Telangana High Court
Reena Gorle vs M/S. Tvn Enterprises And Another on 25 July, 2024
THE HON'BLE SMT. JUSTICE K. SUJANA
CRIMINAL PETITION NO.1769 OF 2023
ORDER:
This criminal petition is filed by the petitioner/accused
No.3 under Section 482 of the Code of Criminal Procedure, 1973
(for short 'Cr.P.C.') to quash the proceedings against her in STC
N.I.No.7041 of 2022 pending on the file of XIV Additional Judge-
cum-XVIII Additional Chief Metropolitan Magistrate at
Secunderabad. The offences alleged against the petitioner are
under Section 138, 141 and 142 of Negotiable Instruments Act
(for short the 'N.I.Act').
2. The 1st respondent/1st respondent filed a complaint
against accused No.1-M/s.Servomax Ltd., represented by its
Directors and others including the petitioner/A.3 herein,
alleging that the 1st respondent is in the business of purchase
and sale of merchandise goods and A.1 to A.4 are in the
business of manufacturing of Stabilizers, Power and
Distribution Transformers, Isolation Transformers, Power
Conditioners, Control Panels etc. The A.2 representing the A.1-
company approached the 1st respondent for a hand loan of an
amount of Rs.40 Lakhs for A.1's company business activities.
The 1st respondent gave Rs.10 Lakhs from his personal account
on 04.03.2020 and the balance amount from his firm's account.
A.2 assured that the said amount will be returned to him within
two months. When the 1st respondent insisted for return of the
above amount, A.2 took the shelter of Covid-19 pandemic and
lock down imposed by the Government. The 1st respondent
when insisted for repayment, A.2 issued cheque bearing
No.000925, on 29.07.2022 drawn on ICIC Bank, Jubilee Hills
Branch. When the 1st respondent presented the said cheque in
his bank it was returned on 26.08.2022 with an endorsement
"funds insufficient". As such, the 1st respondent issued legal
notice on 21.09.2022 and the same was acknowledged by A.2 on
22.09.2022. As, A.2 failed to repay the said amount, he filed
the present complaint.
3. Heard Sri P.Surya Narayana Murthy, learned counsel for
the petitioner, Ms. Himangini Sanghi, learned counsel appearing
for the 1st respondent and Sri S.Ganesh, learned Assistant
Public Prosecutor, appearing for the 2nd respondent-State.
4. The contention of learned counsel for the petitioner is that
petitioner is not in-charge of regular day-to-day activities of A.1
Company. Even though, she is a Director of A.1 company, she
is a sleeping and inactive Director and there is no allegation
particularly referring to the petitioner herein in the entire
complaint. The petitioner is unaware of the activities done by
A.2 on behalf of A.1 Company. Mere mentioning the name of
A.3 in the cause title as Director of A.1 Company is not
sufficient without any documentary evidence. As petitioner is
one of the Director of A.1 and in the entire complaint it is not
specifically spelled out how and in what way she is in-charge of
Director or was responsible to A.1-company for conducting of its
business. He further contended that Section 141 of the N.I.Act
deals with offences by Companies and its Directors. It is very
clear from the above section that what is required is that the
persons who are sought to be made "vicariously liable" for a
criminal offence, 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. Every person connected with the
Company shall not fall within the ambit of this provision, only
those persons who were in-charge and responsible for the
conduct of the business are only responsible. Mere holding the
post of Director does not cast responsibility on the petitioner.
5. Learned counsel relied on the judgment in SMS
Pharmaceuticals Limited Vs Neeta Balla 1, wherein the Apex
1 (2005) 8 SCC 89
Court decided the requirements under Section 141 of the
N.I.Act. 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. Therefore, a
person who comes under Section 141 of the N.I.Act, the
complaint must disclose necessary facts which make a person
liable. He also relied on the judgment in National Small
Industries Corporation Limited Vs Harmeet Singh Paintal
and another 2, wherein, it is observed that the primary
responsibility is on the complainant to make specific averments
as are required under the law in the complaint, so as to make
the accused vicariously liable. For fastening the criminal
liability, there is no presumption that every Director knows
about the transaction. Section 141 does not make all the
Directors liable for the offence. The criminal liability can be
fastened only on those who, at the time of the commission of
offence, were in-charge of and were responsible for the conduct
of business of the Company. Vicarious liability on the part of a
person must be pleaded and proved and not inferred. If the
accused is a Director or an officer of a Company who signed the
2 (2010)3 SCC 330
cheques on behalf of the Company then also it is not necessary
to make specific averment in the complaint. The person sought
to be made liable should be in-charge of and responsible for the
conduct of 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.
6. Learned counsel also relied on the judgment in Pooja
Ravinder Devidasani Vs State of Maharashtra and another 3,
wherein it is observed that there must be specific averments
against the Director showing as to how and in what manner
he/she was responsible for conduct of business of the company.
Further, the same was relied on by this Court in Lakshmi
Prameela Katari Vs The State of Telangana and
M/s.Crescent Enterprises, rep., by its Managing Partner,
Mohd. Habeeb 4 wherein it is held that absence of clear
accusation against the petitioner in the complaint and no where
it was indicated that petitioner therein was responsible for the
business of the company, allowed the said criminal petition.
