Delhi High Court
Vasu Tech Limited & Ors. vs Ratna Commercial Enterprises ... on 13 February, 2009
Author: Aruna Suresh
"REPORTABLE"
* HIGH COURT OF DELHI AT NEW DELHI
Pronounced on: February 13, 2009
+ Crl M.C. No. 3369/2007
VASU TECH LIMITED & ORS. ...... Petitioners
Versus
RATNA COMMERCIAL ENTERPRISES LTD.
..... Respondent
Crl M.C. No. 3370/2007
VASU TECH LIMITED & ORS. ...... Petitioners
Versus
RATNA COMMERCIAL ENTERPRISES LTD.
..... Respondent
Crl M.C. No. 3371/2007
VASU TECH LIMITED & ORS. ...... Petitioners
Versus
RATNA COMMERCIAL ENTERPRISES LTD.
..... Respondent
Crl M.C. No. 3372/2007
VASU TECH LIMITED & ORS. ...... Petitioners
Versus
RATNA COMMERCIAL ENTERPRISES LTD.
..... Respondent
Crl. M.C. Nos. 3369-3373/2007 Page 1 of 37
Crl M.C. No. 3373/2007
VASU TECH LIMITED & ORS. ...... Petitioners
Versus
RATNA COMMERCIAL ENTERPRISES LTD.
..... Respondent
Present : Mr. Siddharth Luthra, Senior Advocate
with Mr. Sanjiv Bahl, Mr. Ajay Shekhar,
Ms. Arundhati Katju, Advocates for the
Petitioners.
Mr. Arun Bhardwaj, Senior Advocate
with Mr. Sudhir Makkar, Mr. Vishal
Malhotra, Advocates for Respondent.
%
CORAM:
HON'BLE MS. JUSTICE ARUNA SURESH
(1) Whether reporters of local paper may be
allowed to see the judgment?
(2) To be referred to the reporter or not? Yes
(3) Whether the judgment should be reported
in the Digest ? Yes
JUDGMENT
ARUNA SURESH, J.
1. By way of this common order I shall deal with five
petitions seeking quashing of Complaint Cases;
Nos.1745/1 of 2007, 1748/1 of 2007, 1751/1 of
2007, 1747/1 of 2007 and 1746/1 of 2007 filed
against the petitioners under Section 138/141 of
Negotiable Instruments Act (hereinafter referred to
as „N.I. Act‟) read with Section 420 Indian Penal
Code (hereinafter referred to as „IPC‟), proceedings
conducted therein and the summoning order dated
16th July, 2007 passed thereunder as they arise out
of the same transaction involving the common
question of law.
2. Complainant M/s. Ratna Commercial Enterprises
Ltd. (respondent herein) had been advancing loan
to the petitioners for funding its capital
requirements for the purposes of development of a
chip called „VSU‟ totaling sum of Rs.54,08,93,273/-.
A substantial portion of these amounts were
advanced to Vasu Tech Limited (hereinafter
referred to as „Petitioner company‟) as short term
loan repayable after one year and in certain cases
repayable with the close of the financial year.
Receipt of all these amounts was duly
acknowledged by the petitioner company. A loan
agreement was entered into between the
complainant and petitioner company on 15th
April, 2005 which spelt out the terms and
conditions of the loan including the condition that
the amounts advanced to the petitioner shall carry
interest at the rate of 12% per annum payable on
the interest payment date. Simultaneously, a Deed
of Guarantee in favour of the complainant was also
executed by promoters of petitioner company,
namely, Shri Dhruv Varma, Sh R.L. Varma
(Petitioner No.2 and 3 herein) and M/s R.L. Varma
& Sons (HUF), whereby the above named persons
irrevocably and unconditionally guaranteed the due
payment of loan to the complainant. A
Memorandum of Understanding (MOU) dated
31.8.2006 was also executed between the parties.
After execution of the agreement complainant
advanced some more amount to petitioner company
on specific terms and conditions as laid down in the
Loan Agreement and the Guarantee Agreement was
extendable to the further advances as well. The
total amount advanced by the complainant to
petitioner company exclusive of interest was to the
tune of Rs.54,08,93,273/-. Petitioner company
issued 16 post dated cheques for a total amount of
Rs.61,63,66,140/- towards the repayment of the
loan amount / interest thereon.
