Bombay High Court
Tarun Agarwal vs Dmsons Metal Private Limited on 20 September, 2024
2024:BHC-AS:37818
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CRIMINAL APPELLATE JURISDICTION
WRIT PETITION NO. 2548 OF 2024
Tarun Agarwal
Indian Inhabitant aged around 53 years,
residing at 1801, Krypton Towers,
New Prabhadevi Road,
New Prabhadevi Temple, Prabhadevi,
Mumbai-400025. .... Petitioner
vs.
1) M/s. DMSONS Metal Private Limited,
A Private Limited Company incorporated
under the provisions of Companies
Act, 1956 having its registered office at 502,
Peninsula Heights, Juhu Lane, Near BMW
Show Room, Andheri (W),
Mumbai - 400058.
2) State of Maharashtra .... Respondents
Mr. Jayesh Bhosale for the Petitioner.
Ms. Chhaya More i/b. Mr. Anil Agarwal for the Respondent No.1.
Ms. R.V. Newton, APP for the Respondent No.2 - State.
CORAM : SHYAM C. CHANDAK, J.
RESERVED ON : 29th JULY, 2024
PRONOUNCED ON : 20th SEPTEMBER, 2024
JUDGMENT:
-
. Present Petition is seeking for quashing and setting aside of
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an Order dated 11th March 2019 passed in C.C.No.2473/SS/2018, by the
28th Court of learned Metropolitan Magistrate, at Esplanade, Mumbai
thereby process has been issued against the Petitioner for the alleged
offence punishable under Section 138 of the Negotiable Instruments Act,
1881 ('N.I.Act', for short). The Petition is also seeking for quashing and
setting aside of a Judgment and Order dated 4 th August, 2023 passed by
the Court of learned Additional Sessions Judge, Greater Mumbai
thereby said learned Judge dismissed the Criminal Revision Application
No.215 of 2023, impugning the said 'Order of issue process'.
2) Heard Mr. Bhosale, learned counsel for Petitioner, Ms. More,
learned counsel for Respondent No.1 and learned A.P.P. Ms. Newton for
Respondent No.2-State. Perused the record.
3) Rule. Rule is made returnable forthwith. By consent of the
parties, heard finally.
4) Respondent No.1 has filed said C.C.No.2473/SS/2018
wherein it is stated that, the Accused No.1 M/s. Capacite Structures
Limited is a private Company. The Accused No.2 is a Managing Director
plus signatory to the cheque and Accused Nos.3 to 6 are Directors of
Accused No.1 Company. The Petitioner is the Accused No.3.
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4.1) It is alleged that, from 21st July 2017 to 15th November 2017,
Respondent No.1 had sold, supplied and delivered the goods being iron
and steel goods of various descriptions under its distinguished invoices
to Accused No.1. The goods along with its invoices was received by the
accused from time to time in good condition. The Accused No.1 has
furnished the "Letter of Credit" for some invoices. Yet, the Accused No.1
did not make the payment of the invoices as stated in paragraph 13 of
the complaint. As requested by the accused, the Respondent No.1
furnished the confirmation letter dated 1st April, 2018 which was
confirmed by the Accused No.1, admitting its liability for the sum of
Rs.77,51,937/-. Further, to discharge the said legal debt and liability, as
per the instructions of Accused Nos.2 to 6, the Accused No.1 issued and
handed over to Respondent No.1 a cheque dated 30 th June 2018, for a
sum of Rs.57,51,937/-. The Respondent No.1 presented that cheque for
encashment, however, it returned dishonoured for the reason "Exceeds
Arrangement", by the banker of the accused along with a memo.
Therefore, Respondent No.1 issued a demand notice to all the accused
persons through RPAD on 3rd September, 2018. However, the notice
returned undelivered by the Postal Authority with a remark "Addressee
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Not Known". It is alleged that, said remark was dishonestly managed by
the accused persons. However, the said notice was delivered to the
Accused Nos.2, 4 and 5 on 4th September, 2018.
5) On considering the complaint, the documents enclosed and
the verification statement, the learned Magistrate held that there is a
prima facie case against all the accused. Hence, the learned Magistrate
passed the impugned Order of issue process dated 11 th March 2019. The
Petitioner assailed the said Order of issue process in a Criminal Revision
Application No.215 of 2023. However, the learned Additional Sessions
Judge, at Greater Mumbai held the Order of issue process correct and
legal, hence, dismissed the Revision by the impugned Order dated 4th
August, 2023.
