Radikal Foods Limited And 2 Others vs State Of U.P. And Another
2021 Latest Caselaw 2015 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

 Reserved on 19.01.2021
 
Delivered on 04.02.2021
 
Court No. - 80
 

 
Case :- APPLICATION U/S 482 No. - 23877 of 2017
 

 
Applicant :- Radikal Foods Limited And 2 Others
 
Opposite Party :- State of U.P. and Another
 
Counsel for Applicant :- Deepak Kumar Jaiswal,Satya Prakash
 
Counsel for Opposite Party :- G.A.,Akhilesh Kumar
 
Hon'ble Raj Beer Singh, J.

1. This application under Section 482 Cr.P.C. has been preferred for quashing of entire proceedings of Complaint Case No. 150 of 2017, Pawan Kumar Vs. Radikal Foods Ltd. and others, pending in the Court of Judicial Magistrate, Khair, Aligarh, under Section 138 of Negotiable Instruments Act, 1881, P.S. Khair as well to quash the summoning order dated 22.06.2017 passed in above stated case.

2. Heard Sri Satya Prakash, learned counsel for applicants, Sri Akhilesh Kumar, learned counsel for opposite party no.2 and learned AGA for State.

3. The facts of the matter in brief are that the applicant no.1 is a registered company and applicant no.2 and 3 are Director of said company and that they are responsible for duties and rights pertaining to the company. The applicants have authorised the opposite party No.2 for purchase of paddy from 'mandi' and thereafter the opposite party no.2 Pawan Kumar has purchased huge quantity of paddy and supplied the same to the applicant's company. The applicant company used to pay the consideration amount through cheques against the supply of paddy made by opposite party no.2/ complainant and accordingly the said company has issued a cheque no. 314902 dated 16.03.2017 of Oriental Bank of Commerce, Agrasen Market, Khair, Aligarh for a sum of Rs. 1,40,00000/- in favour of opposite party No. 2 towards purchase and supply of paddy. The opposite party no.2 presented the said cheque in his bank for encashment of the same in his account but the said cheque was dishonoured vide bank memo dated 21.03.2017, as the applicants have closed the account. The opposite party no.2 issued a notice dated 01.04.2017 to the applicants asking for payment of cheque amount but neither any reply was given nor the payment was made. Thereafter, the impugned complaint was filed by the opposite party No. 2 against applicants under Section 138 of Negotiable Instrument Act. The opposite party no.2/ complainant was examined under Section 200 Cr.P.C. and he has filed the relevant documents like copy of cheque/memo of bank, copy of notice and postal receipt. The learned court below summoned the applicant Nos. 2 and 3 under section 138 of Negotiable Instrument Act vide summoning order dated 22.06.2017.

4. It has been argued by learned counsel for applicants that the impugned summoning order has been passed without applying judicial mind. There were no specific averments in complaint that at the time of alleged offence, applicant No.2 and 3 were in-charge and responsible for conduct of business of the company. It was submitted that the learned Magistrate has not recorded any satisfaction regarding requirement of Section 141 of Negotiable Instrument Act to summon the applicants. In the absence of specific averments against applicants, the impugned complaint is not maintainable against the Directors of company and no criminal liability can be fastened upon them. There were vague allegations against applicants and thus, in the absence of any specific averment, the impugned summoning order is not sustainable. Learned counsel submitted that it is well settled that liability for offence under Section 138 read with Section 141 of Negotiable Instrument Act will not arise by merely stating that accused persons hold some designation in the accused company. The complainant has to make specific averments in the complaint as to how and in what manner the persons, sought to be summoned as accused, were responsible for conduct of business. Learned counsel submitted that mere fact that accused was director or holding some office in the company would not make such persons vicariously liable to face the prosecution under Section 138 of Negotiable Instrument Act. The vicarious liability on the part of such persons has to be pleaded and proved. Further the complainant has not produced the Form-32, issued by Registrar of companies under the Company Act to show any liability of applicant nos. 2 and 3 as directors and that there is no proof of service of notice upon applicants. Learned counsel submitted that applicant Nos. 2 and 3 came to know that the said cheque no. 314902 was issued by late C.P. Chaudhary, the father of applicant no.2 and husband of applicant no.3, to the complainant/opposite party no.2 as a security for future purchase of paddy from Khair Mandi, Aligarh and that it was an undated and blank cheque. It was stated that after death of aforesaid C.P. Chaudhary, the complainant has forged the said cheque by filling in amount of Rs. 1,40,00000/- and mentioning the date and his name in the cheque. Learned counsel submitted that in view of above stated facts and circumstances of the matter, no prima facie case is made out and that the impugned summoning order is not sustainable and the impugned proceedings are liable to be quashed. In support of his contentions learned counsel for applicants has relied upon in case of Harshendra Kumar D Vs. Rebatilata Koley etc., AIR 2011 SC 1090 and Central Bank of India Vs. Asian Global Ltd. And others, AIR 2010 SC 2835.

