Delhi District Court
Shibu Thomas vs Ifci Factors Limited on 30 September, 2024
IN THE COURT OF SH. LOVLEEN,
ADDITIONAL SESSIONS JUDGE-03 (SOUTH EAST),
SAKET COURTS, NEW DELHI
DLSE010131432023
CRL. REVISION No. 5/2024
1. SHIBU THOMAS
Director, GEI Industrial Systems Ltd.
26-A, Industrial Area,
Govindpura, Bhopal, 462023,
Madhya Pradesh
Also at:-
501, Central Plaza, 5th Floor,
Santacruz (East), 166 CST Road,
Kalina, Mumbai-400098
Maharashtra
Also At:-
MIG 352, 9B, Saket Nagar
Bhopal-462024, Madhya Pradesh
....Revisionist
VERSUS
Crl. Revision No: 5/2024
Shibu Thomas Vs. IFCI Factors Ltd. page no. 1 of 36
1. IFCI Factors Limited
(Through its Authorized Signatory)
Sh. Rajneesh Sharma
Having its Registered Office at:
IFCI Tower, 10th Floor,
61, Nehru Place,
New Delhi-110019.
.....Respondent
Date of institution : 04.01.2024
Date of Reserving judgment : 30.09.2024
Date of Pronouncement : 30.09.2024
JUDGMENT
1. This is a criminal revision petition u/s 397 Cr.P.C. filed against order dated 04.12.2015 passed by the court of Ld. Metropolitan Magistrate-03 (NI Act), SED in Criminal Complaint No. 628299/2016 titled as IFCI Factors Limited Vs. GEI Industrial Systems Limited and Ors., whereby the revisionist and some others were summoned to face trial for the commission of offence punishable u/s 138 Negotiable Instruments Act (hereinafter referred to NI Act). The said complaint was made by respondent herein. For the sake of convenience, the respondent shall be referred to as "complainant" hereinafter.
Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 2 of 36 Brief Facts
2. Briefly stated, the case put forth by the complainant against the revisionist and others (including a company namely GEI Industrial Systems Ltd.) in the said complaint is that the cheque(s) issued by the said company in its favour was dishonoured upon presentation. The said company and its Directors were served a legal notice demanding the payment due under the said cheque(s), but no response was received. Consequently, the above mentioned complaint was filed against the said company as well as its Directors including the revisionist.
Grounds of Revision
3. The grounds cited by the revisionist are as under:-
A. Because it is necessary under section 141 of the NI Act, 1881, that the respondent must aver and prove that in what manner the petitioner / accused was responsible in the conduct of the business of the company. The Respondent shall also state in the light of proviso to section 141(1), in what capacity the petitioner was in charge of day to day affairs of the default on behalf of company at the relevant time, particularly when cheques were issued, Respondent did not fulfil these prerequisites contemplated by the Act, but sought to attribute the Petitioner with vicarious liability Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 3 of 36 only on account of the fact that, Petitioner is/was one of the director of GEI Industrial Systems Limited. B. Because, the Legal Demand notice vide dated 20.01.2016 is thoroughly mute about the Petitioner/Revisionist, apart from the bald statement that the Petitioner is in-charge of and responsible for the management of the company, no specific role has been ascribed in the Legal Demand Notice nor in the complaint filed by the Respondent so as to invoke the doctrine of vicarious liability.
C. Because, the present matter at hand cannot fall under the ambit of the triable issue because the dishonoured cheques are not disputed, it is an admitted position that the dishonoured cheques have been issued by the company i.e., GEI Industrial Systems Limited and signed by the MD of the company. That in the wildest dreams if the petitioner is prosecuted under the present complaint under question, then the law stipulated under the provision of section 141 would be hindered, the Ld. M.M. without application of the judicial mind passed the summoning order vide dated 04.12.2015, whereas, the averments of the legal demand notice vide dated UMAPATI GOVT 20.01.2016 is completely silent for proving the active role and act played by the Petitioner/Revisionist.
Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 4 of 36 D. Because, merely arraying a Director of a company, as an accused in the complaint and making a bald or cursory statement without attributing any specific role, that the Director is responsible for the conduct of the business would not make a case of vicarious liability against a Director of the company under section 141 of the N.I. Act. Similarly, simply stating that the Petitioner was in charge of the affairs of the company would not be sufficient to justify the allegation under section 138 of the N.1. Act, 1881. In other words, respondent ought to have explained the role specifically attributable to the Petitioner in the commission of the offence. In National Small Industries Corporation Vs Harmeet Singh Paintal & Anr. (201 OJ 3 SCC 330, the law is well settled by the Hon'ble Supreme Court that the complainant should specifically show, as to how, and in what manner the accused was responsible. E. Because, the Respondent had the knowledge of the Petitioner, as director of the company and he had no role in the issuance of the cheques in question, yet as an arm twisting measure, the Respondent arrayed the Petitioner in the complaint, as a defaulter and initiated criminal proceedings against him, knowing fully about the Petitioner status in the company ie. GEI Industrial Systems Limited, the Respondent unnecessarily dragged the name Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 5 of 36 of Petitioner into the litigation in a casual and callous manner and initiated criminal proceedings against him along with the existing Directors of the company which is untenable under the law. The Ld. M.M. without proper application of mind issued process against the Petitioner F. Because, the Petitioner is/was a director of the company and is/was not responsible for the conduct of its business at any time, because the Petitioner neither issued any document whatsoever, nor signed any document or any undertaking, so much so, that there is not any corroboration of evidence against the Petitioner /Revisionist which would show the Petitioner with malice intention had acted. That the pleadings without corroboration of any evidence have no substance in the eyes of law, that Respondent just averred for the petitioner that the Petitioner forms the operational management but that does not prove the case of the Respondent against the Petitioner.
G. Because, allegations against the Petitioner set out in the complaint do not constitute any offence against the Petitioner and the Ld. M.M. committed a manifest error in interpreting Section 141 of the N.L. Act, 1881, in its proper perspective, which has led to travesty of justice, that the Petitioner has urged to set aside the criminal proceedings Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 6 of 36 against him.
H. Because, the Ld. M.M. by issuing the summoning order against the Petitioner had committed illegality and misinterpreted the provisions of the N.1. Act, 1881; the questions that arise for determination are:
(i) whether the Petitioner is liable for prosecution under section 138 read with section 141 of the N.I. Act, 1881, for the alleged offence of dishonor of cheques committed by default of GEI Industrial Systems Limited;
(ii) whether the Ld. trial Court was right in issuing the summoning order and initiating criminal proceedings against the Petitioner.
(I). Because, the cheques were issued bearing no. 743696 dated 30.09.2015 and 743976 dated 30.09.2015. And so far as the dishonor of Cheques is concerned, admittedly the cheques were not signed by the Petitioner. Also, to fasten vicarious liability under Section 141 of the Act on a person, at the material time that person ought to have been at the helm of affairs of the company. Else, would not be liable under the N.I. Act, 1881. Every person connected with the company will not fall into the ambit of the provision. That time and again, it has been asserted that only those persons who were in charge of and responsible for the conduct of the business of the Company at the time Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 7 of 36 of commission of an offence will be liable for criminal action. A Director, who was not in charge of and 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 N.1. Act, 1881.
J. Because, when a person is merely a director of the company and does not satiate the requirements on the date the offence is committed, he cannot be prosecuted for the offence under section 138 read with section 141 of the NI Act, 1881.
K. Because, what necessary averments are required to be made in the complaint to hold any Director or other post holder in the company vicariously liable for an offence committed, under Section 138 of the Negotiable Instruments Act, 1881, by the company, has been a subject matter of discussion in a number of cases. Despite the legal position now being well settled with the catena of pronouncements of the Hon'ble Apex Court on this subject, the trend set up by the complainant to implead all the Directors, company secretaries, etc., of the accused company, irrespective of whether they were actually involved in the commission of alleged offence or not, has not yet ended. One of the earliest cases, S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Anr., 2005 (7) Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 8 of 36 SCALE 397. which threw light on the averments required to be made in the complaint under Section 138 r/w 141 of Negotiable Instruments Act, 1881, observed as follows in paragraph 16:-
(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. Without this averment being made in a complaint, the requirements of Section 141 cannot be said to be satisfied.
(b) Merely being a director of a company is not sufficient ground to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for conduct of its business. The requirement of Section 141 is that the person sought to he 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.
(c) the Managing Director or Joint Managing Director would be admittedly in charge of the company and responsible to the company for conduct of its business.
Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 9 of 36 When that is so, holders of such positions in a company become liable under Section 141 of the Act. By virtue of the office they hold as Managing Director or Joint Managing Director, these persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 141. So far as signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under Sub-section (2) of Section 141 Reiterating the same view, the Apex Court in National Small Industries Corp. Ltd. v. Harmeet Singh Paintal and Anr., 2010(2) SCALE 372, further observed that:
.... if the accused is not one of the persons who falls under the category of "persons who are responsible to the company for the conduct of the business of the company"
then merely by stating that "he was in-charge of the business of the company" or by stating that "he was in- charge of the day-to-day management of the company" or by stating that "he was in-charge of, and was responsible to the company for the conduct of the business of the company", he cannot be made vicariously liable under Section 141(1) of the Act. To put it clear that for making a person liable under Section 141 (2), the mechanical repetition of the requirements under Section 141(1) will be Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 10 of 36 of no assistance, but there should be necessary averments in the complaint as to how and in what manner the accused was guilty of consent and connivance or negligence and therefore, responsible under Sub-section (2) of Section 141 of the Act. Summarising the legal position, The Apex court further laid down the following principles: -
(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 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 take accused therein vicariously liable for offence committed by company along with averments in the petition containing that accused were in charge of and responsible for the business of the company and by virtue of their position Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 11 of 36 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 accused is Managing Director or 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 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 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 he averred as a fact as there is no deemed liability of a director in such cases.
In case of Ashok shewakramni & Ors. vs State of Andhra Pradesh &Anr. SC held that:
We may note here that we are dealing with the appellants who have been alleged to be the Directors of the accused No.I company. 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. Section 141 is an exception to the normal rule that there cannot be any vicarious liability when it Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 12 of 36 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 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 business of the company or the person Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 13 of 36 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 subsection 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."
M. BECAUSE, the Hon'ble Delhi High Court in Sudeep Jain vs M/s Ece Ltd. 06.05.2013 in: -
9. The prime objective of this Court is to remind all the Metropolitan Magistrates in Delhi to carefully scrutinize all the complaint cases being filed under Section 138 r/w Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 14 of 36 141 of the Negotiable Instruments Act, 1881 against the accused companies at the pre-summoning stage and make sure that notice be directed only to those directors or employees of the company who satisfy the principles laid down in the aforesaid judgments. Summons must be issued only after giving due consideration to the allegations and the materials placed on record by the complainant.
Undeniably, as per the aforesaid legal pronouncements, Managing Director and the Joint Managing Director are deemed to be vicariously liable for the offence committed by the company because of the position they hold in the company. Problem arises in cases where all the persons holding office in the company are sought to be prosecuted by the complainant, irrespective of whether they played any specific role in the incriminating act. It is surprising to see that in plethora of cases, the complaint contains allegations even against those persons who might have been Directors at any point in time in the accused company, but had resigned from such company much prior to the period when the alleged offence was committed. Issuing summons to all persons named in the complaint mechanically, without ascertaining whether they played any actual role in the transaction, not only pesters the innocent directors/employees named in the complaint, but Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 15 of 36 also upsurges the load on the High Courts as the Magistrates once issuing the summoning orders against the accused, are precluded from reviewing their summoning orders in view of the decision of the Apex Court in Adalat Prasad v. Rooplal Jindal and Ors., (2004) 7:34. GD SCC
338. One can also not lose sight of the fact that once such innocent persons are summoned, they have no choice but to seek bail and face the ordeal of trial. Many of such persons also approach the High Court under Section 482 Cr.P. C. to seek quashing of the summoning order and the complaint filed against them and this further increases the burden on the already overburdened Courts. N. Because, the unequivocal terms and it is a disputed question of fact that the Ld. M.M. did not deal the issue in a proper perspective and committed error in issuing the summoning order and the Non Bailable Warrant. On the contrary, taking the complaint as a whole, it can be inferred that in the entire complaint, no specific role is attributed to the Petitioner in the commission of offence. It is settled law that to attract a case under section 141 of the NI Act, 1881 a specific role must have been played by a Director of the Company for fastening vicarious liability. But in this case, the Petitioner is/was a director of the company when the cheques were issued by the accused company but neither in Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 16 of 36 charge of nor involved in the day- to-day affairs of the Company at the time of commission of the alleged offence. There is not even a whisper or shred of evidence on record to show that there is any act committed by the Petitioner from which a reasonable inference can be drawn that the Petitioner/Revisionist could be vicariously held liable for the offence with which the Petitioner is charged. O. Because, in the entire complaint, neither the role of the Petitioner in the affairs of the Company was explained nor in what manner the Petitioner is responsible for the conduct of business of the Company, was explained. The continuation of the criminal proceedings against the Petitioner under Section 138 read with Section 141 of the N. I. Act, 1881, is a pure abuse of process of law and it has to be interdicted at the threshold.
