NEUTRAL CITATION
R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/CRIMINAL MISC.APPLICATION NO. 7975 of 2018
With
R/CRIMINAL MISC.APPLICATION NO. 7978 of 2018
With
R/CRIMINAL MISC.APPLICATION NO. 7982 of 2018
With
R/CRIMINAL MISC.APPLICATION NO. 7989 of 2018
With
R/CRIMINAL MISC.APPLICATION NO. 8002 of 2018
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE SANDEEP N. BHATT
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1 Whether Reporters of Local Papers may be allowed Yes
to see the judgment ?
2 To be referred to the Reporter or not ? Yes
3 Whether their Lordships wish to see the fair copy No
of the judgment ?
4 Whether this case involves a substantial question No
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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DATTATRAYA NARAYAN GHANDGE & 3 other(s)
Versus
STATE OF GUJARAT & 2 other(s)
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Appearance:
MR CHAITANYA S JOSHI(5927) for the Applicant(s) No. 1,2,3
MR SUDHAKAR B JOSHI(3465) for the Applicant(s) No. 1,2,3
MR. SOAHAM JOSHI, APP for the Respondent(s) No. 1 - State
RULE SERVED for the Respondent(s) No. 2
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CORAM:HONOURABLE MR. JUSTICE SANDEEP N. BHATT
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NEUTRAL CITATION
R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023
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Date : 09/08/2023
ORAL JUDGMENT
1. Since the issues involved in the present applications are identical in nature, Criminal Misc. Application No.7975 of 2018 is considered as leading matter.
2. The present application i.e. Criminal Misc. Application No.7975 of 2018 is filed for seeking following main reliefs:-
"(a) Quash and set aside the impugned Criminal Complaint No.4951 of 2017 filed before the Additional Chief Judicial Magistrate at Rajkot.
(b) During the pendency and final hearing of this petition, stay the further proceedings of impugned Criminal Complaint No.4951 of 2017 filed before the Additional Chief Judicial Magistrate at Rajkot.
(c) Pass any other necessary orders which this Hon'ble Court may deem fit."
3.1 Brief facts as per the case of the applicants in this application are as such that the applicants are directors of a Company who were not in charge of and were not responsible for the conduct of the business of the company, hence, will not be liable under Section 141 Negotiable Instruments Act, 1881. It is further the case Page 2 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined of the applicants. It is further the case of the applicants in this application are as such that the applicants on the basis of merely holding a designation or office in a company cannot be held liable under Section 141 Negotiable Instruments Act, 1881. Liability depends on the role one, who plays in the affairs of a Company and not on designation of status. It is further the case of the applicants in this application are as such that the learned Magistrate has committed serious error in examining complaint at first instance on the basis of averments contained therein. The Learned Magistrate has issued process against the applicants despite there are no averments which bring the case within Section 141. 3.2 It is further the case of the applicants in this application are as such that the learned Magistrate has committed serious error in issuing process against the applicants merely being described as a director in a company, which is not sufficient to satisfy the requirement of section 141. Furthermore, a director in a company cannot be deemed to be in charge of and responsible to the company for the conduct of its business. It is further the case of the applicants in this Page 3 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined application are as such that there is no clear statement of fact in the complaint so as to enable the learned Magistrate to arrive at a prima facie opinion that the applicants are vicariously liable. It is further the case of the applicants in this application are as such that before the applicants can be made vicariously liable, strict compliance of the statutory requirements would have insisted. In the present case the summons issued to the applicants would put the applicants to some sort of harassment, the learned Magistrate has committed serious error in not insisting strict compliance with the statutory requirement. It is further the case of the applicants in this application are as such that there is no averment in the Complaint as to how and in what manner the applicants were responsible for the conduct of the business of the company or otherwise responsible to it in regard to its functioning, merely making some bald averment in the complaint, which was not sufficient to issue process against the applicants. 3.3 It is further the case of the applicants in this application are as such that in spite of the averment that applicants were directors at the relevant time and Page 4 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined were responsible for and in charge of the conduct of the business of the company, the Hon'ble Apex Court has held that allegations in the complaint, even if taken to be correct in their entirety, did not disclose any offence. It is further the case of the applicants in this application are as such that the applicants have not issued any cheque in favour of the Respondent. The Complaint has failed to state in the Complaint as to how the applicants are responsible for dishonour of the cheque. The allegations made in Complaint do not satisfy the requirements of Section 141 of the Act. It is further the case of the applicants in this application are as such that the Complainant has not come up with a case that, the applicants are responsible to the company for the conduct of business of the company, but were not in- charge of the conduct of the business of the company, therefore, the applicants cannot be made liable unless the complaint establishes that the offence was committed with the consent or connivance or as a result of the negligence of the applicants. It is further the case of the applicants in this application are as such that penal statutes are to be construed strictly. Penal statutes providing constructive vicarious liability should be Page 5 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined construed much more strictly. There is no question of inferential or implied compliance. Therefore, a specific averment complying with the requirements of section 141 is imperative.
