Holding

A proprietary concern is not a "company" within the meaning of Section 141 of the Negotiable Instruments Act, so a person serving merely as an employee cannot be held vicariously liable as a director, and the complaint against the appellant must be quashed.

Summary

The complainant, a registered partnership firm, filed a complaint under Section 138 of the Negotiable Instruments Act alleging that a cheque issued by a business concern named Fine Tubes was dishonoured. The complaint named several persons, including the appellant who was described as "in charge, Manager, Director" of the business concern. The appellant sought to quash the summons on the ground that he was merely an employee of a proprietary concern, not a director of a company within the meaning of Section 141, and therefore could not be held vicariously liable. The Supreme Court examined the definition of "company" under Section 141 and held that a proprietary concern is not a company, and the term "director" applies only to persons fitting that definition. Consequently, the appellant could not be prosecuted on the basis of vicarious liability, and the complaint against him was quashed. The appeal was allowed, setting aside the High Court's order.

Issues considered

The meaning of "company" under Section 141 of the Negotiable Instruments Act and whether a proprietary concern falls within it
Whether an employee of a proprietary concern can be held vicariously liable as a director under the NI Act
Whether the complaint petition sufficiently alleged the existence of a company and a director to invoke Section 141
Whether the High Court was correct in refusing to exercise its jurisdiction under Section 482 of the CrPC to quash the summons

Legislation cited

Code of Civil Procedure, 1908s. Order XXX Rule 1, s. Order XXX Rule 10
Code of Criminal Procedure, 1973s. 482
Companies Act, 1956
Indian Partnership Act, 1932
Negotiable Instruments Act, 1881s. 138, s. 141

Subjects

Negotiable Instruments ActSection 138Section 141vicarious liabilityproprietary concerncompany definitionCriminal Procedure CodeSection 482partnership vs sole proprietorshipdirector liabilitycheque dishonour

Judgment

"-j" -

-
>
/ RAGHU LAKSHMINARA YANAN. A
v.
MIS. FINE TUBES

APRIL 5, 2007

[S.B. SINHA AND MARKANDEY KATJU, JJ.] B

'I'

Negotiable Instruments Act, 1881-ss.141 & 138:

Dishonour of cheque issued by proprietorship firm-Complaint against
c
..
its employee-Held: Proprietary concern is not a company within meaning
of s.141-Hence employee of such a concern cannot be proceeded against-
_ Code of Criminal Procedure, 1973-s.482.

Officence by company-Vicarious liability of the Director.

Code of Civil Procedure, 1908-0rder XtX Rules 1 and JO- D
...,· 7 Partnership firm and proprietorship firm-Distinction between-Re-iterated

Respondent No. l filed complaint petition alleging commission of offence
under Section 138 of the Negotiable Instruments Act. It was alleged that a
cheque was issued by accused nos.2 to 6 for a sum of Rs. 2 Lakhs which on
presentation was dishonoured. Accused no.I was described· as a business
E
concern. Appellant arrayed as accused no. 3 was described as In charge,
Manager, Director of accused no. l. The Metropolitan Magistrate issued
summons to the accused persons. Appellant filed application before High Court
u/s. 482 CrPC for quashing the summons issued to him. The application was
dismissed. Hence the present appeal. F
·"' ./

Allowing the appeal, the Court

HELD: l. The concept of vicarious liability was introduced in penal
statutes like Negotiable Instruments Act to make the Directors, partners or
other persons, in charge of and control of the business of the Company or G
otherwise responsible for its affairs; the Company itself being a juristic
person.. [Para 8) [889-D)
.. _,;-
2. A bare perusal of the complaint petition would show that the accused

885 H

"
886 SUPREME COURT REPORTS [2007) 4 S.C . R.