6) Learned counsel Mr. Bhosale for the Petitioner submitted
that only general allegations have been made in the complaint, that the
Accused Nos.2 to 6 were responsible for the affairs and conduct of the
business of Accused No.1. That, no specific role has been attributed to
the Petitioner in the said complaint to show as to how the Petitioner was
responsible for the affairs and conduct of the business of the Accused
No.1. He submits that, at the relevant time the Petitioner was only an
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Independent Director of the Accused No.1. As provided under Section
149 (6) of the Indian Companies Act, only for those act and omissions
that occurs with the knowledge of such an Independent Director,
attributable through board process, and with his consent or connivance
or where he had not acted diligently, the Independent Director will be
responsible for the act of the Company. However, such is not the case
here. Therefore, merely because the Petitioner was an Independent
Director of the Accused No.1 at the relevant time, he cannot be held
liable for the alleged offence of Section 138. However, the learned trial
Court and the learned Additional Sessions Judge failed to consider the
above. As such both the impugned Orders are illegal and liable to be
quashed and set aside.
7) Controverting the aforestated averments made by learned
counsel for the Petitioner, the learned counsel Ms. More for Respondent
No.1 vehemently submitted that there are sufficient allegations in the
complaint that the Accused Nos.2 to 6 including the Petitioner along
with other Directors and Officers of Accused No.1 were in-charge and
control of the day-to-day affairs, management and responsible for the
conduct of the business of Accused No.1. The order of appointment
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produced by the Petitioner would show that, he was an Independent
Director of the Company, is not a reliable document but it is an
antedated document. That apart, the said document rather supports the
case of Respondent No.1. Lastly, she submitted that there is sufficient
material against the Petitioner to prosecute him for the alleged offence.
As such, the trial Court was correct in issuing the process against the
Petitioner. Further, the conclusion arrived at by the learned Additional
Sessions Judge to reject the Revision Petition is free from error. As such
there is no substance in the Petition and it may be dismissed.
8) Considering the allegations in the subject complaint and the
rival submissions, first it is necessary to refer the reported decisions
cited by learned counsel Mr. Bhosale. The said decisions pertains to the
question as to what shall be the essential and/or specific averments in a
complaint seeking for issuance of process and prosecution of a Director
etc. of a Company for the alleged offence of Section 138 of the N.I. Act.
9) In Anita Malhotra Vs. Apparel Export Promotion
Council & Anr1, the Hon'ble Supreme Court enunciated that, in case of
a Director, the complaint should specifically spell out how and in what
manner the Director was in charge of or was responsible to the Accused
1. (2012) 1 SCC 520
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company for conduct of its business and mere bald statement that he or
she was in charge of and was responsible to the company for conduct of
its business is not sufficient.
10) In S.M.S. Pharmaceuticals Ltd. Vs. Neeta Bhalla &
Anr2 and Susela Padmavathy Amma Vs. Bharti Airtel
Limited3, the Hon'ble Supreme Court observed that merely because a
person is a director of a company, it is not necessary that he is aware
about the day-to-day functioning of the company. That there is no
universal rule that a Director of a Company is in charge of its everyday
affairs. It is, therefore, necessary, to aver as to how the director of the
company was in charge of day-to-day affairs of the company or
responsible to the affairs of the company.
11) On the similar line, in Ashok Shewakramani & Ors. Vs.
State of Andhra Pradesh & Anr4, the Hon'ble Supreme Court held
that, in a given case, a manager of a Company may be managing the
business of the Company, but only on the ground that he is managing
the business of the Company, he cannot be roped in based on Section
141 (1).
2. (2007) 4 SCC 70
3. 2024 SCC Online SC 311
4. (2023) 8 SCC 473
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12) After considering the relevant Sections and other provisions,
in K.K. Ahuja Vs. V.K. Vora and Anr5, in paragraph 9, 10, 11 and 12
the Hon'ble Supreme Court held as under :
"9. ... The prevailing trend appears to require the complainant to
state how a Director who is sought to be made an Accused, was in
charge of the business of the company, as every director need not
be and is not in charge of the business of the company. If that is the
position in regard to a director, it is needless to emphasise that in
the case of non-director officers, there is all the more the need to
state what his part is with regard to conduct of business of the
company and how and in what manner he is liable.
10. Having regard to Section 141, when a cheque issued by a
company (incorporated under the Companies Act, 1956) is
dishonoured, in addition to the company, the following persons are
deemed to be guilty of the offence and shall be liable to be
proceeded against and punished: (i) 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; (ii)
any Director, Manager, Secretary or other officer of the company
with whose consent and connivance, the offence under Section 138
has been committed; and (iii) any Director, Manager, Secretary or
other officer of the company whose negligence resulted in the
offence under Section 138 of the Act, being committed by the
company. While liability of persons in the first category arises
5. (2009) 10 SCC 48
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under Sub-section (1) of Section 141, the liability of persons
mentioned in categories (ii) and (iii) arises under Sub section (2).
The scheme of the Act, therefore is, that a person who is
responsible to the company for the conduct of the business of the
company and who is in charge of business of the company is
vicariously liable by reason only of his fulfilling the requirements
of Sub-section (1). But if the person responsible to the company for
the conduct of business of the company, was not in charge of the
conduct of the business of the company, then he can be made liable
only if the offence was committed with his consent or connivance
or as a result of his negligence.