3.4 It is further the case of the applicants in this application are as such that to be vicariously liable under sub-section (1) of Section 141, a person should fulfil the 'legal requirement' of being a person in law (under the statute governing companies) responsible to the company for the conduct of the business of the company and also fulfil the 'factual requirement' of being a person in charge of the business of the company. The Complaint preferred by the Respondent does not comply with the requirements of Section 141(1) and hence, the learned Magistrate ought not to have issued process against the applicants. It is further the case of the applicants in this application are as such that for making a person liable under Section 141(2), the mechanical reapplication of the requirements under Section 14101) will be of no assistance, but there should be necessary averments in the complaint as to how and in what manner the accused was guilty of consent and Page 6 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined connivance or negligence and therefore, responsible under sub-section (2) of section 141 of the Act. The Complaint preferred by the Respondent does not comply with the requirements of Section 141(2) and hence, the Learned Magistrate ought not to have issued Process against the applicants. Hence, the resent application is preferred.
4. Heard the learned advocate Mr. Sushil Nimbark, on behalf of Mr. Chaitanya S. Joshi, representing the applicants, Mr. Soaham Joshi, the learned Additional Public Prosecutor (APP), representing the respondent No.1
- State.
5. Though served with the service of notice, respondent No.2 - complainant has not chosen to appear or contest the case by any counsel.
6.1 Learned advocate Mr. Sushil Nimbark, on behalf of Mr. Chaitanya S. Joshi, representing the applicants has has brought to my attention the group of applications with similar nature. He has argued that upon a bare reading of the complaint filed under Section 138 of the Negotiable Instruments Act, 1881 (hereinafter referred to as "the N.I. Act" for short), it becomes evident that no Page 7 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined specific allegations have been made against the role of the directors, who are the present applicants. Additionally, he has asserted that law is well settled that, according to the provisions of Section 142(ii) of the N.I. Act, in the absence of such crucial elements within the complaint, individuals who hold an inactive directorial position or were not signatories of the check cannot be held accountable under the provisions of Section 138 of the N.I. Act.
6.2 Furthermore, he contends that the applicants cannot be held liable under the provisions of Section 141 of the N.I. Act solely based on their designations or roles within a company. He emphasizes that the complaint does not articulate a valid case against the present applicants. He asserts that being a director in a company does not inherently imply being in charge and responsible for the company's daily business affairs. He underscores that the learned Magistrate must form a prima facie opinion on the applicants' vicarious liability before issuing any legal process. However, upon scrutinizing the complaint, it is evident that the averments provided therein do not meet the requirements Page 8 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined outlined in Section 138 of the N.I. Act. He further argues that the continuation of proceedings pursuant to this complaint would amount to harassment against the applicants. He also highlights the disputed check and emphasizes that it lacks the signatures of the applicants. 6.3 Furthermore, reliance has been place upon the judgment of the Hon'ble Apex Court in the cases of (i) K.K. Ahuja versus V.K. Vora reported in 2009 LawSuit (SC) 1232 [(2009) 10 SCC 48], (ii) S.M.S. Pharmaceuticals Ltd. versus Neeta Bhalla reported in 2005 LawSuit (SC) 1265 [(2005) 8 SCC 89], (iii) National Small Industries Corp. Ltd. versus Harmeet Singh Paintal & Anr. reported in (2010) 3 SCC 330. By highlighting the above referred judgments, it is argued that the situation of the applicants is encompassed by Section 141(ii) of the N.I. Act. Therefore, it is maintained that the process should be quashed by exercising the inherent powers under Section 482 of the Criminal Procedure Code, 1973.
