The Allahabad High Court dismissed an application under Section 482 of Cr.P.C. filed by a director of a company denying specific role in the issuance of a cheque. The Court clarified that a person in commercial transactions with a company was entitled to presume that the directors were in charge of company, and that it was upon the directors to prove otherwise.
Brief Facts
The matter pertained to a company director who was one of the accused in a 2018 cheque bounce case under Section 138 of the Negotiable Instruments Act, 1881, who refrained from appearing before the Trial Court for four years and approached the Allahabad High Court through the instant application under Section 482 of Cr.P.C. seeking to quash summoning order dated 23.10.2019 and the entire criminal proceeding in the said matter.
Contentions of the Applicant
It was submitted on behalf of the applicant that the summoning order was incorrect and illegal as per Section 141(2) of NI Act which lays down that only those directors with whose connivance and consent, the offence was committed could be held liable under NI Act. It was further stated that no specific role was assigned against the applicant in the statement recorded under Section 200 of Cr.P.C. Further gaps were highlighted regarding the designation of applicant and holder of the cheque in the complaint. It was contended that the person who signed the cheque was an authorised signatory who acted beyond the validity of Power of Attorney (PoA) executed by another director.
Contentions of the Respondents
Pointing towards part payment made in pursuance of MoU, the Counsel hinted at their acknowledgement of debt, submitting that the applicant did not come before the Court with clean hands, but with the intent to further delay the trial.
Observations of the Court
The Court took note of the MoU for settlement of dispute following which, part payment was also made, and the accused subsequently chose not to honour the MoU and refused to pay the balance amount. The inability to pay the balance amount was also reflected during instant proceedings.
The Court perused Section 482 of Cr.P.C. and pointed towards the three circumstances when the Court could exercise its inherent jurisdiction:
- to give effect to an order under the code;
- to prevent abuse of the process of Court; and
- to otherwise secure the ends of justice.
The three conditions as laid by the Court for exercise of inherent jurisdiction under Section 482 Cr.P.C.:
- the injustice which comes to light should be of a grave and not of a trivial character;
- it should be pulpable and clear and not doubtful; and
- there exists no other provision of law by which the party aggrieved could have sought relief.
To decide the matter, the Court further perused the foundation of Sections 138 to 142 of NI Act and observed that “In order to bring an application under Section 138 the complaint must show: (1) That cheque was issued; (2) The same was presented; (3) It was dishonoured on presentation; (4) A notice in terms of the provisions was served on the person sought to be made liable; (5) Despite service of notice, neither any payment was made nor other obligations, if any, were complied with within fifteen days from the date of receipt of the notice.
Section 141 of the Act in terms postulates constructive liability of the Directors of the company, or other persons responsible for its conduct or the business of the company.”
Looking at the complaint which alleged that the applicant along with other directors was fully responsible for conduct of business, the Court took it to be specific allegation against the applicant. While commenting on contradictions in evidence under Section 200 of Cr.P.C., the Court held the same to be disputed questions of facts which could not be ascertained during instant proceedings.
The Court referred to cases like RP Kapur v. State of Punjab and State of Haryana v. Bhajan Lal to touch upon the exercise of inherent power to quash proceedings.
The Court rejected the contention that since insolvency proceedings were ongoing, no proceedings could be initiated against the company or its directors, with reference to Section 32-A of Insolvency and Bankruptcy Code. The Court cited Manish Kumar Vs. Union of India 2021 Latest Caselaw 30 SC wherein it was held that Section 32A of IBC does not permit wrongdoer to get away. It further relied on Ajay Kumar Radheyshyam Goenka Vs. Tourism Finance Corporation of India Ltd. 2023 Latest Caselaw 205 SC regarding liability for offences committed by directors prior to commencement of CIRP.
The Court pressed upon the legal status of a company which cannot act by itself but through its directors, and remarked that “a person in the commercial world having a transaction with a company is entitled to presume that the directors of the company are in charge of the affairs of the company. If any restrictions on their powers are placed by the memorandum or articles of the company, it is for the directors to establish it at the trial.”
The Court observed that “It appears to us that an allegation in the complaint that the named accused are directors of the company itself would usher in the element of their acting for and on behalf of the company and of their being in charge of the company.” The Court further clarified that active involvement in the company’s business was again a question of fact which could not be adjudged at this point.
Decision of the Court
The Court held that the question of whether the person was director in charge of company affairs at the relevant time could be judged during trial, and that complaint could not be quashed under Section 482 Cr.P.C. proceedings. The Court dismissed the instant application under Section 482 of Cr.P.C.
The Court also found the Trial Court’s conduct to be ‘contemptuous’ in nature and directed to proceed with the trial in day-to-day hearing, not granting any unnecessary adjournments or exemption from appearance for directors. It further directed for completion of trial within 3 months.
Case Title: Dinesh Hariram Valecha v. State of U.P. and Another
Coram: Justice Prashant Kumar
Case No.: Application u/s 482 No. 13290 of 2023
Decided on: 13.02.2024
Advocate for the Petitioner: Senior Advocate Mr. Vinay Khare, Senior Advocate Ms. Aarushi Khare
Advocate for the Respondents: AGA Shashidhar Pandey
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