5. Learned counsel for opposite party no.2 has argued that applicant no.1 was a registered Company and it has two Directors i.e. applicant no.2 Siddhatha Chaudhary and applicant no.3 Smt. Anju Chaudhary, who have power of operation of accounts of company and that they both are responsible for work and conduct of business of the company. Learned counsel submitted that the said company has cheated a number of persons and that husband of applicant no.3 has obtained loan of several crores from several Banks. The Memorandum and Articles Association of company shows that it were the applicant Directors, who were responsible for conduct of business of the company. It has been submitted that the cheque in question was given by director-applicant no.2 in presence of director-applicant no.3 in his office and they have assured that the cheque will be honoured when presented in the bank. After the cheque was dishonoured, a notice was served upon applicants. Learned counsel submitted that applicant nos. 2 and 3 have made forgery on the said cheque by making signature of said deceased C.P. Chaudhary, who has already died on 10.10.2015 but the opposite party No.2 was not in a position to identify the signature of applicant No. 2 and 3 or signature of said C.P.Chaudhary. Learned counsel submitted that the in view of allegations made in impugned complaint and material on record, a prima facie case is made out against applicants and that there is no illegality or perversity in the impugned order. In support of his contentions, learned counsel has relied upon in cases of (i) Laxmi Dyechem Vs. State of Gujarat and ors., 2012 LawSuit(SC) 782 (ii) Rohit Chunubhai Mehta Vs. Gujarat State Fertilizer Company Limited, 2004 LawSuit(Guj)14 (iii) N. Rangachari Vs. Bharat Sanchar Nigam Limited, 2007 LawSuit(SC) 470.

6. I have considered the rival arguments and perused the record.

7. The case of respondent no.2/complainant is that he has supplied the paddy to the applicant's company and that the applicant No. 2 and 3 were its Directors and in consideration of said supply of paddy, applicant No. 2 and 3 have issued the cheque in question, which was dishonoured as the applicants have closed the account. One of the main argument from the side of applicants is that there are no specific averments in the complaint that applicants were responsible for conduct of business of the company. In this connection it may be mentioned that it is well settled position of law that to fix the liability of a Director of Company regarding a cheque issued on behalf of Company, it is to be shown that such Director was in-charge and responsible for conduct of business of company. In case of Central Bank of India (supra), relied by learned counsel for applicants, Hon'ble Apex Court has held as under:

'''13. We have carefully considered the submissions made on behalf of the respective parties and we are unable to persuade ourselves to differ with the judgment and order of the High Court. The judgment in S.M.S. Pharmaceuticals Ltd.'s case (supra), which was relied upon by the High Court, while interpreting the provisions of sub-section (1) of Section 141 of the 1881 Act, made it very clear that unless a specific averment was made in the complaint that at the time when the offence was committed, the person accused was in charge of and responsible for the conduct of the business of the Company, the requirements of Section 141 would not be satisfied. It was further held that while a Managing Director or a Joint Director of the Company would be admittedly in charge of the Company and responsible to the Company for the conduct of its business, the same yardstick would not apply to a Director. The position of a signatory to a cheque would be different in terms of Sub-section (2) of Section 141 of the 1881 Act. That, of course, is not the fact in this case.

14. The law as laid down in S.M.S. Pharmaceuticals Ltd. 's case (supra) has been consistently followed and as late as in 2007, this Court in the case of N.K. Wahi's case (supra), while considering thequestion of vicarious liability of a Director of a Company, reiterated the sentiments expressed in S.M.S. Pharmaceuticals Ltd.'s case (supra) that merely being a Director would not make a person liable for an offence that may have been committed by the Company. For launching a prosecution against the Directors of a Company under Section 138 read with Section 141 of the 1881 Act, there had to be a specific allegation in the complaint in regard to the part played by them in the transaction in question. It was also laid down that the allegations had to be clear and unambiguous showing that the Directors were in charge of and responsible for the business of the Company. This was done to discourage frivolous litigation and to prevent abuse of the process of Court and from embarking on a fishing expedition to try and unearth material against the Director concerned.

