Cheque Dishonour | Service On CEO/MD In Official Capacity Deemed As Notice To Company, Can't Terminate Prosecution: Karnataka High Court
The Karnataka High Court recently held that once a Magistrate takes cognizance of an offence under Negotiable Instruments Act, the proceedings cannot be quashed on a mere technical plea that the company has not been properly described in the cause title, unless it is demonstrably shown that no notice under Section 138(b) of NI Act, was served on the company.A single judge, Justice Sachin...
The Karnataka High Court recently held that once a Magistrate takes cognizance of an offence under Negotiable Instruments Act, the proceedings cannot be quashed on a mere technical plea that the company has not been properly described in the cause title, unless it is demonstrably shown that no notice under Section 138(b) of NI Act, was served on the company.
A single judge, Justice Sachin Shankar Magadum said,
“Where notice has been duly issued and served on the company through its CEO, MD or authorised signatory, the mere inversion or irregularity in the description of accused cannot be a ground to terminate the prosecution.”
It added “Service of notice on the officer who signed the cheque in his or her official capacity constitutes valid notice on the company itself. Conversely, where the company has been duly served, such notice, by operation of Section 141, is deemed notice to the Directors and officers responsible for the conduct of its business.”
The bench held thus while dismissing the petitions filed by accused Shaikh Nowhera who had sought to quash the private complaint registered against her by M/s 1-HELP Technology And Software Solution Pvt Ltd for cheque bounce of 17 cases totalling to Rs.9,84,24,292.
The accused argued that respondent/complainant was engaged only on a contractual basis to create a website and manage social media platforms of the petitioner/accused. Further, it was alleged that the respondent/complainant directly collected funds from the public in the name of the petitioner/accused and transferred them to its own accounts, and that the cheques in question were misused by the Directors of the complainant company.
Moreover, it was argued that since the company itself has not been arraigned as an accused, the entire proceedings stand vitiated, and such a defect is incurable.
The respondents contended that the complaints are in strict compliance with Section 138(b) read with Section 141 of the N.I. Act, and that the legal requirements have been fulfilled. Hence, no indulgence is warranted at the hands of this Court.
Findings:
The bench noted that the cheques in question were drawn and signed by the Chief Executive Officer and the Managing Director of Heera Group of Companies. The notice was not directed to the individual personally but expressly to Mrs. Shaik Nowhera in her capacity as CEO and Managing Director of the company.
Court said that service of the Section 138 notice on the CEO and Managing Director, addressed and shown to be in their official capacity, will ordinarily satisfy the service requirement vis-à-vis the company.
Referring to a private complaint the bench said, “Instead of describing the accused in the conventional form as “Heera Group of Companies represented by its CEO and M.D.”, the complainant has inverted the description, first mentioning the name of the Director and thereafter appending the designation and the company's name.”
Thus it held “Such a mode of description, though somewhat irregular, does not alter the substance of the pleading. It still conveys in unambiguous terms that the complaint is directed against the company, with reference to its CEO and M.D. Therefore, the argument advanced on behalf of the accused that the company is not made a party at all is, in the opinion of this Court, far too hypertechnical and cannot be accepted.”
Further it said “This Court cannot lose sight of the magnitude of the transactions in question, seventeen cheques aggregating to a sum of Rs.9,84,24,292/-. To adopt an unduly rigid or hyper-technical approach in such a context would result in grave prejudice to the complainant, effectively enabling the accused to evade liability despite the substantive ingredients of Section 138 of the N.I. Act being fully attracted.”
Noting the objective of the act the bench said “To quash the proceedings at this stage on such a technical ground would frustrate the very object of Section 138 of N.I. Act, which is to promote the efficacy of banking transactions, safeguard the sanctity of commercial dealings, and ensure that honest creditors are not left remediless.”
The court also held that failure to array a Director separately as Accused No.2, despite service of statutory notice on the company, is a curable defect. Such omission may be rectified in exercise of powers under Section 223 of BNSS 2023 or under Section 319 Cr.P.C. (parimateria provision), depending upon the stage of the proceedings.
Accordingly it dismissed the petitions.
Appearance: Advocate Chandpasha for Petitioner.
Advocate Mahammad Anwar for Respondent.
Citation No: 2025 LiveLaw (Kar) 307
Case Title: Shaik Nowshera AND M/s 1-Help Technology And Software Solution Pvt Ltd & Others
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