Gujarat High Court
Dattatraya Narayan Ghandge vs State Of Gujarat on 9 August, 2023
Bench: Sandeep N. Bhatt
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/CRIMINAL MISC.APPLICATION NO. 7975 of 2018
With
R/CRIMINAL MISC.APPLICATION NO. 7978 of 2018
With
R/CRIMINAL MISC.APPLICATION NO. 7982 of 2018
With
R/CRIMINAL MISC.APPLICATION NO. 7989 of 2018
With
R/CRIMINAL MISC.APPLICATION NO. 8002 of 2018
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE SANDEEP N. BHATT
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1 Whether Reporters of Local Papers may be allowed Yes
to see the judgment ?
2 To be referred to the Reporter or not ? Yes
3 Whether their Lordships wish to see the fair copy No
of the judgment ?
4 Whether this case involves a substantial question No
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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DATTATRAYA NARAYAN GHANDGE & 3 other(s)
Versus
STATE OF GUJARAT & 2 other(s)
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Appearance:
MR CHAITANYA S JOSHI(5927) for the Applicant(s) No. 1,2,3
MR SUDHAKAR B JOSHI(3465) for the Applicant(s) No. 1,2,3
MR. SOAHAM JOSHI, APP for the Respondent(s) No. 1 - State
RULE SERVED for the Respondent(s) No. 2
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CORAM:HONOURABLE MR. JUSTICE SANDEEP N. BHATT
Page 1 of 41
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Date : 09/08/2023
ORAL JUDGMENT
1. Since the issues involved in the present applications
are identical in nature, Criminal Misc. Application
No.7975 of 2018 is considered as leading matter.
2. The present application i.e. Criminal Misc.
Application No.7975 of 2018 is filed for seeking following
main reliefs:-
"(a) Quash and set aside the impugned Criminal Complaint No.4951 of
2017 filed before the Additional Chief Judicial Magistrate at Rajkot.
(b) During the pendency and final hearing of this petition, stay the
further proceedings of impugned Criminal Complaint No.4951 of 2017
filed before the Additional Chief Judicial Magistrate at Rajkot.
(c) Pass any other necessary orders which this Hon'ble Court may deem
fit."
3.1 Brief facts as per the case of the applicants in this
application are as such that the applicants are directors
of a Company who were not in charge of and were not
responsible for the conduct of the business of the
company, hence, will not be liable under Section 141
Negotiable Instruments Act, 1881. It is further the case
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of the applicants. It is further the case of the applicants
in this application are as such that the applicants on
the basis of merely holding a designation or office in a
company cannot be held liable under Section 141
Negotiable Instruments Act, 1881. Liability depends on
the role one, who plays in the affairs of a Company and
not on designation of status. It is further the case of
the applicants in this application are as such that the
learned Magistrate has committed serious error in
examining complaint at first instance on the basis of
averments contained therein. The Learned Magistrate has
issued process against the applicants despite there are no
averments which bring the case within Section 141.
3.2 It is further the case of the applicants in this
application are as such that the learned Magistrate has
committed serious error in issuing process against the
applicants merely being described as a director in a
company, which is not sufficient to satisfy the
requirement of section 141. Furthermore, a director in a
company cannot be deemed to be in charge of and
responsible to the company for the conduct of its
business. It is further the case of the applicants in this
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application are as such that there is no clear statement
of fact in the complaint so as to enable the learned
Magistrate to arrive at a prima facie opinion that the
applicants are vicariously liable. It is further the case of
the applicants in this application are as such that before
the applicants can be made vicariously liable, strict
compliance of the statutory requirements would have
insisted. In the present case the summons issued to the
applicants would put the applicants to some sort of
harassment, the learned Magistrate has committed
serious error in not insisting strict compliance with the
statutory requirement. It is further the case of the
applicants in this application are as such that there is
no averment in the Complaint as to how and in what
manner the applicants were responsible for the conduct
of the business of the company or otherwise responsible
to it in regard to its functioning, merely making some
bald averment in the complaint, which was not sufficient
to issue process against the applicants.
3.3 It is further the case of the applicants in this
application are as such that in spite of the averment
that applicants were directors at the relevant time and
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were responsible for and in charge of the conduct of the
business of the company, the Hon'ble Apex Court has
held that allegations in the complaint, even if taken to
be correct in their entirety, did not disclose any offence.
