Punjab-Haryana High Court
Sanjiv Kavaljit Singh And Another vs M/S Shiv Shakti Steel And Metals on 5 March, 2024
Neutral Citation No:=2024:PHHC:032703
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IN THE HIGH COURT OF PUNJAB AND HARYANA
AT CHANDIGARH
Reserved on: 15.02.2024
Date of Decision: 05.03.2024
CRM-M No.20230 of 2023 (O&M)
SANJIV KAVALJIT SINGH AND ANOTHER
......Petitioner(s)
Vs
M/S SHIV SHAKTI STEEL AND METALS
....Respondent(s)
CORAM: HON'BLE MR. JUSTICE HARKESH MANUJA
Present: Mr. Sharan Sethi, Advocate
for the petitioners.
Ms. Pranjal P. Chaudhary, Advocate
for the respondent.
****
HARKESH MANUJA, J.
[1]. By way of present petition filed under Section 482 Cr.P.C., the
petitioners prayed for quashing of Complaint CIS No. NACT/4269/2019, dated
01.07.2019, titled "M/s Shiv Shakti Steel & Metals vs M/s Leel Electrical Limited
and others" under Sections 138, 141, and 142 of the Negotiable Instruments Act,
1881 (referred to as the "1881 Act") as well as summoning Order dated 01.07.2019
passed by the Judicial Magistrate First Class, Faridabad (referred to as "JMIC")
along with all subsequent proceedings arising therefrom.
[2]. The facts of the case are that Petitioner Nos.1 and 2 served as
additional Directors of "M/s Leel Electrical Limited" (referred to as the
"Company") from 22.04.2019 to 29.07.2019 and 22.04.2019 to 21.07.2019
respectively. The Respondent/complainant firm engaged in regular business
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transactions with the Company and supplied Iron and Steel goods on a credit basis.
In order to fulfill its legal liability, the Company issued two cheques, amounting to
Rs.5,00,000/- each , bearing no. 760932 dated 28.02.2019, and bearing no. 760933
dated 2.03.2019, drawn on State Bank of India, Bhiwadi, Alwar Branch, in favour
of the respondent. Both cheques were dishonoured on 4.05.2019, with the reason
stated as "payment stopped by the drawer". Thereafter, the respondent firm served
a legal notice dated 29.05.2019, under Sections 138, 141, and 142 of the 1881 Act,
via Registered A.D Post on 31.05.2019, to the last known address of the Company
as well as on the petitioners/accused vide delivery report dated 06.06.2019.
Subsequently, the respondent filed a Complaint CIS No. NACT/4269/2019 dated
July 1, 2019, before the Judicial Magistrate of First Class (hereinafter referred to as
"JMIC") and vide Order dated 18.11.2019 the Ld. JMIC summoned the petitioners
besides the Company and other directors to face trial under Sections 138 and 142
of the 1881 Act. Being aggrieved thereof the present petition has been filed.
[3]. Learned Counsel for the petitioners asserted that their inclusion as
accused in the aforementioned complaint was erroneous. He emphasized that, at
the time of dishonour of the aforementioned cheques, the petitioners held the
post(s) of additional directors in the Company and were not involved in its day-to-
day operations. It was highlighted that the petitioners were not even on the board
of Directors of the Company when the cheques in question were issued on
28.02.2019 and 02.03.2019, having joined only on 22.04.2019, as per documents
from the Registrar of Companies, Ministry of Corporate Affairs (Annexures P-4
and P-5). He even argued that the petitioners were not even signatories to the said
cheques.
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[4]. Learned counsel also argued that the complaint (supra) inaccurately
stated that the petitioners frequently visited the respondent firm for goods
inspection, falsely implying their direct involvement in the daily affairs of the
Company. It was stressed that, at the time of issuance of the cheques in question,
the petitioners had not even assumed their roles as Non-Executive Directors.
Consequently, it was asserted that the petitioners ought not to be held accountable
for any alleged lapse on the part of the Company in fulfilling its legal obligations
under the 1881 Act.
Placing reliance upon the decision of the Hon'ble Supreme Court's
decision in the case of "Sunita Palita and Others vs M/s Panchami Stone
Quarry, 2022(4) R.C.R (Criminal) 118" Ld. counsel argued that merely holding
the post of Director does not suffice to establish liability under Section 141 of the
1881 Act. Relying upon another decision of the Hon'ble Supreme Court in the case
of "S.P Mani and Mohan Diary vs Dr. Snehalatha Elangovan, 2022(4) R.C.R
(Criminal) 743" it was emphasized that the legal position under the 1881 Act
differs significantly based on the role of accused, distinguishing between
Managing Director ("MD")/Joint MD or a Director/officer who has signed the
dishonored cheque and those in other office-holding positions like the petitioners
in the present case. It was further contended that individuals in the latter category
cannot be held liable unless their specific roles have been explicitly outlined in the
issuance or dishonour of cheque(s).
