Satyapal Talwar vs State(Govt.Of Nct Of Delhi) & Ors.
2011 Latest Caselaw 1817 Del

*     IN THE HIGH COURT OF DELHI AT NEW DELHI


                                   Judgment reserved on: March 03, 2011
                                   Judgment delivered on: March 29, 2011


+     CRL.M.C. 410/2011 & CRL.M.A.1622/2011


      SATYAPAL TALWAR                                            ....PETITIONER

                    Through:       Mr.Sunil K.Mittal, Advocate with Mr. Mohit
                                   Chaudhary, Ms.Rashi Bansal, Ms. Niketa,
                                   Advocates.

                                   Versus

      STATE (GOVT. OF NCT OF DELHI) & ORS...RESPONDENTS
               Through: Ms.Santosh Kohli, APP for R-1.
                        Mr.R.K.Handoo, Advocate for R-2.
                        Mr. Vinod Kumar, Advocate for R-3.


                                   WITH


      CRL.M.C. 26/2011 & CRL.M.A.118/2011


      WING COMMANDER (RETD.)
      OM DUTT SHARMA                                            .....PETITIONER

                    Through:       Mr.Sunil K.Mittal, Advocate with Mr. Mohit
                                   Chaudhary, Ms.Rashi Bansal, Ms. Niketa,
                                   Advocates.

                                   Versus

      STATE (GOVT. OF NCT OF DELHI) & ORS...RESPONDENTS
               Through: Ms.Santosh Kohli, APP for R-1.
                        Mr.R.K.Handoo, Advocate for R-2.
                        Mr. Vinod Kumar, Advocate for R-3.


                                         WITH



Crl.M.C. Nos.410/2011, 26/2011, 3829/2010, 55/2011 & 411/2011            Page 1 of 16
       CRL.M.C. 3829/2010 & CRL.M.A.18383/2010
      VIKRAM MITTAL                        ....PETITIONER

                    Through:       Mr.Sunil K.Mittal, Advocate with Mr.
                                   Mohit Chaudhary, Ms.Rashi Bansal, Ms.
                                   Niketa, Advocates.

                            Versus

      STATE (GOVT. OF NCT OF DELHI) & ORS...RESPONDENTS
              Through: Ms.Santosh Kohli, APP for R-1.
                       Mr.R.K.Handoo, Advocate for R-2.
                       Mr. Vinod Kumar, Advocate for R-3.

                                   WITH

      CRL.M.C. 55/2011 & CRL.M.A.236/2011
      JAGDISH KUMAR GUPTA                                       ....PETITIONER

                    Through:       Mr.Sunil K.Mittal, Advocate with Mr.
                                   Mohit Chaudhary, Ms.Rashi Bansal, Ms.
                                   Niketa, Advocates.

                            Versus

      STATE (GOVT. OF NCT OF DELHI) & ORS...RESPONDENTS
              Through: Ms.Santosh Kohli, APP for R-1.
                       Mr.R.K.Handoo, Advocate for R-2.
                       Mr. Vinod Kumar, Advocate for R-3.

                                   AND

      CRL.M.C. 411/2011 & CRL.M.A.1624/2011
      ASHOK MITTAL                         ....PETITIONER

                    Through:       Mr.Sunil K.Mittal, Advocate with Mr.
                                   Mohit Chaudhary, Ms.Rashi Bansal, Ms.
                                   Niketa, Advocates.

                            Versus

      STATE (GOVT. OF NCT OF DELHI) & ORS...RESPONDENTS
              Through: Ms.Santosh Kohli, APP for R-1.
                       Mr.R.K.Handoo, Advocate for R-2.
                       Mr. Vinod Kumar, Advocate for R-3.


Crl.M.C. Nos.410/2011, 26/2011, 3829/2010, 55/2011 & 411/2011           Page 2 of 16
        CORAM:
       HON'BLE MR. JUSTICE AJIT BHARIHOKE

1.    Whether 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 Digest ?

AJIT BHARIHOKE, J.

1. Ashok Kumar Mittal, Vikram Mittal, Jagdish Kumar Gupta, Om Dutt

Sharma and Satyapal Talwar have filed above referred separate

petitions under Section 482 Cr.P.C. praying for quashing of order dated

05.05.2010 of the learned Metropolitan Magistrate in complaint case

No.16/1/2010 under Section 138 N.I. Act titled "Acme Resources Ltd.