3. The subject matter of the five complaints are 13
cheques all dated 1st April, 2007 details of which
as under:-
Petition Complaint Cheque Drawn on Amount
Case No.
Crl M.C Complaint 381112, Central Bank, 1,03,272.00
No. Case No. Jevantara Building,
3369/2007 1745/01 Parliament Street,
New Delhi
381121 -do- 1,14,746.00
Crl M.C Complaint 370500, -do- 60,00,000.00
No. Case No.
3370/2007 1748/01 381122, -do- 50,00,000.00
3704797 -do- 40,00,000.00
Crl M.C Complaint 381113, -do- 45,00,000.00
No. Case No. 381118, -do- 40,00,000.00
3371/2007 1751/01
381103 -do- 35,00,000.00
Crl M.C Complaint 370487, -do- 7,47,27,016.00
No. Case No.
3372/2007 1747/01 370486, -do- 50,83,93,273.00
381126 -do- 55,00,000.00
Crl M.C Complaint 381125, -do- 1,26,221.00
No. Case No.
3373/2007 1746/01 370499 -do- 1,37,695.00
4. These cheques on presentation by the complainant
to its bankers were dishonoured and returned back
with the remarks "Payment stopped by Drawer"
vide return memo dated 18.06.2007 and informed
the complainant company vide bank memo dated
19.06.2007. Resultantly, complainant issued legal
notice dated 19.06.2007 in accordance with the
provisions contained under Section 138 of the N.I.
Act wherein demand for payment of the impugned
cheques within the prescribed period of 15 days
was raised. This notice was duly received by the
petitioners and was replied vide reply dated
6.7.2007. Since petitioners failed to make the
payment of the dishonoured cheques, aforesaid
complaints were filed by the complainant against
the petitioners with further allegations that
payment of the impugned cheques was stopped by
the petitioner with a malafide intention not to make
the payment of the due amount to the complainant.
5. Learned Metropolitan Magistrate after considering
the averments in the complaints and the evidence
placed on record by the complainant by way of
documents and affidavits, took cognizance of the
offence under Section 138 read with Section 141 of
the N.I. Act and he accordingly summoned the
petitioners vide his order dated 16th July, 2007.
6. Aggrieved by the said orders of the trial court, the
present petitions have been filed by the petitioners
challenging the maintainability of the complaints as
well as the impugned summoning order of the
learned M.M.
7. Mr. Siddharth Luthra, learned senior counsel for
the petitioners has argued that the complaint cases
filed against the petitioners and the summoning
orders passed therein are bad in law because the
complainant has suppressed material facts from the
court. The complainant has not disclosed the fact
that the petitioners had filed a Civil Suit bearing
CS (OS) No.570/2007 titled „Vasu Tech. Limited v/s
M/s. Ratna Commercial Enterprises Limited & Ors.‟
seeking prohibitory and mandatory injunction
against the complainant and its Directors in this
court on 26.3.2007 as the due amount was to be
converted into equity shares of „VasuCorp Inc.‟ in
the name of the complainant and was not to be
returned in cash. The impugned cheques were
issued as a collateral security till the transfer of
equity shares in the name of the complainant and
were not to be considered for repayment towards
the loan advanced.
8. It is further argued by learned senior counsel for
the petitioners that in the said civil suit this court
granted an ex-parte injunction vide order dated
28.03.2007 thereby restraining the complainant
from presenting the impugned cheques for
encashment. This order was, however, vacated by
the Division Bench on 15.06.2007, against this
order petitioners filed SLP in the Supreme Court
wherein the petitioners were successful in getting
an interim order on 2.7.2008 whereby the
operation of the order of the Division Bench of this
court dated 15.6.2007 was stayed.
9. Second limb of argument advanced by the learned
counsel for the petitioners is that petitioner No.2
and 3 are the Directors of petitioner company and
the allegations against them in the complaint are
general in nature. As Directors they cannot be held
liable for the day to day business of the company as
well as to the company in the absence of any
specific allegations against them. He further
argued that from reading of paragraphs 7, 13 and
16 of the complaint prima facie it is clear that
petitioner nos.2 and 3 have been impleaded as
accused persons in the complaint simply because
they are the Directors of petitioner company with
no specific allegations of their being responsible to
the company for the conduct of the business of the
company as well as to the company and, therefore,
they cannot be deemed guilty of the offence and no
vicarious liability can be fastened against them. He
submitted that under the circumstances trial court
went wrong when it mechanically summoned
petitioner nos. 2 and 3 without any application of
mind.