A No. 1 was described therein as 'a business co'ncern'. It was not described as
Company or a partnership firm or an Association of Persons. The description
of the accused in the complaint petition is absolutely vague. A juristic person
can be a Company within the meaning of the provisions of the Companies Act,
1956 or a partnership within the meaning of the provisions of the Indian
Partnership Act, 1932 or an association of persons which ordinarily would
B mean a body of persons which is not incorporated under any statute. A
proprietary concern, however, stands absolutely on a different footing. A
person may carry on business in the name of a business concern, but he being
proprietor thereof, would be solely responsible for conduct of its affairs. A
proprietary concern is not a Company. Company in terms of the explanation
C appended to Section 141 of the Negotiable Instruments Act, means any body-
corporate and includes a firm or other association of individuals. Director
has been defined to mean in relation to a firm, a partner in the firm. Thus,
whereas in relation to a Company, incorporated and registered under the
Companies Act, 1956 or any other statute, a person as a Director must come
within the purview of the said description, so far as a firm is concerned, the
D same would carry the same meaning as contained in the Indian Partne~hip
Act. In view of the said description of"Director", other than a person who
comes within the purview thereof, nobody else can be pr-osecuted by way of
his vicarious liability in such a capacity. If the offence has not been committed
by a Company, the question of there being a Director or his being vicariously
E liable, therefore, would not arise. [Paras 7, 9 and 10] [889-C; E-G; 890-A]

3. Appellant categorically contended that accused No. 1 was a
proprietary concern of the accused No. 2 and he was merely an employee
thereof. If accused No. 1 was not a Company within the meaning of Section
141 of the Negotiable Instruments Act, the question of an employee being
F proceeded against in terms thereof would not arise. Respondent was aware of
the difference between a 'partnership firm' and a 'business concern' as would
be evident from the fact that it described itself as a partnership firm and the
accused No. 1, as a business concern. Significantly, Respondent deliberately
or otherwise did not state as to in which capacity the appellant had been serving
the said business concern. It described him as in charge, Manager and
G Director of the accused No. 1. A person ordinarily cannot serve both in the
capacity of a Manager and a Director of a Company.
[Paras 11 and 12) [890-B-D]

4. The distinction between partnership firm and a proprietary concern
H is well known. It is evident from Order XXX Rule 1 and Order XXX Rule 10
''-/ .·

RAGHU LAKSHMINARA YANAN v. FINE TUBES [S.B. SINHA, J.] 887
of the Code of Civil Procedure. It is trite that a proprietary concern would not A
answer the description of either a Company incorporated under the Indian
Companies Act or a firm within the meaning of the provisions of Section 4 of
the Indian Partnership Act. [Paras 13 andl4) [890-E; 891-DJ

S.MS. Pharmaceuticals Ltd v. Neeta Bhalla, A.I.R. (2005) SC 3512,
followed. B
Sahitha Ramamurthy & Anr. v. R.B.S. Channabasavaradhya, A.l.R.
~ (2006) SC 3086 and S.MS. Pharmaceuticals Ltd v. Neeta Bhalla, (2007) 3
SCALE 245, relied on.

Mis. Ashok Transport Agency v. Awadhesh Kumar and Anr., [1998) 5
tr
c
sec 567, referred to.
5. For the reasons aforementioned, this Court is unable to agree with
;,,
the High Court that no case had been made out for exercise of its jurisdiction
under SectiOn 482 of the Code of Criminal Procedure. The complaint case
against the appellant is quashed. [Paras 16 and 17) [891-F) D

7 CRIMINAL APPELLATE JURISDICTION : Criminal Appeal No. 485 of
2007.

From the Judgment and Order dated 07.08.2006 of the High Court of
Delhi at New Delhi in Criminal M.C. No. 3626 of2005. E
G. Sivabalamurugan, Y. Arvnagiri and L.K. Pandey for the Appellant.

Tatini Basu (for Sudhir Nandrajog) for the Respondent.

The Judgment of the Court was delivered by F
• f S.B. SINHA, J. 1. Leave granted.

2. Appellant before us was arrayed as accused No. 3 in the Complaint
Petition filed by the first respondent herein, before the Chief Metropolitan
Magistrate, Delhi which was registered as a Complaint Case No. 379/1/2003. G
The said complaint petition was filed for trying the accused persons named
therein for commission of an offence under Section 138 of the Negotiable
Instruments Act alleging that a cheque dated 15.8.2002 was issued by the
accused Nos. 2 to 6 for a sum of Rs. 2 lacs drawn at Canara Bank which on
presentation was dishonored and the accused despite notice, did not pay the H
888 SUPREME COURT REPORTS [2007] 4 S.C.R.

