Sharad Deoraj Jain And Ors vs The State Of Maharashtra And Anr
2023 Latest Caselaw 5044 Bom

   Gokhale                              1 of 12                             18-wp-319-23


             IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                   CRIMINAL APPELLATE JURISDICTION

                CRIMINAL WRIT PETITION NO. 319 OF 2023

 Sharad Deoraj Jain & Ors.                       ..Petitioners
       Versus
 The State of Maharashtra & Anr.                 ..Respondents
                              __________
 Mr. Hrishikesh Mundargi a/w. Pushkraj Deshpande, Piyush
 Pandhare and Rohan Marathe i/b. ALMT Legal for Petitioners.
 Mr. Arfan Sait, APP for State/Respondent No.1.
 Mr. Mithilesh Mishra, for Respondent No.2.
                              __________

                               CORAM : SARANG V. KOTWAL, J.

DATE : 6 JUNE 2023 PC :

1. In this matter, learned Advocate Shri. Mithilesh Mishra

waives service for the Respondent No.2.

2. Heard Mr. Hrishikesh Mundargi, learned counsel for the

Petitioners, Mr. Arfan Sait, learned APP for the State/Respondent

No.1 and Mr. Mithilesh Mishra, learned counsel for the Respondent

No.2.

3. The Petitioners have challenged the order dated

05/02/2022 passed by Metropolitan Magistrate, 43rd Court,

Borivali, Mumbai, in C.C. No.4300121/SC/2021. The process is

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issued U/s.138 r/w. 141 of the Negotiable Instrument Act, 1881

(hereinafter referred to as 'N.I.Act'). The Petitioners are the

original accused Nos.4 to 8. The Respondent No.2 is the original

complainant which is a private limited company. The complaint is

filed against the accused No.1 M/s. Suumaya Industries Limited

and other accused.

4. The case of the complainant is that, there was an

agreement dated 19/04/2021 executed between the complainant

and the accused No.1. The agreement was entered into to record

and govern the ultimate supply of Agro products to Dentsu

Communications India Private Limited (hereinafter referred to as

'Dentsu'); which according to learned counsel for the Respondent

No.2 was another company. The arrangement was that the

complainant i.e. the Respondent No.2 was providing Trade credit,

wherein the principal process of the supply was carried out and

facilitated by the accused No.1. The goods were to be shifted

directly by the accused to Dentsu at the address provided to the

accused No.1. The complainant was merely acting as the Trade

Finance partner between Dentsu and the accused No.1. As per the

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agreement dated 19/04/2021 the accused No.1 agreed to provide

back to back indemnities against any losses, damages or liabilities

in case of inadequate performance. Pursuant to that agreement,

since the liabilities arose, the cheques which are the subject matter

of this complaint were issued in the name of complainant company

by the accused No.1 firm. Those cheques were dishonoured. The

complainant completed the procedure of issuing notice and after

completing the staturoty requirements for filing the complaint

U/s.138 r/w. 141 of N.I. Act, filed the complaint. As mentioned

earlier, learned Magistrate took cognizance and issued process

against all the accused.

5. Learned counsel for the Petitioners submitted that the

averments against the present petitioners do not make out a case

U/s.138 r/w. 141 of the N.I. Act. The averments are not sufficient

against the Petitioners even to issue process and to take cognizance

against them. He invited my attention to the averments made in

the complaint in paragraph Nos.5 to 16 wherein reference is made

to the petitioners. He relied on the Judgment of the Hon'ble

Supreme Court in case of Sunita Palita and others Versus Panchami

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Stone Quarry1. He submitted that the Petitioners were Non

Executive Directors. He relied on the Registrar of Companies'

record for that purpose to show that they were Non Executive

Directors. He submitted that the description of the Petitioners in

the complaint does not attract the provisions of Section 141 of the

N.I. Act. As far as description of the Petitioners as "Officer who is

in default" is concerned, as per Section 2(60) of the Companies

Act, 2013 the said description is only for the purpose of provision

of the Companies Act and it cannot be used U/s.141 of the N.I.

