Gujarat High Court

Deepak Chhindalal Sharma vs State Of Gujarat on 20 September, 2023

Bench: Sandeep N. Bhatt

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     R/CR.MA/5468/2019                                         ORDER DATED: 20/09/2023

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            IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

             R/CRIMINAL MISC.APPLICATION NO. 5468 of 2019
                                With
             R/CRIMINAL MISC.APPLICATION NO. 5470 of 2019
                                With
             R/CRIMINAL MISC.APPLICATION NO. 5472 of 2019
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                          DEEPAK CHHINDALAL SHARMA
                                    Versus
                              STATE OF GUJARAT
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Appearance:
MR PREMAL S RACHH(3297) for the Applicant(s) No. 1
MR PRATIK Y JASANI(5325) for the Respondent(s) No. 2
MR CHINTAN DAVE, APP for the Respondent(s) No. 1
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 CORAM:HONOURABLE MR. JUSTICE SANDEEP N. BHATT

                                  Date : 20/09/2023

                               COMMON ORAL ORDER

1. All these applications are filed under Section 482

of the Code of Criminal Procedure, 1973 (`the Code' for short)

for quashing and setting aside the complaints being Criminal

Case Nos.1325 of 2014, 1326 of 2014 and 7185 of 2015

respectively pending before the learned Additional Chief

Judicial Magistrate, Jamnagar filed under the provisions of

the Negotiable Instruments Act (`NI Act' for short).

2. As the common question of facts and law are

involved in all these applications, at the request of learned

advocates for the parties, they are heard together and

disposed of by this common oral judgment.

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3. Rule returnable forthwith. Learned APP waives

service of notice of rule for respondent no.1 and learned

advocate Mr.Pratik Jasani waives service of notice of rule for

respondent no.2.

4. It is averred in the complaints that the respondent

no.2-complainant had business relations with the accused

no.1-company and the cheques in question for issued for the

part payment of liability, which were dishonoured. Therefore,

after issuance of legal notice, when the dues were not paid,

the impugned complaints were filed.

5. Heard learned advocate Mr.Rachh for the

applicant, learned APP Mr.Jayswal for respondent no.1-state

and learned advocate Mr.Jasani for respondent no.2.

5.1 Learned advocate Mr.Rachh for the applicant

submits that there is no specific averment, much less, any

averment as per the requirement of Section 141 of NI Act, in

the impugned complaints; that the applicant has not signed

the cheques in question and the applicant has resigned from

his post in the accused-company much prior to issuance of

the impugned cheques; that the resolution is also passed to

the said effect in the extra ordinary general meeting of the

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accused no.1-company and Form no.32 was also filed with the

Registrar of Companies; therefore, vicarious liability of the

accused company cannot be extended to the applicant; that

Section 141 of the NI Act is a penal provision creating

vicarious liability and which must be strictly construed and

there it is not sufficient to make a bald cursory statement in

a complaint that a director is in charge of and responsible

for the company for the conduct of the business of the

company without anything more as the role of the director;

that no allegations are made and no role is attributed

against the applicant and he is roped in as a pressurizing

tactic with a sole intention to harass by using criminal

prosecution as a lever.

5.2 He, therefore, submitted that in view of the above,

on bare reading of the criminal complaints impugned herein,

none of the ingredients of the alleged offences are made out

and hence, continuing of the criminal proceedings against the

applicant would be nothing but gross abuse of the process of

the criminal laws. He, therefore, prayed to allow these

applications and quash the impugned complaints.

5.3 In support of his submissions, learned advocate

Mr.Rachh has relied on the decisions in case of Anilkumar

Ramniklal Patel V/s K.G.S.Tyres Distributors Proprietor

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Rajeshkumar Kantilal Samani Thropoa Lalitkumar Kantilal Samani; and judgment in the case of S.P.Mani and Mohan Dairy V/s Dr.Snehalatha Elangovan reported in 2022(13) SCALE 543.

6. Per contra, learned APP Mr.Jayswal 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. He, therefore, prayed to dismiss all these

applications.

6.1 Learned advocate Mr.Jasani for the respondent

no.2-complainant has submitted that the applicant has played

a vital role in the entire transaction and merely by stating

that he has resigned as a director of the company would not

absolve him from his liability which he had created while he

was in charge of affairs of the company; that the applicant

did not reply to notice issued by the complainant; that the

submissions made by the applicant is in form of defence and

this Court may not assess the defence at this stage. He,

therefore, prayed to dismiss these applications.

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7. I have considered the rival submissions and

perused the material on record.

8. At the outset, the provisions of Sections 138 and

141 of the NI Act are required to be seen, which 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 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

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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 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:

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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.

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."