11. The criminal liability for the offence by a company under
Section 138, is fastened vicariously on the persons referred to in
Sub-section (1) of Section 141 by virtue of a legal fiction. Penal
statutes are to be construed strictly. Penal statutes providing
constructive vicarious liability should be construed much more
strictly. When conditions are prescribed for extending such
constructive criminal liability to others, courts will insist upon
strict literal compliance. There is no question of inferential or
implied compliance. Therefore, a specific averment complying with
the requirements of Section 141 is imperative. As pointed out in K.
Srikanth Singh v. North East Securities Ltd. 2007 (12) SCC 788,
the mere fact that at some point of time, an officer of a company
had played some role in the financial affairs of the company, will
not be sufficient to attract the constructive liability under Section
141 of the Act.
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12. Sub-section (2) of Section 141 provides that a Director,
Manager, Secretary or other officer, though not in charge of the
conduct of the business of the company will be liable if the offence
had been committed with his consent or connivance or if the
offence was a result of any negligence on his part. The liability of
persons mentioned in Sub-section (2) is not on account of any legal
fiction but on account of the specific part played- consent and
connivance or negligence. If a person is to be made liable under
Sub-section (2) of Section 141, then it is necessary to aver consent
and connivance, or negligence on his part."
13) In the case of Preeti Vs. State and Anr6, it is observed
that, mere allegations or bald assertion may be sufficient to implicate
the Managing Directors as well as those who are signatories to the
cheque, but not the other Directors or persons, especially independent
or non-executive Directors.
14) As regards the position of an Independent Non-executive
Director, in Pooja Ravinder Devidasani Vs. State of
Maharashtra & Anr7, in paragraph 17, the Hon'ble Supreme Court
clarified that, "...Non-executive Director is no doubt a custodian of the
governance of the Company but does not involve in the day-to-day
6. 2022 SCC OnLine Del 3612
7. (2014) 16 SCC 1
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affairs of the running of its business and only monitors the executive
activity. To fasten vicarious liability under Section 141 of the Act on a
person, at the material time that person shall have been at the helm of
affairs of the Company, one who actively looks after the day-to-day
activities of the Company and particularly responsible for the conduct of
its business. Simply because a person is a Director of a Company, does
not make him liable under the N.I.Act. Every person connected with the
Company will not fall into the ambit of the provision. Time and again, it
has been asserted by this Court that only those persons who were in
charge of and responsible for the conduct of the business of the
Company at the time of commission of an offence will be liable for
criminal action. A Director, who was not in charge of and was not
responsible for the conduct of the business of the Company at the
relevant time, will not be liable for an offence under Section 141 of the
N.I. Act.
15) In Satvinder Jeet Singh Sodhi and Anr. Vs. State of
Maharashtra and Anr8 and Sunita Patla & Ors Vs. M/s. Kit
Marketing Pvt. Ltd.9, the Applicants/Petitioners were Independent
8. 2022 SCC OnLine Bom 2298
9. CRL.M.C. 1410/2018 (Del)
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Non-Executive Directors. However, except bald statement and general
allegations, the role attributed to them was not sufficient to prosecute
them for the alleged offence of Section 138 of N.I.Act. Hence, the
proceedings against them were quashed and set aside.
16) Now turning to the facts of the case in hand. In the subject
complaint The Respondent No.1 has specifically stated that, the Accused
Nos.2 to 6 including the Petitioner along with other Directors and
Officers of Accused No.1 were in-charge and control of the day-to-day
affairs, management and responsible for the conduct of the business of
Accused No.1. Further, it is alleged that Accused Nos.2 to 6 had stated
that they have invested good amounts in the share capital of Accused
No.1; that, they are actively looking after the sales and purchase of the
Accused No.1; and that, they are actively involved in looking after
activities of Accused No.1. It is alleged that, the accused Nos.2 to 6 had
stated that they along with other Directors and Officers of Accused No.1
govern the Board of Directors of the Accused No.1. Further, it is alleged
that the Accused Nos.2 to 6 and others used to take decisions about the
administration of financial management of the Accused No.1. It is
alleged that, the Accused Nos.2 to 6 were responsible for day-to-day
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affairs and management of the Accused No.1, when the dishonoured
cheque was presented for encashment and the cause of action arose.
However, the Accused persons failed to comply with the demand notice
and pay the dishonoured cheque amount within the stipulated period
from the service of the notice.
