M/S. Rallis India Ltd vs M/S. Sri Lakshmi Agencies
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Telangana High Court

M/S. Rallis India Ltd vs M/S. Sri Lakshmi Agencies on 12 March, 2025

              HON'BLE SRI JUSTICE K.SURENDER

     CRIMINAL APPEAL Nos.523, 591, 592 and 627 OF 2018
COMMON JUDGMENT:

1. Criminal Appeal No.523 of 2018 is filed by the appellant,

aggrieved by the acquittal of accused vide judgment in C.C.No.81 of

2013 dated 08.02.2017. Criminal Appeal No.591 of 2018 is filed by

the appellant aggrieved by the acquittal of accused vide judgment in

C.C.No.84 of 2013 dated 08.02.2017. Criminal Appeal No.592 of

2018 is filed by the appellant aggrieved by the acquittal of accused

vide judgment in C.C.No.82 of 2013 dated 08.02.2017, and

Criminal Appeal No.627 of 2018 is filed by the appellant aggrieved

by the acquittal of accused vide judgment in C.C.No.83 of 2013

dated 08.02.2017. Since parties in all the appeals are one and the

same, they are being heard together and disposed off by way of this

Common Judgment.

2. The appellant company herein is the complainant before the

learned III Special Magistrate, Hyderabad. A private complaint was

filed to punish the respondent/accused for the offence under

Section 138 of the Negotiable Instruments Act. The complainant

company is a public limited company and the 1st respondent/1st

accused is a partnership firm represented by its partners A2 to A7.

A3 is the signatory of the cheques in question, in all the cases.

According to the complainant, all other accused, i.e., A2, A4 to A7

were responsible for the day to day activities of A1 partnership firm

and are jointly liable.

3. Briefly, the case of the complainant company in all the cases is

that the complainant company's products, which are fertilizers,

chemicals, and pesticides, were supplied to the

respondents/accused on a regular basis as part of a business

understanding. The products were delivered by the complainant

company and accepted by the accused firm. Towards payment of

the outstanding amounts for the products supplied, cheques in

question were issued. The following cheques, when presented for

clearance, were returned unpaid on the ground of, "payment

stopped by drawer", and in Crl.A.No.627 of 2018, the reason for

return of the cheque is, "insufficient funds".

Crl.Appeal number             Parties names          Cheque No.& amount
Against CC No.

Crl.A.No.523 of 2018 M/s.Rallis                India Two cheques bearing
Against CC No.81 of Limited.                         No.382872, 382873,
2013                 M/s.Sri                Lakshmi dt.31.03.2004     for



                      Agencies & others      Rs.15,00,000/- each
                                             were issued
Crl.A.No.591 of 2018 M/s.Rallis      India   Three         cheques
Against CC No.84 of Limited.                 bearing Nos.382881,
2013                 M/s.Sri     Lakshmi     382882, 382883 of
                     Agencies & others       Rs.15,00,000/- each
                                             for a total amount of
                                             Rs.45,00,000/- were
                                             issued
Crl.A.No.592 of 2018 M/s.Rallis      India   Two cheques bearing
against CC No.82 of Limited.                 Nos.382874, 382875
2013                 M/s.Sri     Lakshmi     for 15,00,000/- each
                     Agencies & others       were issued
Crl.A.No.627 of 2018 M/s.Rallis      India   A cheque bearing
against C.C.No.83 of Limited.                No.382876
2013                 M/s.Sri     Lakshmi     dt.30.04.2004      for
                     Agencies & others       5,00,000/-        was
                                             issued.

4. The learned Magistrate examined witnesses on behalf of the

complainant and the documents marked by them. Heavy reliance

was placed on Ex.P11, MOU dated 31.03.2004, to substantiate the

outstanding to be paid by the accused to the complainant company.

Learned Magistrate, having considered the evidence on record,

acquitted the accused on the following grounds:

1) As per the MOU dated 31.03.2004, it is not clear whether

the cheques were issued towards the liability of the

complainant firm or towards the liability of another firm

namely M/s.Vaishnavi Chemicals.

