‘OBITER’ in R. VIJAYAN V. BABY’ ON COMPENSATION
ELEVATED TO ‘RATIO’IN MAINNUDDIN ABDUL SATTAR SHAIKH
(C.S. Raghu Raman, Asst Prof, College of Law, KL University, Guntur Dt., AP)
Lords Justices R.V. Raveendran and R.M. Lodha in R. Vijayan[1] suggested as follows:
“As the provisions of Chapter XVII of the Act strongly lean towards grant of reimbursement of the loss by way of compensation, the courts should, unless there are special circumstances, in all cases of conviction, uniformly exercise the power to levy fine up to twice the cheque amount (keeping in view the cheque amount and the simple interest thereon at 9% per annum as the reasonable quantum of loss) and direct payment of such amount as compensation. Direction to pay compensation by way of restitution in regard to the loss on account of dishonor of the cheque should be practical and realistic, which would mean not only the payment of the cheque amount but interest thereon at a reasonable rate. Uniformity and consistency in deciding similar cases by different courts, not only increase the credibility of cheque as a negotiable instrument, but also the credibility of courts of justice.”
The brief facts in Mainuddin Abdul,[2] are that in 1999, Mr. Mainuddin, the Appellant, Mr. paid Rs.74,200/ as advance to Mr. Vijay Salvi, Respondent-Accused[3] (Director of M/s. Salvi Infrastructure Pvt. Ltd. and also Proprietor of Salvi Builders and Developers) on booking a flat proposed to be developed by M/s. Salvi Infrastructure Pvt. Ltd.
Prosecution was brought against Mr. Vijay D. Salvi[4] on dishonor of cheque No.075073 for Rs.74,200/- issued by him (towards refund on failure of the house construction project), not in his capacity as a Director of the above company or as Proprietor of M/s. Salvi Builders and Developers, but from his personal account maintained with his banker for the offence under Sec. 138 read with Sec. 141 of The Negotiable Instruments Act, 1881 (known as ‘The Act’).
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As first issue, Respondent argued that ‘when the company was not shown as accused, no prosecution can be brought against him in his personal capacity in view of sec. 141 of the Act’ on the authority of Full Bench decision of SC in Aneeta Hada v. M/S Godfather Travels & Tours.[5]
Also rejecting this argument, Lord Justices Pinaki Chandra Ghose and Uday Umesh Lalit held that “though Respondent as an employee issued the cheque from his personal account for discharge of debt of the company” he was, ‘nevertheless, liable as drawer of the cheque’ by relying on P.J. Agro Tech Limited and Ors. V. Water Base Limited [6] wherein Lord Justices Altamas Kabir and Mukundakam Sharma held that “where the cheque was drawn by the employee of the appellant-company on his personal account, even if it be for discharging dues of the appellant-company and its Directors, he alone is liable and the Company and its Directors were absolved of liability since drawer alone is accountable under Sec. 138 of the Act”.
P.J. Agro Tech Limited explained the legal principle to be applied ‘to make the drawer but no one else liable’ as follows:
“An action in respect of a criminal or a quasi-criminal provision has to be strictly construed in keeping with the provisions alleged to have been violated. The proceedings in such matters are in personam and cannot be used to foist an offence on some other person, who under the statute was not liable for the commission of such offence.” (Emphasis Supplied)
Rejecting the second argument of Respondent that ‘there was no averment in the complaint [7] that Respondent was the person in charge of, and responsible for the affairs of the Company’, Lord Justices Pinaki Chandra Ghose and Uday Umesh Lalit held that “since Respondent. was the Managing Director of M/s. Salvi Infrastructure Pvt. Ltd. and sole proprietor of M/s. Salvi Builders and Developers, there is no need of specific averment on this point” by quoting the authority of National Small Industries Corporation Ltd. V. Harmeet Singh Paintal and Anr. [8]
It was held in Harmeet Singh Paintal that “if the accused is a Managing Director or a Joint Managing Director then it is not necessary to make specific averment in the complaint and by virtue of their position they are liable to be proceeded with.”[9]
Therefore, Lord Justices Pinaki Chandra Ghose and Uday Umesh Lalit held that there was “no necessity for the Appellant to prove that Respondent was in charge of the affairs of the company by virtue of the position he held. Thus, we hold that the respondent, Vijay D Salvi can be prosecuted for the offence under Section 138 of the NI Act”.[10]
Now coming to the most important aspect of payment of compensation to the complainant-appellant under Sec. 357 (1) of Code of Criminal Procedure 1973 (known as ‘the Code’) out of amount of fine imposed on conviction of drawer or under Sec. 357 (3) of the Code separately, when fine was not imposed, as the case may be, Lord Justices Pinaki Chandra Ghose and Uday Umesh Lalit, for the first time in India as per this author, “paid 9% simple interest per annum on Rs.1,48,400/- (twice the amount of the cheque),[11] by quoting the observation of
The paragraph, quoted from R. Vijayan, not necessary to dispose of the appeal, as it is only suggestion given by Lords Justices R.V. Raveendran and R.M. Lodha on payment of interest on amount of compensation.
