director or managing director or secretary or officer of the company or due to whose neglect the company had committed the offence. According to the learned counsel for the revision petitioner, both the trial court and the first appellate court held that although the company is not an accused, the prosecution under Section 138 of the N.I.Act is Crl.R.P.No.1906 of 2014 **==> picture [22 x 9] intentionally omitted <==** sustainable. The learned counsel for the revision petitioner contended that on a plain reading of Section 141 of the N.I.Act, it is clear that a finding has to be entered that the company has committed the offence and such a finding cannot be recorded unless the company is before the court, more so, when it enjoys the status of a separate legal entity. According to the learned counsel for the revision petitioner, the company or firm, although a juristic person, is a separate entity. Its directors may come and go and the company remains maintaining its own reputation and standing. Thus, it is argued that unless the company or firm, the principal entity, is prosecuted as an accused, the subsidiary entity, the individual namely, accused 1 and 2 cannot be held liable for the offence punishable under Section 138 of the N.I.Act. Thus, it is argued that when the Crl.R.P.No.1906 of 2014 **==> picture [22 x 9] intentionally omitted <==** company is in existence, the company is the principal offender and its non-impleadment will create a dent in the prosecution case. Relying on the decision in **Aneeta Hada** v. **M/s.Godfather Travels and Tours Pvt. Ltd** [2012 (2)KLT 736(SC)], the learned counsel for the revision petitioner/accused contended that an authorised signatory of a company cannot be made liable for the prosecution under Section 138 of the N.I.Act without the company being arrayed as an accused. 7. On the other hand, the learned counsel for the complainant would contend that the account in question involved in this case is not relating to the firm and it is an account maintained by the first accused separately. The learned counsel for the complainant further contended that the firm is properly represented and the first accused Crl.R.P.No.1906 of 2014 **==> picture [28 x 9] intentionally omitted <==** defended the action in his capacity as the Managing Partner of the firm knowing fully well that he has been defending the firm itself. In other words, it was contended that the company, being a legal entity, acts to with its directors or other officers to sign and issue the cheque and intimate the Bank to honour the cheque, if signed by such person. 8. Heard Sri.Geen.T.Mathew, the learned counsel for the revision petitioner and Sri.M.V.S.Nampoothiri, the learned counsel for the 1[st] respondent. 9. The proposition of law that has emerged for consideration is whether an authorised signatory of a company or firm would be liable for prosecution under Section 138 of the N.I.Act without the company being arrayed as an accused. 10. Ext.P1 cheque is dated 31.01.2008 for an Crl.R.P.No.1906 of 2014 **==> picture [28 x 8] intentionally omitted <==** amount of Rs.8,00,000/-. Ext.P2 would show that the complainant presented the cheque before the bank on or before 21.05.2008 within six months from the date of Ext.P1. Ext.P2 would further show that the cheque was returned unpaid from the bank for the reason 'funds insufficient'. Exts.P3 and P4 would show that the complainant had issued statutory notice on 10.06.2008 requesting the accused to pay the amount covered under the cheque within 15 days from the date of receipt of the notice. The accused received the notice on 10.06.2008 by Ext.P5. 11. In paragraph 1 of the complaint, it is stated that the first accused is the Managing Partner and the second accused is the partner of M/s.K.Velayudhan Pillai Glass Merchant, Broadway, Ernakulam. In the affidavit Crl.R.P.No.1906 of 2014 **==> picture [28 x 9] intentionally omitted <==** dated 08.07.2008, the very same sentence is reiterated. Admittedly, the first accused is one of the partners of the firm. He himself had subscribed his signature in Ext.P1. Learned counsel for the revision petitioner would contend that even if the execution and handing over the cheque by the accused is proved by the complainant, the same would not help him to secure conviction since Ext.P1 cheque belongs to the firm, of which the accused 1 and 2 are partners and the firm is not made as a party in the case. In order to prove that Ext.P1 cheque belongs to the firm, DW1 was examined and marked Exts.D1 to D5. Going by Exts.D1 to D3, it is clear that the same was relating to a new account opened by the accused