Case: Aparna A.Shah Vs. M/S Sheth Developers P.Ltd

a) M/s Sheth Developers Private Ltd.-the respondent herein is a company incorporated under the provisions of the Companies Act, 1956 having its registered office at 11, Vora Palace, M.G. Road, Kandivali (West), Mumbai and is engaged in the business of land development and constructions. Aparna A. Shah (the appellant herein) and Ashish Shah, her husband, are the Land Aggregators and Developers who have been in the said business for the last 15 years and are the owners of certain lands in and around Panvelb) According to the appellant, in January 2008, since the Company was interested in developing a Township Project and a Special Economic Zone (SEZ) project in and around Panvel, Dist. Raigad, Maharashtra, one Virender Gala of Mahavir Estate Agency - the Broker, introduced them to the appellant herein and her husband as the land owners holding huge land in Panvel. The appellant represented to the Company that the said land was ideal for the development of a Township Project and a Special Economic Zone (SEZ) and also that they have no financial means and capacity to develop the same single handedly. It was further represented that they were also looking for a suitable person, interested in developing the said land jointly with them(c) On believing the above said representations, the respondent-Company agreed for the development of the said land jointly with the appellant herein and her husband. When the respondent-Company requested for inspection of the title documents in respect of the said land, the appellant and her husband agreed for the same upon the entrustment of a token amount of Rs. 25 crores with an understanding between the parties that the said amount would be returned if the project is not materialize. Agreeing the same, the respondent-Company issued a cheque of Rs. 25 crores in favour of the appellant herein and her husband. However, for various reasons, the proposed joint venture did not materialize and it was claimed by the appellant herein that the whole amount of Rs. 25 crores was spent in order to meet the requirements of the initial joint venture in the manner as requested by the respondent-Company(d) According to the appellant, again the respondent-Company expressed interest to start a new project and to take financial facilities from their bank in order to submit a tender for the purchase of a mill land. With regard to the same, the respondent-Company approached the appellant herein and her husband and informed that they are not having sufficient securities to enable the bank to grant the facility and the bank is to show receivables in writing. Therefore, on an understanding between the respondent and the appellant, a cheque of Rs. 25 crores was issued by the husband of the appellant from their joint account. It is the case of the appellant that in breach of the aforementioned understanding, on 05.02.2009, the respondent deposited the cheque with IDBI Bank at Cuffe Parade, Mumbai and the said cheque was dishonoured due to insufficient fundse) On 18.02.2009, a statutory notice under Section 138 of the Negotiable Instruments Act, 1881 (in short the N.I. Act) was issued to the appellant and her husband asking them to repay the sum of Rs. 25 crores. On 06.03.2009, the appellant and her husband jointly replied mentioning the circumstances in which the said cheque was issued with the supporting lettersf) On 04.04.2009, a complaint was filed against the appellant and her husband in the Court of the Metropolitan Magistrate, Dadar, Mumbai and the same was registered as Case No. 1171-SS of 2009. By order dated 20.04.2009, process was issued against themg) On 12.01.2010, the appellant and her husband filed an application objecting the exhibition of documents and the same was registered as Exh. 28. By order dated 11.05.2010, the said application was dismissedh) Against the issuance of process dated 20.04.2009 and order dated 11.05.2010 dismissing the application by the Magistrate, the appellant filed Writ Petition No. 1823 of 2010 before the High Court. The High Court, by impugned order dated 24.09.2010, partly allowed the petition and quashed the order dated 11.05.2010 and directed the Magistrate to decide the objections raised by the counsel for the accused after hearing both the sides, but refused to quash the proceedingsi) Aggrieved by the said order, the appellant has filed the above appeal by way of special leave.

Reasoning: we are concerned with criminal liability on account of dishonour of a cheque. It primarily falls on the drawer, if it is a Company, then Drawer Company and is extended to the officers of the company. The normal rule in the cases involving criminal liability is against vicarious liability. To put it clear, no one is to be held criminally liable for an act of another. This normal rule is, however, subject to exception on account of specific provision being made in statutes extending liability to others. For example, Section 141 of the N.I. Act is an instance of specific provision that in case an offence under Section 138 is committed by a company, the criminal liability for dishonour of a cheque will extend to the officers of the company. As a matter of fact, Section 141 contains conditions which have to be satisfied before the liability can be extended. Inasmuch as the provision creates a criminal liability, the conditions have to be strictly complied with. In other words, the persons who had nothing to do with the matter, need not be roped in. A company being a juristic person, all its deeds and functions are the result of acts of others. Therefore, the officers of the company, who are responsible for the acts done in the name of the company, are sought to be made personally liable for the acts which result in criminal action being taken against the company. In other words, it makes every person who, at the time the offence was committed, was in-charge of, and was responsible to the company for the conduct of business of the company, as well as the company, liable for the offence. It is true that the proviso to sub-section enables certain persons to prove that the offence was committed without their knowledge or that they had exercised all due diligence to prevent commission of the offence. The liability under Section 141 of the N.I. Act is sought to be fastened vicariously on a person connected with the company, the principal accused being the company itself. It is a departure from the rule in criminal law against vicarious liabilitywe hold that under Section 138 of the Act, it is only the drawer of the cheque who can be prosecuted. In the case on hand, admittedly, the appellant is not a drawer of the cheque and she has not signed the same. A copy of the cheque was brought to our notice, though it contains name of the appellant and her husband, the fact remains that her husband alone put his signature. In addition to the same, a bare reading of the complaint as also the affidavit of examination-in-chief of the complainant and a bare look at the cheque would show that the appellant has not signed the cheque23) We also hold that under Section 138 of the N.I. Act, in case of issuance of cheque from joint accounts, a joint account holder cannot be prosecuted unless the cheque has been signed by each and every person who is a joint account holder. The said principle is an exception to Section 141 of the N.I. Act which would have no application in the case on hand. The proceedings filed under Section 138 cannot be used as an arm twisting tactics to recover the amount allegedly due from the appellant. It cannot be said that the complainant has no remedy against the appellant but certainly not under Section 138. The culpability attached to dishonour of a cheque can, in no case except in case of Section 141 of the N.I. Act be extended to those on whose behalf the cheque is issued. This Court reiterates that it is only the drawer of the cheque who can be made an accused in any proceeding under Section 138 of the Act. Even the High Court has specifically recorded the stand of the appellant that she was not the signatory of the cheque but rejected the contention that the amount was not due and payable by her solely on the ground that the trial is in progress. It is to be noted that only after issuance of process, a person can approach the High Court seeking quashing of the same on various grounds available to him. Accordingly, the High Court was clearly wrong in holding that the prayer of the appellant cannot even be considered. Further, the High Court itself has directed the Magistrate to carry out the process of admission/denial of documents. In such circumstances, it cannot be concluded that the trial is in advanced stage.