V.C. Anthony, Chairman, ... vs Citi Financial Consumer Finance ...
2007 Latest Caselaw 2394 Del

JUDGMENT

V.B. Gupta, J.

1. Initially the present petition has been filed under Section 482 Cr.P.C. by the petitioners seeking discharge from five complaint cases pending under Section 138 and 144 of Negotiable Instruments Act at Karkardooma Courts.

2. However, on 17th September, 2007, counsel for the petitioner gave a statement that he wants to withdraw the petition with regard to four complaint cases and as such the petition with regard to four complaint cases was dismissed as withdrawn and this petition was ordered to be treated with regard to complaint case No. 2544/07 only.

3. Brief facts of this case are that respondent herein had filed complaint case under Section 138 r/w Section 144 of the Act 1881 against the present petitioners and certain other persons. The allegations made in the complaint are that petitioner No. 1 to 4 are the Directors of the company in the name and style of M/s. Bhageeratha Engineering Ltd. The present petitioners besides other persons, are the Directors (signatory of the cheques), and are in charge of and responsible for the day to day affair of the company and are jointly and severally liable for the acts and liabilities of the company.

4. At the request of the petitioners, the respondent sanctioned a loan facility for purchase of certain assets worth Rs. 22.5 lakhs to the petitioners vide loan cum Hypothecation Agreement. As per the Agreement, the petitioners have agreed to repay the amount along with interest in 36 equated installments of Rs. 77,447/-. In the partial discharge of their liability, the company issued two cheques in fovour of respondent. However, these cheques were dishonoured by the bankers of the petitioners for the reasons "Not Arranged For". The dishonour of the cheques shows and establishes that the petitioners did not leave sufficient funds in the account to honour the cheques and thereafter a legal notice was served. In spite of that, the petitioners did not make the payment.

5. In the present petition, it has been stated that the petitioners are not directly involved in the day to day affairs of the company and Directors in other companies as well. The impugned cheques were issued purely as security and it was specifically instructed that in any circumstance the cheques were not to be presented for encashment. The petitioners are not signatory to the impugned cheques and there is no averment in the complaint as to how and in what manner the petitioners were responsible for the conduct of the business of the company and no offence specifically is made out against the petitioners. The post dated cheques in this case were given purely as security and the method adopted by the parties according to the mutual understanding in the agreement was that M/s. Bhageeratha Engineering Ltd. company would give a demand draft as per the schedule mutually agreed and at that time the security cheques would be given back to this company.

6. Since there is no averment in the complaint or in the evidence adduced before the Magistrate that the petitioners were in charge or responsible for the conduct of the business of the company, the present complaint is not maintainable and is liable to be quashed. In support of his contentions learned Counsel for the petitioners had relied upon a decision of Apex Court reported as S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Anr. .

7. In a decision of Apex Court reported as N.K. Wahi v. Shekhar Singh and Ors. 138 (2007) DLT 783 (SC)., it has been laid down that as per Section 141 of the Negotiable Instruments Act, only such person is held liable if at the time when the offence was committed, he was in charge and responsible to the company for conduct of the business of the company. Held:

In certain contingencies referred to under Section 138 of the Act on the cheques being dishonoured a new offence as such had been created. But to take care of the offences purported to have been committed provisions of Sub-section (1) to Section 141 of the Act come into play. It reads as under:

141. Offence by companies - (1) If the person committing an offence under Section 138 is 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 person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due dilignece to prevent the commission of such offence.

This provision clearly shows that so far as the companies are concerned if any offence is committed by it then every person who is a Director or employee of the company is not liable. Only such person would be held liable if at the time when offence is committed he was in-charge and was responsible to the company for the conduct of the business of the company as well as the company. Merely being a Director of the company in the absence of above factors will not make him liable.

To launch a prosecution, therefore, against the alleged Directors there must be a specific allegation in the complaint as to the part played by them in the transaction. There should be clear and unambiguous allegation as to how the Directors are in charge and responsible for the conduct of the business of the company. The description should be clear. It is true that precise words from the provisions of the Act need not be reproduced and the Court can always come to a conclusion in facts of each case. But still in the absence of any averment or specific evidence the net result would be that complaint would not be entertanable.