after the case. At the same time, Exts.D4 and D5 would clarify that Ext.P1 cheque was drawn on the account maintained by the firm. Ext.D1 is relating to Crl.R.P.No.1906 of 2014 **==> picture [28 x 9] intentionally omitted <==** the current account No.67089520826 in favour of Sri.K.Velayudhan Pillai. It is in respect of a separate current account opening form. Ext.D4 would show that the old account number 62228 of Sri. K.Velayudhan Pillai on migration to core-banking, changed as 57030066065. Ext.P1 cheque was issued from the old account No.62228. Ext.D5 statement of account would show that the new account number is 57030066065. Ext.D1 account opening form shows that while opening a new account by Sri.K.Velayudhan Pillai in the State Bank of Travancore, Broadway, Ernakulam Branch, on 13.8.2009, his existing number 57030066065 is stated specifically on Page No.5. As per the account opening form details, it is obligatory on the part of the customer to disclose the account number if he is already a customer of the Branch. Thus, it is clear that, Crl.R.P.No.1906 of 2014 **==> picture [28 x 8] intentionally omitted <==** the core banking number 57030066065 corresponding to old account number 62228 of Sri.K. Velayudhan Pillai is the subject matter of Ext.P1 cheque. The deed of partnership produced by DW1 would show that it was executed way back in 1998. 12. The trial court and the appellate court concurrently expressed the view that even if the prosecution proceedings against the firm were not taken or could not be continued, it is no bar for proceeding against accused 1 and 2 and the partners of the firm falling within the purview of sub-sections (1) and (2) of Section 141 of the N.I.Act. The trial court held that the accused cannot contend that he is not the drawer of the cheque and he is not maintaining any account with the bank, presumably for the reason that he had signed the cheque in Crl.R.P.No.1906 of 2014 **==> picture [28 x 8] intentionally omitted <==** his capacity as a partner of the firm, which is maintaining the account. Thereafter, the trial court referred to the decision reported in **Radhakrishnan** v. **A.C.Thomas and another [2006 (1) KLT 150** ], and held that there is no postulate under Section 141 of the N.I.Act and that the Director or the signatory of the cheque cannot be separately prosecuted, unless the company is arrayed as an accused. In Radhakrishnan's case, a learned Single Bench of this Court took note of the two Judge Bench decision in **Anil Hada** v. **Indian Acrylic Ltd.** [(2000) 1 SCC 1], wherein it was held that the company acts through its Directors or authorised officers and they cannot seek escape route on the foundation that the company has not been impleaded as an accused. In Anil Hada's case, it was clearly held that the word 'as well as the company' assumes significance Crl.R.P.No.1906 of 2014 **==> picture [28 x 9] intentionally omitted <==** inasmuch as the deemed liability includes both the company and the officers in charge, and hence prosecution can exclusively be maintained against the Directors or officers in charge depending on the averment made in the complaint petition. 13. At this juncture, the question arises for consideration is whether any person, who has been described under Section 141 (1) and (2) of the N.I.Act can be prosecuted for the offence under Section 138 of the N.I.Act without the Company being impleaded as an accused. On a reading of Anil Hada's case, it is clear that the actual offence should have been committed by the company and then alone the other two categories of persons can also become liable for the offence and thereafter, proceed to state that if the company is not prosecuted due to legal snag Crl.R.P.No.1906 of 2014 ..17.. or otherwise, the accused cannot escape from the penal consequences envisaged under Section 141 of the Act. In this context, it is profitable to take note of the three Judge Bench decision in **Aneeta Hada** v. **Godfather Travels and** **Tools Private Ltd** ., [2012 (2) KLT 736 (SC)], wherein it has been held in paragraph 37 as follows: _“37. We have already opined that the decision in Sheoratan Agarwal (supra) runs counter to the ratio laid down in the case of C.V.Parekh (supra) which is by a larger Bench and hence, is a binding precedent. On the aforesaid ratiocination, the decision in Anil Hada (supra) has to be treated as not laying down the correct law as far as it states that the director or any other officer can be prosecuted without impleadment of the company. Needless to emphasize, the matter would stand on a different footing where there is some legal impediment and the doctrine of lex non cogit ad impossibilia gets attracted.”