M.Sukumar Reddy Another vs The State Of A.P., Another
2021 Latest Caselaw 3652 Tel

           THE HON'BLE Dr. JUSTICE G. RADHA RANI

              CRIMINAL PETITION No.5169 of 2014


ORDER:

This petition is filed by the petitioners - A6 and A9 under

Section 482 Cr.P.C. to quash the proceedings against them in CC No.

402 of 2013 on the file of IX Special Magistrate, Erramanzil,

Hyderabad.

2. The 2nd respondent, a banking company, lodged a private

complaint before the IX Additional Chief Metropolitan Magistrate,

Nampally, Hyderabad on 02.03.2013 stating that A1 being a Limited

Company, and A2 being the Vice Chairman of A1 Company and A3

to A9 being the Directors of the A1 Company availed Rs.50.00 crores

towards short term loan on 10.01.2012 for general corporate purpose

which was repayable with interest at 1.5% over and above the base

rate of bank as applicable from time to time, with floating rate linked

to its rate compounding on monthly basis. The said amount was

repayable in bullet payment at the end of 364 days, but the interest

was to be paid every month. The collateral security was also given to

the said loan as (1) Lien on fixed deposit to a tune of Rs.10.00 crores,

(2) Negative Lien on Uniliner Machinery and (3) a post dated cheque

for Rs.50.00 crores. Apart from the above security, the Chairman Sri

T. Venkatram Reddy i.e. A3, Sri T. Vinayak Ravi Reddy, Vice

Chairman i.e. A2 and Sri P.K.Iyer, Vice Chairman i.e. A4 stood as

Guarantors to the said loan in the name of A1 Company. A2 Dr.GRR,J

acknowledged the terms and conditions of loan sanction

communication and executed all necessary loan documents. A4

executed another agreement of guarantee separately on the same day

i.e. on 10.01.2012 in favour of the complainant, A2 on behalf of A1

was authorized to borrow the loan in pursuance of their Board

Resolution dated 16.12.2011. Therefore, as per Section 293 of the

Companies Act, all the other accused being the Directors of A1

Company, got knowledge of borrowing of Rs.50.00 crores from the

complainant bank by A1 Company and were liable for repayment.

Despite several demands made by the complainant, the accused did

not keep up the word for repaying the interest as agreed. Their

accounts were classified as non-performing assets on 19.11.2012. As

per the agreement, the fixed deposit of Rs.10.00 crores made by the

accused with the complainant was closed and appropriated towards

the loan account of the accused. Apart from the above said loan, A1

also previously availed other loan HPMA-New Loan of Rs.25.00

crores on 19.12.2008. Therefore, the total amount due by the accused

to the complainant was Rs.50,41,09,075.75 ps., as on 31.12.2012

which remained unpaid by the accused to the complainant. Since the

accused failed to repay the loan amount, the cheque dated 10.01.2013

given by the accused on 10.01.2012 was presented by the complainant

for collection and the same was returned by the bankers of the accused

i.e. Canara Bank, Narayanaguda, Hyderabad with an endorsement

"FUNDS INSUFFICIENT." The complainant issued a legal notice to Dr.GRR,J

all the accused on 19.01.2013 and as the accused neither paid the

amount nor did give any reply, lodged the complaint under Sections

138 and 142 of Negotiable Instruments Act (for short 'NI Act').

3. Heard the learned counsel for the petitioners. There is no

representation for the 2nd respondent.

4. Learned counsel for the petitioners submitted that the

petitioners were independent Directors and had no role or say in the

day to day activities and business of the A1 Company nor they were

signatories to the alleged cheque or to any of the transactions that

transpired between A1 Company and the complainant-2nd respondent.

The petitioners admittedly resigned from the post of the Directors of

the A1 Company on 20.05.2012 and 14.08.2012 respectively. The

petitioners were nominated as Directors and it was only ceremonial in

nature. The petitioners never availed any benefits or received any

monetary benefit by virtue of the post of Director. As per the

provisions of the Act and as per the law laid down by the Hon'ble

Apex Court and High Courts, to fasten the liability against the accused

for the offence under Section 138 of the NI Act, specific role had to

be assigned to the accused showing as to how and in what manner, the

Directors were responsible for the conduct of the business of the

company. There was no presumption that every Director knew about

the transactions. There was no prima facie material against the

petitioners. As such, continuation of proceedings against the Dr.GRR,J

petitioners would amount to abuse of process of law and prayed to

quash the proceedings against them.

5. Learned counsel for the petitioners relied upon the

judgments of this Court in Arrakuntal V. Ganeshan v. M/s. Sai

Rama Cotton Syndicate and another1, and the judgments of the

Hon'ble Apex Court in Ashoke Mal Bafna v. Upper India Steel

Manufacturing and Engineering Company Limited2 and Saroj

Kumar Poddar v. State (NCT of Delhi) and Another3. He further

submitted that this Court in a batch of Criminal Petitions i.e. Crl.P.

Nos.3703 of 2013 & Batch, quashed the proceedings against the

petitioners herein in CC No.4 of 2013 on the file of IX Special

Metropolitan Magistrate, Hyderabad and CC Nos.116, 117 and 119 on

the file of XIII Special Metropolitan Magistrate, Hyderabad and CC

No.447 of 2013 on the file of the XX Additional Chief Metropolitan

Magistrate, Hyderabad, wherein the petitioners herein were shown as

A6 & A9, and filed a copy of the said order.