Section 138 of the Act reads as under:

138. Dishonour of cheque for insufficiency, etc., of funds in the accounts - Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another persons from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an arrangement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both.

In order to bring application of 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.

8. The averments made against the present petitioner in the complaint read as under:

That the Accused No. 1 is also a Company duly incorporated under the Companies Act, 1956 and having its registered office at 132, Panampilly Avenue, Kochi-682 086. The Accused Nos. 2 to 7 are Directors (signatory of the Cheques), who are in charge of and responsible for the day to day affairs of the Accused No. 1 Company and are jointly and severally liable for the acts and liabilities of the Accused No. 1 Company.

9. So, the complainant had made specific allegations in the complaint that the present petitioners are the Directors (signatory of the cheques) who are in charge of and responsible for day to day affairs of the company and are jointly and severally liable for the acts and liabilities of the company. In SMS (supra) as cited by learned Counsel for the petitioner, it was, inter alia, held as follows:

To sum up, there is almost unanimous judicial opinion that necessary averments ought to be contained in a complaint before a person can be subjected to criminal process. A liability under Section 141 of the Act is sought to be fastened vicariously on a person connected with a company, the principal accused being the company itself. It is a departure from the rule in criminal law against vicarious liability. A clear case should be spelled out in the complaint against the person sought to be made liable. Section 141 of the Act contains the requirements for making a person liable under the said provision. That the respondent falls within the parameters of Section 141 has to be spelled out. A complaint has to be examined by the Magistrate in the first instance on the basis of averments contained therein. If the Magistrate is satisfied that there are averments which bring the case within Section 141, he would issue the process. We have seen that merely being described as a director in a company is not sufficient to satisfy the requirement of Section 141. Even a non-director can be liable under Section 141 of the Act. The averments in the complaint would also serve the purpose that the person sought to be made liable would know what is the case which is alleged against him. This will enable him to meet the case at the trial.

In view of the above discussion, our answers to the questions posed in the reference are as under:

(a) It is necessary to specifically aver in a complaint under Section 141 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 and has to be made in a complaint. Without this averment being made in a complaint, the requirements of Section 141 cannot be said to be satisfied.

(b) The answer to the question posed in sub-para (b) has to be in the negative. Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for the conduct of its business. The requirement of Section 141 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.

(c) The answer to Question (c) has to be in the affirmative. The question notes that the managing director or joint managing director would be admittedly in charge of the company and responsible to the company for the conduct of its business. When that is so, holders of such positions in a company become liable under Section 141 of the Act. By virtue of the office they hold as managing director or joint managing director, these persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 141. So far as the signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under Sub-section (2) of Section 141.

The matter was again considered in Sabitha Ramamurthy and Anr. v. R.B.S. Channabasavaradhys and Anr. and Saroj Kumar Poddar v. Sate (NCT of Delhi) and Anr. . It was, inter alia, held as follows:

...Section 141 raised a legal fiction. By reason of the said provision, a person although is not personally liable for commission of such an offence would be vicariously liable therefore. Such vicarious liability can be inferred so far as a company registered or incorporated under the Companies Act, 1956 is concerned 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 the offence committed by the company. Before a person can be made vicariously liable, strict compliance of the statutory requirements would be insisted....

10. So, according to these judgments, there has to be an averment that the accused were in charge of or responsible to the company for conduct of the business of the company.

