Drawer of the cheque, whether a human being or a body corporate or even firm liable for prosecution under S. 138 of N.I. Act

The Supreme Court has held that when the drawer of the cheque who falls within the ambit of Section 138 of the Act is a human being or a body corporate or even firm, prosecution proceedings can be initiated against such drawer. 

When a company, which committed the offence under Section 138 of the Negotiable Instruments Act, (Act) eludes from being prosecuted thereof, can the Directors of that company be prosecuted for that offence?  

Supreme Court dealt with the above question in the matter namely, Anil Hada vs. Indian Acrylic Ltd., decided on 26.11.1999 (Criminal Appeal No. 1258-63 of 1999) and reported as MANU/SC/0736/1999: AIR 2000 SC 145.

One of the Directors of the company concerned raised an issue before the High Court that prosecution in such a situation is not maintainable as against the directors. High Court rejected the plea against which appeal was preferred before the Apex Court.

In the instant matter five complaints were filed against the Company and eleven other persons were shown as directors of the accused company. The magistrate took cognizance of the offence on all the complaints filed and processes were issued against the accused. Objections were raised by the accused company on the premise that winding up proceedings has been ordered by the court on the accused company and hence no prosecution proceedings could be continued against the accused company. In two complaints proceedings were dropped against the accused company and in three complaints it was ordered the complaints to remain in suspense against the accused company until leave is obtained from the Court concerned to continue with the prosecution proceedings.

Appellant, who was arraigned as second accused in all the complaints, moved the trial court for dropping the criminal prosecution against him also. It was however held against him that prosecution against the directors of the company, who were in charge of the business of the company, could be maintained even without prosecuting the company itself. Revision petitions filed by the Appellant were also dismissed by the High Court.

It was submitted on behalf of the Appellant that under Section 141 of the Act the company could be the principal offender and the directors are merely deemed offenders and hence finding that the company is guilty of the offence is sine qua non for operation of the deeming provision to the prejudice of the directors. Section 139 was also referred which contains the legal presumption that a holder of cheque had received it in discharge of a preexisting debt or liability and submitted that it is for the company to rebut the presumption and not for anybody else.

The Court pointed out at the outset that the offender in Section 138 of the Act is the drawer of the cheque. He alone would have been the offender thereunder if the Act did not contain other provisions. It is because of Section 141 of the Act that penal liability under Section 138 is cast on other persons connected with the company.

Three categories of persons can be discerned from the said provision those are brought within the purview of the penal liability through the legal fiction envisaged in the section, namely:

  1. The company which committed the offence;
  2. Everyone who was in charge of and was responsible for the business of the company;
  3. Any other person who is a director or a manager or a secretary or officer of the company, with whose connivance or due to whose neglect the company has committed the offence.

Normally an offence can be committed by human beings who are natural persons. Such offence can be tried according to the procedure established by law. But there are offences which could be attributed to juristic person also. If the drawer of a cheque happens to be a juristic person like a body corporate it can be prosecuted for the offence under Section 138 of the Act.

There is no scope for doubt regarding that aspect in view of the clear language employed in Section 141 of the Act. In the expanded ambit of the word “company” even firms or any other associations of persons are included and as a necessary adjunct thereof a partner of the firm is treated as director of that company.

Thus, when the drawer of the cheque who falls within the ambit of Section 138 of the Act is a human being or a body corporate or even firm, prosecution proceedings can be initiated against such drawer. The phrase “as well as” used in Sub-section (1) of Section 141 of the Act would mean to include the persons mentioned in the first category within the tentacles of the offence on a par with the offending company. Similarly the words “shall also” in Sub-section (2) are capable of bringing the third category persons additionally within the dragnet of the offence on an equal par. The effect of reading Section 141 is that when the company is the drawer of the cheque such company is the principal offender under Section 138 of the Act and the remaining persons are made offenders by virtue of the legal fiction created by the legislature as per the section. Hence 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.

If the offence was committed by a company it can be punished only if the company is prosecuted. But instead of prosecuting the company if a payee opts to prosecute only the persons falling within the second or third category the payee can succeed in the case only if he succeeds in showing that the offence was actually committed by the company. In such a prosecution the accused can show that the company has not committed the offence, though such company is not made an accused, and hence the prosecuted accused is not liable to be punished. The provisions do not contain a condition that prosecution of the company is sine qua non for prosecution of the other persons who fall within the second and the third categories mentioned above. No doubt a finding that the offence was committed by the company is sine qua non for convicting those other persons.

If a company is not prosecuted due to any legal snag or otherwise, the other prosecuted persons cannot, on that score alone, escape from the penal liability created through the legal fiction envisaged in Section 141 of the Act.

Presumption, as referred in Section 139 of the Act, is in favour of the holder of the cheque. It is not mentioned in the section that the said presumption would operate only against the drawer. After all a presumption is only for casting the burden of proof as to who should adduce evidence in a case. It is open to any one of the accused to adduce evidence to rebut the said presumption. In a prosecution where both the drawer company and its office bearers are arrayed as accused, and if the drawer company does not choose to adduce any rebuttal evidence it is open to the other office bearers-accused to adduce such rebuttal evidence. If that be so, even in a case where the drawer company is not made an accused but the office bearers of the company alone are made the accused such office bearers-accused are well within their rights to adduce rebuttal evidence to establish that the company did not issue the cheque towards any antecedent liability.

It was accordingly concluded that even if the prosecution proceedings against the company were not taken could not be continued, it is no bar for proceeding against the other persons falling within the purview of Sub-sections (1) and (2) of Section 141 of the Act.