10. The third limb of argument is that the words
appearing in the proviso to Section 141 of the N.I.
Act "such offence" means if an offence punishable
under the Act is committed, no person shall be
rendered liable to punishment if he proves that
such offence was committed without his knowledge
or that he has exercised all due diligence for
prevention of such offence. There are no
allegations in the complaints indicating that the act
of the company was within the knowledge of
petitioner nos.2 and 3 and that at the time of
commission of offence they were the person
incharge of the affairs of the company and
responsible to it for the conduct of its business.
However, he has conceded that petitioner No.4 is
the signatory of the impugned cheques and,
therefore, prima facie is responsible for the day to
day business of the company and to the company
and, therefore, prima facie vicarious liability can be
fastened against petitioner no. 4. However, he has
emphasized that complaint as well as summoning
order as against petitioner no.2 and 3 are bad in
law and are liable to be quashed.
11. Learned counsel for the petitioners has relied
upon:-
(i) „Jayshree Khemka & Anr. Vs. Prema
Kanodia‟, MANU/DE/1303/2008;
(ii) „P.S. Shrinivasan & Ors. vs. M/s. VLS
Finance Ltd.‟, Crl. M.C. No.7423-25 of
2006;
(iii) „Maikaal Fibres Ltd. & Ors. vs. Rajrani
Exports Pvt. Ltd.‟ 146 (2008) DLT 269;
(iv) „Paresh P. Rajda vs. State of Maharashtra
& Anr.‟, MANU/SC/2987/2008;
(v) „Smt. Nagawwa vs. Veeranna
Shivalingappa Konjaligi & Ors.‟, (1976) 3
SCC 736.
(vi) „Municipal Corporation of Delhi vs. Ram
KishanRohtagi & Ors.‟, AIR 1983 SC 67;
(vii) „Nirmala Gupta & Ors. vs. Sharma
Associates Thr. Navratan‟, Crl. M.C.
No.1820-22/2006 dated 26.2.2008‟.
12. Mr. Arun Bhardwaj, learned senior counsel for the
respondent has emphasized that specific averments
have been made in paragraphs 2, 3, 4, 7, 13 and 16
of the complaint that the petitioners were the
Directors of petitioner company and were incharge
and responsible to the company for the conduct of
its affairs. Petitioner No.2 is the Managing
Director of petitioner company whereas petitioner
no.4 is the signatory of the impugned cheques
which were returned dishonoured. It is argued that
the Special Leave Petition filed by the petitioners in
the Supreme Court has been dismissed and
pursuant thereto the civil suit filed by the
petitioners has also been withdrawn.
13. It is further argued by learned senior counsel for
the respondent that petitioner no.3 was the
signatory of the Loan Agreement dated 15.4.2005
executed between the parties which is the
foundation of liability of the petitioners in the
complaints filed against them. Petitioner No.3 is a
confirming party to the agreement. Petitioner No.3
is also the guarantor for the loan besides being
Director and principal officer of the company, and
therefore, was incharge of and responsible to the
company for the conduct of its affairs.
14. It is highlighted that there are specific averments
in the complaint regarding the liability of petitioner
nos.2 to 4 as Directors of petitioner company. At
this stage, the court has only to see whether there
are specific averments in the complaint regarding
the liability of the petitioners and the contention
that some of the petitioners were not incharge of
and responsible to the company for the conduct of
its affairs can only be tested at the stage of trial
and, therefore, quashing the proceedings are not
warranted at this stage by invoking the jurisdiction
of this court under Section 482 of the Code of
Criminal Procedure (hereinafter referred to as
„Cr.P.C‟).
15. It is also pointed out that the documents
subsequently filed by the petitioners which were
not a part of the complaint, cannot be looked into
by this court at this stage while considering the
present petitions.