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9. Keeping the provisions of the above mentioned

sections in mind, if the facts of the present case are perused,

it transpires from the record that the applicant has resigned

from the accused no.1-company much prior to issuance of the

cheques in question; the form no.32 is also submitted before

the Registrar of Companies which is placed on record for

perusal which supports the said fact of resignation of the

applicant as a director of the company; this documents

produced on record remained uncontroverted and these

documents are government records and found acceptable in

the eye of law; that there is nothing on the record to show

that the present applicant is the signatory of the cheques;

that the dishonoured cheques were issued much after the

resignation of the applicant as director in the company; that

there are no specific averments in the complaint to show

that the applicant is actively participating in the day-to-day

affairs of the company even when he was a director of the

company; that there are no averments made in the complaint

to make the applicant vicariously liable for the alleged

offence; that the notice is not served on the applicant as it

was served at the address of the accused no.1-company and

the applicant was not in contact with the accused no.1-

company after he resigned; that even the summons issued by

the learned trial Court could not be served on the applicant

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due to lack of his address and ultimately the applicant

appeared on issuance of non-bailable warrant on him.

10. It is fruitful to refer to the case of Ashok Shwekramani V/s State of Andhra Pradesh, reported in 2023- JX(SC)-0-761, wherein it is held by the Hon'ble Apex Court in paragraphs : 20 and 21 as under:

"20. On a plain reading, it is apparent that the words "was in charge of" and "was responsible to the company" for the conduct of the business of the company" cannot be read disjunctively and the same ought be read conjuctively in view of use of the word "and" in between.

21. Therefore, even by giving a liberal construction to what is averred in paragraph 1 of the complaints, we are unable to accept the submission made by the learned counsel appearing for the second respondent that these averments substantially comply with sub-section(1) of Section 141 of the NI Act."

11. At this stage, it is fruitful to refer to the

judgment rendered by the Hon'ble Apex Court in the case of

S.P.Mani and Mohan Dairy (supra), more particularly,

paragraphs 33, 35, 41 and 42, which read as under:

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"33. Thus, the legal principles discernible from the aforesaid decision of this Court may be summarized as under:

(a) Vicarious liability can be fastened on those who are in- charge of and responsible to the company or firm for the conduct of its business. For the purpose of Section 141, the firm comes within the abmit of a company.

(b) It is not necessary to reproduce the language of Section 141 verbatim in the complaint since the complaint is required to be read as a whole;

(c) If the substance of the allegations made in the complaint fulfill the requirements of Section 141, the complaint has to proceed in regards the law.

(d) In construing a complaint a hyper technical approach should not be adopted so as to quash the same.

(e) The laudable object of preventing bouncing the cheques and sustaining the credibility of commercial transactions resulting in the enactment of Sections 138 and 141 respectively should be kept in mind by the Court concerned.

(f) These provisions create a statutory presumption of dishonesty exposing a person to criminal liability if payment is not made within the statutory period even after the issue of notice.

(g) The power of quashing should be exercised very sparingly and where, read as a whole, the factual foundation for the offence had been laid in the complaint, it should not be quashed.

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(h) The Court concerned would owe a duty to discharge the accused if taking everything stated in the complaint is correct and construing the allegations made therein liberally in favour of the complainant, the ingredients of the offence are altogether lacking.

35. This Court in Assistant Commissioner, Assessment II, Bangalore and Ors. v. Velliappa Textiles Ltd. And Ors. AIR(2004)SC 86, introduced the concept of ego and alter ego in relation to the employee and the employer corporation. The Court elucidated this principle in the following words:-

"In order to trigger corporation criminal liability for the actions of the employee (who must generally be liable himself), the actor-employee who physically committed the offence must be the ego, the centre of the corporation personality, the vital organ of the body corporate, the alter ego of the employer corporation or its directing mind. Since the company/corporation has no mind of its own, its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation. To this extent there are no difficulties in our law to fix criminal liability on a company. The common law tradition of alter ego or identification approach is applicable under our existing laws.

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Specific Averments in the complaint:

41. In Gunmala Sales Private Limited (supra), this Court after an exhaustive review of its earlier decisions on Section 141 of the NI Act, summarized its conclusion as under:

"a) Once in a complaint filed under Section 138 read with Section 141 of the NI Act the basic averment is made that the Director was in charge of and responsible for the conduct of the business of the company at the relevant time when the offence was committed, the Magistrate can issue process against such Director;

b) If a petition is filed under Section 482 of the Code for quashing of such a complaint by the Director, the High Court may, in the facts of a particular case, on an overall reading of the complaint, refuse to quash the complaint because the complaint contains the basic averment which is sufficient to make out a case against the Director;

c) In the facts of a given case, on an overall reading of the complaint, the High Court may, despite the presence of the basic averment, quash the complaint because of the absence of more particulars about role of the Director in the complaint. It may do so having come across some unimpeachable, incontrovertible evidence which is beyond suspicion or doubt or totally acceptable circumstances which may clearly indicate that the Director could not have been