7. Conversely, Mr. Soaham Joshi, the learned Additional Public Prosecutor (APP), representing the Page 9 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined respondent No.1 - State has asserted that prima facie, a case is established under Section 138 of the N.I. Act. He argues that the applicants, as directors of the company, cannot evade liability arising from the company's debt. Whether the applicants are responsible for repaying the debt or not, this matter cannot be fully assessed without a comprehensive trial. He points out that from the record of this application, it is apparent that the applicants are not given any reply to the notice issued under Section 138 of the N.I. Act. Referring to the judgment of the Hon'ble Supreme Court in the case of S.P. Mani and Mohan Dairy versus Dr. Snehalatha Elangovan reported in 2022 LawSuit (SC) 1106 [2022 AIR (SC) 4883], this Court should not exercise the powers under Section 482 of the Criminal Procedure Code, 1973.
8. In rejoinder, Mr. Nimbark has contended that the judgment of the Hon'ble Apex Court in the case of S.P. Mani and Mohan Dairy (supra) is not be applicable in the facts and circumstances of the present case as it pertains to the case whether provisions of Section 141 (i) is applicable and in the present case, the provision Page 10 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined under Section 141 (ii) is applicable. Further, he has fairly accepted that though the notice is issued by the complainant under Section 138 of the N.I. Act, but the same is not replied back. Nevertheless, he asserts that the absence of a response does not hold significant weight, especially when the complaint fails to include any assertions regarding the active role of the applicants in the day-to-day operations of the business. 9.1 I have heard learned advocates for the respective parties. I have perused the materials available on the record with the application, more specifically complaints filed in the respective matters, where the issues and transaction are identical in nature. Hence, all the abovementioned matter heard together and decided the same along with, considering the submissions in common. 9.2 Mr. Nimbark has eunder the provisions of the Companies Act, the individuals who are responsible for the routine operations of the company are clearly defined. He further contends that upon a bare reading of the complaint filed in each matters, it becomes evident that only general assertions are made, merely mentioning Page 11 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined that the applicants hold directorial positions within the company nevertheless no specific averment is made in the complaints.
9.3 It is fruit to refer the provisions of Sections 138, 141 (1) & (2) of the N.I. Act, wherein it was held that no vicarious liability can be fastened on the present applicants as they are neither active Directors nor Managing Directors, as under:
"Section 138 in The Negotiable Instruments Act, 1881:-
138 Dishonour of cheque for insufficiency, etc., of funds in the account. --Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for 19 [a term which Page 12 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined may be extended to two years], or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless--
(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;
(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, 20 [within thirty days] of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.
Explanation.-- For the purposes of this section, "debt or other liability" means a legally enforceable debt or other liability.
Section 141 in The Negotiable Instruments Act, 1881:- 141 Offences by companies. --
(1) If the person committing an offence under section Page 13 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence:
Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.
(2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, Page 14 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation.-- For the purposes of this section,--
(a) "company" means any body corporate and includes a firm or other association of individuals; and
(b) "director", in relation to a firm, means a partner in the firm.
9.4 Additionally, taking into consideration the aforementioned arguments and the judgments referred to by the learned advocate representing the applicants, it becomes evident prima facie that transactions have occurred between the companies where the applicants hold directorial positions. One of these companies is identified as Anand Teknow Aids Engineering India Ltd., and the accused No.2 belongs to this company. The complaint further specifies that accused Nos.2 to 9 are responsible for overseeing all aspects of the affairs of accused No.1 - the company, including its day-to-day operations. The complaint also alleges that accused No.1 frequently procures products from the complainant through accused Nos.2 to 9 as per its requirements. Page 15 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023
NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined 9.5 Consequently, taking into account the aforementioned considerations and also examining the statements in paragraphs 4 and 6 of the application, it is specifically noted that accused Nos.2 to 9 have given assurances that when the cheque in question was deposited in the respective applications, and subsequently, the complainant proceeded with the deposit, the said cheques became dishonored. Furthermore, it is alleged within the complaint that accused Nos.2 to 9 bear responsibility for the dishonor of these cheques due to their involvement in the daily operations of the company. They are held accountable as they oversee the affairs of accused No.1 - the company.
9.6 It is also fruitful to refer the provisions of Section 139 of the N.I. Act, as under:
"Section 139 in The Negotiable Instruments Act, 1881
139. Presumption in favour of holder.--It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in section 138 for the discharge, in whole or in part, of any debt or other liability." Page 16 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023
NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined 9.7 Hence, the applicants are duty bound to rebut the averments made in the complaint by cogent and uncontroverted documentary evidences.