2) The MOU is in between the complainant company and two

firms, namely M/s. Sri Lakshmi Agencies (A1) and another

firm M/s.Vaishnavi Chemicals, and both were represented

by A2. B.Sudhakar.

3) Ex.P6, which is a photocopy of the partnership deed dated

01.04.1998, shows that A2 and A3 are not partners of A1

firm. In the complaint cause title, A2 is shown as partner in

M/s.Vaishnavi Chemicals and A1 firm is not shown to have

been represented by any partner.

4) In Ex.P11, the complainant failed to show that A2 is partner

of A1 firm or that the MOU dated 31.03.2004 was executed

by partner of A1 firm. As per Ex.P12 partnership deed, A4

to A7 are partners with equal shares and all rights, but A4

is shown as the person responsible for the management of

A1 firm, and A5 to A7 are not given any rights to look after

the business of A1 firm.

5) P.W.2 admitted that he is not aware whether the

outstanding is towards A1 firm or M/s.Vaishnavi Chemicals

(which is not an accused) since the MOU does not contain a

specific clause regarding whether the cheques were issued

towards the loan of A1 firm or M/s.Vaishnavi Chemicals. In

the said circumstances, it cannot be assumed that the

cheques were towards the liability of A1 firm only.

6) No reason is given as to why M/s.Vaishnavi Chemicals was

not made a party.

7) The existence of the MOU dated 31.03.2004 was not spoken

to by P.W.2 and also, there is no mention of the MOU in the

complaint.

8) The complaint lacks the specific details of the supply of

material to the accused.

9) Ex.P10-Special Power of Attorney, executed by the

complainant in favour of Kishore Kumar Mundada, Ex.P11

dated 31.03.2004, and Ex.P12 partnership deed dated

01.04.1998, are all photocopies. The conditions laid down

under Section 65 of the Indian Evidence Act, for acceptance

of secondary evidence are not complied with, to rely on the

contents of Exs.P10, P11, and P12.

10) No notice was given to the accused to produce the

original documents, nor is it the claim of the complainant in

the complaint that the originals are in the possession of the

accused.

11) According to clause 7 of the MOU, two originals were

prepared, however, the complainant company failed to file

the original documents that were in their possession.

12) No specific role is attributed to A2, A4 to A7, to make

them vicariously liable under Section 141 of the Negotiable

Instruments Act.

5. Learned counsel appearing for the appellant would submit

that once the signature on the cheque and its issuance are

admitted, presumption is raised under Section 139 of the

Negotiable Instruments Act, and the accused failed to rebut the

presumption by any admissible evidence. The learned Magistrate

had committed an error in finding the accused not guilty, though

there was no dispute regarding the issuance of the cheques.

6. On the other hand, learned counsel appearing for the

respondents/accused argued that the findings of the learned

Magistrate needs no interference since they are based on record and

reasonable.

7. The Hon'ble Supreme Court, in K.S.Mehta v. M/s.Morgan

Securities and Credits Private Limited 1, held as follows:

"16. This Court has consistently held that non-executive and independent director(s) cannot be held liable under Section 138 read with Section 141 of the NI Act unless specific allegations demonstrate their direct involvement in affairs of the company at the relevant time.

16.1. This Court in National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal & Anr., (2010) 3 SCC 330 observed:

"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.

22. Therefore, this Court has distinguished the case of persons who are incharge of and responsible for the conduct of the business of the company at the time of the offence and the persons who are merely holding the post in a company and are not in charge of and responsible for the conduct of the business of the company. Further, in order to fasten the vicarious liability in accordance with Section 141, the averment as to the role of the Directors concerned should be specific. The description should be clear and there should be some unambiguous allegations as to how the Directors concerned were alleged to be in charge of and were responsible for the conduct and affairs of the company.

