Iqbal Abdul Khaliq Ahmed And Ors. vs State Of Maharashtra
2001 Latest Caselaw 949 Bom

ORDER

V.M. Kanade, J.

1. The brief facts, giving rise to the present writ petition, are as follows.

2. The petitioners are the Directors of M/s. Recon Oil Industries Limited which was formerly known as M/s. Recon Enterprises Private Ltd. By virtue of the provisions of Section 43-A of the Companies Act, the said Company became a deemed public company with effect from 1-7-1994.

3. The said Company is engaged in manufacturing of edible oils and the products are distributed all over the country. The said Company has its manufacturing unit at Mumbai and does not have any manufacturing branch or unit located either at Mumbai or at Amravati. However, it has appointed various carrying and forwarding agents throughout the country including the one at Nagpur. The day to day affairs of the Company as to manufacturing and sale are carried out through a person nominated under Section 17(2) of the Prevention of Food Adulteration Act, 1954.

4. It is alleged by the respondent that the respondent drew a sample of TEZ Genuine Mustard Oil of 2 lit. pack manufactured in August, 1994, bearing Lot No. 109 and the said sample was sent for analysis. The report of the Public Analyst dated 1-11-1994 states that the said sample of Mustard Oil did not conform to the standards of Mustard Oil as per the Prevention of Food Adulteration Act, 1954.

5. The respondent, therefore, filed a complaint on 13-5-1996 before the Judicial Magistrate, First Class, Karanja, Tahsil Karanja, District Washim, under Section 7(i) read with Section 2(1a)(a) punishable under Section 16(1)(a)(m). Section 7(i) read with Section 2(ia)(m) punishable under the provisions of the Prevention of Food Adulteration Act, 1954 and the Rules framed thereunder. The said complaint was filed against the petitioners being the Directors of the said Company, the Company itself and the partners of the firm M/s. Shivlal Tulsidas Kirana and the firm itself being Regular Criminal Case No. 89 of 1996. The learned Magistrate issued process against these persons including the petitioners.

6. The petitioners filed applications Exhs. 18 and 26 to drop the proceedings and/or to rescind the process issued against them in the said Regular Criminal Case No. 89/96. The trial Court rejected the said application below Exhs. 18 and 26 vide order dated 29-10-1998.

7. The petitioners have challenged the said order in this petition under Articles 226 and 227 of the Constitution of India read with Section 482 of the Code of Criminal Procedure. The learned Counsel appearing on behalf of the petitioners, submitted that the Magistrate had not taken into consideration the fact that the petitioners are the Directors of the said Company and they were no where concerned in respect of the actual production and day to day management of the Company and, therefore, they were not liable to be prosecuted. The learned Counsel further submitted that the Company had nominated one Shri Gyanbahadur Suryapal Singh, Supervisor working at Bhandup as a Nominee of the Company by a specific resolution passed in the meeting of the Board of Directors held on 31st May, 1993 at its registered office at Bombay, in terms of Sub-section (2) of Section 17 of the said Act, which reads as follows :

Any Company may, by order in writing, authorise any of its Directors or Managers (such Manager being employed mainly in a managerial or supervisory capacity) to exercise all such powers and take all such steps as may be necessary or expedient to prevent the commission by the company of any offence under this Act and may give notice to the Local (Health) Authority, in such form and in such manner as may be prescribed, that it has nominated such Director or Manager as the person responsible, along with the written consent of such Director or Manager for being so nominated.

Explanation : Where a Company has different establishments or branches or different units in any establishment or branch, different persons may be nominated under this Sub-section in relation to different establishments or branches or units and the person nominated in relation to any establishment, branch or unit shall be deemed to be the person responsible in respect of such establishment, branch or unit.

8. The learned Counsel appearing on behalf of the petitioners submitted that in view of the specific provisions of Sub-clause (2), only the person who is nominated is lable to be prosecuted and in this case since there was a nomination made by the Company, the question of prosecution of the petitioners does not arise. He further submitted that the Directors of the Company can be prosecuted, in the event, the offence has been committed with the consent or connivance of the Directors or the other servant of the Company. Sub-clause 4 of Section 17 reads as under :

Notwithstanding anything contained in the foregoing sub-sections, where an 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 (not being a person nominated under Sub-section (2) such Director, Manager, 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.