9.8.1 Now, in this background, it is relevant to refer the judgment of the Hon'ble Apex Court in the cases of S.M.S. Pharmaceuticals Ltd. (supra), specifically, paragraphs 19 and 20 are relevant, as under:
"19. To sum up, there is almost unanimous judicial opinion that necessary averments ought to be contained in a complaint before a person can be subjected to criminal process. A liability under Section 141 of the Act is sought to be fastened vicariously on a person connected with a company, the principal accused being the company itself. It is a departure from the rule in criminal law against vicarious liability. A clear case should be spelled out in the complaint against the person sought to be made liable. Section 141 of the Act contains the requirements for making a person liable under the said provision. That the respondent falls within the parameters of Section 141 has to be spelled out. A complaint has to be examined by the Magistrate in the first instance on the basis of averments contained therein. If the Magistrate is satisfied that there are averments which bring the case within Page 17 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined Section 141, he would issue the process. We have seen that merely being described as a director in a company is not sufficient to satisfy the requirement of Section
141. Even a non-director can be liable under Section 141 of the Act. The averments in the complaint would also serve the purpose that the person sought to be made liable would know what is the case which is alleged against him. This will enable him to meet the case at the trial.
20. In view of the above discussion, our answers to the questions posed in the reference are as under:
(a) It is necessary to specifically aver in a complaint under Section 141 that at the time the offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company. This averment is an essential requirement of Section 141 and has to be made in a complaint. Without this averment being made in a complaint, the requirements of Section 141 cannot be said to be satisfied.
(b) The answer to the question posed in sub-para
(b) has to be in the negative. Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a Page 18 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined company cannot be deemed to be in charge of and responsible to the company for the conduct of its business. The requirement of Section 141 is that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a director in such cases.
(c) The answer to Question (c) has to be in the affirmative. The question notes that the managing director or joint managing director would be admittedly in charge of the company and responsible to the company for the conduct of its business. When that is so, holders of such positions in a company become liable under Section 141 of the Act. By virtue of the office they hold as managing director or joint managing director, these persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 141. So far as the signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under sub- section (2) of Section 141."
9.8.2 It is relevant to refer the judgment of the Hon'ble Apex Court in the case of K.K. Ahuja (supra), Page 19 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined specifically, paragraphs 10, 11, 14 and 18 are relevant, as under:
"10. Having regard to section 141, when a cheque issued by a company (incorporated under the Companies Act, 1956) is dishonoured, in addition to the company, the following persons are deemed to be guilty of the offence and shall be liable to be proceeded against and punished :
(i) every person who at the time the offence was committed, was in charge of and was responsible to the company for the conduct of the business of the company;
(ii) any Director, Manager, Secretary or other officer of the company with whose consent and connivance, the offence under section 138 has been committed; and
(iii) any Director, Manager, Secretary or other officer of the company whose negligence resulted in the offence under section 138 of the Act, being committed by the company.
While liability of persons in the first category arises under sub-section (1) of Section 141, the liability of persons mentioned in categories (ii) and (iii) arises Page 20 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined under sub-section (2). The scheme of the Act, therefore is, that a person who is responsible to the company for the conduct of the business of the company and who is in charge of business of the company is vicariously liable by reason only of his fulfilling the requirements of sub- section (1). But if the person responsible to the company for the conduct of business of the company, was not in charge of the conduct of the business of the company, then he can be made liable only if the offence was committed with his consent or connivance or as a result of his negligence.
11. The criminal liability for the offence by a company under section 138, is fastened vicariously on the persons referred to in sub-section (1) of section 141 by virtue of a legal fiction. Penal statutes are to be construed strictly. Penal statutes providing constructive vicarious liability should be construed much more strictly. When conditions are prescribed for extending such constructive criminal liability to others, courts will insist upon strict literal compliance. There is no question of inferential or implied compliance. Therefore, a specific averment complying with the requirements of section 141 is imperative. As pointed out in K. Srikanth Singh vs. North East Securities Ltd - 2007 (12) SCC 788, the mere fact that at some point of time, an officer of a company had played some role in Page 21 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined the financial affairs of the company, will not be sufficient to attract the constructive liability under section 141 of the Act.