Vs. Hotel Indraprastha & Others" whereby the petitioners have been

summoned to undergo trial for the offence under Section 138 N.I. Act

read with Section 141 N.I. Act.

2. Briefly stated, facts relevant for the disposal of these petitions

are that respondent No.2 M/s. Acme Resources filed above referred

complaint No.16/1/2010 under Section 138 N.I. Act read with Section

141 Negotiable Instruments Act (N.I. Act) against M/s. Hotel

Indraprastha, a unit of Hotel Queen Road Pvt. Ltd., Ram Purshotam

Mittal, its earlier Chairman and the petitioners who are the Chairman

and Directors of M/s. Hotel Indraprashta.

3. It is alleged in the complaint that in May, 2008, respondent No.3

Ram Purshotam Mittal, the then Chairman of Hotel Indraprastha (a unit

of Hotel Queen Road Pvt. Ltd.) approached respondent No.2 M/s. Acme

Resources Pvt. Ltd. for a loan of `5 crores to be invested in working

capital of the hotel. Respondent No.2/complainant acceded to the

request and advanced `5 crores at an interest @ 33.60% per annum

through two cheques for ` 2.50 crores each both dated 06.05.2008 and

drawn on HDFC Bank Ltd., K.G. Marg, Connaught Place. Those cheques

were duly encashed.

4. It is also claimed in the complaint that respondent No.2 Ram

Purshotam Mittal assured that the loan amount would be repaid within

one year along with interest, and he handed over post-dated cheque

towards the interest amount of `32,48,280/- as also a post-dated

cheque for `5 crores against the principal amount. All these cheques

were drawn on American Express Bank Ltd., Hemilton House, A-Block,

New Delhi.

5. It was further claimed that the complainant deposited those

cheques for encashment, but the same were returned unpaid. The

complainant/respondent No.2 immediately brought this fact to the

notice of accused persons and they assured the complainant that

cheques on representation would be honoured. On this assurance, the

complainant/respondent No.2 re-deposited the cheques for

encashment with its banker, but the cheques were returned

dishonoured vide memos dated 21.10.2009 for the reasons "Funds

insufficient" and "Stopped payment" respectively. Respondent

No.2/complainant then served the petitioners and others with notice of

demand under Section 138 N.I. Act, but they failed to make the

payment of cheque amounts within requisite period of 15 days from

the date of receipt of notice. This led to filing of complaint under

Section 138 N.I. Act against the company, the petitioners and others.

6. The allegations to fix the vicarious liability of the petitioners with

the aid of Section 141 N.I. Act are in para 7 and 8 of the complaint

which are reproduced thus:

"7. That the Complainant immediately informed accused persons but, no heed was given towards the same. The accused No. 3 is the Chairman and the accused No. 4 to 7 are the Directors of the accused No. 1.

8. That the accused No. 2 to 7 are vicariously liable for the commission of the offence on behalf of the company as such the accused No. 2 issued the said cheques and the accused No. 3 to 7 are incharge and responsible to the accused No. 1 for the conduct of its business. The accused persons are also associated with the management of day to day affairs of the company. "

7. On consideration of the allegations in the complaint and the

affidavit evidence of the complainant reiterating the allegations,

learned Metropolitan Magistrate passed the impugned summoning

order dated 05.05.2010.

8. Learned counsel for the petitioners submitted that as per the

allegation in the complaint, the offence under Section 138 N.I. Act is

claimed to have been committed by the company i.e. Hotel

Indraprastha, a unit of Hotel Queen Road Pvt. Ltd. and the petitioners

are roped in on the allegation that they were the directors of the

company at the time of commission of offence. Learned counsel

contended that under Section 141 N.I. Act, a person can be held

vicariously liable for the offence under Section 138 N.I. Act committed

by the company provided at the time of commission of offence, he was

incharge of and was responsible to the company for the conduct of

business of the company and every person connected with the

company shall not file within the ambit of Section 141 N.I. Act.

