AJEENKYA DY PATIL UNIVERSITY
CHARHOLI BUDRUK VIA LOHEGAON, PUNE- 412 105
SCHOOL OF LAW
PROGRAM- BA LLB DIV B
4th YEAR
NAME- RIYA KUMARI
URN NO.- 2020-B-17032001B
SUBJECT- BANKING LAW
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CASE ANALYSIS
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
Criminal Appeal no. _____ of 2023
(@Special Leave Petition (Crl.) No. 12 of 2020)
Siby Thomas …………………………. Appellant
Versus
M/s. Somany Ceramics Ltd. ………………………. Respondent
Qurom: Justice C.T. Ravikumar
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INTRODUCTION
In an appeal filed in the case of Siby Thomas vs. Somany Ceramics Ltd., under Section 138 of
the Negotiable Instrument Act, 1881 which talks about dishonour of cheque, a person was
identified as an offender for the sole reason that he was a partner of the partnership business that
issued the cheque. The Punjab and Haryana High Court declined to dismiss the case in the
exercise of its authority under Section 482 CrPC prompting the filing of an appeal. Now, we will
be discussing the case of Siby Thomas v. Somany Ceramics Ltd. along with understanding the
relevant provisions, facts of the case and the judgement.
Relevant Provisions
Section 138 of the Negotiable Instruments Act, 1881- Dishonour of cheque for insufficiency,
etc., of funds in the account. In the event that a person draws a cheque on a bank account, he
maintains with a banker for the payment of any amount to any other person from that account for
the discharge of payment, in whole or in part, of any debt or other liability, and the bank returns
the check unpaid, either because there is not enough money to honour the check or because the
amount exceeds the amount agreed upon to be paid from that account by an agreement with the
bank, that person will be regarded to have committed an offence and will, in addition to any
other provisions of this Act shall be punished with imprisonment which may extend to two years,
or a fine equal to double the value of the check, or with both:
This section of dishonour of cheque will not be applicable unless the following conditions are
met:
a. the cheque is presented to the bank within six months of the date it is drawn or within the
validity period, whichever is earlier;
b. within thirty days of receiving notification from the bank that the cheque is being returned as
unpaid, the holder or payee of the cheque, as applicable, demands that the stated amount of
money be paid by sending a written notice to the cheque's drawer; and
c. Within fifteen days after receiving the aforementioned notification, the drawer of the said
check fails to pay the specified amount of money to the payee or, if applicable, to the holder in
the course of the cheque.
d. Section 141 of the Negotiable Instruments Act, 1881-Offences by companies.
e. If the entity violating Section 138 (dishonour of cheque) is a company, then each individual
who, at the time of the offence, was in charge of and accountable to the company for the
management of the company's business operations shall be considered guilty of the offence and
subject to appropriate legal action and punishment:
With the exception that nothing in this subsection will subject someone to penalty if they can
demonstrate that the crime was committed without their knowledge or that they took all
reasonable precautions to stop it from happening:
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Furthermore, a person shall not be subject to prosecution under this Chapter if they are
nominated as a Director of a company by virtue of their employment or office in the Central or
State governments, or in a financial corporation under their ownership or control, as the case
may be.
Notwithstanding the provisions of sub-section (1), in the event that a company commits an
offence under this Act and it is established that the offence was committed with the knowledge or
assistance of or is related to, the negligence of, a director, manager, secretary, or other officers of
the company, such director, manager, secretary, or other officers shall also be presumed that he
has committed the offence and shall be liable for legal action and punishment as appropriate.
Understanding Section 141 Of the NI Act
The NI Act's Section 141 introduces the vicarious liability concept. This section covers a number
of NI Act offences, including dishonour of cheques. It's crucial to remember that personal
responsibility only applies when a company commits a crime. People who conduct crimes in
their individual capacities are not covered by this section.
Vicarious Liability in The Context of Dishonour Of Cheque Cases
A legal maxim known as vicarious liability makes one person accountable for the deeds of
another. This provision states that if a corporation commits an NI Act offence, both the firm and
everyone who was in control of and accountable for the company's business activity at the time
of the offence of dishonour of cheque would be considered guilty of the offence. According to
this clause, those who are connected to the business may be held accountable for its deeds.