[5]. Conversely, learned Counsel for the respondent contested the plea
presented on behalf of the petitioners while submitting that the inclusion of
petitioners as accused in the Complaint, along with their summoning Order by
learned JMIC, was justified and within the domain of law. Learned Counsel argued
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that the petitioners were rightly implicated as they actively participated in
managing day-to-day operations of the Company and possessed full awareness of
the legal obligations owed to the respondent/complainant firm at the time of
dishonour of cheques in question.
[6]. I have heard learned counsel for the parties and gone through the
paper book. I find substance in the submissions made by learned counsel for the
petitioners.
[7]. Upon a thorough examination of record, it is evident that petitioner
No.1 assumed the role of an Additional Director on the Board of the Company on
22.04.2019 and continued on that position until 29.07.2019 (Annexure P-4).
Similarly, petitioner no. 2 joined the board of the Company as an Additional
Director on 22.04.2019 and held that position until 21.07.2019 (Annexure P-5).
The cheques in question, issued by the Company and signed by its authorized
signatories, bear dates of 28.02.2019 and 02.03.2019, and were subsequently
dishonoured on 04.05.2019 and the roles of the petitioners has been delineated in
paragraph No.2 of the complaint which reads as under: -
"2. That the Accused no. 2 to 4 being the Directors and persons
responsible for the day to day affairs of accused no.1 approached
the complainant along with Accused No. 5 & 6 being Authorised
Signatories and persons responsible for the day to day affairs of
accused no.1 and placed various orders for supply of iron & steel
goods - Sheets, Plates, Angles etc. in the name of the Accused no.1
on credit basis. The Accused no.2 to 6 came to the complainant's
office from time to time and after inspection of goods and after being
satisfied regarding its quality and quantity took delivery of goods.
Accordingly, the complainant supplied goods more particularly
detailed in the bills and raised its bills in the name of accused no.1
which were handed over to the accused persons for payment."
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[8]. Before dealing with the merits of the present case it would be
beneficial to read relevant Section 141 under 1881 Act which is reproduced as
under: -
"Section 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
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(b) "director", in relation to a firm, means a
partner in the firm."
[9]. In the humble opinion of this Court, following a thorough review of
the record and considering the facts and circumstances of the present case
including the averments made in the complaint, learned Counsel for the petitioners
appropriately relied upon "Sunita Palita's" and "Mohan Diary's" cases (supra) to
contend that the petitioners ought not to be subjected to prosecution under Sections
138 and 141 of the 1881 Act. The relevant excerpts thereof are as follows : -
" Sunita Palita's case(supra)
29. In Pooja Ravinder Devidasani v. State of
Maharashtra and Anr., (2014) 16 SCC 1 this Court held
as under:-
"17. ........Non-executive Director is no doubt a
custodian of the governance of the company but is
not involved in the day-to-day affairs of the
running of its business and only monitors the
executive activity. To fasten vicarious liability
under Section 141 of the Act on a person, at the
material time that person shall have been at the
helm of affairs of the company, one who actively
looks after the day-to-day activities of the company
and is particularly responsible for the conduct of
its business. Simply because a person is a Director
of a company, does not make him liable under the
NI Act. Every person connected with the Company
will not fall into the ambit of the provision. Time
and again, it has been asserted by this Court that
only those persons who were in charge of and
responsible for the conduct of the business of the
Company at the time of commission of an offence
will be liable for criminal action. A Director, 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 for an offence
under section 141 of the NI Act. In National Small
Industries Corpn. [National Small Industries
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Corpn. Ltd. v. Harmeet Singh Paintal, (2010) 3
SCC 330 : (2010) 1 SCC (Civ) 677 : (2010) 2 SCC
(Cri) 1113] this Court observed: (SCC p. 336,
paras 13-14)
"13. Section 141 is a penal provision
creating vicarious liability, and
which, as per settled law, must be
strictly construed. It is therefore, not
sufficient to make a bald cursory
statement in a complaint that the
Director (arrayed as an accused) is in
charge of and responsible to the
company for the conduct of the
business of the company without
anything more as to the role of the
Director. But the complaint should
spell out as to how and in what
manner Respondent 1 was in charge
of or was responsible to the accused
Company for the conduct of its
business. This is in consonance with
strict interpretation of penal statutes,
especially, where such statutes create
vicarious liability.
14. A company may have a number of
Directors and to make any or all the
Directors as accused in a complaint
merely on the basis of a statement that
they are in charge of and responsible
for the conduct of the business of the
company without anything more is not
a sufficient or adequate fulfilment of
the requirements under Section 141."
