IN THE PUNJAB AND HARYANA HIGH COURT 

R. S. Cheema, Senior Advocate (Rajiv Trikha, Advocate, with him), for the petitioner. 

M. L. Sarin, Senior Advocate (Hemant Sarin, Advocate, with him), for the respondent. 

JUDGMENT 

R. L. ANAND J. - By this order I dispose of six Criminal Revision No. 514 of 1998 titled Anil Hada v. Indian Acrylics Ltd., No. 515 of 1998 (same title), No. 516 of 1998 (same title), No. 517 of 1998 (same title) No. 638 and 639 of 1998 (same title) as in the opinion of this court all the six revisions can be disposed of by one order as common questions of law and fact are involved in the same. 

Notice in four petitions, Nos. 514 to 517 of 1998 was given by the court but no notice has been given to the respondent in Petitions Nos. 638 and 639 of 1998 as I intend to dispose of these two petitions in limine. 

The facts have been gathered from Criminal Revision No. 514 of 1998 for the adjudication of the controversy in dispute. 

A complaint was filed under section 138 of the Negotiable Instruments Act, 1881, by Indian Arcylics Ltd., against Rama Fibres Ltd., and 11 others including the present petitioner Shri Anil Hada, who was the director of the said company and the accused R. K. Sharma, who, according to the complainant was the vice-president of the said company. The present petitioner was summoned as an accused by the learned Magistrate, First Class, Chandigarh. The petitioner, Shri Anil Hada, filed an application for discharge on the plea that since the company, i.e., Rama Fibers Ltd., has been discharged, therefore, separate proceedings against him could not proceed and they should be dropped. This plea of the petitioner was denied by the respondent and it was maintained in the reply to the application that the complaint could proceed against the authorised signatory and other directors of the company if the company has been discharged. Vide the impugned order the learned judicial Magistrate, First Class, Chandigarh, dismissed the application of the present petitioner finding no merit in the same for the reasons given in para. No. 7 of the impugned order, which is reproduced as under : 

"7. The only contention of learned defence counsel is that since the company has been discharged, no proceedings can take place against the present accused Anil Hada and R. K. Sharma as well. There is no force in this contention. In the present case, the cheque in question on behalf of accused No. 1, has been signed by the accused Anil Hada as director of the company and R. K. Sharma as vice-president. Even if the company has gone in liquidation, even then criminal prosecution against these two persons can continue. Reliance in this respect can be placed upon the authority laid down in Sheoratan Agarwal v. State of M.P., AIR 1984 SC 1824; Gian Chand v. Amar Nath [1970] 40 Comp Cas 1158 (P & H) and M. B. Parikh, Provident Funds Inspector v. Manekchowk and Ahmedabad Manufacturing Co. Ltd. (In Liquidation) [1983] 53 Comp Cas 515 (Guj)." 

Aggrieved by the order dated December 3, 1997, passed by the judicial Magistrate, First Class, Chandigarh, Criminal Revision No. 514 of 1998 and other revisions are filed against the similar orders passed by the said Magistrate. 

I have heard R. S. Cheema, learned senior counsel for the petitioner, assisted by Shri Rajiv Trikha, advocate and M. L. Sarin, senior counsel, assisted by Shri Hemant Sarin, advocate, on behalf of the respondent and with their assistance I have gone through the record of this case. 