Act. He submitted that the description of "Key Managerial

Personnel" as defined U/s.2(51) of the Companies Act, 2013 also

does not attract the provision of Section 141 of the N.I. Act and the

Petitioners do not fall in any of the categories U/s.2(51) of the

Companies Act, 2013. He, therefore, submitted that, the order of

issuance of process was liable to be set aside.

6. On the other hand, learned counsel Shri. Mishra

appearing for the Respondent No.2 submitted that the averments

in the aforementioned paragraphs and the complaint are sufficient

1 (2022) 10 Supreme Court Cases 152

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to attract the provision of Section 141 of the N.I. Act which lay

down the liabilities of the petitioners' vicariously to attract the

penal provision of Section 138 of N.I. Act. He submitted that, those

averments are sufficient for issuance of process and details of their

responsibilities can be established at the time of trial by leading

evidence. Shri. Mishra further submitted that the fact situation is

not restricted to this complaint alone, but there was a bigger fraud

for which an F.I.R. is lodged. All these facts concerning the

petitioners have surfaced in that investigation subsequently and,

therefore, their involvement in the fraud is not reflected in the

complaint as of today.

7. I have considered these submissions. At the outset, it

needs to be mentioned that, if there is any other investigation

going on in respect of the alleged malpractice or alleged fraud

committed by the accused No.1 and others, it is an entirely

different subject matter for which investigation is already going

on, as submitted by Shri. Mishra. In the present petition, I am only

examining the correctness and legality of the order of issuance of

process passed by learned Magistrate. For that purpose, the

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averments in the complaint, as they stand without adding or

subtracting anything further from the complaint, are to be

examined. In this situation, the important averments in the

complaint are reproduced as follows:

"5. The Accused No.3 is being sued in his capacity as Joint Managing Director and CEO (KMP - Key Managerial Personnel) of the Company at the time of execution of the Agreement with the Complainant. The Accused No. 4 to 13 are being sued in their capacity as Directors/KMP of the Company who are vested with powers to ensure the compliance of the Agreement entered with the Complainant and the cheques issued in pursuance of the Agreement.

6. ........

7. The Accused No.4 is the Director and engaged, in charge and responsible to the Accused No.1 Company in the conduct of the business and is also responsible to take key and strategic decisions with the Board of Directors of the Accused No.1 Company.

8. The Accused No.5 is the Director and engaged, in charge and responsible to the Accused No.1 Company in the conduct of the business and is also responsible to take key and strategic decisions with the Board of Directors of the Accused No.1 Company.

9. The Accused No.6 is the Director and engaged, in charge and responsible to the Accused No.1 Company in the conduct of the business and is also responsible to take key and strategic decisions with the Board of Directors of the Accused No.1 Company.

10. The Accused No.7 is the Director and engaged, in charge and responsible to the Accused No.1 Company in the

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conduct of the business and is also responsible to take key and strategic decisions with the Board of Directors of the Accused No.1 Company.

11. The Accused No.8 is the Director and engaged, in charge and responsible to the Accused No.1 Company in the conduct of the business and is also responsible to take key and strategic decisions with the Board of Directors of the Accused No.1 Company.

12. The Accused No.9 is the Director and engaged, in charge and responsible to the Accused No.1 Company in the conduct of the business and is also responsible to take key and strategic decisions with the Board of Directors of the Accused No.1 Company.

13. The Accused No.10 is the Director, Finance and engaged, in charge and responsible to the Accused No.1 Company in the conduct of the business and is also responsible to take key and strategic decisions with the Board of Directors of the Accused No.1 Company.

14. ........

15. ........

16. The Accused Nos. 2 to 13 are Directors and/or (KMP

- Key Managerial Personnel) of the Accused No.1 Company who fall under the ambit of being "Officer in Default" as defined under Section 2(60) of the Companies Act, 2013, as being Directors/KMP of the Accused No.1 Company at the time of execution of the said Agreement/Dishonour of Cheque which was approved by the Board in toto, therefore they are equally liable and responsible to be accused for this Complaint for Dishonour of Cheque."

8. This is how the complaint describes the Petitioners and

these are the averments on the basis of which the Petitioners are

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sought to be arraigned as accused.