A said amount.
3. The status of the accused No. 1 was not disclosed in the array of
the accused persons.

4. It was sought to be represented through Director(s)/Chairman/
B Managing Director, Proprietor(s), Incharge(s). Appellant herein was also
described in similar capacity viz. "in charge, manager, director of the accused
No. I". So were the other respondents.

5. In the complaint petition, however, it was alleged ;

c "I. The complainant is a partnership duly registered with the Registrar
of fius at Delhi, and Mohit Gupta is one of its partner and duly
authorized and empowered to file this complaint for and on behalf
of the complainant.
2. That the respondent No. I is a business concern and the
respondent Nos. 2 and ·6, alongwith other officer(s) etc., are its
D
disclosed in charges, Managers, Director (s) and partners as they
have through out been dealings with the complainant by
representing themselves to .be so responsible for the dealings.
and day to day working of the respondent No. I."

E 6. The learned Chief Metropolitan Magistrate issued summons on the
other accused persons relying or on the basis of the averments made in the
said complaint petition filed by the respondent herein. An application filed by
the appellant herein for quashing the summons issued to him in an application
filed before the High Court under Section 482 of the Code of Criminal Procedure
was dismissed stating;
F
" ....After the pre-summoning evidence was recorded the learned MM
found that prima facie case was made out against all the accused
persons and, therefore, summoned these accused. Challenging these
summoning orders accused No. 3 has filed this petition under Section
· 482 Cr. P.C. it is inter alia, contended that he was never the director
G of the said accused No. I: cheque in question was not signed by him
and that he was not responsible for the conduct of business of
accused No. I it is the case of the petitioner that he was an employee
of the accused No. I. In support appointment letter dated 15.7.2000
is enclosed as per which petitioner was appointed as "Director-
Production". In _this capacity he was to be responsible for entire
H
RAG HU LAKSHMINARA YANAN v. FINE TUBES [S.B. SINHA, J.] 889
production, including machine selection as well as labour, process and A
_material management. Thereafter, vide letter dated 2l.I0.2001, which is
also produced by the petitioner, he was asked to head the marketing
department and was given the designation "Director-Marketing". Prima
facie, as Director-Marketing the petitioner was in-charge of the
marketing division of the accused No. l. I find that there are specific B
averment made in the complaint that the petitioner in that capacity
was dealing with the complainant and was handling day-to-day affairs
of the accused No. I. Therefore, what the petitioner contends are the
disputed questions of fact and it forms his defence which is to be led
before the Trial Court. Such questions cannot be entertained in this
petition under Section 482 Cr.P.C." C
7. A bare perusal of the complaint petition would show that the accused
No. I was described therein as 'a business concern'. It was not described as
-- a Company or a partnership firm or an Association of Persons.

8. The concept of vicarious liability was introduced in penal statutes D
like Negotiable Instruments Act to make the Directors, partners or other
persons, in charge of and control of the business of the Company or otherwise
.... 1
responsible for its affairs; the Company itself being a juristic person.

9. The description of the accused in the complaint petition is absolutely
vague. A juristic person can be a Company within the meaning of the provisions E
of the Companies Act, 1956 or a partnership within the meaning of the
provisions of the Indian Partnership Act, I 932 or an association of persons
which ordinarily would mean a body of persons which is not incorporated
under any statute. A proprietary concern, however, stands absolutely on a
different footing. A person may carry on business in the name of a business
concern, but he being proprietor thereof, would be solely responsible for F
conduct of its affairs. A proprietary concern is not a Company. Company in
terms of the explanation appended to Section 141 of the Negotiable Instruments
Act, means any body- corporate and includes a firm or other association of
individuals. Director has been defined to mean in relation to a firm, a partner
in the firm. Thus, whereas in relation to a Company, incorporated and registered G
under the Companies Act, I 956 or any other statute, a person as a Director
must come within the purview of the said description, so far as a firm is
concerned, the same would carry the same meaning as contained in the Indian
Partnership Act. ·

IO. It is interesting to note that the term "Director" has been defined. H
,..
890 SUPREME COURT REPORTS [2007] 4 S.C.R.

