L.K.Ponagi vs Malati D/O Dundappa ...
2022 Latest Caselaw 2128 Kant

               IN THE HIGH COURT OF KARNATAKA
                       DHARWAD BENCH

           DATED THIS THE 10TH DAY OF FEBRUARY 2022

                           BEFORE

           THE HON'BLE MR. JUSTICE M.NAGAPRASANNA

              CRIMINAL PETITION NO.101217/2019


BETWEEN:

1.   L.K.PONAGI
     AGE: 53 YEARS,
     CEO, SHRI.RIDDHI SIDDHI
     MULTIPURPOSE CO-OP SOCIETY LTD.,
     1628/B, SHRI.KRISHNA PLAZA,
     1ST FLOOR, ANSURKAR GALLI,
     BELAGAVI-590001.

2.   HARIBHAU GAWADE
     AGE: 66 YEARS,
     VICE-CHAIRMAN, SHRI.RIDDHI SIDDHI
     MULTIPURPOSE CO-OP SOCIETY LTD.,
     1628/B, SHRI.KRISHNA PLAZA,
     1ST FLOOR, ANSURKAR GALLI,
     BELAGAVI-590001.

3.   SHRI.YALLAPPA JADHAV
     AGE: 69 YEARS,
     DIRECTOR, SHRI.RIDDHI SIDDHI
     MULTIPURPOSE CO-OP SOCIETY LTD.,
     1628/B, SHRI.KRISHNA PLAZA,
     1ST FLOOR, ANSURKAR GALLI,
     BELAGAVI-590001.

4.   SHRI.RAGHUNATH JOSHI
     AGE: 69 YEARS,
     DIRECTOR, SHRI.RIDDHI SIDDHI
     MULTIPURPOSE CO-OP SOCIETY LTD.,
     1628/B, SHRI.KRISHNA PLAZA,
                               2




     1ST FLOOR, ANSURKAR GALLI,
     BELAGAVI-590001.

5.   SHRI.BABURAO RAWAT
     AGE: 59 YEARS,
     DIRECTOR, SHRI.RIDDHI SIDDHI
     MULTIPURPOSE CO-OP SOCIETY LTD.,
     1628/B, SHRI.KRISHNA PLAZA,
     1ST FLOOR, ANSURKAR GALLI,
     BELAGAVI-590001.

6.   SMT.JAYASHRI YALLAPPA JADHAV
     AGE: 59 YEARS,
     DIRECTOR, SHRI.RIDDHI SIDDHI
     MULTIPURPOSE CO-OP SOCIETY LTD.,
     1628/B, SHRI.KRISHNA PLAZA,
     1ST FLOOR, ANSURKAR GALLI,
     BELAGAVI-590001.

7.   SMT.SAVITA DHAMANEKAR
     AGE: 41 YEARS,
     DIRECTOR, SHRI.RIDDHI SIDDHI
     MULTIPURPOSE CO-OP SOCIETY LTD.,
     1628/B, SHRI.KRISHNA PLAZA,
     1ST FLOOR, ANSURKAR GALLI,
     BELAGAVI-590001.

8.   SHRI.MANOJ L. DEVADKAR
     AGE: 36 YEARS,
     DIRECTOR, SHRI.RIDDHI SIDDHI
     MULTIPURPOSE CO-OP SOCIETY LTD.,
     1628/B, SHRI.KRISHNA PLAZA,
     1ST FLOOR, ANSURKAR GALLI,
     BELAGAVI-590001.

9.   SHRI.AMIT PATIL
     AGE: 36 YEARS,
     DIRECTOR, SHRI.RIDDHI SIDDHI
     MULTIPURPOSE CO-OP SOCIETY LTD.,
     1628/B, SHRI.KRISHNA PLAZA,
     1ST FLOOR, ANSURKAR GALLI,
     BELAGAVI-590001.
                                3




10. SHRI.SANTOSH N. KOLKAR
    AGE: 36 YEARS,
    DIRECTOR, SHRI.RIDDHI SIDDHI
    MULTIPURPOSE CO-OP SOCIETY LTD.,
    1628/B, SHRI.KRISHNA PLAZA,
    1ST FLOOR, ANSURKAR GALLI,
    BELAGAVI-590001.

                                               ...PETITIONERS.

(BY SHRI MAHANTESH S HIREMATH, ADVOCATE.)


AND:

MALATI D/O DUNDAPPA PATTANASHETTI
AGE: 51 YEARS, OCC: RETIRED R.D. AGENT,
HOUSE HOLD WORK,
R/O: GURUWAR PETH, GOKAK,
DIST: BELAGAVI.

                                               ...RESPONDENT.

(BY SHRI JAGADISH PATIL, ADVOCATE.)