15. In this case, save and except for the statement that the Respondents, Mr. Rajiv Jain and Sarla Jainand some of the other accused, were Directors of the accused Companies and were responsible and liable for the acts of the said Companies, no specific allegation has been made against any of them. The question of proving a fact which had not been mentioned in the complaint did not, therefore, arise in the facts of this case. This has prompted the High Court to observe that the Bank had relied on the mistaken presumption that as Directors, Rajiv Jain, Sarla Jain and the other Directors were vicariously liable for the acts of the Company. Admittedly, except for the aforesaid statement, no other material has been disclosed in the complaint to make out a case against the respondents that they had been in charge of the affairs of the Company and were responsible for its action. The High Court, therefore, rightly held that in the absence of any specific charge against the Respondents, the complaint was liable to be quashed and the respondents were liable to be discharged.''

8. In case of Rohit Chunubhai Mehta (supra), relied by learned counsel for opposite party no.2, Hon'ble High Court of Gujarat has held as under:

'''10. There are clear allegations in the complaint suggesting knowledge and consent of the petitioners as the directors of the accused company in purchasing huge stocks of raw materials from the complainant and issuing number of cheques towards payment or for securing payment without actual payment or realization of the cheques being arranged for. Prima facie, it would be difficult to assume that cheques in the sum exceeding Rs.5 crores could have been issued by the persons in charge of the company without the knowledge or connivance of the board of directors. The course of events culled out from the record, prima facie, lends credence to the allegations of the complainant that it was induced and deceived into delivering goods on credit against the security of cheques which bounced when presented for realization. Thus, the allegations against the petitioners indicate larger offences of cheating or abetment thereof within which the monetary transaction of issuance of cheques and dishonour thereof will have to be examined on the basis of evidence that may be led at the trial. When it is alleged that the offences were committed by the company as well as the directors collectively, it would not be necessary to separately allege that each director had consented to or connived at the commission of the alleged offences. It is not just a case of bald allegation of the petitioners being responsible as directors of the company whose cheques were dishonoured but, instead, specific statements on oath are made by the complainant to allege that the accused had issued cheques with the intention of cheating.''

9. In case of Laxmi Dyechem (supra), Hon'ble Apex Court has held as under:

'''10. Thus, dishonour of cheques simpliciter for the reasons stated in Section 138 of the NI Act although is sufficient for commission of offence since the presumption of law on this point is no longer res integra, the category of ''stop payment' instruction to the bank where the account holder has sufficient funds in his account to discharge the debt for which the cheque was issued, the said category of cases would be subject to rebuttal as this question being rebuttable, the accused can show that the stop payment instructions were not issued because of insufficiency or paucity of funds, but stop payment instruction had been issued to the bank for other valid causes including the reason that there was no existing debt or liability in view of bonafide dispute between the drawer and drawee of the cheque. If that be so, then offence under Section 138 although would be made out, the same will attract Section 139 leaving the burden of proof of rebuttal by the drawer of the cheque. Thus, in cases arising out of ''stop payment' situation, Sections 138 and 139 will have to be given a harmonious construction as in that event Section 139 would be rendered nugatory.

11. The instant matter however do not relate to a case of ''stop payment' instruction to the bank as the cheque in question had been returned due to mismatching of the signatures but more than that the petitioner having neither raised nor proved to the contrary as envisaged under Section 139 of the NI Act that the cheques were not for the discharge of a lawful debt nor making the payment within fifteen days of the notice assigning any reason as to why the cheques had at all been issued if the amount had not been settled, obviously the plea of rebuttal envisaged under Section 139 does not come to his rescue so as to hold that the same would fall within the realm of rebuttable presumption envisaged under Section 139 of the Act. I, therefore, concur with the judgment and order of learned Brother Justice Thakur subject to my views on the dishonour of cheques arising out of cases of ''stop payment' instruction to the bank in spite of sufficiency of funds on account of bonafide dispute between the drawer and drawee of the cheque. This is in view of the legal position that presumption in favour of the holder of a cheque under Section 139 of the NI Act has been held by the NI Act as also by this Court to be a rebuttable presumption to be discharged by the accused/drawee of the cheque which may be discharged even at the threshold where the magistrate examines a case at the stage of taking cognizance as to whether a prima facie case has been made out or not against the drawer of the cheque.''