6. On a perusal of the private complaint filed by the

complainant, the role played by the petitioners was nowhere

mentioned, except stating that as per Section 293 of the Companies

Act, all the accused being the Directors of A1 Company got full

knowledge of borrowing of the loan from the complainant bank and as

such liable for repayment and also punishment.

2013 (2) ALT (Crl.) ( 275 (A.P.)

(2018) 14 SCC 202

(2007) 3 SCC 693 Dr.GRR,J

7. This Court in Arrakuntal V. Ganeshan case (1 supra) by

referring to various judgments of the Hon'ble Apex Court and

considering the provisions of Section 141 (1) of the NI Act held that:

"Section 141 of the Act does not say that a Director of the company shall automatically be vicariously liable for commission of an offence by or on behalf of the company. What is necessary is that sufficient averments should be made to show that the person who is sought to be proceeded against on the premise of he being vicariously liable for commission of an offence by the company must be incharge of, and shall also be responsible to the company for the conduct of its business. Sub- section (2) of Section 141 fortifies the above reasoning because sub-section (2) envisages direct involvement of any Director, Manager, Secretary or other officer of a company in the commission of an offence. This section operates when in a trial it is proved that the offence has been committed with the consent or connivance or is attributable to neglect on the part of any of the holders of these offices in a company. In such a case, such persons are to be held liable. Provision has been made for Directors, Managers, Secretaries and other officers of a company to cover them in cases of their proved involvement. In S.M.S. Pharmaceuticals Ltd., Vs., Neeta Bhalla and another [1], the Apex Court held that the liability arises on account of conduct, act or omission on the part of a person and not merely on account of holding an office or a position in a company. In order to bring a case within Section 141 of the Act, the complaint should disclose the necessary facts which makes a person liable."

8. The Hon'ble Apex Court in recent judgment in Ashoke Mal

Bafna case (2 supra) while summarizing the principles as to when a

Director of a company can be made liable for the offence committed

by the company under Section 141 of the NI Act held that:

"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 Director (arrayed as an accused) is in charge of and responsible to Company for conduct of business of Company, without anything more as to the role of Director. Compliant should spell out as to how and in what manner, accused was in charge of or was responsible to Company for conduct of its business. Aforesaid is in consonance with strict interpretation of penal statutes especially where such statutes create vicarious liability.

Dr.GRR,J

To fasten vicarious liability under Section 141 on a person, law is well settled by Supreme Court, that complainant should specifically show as to how and in what manner accused was responsible. Simply because a person is a Director of defaulter Company, does not make him liable under the Act. Only the person who was at the helm of affairs of the Company and in charge of and responsible for conduct of business at the time of commission of an offence, will be liable for criminal action.

Hence, for making a Director of a Company liable for offences committed by Company under Section 141, there must be specific averments against Director showing as to how and in what manner the Director was responsible for conduct of business of Company."

9. Thus, the Hon'ble Apex Court observed 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.

10. Learned counsel for the petitioners filed copies of the

resignation letters submitted by the petitioners to the Board of

Directors on 20.05.2012 and 14.08.2012, respectively, and the

resolutions passed by the Board of Directors in its meeting held on

08.12.2012 accepting the said resignations. These would disclose that

the petitioners resigned from independent Directorship prior to the

date of cheque on 10.01.2013. Form 32 filed by the learned counsel

for the petitioners also would disclose that the petitioners were not

working with the company with effect from 08.12.2012.

11. The Hon'ble Apex Court in Saroj Kumar Poddar case (3

supra) on a similar facts, held that:

"The appellant did not issue any cheque. He had resigned from the directorship of the Company. I t may be true that as to Dr.GRR,J

exactly on what date the said resignation was accepted by the company is not known, but, even otherwise, there is no averment in the complaint petitions, as to how and in what manner the appellant was responsible for the conduct of the business of the Company or otherwise responsible to it in regard to its functioning. He had not issued any cheque. How he is responsible for dishonour of the cheque has not been stated. The allegations, thus, do not satisfy the requirements of Section 141 of the Act.

Allegations to satisfy the requirements of Section 138 of the Act might have been made in the complaint petition but the same principally relate to the purported offence made by the Company. With a view to make a Director of a company vicariously liable for the acts of the company, it was obligatory on the part of the complainant to make specific allegations as are required in law."

12. This Court in Crl.P. Nos.3703 of 2013 & Batch, pertaining

to the same petitioners, while extracting the definition of an

Independent Director under Section 149 of the Companies Act, held

that:

"Hence, the above definition would make it clear that the petitioners cannot be said to be persons in charge of day to day affairs. There is no argument that the petitioners have any exceptional position under section 149.

The contention that the question whether the petitioners are independent directors and whether they are not in charge of day to day affairs, can be left to be decided after trial, is not in the spirit of the law, which directs quash of proceedings, when the contents of the complaint, coupled with the unimpeachable material produced by the petitioners, would not make out a case against the petitioners."

13. Hence, considering the judgments of the Hon'ble Apex

Court and this Court in a batch of criminal petitions and in

Arrakuntal V. Ganeshan case (1 supra) and as the petitioners were

neither Managing Directors nor the authorized signatories to sign on

the cheques and no specific role was attributed to the petitioners in

discharge of the day to day affairs of the Company, continuation of Dr.GRR,J

the proceedings against the petitioners is considered as an abuse of

process of law.

14. In the result, the Criminal Petition is allowed quashing the

proceedings against the petitioners - A6 and A9 in CC No.402 of

2013 on the file of the IX Special Magistrate, Erramanzil, Hyderabad.

Miscellaneous petitions pending, if any, shall stand closed.

_____________________ Dr. G. RADHA RANI, J November 22, 2021 KTL