16. Learned counsel for the respondent has placed
reliance on:-
(i) „H.R. Kapur & Ors. vs. SEBI‟, 2008 III AD
(Delhi) 682;
(ii) „Ramaswamy Athappan & Anr. vs. Bharti
Infotel Ltd.‟ (101) DRJ 426;
(iii) „Rajesh Kumar Gulati vs. N.A.C.M.F.I.
Ltd‟, 147 (2008) DLT 219;
(iv) „Paresh P. Rajda vs. State of Maharashtra
& Anr.‟, (2008) 7 SCC 442;
(v) „Modi Cements Ltd. Vs. Kuchil Kumar
Nandi‟, (1998) 92 CC 88;
(vi) „SMS Pharmaceuticals Ltd. vs. Neeta
Bhalla & Ors.‟ AIR 2005 SC 3512;
(vii) „N. Rangachari vs. Bharat Sanchar Nigam
Ltd.‟, (2007) 5 SCC 108.
17. Learned senior counsel for the petitioner, during
the course of arguments, has confined his
arguments to the issue of vicarious liability of
petitioners no.2 and 3 only. Learned counsel has
also conceded that he was not pressing the
petitions on behalf of petitioner No.4 as she was
the signatory of the impugned cheques. Therefore,
I shall confine myself to the issue if petitioner nos.
2 and 3 can be fastened with vicarious liability
under Section 141 of the N.I. Act when cheques
issued by the petitioner company were dishonoured
on presentation.
18. Admittedly, petitioner no.2 is the Managing
Director of petitioner company and, therefore, is
incharge of and responsible for the conduct of the
business of the company. Managing Director gets
cover under Section 141 and is responsible for the
incriminating act of the company within the
meaning of Section 141 of the N.I. Act. Besides, as
a Director of the company petitioner No.2 has been
actively involved in the day to day functioning of
the company. He has been dealing with the
complainant for and on behalf of the company for
all purposes including raising of loan, issuance of
cheques, execution of agreement, etc. Therefore, at
this stage, he cannot escape his vicarious liability
for and on behalf of the company for an offence
under Section 138 of the N.I.Act.
19. In „SMS Pharmaceuticals Ltd. (supra)‟, it was
laid down that the Managing Director or Joint
Managing Director would be admittedly incharge of
the company and responsible to the company for
conduct of its business. Therefore, holder of such
position in a company becomes liable under Section
141 of the N.I. Act by virtue of 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. So far as
the signatory of a cheque, which is dishonoured is
concerned, he is clearly responsible for the
incriminating act and is covered under sub-Section
(2) of Section 141 of the N.I.Act.
20. Petitioner company had filed a civil suit being CS
(OS) No.570/2007 against the complainant and its
Director seeking prohibitory and mandatory
injunction. In para (1) of the suit petitioner
company has disclosed the status of petitioner no.2;
Dhruv Varma as that of a Managing Director of the
company and competent to file, sign and verify the
suit on behalf of the company. Affidavit enclosed to
the plaint was also sworn by Petitioner No.2 in
which he described his status in the company as
Managing Director.
21. In reply to the notice of demand dated 19th June,
2007, petitioner No.2 was stated to be looking after
the business of petitioner company being in control
of the same. He was signatory of some of the
cheques issued in favour of the complainant
company on 1.4.2007, though said cheques are not
the subject matter of the impugned complaints.
The agreement dated 15.4.2005 was also signed by
petitioner No.2 for and on behalf of the company as
well as for himself and for petitioner No.3
R.L.Varma.
22. Thus, it is clear that petitioner No.2 being
Managing Director of the company as well as
guarantor. At the relevant time when the offence
was committed he was incharge of and responsible
for the conduct and business of the company and,
therefore, cannot escape his vicarious liability by
virtue of Section 141 of the N.I. Act as conditions
laid therein are satisfied.
23. Learned senior counsel for the petitioner has
argued that there are no specific averments or
statements made in the complaint against
petitioner No.3 as to how he was incharge of and
responsible for the conduct of business of the
company so as to put vicarious liability upon him
under Section 141 of the N.I. Act. For that purpose
relevant paragraphs of the complaint which contain
averments against petitioner No.3 beside other
petitioners are reproduced as under:-
"2. That M/s. Vasu Tech Ltd.
(hereinafter referred to as "Accused
No.1") Company is inter alia engaged
in the business of manufacturing
industrial control equipment. That
the Accused No.1 through Accused
No.2 to 4 approached the
Complainant from time to time for
advancing loan(s) for funding its
capital requirements for the purpose
of development of a chip called VSU.