Potential Consequences of Being Held Liable Under This Section
In order to establish culpability under Section 141 of the NI Act, it is necessary to provide
evidence that the defendant participated actively in the management of the enterprise and
contributed to the commission of the offence of dishonour of cheque.
Being a nominal head or only designated may not be enough.
The prosecution needs to show a clear connection between the defendant's involvement
and the offence being committed.
The prosecution must demonstrate that the offence was done with the victim's negligence,
acquiescence, or connivance.
Defences That Can Be Taken Under Section 141 Of he NI Act
If those charged under Section 141 of the Ni Act are able to demonstrate that the offence was
committed without their knowledge or that they took reasonable precautions to stop it from
happening, they may be exonerated from prosecution. Nonetheless, it is the accused's
responsibility to prove these defences.
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FACTS:
On August 21, 2015, M/s. Somany Ceramics Ltd., the Respondent, filed a complaint
against M/s. Tile Store, the Partnership Firm ("Accused no. 1"), and the partners of the
Firm for dishonour of cheque. The Appellant-Accused no. 4 (Mr. Siby Thomas), a partner
in the firm, appeared before the Ld. Chief Judicial Magistrate ("CJM") of Bahadurgarh on
October 20, 2015, in COMA-321-2015.
The appellant approached the High Court of Punjab while the case was still pending
before the CJM and presented two arguments to have the complaint against him quashed.
He stated that he had resigned from the Partnership Firm on May 28, 2013, that the
dishonour of cheque in question was dated August 21, 2015, and that the complaint
lacked the mandatory allegations that are required under Section 141 (1) of the
Negotiable Instruments Act, 1881.
The High Court of Punjab determined that the Appellant was required to present evidence
and establish the facts in order for the Complaint against him to be maintainable. This
pertains to the Appellant's retirement from the Partnership Firm prior to the issuance of
the disputed check.
In addition, it was decided that the Appellant's first request to dismiss the Complaint
cannot be granted in this case when the Code of Criminal Procedural 1973 (Cr. P.C.)
Section 482 (Saving of inherent powers of High Court) is invoked. As a result, the High
Court declined to dismiss the complaint in CRM-M-52299-2019 via an Order dated
December 6, 2019.
The appellant filed Criminal Appeal No. 3139 of 2023 in the Supreme Court, citing
grievances over the Order dated 06.12.2019 issued by the Punjab High Court.
ISSUES:
Whether the averments referred to hereinbefore are sufficient to prosecute the appellant under
Section 138 (dishonour of cheque) of the NI Act.
JUDGEMENT:
The appellant's status as a partner in the business was the only claim made in the complaint about
his culpability, according to the Supreme Court. This was the pertinent allegation in the
complaint: "The accused Nos. 2 to 6 being the partners are responsible for the day-to-day
conduct and business of the accused No. 1.
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The appellant was not in charge of the company's business operations at the pertinent period
when the offence was committed, as there is no so averred anywhere in the complaint. The
lawsuit just states that the partners, or accused Nos. 2 through 6, are in charge of the day-to-day
operations and behaviour of the corporation. It's also important to emphasize that a cursory
reading of the complaint would not reveal the appellant's precise participation, the Court noted. It
further noted that the appellant had responded to the complainant's notice stating that he had left
the company two years before the chaque was issued.
The Court's observation leads to the conclusion that the respondent's complaint's allegations are
insufficient to meet Section 141(1) of the Ni Act's statutory standards. The appellant is entitled to
victory in this appeal as the averments in the complaint are inadequate to trigger the
requirements under Section 141(1) of the NI Act, creating vicarious obligation onto the
appellant," the court declared, granting the appeal.
Referred Cases or Precedents
1. Anita Malhotra v. Apparel Export Promotion Council & Anr.
In this case, the Supreme Court said, "the complaint should specifically spell out how and in
what manner the Director was responsible for the accused company's business conduct or was in
charge of It The court went on to say that it is insufficient to just claim that someone is in control
of and accountable to the firm for the way its business is conducted.