It is further the case of the applicants in this
application are as such that the applicants have not
issued any cheque in favour of the Respondent. The
Complaint has failed to state in the Complaint as to
how the applicants are responsible for dishonour of the
cheque. The allegations made in Complaint do not satisfy
the requirements of Section 141 of the Act. It is further
the case of the applicants in this application are as such
that the Complainant has not come up with a case that,
the applicants are responsible to the company for the
conduct of business of the company, but were not in-
charge of the conduct of the business of the company,
therefore, the applicants cannot be made liable unless
the complaint establishes that the offence was committed
with the consent or connivance or as a result of the
negligence of the applicants. It is further the case of
the applicants in this application are as such that penal
statutes are to be construed strictly. Penal statutes
providing constructive vicarious liability should be
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construed much more strictly. There is no question of
inferential or implied compliance. Therefore, a specific
averment complying with the requirements of section 141
is imperative.
3.4 It is further the case of the applicants in this
application are as such that to be vicariously liable
under sub-section (1) of Section 141, a person should
fulfil the 'legal requirement' of being a person in law
(under the statute governing companies) responsible to
the company for the conduct of the business of the
company and also fulfil the 'factual requirement' of being
a person in charge of the business of the company. The
Complaint preferred by the Respondent does not comply
with the requirements of Section 141(1) and hence, the
learned Magistrate ought not to have issued process
against the applicants. It is further the case of the
applicants in this application are as such that for
making a person liable under Section 141(2), the
mechanical reapplication of the requirements under
Section 14101) will be of no assistance, but there should
be necessary averments in the complaint as to how and
in what manner the accused was guilty of consent and
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connivance or negligence and therefore, responsible under
sub-section (2) of section 141 of the Act. The Complaint
preferred by the Respondent does not comply with the
requirements of Section 141(2) and hence, the Learned
Magistrate ought not to have issued Process against the
applicants. Hence, the resent application is preferred.
4. Heard the learned advocate Mr. Sushil Nimbark, on
behalf of Mr. Chaitanya S. Joshi, representing the
applicants, Mr. Soaham Joshi, the learned Additional
Public Prosecutor (APP), representing the respondent No.1
- State.
5. Though served with the service of notice, respondent
No.2 - complainant has not chosen to appear or contest
the case by any counsel.
6.1 Learned advocate Mr. Sushil Nimbark, on behalf of
Mr. Chaitanya S. Joshi, representing the applicants has
has brought to my attention the group of applications
with similar nature. He has argued that upon a bare
reading of the complaint filed under Section 138 of the
Negotiable Instruments Act, 1881 (hereinafter referred to
as "the N.I. Act" for short), it becomes evident that no
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specific allegations have been made against the role of
the directors, who are the present applicants.
Additionally, he has asserted that law is well settled
that, according to the provisions of Section 142(ii) of the
N.I. Act, in the absence of such crucial elements within
the complaint, individuals who hold an inactive
directorial position or were not signatories of the check
cannot be held accountable under the provisions of
Section 138 of the N.I. Act.
6.2 Furthermore, he contends that the applicants cannot
be held liable under the provisions of Section 141 of the
N.I. Act solely based on their designations or roles
within a company. He emphasizes that the complaint
does not articulate a valid case against the present
applicants. He asserts that being a director in a
company does not inherently imply being in charge and
responsible for the company's daily business affairs. He
underscores that the learned Magistrate must form a
prima facie opinion on the applicants' vicarious liability
before issuing any legal process. However, upon
scrutinizing the complaint, it is evident that the
averments provided therein do not meet the requirements
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outlined in Section 138 of the N.I. Act. He further
argues that the continuation of proceedings pursuant to
this complaint would amount to harassment against the
applicants. He also highlights the disputed check and
emphasizes that it lacks the signatures of the applicants.
6.3 Furthermore, reliance has been place upon the
judgment of the Hon'ble Apex Court in the cases of (i)
K.K. Ahuja versus V.K. Vora reported in 2009 LawSuit
(SC) 1232 [(2009) 10 SCC 48], (ii) S.M.S.
Pharmaceuticals Ltd. versus Neeta Bhalla reported in
2005 LawSuit (SC) 1265 [(2005) 8 SCC 89], (iii) National
Small Industries Corp. Ltd. versus Harmeet Singh
Paintal & Anr. reported in (2010) 3 SCC 330. By
highlighting the above referred judgments, it is argued
that the situation of the applicants is encompassed by
Section 141(ii) of the N.I. Act. Therefore, it is
maintained that the process should be quashed by
exercising the inherent powers under Section 482 of the
Criminal Procedure Code, 1973.