14. The words "every person who, at the time of the offence was committed, was in charge of, and was responsible for the conduct of the business of the company" occurs not only in section 141(1) of the Act but in several enactments dealing with offences by companies, to mention a few - Section 278 B of the Income Tax Act, 1961, Section 22C of Minimum Wages Act, 1948, Section 86A of the Employees State Insurance Act, 1948, Section 14A of Employees Provident Fund and Miscellaneous Provisions Act, 1952, Section 29 of Payment of Bonus Act, 1965, Section 40 of The Air (Prevention and Control of Pollution) Act, 1981 and section 47 of Water (Prevention and Control of Pollution) Act, 1974. But neither section 141(1) of the Act, nor the pari materia provisions in other enactments give any indication as to who are the persons responsible to the company, for the conduct of the business of the company. Therefore, we will have to fall back upon the provisions of Companies Act, 1956 which is the law relating to and regulating companies. Section 291 of the said Act provides that subject to the provisions of that Act, the Board of Directors of a company shall be entitled to exercise all Page 22 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined such powers, and to do all such acts and things, as the company is authorised to exercise and do. A company though a legal entity can act only through its Board of Directors. The settled position is that a Managing Director is prima facie in charge of and responsible for the company's business and affairs and can be prosecuted for offences by the company. But insofar as other directors are concerned, they can be prosecuted only if they were in charge of and responsible for the conduct of the company's business. A combined reading of Sections 5 and 291 of Companies Act, 1956 with the definitions in clauses (24), (26), (30), (31), (45) of section 2 of that Act would show that the following persons are considered to be the persons who are responsible to the company for the conduct of the business of the company : --
(a) the managing director/s;
(b) the whole-time director/s;
(c) the manager;
(d) the secretary;
(e) any person in accordance with whose directions or instructions the Board of directors of the company is Page 23 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined accustomed to act;
(f) any person charged by the Board with the responsibility of complying with that provision (and who has given his consent in that behalf to the Board); and
(g) where any company does not have any of the officers specified in clauses
(a) to (c), any director or directors who may be specified by the Board in this behalf or where no director is so specified, all the directors. It follows that other employees of the company, cannot be said to be persons who are responsible to the company, for the conduct of the business of the company.
18. It should, however, be kept in view that even an officer who was not in charge of and was responsible to the company for the conduct of the business of the company can be made liable under sub-section (2) of Section
141. For making a person liable under Section 141(2), the mechanical repetition of the requirements under Section 141(1) will be of no assistance, but there should be necessary averments in the complaint as to Page 24 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined how and in what manner the accused was guilty of consent and connivance or negligence and therefore, responsible under sub-section (2) of section 141 of the Act."
9.8.3 It is also relevant to refer the judgment of the Hon'ble Apex Court in the case of National Small Industries Corp. Ltd. (supra), specifically, paragraphs 18, 25 and 26 are relevant, as under:
"25) From the above discussion, the following principles emerge :
(i) The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every Director knows about the transaction.
(ii) Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company.
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NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined
(iii) Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be averred in the complaint/petition, are made so as to make accused therein vicariously liable for offence committed by company along with averments in the petition containing that accused were in-charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with.
(iv) Vicarious liability on the part of a person must be pleaded and proved and not inferred.
(v) If accused is Managing Director or 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.
(vi) If accused is a Director or an Officer of a company who signed the cheques on behalf of the company then also it is not necessary to make specific averment in complaint.
(vii) The person sought to be made liable should be in- charge of and responsible for the conduct of the Page 26 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a Director in such cases.
26) Apart from the legal position with regard to compliance of Section 141 of the Act, in the appeals of National Small Industries Corporation, respondent No.1- Harmeet Singh Paintal was no more a Director of the company when the cheques alleged in the complaint were signed and the same is evidenced from the Sixth Annual Report for the year 1996-97 of the accused company. The said report is of dated 30.08.1997 and the same was submitted with the Registrar of Companies on 05.12.1997 and assigned as document No. 42 dated 09.03.1998 by the Department. Those documents have been placed before this Court by respondent No.1 as an additional document. In view of these particulars and in addition to the interpretation relating to Section 141 which we arrived at, no liability could be fastened on respondent No.1. Further, it was pointed out that though he was an authorized signatory in the earlier transactions, after settlement and in respect of the present cause of action, admittedly fresh cheques were not signed by the first respondent. In the same way, in the appeal of the DCM Financial Services, the respondent therein, namely, Dev Sarin also filed additional documents to Page 27 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined show that on the relevant date, namely the date of issuance of cheque he had no connection with the affairs of the company."
