Karnataka High Court
Sudheer Reddy Pullagurla vs M/S Sangmeshwar Petroleum on 15 October, 2020
IN THE HIGH COURT OF KARNATAKA
KALABURAGI BENCH
DATED THIS THE 15TH DAY OF OCTOBER, 2020
BEFORE
THE HON'BLE MRS.JUSTICE M.G. UMA
Criminal Petition No.200967/2018
BETWEEN:
Sudheer Reddy Pullagurla
S/o Late P. Malla Reddy
Aged about 39 Years
R/o H.No.6-2-951/B
Near Radiance School
Khairatabad, Hyderabad
Telangana State - 500 004
... Petitioner
(By Sri J. Augustin, Advocate)
AND:
M/s Sangmeshwar Petroleum
Bidar, Rep. By its Manager
Ashok S/o Narasappa Baridabade
R/o H.No.7-6-400, Hanumangalli
Janwada Road, Navadger, Bidar
State of Karnataka
... Respondent
(Respondent served)
2
This Criminal Petition is filed under Section 482 of
Cr.P.C. praying to quash the taking of the cognizance and
issuing of the process in C.C.No.2401/2014 (Private
Complaint No.68/2014) dated 26.12.2014 filed by the
respondent herein against the complainant for the offence
punishable under Section 138 of the Negotiable
Instruments Act by the JMFC (II), Bidar insofar as the
petitioner is concerned. Quash the entire proceedings
pending before the JMFC (II), Bidar in CC No.2401/2014
(Private Complaint No.68/2014) filed by the respondent
herein against the complainant for the offence punishable
under Section 138 of the Negotiable Instruments Act
insofar as the petitioner is concerned.
This petition having been heard, reserved for orders
on 05.10.2020 and coming on for pronouncement of order
this day, the Court made the following:-
ORDER
The petitioner approached this Court to seek quashing of the order dated 26.12.2014, taking cognizance of the offence punishable under Section 138 of the Negotiable Instruments Act (for short, referred to as 'the NI Act') and issuance of process to the petitioner - accused, passed in C.C.No.2401/2014 (private complaint 3 No.68/2014) on the file of the learned JMFC-II, Bidar (for short, referred to as 'the trial Court').
2. It is contended by the petitioner that the respondent as complainant filed the private complaint in P.C.No.68/2014 before the trial Court against the petitioner as accused, alleging commission of the offence punishable under Section 138 of the NI Act. The trial Court took cognizance of the office vide order dated 26.12.2014, registered C.C.No.2401/2014 and issued process to the accused to appear before it. The said order has been challenged before this Court and the petitioner sought to quash the same.
3. The respondent - complainant has not chosen to appear before this Court inspite of service of notice. Heard Sri J. Augustin, learned counsel for the petitioner and perused the material on record.
4. Learned counsel for the petitioner submits that the petitioner a business man staying at Hyderabad is 4 aggrieved by the impugned order passed by the trial Court. It is submitted that the trial Court ignored the fact that there are no prima facie material to constitute an offence under Section 138 of the NI Act. The Trial Court has not considered the allegations made in the complaint and ignored the well settled proposition of law laid down by the Hon'ble Apex Court in its various decisions. The trial Court has ignored the fact that the name of the company said to have been represented by the petitioner is not properly described.
5. The learned counsel submits that according to the complainant, the accused has committed the offence by issuing the cheque in question. But the complainant has not followed the mandatory requirements of law as prescribed under Section 141 of the NI Act. There is absolutely no mention about the capacity of the petitioner in which he issued the cheque. The company in question is not arrayed as an accused. Under such circumstances, the trial Court could not have taken cognizance of the offence 5 and it could not have issued process against the petitioner, calling upon him to appear before the Court. Therefore, he submits that there is abuse of process of law and hence, seeks quashing of the impugned order exercising the inherent powers of this Court under Section 482 of Code of Criminal Procedure (for short, referred to as 'the Cr.P.C.'), in the interest of justice.