7. Conversely, Mr. Soaham Joshi, the learned
Additional Public Prosecutor (APP), representing the
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respondent No.1 - State has asserted that prima facie, a
case is established under Section 138 of the N.I. Act. He
argues that the applicants, as directors of the company,
cannot evade liability arising from the company's debt.
Whether the applicants are responsible for repaying the
debt or not, this matter cannot be fully assessed without
a comprehensive trial. He points out that from the
record of this application, it is apparent that the
applicants are not given any reply to the notice issued
under Section 138 of the N.I. Act. Referring to the
judgment of the Hon'ble Supreme Court in the case of
S.P. Mani and Mohan Dairy versus Dr. Snehalatha
Elangovan reported in 2022 LawSuit (SC) 1106 [2022
AIR (SC) 4883], this Court should not exercise the
powers under Section 482 of the Criminal Procedure
Code, 1973.
8. In rejoinder, Mr. Nimbark has contended that the
judgment of the Hon'ble Apex Court in the case of S.P.
Mani and Mohan Dairy (supra) is not be applicable in
the facts and circumstances of the present case as it
pertains to the case whether provisions of Section 141 (i)
is applicable and in the present case, the provision
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under Section 141 (ii) is applicable. Further, he has
fairly accepted that though the notice is issued by the
complainant under Section 138 of the N.I. Act, but the
same is not replied back. Nevertheless, he asserts that
the absence of a response does not hold significant
weight, especially when the complaint fails to include
any assertions regarding the active role of the applicants
in the day-to-day operations of the business.
9.1 I have heard learned advocates for the respective
parties. I have perused the materials available on the
record with the application, more specifically complaints
filed in the respective matters, where the issues and
transaction are identical in nature. Hence, all the
abovementioned matter heard together and decided the
same along with, considering the submissions in common.
9.2 Mr. Nimbark has eunder the provisions of the
Companies Act, the individuals who are responsible for
the routine operations of the company are clearly
defined. He further contends that upon a bare reading of
the complaint filed in each matters, it becomes evident
that only general assertions are made, merely mentioning
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that the applicants hold directorial positions within the
company nevertheless no specific averment is made in
the complaints.
9.3 It is fruit to refer the provisions of Sections 138,
141 (1) & (2) of the N.I. Act, wherein it was held that
no vicarious liability can be fastened on the present
applicants as they are neither active Directors nor
Managing Directors, as under:
"Section 138 in The Negotiable Instruments Act, 1881:-
138 Dishonour of cheque for insufficiency, etc., of funds
in the account. --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 19 [a term which
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may be extended to two years], or with fine which
may extend to twice the amount of the cheque, or with
both: 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 in due 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, 20
[within thirty days] of the receipt of information by
him from the bank regarding the return of the cheque
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.
Explanation.-- For the purposes of this section, "debt
or other liability" means a legally enforceable debt or
other liability.
Section 141 in The Negotiable Instruments Act, 1881:-
141 Offences by companies. --
(1) If the person committing an offence under section
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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 diligence to prevent the commission of
such offence:
Provided further that where a person is nominated as
a Director of a company by virtue of his holding any
office or employment in the Central Government or
State Government or a financial corporation owned or
controlled by the Central Government or the State
Government, as the case may be, he shall not be liable
for prosecution under this Chapter.
(2) Notwithstanding anything contained in sub-section
(1), where any offence under this Act has been
committed by a company and it is proved that the
offence has been committed with the consent or
connivance of, or is attributable to, any neglect on the
part of, any director, manager, secretary or other
officer of the company, such director, manager,
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secretary or other officer shall also be deemed to be
guilty of that offence and shall be liable to be
proceeded against and punished accordingly.
Explanation.-- For the purposes of this section,--
(a) "company" means any body corporate and includes a
firm or other association of individuals; and
(b) "director", in relation to a firm, means a partner in
the firm.
9.4 Additionally, taking into consideration the
aforementioned arguments and the judgments referred to
by the learned advocate representing the applicants, it
becomes evident prima facie that transactions have
occurred between the companies where the applicants
hold directorial positions. One of these companies is
identified as Anand Teknow Aids Engineering India Ltd.,
and the accused No.2 belongs to this company. The
complaint further specifies that accused Nos.2 to 9 are
responsible for overseeing all aspects of the affairs of
accused No.1 - the company, including its day-to-day
operations. The complaint also alleges that accused No.1
frequently procures products from the complainant
through accused Nos.2 to 9 as per its requirements.