The petitioner herein is also only a Director and is not involved
3 (2014) 16 SCC 1
in day-to-day affairs of the Company and there are no specific
averments against her in the complaint.
7. The contention of learned counsel for the petitioner is that
petitioner is only a Director of the Company and she is not
managing the affairs of Company. A.2 is the Managing Director
and he is taking care of the Company affairs, whereas petitioner
is made as accused without being any role in issuance of
cheque. The petitioner is also made as party to the complaint
but there are no specific averments in the complaint to show
allegations against her. As such, he prayed the Court to quash
the proceedings against the petitioner.
8. On the other hand, learned counsel for the 1st respondent
filed counter stating that there is no concept of sleeping or
inactive Director. Even as per the Articles of Association,
petitioner is designated as Executive Director. He also
contended that the 1st respondent also initiated Section 9 of the
Insolvency and Bankruptcy Code, 2016 before National
Company Law Tribunal (NCLT) praying to initiate the CIRP
process against the company. A.1 has also filed counter for
which the petitioner herein is the authorized signatory and has
filed affidavit stating that she is well aware of the transaction,
and also had the knowledge of issuance of cheque, dishonor of
cheque apart from that, I.A.No.402 of 2023 in C.P.No.361 of
2023 was filed by A.1 company wherein it was submitted that
petitioner herein and one of the partner of the 1st respondent
have communicated with each other with regard to continuation
of contract. The judgments relied on by the learned counsel for
petitioner are not applicable as the accused/Director in the said
judgments are not aware of the transaction and no specific
averment is made against them in the complaint.
9. Learned counsel for the 1st respondent relied on the
judgment in S.P.Mani and Mohan Dairy Vs Dr.Snehalatha
Elangovan 5, wherein it is clearly mentioned that if it is proved
that accused was aware of the transaction and specific
averments are not taken against the accused, then the accused
shall stand equally liable as if they have signed the cheque. The
petitioner herein is giving false statements on oath. Hence,
prayed the Court to dismiss this petition.
10. Having regard to the rival submissions and the material
on record, admittedly, petitioner is the Director of A.1 company,
whereas, the contention of petitioner herein is that she is not
managing the affairs of company and she had no knowledge of
5 2022 SCC Online SC 1238
issuance of cheques and there are no specific allegations against
this petitioner in the complaint.
11. On the other hand, learned counsel for the 1st respondent
would submit that petitioner is holding 75% shares in the
company and she is having knowledge about the transactions in
the company and further on 28.01.2023 A.1-company filed
counter in CIRP filed before the NCLT in which petitioner is also
an authorized signatory and has filed affidavit stating that she is
well aware of the transaction and also had knowledge of
issuance of cheque and dishonor of cheque due to insufficient
funds. As such, she is well aware of the fact that she is also
liable for the offence under Section 138 of N.I.Act. Further, in
MGT-7 filed by the petitioner before the Ministry of Corporate
Affairs, it is mentioned that she is having more than 75% shares
in the company and drawing gross salary from the company as
Board of Director. He also referred to Section 141 of the N.I.Act,
wherein it clearly states that every person who at the time the
offence was committed, was in charge of, and was responsible to
the company for conduct of 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.
[
12. Learned counsel for the petitioner mainly contended that
merely a person who is a Director of Company is not sufficient
for holding him liable, he/she should have knowledge about
day-to-day affairs of the company and that there must be in-
charge of the company transaction.
13. On the other hand, learned counsel for the 1st respondent
relied on the judgment in S.P.Mani (supra) wherein it was
observed as follows :
"44. This Court in Commr. v. Velliappa Textiles
Ltd. [Commr. v. Velliappa Textiles Ltd., (2003) 11 SCC 405 :
2004 SCC (Cri) 1214] , 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 : (SCC p. 436, para 56)
"56. In order to trigger corporate 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 corporate
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."
45. Now, the logical question that would follow is who
would be liable through the company for this offence? Can
the company itself be prosecuted for this offence? Answering
this question, Section 141 says, "every person who was in
charge of" and "was responsible to the company for the
conduct of the business" shall be deemed to be guilty of the
offence. This concept of vicarious liability has been explained
by this Court in Sabitha Ramamurthy v. R.B.S.
Channabasavaradhya [Sabitha Ramamurthy v. R.B.S.
Channabasavaradhya, (2006) 10 SCC 581 : (2007) 1 SCC
(Cri) 621] , as : (SCC p. 585, para 7)
"7. ... Section 141 raises a legal fiction. By reason of the
said provision, a person although is not personally liable for
commission of such an offence would be vicariously liable
therefor. Such vicarious liability can be inferred so far as a
company registered or incorporated under the Companies Act,
1956 is concerned only if the requisite statements, which are
required to be averred in the complaint petition, are made so
as to make the accused therein vicariously liable for the
offence committed by the company. Before a person can be
made vicariously liable, strict compliance with the statutory
requirements would be insisted."
