India: Necessity Is The Mother Of All Interpretation

Last Updated: 14 October 2015
Article by Rahul Pandey

Most Read Contributor in India, September 2016


The basic Principle of Interpretation of Statutes is to remove the ambiguity and enlarge the scope of legislation and intention of the legislature. It is well settled that the real intention of the legislation must be carved out from the language used. Any ambiguity in the statute should be dealt by way of construction on the ground that such construction is more consistent with the alleged object and policy of the Act. Recently the Hon'ble Apex Court in the matter of Kirshna Texport & Capital Markets ltd.v.Ila A. Agrawal & Ors1 while interpreting the provision of Section 138 and 141 of Negotiable Instrument Act, 1881 (hereinafter N.I Act) has held that the notice of dishonour of cheques to the company is sufficient, and there is no need to serve separate notices on the directors.


The Appellant herein issued a notice on 14.09.1996 u/s 138 of N.I Act, 1881to M/s Indo French Bio Tech Enterprises Ltd. No reply was sent to the aforesaid notice thus the Appellant filed Complaint Case No. 243/S/1996 before the Additional Chief Metropolitan Magistrate, 5th Court at Dadar, Mumbai against the Company, Mr. K.J. Bodiwala, the Chairman and Managing Director of the Company and 11 other directors including Respondent Nos. 1 and 2. In so far as the directors are concerned, it was averred that they were in-charge of the business of the Company and its day to day affairs and were liable. During trial it was found that no individual notices were given to the directors. The Metropolitan Magistrate by his judgment and order dated 30.4.2007 convicted the Company but acquitted Respondent Nos. 1 and 2 of the offence punishable under Section 138 of the Act. Relying on the judgment of the Division Bench of Madras High Court in B. Raman & Ors. Vs. M/s.Shasun Chemicals and Drugs Ltd2, it was observed that statutory notice under Section 138 of the Act was required to be issued to every Director and for non- compliance of such mandatory requirement respondents 1 and 2 could not be proceeded against. Thereafter the Appellant being aggrieved preferred a Criminal Application No. 2174 of 2007 in the High Court seeking leave to prefer an appeal against the judgment acquitting Respondent Nos. 1 & 2. The Hon'ble High Court of Bombay also relied on the judgment of the Division Bench of Madras High Court B. Raman & Ors. (supra) observed that it was Mandatory to have issued separate notices to the directors. The High Court held that without service of notice to individual directors, vicarious liability of the offence u/s 138 of N.I Act cannot be fastened on them.


The most significant issue to be adjudicated upon by the Hon'ble Apex Court was whether notice under Section 138 of the Act is mandatorily required to be sent to the directors of a Company before a complaint could be filed against such directors along with the Company. After measuring all the aspects of the arguments advanced from both the sides, the Hon'ble Court duly observed the ratio held by the Apex Court in the judgment of Kanai La Sur vs. Paramnidhi Sadhukhan3 on the principles concerning interpretative function of the Court and thus held that Section 141 again does not lay down any requirement that in such eventuality the directors must individually be issued separate notices under Section 138. The persons who are in charge of the affairs of the Company and running its affairs must naturally be aware of the notice of demand under Section 138 of the Act issued to such Company. It is precisely for this reason that no notice is additionally contemplated to be given to such directors. The opportunity to the 'drawer' Company is considered good enough for those who are in charge of the affairs of such Company. If it is their case that the offence was committed without their knowledge or that they had exercised due diligence to prevent such commission, it would be a matter of defense to be considered at the appropriate stage in the trial and certainly not at the stage of notice under Section 138.


Recently N.I Act, 1888 has witnessed various modifications and interpretations in the arena of Hon'ble Supreme Court of India. A Three-judge bench of the Apex Court vide Dashrath Rupsingh Rathod v. State of Maharashtra and Another4, of India held that the territorial jurisdiction qua dishonour of cheques is restricted to the court within whose local jurisdiction the offence was committed, i.e. the bank on which it is drawn. The observations of the Apex Court in Dashrath Rupsingh totally changed the whole picture depicted by Apex Court's observations and findings in, inter alia, K. Bhaskaran v. Sankaran Vaidhyan Balan5 and Harman Electronics Pvt. Ltd. v. National Panasonic India Pvt. Ltd.6. Subsequent to the Ordinance, the jurisdiction to hear complaints under Section 138 of the Act now vests with the court within whose jurisdiction the bank branch of the payee is situated. Further, in terms of Section 142A of the Act, all subsequent complaints under Section 138 of the Act against the same drawer shall be filed before the same court, regardless of the place where the cheques were presented for payment. This position is a clear departure from the position laid down by the Apex Court in the Dashrath Singh. Thereafter on 15.06.2015, the President of India promulgated the Negotiable Instruments (Amendment) Ordinance, 2015, thus the jurisdiction to entertain the complaint again shifted to the courts within whose jurisdiction the cheque gets dishonored but now the same ordinance has lapsed and till now neither the legislature nor the judiciary has come out with an unambiguous mandate. Now vide the recent judgment the Apex Court has out rightly held that Section 138 of the Act does not admit of any necessity or scope for reading into it the requirement that the directors of the Company in question must also be issued individual notices under Section 138 of the Act. Such directors who are in charge of affairs of the Company and responsible for the affairs of the Company would be aware of the receipt of notice by the Company under Section 138. Therefore neither on literal construction nor on the touch stone of purposive construction such requirement could or ought to be read into Section 138 of the Act.


1 Criminal Appeal No. 1220 of 2009

2 2006 Cril. L.J. Page 4552

3 (1958) SCR 360

4 Criminal Appeal No. 2287 of 2009

5 (1999)7SCC510

6 (2009) 1 SCC 720

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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