Devadas Krishnappa Baloor vs State Of Gujarat
2023 Latest Caselaw 277 Guj

    R/CR.MA/532/2018                           ORDER DATED: 11/01/2023




           IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

            R/CRIMINAL MISC.APPLICATION NO. 532 of 2018
                               With
            R/CRIMINAL MISC.APPLICATION NO. 4488 of 2018

================================================================
               DEVADAS KRISHNAPPA BALOOR, & 3 other(s)
                              Versus
                    STATE OF GUJARAT & 1 other(s)
================================================================
Appearance :

IN CRIMINAL MISC. APPLICATION NO.532 OF 2018
H N SEVAK(7580) for the Applicant(s) No. 1,2,3,4
MR BHAVIN S RAIYANI(3855) for the Respondent(s) No. 2
MR HARDIK MEHTA, ADDITIONAL PUBLIC PROSECUTOR for the
Respondent(s) No. 1

IN CRIMINAL MISC. APPLICATION NO.4488 OF 2018
H N SEVAK(7580) for the Applicant(s) No. 1,2,3,4
MR KUNAL S SHAH for the Respondent(s) No. 2
MR HARDIK MEHTA, ADDITIONAL PUBLIC PROSECUTOR for the
Respondent(s) No. 1
================================================================

 CORAM:HONOURABLE MS. JUSTICE GITA GOPI

                           Date : 11/01/2023

                        COMMON ORAL ORDER

1. Criminal Miscellaneous Application No.532 of 2018 has been filed under Section 482 of the Code of Criminal Procedure, 1973 for quashing and setting aside the Criminal Case bearing No.4674 of 2017 pending in the Court of the learned Chief Judicial Magistrate, Rajkot and/or the proceedings initiated in pursuant thereto.

R/CR.MA/532/2018 ORDER DATED: 11/01/2023

2. Criminal Miscellaneous Application No.4488 of 2018 has been filed under Section 482 of the Code of Criminal Procedure, 1973 for quashing and setting aside the Criminal Case bearing No.4809 of 2017 pending in the Court of the learned Additional chief Judicial Magistrate Magistrate, Surat and/or the proceedings initiated in pursuant thereto.

3. In both the applications, learned Advocate Mr. H.N. Sevak appeared for the applicants and submitted that though the applicants are the Directors of the Company but are not responsible for the day to day management of the Company. The said fact has not been averred by the complainant and thus, it is submitted that no cognizance can be taken of the complaint for issuance of summons.

4. Learned Advocate for the applicants submitted that specific averments are required to be made by the complainant in his complaint that the Director of the Company is responsible for the day to day affairs and hence, it is submitted that merely because the applicants are the Directors of the Company, the

R/CR.MA/532/2018 ORDER DATED: 11/01/2023

applicants would not be liable to be prosecuted under Section 141 of the Negotiable Instruments Act, 1881 (hereinafter referred to in short as 'the N.I. Act'). It is further submitted that the persons who are sought to be made liable should be managing the business of the Company, or signatory of the cheque can be made liable under Section 138 read with Section 141 of the N.I. Act. Thus, it is submitted that the applicants would not be liable only by a cursory statement being made that the applicants are the Directors of the Company.

5. Learned Advocate for the applicants Mr. H.N. Sevak has relied on the following decisions of the Hon'ble Apex Court for quashing of the proceedings :-

(i) Sunita Palita v. Panchami Stone Quarry reported in 2022 10 SCC 152 and

(ii) S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla reported in 2005 8 SCC 89.

6. While countering the above arguments of learned Advocate Mr. H.N. Sevak, learned Advocate Mr. Bhavin S. Raiyani appearing for the respondent No.2

R/CR.MA/532/2018 ORDER DATED: 11/01/2023

in Criminal Miscellaneous Application No.532 of 2018 and learned Advocate Mr. Kunal S. Shah for the respondent No.2 in Criminal Miscellaneous Application No.4488 of 2018 submitted that while considering the case under Section 138 read with Section 141 of the N.I. Act, the complaint as a whole is required to be read and decided whether the applicants as Director of the Company were Incharge of the day to day business of the Company. Further, reliance has been placed on the judgment of the Hon'ble Apex Court in the case of S.P. Mani and Mohan Diary v. Dr. Snehalatha Elangovan reported in 2022 LawSuit (SC) 1106 and submitted that the Apex Court while summarizing the final conclusion has stated that while facing the criminal liability, there is no legal requirement for the complainant to show that the accused being a Partner of the firm was aware about each and every transaction. Learned Advocates submitted that in accordance with first proviso to sub-section (1) of Section 141 of the N.I. Act, if the accused would be able to prove to the satisfaction of the Court that the offence was committed without his/her knowledge or he/she had

