Prosecution of Directors under Section 138 of the N I Act requires impleadment of Company #indianlaws

The irresistible conclusion 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

In the judgment as passed by Supreme Court in the matter namely Aneeta Hada vs. M/s. Godfather Travels & Tours Pvt. Ltd., decided on 27.04.2012 (Criminal Appeal No. 838 of 2008), common proposition of law that emerged for consideration in the present matter was whether an authorised signatory of a company would be liable for prosecution under Section 138 of the Negotiable Instruments Act, 1881 (Act) without the company being arraigned as an accused.  In one of the appeals taken together the issue was also involved pertaining to the interpretation of Section 85 of the Information Technology Act, 2000 (2000 Act) which is pari materia with Section 141 of the Act.

In the present case Director of the Appellant-Company was prosecuted under Section 292 of the Indian Penal Code and Section 67 of the 2000 Act without impleading the company as an accused. The initiation of prosecution was challenged under Section 482 of the Code of Criminal Procedure before the High Court and the High Court held that offences are made out against the Appellant-Company along with the directors under Section 67 read with Section 85 of the 2000 Act and the petition seeking quashing of proceeding was rejected.

The Court observed that any person accused of commission of an offence, whether natural or juristic, has some rights. If it is to be found guilty of commission of an offence on the basis whereof its Directors are held liable, the procedure laid down in the Code of Criminal Procedure must be followed. In determining such an issue all relevant aspects of the matter must be kept in mind. The prosecution of the company is a sine qua non for prosecution of the other persons who fall within the second and third categories of the candidates, viz., everyone who was in-charge 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 with whose connivance or due to whose neglect the company had committed the offence.

Thus, the focal point of controversy was whether any person who has been mentioned in Sections 141(1) and 141(2) of the Act can be prosecuted without the company being impleaded as an accused.

As per the provisions provided in Sections 138 and 141 of the Act if a person who commits offence under Section 138 of the Act is a company, the company as well as every person in charge of and responsible to the company for the conduct of business of the company at the time of commission of offence is deemed to be guilty of the offence. Section 139 of the Act creates a presumption in favour of the holder of instrument and the said provision has to be read in conjunction with Section 118(a) of the Act that deals with special rules of evidence. Section 140 stipulates the defence which may not be allowed in a prosecution under Section 138 of the Act. Thus, there is a deemed fiction in relation to criminal liability, presumption in favour of the holder, and denial of a defence in respect of certain aspects. The company is a juristic person. The concept of corporate criminal liability is attracted to a corporation and company and it is so luminescent from the language employed under Section 141 of the Act. The company can have criminal liability and further, if a group of persons that guide the business of the companies have the criminal intent, would be imputed to the body corporate. Section 141 clearly stipulates that when a person which is a company commits an offence, then certain categories of persons in charge as well as the company would be deemed to be liable for the offences under Section 138.

It was held as the bounden duty of the court to ascertain for what purpose the legal fiction has been created. It is also the duty of the court to imagine the fiction with all real consequences and instances unless prohibited from doing so. The word deemed used in Section 141 of the Act applies to the company and the persons responsible for the acts of the company. It crystallizes the corporate criminal liability and vicarious liability of a person who is in charge of the company.

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. But 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.

In view of the above analysis, it was held that the irresistible conclusion 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.

In another set of appeals wherein the offence was under Section 67 read with Section 85 of the 2000 Act. Section 85 of the 2000 Act provides for offences by companies. It was held that keeping in view the anatomy of the provision of Section 85, analysis or finding given in relation to Section 141 of the Act would squarely apply to the 2000 enactment.