9.9 Given the judgments that the learned advocate representing the applicants has referred to, it is evident that the absence of specific allegations is crucial. In this context, it is highlighted that the applicants, as directors, cannot be held accountable when they are not directly involved in the company's day-to-day operations. 9.10 It is relevant to refer the judgment of the Hon'ble Apex Court in the case of S.P. Mani and Mohan Dairy (supra), whereby Hon'ble Apex Court has considered almost all the judgments available including the judgment in the cases of (i) K.K. Ahuja (supra), and
(ii) S.M.S. Pharmaceuticals Ltd. (supra), and has given the detailed findings about the vicarious liability of the individual(s). Necessary paragraphs in the case of S.P. Mani and Mohan Dairy (supra), 24 to 27 and 43 to 47 are relevant, as under:
"24. Evidently, the gist of Section 138 is that the drawer of the cheque shall be deemed to have Page 28 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined committed an offence when the cheque drawn by him is returned unpaid on the prescribed grounds. The conditions precedent and the conditions subsequent to constitute the offence are drawing of a cheque on the account maintained by the drawer with a banker, presentation of the cheque within the prescribed period, making of a demand by the payee by giving a notice in writing within the prescribed period and failure of the drawer to pay within the prescribed period. Upon fulfilment of these requirements, the commission of the offence which may be called the offence of 'dishonour of cheque' is complete. If the drawer is a company, the offence is primarily committed by the company. By virtue of the provisions of subsection (1) of Section 141, the guilt for the offence and the liability to be prosecuted and punished shall be extended to every person who, at the time the offence was committed, was in charge of and was responsible to the company for the conduct of its business; irrespective of whether such person is a director, manager, secretary or other officer of the company. It would be for such responsible person, in order to be exonerated in terms of the first proviso, to prove that the offence was committed without his knowledge or despite his due diligence.
25. Under the separate provision of subsection (2), if it is proved that the offence was committed with the Page 29 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined consent or connivance of or was attributable to the neglect on the part of any director, manager, secretary or other officer of the company, such person would also be deemed to be guilty for that offence. Obviously, the burden of alleging and proving consent, connivance or neglect on the part of any director, etc. would rest upon the complainant. The non obstante clause with which the subsection (2) opens indicate that the deeming provision is distinct and different from the deeming provision in subsection (1) in which the office or designation of the person in charge of and responsible to the company for the conduct of its business is immaterial.
26. While the essential element for implicating a person under subsection (1) is his or her being in charge of and responsible to the company in the conduct of its business at the time of commission of the offence, the emphasis in subsection (2) is upon the holding of an office and consent, connivance or negligence of such officer irrespective of his or her being or not being actually in charge of and responsible to the company in the conduct of its business. Thus, the important and distinguishing feature in subsection (1) is the control of a responsible person over the affairs of the company rather than his holding of an office or his designation, while the Page 30 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined liability under subsection (2) arises out of holding an office and consent, connivance or neglect. While all the persons covered by subsection (1) and sub section (2) are liable to be proceeded against and also punished upon the proof of their being either in charge of and responsible to the company in the conduct of its business or of their holding of the office and having been guilty of consent, connivance or neglect in the matter of commission of the offence by the company, the person covered by subsection (1) may, by virtue of the first proviso, escape only punishment if he proves that the offence was committed without his knowledge or despite his due diligence.
27. As for the requisite evidence, the burden upon the prosecution would be discharged under subsection (1) when a person is proved to be in charge of and responsible to the company in the conduct of its business and would shift upon the accused to prove that he was ignorant or diligent, if that be his defence; whereas under subsection (2) the prosecution would be required to allege and prove the consent, connivance or neglect and holding of the office by the accused. There is nothing to suggest that the same person cannot be made to face the prosecution either under subsection (1) or subsection (2) or both. A director or manager can be arraigned and proved to be Page 31 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined guilty as the person in charge of and responsible to the company as well as the director of the company who, as such, might have consented to, connived at or been negligent in respect of the offence of dishonour of cheque, be logically deduced that a person can be arraigned in a complaint as the accused along with the company if it prima facie appears that he was in charge of and responsible to the company for the conduct of its business, although he may or may not be or may not have continued to be a director or other officer of the company, as mentioned in sub section (2). It would be sufficient if the complaint indicates that such person has been arraigned on the basis of averments which disclose him or her to be the person in charge of and responsible to the company in the conduct of its business at the time the offence was committed. Evidently, a person who signs the cheque or who has the authority to sign the cheque for and on behalf of the company, regardless of his office or capacity, can, prima facie, be assumed to be in charge of and responsible to the company in the conduct of its business. And, where such person is prosecuted, then, if it be his defence that the offence was committed without his or her knowledge or that he or she has exercised all due diligence to prevent the commission of such offence, the burden to prove that would be on him or her and can only be discharged at the stage of Page 32 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined evidence.