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concerned with the issuance of cheques and asking him to stand the trial would be abuse of the process of the court. Despite the presence of basic averment, it may come to a conclusion that no case is made out against the Director. Take for instance a case of a Director suffering from a terminal illness who was bedridden at the relevant time or a Director who had resigned long before issuance of cheques. In such cases, if the High Court is convinced that prosecuting such a Director is merely an armtwisting tactics, the High Court may quash the proceedings. It bears repetition to state that to establish such case unimpeachable, incontrovertible evidence which is beyond suspicion or doubt or some totally acceptable circumstances will have to be brought to the notice of the High Court. Such cases may be few and far between but the possibility of such a case being there cannot be ruled out. In the absence of such evidence or circumstances, complaint cannot be quashed;

d) No restriction can be placed on the High Court's powers under Section 482 of the Code. The High Court always uses and must use this power sparingly and with great circumspection to prevent inter alia the abuse of the process of the Court. There are no fixed formulae to be followed by the High Court in this regard and the exercise of this power depends upon the facts and circumstances of each case. The High Court at that stage does not conduct a mini trial or roving inquiry, but nothing prevents it from taking unimpeachable evidence or totally acceptable circumstances

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into account which may lead it to conclude that no trial is necessary qua a particular Director.

42. The principles of law and the dictum as laid in Gunmala Sales Private Limited (supra), in our opinion, still holds the field and reflects the correct position of law."

12. It is also fruitful to refer to the judgment in case

of Alka Khandu Avhad V/s Amar Syamprasad Mishra reported in (2021)4 SCC 675 equivalent citation is AIR

Online 2021 SC 124, wherein it is held in paragraphs 7,8

and 8.1 as under:

"7. On a fair reading of Section 138 of the NI Act, before a person can be prosecuted, the following conditions are required to be satisfied:

i) that the cheque is drawn by a person and on an account maintained by him with a banker;

ii) for the 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; and

iii) the said cheque 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.

Therefore, a person who is the signatory to the cheque and the cheque is drawn by that person on an account

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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 been returned by the bank unpaid, such person can be said to have committed an offence. Section 138 of the NI Act does not speak about the joint liability. Even in case of a joint liability, in case of individual persons, a person other than a person who has drawn the cheque on an account maintained by him, cannot be prosecuted for the offence under Section 138 of the NI Act. A person might have been jointly liable to pay the debt, but if such a person who might have been liable to pay the debt jointly, cannot be prosecuted unless the bank account is jointly maintained and that he was a signatory to the cheque.

8. Now, so far as the case on behalf of the original complainant that the appellant herein - original accused No. 2 can be convicted with the aid of Section 141 of the NI Act is concerned, the aforesaid has no substance.

8.1 Section 141 of the NI Act is relating to the offence by companies and it cannot be made applicable to the individuals. Learned counsel appearing on behalf of the original complainant has submitted that "Company" means any body corporate and includes, a firm or other association of individuals and therefore in case of a joint liability of two or more persons it will fall within "other association of

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individuals" and therefore with the aid of Section 141 of the NI Act, the appellant who is jointly liable to pay the debt, can be prosecuted. The aforesaid cannot be accepted. Two private individuals cannot be said to be "other association of individuals". Therefore, there is no question of invoking Section 141 of the NI Act against the appellant, as the liability is the individual liability (may be a joint liabilities), but cannot be said to be the offence committed by a company or by it corporate or firm or other associations of individuals. The appellant herein is neither a Director nor a partner in any firm who has issued the cheque. Therefore, even the appellant cannot be convicted with the aid of Section 141 of the NI Act. Therefore, the High Court has committed a grave error in not quashing the complaint against the appellant for the offence punishable under Section 138 r/w Section 141 of the NI Act. The criminal complaint filed against 8 the appellant for the offence punishable under Section 138 r/w Section 141 of the NI Act, therefore, can be said to be abuse of process of law and therefore the same is required to be quashed and set aside."

13. It is also relevant to refer to the judgment of the

Hon'ble Apex Court in the case of Inder Mohan Goswami

and Another versus State of Uttaranchal reported in (2007) 12 SCC 1, more particularly para : 23 & 24 thereof, which read as under :

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"23. This Court in a number of cases has laid down the scope and ambit of courts' powers under Sec. 482 CrPC. Every High Court has inherent power to act ex debito justitiae to do real and substantial justice, for the administration of which alone it exists, or to prevent abuse of the process of the court. Inherent power under Sec. 482 CrPC can be exercised:

[(i) to give effect to an order under the Code;] [(ii) to prevent abuse of the process of court, and] [(iii) to otherwise secure the ends of justice.]

24. Inherent powers under Sec. 482 CrPC though wide have to be exercised sparingly, carefully and with great caution and only when such exercise is justified by the tests specifically laid down in this section itself'. Authority of the court exists for the advancement of justice. If any abuse of the process leading to injustice is brought to the notice of the court, then the court would be justified in preventing injustice by invoking inherent powers in absence of specific provisions in the statute. Discussion of decided cases."

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14. In view of above settled position of law and after

considering the facts as alleged in the complaints and

circumstances of the present case as prima facie ingredients

of Section 138 as well as Section 141 of NI Act are not

satisfied and accused is not liable, the continuation of further

proceedings pursuant to the said complaints will cause

greater hardships to the applicant and no fruitful purpose

would be served if such further proceedings are allowed to be

continued. The Court must ensure that criminal proceedings