Background
Recently, Bhatt & Joshi Associates represented the Appellant in a legal dispute that revolves around multiple complaints filed under the provisions of the Negotiable Instruments Act. The case involves a partnership firm as the petitioner and a registered company as the complainant. The complainant maintained an open and running account with the firm M/s Prestige Home Textile Co., where the petitioner is a partner. A cheque was issued by the accused to partly clear their liabilities, which was returned with the endorsement “payee’s name differ” and insufficient funds. Legal notices were issued, and complaints were filed, which the petitioner seeks to quash.
Prayer of the Applicant
The petitions are filed under Articles 226 and 227 of the Constitution of India read with Section 482 of the Code of Criminal Procedure, 1973, for quashing and setting aside the complaints filed under the provisions of the Negotiable Instruments Act. The petitioner seeks to quash the complaints, arguing that their continuation would cause undue hardship and serve no fruitful purpose.
Legal Issues Involved
“On a fair reading of Section 138 of the NI Act, before a person can be prosecuted, the following conditions are required to be satisfied:
i) that the cheque is drawn by a person and on an account maintained by him with a banker;
ii) for the payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability; and
iii) the said cheque is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it is not made within the statutory period even after the issue of notice.” (Page 14, Para 11)
The central legal issue in the case pertains to Section 138 and Section 141 of the Negotiable Instruments Act. Specifically, the court examines whether the petitioner, who is not a partner in the firm that issued the cheque, can be held vicariously liable under Section 141 for the dishonor of a cheque under Section 138.
“In support of his submission, learned advocate Mr.Bhatt relied on the decision in the case of Aneeta Hada V/s Godfather Travels & Tours Pvt.Ltd., reported in (2012)5 SCC 661. He, therefore, submitted that in view of the above settled legal position, in the present case, when the petitioner is not a partner in the partnership firm, the same is required to be quashed qua the petitioner.” (Page 5, Para 5)
Arguments made by Applicant
- The petitioner was never a partner in the firm M/s Prestige Home Textile Co, which is run by her husband.
- The petitioner has never issued any cheque to the respondent no.2-complainant.
- She is not a signatory of the cheque and is not an authorized signatory of the firm.
- The petitioner is falsely implicated in a vicarious capacity as a partner of the said firm.
- Essential ingredients of Section 138 of the Negotiable Instruments Act are not met as the cheques were not issued in discharge of any liability by the applicant.
- The petitioner cannot be held liable under Section 138 for the dishonor of a cheque drawn on a bank account maintained by a partnership firm in which she is not a partner.
- Provisions of Section 141 can only be invoked if the primary liability under Section 138 is attracted.
Important Observations of the Court
The court made several important observations:
The judgment underscores essential legal principles derived from the court’s analysis, succinctly encapsulated as vicarious liability, the verbatim replication of Section 141 and fulfillment of Section 141’s requisites
“Thus, the legal principles discernible from the aforesaid decision of this Court may be summarized as under:
(a) Vicarious liability can be fastened on those who are in-charge of and responsible to the company or firm for the conduct of its business. For the purpose of Section 141, the firm comes within the ambit of a company.
(b) It is not necessary to reproduce the language of Section 141 verbatim in the complaint since the complaint is required to be read as a whole;
(c) If the substance of the allegations made in the complaint fulfill the requirements of Section 141, the complaint has to proceed in regards to the law.” (Page 12, Para 10)
After a thorough assessment of the alleged facts presented in the complaints, as well as the specific circumstances surrounding the current case, it becomes evident that the continuation of subsequent proceedings arising from the mentioned complaints would impose substantial hardships upon the petitioner.
“In view of the above settled position of law and after considering the facts as alleged in the complaints and circumstances of the present case, it transpires that continuation of further proceedings pursuant to the said complaints will cause greater hardships to the petitioner and no fruitful purpose would be served if such further proceedings are allowed to be continued.”
In the landmark case of Assistant Commissioner, Assessment II, Bangalore v. Velliappa Textiles Ltd., the court introduced a pivotal legal concept that elucidates the intricate relationship between an employee and the employer corporation. Termed as “ego and alter ego,” this concept establishes the vital connection between the actions of an employee and the corporate entity, highlighting the directing mind and will of the corporation. This innovative legal principle plays a crucial role in attributing criminal liability to corporations, as it identifies the employee as the center of the corporation’s personality, shaping the dynamics of criminal culpability.
“This Court in Assistant Commissioner, Assessment II, Bangalore and Ors. v. Velliappa Textiles Ltd. And Ors. introduced the concept of ego and alter ego in relation to the employee and the employer corporation.”
In the realm of legal scrutiny surrounding Section 138 of the Negotiable Instruments Act, a comprehensive understanding emerges when dissecting the conditions imperative for the initiation of prosecution. A careful examination reveals that prior to subjecting an individual to legal proceedings, a trifecta of prerequisites demands fulfillment.
“On a fair reading of Section 138 of the NI Act, before a person can be prosecuted, the following conditions are required to be satisfied:
i) that the cheque is drawn by a person and on an account maintained by him with a banker;
ii) for the payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability; and
iii) the said cheque is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it is not made within the statutory period even after the issue of notice.” (Page 14, Para 11)
Important Provisions of Law
| Provision / Section of Law | What it Stands For |
| Section 138, Negotiable Instruments Act | Deals with dishonor of cheque for insufficiency of funds. |
| Section 141, Negotiable Instruments Act | Concerns vicarious liability in cases of cheque bounce. |
| Section 482, Code of Criminal Procedure, 1973 | Discusses the inherent powers of the High Court. |
| Articles 226 and 227, Constitution of India | Pertains to the powers of High Courts under the Constitution. |
Conclusion
The court concluded that the continuation of the proceedings would cause greater hardships to the petitioner and serve no fruitful purpose. The court emphasised that criminal prosecution should not be used as an instrument of harassment or for seeking private vendetta. As a result, all the petitions were allowed, and the criminal cases were quashed in relation to the present petitioner.