Their Lordships have held that “if compensation could be paid from out of the fine, there is no need to award separate compensation. Only where the sentence does not include fine but only imprisonment and the court finds that the person who has suffered any loss or injury by reason of the act of the accused person, requires to be compensated, it is permitted to award compensation under Sec. 357 (3) of the Code.”
The High Court decision effect that ‘it could only restore the fine of Rs.2000/- imposed by the Magistrate with the default sentence but ‘not the direction for payment of compensation of Rs.20000 (being the amount of the cheque) to Appellant’ under section 357(3) of the Code as “it could not co-exist with the imposition of fine” on declaring that “a reading of Sec. 357(3) would show that the question of award of compensation would arise where the court imposes a sentence of which fine does not form a part. It was also held that section 357(3) will not apply where a sentence of fine has been imposed” [12] was confirmed by Lords Justices R.V. Raveendran and R.M. Lodha
It is the humble opinion of the author that the direction given in R Vijayan, now ‘ratio’ in Mainuddin, on ‘payment of interest at 9 % per annum, shall be understood that the total amount of ‘compensation to be paid to complainant under Sec. 357 (1) of the Code’ shall never exceed twice the amount of cheque as it is maximum amount that can be imposed as ‘fine’ as punishment on conviction of accused for the offence.[13]
Having regard to the facts in Mainddun as an example, the position, in the humble opinion of the author, comes to as follows:
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Taking the amount of cheque of Rs. 74200 as principal, interest at 9%, say, for 6 months (from the date of dishonor to the date of final disposal of case or any other period depending on the facts of the case), comes to Rs. 77539 (74200+3339, less than twice the amount of cheque) that amount can be paid as ‘compensation’ to complainant under S. 357(1) of the Code. Still an amount of Rs. 70861 can go to Government as fine if the Court wants to impose the maximum amount of Rs. 148400 as fine.
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Or amount of Rs. One lakh, or some other amount, together with interest, at discretion of Court, but not exceeding twice the amount of chque is imposed as fine, that amount can be paid as compensation, with balance, Rs. 48400 going to Government.
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The Court can pay the total amount of Rs. 148400 as compensation, as twice the amount of cheque, without any interest whatsoever, when Government gets nothing as fine.[14]
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Payment of interest on Rs. 148400, even for six months, Rs. 155078 (148400 + 6678) as ‘compensation’ becomes impossible as it exceeds the maximum amount of fine that cannot be done in view of legislative provision. .
The author humbly submits that propositions (1), (2) and (3) can be permitted as they have legislative support.[15]
Permanent clarifications are required from SC to guide the lower Courts.
But the propositions (4) can never be followed as ‘there is no legislative provision’ for such course of action to pay interest on ‘fine’ though paid as ‘compensation’ but in reality it is ‘fine’.
But there appears to be no such ceiling on amount of compensation as per Sec. 357(3) of Code but in view of precedents of SC, the amount differs on the facts and circumstances of the cases and on financial capacity of convict to pay the amount.
But the above propositions are also highly debatable and controversial proposition. Further clarifications must come from another larger bench of the SC.
As far as the research undertaken by the author, it is first occasion that SC has convicted and gave punishment to drawer under the Act.
“Considering the fact that the cheque amount is Rs.74,200/-, we direct the respondent Vijay D Salvi to pay a compensation of Rs.1,48,400/- (Rupees one lakh forty-eight thousand four hundred only) with simple interest thereon at 9% per annum, to the complainant-appellant. In default of payment of the said compensation, the respondent will have to undergo simple imprisonment for a period of six months.”
On careful reading of the above paragraph, it is clear that SC passed the order for payment of compensation to Appellant under Sec. 357(3) but not under Sec. 357(1) of the Code since ‘neither imprisonment nor fine’ was imposed on Respondent.