6. The copy of the cheque in question is produced by the petitioner. The cheque is dated 18.01.2014 drawn for Rs.2,00,000/- by the present petitioner as director/authorized signatory for Daksha Projects India Private Limited in favour of the respondents. The private complaint in P.C.No.68/2014 filed before the trial Court is against the present petitioner in his capacity as director of Daksha Products India Private Limited. Therefore, the contention of the petitioner is that the company on behalf of which he issued the cheque i.e., Daksha Projects India Private Limited is not the accused before the trial Court. Moreover, the petitioner herein is arrayed as the accused 6 as director of Daksha Products India Private Limited to which the petitioner is not at all concerned with.
7. In the private complaint filed by the respondents before the trial Court after arraying the petitioner herein as accused being the director of Daksha Products India Private Limited, it is averred that the accused had purchased petrol and diesel and towards part discharge of liability towards the fuel charges, the cheque in question was issued which was came to be dishonored with an endorsement that the 'funds insufficient'. It is again stated in the complaint that the accused had purchased the petrol and diesel on credit basis and to discharge the liability the cheque in question was issued. In the entire complaint, there is no reference to Daksha Projects India Private Limited for which the cheque in question was issued by the accused as its director. It is surprising to note that in the entire complaint there is not even an allegation that the cheque was issued by the 7 accused as he was in charge and was responsible to the company for the conduct of its business.
8. Section 141 of the NI 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 8 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.
9. The Hon'ble Apex Court had an occasion to deal with the Sections 138 and 141 of the NI Act in Aneeta Hada vs Godfather Travels and Tours Private Limited and other connected matters1. The question before the Hon'ble Apex Court for consideration was whether an authorized 1 (2012) 5 SCC 661 9 signatory of the company would be liable for prosecution under Section 138 of the NI Act without the company being arrayed as an accused and whether any person who has been mentioned in Sections 141 (1) and 141(2) of the NI Act can be prosecuted without the company being impleaded as an accused. Since there was difference of opinion in respect of the interpretation of Sections 138 and 141 of the NI Act, the matter was referred to the larger bench, which discussed in detail about the scope and requirement of Sections 138 and 141 of the NI Act. The Hon'ble Apex Court referred to its earlier decision in State of Madras vs. C.V. Parekh and another2, wherein the scope and effect of Section 10 (1) of the Essential Commodities Act, 1955, was discussed at length, along with several other decisions on the point and held as under:
"22. On a reading of the said provision, it is plain as day that if a person who commits the offence under Section 138 of the Act is a company, the company as well as every person in charge of and responsible to the company 2 1970 (3) SCC 491 10 for the conduct of business of the company at the time of commission of offence is deemed to be guilty of the offence. The first proviso carves out under what circumstances the criminal liability would not be fastened. Sub- section (2) enlarges the criminal liability by incorporating the concepts of connivance, negligence and consent that engulfs many categories of officers. It is worth noting that in both the provisions, there is a "deemed"
concept of criminal liability.
23. Section 139 of the Act creates a presumption in favour of the holder. The said provision has to be read in conjunction with Section 118(a) which occurs in Chapter XIII of the Act that deals with special rules of evidence. Section 140 stipulates the defence which may not be allowed in a prosecution under Section 138 of the Act. Thus, there is a deemed fiction in relation to criminal liability, presumption in favour of the holder, and denial of a defence in respect of certain aspects.
24. Section 141 uses the term"person" and refers it to a company. There is no trace of doubt that the company is a juristic person. 11 The concept of corporate criminal liability is attracted to a corporation and company and it is so luminescent from the language employed under Section 141 of the Act. It is apposite to note that the present enactment is one where the company itself and certain categories of officers in certain circumstances are deemed to be guilty of the offence.
42. Presently, we shall deal with the ratio laid down in the case of C.V. Parekh. In the said case, a three-Judge Bench was interpreting Section 10 of the 1955 Act. The respondents, C.V. Parekh, were active participants in the management of the company. The trial court had convicted them on the ground the goods were disposed of at a price higher than the control price by Vallabhadas Thacker with the aid of Kamdar and the same could not have taken place without the knowledge of the partners of the firm. The High Court set aside the order of conviction on the ground that there was no material on the basis of which a finding could be recorded that the respondents knew about 12 the disposal by Kamdar and Vallabhadas Thacker.