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9.5 Consequently, taking into account the
aforementioned considerations and also examining the
statements in paragraphs 4 and 6 of the application, it
is specifically noted that accused Nos.2 to 9 have given
assurances that when the cheque in question was
deposited in the respective applications, and subsequently,
the complainant proceeded with the deposit, the said
cheques became dishonored. Furthermore, it is alleged
within the complaint that accused Nos.2 to 9 bear
responsibility for the dishonor of these cheques due to
their involvement in the daily operations of the company.
They are held accountable as they oversee the affairs of
accused No.1 - the company.
9.6 It is also fruitful to refer the provisions of Section
139 of the N.I. Act, as under:
"Section 139 in The Negotiable Instruments Act, 1881
139. Presumption in favour of holder.--It shall be
presumed, unless the contrary is proved, that the
holder of a cheque received the cheque of the nature
referred to in section 138 for the discharge, in whole
or in part, of any debt or other liability."
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9.7 Hence, the applicants are duty bound to rebut the
averments made in the complaint by cogent and
uncontroverted documentary evidences.
9.8.1 Now, in this background, it is relevant to refer
the judgment of the Hon'ble Apex Court in the cases of
S.M.S. Pharmaceuticals Ltd. (supra), specifically,
paragraphs 19 and 20 are relevant, as under:
"19. 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
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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.
20. 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
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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."
9.8.2 It is relevant to refer the judgment of the
Hon'ble Apex Court in the case of K.K. Ahuja (supra),
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specifically, paragraphs 10, 11, 14 and 18 are relevant,
as under:
"10. Having regard to section 141, when a cheque
issued by a company (incorporated under the
Companies Act, 1956) is dishonoured, in addition to the
company, the following persons are deemed to be guilty
of the offence and shall be liable to be proceeded
against and punished :
(i) every person who at the time the offence was
committed, was in charge of and was responsible to
the company for the conduct of the business of the
company;
(ii) any Director, Manager, Secretary or other officer of
the company with whose consent and connivance, the
offence under section 138 has been committed; and
(iii) any Director, Manager, Secretary or other officer of
the company whose negligence resulted in the offence
under section 138 of the Act, being committed by the
company.
While liability of persons in the first category arises
under sub-section (1) of Section 141, the liability of
persons mentioned in categories (ii) and (iii) arises
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under sub-section (2). The scheme of the Act, therefore
is, that a person who is responsible to the company for
the conduct of the business of the company and who is
in charge of business of the company is vicariously
liable by reason only of his fulfilling the requirements
of sub- section (1). But if the person responsible to the
company for the conduct of business of the company,
was not in charge of the conduct of the business of
the company, then he can be made liable only if the
offence was committed with his consent or connivance
or as a result of his negligence.
11. The criminal liability for the offence by a company
under section 138, is fastened vicariously on the
persons referred to in sub-section (1) of section 141 by
virtue of a legal fiction. Penal statutes are to be
construed strictly. Penal statutes providing constructive
vicarious liability should be construed much more
strictly. When conditions are prescribed for extending
such constructive criminal liability to others, courts will
insist upon strict literal compliance. There is no
question of inferential or implied compliance. Therefore,
a specific averment complying with the requirements of
section 141 is imperative. As pointed out in K.
Srikanth Singh vs. North East Securities Ltd - 2007
(12) SCC 788, the mere fact that at some point of
time, an officer of a company had played some role in
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the financial affairs of the company, will not be
sufficient to attract the constructive liability under
section 141 of the Act.
14. The words "every person who, at the time of the
offence was committed, was in charge of, and was
responsible for the conduct of the business of the
company" occurs not only in section 141(1) of the Act
but in several enactments dealing with offences by
companies, to mention a few - Section 278 B of the
Income Tax Act, 1961, Section 22C of Minimum Wages
Act, 1948, Section 86A of the Employees State
Insurance Act, 1948, Section 14A of Employees
Provident Fund and Miscellaneous Provisions Act, 1952,
Section 29 of Payment of Bonus Act, 1965, Section 40
of The Air (Prevention and Control of Pollution) Act,
1981 and section 47 of Water (Prevention and Control
of Pollution) Act, 1974. But neither section 141(1) of
the Act, nor the pari materia provisions in other
enactments give any indication as to who are the
persons responsible to the company, for the conduct of
the business of the company. Therefore, we will have
to fall back upon the provisions of Companies Act,
1956 which is the law relating to and regulating
companies. Section 291 of the said Act provides that
subject to the provisions of that Act, the Board of
Directors of a company shall be entitled to exercise all
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such powers, and to do all such acts and things, as
the company is authorised to exercise and do. A
company though a legal entity can act only through its
Board of Directors. The settled position is that a
Managing Director is prima facie in charge of and
responsible for the company's business and affairs and
can be prosecuted for offences by the company. But
insofar as other directors are concerned, they can be
prosecuted only if they were in charge of and
responsible for the conduct of the company's business.