_ 14. The Apex Court in **Aneeta Hada** (supra) had occasion to examine the question whether an authorised signatory would be liable for prosecution under Section 138 Crl.R.P.No.1906 of 2014 ..18.. of the N.I.Act without company being arraigned as an accused and held as follows:- _“43. In view of our aforesaid analysis, we arrive at the irresistible conclusion that for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the dragnet on the touchstone of vicarious liability as the same has been stipulated in the provision itself.”_ 15. Thus the liability of the revision petitioner is only statutory because of his legal status as the Managing Partner of the firm. Every person signing the cheque on behalf of the firm/company on whose account a cheque is drawn does not become the drawer of the cheque. Such a signatory is only a person duly authorised to sign the cheque on behalf of the firm/company. 16. Section 141 of the N.I.Act stipulates the liability for the offence punishable under Section 138 of the N.I.Act Crl.R.P.No.1906 of 2014 ..19.. when the person committing such an offence happens to be a firm or company. ## _- “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_ .” 17. The offence under Section 138 of the N.I.Act is capable of being committed by the drawer of the cheque. In **MSR Leathers v. S.Palaniappan and another [(2013) 1 SCC 177** , the Apex Court held thus:- _“12. The Proviso to Section 138 of the N.I.Act, 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, whichever is earlier. The second condition is_ Crl.R.P.No.1906 of 2014 ..20.. _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) thereof that an offence under Section 138 can be said to have been committed by the person issuing the cheque.”_ 18. It is clear from Section 138 of the N.I.Act that in spite of the demand notice referred to above, the drawer of the cheque failed to make payment within 15 days from the date of receipt of notice. Admittedly, no notice was issued to the firm as contemplated under the Act before lodging the complaint. Needless to say that this failure to comply with Crl.R.P.No.1906 of 2014 **==> picture [28 x 9] intentionally omitted <==** any one of the steps contemplated under Section 138 of the N.I.Act would not provide cause of action for the prosecution. Hence the firm cannot be held liable at this stage. Since no statutory notice was issued against the firm within the time prescribed, the respondent has no sufficient cause for invoking the jurisdiction of this court to implead the firm as an accused in exercise of powers under Section 142 of the N.I.Act. Hence the legal principles formulated in **N.Harihara Krishnan v. J.Thomas** [(2018) 3 SCC 663] and **Radhakrishnan v. State of Kerala** are [2018(4) KHC 262] not applicable in this case. Although Section 142 of the Act authorises the court to condone the delay in appropriate case, this court finds no reason to condone the delay in this case. On the face of Ext.P1 cheque, it is clear that it was drawn on account of the firm. Admittedly, the respondent Crl.R.P.No.1906 of 2014 **==> picture [28 x 9] intentionally omitted <==** failed to issue notice to the firm as contemplated under Clause (b) of the proviso to Section 138 of the N.I.Act. 19. In view of the decision in **Aneeta Hada** (supra), the decision in **Anil Hada** (supra) has to be treated as, not laying down the correct law. There can be no vicarious liability unless there is a prosecution against the firm. The vicarious liability gets attracted when the condition precedent laid down in Section 141 of the N.I. Act can satisfy. Thus, it can be safely concluded that if the prosecution proceedings against the firm were not taken by the complainant for the offence under section 138 of the N.I.Act, it is certainly a bar for proceeding against the other person coming within the ambit of sub-sections (1) and (2) of Section 141 of the N.I.Act. Crl.R.P.No.1906 of 2014 **==> picture [28 x 9] intentionally omitted <==** In view of the above reasoning and discussion, the conviction and sentence concurrently passed by the two courts below are contrary to the dictum laid down by the Apex Court in **Aneeta Hada** (supra) and, therefore, cannot be sustained. The conviction and sentence are, accordingly, set aside. The Crl.R.P. is allowed. The revision Petitioner is found not guilty of the offence under Section 138 of the NI Act and he is acquitted of the said offence. Cancelling his bail bond, this Court direct that he be set at liberty. Pending applications, if any, stand disposed of. sd/- **N.ANIL KUMAR, JUDGE** MBS/