         THIS CRIMINAL PETITION IS FILED UNDER SECTION 482 OF
THE CODE OF CRIMINAL PROCEDURE, 1973, PRAYING TO QUASH THE
PROCEEDINGS IN P.C.R.NO.417/2018 AND THE ORDER DATED
20.12.2018, FOR THE OFFENCE PUNISHABLE UNDER SECTION 138 OF
THE NEGOTIABLE INSTRUMENTS ACT, 1881, INITIATED AGAINST THE
PETITIONER PENDING ON THE FILE OF PRINCIPAL CIVIL JUDGE AND
J.M.F.C. GOKAK, INSOFAR AS THE PETITIONERS ARE CONCERNED,
ETC.,.

         THIS PETITION COMING ON FOR ADMISSION THIS DAY, THE
COURT PASSED THE FOLLOWING:
                                 4




                             ORDER

Heard Shri Mahantesh S. Hirermath, the learned counsel

appearing for the petitioners and Shri Jagadish Patil, the learned

counsel appearing for the respondent.

2. The petitioners call in question the proceedings in

P.C.R.No.417/2018, pending on the file of Prl. Civil Judge and

JMFC, Gokak, registered for the offence punishable under

Section 138 of the Negotiable Instruments Act, 1881. The

petitioners are accused nos.3, 4, 5, 6, 7, 8, 9, 10, 11 and 12 in

the said proceedings. The issue is with regard to issuance of

cheque and it getting dishonoured. The petitioners are all other

office bearers of the society. They are either Directors or Chief

Executive Officers and are not signatories to the cheque i.e., the

subject matter of the lis or the transaction that has happened

over the cheque.

3. The petitioners not being the signatories and being

the Directors and the Chief Executive Officers of the society, is

not in dispute. If the petitioners are not signatories to the

cheque, they could not be brought under the realm of these

criminal proceedings. The issue in this regard need not detain

this Court for long, or delve deep in the matter, as the issue

stands covered by a judgment rendered by a co-ordinate Bench

of this Court in the case of Vellore Ramakrishnan Manjunath

and others vs. M/s. Blue Oak Construction Pvt. Ltd.,

Bengaluru, reported in 2020(1) KCCR 546, wherein this

Court has held as follows:

2. The contention of learned counsel for the petitioners is that insofar as present petitioners/Directors are concerned, there are no averments whatsoever in the complaints that the petitioners were either responsible for the conduct of business of accused no.1-Company or they had any role to play in the transaction in question. In the said circumstances, the prosecution of the petitioners for the alleged offences under Section 138 of the Act is wholly illegal and abuse of the process of Court. In support of these contentions, learned counsel for the petitioners has placed reliance on the decision of the Hon'ble Supreme Court in S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla and Anr. [AIR 2005 SC 3512] wherein at para 16 the Hon'ble Supreme Court has emphasized that 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. When this averment not being made in a complaint, the requirements of Section 141 cannot be said to be satisfied. Learned counsel has also referred to the decision of the Hon'ble

Supreme Court in Pooja Ravinder Devidasani vs. State of Maharashtra [AIR 2015 SC 675] wherein at para 28 it is held as under:

"28. In the entire complaint, neither the role of the Appellant in the affairs of the Company was explained nor in what manner the Appellant is responsible for the conduct of business of the Company, was explained. From the record it appears that the trade finance facility was extended by the Respondent No. 2 to the default Company during the period from 13th April, 2008 to 14th October, 2008, against which the Cheques were issued by the Company which stood dishonored. Much before that on 17th December, 2005 the Appellant resigned from the Board of Directors. Hence, we have no hesitation to hold that continuation of the criminal proceedings against the Appellant under Section 138 read with Section 141 of the N.I. Act is a pure abuse of process of law and it has to be interdicted at the threshold."

3. With regard to sustainability of the prosecution against Chairman is concerned, learned counsel has placed reliance on the decision of this Court in Shamanur Shivashankarappa vs. India Sugars and Refineries Ltd. [2015 CriLJ 2316] wherein at para 31 it is observed as under:

"31. In view of the above said ruling, in my opinion, the Chairman also stands on the same footing as that of a Director. If any liability has to be fastened on the Chairman, in law, a specific role has to be given to him and what is the overt act committed by him to share the criminal

liability of the Company. Therefore, in the absence of such allegations and specific averments in the complaint, even Chairman also, ipso-facto by virtue of his position, cannot be made as an accused in a criminal case for the offence committed by the Company."

4. Refuting the above contentions, learned counsel for the contesting respondent has placed reliance on the decision of the Hon'ble Supreme Court in Standard Chartered Bank v. State of Maharashtra and Ors. [2016 CRI. L. J. 2362] wherein at para 31, the Apex Court has emphasized that 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 is really not concerned in issuance of the cheque, burden is on the said Director to persuade the High Court to quash the process either by furnishing some sterling incontrovertible material or acceptable circumstances to substantiate his contention. Learned counsel has emphasized that in the instant case prior to initiation of the complaints, notices were issued to all the Directors including the petitioners herein on the basis of which reply was issued by the legal section admitting the liability. Under the said circumstances, the petitioners having impliedly admitted that they were responsible for the conduct of the affairs of accused no.1 and were in the know how of the transaction in question, the proceedings cannot be quashed. Learned counsel emphasized that the very stand taken by the petitioners indicate that the petitioners are vicariously liable for the offence committed by accused no.1-company and the contentions urged by them are by way of defence which could be substantiated only during trial and hence there is no case to quash the proceedings. On the same issue, learned counsel has referred to

another decision of the Supreme Court in Kirshna Texport and Capital Markets Ltd v. Ila A. Agrawal and Ors. [AIR 2015 SC 2091] with reference to para 14 thereof.

