Verdict

IN THE SUPREME COURT, CRIMINAL APPELLATE
Criminal Appeal No. 5556 of 2024
Bijoy Kumar Moni . . . . . . . . . . . . . Appellant
V/s
Paresh Manna (& another) . . . . . . . . . . . . . . . . . . . . . . . . . . . Respondent(s)  

In December 2024, the Hon’ble Supreme Court of India pronounced an exhaustive judgment on interpretation of Sections 138 and 141 of Negotiable Instruments Act [‘NI Act’].

Facts and background

• Bijoy Kumar Moni (‘Bijoy’), in good faith and based on recommendation of his friend who was then manager in United Bank of India Raghunathpur, West Bengal branch, gave a total loan of Rs.8,45,000 [by cheque 7.0 lacs + by cash 1.45 lacs] to Paresh Manna (‘Paresh’) as an individual, in February 2006.
• In April 2006, Paresh issued a cheque to Bijoy for the total loan amount, from Standard Chartered Bank, Kolkata branch account of Shilabati Hospital Pvt Ltd [‘Company’], in which company Paresh was Director.
• Paresh’s cheque was returned to Bijoy unpaid, citing the reason of ‘insufficient funds’. Paresh did not react to Bijoy’s demand notice nor did he repay the loan amount within stipulated period.
• Bijoy made a criminal appeal in a Raghunathpur Trial Court, West Bengal in August 2006. Paresh claimed that company cheque was issued only as security to his personal loan and not for loan settlement.
• The Trial Court found Paresh guilty under Section 138 of NI Act and pronounced a sentence of 1-year Simple Imprisonment plus Rs.10 lakhs penalty, in July 2017.
• Aggrieved, Paresh approached Sessions Court for quashing the sentence as well as Bijoy’s case. In February 2019, Sessions Court upheld the conviction and sentence given by Trial Court.
• Paresh then appealed to Calcutta High Court. Relying on Supreme Court’s verdict in Himanshu v/s B. Shivamurthy and Another (2019) 3 SCC 797,  the Calcutta HC observed that
  – Paresh issued cheque to Respondent Bijoy from the Company (hospital) account, as Director.
  – Bijoy’s criminal complaint is only against Paresh as an individual and not against the company. In other words, the company has not been arraigned in this case.
  – No notice was served by Bijoy to the Company (hospital) whose bounced cheque he received.
  – Applying Section 141 of NI Act (vicarious liability), Paresh, as Director and signatory of company cheque, cannot be held as sole accused and convicted as first accused unless the company itself is arraigned in the case, which has not been done.
  Based on the above, the Calcutta HC set aside the verdicts of Trial Court and Sessions Court in July 2019.
• Bijoy, aggrieved by Calcutta High Court’s verdict, filed a criminal appeal in Supreme Court.

Issue for consideration
Do Sections 138 (penalty) and 141 (vicarious liability) of Negotiable Instruments Act 1881 apply to a company Director if he is signatory of a bounced company cheque issued to settle his liability against a personal loan taken by him?

Analysis and Judgement                                                                           
The Supreme Court has relied on its own verdicts in several cases, including but not limited to 
P.J. Agro Tech Ltd. and Others v/s Water Base Ltd. (2010) 12 SCC 146
Anil Sachar and Another v/s Shree Nath Spinners Pvt Ltd and Others (2011) 13 SCC 148
Aneeta Hada v/s Godfather Travels and Tours Pvt Ltd (2012) 5 SCC 661

The Supreme Court has also analysed the verdicts given by other High Courts in the following cases: 

• P.N. Salim v/s P.J. Thomas & Another (2004) SCC Online Ker 269 (Kerala HC)
• Hashmikant M. Seth v/s State of Gujarat & Anr.(2004) SCC Online Guj 300 (Gujarat HC)
• P. Sarvana Kumar v/s S.P. Vijaya Kumar (2022) SCC Online Mad 1387 (Madras HC)

The Supreme Court observed that:

1. Section 138 NI Act defines ‘drawer’ of cheque as ‘person who maintains the account with the bank’. It also stipulates ‘cheque should be issued by drawer from an account maintained by him’. The SC has clarified that Director of company, even if he is authorised to sign company cheques, cannot be called the ‘drawer’ as he himself does not maintain company’s account or interact regularly with the bank.
2. A company is a separate legal entity by itself. Persons are deployed/authorised to conduct company’s affairs. When an authorised person draws a cheque of company’s account, he does so on company’s behalf and not on his own behalf. ‘Drawer’ here is the company and not the cheque signatory, as per Section 138 of NI Act

In the present case, the Supreme Court observed that:

1. Paresh issued cheque from company account as Director and authorised signatory; he is not the drawer since he does not maintain the company’s account.
2. Bijoy is incorrect in deeming the cheque received by him as drawn by Paresh as an individual, since it visibly bears company stamp and is signed by Paresh in his capacity as its Director. It should have been apparent to Bijoy that Respondent Paresh is not the drawer, hence should not have arraigned him under Section 138 NI Act.
3. Instead, had Appellant Bijoy arraigned the company (hospital) in his petition, company would have become the accused under Section 138 NI Act, even though cheque issued by it is in discharge of a liability of another person and not its own liability. This is in view of the fact that: ‘any cheque’ issued for ‘other liability’ i.e. other than drawer’s liability too comes under Sections 138 and 139 NI Act.
4. The only way Paresh could be held guilty in present case was as the company Director, provided Bijoy had arraigned the company. Even then, Paresh would not have been the sole accused; company would be first accused and all its other officials co-accused.
5. Section 141 NI Act, pertaining to ‘vicarious liability’, is applicable only to offences committed by ‘company’ where all those persons designated to handle company’s affairs become vicariously i.e. indirectly liable. Offence should, however, first be proved against the company under Section 138, before making all its designated persons vicariously liable. Such designated persons should have been in charge of and responsible to the company for its conduct of business at the time of offence. 
6. Paresh failed to respond to the legal notice received from Bijoy, that he failed to repay the loan amount within stipulated period and that he knowingly drew a cheque from company account to settle his personal liability, are all facts that have been proven. While Section 138 NI Act was the wrong recourse to have been taken, Bijoy still has the option of filing an F.I.R. with concerned police and initiate a fresh investigation into Paresh’s offence of loan default.

Based on the above analysis, Supreme Court has rejected the criminal appeal that Appellant has made under Section 138 of Negotiable Instruments Act 1881.

For full text of the judgement:
https://api.sci.gov.in/supremecourt/2017/29686/29686_2017_1_1501_57018_Judgement_06-Nov-2024.pdf