10. In case of N. Rangachari (supra), Hon'ble Apex Court has held as under:

'''18. In the case on hand, reading the complaint as a whole, it is clear that the allegations in the complaint are that at the time at which the two dishonoured cheques were issued by the company, the appellant and another were the Directors of the company and were incharge of the affairs of the company. It is not proper to split hairs in reading the complaint so as to come to a conclusion that the allegations as a whole are not sufficient to show that at the relevant point of time the appellant and the other are not alleged to be persons incharge of the affairs of the company. Obviously, the complaint refers to the point of time when the two cheques were issued, their presentment, dishonour and failure to pay in spite of notice of dishonour. We have no hesitation in overruling the argument in that behalf by the learned Senior Counsel for the appellant.

19. We think that, in the circumstances, the High Court has rightly come to the conclusion that it is not a fit case for exercise of jurisdiction under Section 482 of the Code of Criminal Procedure for quashing the complaint. In fact, an advertence to Sections 138 and 141 of the Negotiable Instruments 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 incharge of the affairs of the company to show that they are not liable to be convicted. Any restriction on their power or 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 such a restriction or to show that at the relevant time they were not incharge of the affairs of the company. Reading the complaint as a whole, we are satisfied that it is a case where the contentions sought to be raised by the appellant can only be dealt with after the conclusion of the trial.

20. We therefore affirm the decision of the High Court and dismiss this appeal. We make it clear that the case will have to be tried and disposed of in accordance with law on the basis of the evidence that may be adduced.''

11. In the case of National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal, (2010) 3 SCC 330, after reviewing several earlier judgments, Hon'ble Apex Court summarized the legal position as follows:

"39. 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.

(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 the accused therein vicariously liable for offence committed by the company along with averments in the petition containing that the 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 the accused is a Managing Director or a 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 the 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 the complaint.

(vii) 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.

12. From above stated case law it is apparent that it is necessary to specifically aver in a complaint under section 141 of Negotiable Instrument Act 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 of Negotiable Instrument Act. The requirement of Section 141 of Negotiable Instrument Act 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. However, in view of law laid down in case of N. Rangachari (supra) it is equally clear that if from reading the complaint as a whole, it appears that the allegations in the complaint are that at the time at which the dishonoured cheque was issued by the company, the persons were the Directors of the company and were in-charge of the affairs of the company, it is not proper to split hairs in reading the complaint so as to come to a conclusion that the allegations as a whole are not sufficient to show that at the relevant point of time the appellant and the other are not alleged to be persons in-charge of the affairs of the company. In such facts and circumstances on the other elements of an offence under Section 138 of Negotiable Instrument Act being satisfied, the burden is on the Board of Directors or the Officers in-charge of the affairs of the company to show that they are not liable to be convicted. Insistence 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 such a restriction or to show that at the relevant time they were not in charge of the affairs of the company. So far the case of Harshendra Kumar D (supra), relied by learned counsel for applicants is concerned, in that case facts were that the person, accused by complainant, has resigned from post of Director of company much before the cheques were issued by the Company and he had nothing to do with the affairs of the Company. Thus, this case has no applicability in the in facts of present case.

13. Thus, it is not the mere terminology but the substance of complaint, which matters for consideration whether the Directors were in charge and responsible for conduct of business of the company or not. In the instant case it may be observed that there are allegations in the impugned complaint that applicant No. 2 and 3 are Directors of the company (applicant No. 1) and they were responsible for duties and rights on behalf of the applicant No. 1-company and that the cheque in question was issued by applicant No. 2 in presence of applicant No. 3 for payment of paddy supplied by the opposite party No. 2 to the said company and that they have assured that the cheque would be honoured. It is not being disputed that said cheque was dishonoured due to 'account closed'. The version of applicants, that said cheque was given by late C.P. Chaudhary as a blank cheque for security but the complainant has made forgery by filling the amount, date and his name in said cheque, cannot be accepted. The reading of the complaint as whole shows that substance of accusation discloses necessary averment that the applicants Nos. 2 and 3 were Director of applicant No. 1-company and they were in-charge and responsible for conduct of business and even the cheque was issued by applicant No.2. It is not necessary that in averments of complaint the particular terminology that ''the person accused was in-charge of, and responsible for the conduct of business of the company'' must necessarily be used. Such pedantic approach would defeat the cause of justice. It is the substance of complaint and not the specific words, which would determine whether the person accused was in-charge of, and responsible for the conduct of business of the company or not.