Some healthy arguments were advanced before me from both the sides. Learned counsel Shri Cheema submitted that the provisions of section 138 of the Negotiable Instruments Act are provisions unique in themselves and have been introduced in the Negotiable Instruments Act to enforce the financial liability against a person who issues the cheque. Counsel submitted that when a company has already been discharged by the court, the present petitioner cannot be separately prosecuted especially when the company has gone into liquidation. In these circumstances, the learned Magistrate was supposed to discharge the petitioner in view of the relevant provisions of the Companies Act. Counsel further maintained that no mens rea is required for the purpose of constituting an act under section 138 of the Negotiable Instruments Act. When a cheque is drawn by a company through its office bearers, it is the company itself which is virtually responsible and in the present case since the company has been discharged, the present petitioner cannot be held vicariously liable. It was further submitted that under the scheme of the provisions of the Negotiable Instruments Act as contained in Chapter XVII, notice is also served upon the company. On the contrary, learned counsel appearing on behalf of the respondent submitted that the respondent has already challenged the finding of the magistrate when he has discharged the company from the liability. Apart from that, the present petitioner along with R. K. Sharma, was the signatory of the bounced cheque and his liability is always there and he cannot escape from the liability under the garb that the company has gone into liquidation. Counsel maintained that financial liability of the company is only for a limited period, when a debtor has the right to discharge the debt covered under the cheque. But once the statutory period for discharging the obligation expires, the financial liability converts into a criminal liability. The deeming provisions under section 141 of the Negotiable Instruments Act very much make all those persons liable, who were in charge of and were responsible to the company for the conduct of the business of the company. Counsel even submitted that these persons can individually be responsible though the company has not been arrayed as accused in view of the apparent interpretation under section 141 of the Negotiable Instruments Act. 

The case set up by the petitioner before the trial court was that he deserves to be discharged since the company, i.e., Rama Fibres Ltd., has been discharged and separate proceedings against him could not proceed. In this regard the provisions of section 446 and section 391 of the Companies Act, 1956, can be referred to. Section 446 lays down as follows: 

"(1) When a winding up order has been made or the official liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding up order, shall be proceeded with, against the company, except by leave of the court and subject to such terms as the court may impose. 

(2) The court which is winding up the company shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of - 

(a) any suit or proceeding by or against the company; . . ." 

The reading of the above provisions would show that a protection has been given only to a company to the effect that no suit or other legal proceeding shall be commenced against it except by the leave of the court and subject to such terms as the court may impose. The protection which has been afforded is only to a company and that too in a suit or other legal proceeding. In these circumstances the point for determination would arise what is the nature of the proceeding under section 138 of the Negotiable Instruments Act and how those proceedings should be interpreted in the light of the terminology used under section 446 of the Companies Act with reference to "other legal proceedings". To my mind the protection is only to the company and to protect it in financial matters but the protection does not extend to criminal or quasi-criminal proceedings qua the directors and the officers, who are in charge of the affairs of the company. It is true that a company cannot be imprisoned or sentenced. It has a separate legal entity from its directors, but the company works through its directors, who are managing the affairs of the company. They are the heart and soul of a company for all practical purposes. They cannot escape from the criminal or quasi-criminal liability as contained under section 138 of the Negotiable Instruments Act. 

Section 391 only deals with the power to compromise or om make arrangements with creditors and members of the company. So far as the liability of the present petitioner is concerned, who is admittedly the signatory of the bounced cheque, cannot be escaped by any stretch of imagination. The words "legal proceedings" appearing in section 446 of the Companies Act should be deemed to be interpreted in the manner that criminal proceeding must be in relation to the assets of the company but proceedings under section 138 of the Negotiable Instruments Act are not in relation to the assets of the company. It is on account of the fact that a cheque drawn by a person on an account maintained by him with a banker for 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, is returned by the bank unpaid. To give a very wider scope to the verdict "legal proceedings" would frustrate the provisions of section 138 of the Negotiable Instruments Act itself. In Gian Chand v. Amar Nath [1970] 40 Comp Cas 1158 (P & H) the provisions of section 440 were interpreted by this court and it was held by his Lordship that this section only bars proceedings against the company where a winding up order has been passed or the official liquidator has been appointed as provisional liquidator except by leave of the court. Thus, it does not bar criminal proceedings against the employees of the company for cheating or other offences. It was held that where criminal proceedings for cheating are not against the company but against the manager or directors of the company, leave of the court is not necessary, as the proceedings cannot be said to be against the company. Here is a case where we are determining the liability of the petitioner Shri Hada vis-a-vis the cheque which has bounced. He might have issued the cheque on behalf of the company under its authority but his liability is individual also as he was the person who gave an understanding to the respondent that in the eventuality of the cheque being presented to the bankers it would be honoured. Shri Cheema, learned counsel, wanted to wriggle out from the difficulty by virtue of the pronouncement of this judgment and he tried to distinguish this authority by submitting that in this citation it has also been laid down that "where criminal proceedings for cheating are not against the company but against the manager or directors of the company, leave of the court is not necessary as the proceedings cannot be said to be against the company". The ratio of this judgment in Gian Chand v. Amar Nath [1970] 40 Comp Cas 1158 (P & H) is against the client of Shri Cheema and in these circumstances his client cannot take the shelter of section 446 of the Companies Act or that of section 391 of the said Act. 
 