(emphasis supplied)
48. In a very recent pronouncement in Sunita
Palita v. Panchami Stone Quarry [Sunita Palita v. Panchami
Stone Quarry, (2022) 10 SCC 152 : (2023) 1 SCC (Civ) 612 :
(2023) 1 SCC (Cri) 91] , this Court, after referring to K.K.
Ahuja [K.K. Ahuja v. V.K. Vora, (2009) 10 SCC 48 : (2009) 4
SCC (Civ) 1 : (2010) 2 SCC (Cri) 1181] referred to above,
observed as under : (Sunita Palita case [Sunita
Palita v. Panchami Stone Quarry, (2022) 10 SCC 152 : (2023)
1 SCC (Civ) 612 : (2023) 1 SCC (Cri) 91] , SCC pp. 164-65,
para 29)
"29. ... 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."
49. In yet one another recent pronouncement
in Ashutosh Ashok Parasrampuriya v. Gharrkul Industries (P)
Ltd. [Ashutosh Ashok Parasrampuriya v. Gharrkul Industries
(P) Ltd., (2023) 14 SCC 770 : 2021 SCC OnLine SC 915] , this
Court after due consideration of the decisions in S.M.S.
Pharmaceuticals [S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla,
(2005) 8 SCC 89 : 2005 SCC (Cri) 1975] ; S.K. Alagh v. State
of U.P. [S.K. Alagh v. State of U.P., (2008) 5 SCC 662 : (2008)
2 SCC (Cri) 686] ; Maharashtra State Electricity Distribution
Co. Ltd. v. Datar Switchgear Ltd. [Maharashtra State
Electricity Distribution Co. Ltd. v. Datar Switchgear Ltd.,
(2010) 10 SCC 479 : (2011) 1 SCC (Cri) 68] , and GHCL
Employees Stock Option Trust v. India Infoline Ltd. [GHCL
Employees Stock Option Trust v. India Infoline Ltd., (2013) 4
SCC 505 : (2013) 2 SCC (Cri) 414] , observed as under :
(Ashutosh Ashok Parasrampuriya case [Ashutosh Ashok
Parasrampuriya v. Gharrkul Industries (P) Ltd., (2023) 14
SCC 770 : 2021 SCC OnLine SC 915] , SCC para 24)
"24. In the light of the ratio in S.M.S. Pharmaceuticals
[S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC
89 : 2005 SCC (Cri) 1975] and later 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 be open
for the High Court to interfere under Section 482CrPC unless it
comes 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 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)
50. The principles discernible from the aforesaid decision of
this Court in Ashutosh Ashok Parasrampuriya [Ashutosh
Ashok Parasrampuriya v. Gharrkul Industries (P) Ltd., (2023)
14 SCC 770 : 2021 SCC OnLine SC 915] are 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."
14. In Para 58 of the above judgment it was observed that 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 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 for punishment. The complainant is supposed
to know only generally as to who were in-charge of the affairs of
the company or firm. It is only the Directors of 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. The
vicarious criminal liability can be inferred against the partners
of the firm when it is specifically averred in the complaint about
the status of 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. It is also observed that how the High
Court should exercise its power to quash the criminal
proceeding when such proceeding is related to offences
committed by the companies. The world of commercial
transactions contains numerous unique intricacies, many of
which are yet to be statutorily regulated. More particularly, the
principle laid down in Section 141 of the N.I Act is susceptible to
abuse by unscrupulous companies to the detriment of
unsuspecting third parties.
15. A perusal of the complaint in the instant case shows that
though the allegations are mainly against A.2, the petitioner
herein demanded A.2 to make payments for the dues and A.2
issued cheques which were returned due to in-sufficient funds.
It is averred in the complaint that A.1 to A.4 are in the
manufacturing business of Stabilizers, Power and Distribution
Transformers, Isolation Transformers, Power Conditioners,
Control Panels etc, whereas the petitioner's name was
mentioned in the complaint and legal notice was issued on
21.09.2022 calling upon the accused to pay the due amount
and the same was delivered to the accused on 22.09.2022. In
the legal notice issued by the 1st respondent, it is mentioned
that the act of issuing cheque and dishonor of the same,
amounts to criminal breach of trust and attracts civil as well as
criminal action and also stated the names of A.3 and A.4 and all
of them are directly involved in the day-to-day affairs of the
company as Directors. Hence, notice was issued to all the
Directors of the company and further learned counsel for the 1st
respondent submitted that before the NCLT petitioner has also
filed affidavit stating that she is aware of the transaction
between the accused and complainant and has also
acknowledged issuance of cheque which shows that
petitioner/A.3 is also aware of the fact of issuance of cheques
and according to the 1st respondent petitioner is having 75%
shares in the company and has actively participated in the
business activities. Therefore, it cannot be said that there are
no averments against the petitioner to proceed with the case.
There are no merits in this petition and the same is liable to be
dismissed.
16. Accordingly, the Criminal Petition is dismissed. The trial
Court is directed to dispose of STC N.I.No.7041 of 2022 as early
as possible. Miscellaneous petitions, if any, pending shall stand
closed.
_______________
K. SUJANA, J
Date :25.07.2024
Rds