14. In view of above discussed position, in the instant case considering the impugned complaint as whole, it cannot be said that there are no averments that applicant Nos.2 and 3 were not in-charge and responsible for conduct of business of company. Further it is not the case of applicants that any other Director or Official of company was responsible for conduct of business of company. There are specific allegations that applicant nos.2 and 3 are Directors of said company and that the paddy was supplied to the company on their assurance. Thus, the contention of learned counsel for applicants that in view of Section 141 of Negotiable Instrument Act, the applicants cannot be held liable for criminal proceedings, has no force. Similarly, the version of applicants that the said cheque was given to opposite party no.2 as a blank cheque for security by deceased Director C.P. Chaudhary but after death of said C.P. Chaudhary, the opposite party no.2 has committed forgery by entering the said amount, date and name in the cheque, is liable to be outrightly rejected. It is apparent from record that after the cheque was dishonoured, the opposite party no.2 has issued a demand notice calling for payment against the said cheque but no payment was made. Opposite party no.2 has filed impugned complaint within prescribed period and all the legal requirements were complied with and complainant was examined under Section 200 Cr.P.C. and thereafter applicants were summoned vide order dated 22.06.2017.

15. It is well-settled that the jurisdiction to quash a complaint, FIR or a charge-sheet should be exercised sparingly and only in exceptional cases. In well celebrated judgement reported in AIR 1992 SC 605 State of Haryana and others Vs. Ch. Bhajan Lal, Hon'ble Supreme Court has carved out certain guidelines, wherein FIR or proceedings may be quashed but cautioned that the power to quash FIR or proceedings should be exercised sparingly and that too in the rarest of rare cases. The inherent jurisdiction under section 482 Cr.P.C. though wide has to be exercised sparingly, carefully and with caution and only when such exercise is justified by the tests specifically laid down in the section itself. It is to be exercised ex debito justitiae to do real and substantial justice for the administration of which alone courts exist. Authority of the court exists for advancement of justice and if any attempt is made to abuse that authority so as to produce injustice, the court has power to prevent abuse. As noted above, the powers possessed by the High Court under Section 482 of the Code are very wide and the very plenitude of the power requires great caution in its exercise. The inherent power should not be exercised to stifle a legitimate prosecution. Recently in case of Rajeev Kourav vs. Bhaisahab & Ors. (Criminal Appeal No. 232 of 2020), decided on 11.02.2020, Hon'ble Apex Court held:

''It is no more res integra that exercise of power under Section 482 CrPC to quash a criminal proceeding is only when an allegation made in the FIR or the charge sheet constitutes the ingredients of the offence/offences alleged. Interference by the High Court under Section 482 CrPC is to prevent the abuse of process of any Court or otherwise to secure the ends of justice. It is settled law that the evidence produced by the accused in his defence cannot be looked into by the Court, except in very exceptional circumstances, at the initial stage of the criminal proceedings. It is trite law that the High Court cannot embark upon the appreciation of evidence while considering the petition filed under Section 482 CrPC for quashing criminal proceedings. It is clear from the law laid down by this Court that if a prima facie case is made out disclosing the ingredients of the offence alleged against the accused, the Court cannot quash a criminal proceeding.''

16. Thus, inherent power of High Court has to be exercised in exceptional cases and to prevent the abuse of process or otherwise to secure ends of justice. The jurisdiction under Section 482 Cr.P.C. is discretionary, therefore, the High Court may refuse to exercise the discretion if a party has not approached it with clean hands. The inherent power should not be exercised to stifle a legitimate prosecution. In the instant case considering material on record and from the aforesaid discussion, it cannot be said that a prima facie case is not made out. It could not be shown that the case falls within any of category enumerated by Hon'ble Apex Court through various pronouncements for exercise of powers under Section 482 Cr.P.C. to quash a complaint.

17. Considering submissions of learned counsel for the parties, all attending facts of the matter as well as the above discussed position of law, this Court is of the considered view that matter required adjudication by trial court and that no case for quashing of the impugned proceedings or the impugned summoning order is made out. The instant application under Section 482 Cr.P.C lacks merit and is accordingly dismissed.

18. Interim order, if any, stands vacated.

Dated: 04.02.2021

Mohit Kushwaha

(Raj Beer Singh, J.)