39. From the above discussion, the following principles emerge: (i) 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. (ii) Section 141 does not make all the Directors liable for the offence. The criminal

Arising out of SLP (Criminal) No.4774 of 2024, dated 04.03.2025

liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company. (iii) Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 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 offence committed by the company along with averments in the petition containing that the accused were in charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with. (iv) Vicarious liability on the part of a person must be pleaded and proved and not inferred. (v) If the accused is a Managing Director or a Joint Managing Director then it is not necessary to make specific averment in the complaint and by virtue of their position they are liable to be proceeded with. (vi) If the accused is a Director or an officer of a company who signed the cheques on behalf of the company then also it is not necessary to make specific averment in the complaint. (vii) 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." 16.2. In N. K. Wahi v. Shekhar Singh & Ors., (2007) 9 SCC 481 this Court in Para 8 observed:

"To launch a prosecution, against the alleged Directors there must be a specific allegation in the complaint as to the part played by them in the transaction. There should be clear and unambiguous allegation as to how the Directors are in-charge and responsible for the conduct of the business of the company. The description should be clear. It is true that precise words from the provisions of the Act need not be reproduced and the court can always come to a conclusion in facts of each case. But still, in the absence of any averment or specific evidence the net result would be that complaint would not be entertainable." 16.3. In S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla & Anr., (2005) 8 SCC 89, this Court laid down that mere designation as a director is not sufficient; specific role and responsibility must be established in the complaint.

16.4. In Pooja Ravinder Devidasani v. State of Maharashtra & Anr., (2014) 16 SCC 1, this Court while taking into consideration that a non-

executive director plays a governance role, they are not involved in the daily operations or financial management of the company, held that to attract liability under Section 141 of the NI Act, the accused must have been actively in charge of the company's business at the relevant time. Mere directorship does not create automatic liability under the Act. The law has consistently held that only those who are responsible for the day- to- day conduct of business can be held accountable.

16.5 In Ashok Shewakramani & Ors. v. State of Andhra Pradesh & Anr., (2023) 8 SCC 473, this Court held:

"8. After having considered the submissions, we are of the view that there is non-compliance on the part of the second Respondent with the

requirements of Sub-section (1) of Section 141 of the NI Act. We may note here that we are dealing with the Appellants who have been alleged to be the Directors of the Accused No. 1 company. We are not dealing with the cases of a Managing Director or a whole- time Director. The Appellants Have not signed the cheques. In the facts of these three cases, the cheques have been signed by the Managing Director and not by any of the Appellants." 16.6. In Hitesh Verma v. M/s Health Care At Home India Pvt. Ltd. & Ors., Crl. Appeal No. 462 of 2025, this Court held:

"4. As the appellant is not a signatory to the cheque, he is not liable under Section 138 of the 1881 Act. "As it is only the signatory to the cheque who is liable under Section 138, unless the case is brought within the four corners of Section 141 of the 1881 Act, no other person can be held liable...."

5. There are twin requirements under sub-Section (1) of Section 141 of the 1881 Act. In the complaint, it must be alleged that the person, who is sought to be held liable by virtue of vicarious liability, at the time when the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company. A Director who is in charge of the company and a Director who was responsible to the company for the conduct of the business, are two different aspects. The requirement of law is that both the ingredients of sub-Section (1) of Section 141 of the 1881 Act must be incorporated in the complaint. Admittedly, there is no assertion in the complaints that the appellant, at the time of the commission of the offence, was in charge of the business of the company. Therefore, on a plain reading of the complaints, the appellant cannot be prosecuted with the aid of sub-Section (1) of Section 141 of the 1881 Act."

17. Upon perusal of the record and submissions of the parties, it is evident that the Appellant(s) neither issued nor signed the dishonoured cheques, nor had any role in their execution. There is no material on record to suggest that they were responsible for the issuance of the cheques in question. Their involvement in the company's affairs was purely non- executive, confined to governance oversight, and did not extend to financial decision- making or operational management.

18. The complaint lacks specific averments that establish a direct nexus between the Appellant(s) and the financial transactions in question or demonstrate their involvement in the company's financial affairs. Additionally, the CGR(s) and ROC records unequivocally confirm their non- executive status, underscoring their limited role in governance without any executive decision-making authority. The mere fact that Appellant(s) attended board meetings does not suffice to impose financial liability on the Appellant(s), as such attendance does not automatically translate into control over financial operations."

