Kamal Goyal vs M/S United Phosphorus Ltd
2010 Latest Caselaw 615 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI

+                           Crl.M.C.1761/2009

                            Reserved on: 3rd February, 2010
                            Pronounced on: 4th February, 2010

#      KAMAL GOYAL.                             ..... Petitioner
!                           Through: Mr.Vikas Mahajan & Mr.Vishal
                                     Mahajan, Advocates.

                       versus

$      M/S UNITED PHOSPHORUS LTD.      ..... Respondent
^                   Through: Mr.Vikas Sharma, Advocate

*      CORAM:
       HON'BLE MR. JUSTICE V.K. JAIN

       1.     Whether the Reporters of local papers
              may be allowed to see the judgment?

       2.     To be referred to the Reporter or not?

       3.     Whether the judgment should be
              reported in the Digest?


: V.K. JAIN, J.

1. This is a petition under Section 482 of the Code of Criminal

Procedure, for quashing criminal complaint filed by the

respondent under Section 138 of the Negotiable Instruments

Act.

2. A perusal of the complaint would show that in the title only

a company, Vijay Remedies Limited has been made accused and

it was sought to be served through the petitioner as its Director.

The case of the complainant was that the accused company,

which was engaged in the business of agro-chemicals, issued a

cheque No.028257 dated 15.7.1997 for Rs.13,72,772.96 to it,

against its outstanding dues. The cheque, when presented to

the bank of the accused company, was dishonoured for want of

funds. The amount of the cheque was not paid to the

complainant company despite legal notice of demand dated

21.8.1997. Despite impleading only the company as accused,

the prayer made by the complainant was to take cognizance of

the offence committed by both the accused, which obviously

meant the company M/s.Vijay Remedies Limited and the

petitioner Kamal Goyal.

3. The case of the petitioner is that he continued to be

Director of M/s.Vijay Remedies Limited only till 29 th May, 1997

when he resigned. It has also been claimed by him that the

accused company had issued a blank cheque to the complainant

company under his signature, towards security, with an

understanding that the cheque will not be presented for

clearance.

4. The petitioner has filed, in the trial court, a certified copy

of Form-32 issued by Registrar of Companies. A perusal of the

document would show that the petitioner Kamal Goyal resigned

as a Director of Vijay Remedies Limited with effect from 29 th

May, 1997 and intimation in this regard was given to the

Registrar of Companies on 18th June, 1997. This is

complainant's own case that the cheque in question is dated

15.7.1997. Thus, the petitioner was not a Director of the

company, Vijay Remedies Limited even on the date when this

cheque purports to have been issued. Since the cheque in

question was issued by the company and not by the petitioner in

his individual and since he had resigned from the directorship of

the company even before the cheque was presented for

encashment, there is no way he could have ensured that the

cheque was encashed when presented to the bank of the

complainant. The petitioner was not a director of the company

when demand notice is alleged to have been issued by the

complainant/respondent. Therefore, he was not in a position to

comply with the demand made in the notice by making payment

of the cheque as the payment was to be made by the company

and not by the petitioner in his personal capacity.

5. There are five essential ingredients of offence under

Section 138 of the Negotiable Instruments Act, (i) drawing of the

cheque, (ii) presentation of the cheque to the bank of the payee,

(iii) return of the cheque unpaid by the drawee bank, (iv) giving

of notice to the drawer of the cheque demanding payment of the

cheque amount and (v) failure of the drawer to make payment

within 15 days of the receipt of the notice.

6. The issue involved in this petition was considered at length

by this Court in "Shri Raj Chawla Vs. Securities and

Exchange Board of India (SEBI) & Another",

Crl.M.C.3937/09 decided on 12th of January, 2010. Referring to

an earlier decision of this Court in "Dr.(Mrs.) Sarla Kumar vs.

Srei International Finance Ltd.", 2007 (2) NIJ 208 (Del) and

the recent decision of the Hon'ble Supreme Court in "K.K.

Ahuja vs. V.K. Vora and Anr., 2009 (3) JCC (NI) 194, this

court, inter alia held as under:

"Since the petitioner was not a Director of the company on the date Regulations were framed by SEBI, he cannot be held vicariously liable for violation of those Regulations and the directions, issued to SEBI by M/s Fair Deal Forests Limited. This is not the case of the respondent that the petitioner was Manager, Secretary or a person in accordance with whose directions or instructions, the Board of Directors of the company was accustomed to act. He is not stated to be one of the persons falling in any of the categories (a) to (g) mentioned in Section 5 of Companies Act at the time offence under SEBI Act was committed by the company. Therefore, he could not have been a person in charge of business of the company on the date the offence was committed.

There is no allegation that the regulations, framed by SEBI, were violated or the direction, issued by it, was ignored by the company with the consent or connivance of the petitioner or it was otherwise attributable to any act on the part of the petitioner. Therefore, he has not covered even by sub Section (2) of Section 27of SEBI Act."