43. A contention was raised before this Court on behalf of the State of Madras that the conviction could be made on the basis of Section 10 of the 1955 Act. The three-Judge Bench repelled the contention by stating thus:
(C.V. Parekh case, SCC p.493, para 3) "3. The learned counsel for the appellant, however, sought conviction of the two respondents on the basis of Section 10 of the Essential Commodities Act under which, if the person contravening an order made under Section 3 (which covers an order under the Iron and Steel Control Order, 1956), is a company, every person who, at the time the contravention 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 contravention and shall be liable to be proceeded against and punished accordingly. It was urged that the two respondents were in charge of, and were 13 responsible to the Company for the conduct of the business of the Company and, consequently, they must be held responsible for the sale and for thus contravening the provisions of Clause (5) of the Iron and Steel Control Order. This argument cannot be accepted, because it ignores the first condition for the applicability of Section 10 to the effect that the person contravening the order must be a company itself. In the present case, there is no finding either by the Magistrate or by the High Court that the sale in contravention of Clause (5) of the Iron and Steel Control Order was made by the company. In fact, the company was not charged with the offence at all. The liability of the persons in charge of the company only arises when the contravention is by the company itself. Since, in this case, there is no evidence and no finding that the company contravened Clause (5) of the Iron and Steel Control Order, the two respondents could not be held responsible. The actual contravention was by Kamdar and Vallabhadas Thacker and any contravention by them would not fasten responsibility on the respondents."14
The aforesaid paragraph clearly lays down that the first condition is that the company should be held to be liable; a charge has to be framed; a finding has to be recorded, and the liability of the persons in charge of the company only arises when the contravention is by the company itself.
(emphasis supplied)
44. The said decision in C.V. Parekh case has been distinguished in the case of Sheoratan Agarwal. The two-Judge Bench in the said case referred to Section 10 of the 1955 Act and opined that the company alone may be prosecuted or the person in charge only may be prosecuted since there is no statutory compulsion that the person in-charge or an officer of the company may not be prosecuted unless he be ranged alongside the company itself. The two-Judge Bench further laid down that Section 10 of the 1955 Act indicates the persons who may be prosecuted where the contravention is made by the company but it does not lay down any condition that the person in-charge or an officer of the company may not be separately 15 prosecuted if the company itself is not prosecuted.
45. The two-Judge Bench referred to the paragraph from C.V. Parekh, which we have reproduced hereinabove, and emphasised on certain sentences therein and came to hold as follows: (Sheoratan Agarwal case, SCC p.355, para 5) "5. ... The sentences underscored by us clearly show that what was sought to be emphasised was that there should be a finding that the contravention was by the company before the accused could be convicted and not that the company itself should have been prosecuted along with the accused. We are therefore clearly of the view that the prosecutions are maintainable and that there is nothing in Section 10 of the Essential Commodities Act which bars such prosecutions."
46. For the sake of completeness, we think it apposite to refer to the sentences which have been underscored by the two- 16
Judge Bench: (Sheoratan Agarwal case, SCC p.355, para 5) "3. ... because it ignores the first condition for the applicability of Section 10 to the effect that the person contravening the order must be a company itself. In the present case, there is no finding either by the Magistrate or by the High Court that the sale in contravention of Clause (5) of the Iron and Steel Control Order was made by the Company. ... [and] there is no evidence and no finding that the Company contravened Clause (5) of the Iron and Steel Control Order, the two respondents could not be held responsible." (C.V. Parekh case, SCC p.493, para 3)
10. The Hon'ble Apex Court also referred to the decision in Anil Hada vs. Indian Acrylic Limited3, wherein the Division Bench of the Hon'ble Apex Court considered about the commission of the offence under Section 138 of the NI Act by a company and referred to Section 141 of the NI Act and held that:-
3
AIR 2000 SC 145 17 "49. On a reading of both the paragraphs, from Anil Hada case, it is evincible that the two-Judge Bench expressed the view that the actual offence should have been committed by the company and then alone the other two categories of persons can also become liable for the offence and, thereafter, proceeded to state that if the company is not prosecuted due to legal snag or otherwise, the prosecuted person cannot, on that score alone, escape from the penal liability created through the legal fiction and this is envisaged in Section 141 of the Act. If both the paragraphs are appreciated in a studied manner, it can safely be stated that the conclusions have been arrived at regard being had to the obtaining factual matrix therein.