A combined reading of Sections 5 and 291 of
Companies Act, 1956 with the definitions in clauses
(24), (26), (30), (31), (45) of section 2 of that Act would
show that the following persons are considered to be
the persons who are responsible to the company for
the conduct of the business of the company : --
(a) the managing director/s;
(b) the whole-time director/s;
(c) the manager;
(d) the secretary;
(e) any person in accordance with whose directions or
instructions the Board of directors of the company is
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accustomed to act;
(f) any person charged by the Board with the
responsibility of complying with that provision (and
who has given his consent in that behalf to the
Board); and
(g) where any company does not have any of the
officers specified in clauses
(a) to (c), any director or directors who may be
specified by the Board in this behalf or where no
director is so specified, all the directors. It follows that
other employees of the company, cannot be said to be
persons who are responsible to the company, for the
conduct of the business of the company.
18. It should, however, be kept in view that even an
officer who was not in charge of and was responsible
to the company for the conduct of the business of the
company can be made liable under sub-section (2) of
Section
141. For making a person liable under Section 141(2),
the mechanical repetition of the requirements under
Section 141(1) will be of no assistance, but there
should be necessary averments in the complaint as to
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how and in what manner the accused was guilty of
consent and connivance or negligence and therefore,
responsible under sub-section (2) of section 141 of the
Act."
9.8.3 It is also relevant to refer the judgment of
the Hon'ble Apex Court in the case of National Small
Industries Corp. Ltd. (supra), specifically, paragraphs 18,
25 and 26 are relevant, as under:
"25) From the above discussion, the following principles
emerge :
(i) The primary responsibility is on the complainant to
make specific averments as are required under the law
in the complaint so as to make the accused vicariously
liable. For fastening the criminal liability, there is no
presumption that every Director knows about the
transaction.
(ii) Section 141 does not make all the Directors liable
for the offence. The criminal liability can be fastened
only on those who, at the time of the commission of
the offence, were in charge of and were responsible for
the conduct of the business of the company.
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(iii) Vicarious liability can be inferred against a
company registered or incorporated under the
Companies Act, 1956 only if the requisite statements,
which are required to be averred in the
complaint/petition, are made so as to make accused
therein vicariously liable for offence committed by
company along with averments in the petition
containing that accused were in-charge of and
responsible for the business of the company and by
virtue of their position they are liable to be proceeded
with.
(iv) Vicarious liability on the part of a person must be
pleaded and proved and not inferred.
(v) If accused is Managing Director or Joint Managing
Director then it is not necessary to make specific
averment in the complaint and by virtue of their
position they are liable to be proceeded with.
(vi) If accused is a Director or an Officer of a company
who signed the cheques on behalf of the company then
also it is not necessary to make specific averment in
complaint.
(vii) The person sought to be made liable should be in-
charge of and responsible for the conduct of the
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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.
26) Apart from the legal position with regard to
compliance of Section 141 of the Act, in the appeals of
National Small Industries Corporation, respondent No.1-
Harmeet Singh Paintal was no more a Director of the
company when the cheques alleged in the complaint
were signed and the same is evidenced from the Sixth
Annual Report for the year 1996-97 of the accused
company. The said report is of dated 30.08.1997 and
the same was submitted with the Registrar of
Companies on 05.12.1997 and assigned as document
No. 42 dated 09.03.1998 by the Department. Those
documents have been placed before this Court by
respondent No.1 as an additional document. In view of
these particulars and in addition to the interpretation
relating to Section 141 which we arrived at, no
liability could be fastened on respondent No.1. Further,
it was pointed out that though he was an authorized
signatory in the earlier transactions, after settlement
and in respect of the present cause of action,
admittedly fresh cheques were not signed by the first
respondent. In the same way, in the appeal of the
DCM Financial Services, the respondent therein,
namely, Dev Sarin also filed additional documents to
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show that on the relevant date, namely the date of
issuance of cheque he had no connection with the
affairs of the company."