17) On careful consideration of the aforesaid allegations, it seem
that, first, the Accused Nos.2 to 6 impressed upon the Respondent No.1
that, the Accused No.1 is financially sound as it is backed by their
investments; and that, they have administrative control over Accused
No.1. Therefore, the Respondent No.1 was convinced to rely upon the
representation by the Accused Nos.2 to 6 that they are actively looking
after the sales and purchase of the Accused No.1 and become ready to
sale the subject goods to Accused No.1. Therefore, the assertion in the
complaint that the Petitioner along with other Directors and Officers of
Accused No.1 were in-charge and control of the day-to-day affairs,
management and responsible for the conduct of the business of Accused
No.1, cannot be termed as vague or mere bald assertions.
18) The complaint specifically claimed that, the Petitioner was
one of the Directors of the Accused No.1 at the relevant time. However,
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pointing the Forms No.12 and his Letter of Appointment, issued in
accordance of the Code of Independent Directors contained in the
Companies Act, 2013 the Petitioner has claimed that he was merely an
Independent Non-executive Director of the Accused No.1.
19) In this regard it is pertinent to note that, as mentioned in the
Letter of Appointment, in the Annual General Meeting (AGM) dated 22 nd
August, 2015 the shareholders of the Accused No.1 Company had
approved the Petitioner's appointment as an Independent Director but
the Letter of Appointment was issued on 16th February, 2015 i.e. much
prior to the said AGM. That apart, the Petitioner accepted the Letter of
Appointment on 16th May 2015, thus, said acceptance was also prior to
the said AGM. Therefore, at this stage it is difficult to rely upon the
Letter of Appointment.
20) In so far as the Form No.12 (Exhibit 'E') is concerned, in the
said document the Petitioner's designation is shown as Additional
Director and the box is marked with sign 'X' (cross) against the
'category' Non-executive Director. Thus, said form indicates that the
Petitioner was a Non-executive Director at the relevant time. However,
from this Form it is not clear as to when the said Form was uploaded on
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the official website of the office of the concerned authority, functional
under the Companies Act. Secondly, the same is not a certified copy so
as to safely rely upon.
21) Be that as it may, in the Letter of Appointment, under the
title 'Role and Duties', it was the duty of the Petitioner to act in good
faith in order to promote object of the Company for the benefit of its
members and in the best interest of the company. The Petitioner was
duty bound to discharge his duties with due and reasonable care, skill
and diligence. The Petitioner was duty bound to satisfy himself on the
integrity of financial information and that financial controls and systems
of risk management are effective and defensible. However, the facts of
the case indicate that, the Petitioner has not acted diligently when the
accused persons convinced the Respondent No.1 that it would be safe to
enter into the business transactions with the Accused No.1.
22) No doubt, the Form No.12 (Exhibit 'F') shows that, the
Petitioner resigned from the Company but with the designation as
Director. The said Form indicates that, the relevant declaration therein
was made on 23rd August, 2018 by the Director-Accused No.5 and the
resignation of the Petitioner was effective from 12th October, 2018. The
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subject cheque was dated 30th June, 2018 and it dishonoured on 13 th
August, 2018. Thus, it is evident that, the Petitioner's connection with
the Accused No.1 was not severed prior to the dishonour of the cheque
and the cause of action for the subject criminal case.
23) The Petitioner also claimed that, he did not get the registered
statutory notice of the dishonoured cheque but the record indicates that,
the postal envelope containing the said notice was addressed to the
Petitioner and it was sent at the postal address of the Accused No.1.
However, said envelope returned to the sender with a remark 'Addressee
Not known'. Said remark was dated 4th September 2018, which is prior
to 12th October, 2018 when the Petitioner's resignation become effective.
Secondly, certain Directors i.e. Accused Nos. 2,4 and 5 were duly served
with the said notice. As such, bare plea that the Petitioner did not
receive the said notice is of no avail and thus, said aspect is also a
question of trial.
24) In view of the above discussion, I find it difficult to hold that
at the relevant time the Petitioner was an Independent Non-executive
Director of the Accused No.1 Company. In fact, it is a question of fact as
to whether the Petitioner was a Director or an Independent Non-
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executive Director of the Accused No.1 Company. Considering the facts
of the case, I deem it appropriate that said question is answered based
on the trial of the alleged offence. Additionally, looking at the dates of
the cheque in question, its dishonour, the statutory notice, the postal
remark on the envelope of the registered notice sent to the Petitioner
and the Petitioner's resignation, it is evident that there is proximity in
said dates. As such it can be safely inferred that, immediately after the
said cheque dishonoured, the Petitioner came to know the said fact and
hence, he resigned from the Accused No.1 Company so as to save him
from the prosecution of the alleged offence.
25) Upshot of the above discussion is that, there is a prima facie
case against the Petitioner of having committed the alleged offence
along with the rest accused. As such, there is no merit in the Petition so
as to quash and set aside the impugned Orders. Petition thus, failed and
is liable to be dismissed. Petition is dismissed, accordingly.
JYOTI
RAJESH
MANE
(SHYAM C. CHANDAK, J.)