R/CR.MA/532/2018 ORDER DATED: 11/01/2023

exercised due diligence to prevent commission of such offences, he/she will not be liable for punishment. The complainant is supposed to know only generally as to who were the in-charge of the affairs of the Company or firm, as the case may be.

7. In the above case of S.P. Mani (supra), the Hon'ble Apex Court has laid down the final conclusion in Paragraph 47 which is reproduced as under :-

"[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 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

R/CR.MA/532/2018 ORDER DATED: 11/01/2023

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 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

R/CR.MA/532/2018 ORDER DATED: 11/01/2023

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."

8. Thus, the final conclusion has to be read keeping in mind the ratio as laid down in the above decision of S.P. Mani (supra) wherein it has been summarised that it would be the primary responsibility of the complainant to mention in the complaint so as to make the accused vicariously liable. The complainant is required to allege that the person named in the complaint are the Incharge of the affairs of the company so formed. The said averments would be on the basis of his own knowledge and it is only those Directors of the Company or partners of the firm who could be made vicariously liable for the Company.

9. In the case of Sunita Palita (supra), the Hon'ble Apex Court has referred to the case of S.M.S. Pharmaceuticals Ltd. (supra) and the observations made in Paragraph 10 therein which are reproduced

R/CR.MA/532/2018 ORDER DATED: 11/01/2023

as under :-

"23. In S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89 cited by Mr. Luthra, this Court held :

"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

R/CR.MA/532/2018 ORDER DATED: 11/01/2023

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."

10. In addition, the Hon'ble Apex Court in Sunita Palita (supra) has referred to the judgment in the case of K.K. Ahuja v. V.K. Vora reported in 2009 10 SCC 48 and the position under Section 141 of the N.I. Act has been referred to and in Paragraph 28, it has been held as under :-

"28. In K.K. Ahuja v. V.K. Vora, (2009) 10 SCC 48 this Court discussed the principles of vicarious liability of the officers of a company in respect of dishonour of a cheque and held :-

27. The position under Section 141 of the Act can be summarised thus :

(i) If the accused is the Managing Director or a Joint

R/CR.MA/532/2018 ORDER DATED: 11/01/2023

Managing Director, it is not necessary to make an averment in the complaint that he is in charge of, and is responsible to the company, for the conduct of the business of the company. It is sufficient if an averment is made that the accused was the Managing Director or Joint Managing Director at the relevant time. This is because the prefix "Managing" to the word "Director" makes it clear that they were in charge of and are responsible to the company, for the conduct of the business of the company.

(ii) In the case of a Director or an officer of the company who signed the cheque on behalf of the company, there is no need to make a specific averment that he was in charge of and was responsible to the company, for the conduct of the business of the company or make any specific allegation about consent, connivance or negligence. The very fact that the dishonoured cheque was signed by him on behalf of the company, would give rise to responsibility under sub-section (2) of Section 141.

(iii) In the case of a Director, secretary or manager [as defined in Section 2(24) of the Companies Act] or a person referred to in clauses (e) and (f) of Section 5 of the Companies Act, an averment in the complaint that he was in charge of, and was responsible to the company, for the conduct of the business of the company is necessary to bring the case under Section 141(1) of the Act. No further averment would be necessary in the complaint, though some particulars will be desirable. They can also be made liable under Section 141(2) by making necessary averments relating to consent and connivance or negligence, in the complaint, to bring the matter under that sub- section.

(iv) Other officers of a company cannot be made liable

R/CR.MA/532/2018 ORDER DATED: 11/01/2023

under sub-section (1) of Section 141. Other officers of a company can be made liable only under sub-section (2) of Section 141, by averring in the complaint their position and duties in the company and their role in regard to the issue and dishonour of the cheque, disclosing consent, connivance or negligence."