2. Ashok Shewakramani v. State Of Andhra Pradesh
In this case, the Supreme Court held that just because someone is managing the company's
affairs, per se, he would not become in charge of the conduct of the company's business or the
person responsible to the company for the conduct of the company's business.
3. S.P. Mani and Mohan Dairy v. Dr. Snehalatha Elangovan
In this case, the court noted that in order to hold the accused vicariously liable, the complainant
must first establish specific allegations in the complaint. The judgment of the Supreme Court was
based on these legal precedents, especially the case of Ashok Shewakramani v. State Of Andhra
Pradesh sets the true basis of this judgement.
Final Verdict of The Court- Therefore, it is clear from the ruling in Ashok Shewakramani's case
that vicarious liability in case of dishonour of cheque would only arise if the requirements of
Section 141(1) of the Ni Act are met. It would also show that someone managing the company's
affairs does not automatically have him or her in control of how the firm is run or the person
accountable to the company for that conduct.
A bare reading of Section 141(1) of the NI Act would indicate that the only person who would be
considered guilty of the offence and subject to legal action and punishment is the person who, at
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the time the offence was committed, was in charge of and accountable to the company for the
conduct of the company's business. In the above instance of Ashok Shewakramani, paragraph 20
is equally pertinent in this situation. Following a reference to Ni Act Section 141(1), it was
further held in paragraph 20 as follows:
“It is clear from a bare reading that the phrases "was in charge of and "was responsible to the
firm for the conduct of the company's operations" cannot be interpreted as mutually exclusive,
rather, given the usage of the word "and" between them, they should be interpreted as
complementary.”
The rationale above leads to the conclusion that the respondent's complaint's allegations are
insufficient to meet Section 141(1) of the NI Act's statutory standards for dishonour of cheque.
The bench comprising of Justices CT Ravikumar and PV Sanjay Kumar said that the accused
No. 4 is allowed to win this appeal since the complaint's allegations are not strong enough to
trigger the requirements under Section 141(1) of the NI Act that would subject the appellant to
vicarious liability. We are certain that, in exercising our authority under Section 482 of the CrPC,
the appellant has established a case for the quashing of the criminal charge against him.
The impugned order is ultimately set aside, and the criminal complaint filed by the respondent in
the matter titled M/s. Somany Ceramics v. M/s. Tile Store etc. vide COMA-321-2015 (CNRNO:
HRJRA1004637-2015), which is currently pending before Ld. CJ (JD) JMIC, Bahadurgarh, is
quashed only to the extent that it concerns the appellant, who is accused No. 4.
ANALYSIS
In a landmark judgment rendered of Siby Thomas v. Somany Ceramics Ltd., the Hon'ble
Supreme Court of India reaffirmed the fundamental principles governing the liability of a
company director in cases of dishonored cheques. The legal intricacies surrounding this issue
have been exhaustively elucidated in the case. The case revolves around a crucial interpretation
of Section 141(a) of the Negotiable Instruments Act, 1881. This provision is pivotal in
determining who, within a company, can be held accountable and liable for offenses related to
dishonored cheques.
This ruling in "Siby Thomas v. Somany Ceramics Ltd." serves as a pivotal precedent, reiterating
the strict criteria that must be met to establish the liability of a director or partner in cases
involving dishonored cheques. It underscores the need for clear and specific averments to hold
an individual accountable and reinforces the principle that managing a company is distinct from
being responsible for its business conduct.
In this judgement, the Supreme Court has referred to Section 141(1) of the Negotiable
Instruments Act, which clearly states that "Only that person who, at the time the offence was
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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 alone shall be deemed to be guilty of the offence and
shall be liable to be proceeded against and punished Therefore, the Supreme Court has also
referred to the case of Ashok Shewakramani vs. State Of Andhra Pradesh and reiterated the
principles governing a director's responsibility for the dishonour of cheque that the business
issues.
It has been made clear in case of dishonour of cheque issued by the company, the liability will
only arise on the person, whether a manager or director who was in charge of the company at the
time when the offence was committed, and he was also responsible for the conduct of company's
business. Therefore, the managing partner, who was not part of the company when the offence
was committed and has neither signed the cheque on behalf of the company that has been
dishonoured cannot be held vicariously liable for dishonour of cheque.