18. In Girdhari Lal Gupta v. D.H.
Mehta [Girdhari Lal Gupta v. D.H. Mehta,
(1971) 3 SCC 189 : 1971 SCC (Cri) 279 : AIR
1971 SC 2162], this Court observed that a person
"in charge of a business" means that the person
should be in overall control of the day-to-day
business of the Company.
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19. A Director of a company is liable to be
convicted for an offence committed by the
company if he/she was in charge of and was
responsible to the company for the conduct of its
business or if it is proved that the offence was
committed with the consent or connivance of, or
was attributable to any negligence on the part of
the Director concerned (see State of Karnataka v.
Pratap Chand [State of Karnataka v. Pratap
Chand, (1981) 2 SCC 335 : 1981 SCC (Cri) 453]).
20. In other words, the law laid down by this Court
is that for making a Director of a company liable
for the offences committed by the company under
section 141 of the NI Act, there must be specific
averments against the Director showing as to how
and in what manner the Director was responsible
for the conduct of the business of the company."
30. As held in K.K. Ahuja v. V.K. Vora (supra) when
the accused is the Managing Director or a Joint
Managing Director of a company, 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. This is because the prefix
"Managing" to the word "Director" makes it clear that
the Director was in charge of and responsible to the
company, for the conduct of the business of the company.
A Director or an Officer of the company who signed the
cheque renders himself liable in case of dishonour. Other
officers of a company can be made liable only under sub-
section (2) of section 141 of the NI Act 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.
42. A Director of a company who was not in charge or
responsible for the conduct of the business of the
company at the relevant time, will not be liable under
those provisions. As held by this Court in, inter alia,
S.M.S. Pharmaceuticals Ltd. (supra), the liability under
Section 138/141 of the NI Act arises from being in charge
of and responsible for the conduct of the business of the
company at the relevant time when the offence was
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committed, and not on the basis of merely holding a
designation or office in a company. It would be a travesty
of justice to drag Directors, who may not even be
connected with the issuance of a cheque or dishonour
thereof, such as Director (Personnel), Director (Human
Resources Development) etc. into criminal proceedings
under the NI Act, only because of their designation.
43. Liability depends on the role one plays in the affairs
of a company and not on designation or status alone as
held by this Court in S.M.S. Pharmaceuticals Ltd.
(supra). The materials on record clearly show that these
Appellants were independent, non-executive Directors of
the company. As held by this Court in Pooja Ravinder
Devidasani v. State of Maharashtra and Anr. (supra) a
non-Executive Director is not involved in the day-to-day
affairs of the company or in the running of its business.
Such Director is in no way responsible for the day-to-day
running of the Accused Company. Moreover, when a
complaint is filed against a Director of the company, who
is not the signatory of the dishonoured cheque, specific
averments have to be made in the pleadings to
substantiate the contention in the complaint, that such
Director was in charge of and responsible for conduct of
the business of the Company or the Company, unless
such Director is the designated Managing Director or
Joint Managing Director who would obviously be
responsible for the company and/or its business and
affairs.
Mohan Diary's Case (supra)
39. In yet one another recent pronouncement in the case
of Ashutosh Ashok Parasrampuria v. Gharrkul Industries
Pvt. Ltd. reported in (2021) SCC Online SC 915, this
Court after due consideration of the decisions in the case
of SMS Pharmaceuticals (supra); S.K. Alagh v. State of
Uttar Pradesh (2008) 5 SCC 662; Maharashtra State
Electricity Distribution Co. Ltd. v. Datar Switchgear
Ltd., (2010) 10 SCC 479, and GHCL Employees Stock
Option Trust v. India Infoline Limited, (2013) 4 SCC 505,
observed as under:-
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"In the light of the ratio in SMS Pharmaceuticals
Ltd. (supra) and after judgments of which a
reference has been made what is to be looked into
is whether in the complaint, in addition to
asserting that the appellants are the Directors of
the Company and they are in-charge of and
responsible to the Company for the conduct of the
business of the Company and if statutory
compliance of section 141 of the NI Act has been
made, it may not open for the High Court to
interfere under section 482 CrPC, 1973 unless it
comes a.cross 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 concerned with the
issuance of cheques and asking him to stand the
trial would be abused of process of Court. Despite
the presence of basic averment, it may come to a
conclusion that no case is made out against the
particular Director for which there could be
various reasons." [Emphasis supplied]
40. The principles discernible from the aforesaid
decision of this Court in the case of Ashutosh Ashok
Parasrampuriya (supra) is that the High Court should
not interfere under Section 482 of the Code at the
instance of an accused unless it comes across some
unimpeachable and incontrovertible evidence to indicate
that the Director/partner of a firm could not have been
concerned with the issuance of cheques. This Court
clarified that in a given case despite the presence of
basic averments, the High Court may conclude that no
case is made out against the particular Director/ partner
provided the Director/partner is able to adduce some
unimpeachable and incontrovertible evidence beyond
suspicion and doubt."