43. In the case on hand, we find clear and specific averments not only in the complaint but also in the statutory notice issued to the respondent. There are specific averments that the cheque was issued with the consent of the respondent herein and within her knowledge. In our view, this was sufficient to put the respondent herein to trial for the alleged offence. We are saying so because the case of the respondent that at the time of issuance of the cheque or at the time of the commission of the offence, she was in no manner concerned with the firm or she was not incharge or responsible for daytoday affairs of the firm cannot be on the basis of mere bald assertion in this regard. The same is not sufficient. To make good her case, the respondent herein is expected to lead unimpeachable and incontrovertible evidence. Nothing of the sort was adduced by the respondent before the High Court to get the proceedings quashed. The High Court had practically no legal basis to say that the averments made in the complaint are not sufficient to fasten the vicarious liability upon the respondent by virtue of Section 141 of the NI Act.
44. We may also examine this appeal from a different angle. It is not in dispute, as noted above, that no Page 33 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined reply was given by the respondent to the statutory notice served upon her by the appellant. In the proceedings of the present type, it is essential for the person to whom statutory notice is issued under Section 138 of the NI Act to give an appropriate reply. The person concerned is expected to clarify his or her stance. If the person concerned has some unimpeachable and incontrovertible material to establish that he or she has no role to play in the affairs of the company/firm, then such material should be highlighted in the reply to the notice as a foundation. If any such foundation is laid, the picture would be more clear before the eyes of the complainant. The complainant would come to know as to why the person to whom he has issued notice says that he is not responsible for the dishonour of the cheque. Had the respondent herein given appropriate reply highlighting whatever she has sought to highlight before us then probably the complainant would have undertaken further enquiry and would have tried to find out what was the legal status of the firm on the date of the commission of the offence and what was the status of the respondent in the firm. The object of notice before the filing of the complaint is not just to give a chance to the drawer of the cheque to rectify his omission to make his stance clear so far as his liability under Section 138 of the NI Act is concerned. Page 34 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023
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45. Once the necessary averments are made in the statutory notice issued by the complainant in regard to the vicarious liability of the partners and upon receipt of such notice, if the partner keeps quiet and does not say anything in reply to the same, then the complainant has all the reasons to believe that what he has stated in the notice has been accepted by the noticee. In such circumstances what more is expected of the complainant to say in the complaint.
46. When in view of the basic averment process is issued the complaint must proceed against the Directors or partners as the case may be. But, if any Director or Partner wants the process to be quashed by filing a petition under Section 482 of the Code on the ground that only a bald averment is made in the complaint and that he is really not concerned with the issuance of the cheque, he must in order to persuade the High Court to quash the process either furnish some sterling incontrovertible material or acceptable circumstances to substantiate his contention. He must make out a case that making him stand the trial would be an abuse of process of court. He cannot get the complaint quashed merely on the ground that apart from the basic averment no particulars are given in the complaint about his role, because ordinarily the Page 35 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined basic averment would be sufficient to send him to trial and it could be argued that his further role could be brought out in the trial. Quashing of a complaint is a serious matter. Complaint cannot be quashed for the asking. For quashing of a complaint, it must be shown that no offence is made out at all against the Director or Partner.