The author wants to place before the readers that existing rules of Sec. 117 of the Act provide easy method for payment of compensation on dishonor of negotiable instrument can used on conviction of drawer of cheque for offence under S.138 f the Act.
Sec. 117. Rules as to compensation.—The compensation payable in case of dishonour of a promissory note, bill of exchange or cheque, by any party liable to the holder or any indorsee, shall 1[***] be determined by the following rules:—
(a) the holder is entitled to the amount due upon the instrument together with the expenses properly incurred in presenting, noting and protesting it;
(b) when the person charged resides at a place different from that at which the instrument was payable, the holder is entitled to receive such sum at the current rate of exchange between the two places;
(c) an indorser who, being liable, has paid the amount due on the same is entitled to the amount so paid with interest at [eighteen per centum] per annum from the date of payment until tender or realisation thereof, together with all expenses caused by the dishonour and payment;
(d) when the person charged and such indorser reside at different places, the indorser is entitled to receive such sum at the current rate of exchange between the two places;
(e) the party entitled to compensation may draw a bill upon the party liable to compensate him, payable at sight or on demand, for the amount due to him, together with all expenses properly incurred by him. Such bill must be accompanied by the instrument dishonoured and the protest thereof (if any). If such bill is dishonoured, the party dishonouring the same is liable to make compensation thereof in the same manner as in the case of the original bill.
These simple rules will certainly ease the difficulties in matter of giving compensation to complainant from drawer-accused on conviction under Sec. 138 of the Act through an appropriate amendment to Chapter XVII of the Act thereby obviating the necessity of using the provisions of Sec. 357 of The Code of Criminal Procedure Code, 1973.
In concluding comments, these additional principles can be noted.
It can be pointed out that there is no necessity to refer to Harmeet Singh ‘on absence appropriate facts in the complaint on the position of MD of the Company etc.’ in the complaint since ‘that SC clearly found that ‘Appellant has issued cheque from his personal account but not from company’s account,’ though not authorized to do so by a resolution of the company’[16] for reasons best known to him, to fix him as drawer of the cheque for the offence under S.138 of the Act.
If he had in fact drawn the cheque on company’s account as authorized signatory occupying the position as Managing Director of the company, he is sure ‘to avoid prosecution when Company was not brought on as accused 1 in the complaint’ on the authority of Aneetha Hada.
On these two issues, the SC was against him, obviously, on the facts presented.
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[1] R. Vijayan V. Baby and Anr (2012) 1 SCC 260
[2] Mainuddin Abdul Sattar Shaikh v. Vijay D. Salvi (decided 6th July 2015)
[3] In acknowledgment of payment respondent issued two receipts to the appellant for a sum of Rs.59,000/- and Rs.14,200/-respectively.
[4] Trial Court acquitted respondent on reason that ‘he alone was brought on as an accused in his personal capacity but without Company being made as accused’ and ‘it was not proved that respondent was personally liable to make the payment on behalf of the company’. and Bombay High Court did not find any necessity to interfere with the trail court order.
[5] 2012 CrLJ 2525 SC The full Bench clearly held that ‘without prosecution of company as main accused, there shall be no prosecution against directors and other officers of the company’ under sec. 141 of the Act.
[7] Refer to S.M.S. Pharmaceuticals Ltd v. Neeta Bhalla (2005) 8 SCC 89 (FB) and RamRaj Singh v. State Of M.P. & Anr, decided on 15 April, 2009 (SC) (Full Bench), it was held that ‘there must be clear specific allegations in the complaint against the directors and others subject to exceptions as to ‘Managing Director Manager’ as it operates as deeming provision under Sec. 141 of the Act.
[10] The SC directed that Respondent shall be taken into custody forthwith to undergo the sentence, reversing High Court and Trial Court on allowing the appeal of Mr. Mainuddin Abdul.
[11] ‘default sentence of simple imprisonment for a period of six months if compensation is not paid’
[12] State of Punjab 2002 (6) SCC 663 and Sivasuriyan v. Tangavelu 2004 (13) SCC 795
[13] Ref. sec. 138 of the Act on punishment prescribed.
[14] Some decisions can be found on this course of action.
[15] While imposing ‘fine’ on conviction of accused, the lower court shall always keep in view Sec. 143 A (6) of the Act on adjustment of amount of interim compensation, if any, paid to complainant and on acquittal pass an order of refund of the amount with interest to the accused..
[16] Similar facts were noted down by SC in P.J. Agro Tech Limited and Ors.