Delay Condonation Under NI Act Cannot Be Used To Cure Fatal Defects: Supreme Court

The Supreme Court has ruled that the power to condone delay in taking cognizance of a complaint under the Negotiable Instruments Act cannot be used to cure a complaint suffering from a fatal defect.

The court observed that such power cannot be invoked to circumvent the Act by allowing fatal defects to be rectified during the proceedings when the complaint itself deserved dismissal at the threshold.

A Division Bench of Justices Manoj Misra and Vijay Bishnoi observed,

"No doubt, the Court empowered to take cognizance has the power, under the proviso to sub-section (1) of Section 142 of NI Act, to take cognizance of a complaint made after the prescribed period upon being satisfied that the complainant had sufficient cause for not making the complaint within such period. But this power must not be used to circumvent the provisions of the Act and allow the complainant to remove fatal defects in the course of the proceedings when the complaint itself deserved dismissal at the threshold."

The bench set aside a September 19, 2016, order of the Himachal Pradesh High Court.

The high court had refused to quash the proceedings. Instead, it directed the trial court to suo motu implead Cine Prime Entertainment as an accused under Section 319 of the Code of Criminal Procedure. The Supreme Court quashed the complaint and all consequential proceedings.

The case arose from a complaint filed by Pankaj Sharma under Section 138 of the Negotiable Instruments Act. He alleged that Cine Prime Entertainment owed him ₹5 lakh towards services rendered.

A cheque issued on behalf of the company by Manjula Kapoor, one of its directors and authorised signatory, was dishonoured with the remark "payment stopped by drawer."

The Judicial Magistrate took cognizance of the complaint and summoned Kapoor on January 30, 2010.

When the case reached the stage of recording her statement under Section 313 CrPC, Kapoor approached the high court seeking quashing of the proceedings. She argued that the cheque had been drawn on the company's bank account, but the company itself had never been arraigned as an accused.

Sharma argued that the omission was merely a formal defect. According to him, it could be rectified by invoking Section 319 CrPC.

Examining Sections 138 and 141 of the Negotiable Instruments Act, the court observed that where a cheque is drawn on a company's account, it is the company that commits the offence under Section 138. The liability of directors and other officers arises only through the vicarious liability created by Section 141.

The bench observed, "What is clear from above is that the liability for the offence falls on 'such person' who has drawn the cheque on an account maintained by him with a banker. Company is a 'juristic person' and can maintain an account with the bank. Thus, if the cheque concerned is drawn on the account maintained by the Company, subject to fulfilment of other ingredients of Section 138 of NI Act, it would be the Company which would commit the offence. Section 141 of NI Act creates vicarious liability of certain other persons when the offence is committed by the company."

Referring to its earlier decision in Aneeta Hada v. Godfather Travels & Tours (P) Ltd., the court reiterated that arraigning the company as an accused is a mandatory precondition for prosecuting its directors and other officers. It observed that the commission of an offence by the company is a condition precedent for attracting their vicarious liability.

The bench also relied on N. Harihara Krishnan v. J. Thomas. It observed that Section 319 CrPC cannot be used as a device to prosecute a company after the limitation period prescribed under the Negotiable Instruments Act has expired. Nor can it be invoked to cure a complaint that suffers from a fatal defect.

The court explained that where a complaint suffers from such a fundamental defect, there is no valid institution of proceedings in law. In such cases, only a fresh complaint can be filed after removing the defect, provided it is filed within the prescribed limitation period.

If such a complaint is filed beyond the limitation period, the court may still take cognizance under the proviso to Section 142(1) of the Negotiable Instruments Act. However, it can do so only if the complainant satisfies the court that there was sufficient cause for not filing the complaint within time.

Holding that the complaint was fundamentally defective because the company had not been arraigned as an accused, the court ruled that no valid cognizance could have been taken on it. It further held that the high court exceeded its jurisdiction by directing the trial court to suo motu implead the company as an accused.

The bench accordingly set aside the high court's order and quashed the complaint along with all consequential proceedings.

For Petitioner: Ashwani Kumar Dubey, AOR, Devinder Singh Khatana, Garima Sharma, Paranjay Tripathi, Praveen Kumar, Munisha Anand, Advocates

For Respondent: E. R. Sumathy, AOR, S. Anand, Harsh, Advocates