Citation : 2023 Latest Caselaw 8122 Guj
Judgement Date : 8 November, 2023
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/CRIMINAL MISC.APPLICATION (FOR QUASHING & SET ASIDE
FIR/ORDER) NO. 20834 of 2019
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE SANDEEP N. BHATT
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy
of the judgment ?
4 Whether this case involves a substantial question
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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SANGEETHA GOPALKRISHNAN NAIR
Versus
STATE OF GUJARAT
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Appearance:
MR. R.D.KINARIWALA(6146) for the Applicant(s) No. 1,2,3,4
MR PM DAVE(263) for the Respondent(s) No. 2
MR. P. T. CHACKO(213) for the Respondent(s) No. 3,4,5,6,7,8,9
MS MONALI H BHATT, APP for the Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE SANDEEP N. BHATT
Date : 08/11/2023
ORAL JUDGMENT
1. This application is filed under Section 482 of the
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Code of Criminal Procedure, 1973 (`the Code' for short) for
quashing and setting aside the process issued by the learned
Metropolitan Magistrate (NI Act), Court No.36 at Ahmedabad
in Criminal Case No.59178 of 2019 qua the present
applicants filed under the provisions of the Negotiable
Instruments Act (`the NI Act' for short).
2. The brief facts leading to filing of this application
are such the impugned complaint is filed by the respondent
no.2 alleging that the complainant is a non-banking finance
company constituted under the Companies Act, 1956; that the
company is having its regional office at address mentioned in
the cause title of the complaint; that the complainant-
company is in the business of providing various loans. It is
further alleged in the complaint that the complainant-
company has sanctioned to the respondent no.3-accused no.1
of credit facility upto Rs.40 crores by way of channels finance
facility; that the original accused nos.2 to 4 are the directors/
guarantors of the accused no.1, accused no.5 is Managing
Director of the accused no.1; accused no.6 is the Director of
the accused no.1, accused nos.7 and 8 are the Additional
Directors of accused no.1 and accused nos.9 to 11 are the
guarantors of the accused no.1; it is further averred in the
complaint that the accused nos.2 to 11 are responsible for
the day-to-day business of the accused no.1; that the accused
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no.3 in his capacity as director/authorized signatory of the
accused no.1 has executed a channel finance agreement dated
22.2.2018 with the complainant company and thereby agreed
to adhere to and comply with all the terms and conditions of
the said agreement; that as per the terms and conditions of
the agreement, the accused no.3 has issued the cheque in
favour of the complainant towards the repayment of the said
facility for Rs.18,99,63,688/- drawn on Kotak Mahindra Bank
Ltd., Kunnur and that when the said cheque was presented
by the complainant, it was returned dishonoured with an
endorsement `Drawer's sign not as per mandate" and that
the intimation of the dishonour of the cheque was received
by the complainant vide memo/advise dated 29.11.2018;
thereafter the demand notice was issued, however, as the
accused failed to make the payment and therefore the
complaint is filed and the process is issued against the
accused nos.1 to 8 by the learned Metropolitan Magistrate. It
is this complaint and process which are prayed to be
quashed by way of this application qua the applicants i.e.
accused nos.7, 8, 4 and 6 of the complaint.
3. Heard learned advocates for the parties.
4. Learned advocate Mr.Kinariwala for the applicants
submits that the applicants herein are the original accused
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nos.7,8,4 and 6 in the complaint. Accused nos.7 and 8 are
the additional directors and additional directors cannot be
joined as an accused as the director is not defined under the
provisions of the NI Act and as per Section 141, the director
is with reference to the company and therefore, one has to
refer to the definition clause under the Companies Act; that
as per Section 2(34) of the Companies Act, 2013, the director
means a director appointed on the board of the company in
accordance with the provision of Companies Act, 2013; that
so far as additional director is concerned, there is a provision
under Section 161(1) of the Companies Act, 2013; that the
additional director on a company board, is not the member of
the Board but, is appointed by the member of the public or
by shareholder; that the modes of appointment of the director
and additional director are totally different; that the
additional term is upto the next annual general meeting; that
in view of this, Section 141 of the NI Act cannot be applied
to the additional director.