50. However, it is noticeable that the Bench thereafter referred to the dictum in Sheoratan Agarwal,and eventually held as follows: (Anil Hada case, SCC p. 10, para 21) "21. We, therefore, hold that even if the prosecution proceedings against the company were not taken or could not be continued, it is no bar for proceeding against the other 18 persons falling within the purview of sub-
sections (1) and (2) of Section 141 of the Act."
51. We have already opined that the decision in Sheoratan Agarwal runs counter to the ratio laid down in the case of C.V. Parekh which is by a larger Bench and hence, is a binding precedent. On the aforesaid ratiocination, the decision in Anil Hada has to be treated as not laying down the correct law as far as it states that the Director or any other officer can be prosecuted without impleadment of the company. Needless to emphasise, the matter would stand on a different footing where there is some legal impediment and the doctrine of lex non cogit ad impossibilia gets attracted.
53. It is to be borne in mind that Section 141 of the Act is concerned with the offences by the company. It makes the other persons vicariously liable for commission of an offence on the part of the company. As has been stated by us earlier, the vicarious liability gets attracted when the condition precedent laid down in Section 141 of the Act stands satisfied. There can be no dispute that as the 19 liability is penal in nature, a strict construction of the provision would be necessitous and, in a way, the warrant.
59. In view of our aforesaid analysis, we arrive at the irresistible conclusion that for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the drag-net on the touchstone of vicarious liability as the same has been stipulated in the provision itself. We say so on the basis of the ratio laid down in C.V. Parekh which is a three-Judge Bench decision. Thus, the view expressed in Sheoratan Agarwal does not correctly lay down the law and, accordingly, is hereby overruled. The decision in Anil Hada is overruled with the qualifier as stated in para 51. The decision in Modi Distillery has to be treated to be restricted to its own facts as has been explained by us hereinabove."
(emphasis supplied) 20
11. In C.V. Parekh (supra), conviction of the accused under Section 10 of the Essential Commodities Act under which, if the person contravening an order made under Section 3 is a company, every person who, at the time the contravention 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 contravention and shall be liable to be proceeded against and punished accordingly. This contention on the part of the State was not accepted by the Hon'ble Apex Court as it ignored the first condition for the applicability of Section 10 of the Essential Commodities Act to the effect that the person contravening the order must be the company itself. Since there was no finding either by the Magistrate or by the High Court concerned that the contravention in question was made by the company, it was found that the company was not charged with the offence at all. Under such circumstances, the Hon'ble Apex Court held that the liability of the 21 persons in charge of the Company only arises when the contravention is by the company itself.
12. In Tamil Nadu News Print and Papers Limited vs. D. Karunakar and Others4, the Hon'ble Apex Court while considering Sections 141 and 138 of NI Act, held in paragraph Nos.11 and 15 as under:-
"11. The learned counsel has drawn our attention to the Judgment delivered by this Court in the case of S.M.S. Pharmaceuticals Ltd. Vs. Neeta Bhalla. Para 19(a) of the Judgment reads as under: (SCC p.103) "(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."4
(2016) 6 SCC 78 22
15. It is an admitted position that simply because someone is a Director in a company, he cannot be held responsible in respect of a cheque issued on behalf of the company, but if the Director concerned is in charge of and is responsible to the company for its conduct of business, he can be held to be guilty of the offence under Section 138 of the Act.
(emphasis supplied)
13. In Ashoke Mal Bafna vs Upper India Steel Manufacturing and Engineering Company Limited 5, the Hon'ble Apex Court again considering the scope and ambit of Section 138 in the light of Section 141 of the NI Act, reiterated the settled principles of law as laid down by it as under:-
"7. In Girdhari Lal Gupta v. D.H. Mehta, 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.5
(2018) 14 SCC 202 23
8. Interpreting the provisions of Section 141 this Court in National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal observed 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 the Director (arrayed as an accused) is in charge of and responsible to the Company for the conduct of 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 the accused was in charge of or was responsible to the Company for the conduct of its business. This is in consonance with strict interpretation of penal statutes especially where such statutes create vicarious liability.