8. The finding of the trial Court can be reversed by the appellate

Court only when the appellant makes out a case to show that the

trial Court has omitted to consider the evidence on record or that

the findings are contrary to the evidence adduced by the

complainant. Unless compelling reasons are shown, the question of

reversing an order of acquittal does not arise.

9. In Ravi Sharma v. State (Government of NCT of Delhi) and

another 2, the Hon'ble Supreme Court held that, while dealing with an

appeal against acquittal, the appellate court has to consider whether the

trial Court's view can be termed as a possible one, particularly when

evidence on record has been analysed. The reason is that an order of

acquittal adds up to the presumption of innocence in favour of the

accused. Thus, the appellate court has to be relatively slow in reversing

the order of the trial court rendering acquittal.

10. In Ghurey Lal v. State of Uttar Pradesh 3, the Hon'ble Supreme

Court, after referring to several Judgments regarding the settled

principles of law and the powers of appellate Court in reversing the order

of acquittal, held at para 70 as follows:

(2022) 8 Supreme Court Cases 536

(2008) 10 Supreme Court Cases 450

"70. In the light of the above, the High Court and other appellate Courts should follow the well-settled principles crystallized by number of Judgments if it is going to overrule or otherwise disturb the trial court's acquittal:

1. The appellate court may only overrule or otherwise disturb the trial court's acquittal if it has "very substantial and compelling reasons" for doing so.

A number of instances arise in which the appellate court would have "very substantial and compelling reasons" to discard the trial court's decision.

"Very substantial and compelling reasons" exist when:

i) The trial court's conclusion with regard to the facts is palpably wrong:

ii) The trial court's decision was based on an erroneous view of law;

iii) The trial court's judgment is likely to result in "grave miscarriage of justice";

iv) The entire approach of the trial court in dealing with the evidence was patently illegal;

v) The trial court's judgment was manifestly unjust and unreasonable;

vi) The trial court has ignored the evidence or misread the material evidence or has ignored material documents like dying declarations/report of the ballistic expert, etc.

vii) This list is intended to be illustrative, not exhaustive.

2. The appellate court must always give proper weight and consideration o the findings of the trial court.

If two reasonable views can be reached__ one that leads to acquittal, the

other to conviction__the High Courts/appellate courts must rule in favour of the

accused."

11. In the case on hand, even according to the complainant, the

transactions were over a period of time and the material was

supplied and payments were also received. However, the

outstanding, according to the MOU stood at more than Rs.4.00

Crores. Only for the reason of the issuance of cheques and

signatures being admitted, the Court cannot lose sight of the

transactions in between the parties, to come to a conclusion

regarding the outstanding and liability against the cheques issued.

The transactions in between the parties are to be looked into in its

entirety, and the Court cannot place reliance only on the fact that

the cheques were issued. The burden that shifts onto the accused

can be discharged by the preponderance of probability. Once the

accused places before the Court, either by producing any evidence

or on the basis of the oral and documentary evidence of the

complainant that there is no outstanding, the Court can consider

the evidence on record and acquit the accused. Once it is found

that the complainant stated that there was sufficient evidence to

prove the outstanding, however, could not prove the documents on

record by admissible evidence, the complainant fails to prove its

case against the accused. Only on the ground that the issuance of

cheques was admitted, the same cannot be made basis to convict

the accused since the complainant failed to prove the outstanding,

as discussed.

12. Learned Magistrate found that the very basis for launching

prosecution is the MOU dated 31.03.2004, which is inadmissible for

the reason of there being no clarity regarding the liability of A1 firm.

Further, there was no proof of supply of material and there was no

evidence that the cheques in question were issued to pay any

existing outstanding. In the present facts, when there are no

specific averments to implicate A2, A4 to A7 by making them

vicariously liable, or reflecting their involvement, and also the MOU

has not been proved by complying with the requirements of

secondary evidence, there is no infirmity in the finding of the

learned Magistrate. There are no compelling reasons to interfere

with the said finding.

13. Accordingly, all the Criminal Appeals are dismissed.

__________________ K.SURENDER, J Date: 12.03.2025 kvs