Case Note & Summary
The case involves a complaint under Section 138 of the Negotiable Instruments Act, 1881 filed by the respondent against the appellant, Himanshu, alleging that the appellant issued a cheque for Rs. 4,15,000 drawn on Karnataka Bank, Hosadurga, which was dishonoured due to insufficient funds. The appellant contended that the cheque was issued on behalf of Lakshmi Cement and Ceramics Industries Ltd., a public limited company, and not in his personal capacity. He filed a petition under Section 482 of the Code of Criminal Procedure, 1973 before the Karnataka High Court seeking quashing of the complaint, arguing that the company was not arraigned as an accused and that the notice of demand was not served on the company. The High Court dismissed the petition, holding that the complainant was ignorant of the company's existence and that the company could be impleaded later. The Supreme Court allowed the appeal, relying on the three-judge bench decision in Aneeta Hada v. Godfather Travels and Tours Private Limited, which held that arraigning the company as an accused is imperative for prosecution under Section 141. The Court also noted that the proviso to Section 138 requires a notice of demand to be served on the drawer, which in this case was the company, and that the High Court erred in directing that the company could be impleaded without compliance with the proviso. Consequently, the complaint was quashed. However, since the appellant had deposited the cheque amount pursuant to an earlier order of the Supreme Court, the Court directed that the amount with accrued interest be paid to the respondent.
Headnote
A) Negotiable Instruments Act - Dishonour of Cheque - Section 138 - Vicarious Liability - Section 141 - Company as Accused - The appellant, a director, issued a cheque on behalf of a company. The complaint was filed only against the director without arraigning the company. The Supreme Court held that under Section 141, arraigning the company as an accused is imperative for maintaining prosecution against directors. The complaint was quashed. (Paras 4-7) B) Negotiable Instruments Act - Dishonour of Cheque - Section 138 - Notice of Demand - Compliance with Proviso - The notice of demand was served only on the director, not on the company. The High Court's direction to implead the company at a later stage was erroneous as the pre-conditions under Section 138 proviso must be fulfilled before an offence is made out. (Paras 5-7) C) Criminal Procedure Code, 1973 - Section 482 - Quashing of Complaint - Abuse of Process - The complaint against the director was quashed as it was not maintainable without the company being an accused and without proper notice to the company. (Para 7)
Issue of Consideration
Whether a director can be prosecuted under Section 138 of the Negotiable Instruments Act, 1881 without the company being arraigned as an accused, and whether the High Court could direct that the company be impleaded at a later stage without compliance with the proviso to Section 138.
Final Decision
Appeal allowed. Judgment of High Court set aside. Complaint C.R.P No. 27/2004 quashed. Amount of Rs. 4,15,000 deposited by appellant with accrued interest to be paid to respondent.
Law Points
- Vicarious liability under Section 141 NI Act requires company to be arraigned as accused
- Notice of demand must be served on company under Section 138 proviso
- Pre-conditions under Section 138 must be strictly complied with