7. The plea taken by the complainant that the information

contained in Form No.32 was a defence available to the accused

which could not be considered at the initial stage was dealt with

by this Court as under:

"Though as a general proposition of law, the defence available to the accused is not to be examined at this stage, there can be no valid objection to considering an authentic Public Document such as certified copy of Form-32, issued by Registrar of Companies, in a petition under Section 482 of the Code of Criminal Procedure, when the genuineness of the documents is not disputed and the matter can be finally disposed of on the basis of such a documents. ......

A criminal trial is a serious matter, having grave implications for an accused, who not only has to engage a lawyer and incur substantial expenditure on defending him, but, has also to undergo the ordeal of appearing in the Court on every date of hearing, sacrificing all his engagements fixed for that day. If he is in business or profession, he has to do it at the cost of affecting his business or profession, as the case may be. If he is in service, he has to take leave on every date of hearing. Besides inconvenience and expenditure involved, a person facing criminal trial undergoes constant anxiety and mental agony, as the

sword of possible conviction keeps hanging on his head throughout the trial. Therefore, when there is a reasonably certainty that the trial is not going to result in conviction, it would be neither fair nor reasonable to allow it to proceed against a person such as the petitioner in this case."

8. In taking a view that certified copy of Form 32 being a

public document, authenticity of which had not been disputed, it

could be considered in proceedings under Section 482 of the

Code of Criminal Procedure, this Court also relied upon the

decision of the Hon'ble Supreme Court in "All Carogo Movers

(I) Pvt. Ltd. Vs. Dhanesh Badarmal Jain & Anr." (2007) 12

SCALE 39, "V.Y. Jose & Anr. Vs. State of Gujarat & Anr."

2009 I AD (Cr.) (S.C.) 567, and "Minakshi Bala v. Sudhir

Kumar", (1994) 4 SCC 142. I must note here that the

authenticity of the certified copies of Form 32 filed by the

petitioners has not been disputed by the respondent. This is not

the case of the respondent that it had got the record of the

Registrar of Companies verified and that these Forms were not

issued by his office.

9. In the present case also, the complainant does not assail

the genuineness of form 32 filed by the petitioner. This is not

the case of the complainant that it had got the record of

Registrar of Companies inspected and that the certified copy of

form 32, filed by the petitioner, is a forged document. This is

not the case of the complainant that even after resigning as a

Director of Vijay Remedies Limited the petitioner continued to

be associated with that company and was occupying any such

position in the company on account of which he continued to be

person in charge and responsible in the company for conduct of

its business, even after retiring from its directorship. This is

also not the case of the complainant that the petitioner was an

employee of Vijay Remedies Limited and even after resigning

from its directorship, he continued to be its employee and in that

capacity he continued to be the person in charge and

responsible to the company for conduct of its business.

Vicarious liability to the petitioner has been imputed solely on

account of his being a Director of Vijay Remedies Limited, as is

evident from paragraph 4 of the complaint wherein it is alleged

that Kamal Goyal, one of the Directors of the Company, is

looking after day-to-day working of the company. This is also

not the case of the complainant that cheque in question was

dishonoured or the notice of demand was not complied with the

consent or connivance of the petitioner or that it was otherwise

attributable to any negligence on the part of the petitioner. This

is also not the case of the complainant that even after resigning

as Director of the company, the petitioner continued to control

the affairs of Vijay Remedies Limited and was a person who

could have given instructions to the Board of Directors of the

Company to ensure that the cheque signed by him, when

presented for encashment, was honoured or that the notice of

demand sent to the company was duly complied with by making

payment of the amount of the cheque. Therefore, the petitioner

is not a person covered even under sub-Section 2 of Section 141

of the Negotiable Instruments Act.

10. The learned counsel for the complainant/respondent has

referred to the decision of the Hon'ble Supreme Court in

"Malwa Cotton & Spinning Mills Limited Vs. Virsa Singh

Sidhu & Others", 2008 (4) RCR (Criminal) 25. A perusal of the

judgment would show that in the case before the Hon'ble

Supreme Court, the appellant had claimed that cheques in

question were issued between December, 2000 and February,

2001, whereas the respondent No.1 claimed to have resigned on

2nd April, 1999. It was also pointed out that Form No.32 was

filed with Registrar of Companies only on 5 th July, 2001, much

after cheques were issued. In the present case, the cheque in

question is dated 15th July, 1997 whereas the petitioner resigned

from the directorship of the Company on 29 th May, 1997. Not

only that Form 32 was also filed with Registrar of Companies on

18th June 1997, much before the date appearing on cheque in

question. In any case, the petitioner was not a Director of Vijay

Remedies Limited on the date the cheque in question was

dishonoured by the bank, notice of demand was issued by the

complainant company and the stipulated period for making

payment of the amount of the cheque, in terms of notice of

demand, expired. Therefore, he was not a Director of the

Company on the date the offence under Section 138 of the

Negotiable Instruments Act was complete. Hence, the judgment

relied upon by the learned counsel for the

complainant/respondent does not apply to the facts of the

present case.