5. I have considered the submissions made by the respective counsel and perused the records.

6. Coming to the averments made in the complaints, there are no assertions in the complaints that the petitioners herein were either responsible for the conduct of the business of accused no.1- Company or that they were aware of the alleged transaction. The only averment made in the respective complaint in this regard is that the first accused is a company registered under the Companies Act represented by its Managing Director. Accused no.2 is the Chairman of accused no.1, accused no.3 is a wholetime Director, accused nos.4 to 7 are its Directors. Undeniably, these averments do not suffice the requirements of Section 141 of the N.I. Act. Section 141 of the N.I. Act reads as under:

"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 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, 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."

7. Dealing with the amplitude and scope of the provisions of the said section, the Hon'ble Supreme Court in S.M.S. Pharmaceuticals Ltd. cited supra, two

Judge Bench of the Supreme Court referred the following questions for determination to a larger Bench i.e. (a) whether for purposes of Section 141 of the Negotiable Instruments Act, it is sufficient if the substance of the allegation read as a whole fulfill the requirements of the said section and it is not necessary to specifically state in the complaint that the persons accused was in charge of, or responsible for, the conduct of the business of the Company, (b) whether a director of a company would be deemed to be in charge of, and responsible to, the company for conduct of the business of the company and, therefore, deemed to be guilty of the offence unless he proves to the contrary and (c) even if it is held that specific averments are necessary, whether in the absence of such averments the signatory of the cheque and or the Managing Directors of Joint Managing Director who admittedly would be in charge of the company and responsible to the company for conduct of its business could be proceeded against. The larger Bench answered the reference at para 16 of the judgment as under:

"16. 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 question posed in sub-para (b) has to be in 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 company cannot be deemed to be in charge of and responsible to the company for 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 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 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 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."

This view is reiterated in the subsequent decision of the Hon'ble Supreme Court in Pooja Ravinder Devidasani vs. State of Maharashtra [AIR 2015 SC 675] at para 28 of the judgment extracted above.

8. The contention of the learned counsel for the respondent based on the decision of the Hon'ble Supreme Court in Standard Chartered Bank v. State of Maharashtra and Ors. [2016 Cr.L.J. 2362] cannot be accepted. In para 31 of the said decision, the Hon'ble Supreme Court has held as under:

"31. When in view of the basic averment process is issued the complaint must proceed against the Directors. But, 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 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 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."

9. As could be seen from the facts of the said case, basic averments were made with regard to role

played by each of the Directors of the Company. However, in the instant case, as already stated above, there is not even a remote assertion in the complaint as to the role played by the petitioners herein either in the running of accused no.1- company or in the transaction in question leading to issuance of the Cheque. In the said circumstances, in the absence of basic averments, the plea set up by the petitioners based on the reply issued by accused no.1 cannot be said to be due compliance of the requirements of Section 141 of the N.I. Act.

10. I have gone through the reply notice relied on by the learned counsel for the respondent. The said reply was not issued by any one of the petitioners herein admitting the transaction. On the other hand, the said reply was issued by the legal section admitting the liability of accused no.1. This brings the case squarely within Section 141 of the N.I. Act insofar as accused no.1 is concerned. The said reply cannot be construed as admission of the liability by the petitioners for the alleged dishonor of the cheque rendering them vicariously liable under Section 141 of the N.I. Act. In that view of the matter, I do not find any substance in the contention urged by the learned counsel for the respondent. The respondent having failed to aver the basic ingredients constituting the offence under Section 141 of the N.I. Act insofar as the Chairman and the Directors are concerned, in my view, the prosecution of the petitioners for the alleged offences cannot be sustained. Consequently, the petitions are allowed. The proceedings initiated in CC Nos.4501/2017, 4502/2017, 4503/2017, 4504/2017 & 6824/2017 are quashed insofar as the petitioners namely, accused nos.2, 4 & 5 are concerned. The proceedings shall continue against other accused persons in accordance with law.

4. It is also not disputed that the issue stands covered

by the aforesaid judgment. Therefore, following the judgment of

the co-ordinate Bench of this Court and the facts obtaining in

the case at hand, I deem it appropriate to exercise the

jurisdiction under Section 482 of the Code of Criminal

Procedure, 1973 and obliterate the proceedings against the

petitioners.

5. For the aforesaid reasons the following:

ORDER

i) The criminal petition is allowed.

ii) The proceedings in P.C.R.No.417/2018, pending on the file of Prl. Civil Judge and JMFC, Gokak, stand quashed against the petitioners.

iii) It is made clear that the observations made in the course of the order would be applicable only to the petitioners in the case at hand. This would not bind or influence the trial against any other accused.

SD JUDGE Mrk/-