5. So far as accused nos.4 and 6 are concerned,
learned advocate Mr.Kinariwala submitted that they are the
directors of the company. He submitted that as per Section
138 of the NI Act since the cheque is returned with an
endorsement, the same is returned as per the endorsement
drawer sign not as per the mandate; that in absence of any
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notice by the accused, there is no question of making
payment by them. He, therefore, submitted that in absence
of receipt of notice, the applicants cannot be prosecuted
further pursuant to the impugned complaint and therefore,
this application be allowed.
6. Per contra, learned APP Ms.Bhatt for respondent no.1-state
has objected these applications and submitted that this Court
should not exercise its powers by interfering with the
proceedings of recovery of amount and the proceedings
initiated under Section 138 of the Act are perfectly justified
and therefore, this Court should not exercise inherent powers
under Section 482 of the Code, which otherwise, should be
exercised sparingly. She, therefore, prayed to dismiss all these
applications.
7. Learned advocate Mr.Dave appearing for
respondent no.2-complainant submitted that the accused nos.7
and 8 who are additional directors of the accused no.1
company and as per settled provisions of law, an Additional
Director is a director having the same powers, responsibilities
and duties as other directors; that the only difference
between them is regards to their appointing authority and
their term of office; that the accused-additional director
cannot be simplicitor absolve on the ground that accused
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were merely `additional director' as per their averment in the
memo of the application without furnishing unimpeachable
and uncontroverted documentary evidence; that it is not in
dispute that at the time of commission of offence, accused
were working as additional directors and there is a clear
averment regarding vicarious liability in complaint as also in
the notice, even there is no reply to the notice. He, therefore,
relying on the decisions in the cases of (i) Bharatbhai
Ravatbaou Vala V/s HDFC Bank Limited reported in 2020(1)
NIJ 711; (ii) Manjulaben H Pandya V/s Gurumukhdas
Bhagwandas Vaswani reported in 2023(2) GLR 1238, (iii)
D.Vinod Shivappa V/s Nanda Belliappa reported in 2006(6)
SCC 456, prayed to dismiss this application.
7. Learned advocate Mr.Dave appearing for
respondent no.2-complainant submitted that the applicants
nos.3 and 4 are accused nos.4 and 6 in the impugned
complaint; that there is a basic/clear averment against each
and every accused person that they are vicariously liable in
the notice as well as in the complaint; that there is no reply
to the notice issued; that it is not the case of the applicants
that they resigned prior to the issuance of the cheques; that
no cogent and convincing material is produced to show that
they are not vicariously liable; that huge financial assistance
is availed after execution of channel finance agreement; that
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uptill now there is no repayment of financial assistance as
per agreed terms and conditions; that there is a huge loss of
public money and the application is filed to avoid the
liability regarding repayment of legally enforceable debt after
pocketing huge amount. He, therefore, submitted that these
are all points of trial and therefore this application be
dismissed.
8. I have considered the submissions made by learned
advocates for the parties and perused the material placed on
record.
9. At the outset, the provisions invoked in the
impugned complaint read as under:
"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
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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:
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.
Explanation: For the purpose of this section, "debt or other liability"
means a legally enforceable debt or other liability."
"141 Offences by companies. (1) If the person committing an offence under section 138 is a company, every person
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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 proceeded against and punished accordingly:
Provided that nothing contained in this subsection 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 subsection (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 attribute to, any neglect on the part of, any director, Manager, secretary, or other office of the company, such director, manager, 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.
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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 relating to a firm, means a partner in the firm."
142. Cognizance of offences.--
[(1)] Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),--
(a) no court shall take cognizance of any offence punishable under section 138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the cheque;
(b) such complaint is made within one month of the date on which the cause of action arises under clause (c) of the proviso to section 138: 2 [Provided that the cognizance of a complaint may be taken by the Court after the prescribed period, if the complainant satisfies the Court that he had sufficient cause for not making a complaint within such period;]
(c) no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under section 138.].
[(2) The offence under section 138 shall be inquired into and tried only by a court within whose local jurisdiction,--
(a) if the cheque is delivered for collection through an account, the branch of the bank where the payee or holder
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in due course, as the case may be, maintains the account, is situated; or
(b) if the cheque is presented for payment by the payee or holder in due course, otherwise through an account, the branch of the drawee bank where the drawer maintains the account, is situated.