47. Our final conclusions may be summarised as under: a.) The primary responsibility of the complainant is to make specific averments in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no legal requirement for the complainant to show that the accused partner of the firm was aware about each and every transaction. On the other hand, the first proviso to subsection (1) of Section 141 of the Act clearly lays down that if the accused is able to prove to the satisfaction of the Court that the offence was committed without his/her knowledge or he/she had exercised due diligence to prevent the commission of such offence, he/she will not be liable of punishment. b.) The complainant is supposed to know only generally as to who were in charge of the affairs of the company or firm, as the case may be. The other administrative matters would be within the special Page 36 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined knowledge of the company or the firm and those who are in charge of it. In such circumstances, the complainant is expected to allege that the persons named in the complaint are in charge of the affairs of the company/firm. It is only the Directors of the company or the partners of the firm, as the case may be, who have the special knowledge about the role they had played in the company or the partners in a firm to show before the court that at the relevant point of time they were not in charge of the affairs of the company. Advertence to Sections 138 and Section 141 respectively of the NI Act shows that on the other elements of an offence under Section 138 being satisfied, the burden is on the Board of Directors or the officers in charge of the affairs of the company/partners of a firm to show that they were not liable to be convicted. The existence of any special circumstance that makes them not liable is something that is peculiarly within their knowledge and it is for them to establish at the trial to show that at the relevant time they were not in charge of the affairs of the company or the firm.
c.) Needless to say, the final judgement and order would depend on the evidence adduced. Criminal liability is attracted only on those, who at the time of commission of the offence, were in charge of and were Page 37 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined responsible for the conduct of the business of the firm. But vicarious criminal liability can be inferred against the partners of a firm when it is specifically averred in the complaint about the status of the partners 'qua' the firm. This would make them liable to face the prosecution but it does not lead to automatic conviction. Hence, they are not adversely prejudiced if they are eventually found to be not guilty, as a necessary consequence thereof would be acquittal. d.) If any Director wants the process to be quashed by filing a petition under Section 482 of the Code on the ground that only a bald averment is made in the complaint and that he/she is really not concerned with the issuance of the cheque, he/she must in order to persuade the High Court to quash the process either furnish some sterling incontrovertible material or acceptable circumstances to substantiate his/her contention. He/she must make out a case that making him/her stand the trial would be an abuse of process of Court."
9.11 Considering the established legal principles outlined as above and also considering the facts and circumstances of the present case, it is evident that the applicants cannot claim to have not received notices Page 38 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined under Section 138, which they have not replied. The process of the Criminal Case was indeed served at the same address where the notice had been issued to them. Furthermore, following the initiation of the complaint process, the applicants did appear before the concered trial court. Hence, it cannot be considered at this stage that the applicants were not served with the notice. In light of the Hon'ble Supreme Court's decision in the case of S.P. Mani and Mohan Dairy (supra), where the notice is not relied by giving specific defence, the applicants are not entitled to raise these grievances in the proceedings under Section 482 of the Criminal Procedure Code. Moreover, upon perusal the content of the complaint, it is evident that certain specific averments are made regarding the active involvement of accused Nos.2 to 9. Consequently, ingredients of Sections 138, 141 (1) & (2) are satisfied in the present case. The judgments cited by the learned advocate representing the applicants are not applicable in the facts of this case, because there are brief averments made in the criminal compalints about the role of the applicants, and particularly in relation to failure to give reply to the notice issued under Section 138 of the N.I. Act by raising all these disputes by the Page 39 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023 NEUTRAL CITATION R/CR.MA/7975/2018 JUDGMENT DATED: 09/08/2023 undefined applicants about the vicarious liability to pay the dues of the company.
9.12 In view of above discussions, I am of the opinion that no case is made out in the present cases where the interference under the provisions of Section 482 of the Criminal Procedure Code, 1973 is not required to be called for. Hence, I am of the view that the present application deserves to be dismissed.
10. The present captioned applications are dismissed, with no order as to costs.
11. Since the complaints of criminal cases are filed long ago in the year 2017 under Section 138 of the N.I. Act and due to pendency of the applications before this Court, the complaints could not be proceeded. It is appropriate to direct the trial court to decide the proceedings of respective criminal cases, as expeditiously as possible, preferably on or before 31.8.2024 after giving proper opportunities to the respective parties. This directive aims to ensure a prompt and efficient conclusion to the pending matters, in accordance with law.
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12. At this juncture, the learned advocate representing the applicant has requested to stay in the proceedings for an additional four weeks, citing the ongoing interim relief that is in place in the present application(s). Considering the considerable duration for which these applications, filed in 2017, have remained unresolved due to the ongoing proceedings, and taking into consideration the nature of the litigation, I am of the opinion that let the proceedings of criminal cases proceeded forthwith. Therefore, the request for stay is denied.
Rule stands discharged.
(SANDEEP N. BHATT,J) DIWAKAR SHUKLA Page 41 of 41 Downloaded on : Sun Sep 17 00:50:48 IST 2023