9. The Hon'ble Supreme Court has referred to other

Judgments in the case of Sunita Palita (supra) and in particular

there is reference with approval to the observations made in the

case of National Small Industries Corpn. Ltd. V. Harmeet Singh

Paintal2. The paragraph Nos.13 and 14 of the said Judgment are

re-produced in paragraph-28 of Sunita Palita's (supra) case.

Paragraph Nos.13 and 14 of National Small Industries Corpn.Ltd.

(supra) reads thus:-

"13. 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 the Director (arrayed as an accused) is in charge of and responsible to the company for the conduct of the business of the company without anything more as to the role of the Director. But the complaint should spell out as to how and in what manner Respondent 1 was in charge of or was responsible to the accused Company for the conduct of its business. This is in consonance with strict interpretation of penal statutes, especially, where such statutes create vicarious liability.

14. A company may have a number of Directors and to make any or all the Directors as accused in a complaint merely on the basis of a statement that they are in charge of and responsible for the conduct of the business of the company without anything more is not a sufficient or

2 (2010) 3 SCC 330

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adequate fulfilment of the requirements Under Section

141."

10. These observations clearly mention that it is not

sufficient to make a bald cursory statement that, Director is in

charge of and responsible to the company for conduct of the

business of the company without anything more as to the role of

Director, but the complaint should spell out as to how and in what

manner the said accused was in charge of or was responsible to the

accused company.

11. The paragraph-42 of Sunita Palita's case (supra) is

important which reads thus:-

"42. Liability depends on the role one plays in the affairs of a company and not on designation or status alone as held by this Court in S.M.S. Pharmaceuticals Ltd. V. Neeta Bhalla reported in (2005) 8 SCC 89. The materials on record clearly show that these Appellants were independent, non-executive Directors of the company. As held by this Court in Pooja Ravinder Devidasani v. State of Maharashtra and Anr. Reported in (2014) 16 SCC 1 a non-Executive Director is not involved in the day-to-day affairs of the company or in the running of its business. Such Director is in no way responsible for the day-to-day running of the Accused Company. Moreover, when a complaint is filed against a Director of the company, who is not the signatory of the dishonoured cheque, specific averments have to be made in the pleadings to

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substantiate the contention in the complaint, that such Director was in charge of and responsible for conduct of the business of the Company or the Company, unless such Director is the designated Managing Director or Joint Managing Director who would obviously be responsible for the company and/or its business and affairs."

12. In the present case, there are documents annexed to this

petition showing that the petitioners are Non Executive Directors,

therefore, these observations are prima facie applicable to the

present case, as well. In all similarly worded paragraphs different

petitioners are described as Directors who were in charge and

responsible to the accused No.1 company in the conduct of the

business and were responsible to key and managerial decision with

the Board of Director of accused No.1 company. Their exact role

and as to how they were responsible to the conduct of the business

of the company is not described or avered in the complaint at all.

There is another vague and general statement that the accused

Nos.4 to 13 (including present petitioners) were being sued in

their capacity as Directors/ Key Managerial Personnel of the

company who are vested with power to ensure compliance of

agreement.

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13. In this case, as pointed out by Shri. Mundargi, the Key

Managerial Personnel is defined U/s.2(51) of the Companies Act,

2013. There is no averment in the complaint to show as to how

any of the petitioners can be categorized as 'Key Managerial

Personnel'. Section 2(51) of the Companies Act, 2013 reads thus:

"2. Definitions....

(51) "key managerial personnel", in relation to a company, means -

(i) the Chief Executive Officer or the managing director or the manager;

(ii) the company secretary;

(iii) the whole-time director;

(iv) the Chief Financial Officer; and

(v) such other officer as may be prescribed.

14. There is substance in the submission of Shri. Mundargi

that the 'officer who is in default' is mentioned in Section 2(60) of

the Companies Act speaks about such officer only for the purpose

of provisions of the Companies Act.

15. Thus, based on the above discussion, the petitioners

have made out a case for admission of the petition. The matter

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requires consideration.

16. Hence, the following order:

ORDER

i) Rule.

ii) Shri. Mithilesh Mishra, learned counsel waives

service for final hearing on behalf of the

Respondent No.2.

iii)There shall be interim relief in terms of prayer

clause (d); qua the present petitioners only.

(SARANG V. KOTWAL, J.)