9.9 Given the judgments that the learned advocate
representing the applicants has referred to, it is evident
that the absence of specific allegations is crucial. In this
context, it is highlighted that the applicants, as directors,
cannot be held accountable when they are not directly
involved in the company's day-to-day operations.
9.10 It is relevant to refer the judgment of the
Hon'ble Apex Court in the case of S.P. Mani and Mohan
Dairy (supra), whereby Hon'ble Apex Court has
considered almost all the judgments available including
the judgment in the cases of (i) K.K. Ahuja (supra), and
(ii) S.M.S. Pharmaceuticals Ltd. (supra), and has given
the detailed findings about the vicarious liability of the
individual(s). Necessary paragraphs in the case of S.P.
Mani and Mohan Dairy (supra), 24 to 27 and 43 to 47
are relevant, as under:
"24. Evidently, the gist of Section 138 is that the
drawer of the cheque shall be deemed to have
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committed an offence when the cheque drawn by him
is returned unpaid on the prescribed grounds. The
conditions precedent and the conditions subsequent to
constitute the offence are drawing of a cheque on the
account maintained by the drawer with a banker,
presentation of the cheque within the prescribed period,
making of a demand by the payee by giving a notice
in writing within the prescribed period and failure of
the drawer to pay within the prescribed period. Upon
fulfilment of these requirements, the commission of the
offence which may be called the offence of 'dishonour
of cheque' is complete. If the drawer is a company, the
offence is primarily committed by the company. By
virtue of the provisions of subsection (1) of Section 141,
the guilt for the offence and the liability to be
prosecuted and punished shall be extended to every
person who, at the time the offence was committed,
was in charge of and was responsible to the company
for the conduct of its business; irrespective of whether
such person is a director, manager, secretary or other
officer of the company. It would be for such responsible
person, in order to be exonerated in terms of the first
proviso, to prove that the offence was committed
without his knowledge or despite his due diligence.
25. Under the separate provision of subsection (2), if it
is proved that the offence was committed with the
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consent or connivance of or was attributable to the
neglect on the part of any director, manager, secretary
or other officer of the company, such person would also
be deemed to be guilty for that offence. Obviously, the
burden of alleging and proving consent, connivance or
neglect on the part of any director, etc. would rest
upon the complainant. The non obstante clause with
which the subsection (2) opens indicate that the
deeming provision is distinct and different from the
deeming provision in subsection (1) in which the office
or designation of the person in charge of and
responsible to the company for the conduct of its
business is immaterial.
26. While the essential element for implicating a
person under subsection (1) is his or her being in
charge of and responsible to the company in the
conduct of its business at the time of commission of
the offence, the emphasis in subsection (2) is upon the
holding of an office and consent, connivance or
negligence of such officer irrespective of his or her
being or not being actually in charge of and
responsible to the company in the conduct of its
business. Thus, the important and distinguishing
feature in subsection (1) is the control of a responsible
person over the affairs of the company rather than his
holding of an office or his designation, while the
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liability under subsection (2) arises out of holding an
office and consent, connivance or neglect. While all the
persons covered by subsection (1) and sub section (2)
are liable to be proceeded against and also punished
upon the proof of their being either in charge of and
responsible to the company in the conduct of its
business or of their holding of the office and having
been guilty of consent, connivance or neglect in the
matter of commission of the offence by the company,
the person covered by subsection (1) may, by virtue of
the first proviso, escape only punishment if he proves
that the offence was committed without his knowledge
or despite his due diligence.
27. As for the requisite evidence, the burden upon the
prosecution would be discharged under subsection (1)
when a person is proved to be in charge of and
responsible to the company in the conduct of its
business and would shift upon the accused to prove
that he was ignorant or diligent, if that be his
defence; whereas under subsection (2) the prosecution
would be required to allege and prove the consent,
connivance or neglect and holding of the office by the
accused. There is nothing to suggest that the same
person cannot be made to face the prosecution either
under subsection (1) or subsection (2) or both. A
director or manager can be arraigned and proved to be
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guilty as the person in charge of and responsible to
the company as well as the director of the company
who, as such, might have consented to, connived at or
been negligent in respect of the offence of dishonour of
cheque, be logically deduced that a person can be
arraigned in a complaint as the accused along with the
company if it prima facie appears that he was in
charge of and responsible to the company for the
conduct of its business, although he may or may not
be or may not have continued to be a director or other
officer of the company, as mentioned in sub section (2).