Learned counsel argued that in the instant case, but for a vague

allegation that the petitioners were the directors of the accused

company and incharge of day to day affairs of the company, there is no

specific allegation which could, prima facie, show as to how and in

what manner the petitioners were incharge and responsible for the day

to day affairs of the company and what were their acts and functions

which were being discharged by them so as to bring them within the

ambit of Section 141 N.I. Act. Learned counsel further submitted that

there is no specific averment in this regard even in the affidavit

evidence furnished by the petitioner during inquiry by the learned M.M.

Thus, he has vehemently contended that in absence of any specific

allegation in this regard, the order of summoning is not sustainable

under law.

9. Learned counsel for the respondent, on the contrary, has

submitted that the complainant has made specific allegation that the

petitioner Ashok Kumar Mittal at the relevant time was Chairman of

accused company and the other petitioners were directors of the

accused company and they all were Incharge of day-to-day affairs and

conduct of the business of the company, which fact is also supported

by the affidavit evidence submitted by the respondent in the court.

Thus, the initial onus for making a prima facie case against the

petitioners stand discharged by the respondent. Learned counsel

contended that now the onus is on the petitioners to adduce the

evidence during the course of trial to show that they were not Incharge

and responsible for the conduct of business of the company.

10. I have considered the rival contentions and gone through the

material on record.

11. The law relating to vicarious liability of a director under Section

141 of N.I. Act for the offence under Section 138 N.I. Act committed by

a company is well settled. The question came up for consideration

before a three Judge Bench of Supreme Court in SMS

Pharmaceuticals Ltd. Vs. Neeta Bhalla, (2005) 8 SCC 89 wherein

upon consideration of a number of decisions of the Apex Court,

Supreme Court opined thus:

"10. While analysing Section 141 of the Act, it will be seen that it operates in cases where an offence under Section 138 is committed by a company. The key words which occur in the section are "every person". These are general words and take every

person connected with a company within their sweep. Therefore, these words have been rightly qualified by use of the words:

"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, etc."

What is required is that the persons who are sought to be made criminally liable under Section 141 should be, at the time the offence was committed, in charge of and responsible to the company for the conduct of the business of the company. Every person connected with the company shall not fall within the ambit of the provision. It is only those persons who were in charge of and responsible for the conduct of business of the company at the time of commission of an offence, who will be liable for criminal action. It follows from this that if a director of a company 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 under the provision. The liability arises from being in charge of and responsible for the conduct of business of the company at the relevant time when the offence was committed and not on the basis of merely holding a designation or office in a company. Conversely, a person not holding any office or designation in a company may be liable if he satisfies the main requirement of being in charge of and responsible for the conduct of business of a company at the relevant time. Liability depends on the role one plays in the affairs of a company and not on designation or status. If being a director or manager or secretary was enough to cast criminal liability, the section would have said so. Instead of "every person" the section would have said "every director, manager or secretary in a company is liable"..., etc. The legislature is aware that it is a case of criminal liability which means serious consequences so far as the person sought to be made liable is concerned. Therefore, only persons who can be said to be connected with the commission of a crime at the relevant time have been subjected to action."

12. In the matter of N.K. Wahi Vs. Shekhar Singh, AIR 2007 SC

1454, Hon'ble Supreme Court while dealing with the vicarious liability

under Section 141 N.I. Act observed thus:

"8. 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 entertainable."

13. From the above judgments, it is apparent that in order to rope in

a director of a company for the offence under Section 138 N.I. Act with

the aid of Section 141 of N.I. Act, the complainant is not only required

to make a clear allegation that the person concerned was the director

of the company, but he is also required to make specific allegation of

the facts indicating as to how and in what manner the said director was

in-charge and responsible for conduct of the business of the company.