The learned Counsel appearing on behalf of the petitioners submitted that there is no single averment in the complaint stating that the present petitioners have in any way consented to the commission of the said alleged offence and, therefore, the process which was issued against them, was liable to be quashed. He further submitted that Sub-section (3) of Section 17 of the said Act, prescribes that the person nominated under Sub-clause 2 of Section 17, shall continue to be personally responsible till any of three contingencies mentioned therein take place. It was submitted by the learned Coun sel appearing on behalf of the petitioners that none of these contingencies did exist at any time and, therefore, the said nomination was in force as on 21-9-1994 and as such Mr. Gyanbahadur Suryapal Singh was the nominee and the person responsible in terms of the said provisions for the commission of any offence by M/s. Recon Enterprises Private Ltd. or the same entity with different changed name in view of the changed legal position as on 21-9-1994. It is submitted that this position has not been denied by the respondent in its complaint. It was, therefore, contended that the trial Court had clearly erred in rejecting the applications filed by the petitioners. The counsel appearing on behalf of the petitioners relied upon the judgment of the Supreme Court , wherein the Apex Court has held that : "the scope, ambit and range of Section 482 is quite different from the powers conferred under Section 397(2) and there is no inconsistency between the two and the power under Section 482 is not merely a revisional power meant to be exercised against the orders passed by subordinate Courts. Section 482 confers a separate and independent power on the High Court alone to pass orders in cases where grave and substantial injustice has been done or where the process of the Court has been seriously abused". The Apex Court in the said case held that "no case was made out against the Directors ex facie on the allegations made in the complaint and, therefore, the proceedings against them were rightly quashed. The Supreme Court further summarises the various instances where the order of the Magistrate could be quashed. Para 8 reads as follows :

Another important consideration which is to be kept in mind is as to when the High Court acting under the provisions of Section 482 should exercise the inherent power insofar as quashing of criminal proceedings is concerned. This matter was gone into in greater detail in Smt. Nagawwa v. Veeranna Shivalingappa Konjalgi , where the scope of Sections 202 and 204 of the present Code was considered and while laying down the guidelines and the grounds on which proceedings could be quashed this Court observed as follows :

Thus, it may be safely held that in the following cases an order of the Magistrate issuing process against the accused can be quashed or set aside :

1. where the allegations made in the complaint or the statements of the witnesses recorded in support of the same taken at their face value make out absolutely no case against the accused or the complaint does not disclose the essential ingredients of an offence which is alleged against the accused;

2. where the allegations made in the complaint are patently absurd and inherently improbable so that no prudent person can ever reach a conclusion that there is sufficient ground for proceeding against the accused;

3. where the discretion exercised by the Magistrate in issuing process is capricious and arbitrary having been based either on no evidence or on materials which are wholly irrelevant or inadmissible; and

4. where the complaint suffers from fundamental legal defects, such as want of sanction, or absence of a complaint by legally competent authority and the like.

The cases mentioned by us are purely illustrative and provide sufficient guidelines to indicate contingencies where the High Court can quash proceedings.

9. The learned Counsel appearing on behalf of the petitioners further relied upon the judgment of the Apex Court . In the said case, Apex Court held that merely because a person is a Director of the Company, he does not vicariously become liable for offence committed by the company and that it had to be shown that he was in charge of the company and was also responsible to the Company for the conduct and its business. He pointed out that in the said judgment, the Directors were being prosecuted under the provisions of Drugs and Cosmetics Act, 1940 and the Supreme Court observed in para 8 as under :

Nonetheless, we find that the impugned judgment of the High Court has got to be upheld for an altogether different reason. Admittedly, the three respondents were being prosecuted as Directors of the manufacturers with the aid of Section 34(1) of the Act which reads as under :

34. Offences by companies- (1) Where an offence under this Act has been committed by 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 such person liable to any punishment provided in this Act if he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence.

It is thus seen that the vicarious liability of a person for being prosecuted for an offence committed under the Act by a company arises if at the material time he was in charge of and was also responsible to the company for the conduct of its business. Simply because a person is a Director of the company it does not necessarily mean that he fulfils both the above requirements so as to make him liable. Conversely, without being a Director, a person can be in charge of and responsible to the company for the conduct of its business. From the complaint in question we, however, find that except a bald statement that the respondents were Directors of the manufacturers, there is no other allegation to indicate, even prima facie, that they were in charge of the company and also responsible to the company for the conduct of its business.