...r
A It is of some significance to note that in view of the said description of Jo..
"Director", other than a person who comes within the purview thereof, nobody
else can be prosecuted by way of his vicarious liability in such a capacity.
If the offence has not been committed by a Company, the question of there
being a Director or his being vicariously liable, therefore, would not arise.

B 11. Appellant herein categorically contended that accused No. l was a
proprietary concern of the accused No. 2 and he was merely an employee
thereof. ,.

12. If accused No. 1 was not a Company within the meaning of Section
141 of the Negotiable Instruments Act, the question of an employee being
c preceded against in terms thereof would not arise. Respondent was aware of
the difference between a 'partnership firm' and a 'business concern' as would
be evident from the fact that it described itself as a partnership firm and the
~
accused No. 1, as a business concern. Significantly, Respondent deliberately
or otherwise did not state as to in which capacity the appellant had been
D serving the said business concern. It, as noticed hereinbefore, described him
as in charge, Manager and Director of the accused No. 1. A person ordinarily
cannot serve both in the capacity of a Manager and a Director of a Company.
' ,._
13. The distinction between partnership firm and a proprietary concern
is well known. It is evident from Order XXX Rule 1 and Order XXX Rule l 0
E of the Code of Civil Procedure. The question came up for consideration also
before this Court in Mis. Ashok Transport Agency v. Awadhesh Kumar and
Anr., [ 1998] 5 SCC 567] wherein this Court stated the law in the following
tem'ls:-

"6. A partnership firm differs from a proprietary concern owned by an
F individual. A partnership is governed by the provisions of the Indian
Partnership Act, 1932. Though a partnership is not a juristic person ,. ....
but Order X:XX, Rule 1, CPC enables the partners of a partnership firm
to sue or to be sued in the name of the firm. A proprietary concern
is only the business name in which the proprietor of the business
carries on the business. A suit by or against a proprietary concern is
G
by or against the proprietor of the business. In the event of the death
of the proprietor of a proprietary concern, it is the legal representatives
...
of the proprietor who alone can sue or be sued in respect of the
,...
dealings of the proprietary business. The provisions of Rule 10 of ~.

Order XXX, which make applicable the provisions of Order XXX to
H a proprietary concern enable the proprietor of a proprietary business
-r
/

RAGHU LAKSHMINARA YANAN v. FINE TUBES [S.B. SINHA, J.] 891
to be sued in the business names of his proprietary concern. The real A
party who is being sued is the proprietor of the said business. The
said provision does not have the effect of converting the proprietary
business into a partnership finn. The provisions of Rule 4 ofOrder
XXX have no application to such a suit as by virtue of Order XXX,
Rule 10 the other provisions of Order XXX are applicable to a suit
against the proprietor of proprietary business "in so far as the nature B
of such case permits." This means that only those provisions of Order
XXX can be made applicable to proprietary concern which can be so
·r made applicable keeping in view the nature of the case."

14. We, keeping in view the allegations made in the complaint petition, C
need not dilate in regard to the definition of a 'Company' or a 'Partnership
Firm' as envisaged under Section 34 of the Companies Act, 1956 and Section
4 of the Indian Partnership Act, 1932 respectively, but, we may only note that
it is trite that a proprietary concern would not answer the description of either
a Company incorporated under the Indian Companies Act or a firm within the
meaning of the provisions of the Section 4 of the Indian Partnership Act. D

15. A Constitution Bench of this Court in S.MS. Pharmaceuticals Ltd
v. Neeta Bhalla, A.LR. (2005) SC 3512] furthermore categorically stated that
the complaint petition must contain the requisite averments to bring about a
case within the purview of Section 141 of the Act so as to make some persons
other than company vicariously liable therefor. [See also Sabitha Ramamurthy E
& Anr. v. R.B.S. Channabasavaradhya, A.LR. (2006) SC 3086 and S.MS.
Pharmaceuticals Ltd v. Neeta Bhalla, (2007) 3 SCALE 245].

16. For the reasons aforementioned, we are unable to. agree with the
High Court that no case had been made out for exercise of its jurisdiction F
under Section 482 of the Code of Criminal Procedure.

• 17. The impugned judgment is set aside. Appeal is allowed. The
complaint case against the appellant is quashed.

B.B.B. Appeal allowed.