14. As regards the petitioners Om Dutt Sharma, Jagdish Kumar

Gupta, Vikram Mittal and Satyapal Talwar, on reading of the complaint

filed by the respondent No. 2, it would be seen that they are not

alleged to be signatories of the cheques in question. In order to rope in

the above four petitioners vicariously for the offence under Section 138

N.I.Act committed by the company, in the name of allegations

respondent has simply reproduced the language of Section 141 N.I. Act

in the complaint. There is no allegation in the complaint to show as to

how and in what manner the petitioner directors were in-charge and

responsible for the day to day affairs and business of the company. In

absence of specific allegation in this regard, in my considered view, the

requirement of Section 141 N.I. Act to hold the petitioners vicariously

liable for the offence committed by the company is not fulfilled. Even

in the affidavit evidence given by the respondent before the

Magistrate, there is no mention as to how and in what manner the

petitioner directors were in-charge of or were responsible to the

company for its day to day affairs and conduct of business. Thus, I am

of the considered view that the impugned order of learned M.M. dated

05.05.2010 summoning the petitioners Vikram Mittal, Jagdish Kumar

Gupta, Om Dutt Sharma and Satyapal Talwar for the offence under

Section 138 N.I.Act committed by the company with the aid of Section

141 N.I.Act is not sustainable in law as there is neither a specific

allegation nor prima facie evidence on record to show that the

petitioners were Incharge and responsible for the conduct of the

business and the day-to-day affairs of Hotel Indraprastha.

15. The case of the petitioner Ashok Kumar Mittal, however, stands

on a different footing. On perusal of the complaint under Section 138

N.I.Act filed by respondent No.2, it transpires that as regards the

petitioner Ashok Mittal, the complainant has specifically alleged that he

is the Chairman of the accused company. This imply that petitioner

Ashok Mittal was the Executive Head of the accused company M/s.

Hotel Indraprastha and in that capacity, he was prima facie Incharge of

running the business of the company and was responsible for day-to-

day affairs of the company. Thus, his case squarely falls within the

ambit of Section 141 N.I.Act to make him vicariously liable for the

offence under Section 138 N.I.Act committed by the company.

16. Learned counsel for the petitioners further submitted that even if

it is assumed for the sake of arguments that petitioner Ashok Mittal

was Chairman of the accused company when the demand notice under

Section 138 N.I. Act was served by the complainant, then also he

cannot be held vicariously liable for the offence under Section 138 N.I.

Act committed by the company for the reason that he was not the

incharge of the business of the company or the management of its day

to day affairs at the time when the loan was taken by the company and

post-dated cheques bearing the date 06.05.2009 were issued on behalf

of the company under the signatures of respondent No.3 Ram

Purshotam Mittal for the discharge of the aforesaid loan. In support of

this contention, he has referred to Section 138 N.I. Act and submitted

that Section 138 defines the offence as under:

"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 person 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 agreement 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 extend to two year"], or with fine which may extend to twice the amount of the cheque, or with both:"

Learned counsel contended that from the reading of above provision, it

is obvious that the offence under Section 138 N.I. Act is committed only

when three basic ingredients of the offence exist viz. (a) the cheque is

drawn by a person (b) the said cheque is given as payment to the

complainant in discharge of any debt or other liability (c) the said

cheque is returned unpaid/dishonoured. It is contended that it is not

alleged in the complaint that petitioner Ashok Mittal was responsible

for the conduct of business of the company or the management of its

day to day affairs when the cheques were issued by respondent No.3,

the then Chairman of the company and the cheque was dishonoured.

Therefore, the petitioner Ashok Mittal who subsequently became the

Chairman of the company cannot be held vicariously liable for the

offence committed by the company at the time when he was not

concerned with the business/affairs of the company.

17. Above contention of learned counsel for the petitioners is based

upon incorrect reading of Section 138 N.I. Act. In order to correctly

appreciate the import of Section 138 N.I. Act, it is necessary to have a

look on the proviso to Section 138 N.I. Act, which reads thus:

"Provided that nothing contained in this section shall apply unless-

(a) The cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier.

(b) The payee or the holder induce course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer, of the cheque, ["within thirty days"] of the receipt of information by him from the bank regarding the return of the cheques as unpaid, and

(c) The drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to

the holder in due course of the cheque, within fifteen days of the receipt of the said notice."

18. On reading of the above proviso to Section 138 N.I. Act, it is

apparent that the prosecution for an offence under Section 138 N.I. Act

cannot be initiated by the payee or holder in due course of the cheque

unless after the dishonour of the cheque, he servers the drawer of the

cheque with a notice of demand of the cheque amount within 30 days

of the receipt of information regarding dishonour of the cheque and the

drawer of the cheque fails to make arrangement for payment of the

cheque amount within 15 days of the receipt of demand notice. From

this, it is obvious that to constitute a triable offence under Section 138

N.I. Act, following five ingredients must exist:

"(a) drawing of the cheque, (b) presentation of the cheque to the bank, (c) returning the cheque unpaid by the drawee bank, (d) giving notice in writing to the drawer of the cheque demanding payment of the cheque amount (e) failure of the drawer to make payment within 15 days of the receipt of the notice."