Explanation.--For the purposes of clause (a), where a cheque is delivered for collection at any branch of the bank of the payee or holder in due course, then, the cheque shall be deemed to have been delivered to the branch of the bank in which the payee or holder in due course, as the case may be, maintains the account.]
[142A. Validation for transfer of pending cases.-- (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974) or any judgment, decree, order or direction of any court, all cases transferred to the court having jurisdiction under sub-section (2) of section 142, as amended by the Negotiable Instruments (Amendment) Ordinance, 2015 (Ord. 6 of 2015), shall be deemed to have been transferred under this Act, as if that sub-section had been in force at all material times. (2) Notwithstanding anything contained in sub-section (2) of section 142 or sub-section (1), where the payee or the holder in due course, as the case may be, has filed a complaint against the drawer of a cheque in the court having
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jurisdiction under sub-section (2) of section 142 or the case has been transferred to that court under sub-section (1) and such complaint is pending in that court, all subsequent complaints arising out of section 138 against the same drawer shall be filed before the same court irrespective of whether those cheques were delivered for collection or presented for payment within the territorial jurisdiction of that court.
(3) If, on the date of the commencement of the Negotiable Instruments (Amendment) Act, 2015 (26 of 2015), more than one prosecution filed by the same payee or holder in due course, as the case may be, against the same drawer of cheques is pending before different courts, upon the said fact having been brought to the notice of the court, such court shall transfer the case to the court having jurisdiction under sub-section (2) of section 142, as amended by the Negotiable Instruments (Amendment) Ordinance, 2015 (Ord. 6 of 2015), before which the first case was filed and is pending, as if that sub-section had been in force at all material times.]
10. From the aforesaid provisions, it is clear that a
person who is the signatory to the cheque and the cheque is
drawn by that person on an account maintained by him and
the cheque has been issued for the discharge, in whole or in
part, of any debt or other liability and the said cheque has
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been returned by the bank unpaid, such person can be said
to have committed an offence. Section 141(1) of the NI Act
deals with the offences committed by the companies and
every person, who at the time of the offence, was in-charge
of and was responsible to the company in the conduct of the
business, is liable to be proceeded against and punished
accordingly. The proviso to Section 141(1) of the NI Act
provides that where a person is nominated as a Director of
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.
Section 161 of the Companies Act also provides for
appointment of additional director, alternate director of
nominee director. Section 161(1) provides that the articles of
a company may confer on its Board of Directors the power to
appoint any person, other than a person who fails to get
appointed as a director in a general meeting, as an
additional director at any time who shall hold office up to
the date of the next annual general meeting or the last date
on which the annual general meeting should have been held,
whichever is earlier.
11. Considering the above-mentioned provisions, if the
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case of the applicant nos.1 and 2- accused nos.7 and 8 is
perused, it is mentioned in the complaint itself that they are
the additional directors of the company. In terms of Section
141 of the NI Act, every director of the company does not
automatically become vicariously liable for the commission of
an offence by the company. It is required that sufficient
averments are made to show that the person who is alleged
to be made vicariously liable, was in-charge and was also
responsible to the company for conduct of its business. In the
present case, there is no specific averment in the complaint
against the applicants that they are responsible for the day-
to-day affairs of the company.
12. At this juncture, it will be fruitful to refer to the
judgment in the case of Rajeev Jain and others (supra),
wherein after considering various judgments of the Hon'ble
Apex Court, it is held in paragraphs 29 to 33 as under:
"29. It is contended that the petitioners, in the present case, are Managing Directors, Non-Executive Directors), Executive Directors) and Additional Directors of the accused company.
30. The role of a Director is well-defined is the Companies Act, 2013. Section 161 of the Companies Act, 2013, provides for appointment of an Additional Director. The Additional Director holds an office during the absence of a director,
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when the director is not in India for at least a period of three months. In terms of Section 149(12) the Companies Act, 2013, Non-executive directors are external professionals and are not involved in the everyday activities of the company whereas as per rule 2(k) of The Companies (Specification of Definition Details) Rules, 2014, Executive Director means a whole-time director as defined in Section 2(94) of the Companies Act, 2013.