In K. P. Devassy v. Official Liquidator [1997] 90 Comp Cas 438 (Ker), the Kerala High Court held that since the proceedings under section 138 of the Negotiable Instruments Act can end only in the conviction or acquittal of the accused in the case and that no recovery of any amount covered by the dishonoured cheques can be made in the criminal case, therefore, it is purely a personal act by the creditors against the person who issued the cheques. It was observed that the mere fact that the petitioners in these cases signed the cheques as managing director of the chit fund in liquidation could not alter the character of the criminal proceedings pending before the criminal court. In order to attract the provisions of section 446, the proceedings must be for the enforcement of something in the nature of a right against the assets of a company and not one in vindication of public interest. Moreover, the special provisions contained in the Negotiable Instruments Act, regarding cheques would prevail over the provisions contained in the Companies Act. 

Counsel for the petitioner relied upon Harish C. Raskapoor v. Jaferbhai Mohmedbhai Chhatpar [1989] 65 Comp Cas 163 (Guj) and submitted that the word "proceeding" occurring in section 446 of the Companies Act should include not only civil proceedings but also criminal proceedings. The proceedings under section 138 of the Negotiable Instruments Act are quasi-criminal in nature and, therefore, the present petitioner cannot be prosecuted. I have gone through this citation and to my mind this will not come to the rescue of the present petitioner. Even if it is assumed for the sake of argument that the word "proceeding" is given wide import and is taken that it would include in its sweep criminal proceedings also, still the benefit cannot go to the petitioner because the petitioner, who was the director of the company, could not get a stay of the criminal proceedings. The protection which has been afforded under section 446 of the Companies Act is only extendible to a company and that too by the discretion of the High Court. If a particular director, in charge of the affairs of the company issues a cheque with the knowledge or with the supposed knowledge that the cheque in the eventuality of presentation would bounce in that eventuality he would certainly face criminal proceedings, which come into existence with the expiry of the statutory period of the notice. 

Learned counsel for the respondent Shri Sarin has invited the attention of this court to the judgment of the Supreme Court in Sheoratan Agarwal v. State of M.P., AIR 1984 SC 1824, and submitted that when offences are committed by the companies, separate prosecution of the person-in-charge or officer of company without prosecuting the company is permissible. Learned counsel for the petitioner has tried to distinguish this authority by submitting that with the discharge of the company and in the absence of the company the present petitioner cannot be prosecuted as without a company the directors or other office-bearers have no individuality. In the opinion of this court, section 141 has been introduced in the Negotiable Instruments Act as a deeming provision and it has been stated in this section that if the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. A bare reading of section 141 of the Negotiable Instruments Act thus indicates that these special provisions have been introduced to make all those persons responsible on behalf of the company who conduct the business of the company. According to sub-section (2) of section 141 any director, manager, secretary or other officer of the company shall also be deemed to be guilty of the offence, if it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of anybody. 

In the light of the above, I do not see any illegality in the impugned order nor do I see any merit in the present six revisions, which are hereby dismissed at the motion stage itself in limine. 

Before I part with this order, I may also make a mention that the plea which has now been raised before me for setting aside the order dated December 3, 1997, of the judicial Magistrate, First Class, Chandigarh, has not been incorporated in the application for discharge moved by the petitioner. If the benefit of legal plea is given to the petitioner to the effect that he can raise this plea before the High Court in revision, still he has not been able to make out a case for his discharge. 

Nothing stated above shall amount to an expression of my opinion on the merits of the criminal proceeding itself.