It would be sufficient if the complaint indicates that
such person has been arraigned on the basis of
averments which disclose him or her to be the person
in charge of and responsible to the company in the
conduct of its business at the time the offence was
committed. Evidently, a person who signs the cheque
or who has the authority to sign the cheque for and
on behalf of the company, regardless of his office or
capacity, can, prima facie, be assumed to be in charge
of and responsible to the company in the conduct of its
business. And, where such person is prosecuted, then,
if it be his defence that the offence was committed
without his or her knowledge or that he or she has
exercised all due diligence to prevent the commission of
such offence, the burden to prove that would be on
him or her and can only be discharged at the stage of
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evidence.
43. In the case on hand, we find clear and specific
averments not only in the complaint but also in the
statutory notice issued to the respondent. There are
specific averments that the cheque was issued with the
consent of the respondent herein and within her
knowledge. In our view, this was sufficient to put the
respondent herein to trial for the alleged offence. We
are saying so because the case of the respondent that
at the time of issuance of the cheque or at the time of
the commission of the offence, she was in no manner
concerned with the firm or she was not incharge or
responsible for daytoday affairs of the firm cannot be
on the basis of mere bald assertion in this regard. The
same is not sufficient. To make good her case, the
respondent herein is expected to lead unimpeachable
and incontrovertible evidence. Nothing of the sort was
adduced by the respondent before the High Court to
get the proceedings quashed. The High Court had
practically no legal basis to say that the averments
made in the complaint are not sufficient to fasten the
vicarious liability upon the respondent by virtue of
Section 141 of the NI Act.
44. We may also examine this appeal from a different
angle. It is not in dispute, as noted above, that no
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reply was given by the respondent to the statutory
notice served upon her by the appellant. In the
proceedings of the present type, it is essential for the
person to whom statutory notice is issued under
Section 138 of the NI Act to give an appropriate reply.
The person concerned is expected to clarify his or her
stance. If the person concerned has some
unimpeachable and incontrovertible material to establish
that he or she has no role to play in the affairs of
the company/firm, then such material should be
highlighted in the reply to the notice as a foundation.
If any such foundation is laid, the picture would be
more clear before the eyes of the complainant. The
complainant would come to know as to why the person
to whom he has issued notice says that he is not
responsible for the dishonour of the cheque. Had the
respondent herein given appropriate reply highlighting
whatever she has sought to highlight before us then
probably the complainant would have undertaken
further enquiry and would have tried to find out what
was the legal status of the firm on the date of the
commission of the offence and what was the status of
the respondent in the firm. The object of notice before
the filing of the complaint is not just to give a chance
to the drawer of the cheque to rectify his omission to
make his stance clear so far as his liability under
Section 138 of the NI Act is concerned.
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45. Once the necessary averments are made in the
statutory notice issued by the complainant in regard to
the vicarious liability of the partners and upon receipt
of such notice, if the partner keeps quiet and does not
say anything in reply to the same, then the
complainant has all the reasons to believe that what
he has stated in the notice has been accepted by the
noticee. In such circumstances what more is expected
of the complainant to say in the complaint.
46. When in view of the basic averment process is
issued the complaint must proceed against the
Directors or partners as the case may be. But, if any
Director or Partner wants the process to be quashed
by filing a petition under Section 482 of the Code on
the ground that only a bald averment is made in the
complaint and that he is really not concerned with the
issuance of the cheque, he must in order to persuade
the High Court to quash the process either furnish
some sterling incontrovertible material or acceptable
circumstances to substantiate his contention. He must
make out a case that making him stand the trial
would be an abuse of process of court. He cannot get
the complaint quashed merely on the ground that
apart from the basic averment no particulars are given
in the complaint about his role, because ordinarily the
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basic averment would be sufficient to send him to trial
and it could be argued that his further role could be
brought out in the trial. Quashing of a complaint is a
serious matter. Complaint cannot be quashed for the
asking. For quashing of a complaint, it must be shown
that no offence is made out at all against the Director
or Partner.
47. Our final conclusions may be summarised as
under: a.) The primary responsibility of the
complainant is to make specific averments in the
complaint so as to make the accused vicariously liable.