The Complainant advanced various
amounts to the Accused from time to
time totaling to a sum of
Rs.54,08,893,273/-. A substantial
portion of these amounts were
advanced to Accused No.1 as short
term loans repayable after one year
and in certain cases repayable with
the close of the financial year. The
receipt of all these amounts was duly
acknowledged by the Accused No.1.
3. That an Agreement dated
15.4.2005 was entered into between
the Complainant and the Accused
No.1 whereby all the Accused
unequivocally acknowledged that a
sum of Rs.19.20 Crores already stood
advanced to Accused No.1. The
Agreement further stipulated that to
meet the funding requirement of the
Accused No.1 the Complainant shall
advance a further sum of Rs.20.00
Crores to Accused No.1 in terms of
the Agreement. The said Agreement
inter-alia stipulated that the amounts
advanced to the Accused No.1 shall
carry interest at the rate of 12% per
annum and the interest accrued till
each interest period was to be paid by
Accused No.1 to the Complainant on
the interest payment date. In terms
of the said Agreement Accused No.1
was liable to repay the entire
outstanding dues to the Complainant
in four equal quarterly installments
commencing from the date
immediately succeeding the date on
which the moratorium period as
defined in the Agreement expired but
in any event not later than the final
maturity as defined in the Agreement.
The moratorium period was defined
as a period of eighteen months from
the date of the execution of the
Agreement, which has since expired
on 31.10.2006.
4. Simultaneous with the execution
of the above referred Loan
Agreement, the directors/promoters
of the Accused No.1 Company namely
Sh. Dhruv Varma, Sh. R.L. Varma and
M/s. R.L. Varma & Sons (HUF)
executed a deed of guarantee in
favour of the Complainant whereby
the above named persons as
guarantors irrevocably and
unconditionally guaranteed the due
payment of loan to Complainant on its
first demand all amounts outstanding
under the above referred Loan
Agreement and all indebtedness due
and payable by the Accused No.1 to
the Complainant including all interest
accumulations, costs, charges,
expenses and other monies
whatsoever due and payable by the
Accused to the Complainant in the
event of failure of Accused No.1 to
repay the same to the Complainant.
7. It is submitted that in discharge
of its liability the accused persons
issued 16 cheques totaling to a sum
of Rs.61,63,66,140/- which are still
outstanding and payable by the
Accused to the Complainant. That
the present complaint is only in
respect of two dishonored cheques.
That Addressee No. 2 & 3, beside
being guarantors for the said loans
advanced to Addressee No.1 are also
directors and principal officers of the
Addressee No.1 company and are in
charge of and responsible to
Addressee No.1 for the conduct of its
day to day affairs. It is further
submitted that Accused No.4, is the
signatory of the cheques in question
and being one of the Directors and
principal officers of Accused No.1 is
also in charge of and responsible to
M/s. Vasu Tech Ltd. for the conduct
of its affairs.
13. That as on date the total
outstanding of the accused No.1
company towards the complainant is
to the tune of Rs.54,08,93,273/-
exclusive of interest. That Accused
No.2 & 3 besides being guarantors to
the aforesaid agreement are also the
directors of accused No.1 company
and are responsible for the day-to-day
management and affairs of the
company. That Accused No.4 is also
one of the directors of the Accused
No.1 company and has also signed
the cheques, in respect of which the
present complaint is being filed.
16. That Accused No.2, 3 & 4 are
the directors of Accused No.1
company and are in-charge of and
responsible to the Accused No.1
company for the conduct of its day-to-
day affairs whereas Accused No.4 is
also the signatory to the dishonoured
cheques. As such all the Accused
liable to be prosecuted and punished,
in accordance with law, for the
offence committed by them."
24. Learned counsel for the complainant has submitted
that petitioner no.3 stood as a guarantor for
repayment of loan of petitioner company. Besides
he was also a signatory to the Loan Agreement
dated 15.4.2005 which is the foundation of liability
of the petitioners. Petitioner no.3 is stated to have
signed the agreement as confirming party. MOU
dated 31.8.2006 was also executed inter se the
parties which was also signed for and on behalf of
petitioner No.3 by petitioner no.2.
