THE HON'BLE Dr. JUSTICE G. RADHA RANI
CRIMINAL PETITION No.5169 of 2014
ORDER:
This petition is filed by the petitioners - A6 and A9 under Section 482 Cr.P.C. to quash the proceedings against them in CC No. 402 of 2013 on the file of IX Special Magistrate, Erramanzil, Hyderabad.
2. The 2nd respondent, a banking company, lodged a private complaint before the IX Additional Chief Metropolitan Magistrate, Nampally, Hyderabad on 02.03.2013 stating that A1 being a Limited Company, and A2 being the Vice Chairman of A1 Company and A3 to A9 being the Directors of the A1 Company availed Rs.50.00 crores towards short term loan on 10.01.2012 for general corporate purpose which was repayable with interest at 1.5% over and above the base rate of bank as applicable from time to time, with floating rate linked to its rate compounding on monthly basis. The said amount was repayable in bullet payment at the end of 364 days, but the interest was to be paid every month. The collateral security was also given to the said loan as (1) Lien on fixed deposit to a tune of Rs.10.00 crores, (2) Negative Lien on Uniliner Machinery and (3) a post dated cheque for Rs.50.00 crores. Apart from the above security, the Chairman Sri T. Venkatram Reddy i.e. A3, Sri T. Vinayak Ravi Reddy, Vice Chairman i.e. A2 and Sri P.K.Iyer, Vice Chairman i.e. A4 stood as Guarantors to the said loan in the name of A1 Company. A2 Dr.GRR,J 2 CrlP.No.5169 of 2014 acknowledged the terms and conditions of loan sanction communication and executed all necessary loan documents. A4 executed another agreement of guarantee separately on the same day i.e. on 10.01.2012 in favour of the complainant, A2 on behalf of A1 was authorized to borrow the loan in pursuance of their Board Resolution dated 16.12.2011. Therefore, as per Section 293 of the Companies Act, all the other accused being the Directors of A1 Company, got knowledge of borrowing of Rs.50.00 crores from the complainant bank by A1 Company and were liable for repayment. Despite several demands made by the complainant, the accused did not keep up the word for repaying the interest as agreed. Their accounts were classified as non-performing assets on 19.11.2012. As per the agreement, the fixed deposit of Rs.10.00 crores made by the accused with the complainant was closed and appropriated towards the loan account of the accused. Apart from the above said loan, A1 also previously availed other loan HPMA-New Loan of Rs.25.00 crores on 19.12.2008. Therefore, the total amount due by the accused to the complainant was Rs.50,41,09,075.75 ps., as on 31.12.2012 which remained unpaid by the accused to the complainant. Since the accused failed to repay the loan amount, the cheque dated 10.01.2013 given by the accused on 10.01.2012 was presented by the complainant for collection and the same was returned by the bankers of the accused i.e. Canara Bank, Narayanaguda, Hyderabad with an endorsement "FUNDS INSUFFICIENT." The complainant issued a legal notice to Dr.GRR,J 3 CrlP.No.5169 of 2014 all the accused on 19.01.2013 and as the accused neither paid the amount nor did give any reply, lodged the complaint under Sections 138 and 142 of Negotiable Instruments Act (for short 'NI Act').
3. Heard the learned counsel for the petitioners. There is no representation for the 2nd respondent.
4. Learned counsel for the petitioners submitted that the petitioners were independent Directors and had no role or say in the day to day activities and business of the A1 Company nor they were signatories to the alleged cheque or to any of the transactions that transpired between A1 Company and the complainant-2nd respondent. The petitioners admittedly resigned from the post of the Directors of the A1 Company on 20.05.2012 and 14.08.2012 respectively. The petitioners were nominated as Directors and it was only ceremonial in nature. The petitioners never availed any benefits or received any monetary benefit by virtue of the post of Director. As per the provisions of the Act and as per the law laid down by the Hon'ble Apex Court and High Courts, to fasten the liability against the accused for the offence under Section 138 of the NI Act, specific role had to be assigned to the accused showing as to how and in what manner, the Directors were responsible for the conduct of the business of the company. There was no presumption that every Director knew about the transactions. There was no prima facie material against the petitioners. As such, continuation of proceedings against the Dr.GRR,J 4 CrlP.No.5169 of 2014 petitioners would amount to abuse of process of law and prayed to quash the proceedings against them.
5. Learned counsel for the petitioners relied upon the judgments of this Court in Arrakuntal V. Ganeshan v. M/s. Sai Rama Cotton Syndicate and another1, and the judgments of the Hon'ble Apex Court in Ashoke Mal Bafna v. Upper India Steel Manufacturing and Engineering Company Limited2 and Saroj Kumar Poddar v. State (NCT of Delhi) and Another3. He further submitted that this Court in a batch of Criminal Petitions i.e. Crl.P. Nos.3703 of 2013 & Batch, quashed the proceedings against the petitioners herein in CC No.4 of 2013 on the file of IX Special Metropolitan Magistrate, Hyderabad and CC Nos.116, 117 and 119 on the file of XIII Special Metropolitan Magistrate, Hyderabad and CC No.447 of 2013 on the file of the XX Additional Chief Metropolitan Magistrate, Hyderabad, wherein the petitioners herein were shown as A6 & A9, and filed a copy of the said order.