[10]. Recently as well, the Hon'ble Supreme Court while dealing with
somewhat similar issue in case of "Ashok Shewakramani & Ors vs State of
Andhra Pradesh & Anr., 2023(3) SCC (Cri) 568, held that in order to fasten
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liability under Sections 138 and 141 of the 1881 Act, mere averments made in the
complaint that accused were Directors and in charge of day-to-day operations is
not enough when the said Directors were not even signatories to the dishonoured
cheque(s). The Hon'ble Apex Court in this case emphasized on the fact that
accused Directors must be in-charge and responsible for company's
operations/business conjunctively at the relevant time. Relevant excerpts are as
under: -
"9. Sub-section 1 of section 141 of the NI Act required the
complainant to aver that the present appellants at the time of
the commission of the offence were in charge of, and were
responsible to the company for the conduct of the business of
the company. In the present case, all that the second respondent
has alleged is that the appellants were liable for transactions of
the company and that they were fully aware of the issuance of
the cheques and dishonour of the cheques.
10. Therefore, even if we decide to take a broad and liberal
view of the pleadings in the complaint, we are unable to draw a
conclusion that compliance with the requirements of sub-
Section 1 of Section 141 N.I. Act was made by the second
respondent. The most important averment which is required by
sub-Section (1) of section 141 of the NI Act is that the directors
were in charge of, and were responsible for the conduct of the
company. The appellants are neither the signatories to the
cheques nor are whole time directors. The decision in the case
of "S.P. Mani and Mohan Diary v. Dr. Snehalatha
Elangovan " will have no application as in the present case, the
statutory notice was admittedly not served to the accused.
Obviously, the High Court has not adverted to aforesaid two
glaring deficiencies in the complaint.
19. Section 141 is an exception to the normal rule that there
cannot be any vicarious liability when it comes to a penal
provision. The vicarious liability is attracted when the
ingredients of sub-section 1 of Section 141 are satisfied. The
Section provides that every person who at the time the offence
was committed was in charge of, and was responsible to the
Company for the conduct of business of the company, as well as
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the company shall be deemed to be guilty of the offence under
section 138 of the NI Act. In the light of sub-section 1 of Section
141, we have perused the averments made in the complaints
subject matter of these three appeals. The allegation in
paragraph 1 of the complaints is that the appellants are
managing the company and are busy with day to day affairs of
the company. It is further averred that they are also in charge
of the company and are jointly and severally liable for the acts
of the accused No.1 company. The requirement of sub-section 1
of section 141 of the NI Act is something different and higher.
Every person who is sought to be roped in by virtue of sub-
section 1 of section 141 NI Act must be a 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. Merely because somebody is managing the affairs
of the company, per se, he does not become in charge of the
conduct of the business of the company or the person
responsible for the company for the conduct of the business of
the company. For example, in a given case, a manager of a
company may be managing the business of the company. Only
on the ground that he is managing the business of the company,
he cannot be roped in based on sub-section 1 of section 141 of
the NI Act. The second allegation in the complaint is that the
appellants are busy with the day-to-day affairs of the company.
This is hardly relevant in the context of sub-section 1 of section
141 of the NI Act. The allegation that they are in charge of the
company is neither here nor there and by no stretch of the
imagination, on the basis of such averment, one cannot
conclude that the allegation of the second respondent is that the
appellants were also responsible to the company for the
conduct of the business. Only by saying that a person was in
charge of the company at the time when the offence was
committed is not sufficient to attract sub-section 1 of section
141 of the NI Act........
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 conjunctively in view
of use of the word "and" in between."
[11]. In the present case, it is crucial to note that neither the petitioners held
the position of Managing Director, nor were they signatories to the dishonored
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cheques. Moreover, considering the additional factor that they were not even on
the Board of the Company at the time when the aforementioned cheques were
issued, besides there being no averment to the effect that at the time when the
offence was committed, petitioners were in-charge and responsible to the Company
for the conduct of the business of the Company as well as the Company, permitting
the proceedings against the petitioners to continue would amount to grave injustice
and subject them to a prolonged trial in the absence of their culpability and, thus
would be unjust and untenable.
[12]. Accordingly, in view of the discussion made hereinabove, this petition
is allowed and Complaint CIS No. NACT/4269/2019, dated 01.07.2019 as well as
the summoning Order dated 01.07.2019 passed by Judicial Magistrate First Class,
Faridabad, along with all subsequent proceedings arising therefrom qua the
petitioners are hereby quashed.
[13]. Pending miscellaneous application(s) if any, shall also stand disposed
of.
(HARKESH MANUJA)
March 05, 2024 JUDGE
Atik
Whether speaking/reasoned Yes/No
Whether reportable Yes/No
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