25. In para 2 of the complaint it is specifically pleaded
that accused No.1 company through accused No.2
to 4 approached the complainant from time to time
for advancing loan for funding its capital
requirement.
26. Para 3 of the complaint speaks of agreement dated
15.04.2005 which was entered into between the
parties and in this paragraph it is specifically
averred that all the accused had unequivocally
acknowledged that a sum of Rs.19/20 Crores
already stood advanced to petitioner company.
27. Para 4 of the complaint in clear terms named
petitioner no.3 R.L. Varma having executed Deed of
Guarantee in favour of the complainant whereby he
guaranteed the due payment of loan to the
complainant on its first demand of the outstanding
amount. This guarantee was irrevocable and
unconditional.
28. In Para 7 of the complaint it is spelt out that
besides being guarantors petitioner no.2 and 3
were also Directors and principal officers of the
petitioner company and were in charge of and
responsible to the petitioner company for the
conduct of its day to day affairs.
29. Similar are the averments in para 13 and 16 of the
complaint. Therefore, there are specific
averments/allegations against petitioner No.3 being
the principal officer as active director of the
company is responsible for the offence committed
by the company under Section 138 of the N.I.Act.
30. Petitioner no.3 has been shown as a promoter of
petitioner company in the agreement dated
15.4.2005 and the Loan Agreement was executed
between the complainant and petitioner no.2 and 3.
The agreement was signed by petitioner no.2 for
and on behalf of petitioner no.3. Petitioner has
placed on record certain copies of the entries of the
meeting of the Board of Directors of petitioner
company held on 12.3.2007. This document is also
signed by petitioner No.3 as Chairman. Thus, from
the document placed on record by the petitioners
themselves, prima facie it is clear that petitioner
No.3 is also one of the active Directors of the
company who has been participating in the day to
day affairs of the company and in that capacity
being Chairman is liable for the acts of the
company as well as to the company.
31. In „SMS Pharmaceuticals Ltd. (supra)‟, it was
summed up as follows:-
"18. 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."
32. Learned counsel for the petitioners has referred to
„Jayshree Khemka & Anr. (supra). The principle
of law as laid down in the above said case was
followed by me in „Jayshree Khemka‟s case
(supra). The petitioners in the said case had
already resigned and were not the Directors of the
company and responsible for day to day working
and for conduct of the business of the company on
the date of issuance of the cheque. Under the said
circumstances, their petition for quashing of the
criminal complaint against them was allowed.
33. In the present case petitioner no.3 was the
Director, Chairman and still is the Director of the
petitioner company since before issuance of the
cheques, on the date when the cheques were issued
and even on the date when the cheques on
presentation were dishonoured. He being an active
Director of the company was as is responsible for
day to day functioning of the company and to the
company as well. „Jayshree Khemka‟s case,
therefore, is of no help to the petitioners in this
case.
34. In „P.S. Shrinivasan & Ors. vs. M/s. VLS
Finance Ltd.‟ (supra), this court found that there
were no averments much less a bare minimum
averment that at the time of the commission of the
offence the petitioners were persons in charge of
the affairs of the company and responsible for the
conduct of its day to day business. Therefore, it
allowed the petition and discharged the petitioners
in respect the complaints, filed against them by
M/s. VLS Finance Ltd..
35. As pointed out above, there are specific averments
contained in the complaint against petitioner No.3
to the fact that he not only being the guarantor of
the company is also Director and signatory of the
Loan Agreement and a confirming party and was in
charge of day to day affairs of the company and to
the company. Therefore, this case does not support
the cause of petitioner No.3.
36. Similarly, „Maikaal Fibres Ltd. & Ors. vs.
Rajrani Exports Pvt. Ltd.‟ (supra), wherein a
complaint was filed under Section 138 read with
Section 141 of the N.I. Act against the company
and other accused persons and notices were served
upon the accused who failed to make payment and
complainant agreed to provide finance to accused
No.1 on guarantee of accused No.2 for repayment
of loan and only averment against accused No.4
was that he was controlling affairs of the company
without disclosing the manner in which he was
controlling the affairs of the company, this court
was pleased to discharge him holding that he could
not be made criminally liable. The facts and
circumstances of the said case were different from
the facts and circumstances which are before this
court in the present petitions. In the present case,
petitioner No.3 is also the guarantor besides active
Director. In „Maikaal Fibres Ltd. & Ors.