6. On a perusal of the private complaint filed by the complainant, the role played by the petitioners was nowhere mentioned, except stating that as per Section 293 of the Companies Act, all the accused being the Directors of A1 Company got full knowledge of borrowing of the loan from the complainant bank and as such liable for repayment and also punishment. 1 2013 (2) ALT (Crl.) ( 275 (A.P.) 2 (2018) 14 SCC 202 3 (2007) 3 SCC 693 Dr.GRR,J 5 CrlP.No.5169 of 2014
7. This Court in Arrakuntal V. Ganeshan case (1 supra) by referring to various judgments of the Hon'ble Apex Court and considering the provisions of Section 141 (1) of the NI Act held that:
"Section 141 of the Act does not say that a Director of the company shall automatically be vicariously liable for commission of an offence by or on behalf of the company. What is necessary is that sufficient averments should be made to show that the person who is sought to be proceeded against on the premise of he being vicariously liable for commission of an offence by the company must be incharge of, and shall also be responsible to the company for the conduct of its business. Sub- section (2) of Section 141 fortifies the above reasoning because sub-section (2) envisages direct involvement of any Director, Manager, Secretary or other officer of a company in the commission of an offence. This section operates when in a trial it is proved that the offence has been committed with the consent or connivance or is attributable to neglect on the part of any of the holders of these offices in a company. In such a case, such persons are to be held liable. Provision has been made for Directors, Managers, Secretaries and other officers of a company to cover them in cases of their proved involvement. In S.M.S. Pharmaceuticals Ltd., Vs., Neeta Bhalla and another [1], the Apex Court held that the liability arises on account of conduct, act or omission on the part of a person and not merely on account of holding an office or a position in a company. In order to bring a case within Section 141 of the Act, the complaint should disclose the necessary facts which makes a person liable."
8. The Hon'ble Apex Court in recent judgment in Ashoke Mal Bafna case (2 supra) while summarizing the principles as to when a Director of a company can be made liable for the offence committed by the company under Section 141 of the NI Act held that:
"Section 141 is a penal provision creating vicarious liability, and which, as per settled law, must be strictly construed. It is therefore, not sufficient to make a bald cursory statement in a complaint, that Director (arrayed as an accused) is in charge of and responsible to Company for conduct of business of Company, without anything more as to the role of Director. Compliant should spell out as to how and in what manner, accused was in charge of or was responsible to Company for conduct of its business. Aforesaid is in consonance with strict interpretation of penal statutes especially where such statutes create vicarious liability.
Dr.GRR,J 6 CrlP.No.5169 of 2014 To fasten vicarious liability under Section 141 on a person, law is well settled by Supreme Court, that complainant should specifically show as to how and in what manner accused was responsible. Simply because a person is a Director of defaulter Company, does not make him liable under the Act. Only the person who was at the helm of affairs of the Company and in charge of and responsible for conduct of business at the time of commission of an offence, will be liable for criminal action.
Hence, for making a Director of a Company liable for offences committed by Company under Section 141, there must be specific averments against Director showing as to how and in what manner the Director was responsible for conduct of business of Company."
9. Thus, the Hon'ble Apex Court observed that for making a Director of a company liable for the offences committed by the Company under Section 141 of the NI Act, there must be specific averments against the Director showing as to how and in what manner the Director was responsible for the conduct of the business of the Company.
10. Learned counsel for the petitioners filed copies of the resignation letters submitted by the petitioners to the Board of Directors on 20.05.2012 and 14.08.2012, respectively, and the resolutions passed by the Board of Directors in its meeting held on 08.12.2012 accepting the said resignations. These would disclose that the petitioners resigned from independent Directorship prior to the date of cheque on 10.01.2013. Form 32 filed by the learned counsel for the petitioners also would disclose that the petitioners were not working with the company with effect from 08.12.2012.
11. The Hon'ble Apex Court in Saroj Kumar Poddar case (3 supra) on a similar facts, held that:
"The appellant did not issue any cheque. He had resigned from the directorship of the Company. I t may be true that as to Dr.GRR,J 7 CrlP.No.5169 of 2014 exactly on what date the said resignation was accepted by the company is not known, but, even otherwise, there is no averment in the complaint petitions, as to how and in what manner the appellant was responsible for the conduct of the business of the Company or otherwise responsible to it in regard to its functioning. He had not issued any cheque. How he is responsible for dishonour of the cheque has not been stated. The allegations, thus, do not satisfy the requirements of Section 141 of the Act.
Allegations to satisfy the requirements of Section 138 of the Act might have been made in the complaint petition but the same principally relate to the purported offence made by the Company. With a view to make a Director of a company vicariously liable for the acts of the company, it was obligatory on the part of the complainant to make specific allegations as are required in law."
12. This Court in Crl.P. Nos.3703 of 2013 & Batch, pertaining to the same petitioners, while extracting the definition of an Independent Director under Section 149 of the Companies Act, held that:
"Hence, the above definition would make it clear that the petitioners cannot be said to be persons in charge of day to day affairs. There is no argument that the petitioners have any exceptional position under section 149.
The contention that the question whether the petitioners are independent directors and whether they are not in charge of day to day affairs, can be left to be decided after trial, is not in the spirit of the law, which directs quash of proceedings, when the contents of the complaint, coupled with the unimpeachable material produced by the petitioners, would not make out a case against the petitioners."
13. Hence, considering the judgments of the Hon'ble Apex Court and this Court in a batch of criminal petitions and in Arrakuntal V. Ganeshan case (1 supra) and as the petitioners were neither Managing Directors nor the authorized signatories to sign on the cheques and no specific role was attributed to the petitioners in discharge of the day to day affairs of the Company, continuation of Dr.GRR,J 8 CrlP.No.5169 of 2014 the proceedings against the petitioners is considered as an abuse of process of law.
14. In the result, the Criminal Petition is allowed quashing the proceedings against the petitioners - A6 and A9 in CC No.402 of 2013 on the file of the IX Special Magistrate, Erramanzil, Hyderabad.
Miscellaneous petitions pending, if any, shall stand closed.
_____________________ Dr. G. RADHA RANI, J November 22, 2021 KTL