19. In my considered view, anyone who was incharge of the business

of the company or management of day to day affairs of the business at

the time of commission of an act constituting any of the five

ingredients of the offence under Section 138 N.I. Act, shall be liable to

prosecution and punishment under Section 138 N.I. Act unless he falls

within the purview of the proviso to Section 141 N.I. Act, which reads

thus:

"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 diligence to prevent the commission of such offence."

20. If the interpretation of Section 138 N.I. Act as propounded by

learned counsel for the petitioners is accepted, it would open the

possibility of unscrupulous persons associated with the business affairs

of the company to commit fraud by ensuring that the person who was

responsible for the management of business and day to day affairs of

the company from the date of issue of the cheque till its dishonour is

replaced by some other person before the service of notice of demand.

In such a situation, both the initial manager of the company and

subsequent manager of the company would escape liability under

Section 138 N.I. Act, the initial manager claiming the benefit of proviso

to Section 141 N.I. Act by taking a plea that since at the time of issue

of demand notice, he was not concerned with the management and

business of the company he, by no means, was in position to ensure

the release of the payment of demanded amount, and the subsequent

manager replaced the initial one, would take a plea that he was not

concerned with the management of the company at the time when the

cheque in question was issued and dishonoured. This can never be the

intention of the legislature. Thus, I do not find any merit in the

contention of learned counsel for the petitioners.

21. In view of the above, I am of the considered view that most

important ingredient of Section 138 N.I. Act is proviso (c) to Section

138 N.I. Act, which makes it obligatory on the drawer of the cheque to

make payment of the demanded cheque amount within 15 days of the

date of the receipt of demand notice. To my mind, any person who is

concerned with management of business and day to day affairs of the

company at the time of receipt of demand notice is under obligation to

honour the demand notice and if he fails to make arrangement for

payment of the cheque amount within 15 days of the receipt of

demand notice, he shall be liable for prosecution for the offence under

Section 138 N.I. Act. It cannot be ignored that in cases of offence

under Section 138 N.I. Act committed by the company (a non-juristic

person), the company is always a constant and its directors and

managers are variables who can be removed or replaced any time.

Therefore, there is a possibility that a person who was responsible to

the company for its business and management of day to day affairs at

the time of taking loan or issue of cheque in discharge of said loan may

not be responsible for the business and day to day affairs of the

company at the time of dishonour of cheque or the service of demand

notice under Section 138 N.I. Act. In such a situation, the person who

was actually responsible for the management of the business of the

company at the time of service of demand notice cannot escape

liability of prosecution under Section 138 N.I. Act unless he is able to

bring his case within the purview of proviso to Section 141 N.I. Act.

22. In the instant case, it is alleged that at the relevant time, Ashok

Mittal was Chairman of the company. Therefore, he obviously was

incharge of business affairs of the company and, as such he was under

obligation to ensure payment of the cheque amounts on the receipt of

notice of payments. Since he has allegedly failed to do so, he is

vicariously liable for the offence under Section 138 N.I. Act and in view

of Section 141 of N.I. Act.

23. In view of the discussion above, the impugned order of

summoning of learned M.M. dated 05.05.2010 qua the petitioners

Vikram Mittal, Jagdish Kumar Gupta, Om Dutt Sharma and Satyapal

Talwar is not sustainable under law. As such summoning order qua

them is quashed and they petitions being Crl.M.C. Nos. CRL.M.C.

3829/2010, CRL.M.C. 55/2011, CRL.M.C. 26/2011 and CRL.M.C.

410/2011 respectively are allowed accordingly. However, I find no

merit in Crl.M.C. No.411/2011 titled Ashok Mittal Vs. State of NCT of

Delhi & Ors. It is accordingly dismissed.

24. Petitions are disposed of accordingly.

(AJIT BHARIHOKE) JUDGE MARCH 29, 2011 pst