(supra), the court did not discharge the guarantor
from his criminal liability under Section 138 of the
N.I. Act for offence committed by the company.
37. „Paresh P. Rajda vs. State of Maharashtra &
Anr.‟, (supra)‟s case has been relied upon by
both the parties. In the said case proposition of
law as laid down in „SMS Pharmaceuticals Ltd. vs.
Neeta Bhalla & Ors.‟ and „N. Rangachari vs. Bharat
Sanchar Nigam Ltd.‟, (supra) were discussed.
Petitioner Paresh P. Rajda happened to be the
Chairperson and it was averred in the complaint
that he was the Chairman of the company and was
responsible for the day to day affairs of the
company and was, therefore, liable to repay the
amount of dishonoured cheques. In these
circumstances, it was held that the complaint
contained clear allegations against the petitioner
that he was the Chairman of the company and
responsible for the affairs of the company. The
Supreme Court was pleased to dismiss the
appeals of the petitioners who had sought quashing
of the summoning order of the trial court. This
judgment rather tilts in favour of the complainant
and is of no favourable consequences to the
petitioners.
38. Another case relied upon by the petitioners is
„Smt. Nagawwa vs. Veeranna Shivalingappa
Konjaligi & Ors.‟, (supra). In para 4 and 5 of the
judgment it was observed:-
"4. It would thus be clear from the
two decisions of this Court that the
scope of the inquiry under
Sections 202 of the Cods of Criminal
Procedure is extremely limited--
limited only to the ascertainment of
the truth or falsehood, of the
allegations made in the complaint--i)
on the materials placed by the
complaint before the Court; (ii) for
the limited purpose of finding out
whether a prima facie case for issue
of process has been made out; and
(iii) for deciding the question purely
from the point of view of the
complainant without at all adverting
to any defence that the accused may
have. In fact it is well settled that in
proceedings under Sections 202 the
accused has got absolutely no locus
standi and is not entitled to be heard
on the question whether the process
should be issued against him or not.
5. .................. 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."
39. Applying these principles to the facts and
circumstances of the present case, I find no reason
to interfere in the order of the learned M.M.
whereby he took cognizance of the offence under
Section 138/141 of the N.I. Act and summoned the
petitioners. Allegations made in the complaint as
reproduced and discussed above prima facie make
out a case against the petitioners as it does disclose
essential ingredients of offence punishable under
Section 138 of the N.I.Act which is alleged to have
been committed by the petitioners.
40. Learned counsel for the petitioner has relied upon
„Municipal Corporation of Delhi vs. Ram
Kishan Rohtagi & Ors.‟ (supra) to emphasize
that the words "such offence" does not attribute
any criminal liability to petitioner No. 2 and 3
because complaint does not attribute any criminal
responsibility except that they were in charge of
and responsible for the conduct of business of the
company. It was observed:-
"10. It is, therefore, manifestly clear
that proceedings against an accused
in the initial stages can be quashed
only if on the face of the complaint or
the papers accompanying the same,
no offence is constituted. In other
words, the test is that taking the
allegations and the complaint as they
are, without adding or subtracting
anything, if no offence is made out
then the High Court will be justified
in quashing the proceedings in
exercise of its powers under Section
482 of the present Code."
41. In the said case there was not even a whisper nor a
shred of evidence nor anything to show, apart from
the presumption drawn by the complainant that
there was an act committed by the Directors from
which a reasonable inference could be drawn that
they could also be made vicariously liable. It was
under those circumstances when the complainant
had failed to make prima face case against the
Directors in the complaint that the Directors were
discharged and proceedings against them were
quashed.
42. In the present case there are specific allegations
against petitioner No.3 to make out prima facie
case against him and, therefore, at this stage, it
cannot be said that no offence is constituted, from
the facts narrated in the complaint and the
documents placed on record by the complainant
against petitioner No.3.
43. Learned senior counsel for the petitioner has also
referred to „Nirmala Gupta & Ors. vs. Sharma
Associates Thr. Navratan‟, (supra), it was a case
represented by him on behalf of the petitioners.