11. Here in this case, the complainant has referred to Rojkana (India) Pvt. Limited as the accused - Jagdish Boloor has been shown as Managing Director while the present applicants are referred to be Directors in the complaint, the complainant has not specifically averred that the present applicants as Directors were incharge of day to the day business of the Company has observed in the case of Sunita Palita (supra). Section 141 of the N.I. Act creates vicarious liability and as per settled law, has to be construed strictly, therefore, it is not sufficient to make a reference in the statement of the complaint as the Director be arraigned as an accused without averring that the Director was Incharge or responsible for the conduct of the business, thus without any information as to the role of the Director, the complaint against them would not be maintainable. The complainant has not spelt out in what manner they are incharge or responsible of the company for

R/CR.MA/532/2018 ORDER DATED: 11/01/2023

the conduct of his business. The company may have several Directors thus it becomes incumbent on the complainant to make specific averments that they are responsible for the daily affairs of the business and that they are incharge or responsible for the conduct of the business.

12. In the case herebefore at hand, the Managing Director is shown as an accused and as held in the case of K.K. Ahuja (supra) if the accused is the Managing Director or a Joint Managing Director of the Company, it is not necessary to make averments in the complaint that he is incharge or responsible for the business of the company because of the prefix word 'Managing' to the word 'Director', which makes it clear that the Director was the incharge and responsible for the business of the Company.

13. Here in this case, it is further submitted that the signature is of Jagdish Boloor, who is stated by learned Advocate for the applicants Mr. H.N. Sevak to be the Managing Director.

14. Here in the present matter, in the complaint

R/CR.MA/532/2018 ORDER DATED: 11/01/2023

impugned, the only single averment is that the applicants are the Directors of the Company and it is averred that the applicants have signed the cheque, while the fact remains that there would be only one person signing the cheque and here in this case, Jagdish Boloor is stated to be the Managing Director the company.

15. In case of State of Haryana V. Bhajan Lal and Others reported in AIR 1992 SC 604, the Apex Court made the following observations:-

"8.1. In the exercise of the extra-ordinary power under Article 226 or the inherent powers under Section 482 of the Code of Criminal Procedure, the following categories of cases are given by way of illustration wherein such power could be exercised either to prevent abuse of the process of any Court or otherwise to secure the ends of justice, though it may not be possible to lay down any precise, clearly defined and sufficiently channelised and inflexible guide in myriad kinds of cases wherein such power should be exercised :-

(a) where the allegations made in the First Information Report or the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out a case against the accused;

(b) where the allegations in the First Information Report and other materials, if any, accompanying the F.I.R. do not disclose a cognizable offence, justifying

R/CR.MA/532/2018 ORDER DATED: 11/01/2023

an investigation by police officers under Section 156(1) of the Code except under an order of a Magistrate within the purview of Section 155(2) of the Code;

(c) where the uncontroverted allegations made in the FIR or complaint and the evidence collected in support of the same do not disclose the commission of any offence and make out a case against the accused;

(d) where the allegations in the FIR do not constitute a cognizable offence but constitute only a non- cognizable offence, no investigation is permitted by a police officer without an order of a Magistrate as contemplated under Section 155(2) of the Code;

(e) where the allegations made in the FIR or complaint are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion that there is sufficient ground for proceeding against the accused;

(f) where there is an express legal bar engrafted in any of the provisions of the Code or the concerned Act (under which a criminal proceeding is instituted) to the institution and continuance of the proceedings and / or where there is a specific provision in the Code or the concerned Act, providing efficacious redress for the grievance of the aggrieved party;

(g) where a criminal proceeding is manifestly attended with mala fide and/or where the proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accused and with a view to spite him due to private and personal grudge."

16. In the result, both the applications are allowed. Criminal Case bearing No.4674 of 2017 pending in the Court of the learned Chief Judicial Magistrate, Rajkot and Criminal Case bearing No.4809 of 2017

R/CR.MA/532/2018 ORDER DATED: 11/01/2023

pending in the Court of the learned Additional chief Judicial Magistrate Magistrate, Surat and/or the proceedings initiated in pursuant thereto qua the applicants are quashed and set aside. Rule is made absolute.

Direct Service is permitted.

Sd/-

(GITA GOPI, J) CAROLINE