11. As already stated above, these averments have been made by the complainant in the case in hand and the Apex Court had occasion to deal with the provisions of Section 138 and 141 of the Act very recently in N. Rangachari v. Bharat Sanchar Nigam Limited . In this case, the decision of S.M.S. Pharmaceutical (Supra) has also been referred to. The Apex Court held:

By the fall in moral standards, even these negotiable instruments like cheques issued, started losing their creditability by not being honoured on presentment. It was found that an action in the civil court for collection of the proceeds of a negotiable instrument like a cheque tarried, thus defeating the very purpose of recognizing a negotiable instrument as a speedy vehicle of commerce. It was in that context that Chapter VII was inserted in the Negotiable Instruments Act by the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 (Act 66 of 1988) with effect from 1.4.1989. The said Act inserted Sections 138 and 142 in the Negotiable Instruments Act. The objects and reasons for inserting the Chapter was:

to enhance the acceptability of cheques in settlement of liabilities by making the drawer liable for penalties in case of bouncing of cheques due to insufficiency of funds in the accounts or for the reason that it exceeds the arrangements made by the drawer, with adequate safeguards to prevent harassment of honest drawers

While Section 138 made a person criminally liable on dishonour of a cheque for insufficiency of funds or the circumstances referred to in the Section and on the conditions mentioned therein. Section 141 laid down a special provision in respect of issuance of cheques by companies and commission of offences by companies under Section 138 of the Negotiable Instruments Act. Therein, it was provided that if the person committing an offence under Section 138 of the Act was 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. The scope of Section 141 has been authoritatively discussed in the decision in S.M.S. Pharmaceuticals Ltd. (supra) binding on us and there is no scope for redefining it in this case. Suffice it to say, that a prosecution could be launched not only against the company on behalf of which the cheque issued has been dishonoured, but it could also be initiated against every person who at the time the offence was committed, was in charge of and was responsible for the conduct of the business of the company. In fact, Section 141 deems such persons to be guilty of such offence, liable to be proceeded against and punished for the offence, leaving it to the person concerned, to prove that the offence was committed by the company without his knowledge or that he has exercised due diligence to prevent the commission of the offence. Sub-section (2) of Section 141 also roped in Directors, Managers, Secretaries or other officers of the company, if it was proved that the offence was committed with their consent or connivance.

A Company, though a legal entity, cannot act by itself but can only act through its directors. Normally, the Board of Directors act for and on behalf of the company. This is clear from Section 291 of the Companies Act which provides that subject to the provisions of that Act, the Board of Directors of a Company shall be entitled to exercise all such powers and to do all such acts and things as the Company is authorized to exercise and do. Palmer described the position thus:

A company can only act by agents, and usually the persons by whom it acts and by whom the business of the company is carried on or superintended are termed directors....

It is further stated in Palmer that:

Directors are, in the eye of the law, agents of the company for which they act, and the general principles of the law of principal and agent regulate in most respects the relationship of the company and its directors.

The above two passages were quoted with approval in R.K. Dalmia and Ors. v. The Delhi Administration (1963) 1 SCR 253 at page 300. In Guide to the Companies Act by A. Ramaiya (Sixteenth Edition) this position is summed up thus:

All the powers of management of the affairs of the company are vested in the Board of Directors. The Board thus becomes the working organ of the company. In their domain of power, there can be no interference, not even by shareholders. The directors as a board are exclusively empowered to manage and are exclusively responsible for that management.

Therefore, 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. It is in that context that Section 141 of the Negotiable Instruments Act provides that when the offender is a company, every person, who at the time when the offence was committed was in charge of and was responsible to the company for the conduct of the business of the company, shall also be deemed to be guilty of the offence along with the company. 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. In Gower and Davies' Principles of Modern Company Law (Seventh Edition), the theory behind the idea of identification is traced as follows:

It is possible to find in the cases varying formulations of the under-lying principle, and the most recent definitions suggest that the courts are prepared today to give the rule of attribution based on identification a somewhat broader scope. In the original formulation in the Lennard's Carrying Company case Lord Haldane based identification on a person "who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation". Recently, however, such an approach has been castigated by the Privy Council through Lord Hoffmann in the Meridian Global case as a misleading "general metaphysic of companies". The true question in each case was who as a matter of construction of the statute in question, or presumably other rule of law, is to be regarded as the controller of the company for the purpose of the identification rule.