9. To fasten vicarious liability under Section 141 of the Act on a person, the law is well settled by this Court in a catena of cases that the complainant should specifically show as to how and in what manner the accused was responsible. Simply because a person is a 24 Director of defaulter Company, does not make him liable under the Act. Time and again, it has been asserted by this Court that only the person who was at the helm of affairs of the Company and in charge of and responsible for the conduct of the business at the time of commission of an offence will be liable for criminal action (See Pooja Ravinder Devidasani v. State of Maharashtra.)
10. 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 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.
12. Before summoning an accused under Section 138 of the Act, the Magistrate is expected to examine the nature of allegations made in the complaint and the evidence both oral and documentary in support thereof and then to proceed further with proper application of mind to the legal principles on the issue. Impliedly, it is necessary for courts to ensure 25 strict compliance of the statutory requirements as well as settled principles of law before making a person vicariously liable.
13. The Superior courts should maintain purity in the administration of justice and should not allow abuse of the process of court. Looking at the facts of the present case in the light of settled principles of law, we are of the view that this is a fit case for quashing the complaint. The High Court ought to have allowed the criminal miscellaneous application of the appellant because of the absence of clear particulars about the role of the appellant at the relevant time in the day-to-day affairs of the Company."
(emphasis supplied)
14. The discussion held above with specific reference to various decisions of the Hon'ble Apex Court on the subject make it clear that the position of law on the subject is very well settled that, to prosecute a person as director of the company for the offence under Section 138 of the NI Act, specific averments must be made against him as to how he 26 is responsible for the offence and further to prosecute the director of a company under Section 141 of the NI Act, arraigning the company as accused is necessary or otherwise such prosecution would not be maintainable.
15. In the present case, the complainant arrayed the accused i.e., the present petitioner as director of Daksha Products India Private Limited. As already noted the accused has never issued any cheuqe as director of Daksha Products India Private Limited. But on the other hand, the cheque in question was issued as director / authorized signatory for Daksha Projects India Private Limited. Even in the body of complaint there is not even a whisper as to how the accused is responsible for the affairs of the company. It is not the contention of the complainant that the petitioner is in charge and responsible for conduct of business of the company in question. Moreover, the company in question 27 which is said to have been represented by the present petitioner is not arrayed as an accused by the complainant. There is no pleading about any of these facts which are to be pleaded and proved to enable the trial Court to take cognizance of the offence.
16. It is also to be noted that the legal notice said to have been issued to the accused is also not served on him. But the notice was returned unserved with the postal endorsement as 'Door Locked'. Surprisingly, any of these facts and circumstances are not taken into consideration by the trial Court and mechanically proceeded to take cognizance of the offence. The practice adopted by the trial Court in the present case to record that the learned Magistrate perused the entire records of the case and the affidavit filed by the complainant in addition to the documents that are produced and marked as exhibits and further, recording that on 28 careful consideration and on the basis of the materials available on record, the learned Magistrate is satisfied that the complainant has made out prima facie case and followed the mandatory provisions as laid down under NI Act, will not satisfy the requirement of law. The Magistrate is required to apply his mind to the facts and circumstances of the case in the light of the documents and the requirement of law to constitute the offence alleged against the accused. In the present case, I am of the opinion that the learned Magistrate has never applied his mind while taking cognizance of the offence. Such practice is to be deprecated.
17. The discussions held above, lead to the conclusion that there are no sufficient grounds to take cognizance of the offence punishable under Section 138 of the NI Act and to issue process against the accused. Hence, I proceed to pass the following;
29
ORDER The Criminal Petition is allowed.
The order dated 26.12.2014 passed in P.C.No.68/2014 on the file of JMFC- II, Bidar, taking cognizance of the offence against the accused for the offence punishable under Section 138 of NI Act and issuance of summons is set aside.
The Criminal proceedings initiated against the accused on the basis of the private complaint filed by the complainant is quashed.
Sd/-
JUDGE RSP