31. In so far as the Managing Directors are concerned, they cannot contend to be not responsible for the day-to-day functioning of the company and no specific role is required to be assigned qua them in the complaint [Ref Sunita Palita v. Panchami Stone Quarry, 2022 SCC Online SC 945]. Whether they are liable to be convicted for the offence, if any, would be a matter of trial and the complaint qua them, cannot be quashed at this stage.
32. The Hon'ble Supreme Court, in the case of Pooja Ravinder Devidasani v. State of Maharashtra, (2014) 16 SCC 1, had held that even though non-executive Director is a custodian of the governance of a company but is not involved in the day-to-day affairs of the running of its business and only monitors the executive activity. A company may have a number of Directors, however, not all of them could be subjected to the prosecution only on the statement that they are in-charge of and are responsible for
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the conduct of the business of the company. In the absence of any specific role being assigned to the Director, who is otherwise a non-executive Director, no vicarious liability can be assigned.
33. In the present case, the general allegations have been made against all the petitioners that they are responsible for the conduct of the business of the accused company. The document filed along with the petitions, have not been controverted by the respondents, which show that Petitioner No.1 and Petitioner No.3 are Managing Directors of the accused company. Petitioner No.2 is a Non-Executive Director, Petitioner No.4 is an Executive Director, whereas Petitioners 5,6 and 7 are Additional Directors."
13. In view of the above discussion, I am of the
opinion that general allegations have been made against all
the accused including the present applicants that they are
responsible for the conduct of the business of the accused
company. It is not stated specifically that the applicant nos.1
and 2 herein who are the additional directors are in charge
of the finances or of the head related to the transaction
which led to the dishonour of the cheque. The ingredients of
the sections invoked of the NI Act are not made out in this
case. Hence, this application is required to be allowed qua
applicant nos.1 and 2-accused nos.7 and 8.
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14. Now, considering this application for applicant
nos.3 and 4-accused nos.4 and 6, if the facts of the present
case are perused, it transpires from the material on record
and the averments made in the complaint as well as this
application that the applicants are the company and its
directors; that there is nothing contrary coming on the record
to show that they are not responsible for the day-to-day
affairs of the company and that they have not actively
participated in the transactions with the respondent no.2-
complainant; so far as the applicants nos.3 and 4 are
concerned, there is no unimpeachable and uncontroverted
evidence produced before the Court to take a different view
that they are not responsible for the day-to-day affairs of the
company. This Court cannot conduct mini trial or roving
inquiry at the stage of exercising the powers under Section
482 of of the Code.
15. At this stage, it is also fruitful to refer to the
judgment rendered by the Hon'ble Apex Court in the case of
S.P.Mani and Mohan Dairy V/s Dr.Snehalatha Elangovan reported in 2022(13) Scale, page 543, more particularly,
paragraphs 43, 46 and 47, which read as under:
"43. In the case on hand, we find clear and specific
averments not only in the complaint but also in the
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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 offence, she was
in no manner concerned wtih the firm or she was not in-
charge or responsible for day-to-day 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 umimpeachable 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.
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
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some sterling incontrovertible material or acceptable
circumstances to substantiate his contention. He must make
out a case hat making him stand the trial woule 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 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 sub-section (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
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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 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
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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 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."
16. In view of above discussion, this application is
partly allowed. The process issued by the learned
Metropolitan Magistrate (NI Act), Court No.36 at Ahmedabad
in Criminal Case No.59178 of 2019 qua the present
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applicants nos.1 and 2-accused nos.7 and 8 is quashed. Rule
is made absolute qua applicant nos.1 and 2.
17. This application is dismissed qua applicant nos.3
and 4-accused nos.4 and 6. Rule is discharged qua applicant
nos.3 and 4. Let the trial Court decide all the contentions
raised by the parties after giving proper opportunity to the
parties in the proceedings of trial of the of Criminal Case
No.59178 of 2019 pending before the learned Metropolitan
Magistrate (NI Act), Court No.36 at Ahmedabad. Direct
service is permitted.
(SANDEEP N. BHATT,J) SRILATHA
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