But as has already been noticed, the decision in S.M.S. Pharmaceuticals Ltd. (supra) binding on us, has postulated that a director in a company cannot be deemed to be in charge of and responsible to the company for the conduct of his business in the context of Section 141 of the Act. Bound as we are by that decision, no further discussion on this aspect appears to be warranted.

A person normally having business or commercial dealings with a company, would satisfy himself about its creditworthiness and reliability by looking at its promoters and Board of Directors and the nature and extent of its business and its Memorandum or Articles of Association. Other than that, he may not be aware of the arrangements within the company in regard to its management, daily routine, etc. Therefore, when a cheque issued to him by the company is dishonoured, he is expected only to be aware generally of who are in charge of the affairs of the company. It is not reasonable to expect him to know whether the person who signed the cheque was instructed to do so or whether he has been deprived of his authority to do so when he actually signed the cheque. Those are matters peculiarly within the knowledge of the company and those in charge of it. So, all that a payee of a cheque that is dishonoured can be expected to allege is that the persons named in the complaint are in charge of its affairs. The Directors are prima facie in that position.

In fact, in an earlier decision in Monaben Ketanbhai Shah and Anr. v. State of Gujarat and Ors. , two learned judges of this Court noticed that:

The laudable object of preventing bouncing of cheques and sustaining the credibility of commercial transactions resulting in enactment of Sections 138 and 141 has to be borne in mind.

In the light of the ratio in S.M.S. Pharmaceuticals Ltd. (supra) what is to be looked into is whether in the complaint, in addition to asserting that the appellant and another are the directors of the company, it is further alleged that they are in charge of and responsible to the company for the conduct of the business of the company. We find that such an allegation is clearly made in the complaint which we have quoted above. Learned Senior Counsel for the appellant argued that in Saroj Kumar Poddar case (supra), this Court had found the complaint unsustainable only for the reason that there was no specific averment that at the time of issuance of the cheque that was dishonoured, the persons named in the complaint were in charge of the affairs of the company. With great respect, we see no warrant for assuming such a position in the context of the binding ratio in S.M.S. Pharmaceuticals Ltd. (supra) and in view of the position of the Directors in a company as explained above.

In Rajesh Bajaj v. State of NCT of Delhi and Ors. , two learned judges of this Court stated:

For quashing an FIR (a step which is permitted only in extremely rare cases) the information in the complaint must be so bereft of even the basic facts which are absolutely necessary for making out the offence.

In M/s Bilakchand Gyanchand Co. v. A Chinnaswami , this Court held that a complaint under Section 138 of the Act was not liable to be quashed on the ground that the notice as contemplated by Section 138 of the Act was addressed to the Director of the Company at its office address and not to the Company itself. The view was reiterated in Rajneesh Aggarwal v. Amit J. Bhalla These decisions indicate that too technical an approach on the sufficiency of notice and the contents of the complaint is not warranted in the context of the purpose sought to be achieved by the introduction of Sections 138 and 141 of the Act.

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 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. 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.

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 in charge 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 in charge 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.

12. So, the question whether a person is a Director, in charge of the affairs of the company at the relevant time, can only be judged during the course of trial and the complaint cannot be quashed under Section 482 CrPC.

13. As already stated above, in the present case, specific averments have been made against all the petitioners that the present petitioners are in charge of and responsible to the company for conduct of the business of the company and have been looking after the business of the company and the offence under Section 138 of the Act has been committed with the knowledge, consent and connivance of the present petitioners besides other and is attributable to neglect on their part.

14. In view of the decision of the Apex Court in N. Rangachari (Supra) when specific averments have been made against each of the petitioners and since it can be adjudged only during the course of trial whether the present petitioners were in charge of or responsible to the affairs of the company or not, the present petition is wholly mis-conceived and is not maintainable and the same is thereby dismissed with cost of Rs. 5,000/-.

15. The cost of Rs. 5,000/- be deposited by the petitioner with the trial court within one month from today failing which the trial court shall recover the same in accordance with law.