For fastening the criminal liability, there is no legal
requirement for the complainant to show that the
accused partner of the firm was aware about each and
every transaction. On the other hand, the first proviso
to subsection (1) of Section 141 of the Act clearly lays
down that if the accused is able to prove to the
satisfaction of the Court that the offence was
committed without his/her knowledge or he/she had
exercised due diligence to prevent the commission of
such offence, he/she will not be liable of punishment.
b.) The complainant is supposed to know only generally
as to who were in charge of the affairs of the
company or firm, as the case may be. The other
administrative matters would be within the special
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knowledge of the company or the firm and those who
are in charge of it. In such circumstances, the
complainant is expected to allege that the persons
named in the complaint are in charge of the affairs of
the company/firm. It is only the Directors of the
company or the partners of the firm, as the case may
be, who have the special knowledge about the role they
had played in the company or the partners in a firm
to show before the court that at the relevant point of
time they were not in charge of the affairs of the
company. Advertence to Sections 138 and Section 141
respectively of the NI 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/partners of a firm to show that they were not
liable to be convicted. The 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 to show that at the
relevant time they were not in charge of the affairs of
the company or the firm.
c.) Needless to say, the final judgement and order
would depend on the evidence adduced. Criminal
liability is attracted only on those, who at the time of
commission of the offence, were in charge of and were
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responsible for the conduct of the business of the firm.
But vicarious criminal liability can be inferred against
the partners of a firm when it is specifically averred
in the complaint about the status of the partners 'qua'
the firm. This would make them liable to face the
prosecution but it does not lead to automatic
conviction. Hence, they are not adversely prejudiced if
they are eventually found to be not guilty, as a
necessary consequence thereof would be acquittal.
d.) If any Director wants the process to be quashed by
filing a petition under Section 482 of the Code on the
ground that only a bald averment is made in the
complaint and that he/she is really not concerned with
the issuance of the cheque, he/she must in order to
persuade the High Court to quash the process either
furnish some sterling incontrovertible material or
acceptable circumstances to substantiate his/her
contention. He/she must make out a case that making
him/her stand the trial would be an abuse of process
of Court."
9.11 Considering the established legal principles
outlined as above and also considering the facts and
circumstances of the present case, it is evident that the
applicants cannot claim to have not received notices
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under Section 138, which they have not replied. The
process of the Criminal Case was indeed served at the
same address where the notice had been issued to them.
Furthermore, following the initiation of the complaint
process, the applicants did appear before the concered
trial court. Hence, it cannot be considered at this stage
that the applicants were not served with the notice. In
light of the Hon'ble Supreme Court's decision in the case
of S.P. Mani and Mohan Dairy (supra), where the notice
is not relied by giving specific defence, the applicants are
not entitled to raise these grievances in the proceedings
under Section 482 of the Criminal Procedure Code.
Moreover, upon perusal the content of the complaint, it
is evident that certain specific averments are made
regarding the active involvement of accused Nos.2 to 9.
Consequently, ingredients of Sections 138, 141 (1) & (2)
are satisfied in the present case. The judgments cited by
the learned advocate representing the applicants are not
applicable in the facts of this case, because there are
brief averments made in the criminal compalints about
the role of the applicants, and particularly in relation to
failure to give reply to the notice issued under Section
138 of the N.I. Act by raising all these disputes by the
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applicants about the vicarious liability to pay the dues of
the company.
9.12 In view of above discussions, I am of the
opinion that no case is made out in the present cases
where the interference under the provisions of Section
482 of the Criminal Procedure Code, 1973 is not
required to be called for. Hence, I am of the view that
the present application deserves to be dismissed.
10. The present captioned applications are dismissed,
with no order as to costs.
11. Since the complaints of criminal cases are filed long
ago in the year 2017 under Section 138 of the N.I. Act
and due to pendency of the applications before this
Court, the complaints could not be proceeded. It is
appropriate to direct the trial court to decide the
proceedings of respective criminal cases, as expeditiously
as possible, preferably on or before 31.8.2024 after giving
proper opportunities to the respective parties. This
directive aims to ensure a prompt and efficient
conclusion to the pending matters, in accordance with
law.
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12. At this juncture, the learned advocate representing
the applicant has requested to stay in the proceedings
for an additional four weeks, citing the ongoing interim
relief that is in place in the present application(s).
Considering the considerable duration for which these
applications, filed in 2017, have remained unresolved due
to the ongoing proceedings, and taking into consideration
the nature of the litigation, I am of the opinion that
let the proceedings of criminal cases proceeded forthwith.
Therefore, the request for stay is denied.
Rule stands discharged.
(SANDEEP N. BHATT,J)
DIWAKAR SHUKLA