11. In DCM Financial Services Limited Vs. J.N.Sareen &

Another, 2008 (3) RCR (Crl.) 152, post-dated cheques were

issued by the Company known as M/s. International Agro Allied

Products Limited. The first respondent before the Hon'ble

Supreme Court resigned from the Directorship of the Company

on 25th of May, 1996. One of the post-dated cheques, which was

issued in April, 1995, i.e., before he resigned from the

Directorship of the Company, was dated 28.1.1998. The cheque

when presented in the Bank for encashment was dishonoured.

The payment to the complainant was not made despite issue of

Notice of Demand by it. The complaint against the first

respondent before the Hon'ble Supreme Court was based on the

allegation that he was the person in charge and responsible to

the Company at the time when the offence was committed. It

was also alleged that the offence had been committed by the

Company with the consent and connivance of accused Nos.2 to

10, which included respondent No.1 before the Hon'ble Supreme

Court. He filed an application seeking discharge, relying upon

Form No.32 issued by Registrar of Companies in support of his

contention that he had resigned as a Director of the Company

much prior to dishonour of the cheque in question. The learned

Additional Sessions Judge took note of Form No.32 and also

noted that the complainant had not filed any affidavit to the

effect that it had verified from the Registrar of Companies and

Form No.32 filed by the accused was not genuine. A Criminal

Revision Petition filed against the order of the learned Additional

Sessions Judge was dismissed by the High Court. Relying upon

its earlier decisions in the case of " K.Srikanth Singh Vs.

M/s.North East Securities Limited & Another", 2007(3) RCR

(Criminal) 934 : 207 (4) RAJ 226 : JT 2007 (9) SC 449, the

Hon'ble Supreme Court observed as under:

"Section 141 of the Act provides for a constructive liability. A legal fiction has been created thereby. The statute being a penal one, should receive strict construction. It requires strict compliance of the provision. Specific averments in the complaint petition so as to satisfy the requirements of Section 141 of the Act are imperative. Mere fact that at one point of time some role has been played by the accused may not by itself be sufficient to attract the constructive liability under Section 141 of the Act."

12. In the case before the Hon'ble Supreme Court, the

respondent No.1 had resigned from the Directorship of the

Company under intimation to the complainant and, in these

circumstances, the Hon'ble Supreme Court was of the view that

a person who had resigned with the knowledge of the

complainant in the year 1996, could not be a person in charge of

the Company in the year 1999 when the cheque was

dishonoured as he had no say in the matter that the cheque is

honoured and he could not have asked the Company to pay the

amount. In my view even if resignation was not given by the

petitioner under intimation to the complainant, that would not

make any difference, once the Court relying upon certified copy

of Form 32 accepts his plea that he was not a director of the

Company, on the date the offence under Section 138 of

Negotiable Instruments Act was committed. He having resigned

from the directorship much prior to even presentation of the

cheque for encashment, he cannot be vicariously liable for the

offence committed by the Company, unless it is alleged and

shown that even after resigning from directorship, he continued

to control the affairs of the company and therefore continued to

be person in charge of and responsible to the company for the

conduct of its business.

13. It was also contended by the learned counsel for the

complainant/respondent that the petitioner being the signatory

of cheque in question, he was its drawer within the meaning of

Section 138 of Negotiable Instruments Act. In my view, the

contention is totally misconceived. The cheque was issued by

the Company and not by the petitioner. He only signed the

cheque on behalf of the Company. He does not become a drawer

of the cheque merely by signing it on behalf of the company

when the cheque is issued by the company in discharge of its

debt or liability and is not signed by him in his personal capacity.

If the contention of the learned counsel for the

complainant/respondent is accepted, even an employee of the

Company, who on account of his being an authorized signatory

signs a cheque issued by the Company towards discharge of the

debt or other liability of the Company, would be liable to

prosecution and conviction under Section 138 of Negotiable

Instruments Act even after he resigns from the company and is

no more in its employment. This certainly could not have been

the intention of the legislature. Even the vicarious liability

created under Section 138 of Negotiable Instruments Act would

not be attracted in respect of a Director or an employee of the

Company who resigns and severs his connections with the

company, unless the complainant is able to bring his case within

the purview of sub-Section 2 of Section 141 of Negotiable

Instruments Act, by proving that the offence had been

committed with his consent or connivance or was otherwise

attributable to any neglect on his part.

14. For the reasons given in the preceding paragraphs,

summoning of the petitioner as an accused, in the criminal

complaint filed by the respondent against Vijay Remedies

Limited, and subsequent proceedings, to the extent they pertain

to the petitioner, are, hereby, quashed. Trial Court will,

however, proceed with the complaint as far as the Company

Vijay Remedies Limited is concerned.

V.K. JAIN (JUDGE) FEBRUARY 4, 2010 RS/