10. The learned Counsel appearing on behalf of the petitioners further relief on the judgment of the Supreme Court in the case (Pepsi Foods Ltd. v. Special Judicial Magistrate). In the said case the Apex Court held that since there was nothing to show that the appellants were manufacturers of either bottle or the beverage or both, the continuance of the proceedings against them would be abuse of the process of law. The Apex Court in conclusion observed in para 30 as follows :

It is no comfortable thought for the appellants to be told that they could appear before the Court which is at a far off place in Ghazipur in the State of Uttar Pradesh, seek their release on bail and then to either move an application under Section 245(2) of the Code or to face trial when the complaint and the preliminary evidence recorded makes out no case against them. It is certainly one of those cases where there is an abuse of the process of the law and the Courts and the High Court should not have shied away in exercising their jurisdiction. Provisions of Articles 226 and 227 of the Constitution and Section 482 of the Code are devised to advance justice and not to frustrate it. In our view, the High Court should not have adopted such a rigid approach which certainly has led to miscariage of justice in the case. Power of judicial review is discretionary but this was a case where the High Court should have exercised it.

11. The learned Counsel appearing on behalf of the petitioners also relied on the judgment of the Apex Court in which the Apex Court held that "Director, Manager. Secretary or other officer of the Company could be proceeded against only if the complaint showed that the offence was committed with the consent or connivance of these persons and in the absence of any allegations in the complaint, regarding the consent or connivance of the Director, Marr-ager etc. they could not be proceeded against.

12. The learned Counsel appearing on behalf of the petitioners submitted that the petitioners had duly submitted Form 12 B informing the names of the nominee as required under the said Rule. The learned Counsel appearing for the petitioner further relied upon the judgment of the Single Bench of this Court reported in 2000 (4) Mah LJ 674 (Pannalal Sunderlal Choksi v. State of Maharashtra).

13. The counsel appearing on behalf of the respondent submitted that the learned Magistrate had taken into consideration the submissions made on behalf of the petitioners and rightly rejected the applications filed below Exhs. 18 and 26. The learned Counsel appearing on behalf of the respondents vehemently argued that this is not a case where interference was called for under Articles 226 and 227 of the Constitution of India and that the issue as to whether nomination under Section 17, Sub-clause (2) was, in fact, made or not, was a dispute and, therefore, it required evidence to be adduced and the matter could not be decided at this stage in writ petition. He took me through the various documents which were filed in the trial Court and also read the copy of the applications filed by the petitioners and the orders passed by the Magistrate.

14. I heard the counsel appearing on behalf of both the parties. I have gone through the petition, applications preferred by the petitioners and the orders passed by the Magistrate. I have also gone through the documents filed in the trial Court. The Magistrate has held that Mr. Gyanbhadur Suryapal Singh was nominated by Recon Enterprises Pvt. Ltd. with effect from 31-3-1993 and that since the Recon Enterprises Pvt. Ltd. had changed its trade name with effect from 1-7-1994 and adopted its name as Recon Oil Industries Ltd. and, therefore, he held that on 1-7-1994 Recon Enterprises Pvt. Ltd. was not in existence and consequently the nomination of Mr. Gyanbhadur Suryapal Singh also had ceased. He, therefore, held that there was no nomination from 1-7-1994 to 14-12-1994 and, therefore, on the date on which the sample was taken, accused No. 7 had not nominated any person and, therefore, the petitioners could not claim benefit of Section 17 of the Prevention of Food Adulteration Act, 1954. In my view, the Magistrate has erred in arriving at the said conclusion as he has not taken into consideration the provisions of Sections 43{a), 21 and 23 of the Companies Act, 1956. The said provision clearly stipulates that when a Private Limited Company is converted into deemed public limited, except in the change in its name, the Constitution and the entity of the Company is not affected in any manner. The Magistrate has also not taken into consideration the fact that no averments have been made against the Directors alleging that the offence was committed with their consent and connivance and they were, therefore, liable to be tried along with the others. In the absence of any averment in the complaint to this effect, the Directors of the Company cannot be prosecuted in view of the law laid down by the Apex Court in the various judgments cited hereinabove and in view of the peculiar facts and circumstances of the case, the impugned order dated 29-10-1998 passed by the Judicial Magistrate, First Class, Karanja, Tah. Karanja, Dist. Washim below Exhs. 18 and 26 in Regular Criminal Case No. 89/96 is quashed and set aside and the petitioners are directed to be discharged and the process which is issued against them is hereby rescinded and the Criminal Writ Petition No. 337/98 is allowed in terms of prayer Clause (i). Needless to say that the Criminal Case No. 89/96 shall proceed against the other accused and also against the nominee nominated by the Company under Section 17(2) of the Prevention of Food Adulteration Act, 1954.