The said petition was allowed on the surmise that
the petitioners ceased to be the Director and the
partner of the firm on the date when the cheques
were issued in favour of the complainant and,
therefore, petitioners could not be made liable for
offence under Section 138 of the N.I. Act read with
Section 141 of the N.I. Act in respect of said
cheques issued by the firm. This is not the case of
the petitioners in this petition before me. There is
no dispute that petitioner No.3 was Director of the
company at the time when the cheques were issued
and was also a confirming party to the agreement
dated 15.4.2005 in view of which 16 cheques dated
1st April, 2007 were issued by petitioner company
in favour of the complainant.
44. Under Section 139 of the N.I. Act a presumption is
drawn in favour of the holder that he received the
cheque for the discharge, in whole or in part, or
any debt or other liability. This presumption is,
however, rebuttable. In other words, the drawer of
the cheque gets an opportunity to rebut the
presumption at the trial. Proviso to Section 141 of
the N.I. Act also makes this presumption
rebuttable. As per this proviso, if a person who is
rendered liable to punishment for an offence under
Section 138 of the N.I. Act, is entitled to prove in
defence that the offence was committed by the
company without his knowledge or that he had
exercised all due diligence to prevent the
commission of such offence. It is only when he fails
to produce any such defence, he renders himself
liable to punishment for an offence committed by
the company for himself and on behalf of the
Company.
45. In „Modi Cements Ltd. Vs. Kuchil Kumar
Nandi‟, (supra) as referred to by the learned
counsel for the respondent it was observed:-
"It is needless to emphasize that the
court taking cognizance of the
complaint under Section 138 of the
Act is required to be satisfied as to
whether a prima facie case is made
out under the said provision. The
drawer of the cheque undoubtedly
gets an opportunity under Section
139 of the Act to rebut the
presumption at the trial. It is for this
reason we are for the considered
opinion that the complaints of the
appellant could not have been
dismissed by the High Court at the
threshold."
46. Similarly in „Ramaswamy Athappan & Anr. vs.
Bharti Infotel Ltd.‟ (supra) it was observed that
any defence that the petitioner may have to show
that they were in fact not in charge of the affairs of
the company or responsible to it for the conduct of
its business, and in any event not on the date of the
commission of the offence, can be proved at the
trial by adducing evidence. In that case petitioner
no.2 was described as Vice Chairman of the
company whereas petitioner no.3 was shown as
Managing Director and petitioner no.4 was shown
as one of the signatories of the cheques in
question. It was held that petitioner no.2 being
Vice Chairman was always involved and
responsible for the conduct of the business of the
company and was always responsible and
instrumental in the negotiation and transaction
with the complainant.
47. Similarly, in „H.R. Kapur & Ors. vs. SEBI‟,
(supra) this court observed that it was possible in
individual cases that a person might be able to, in
his or her defence, prove that such person had
ceased to be a Director at the time of the
commission of offence or that he or she was not
associated with the company at all but that would
essentially be a matter for evidence.
48. From the discussion as above, the only irresistible
conclusion under the facts and circumstances of
this case which could be arrived at is that, the
complaint contains specific averments involving
petitioner nos. 2 to 4 for their vicarious liability for
the act of petitioner company, for and on behalf of
the company for having committed offence under
Section 138 of the N.I. Act. The fact that
petitioners had stopped the payments of the
impugned cheques prima facie indicate the
dishonesty on the part of the drawer of the cheques
not to discharge the company‟s liability for the loan
taken by the company for the development of a chip
called „VSU‟. The petitioners shall have an
opportunity under Section 139 of the N.I. Act to
rebut the presumption at the trial.
49. Hence, the trial court was right in taking
cognizance of the offence under Section 138 of the
N.I. Act and summoning the petitioners vide its
order dated 16th July, 2007 passed in Complaint
Case Nos.1745/1 of 2007, 1748/1 of 2007, 1751/1
of 2007, 1747/1 of 2007 and 1746/1 of 2007.
Therefore, I find no infirmity or illegality in the
orders of the trial court to interfere with the same.
50. The petitions, therefore, being without any merits
are hereby dismissed.
51. All pending applications also stands disposed of.
Attested copy of the order be sent to the trial court
immediately through special messenger.
ARUNA SURESH
(JUDGE)
FEBRUARY 13, 2009
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