P. Because, the respondent has not come to the court with clean hands and has presented the facts incorrectly. In para 2 of the complaint the respondent has alleged that the petitioner is a director on the Board of the GEI Industrial Systems Limited and forms the operational management. whereas, that is incorrect.
In SMS Pharmaceuticals v. Neeta Bhalla 30 , a three judge Bench while construing the provisions of Section 141 of the Negotiable Instruments Act, 1881, has noted that the Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 17 of 36 position of a Managing Director or a Joint Managing Director of a company is distinct since persons occupying that position are in charge of and responsible for the conduct of the business. It was observed that though there is a general presumption that the Managing Director and Joint Managing Director are responsible for the criminal act of the company, the director will not be held liable if he was not responsible for the conduct of the company at the time of the commission of the offence. The Court observed: GOVT
9. The position of a managing director or a joint managing director in a company may be different. These persons, as the designation of their office suggests, are in charge of a company and are responsible for the conduct of the business of the company. In order to escape liability such persons may have to bring their case within the proviso to Section 141(1), that is, they will have to prove that when the offence was committed they had no knowledge of the offence or that they exercised all due diligence to prevent the commission of the offence.
That the Petitioner is/was engaged as the Director in the company i.e., GEL Industrial Systems Ltd. and the Petitioner was not responsible for the conduct of the Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 18 of 36 business and the Petitioner was engaged in the company as a Director, and not on the post of Managing Director or Joint Managing Director, therefore the Petitioner cannot be dragged in the complaint bearing no. 628299/2016 as accused, without substance in the complaint bearing no. 628299/2016.
Q. Because, that on receipt of the complaint, the Ld. Court of MM-03 passed the summoning order dated 04.12.2015, which is full of perversity and has been passed in a sheer mechanical manner without looking into the requirements of pre-summoning evidence and without coming to a reasoned conclusion whether prima-facie any offence appears to have been made out. The Petitioner neither signed the cheques nor signed the agreement. R. Because, it was incumbent upon the Ld. M.M. to ensure that the Respondent ought to have specifically made averments in the complaint that in what manner the person impleaded was responsible to the company for the conduct of the affairs of the company.
S. Because, great injustice, loss of reputation and prejudice has been caused to the Petitioner, no amount is payable by the Petitioner, no cheque was/is issued by the Petitioner, there is no connection at all between the Petitioner and the GEI Industrial Systems Limited and by no stretch of Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 19 of 36 imagination the Petitioner could be brought within the purview of section 141 of Negotiable Instruments Act, 1881 for prosecuting the Petitioner. The summoning order has caused a great amount of mental harassment, mental agony, loss of peace of mind and the Petitioner/Revisionist having spent sleepless nights due to this false and frivolous litigation, seeks very kind indulgence of this Hon'ble Court to come to the rescue of this old and ailing person and quash the complaint qua the Petitioner and award of heavy costs on the Respondent.
T. Because, in National Small Industries Corporation the Hon'ble Supreme Court has observed:-................................ U. Because in Girdhari Lal Gupta Vs. D.H. Mehta & Anr. (1971) 3 SCC 189, The Hon'ble Supreme Court has observed that, "the person should be in overall control of the day to day business of the company".
V. Because, in Sudeep Jain Vs. MIS Ece Industries Ltd. on 06 May 2013 ....................................................................... W. That the law laid down by Hon'ble Supreme Court is that, for making a Director of a Company liable for the offences committed by the Company u/s 141 of 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.
Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 20 of 36 X. Because the Hon'ble Supreme Court in Pepsi Foods Ltd. & Anr. Vs. Special Judicial Magistrate & Ors. (1998) 5 SCC 343 held that ............................................................ Y. Because, in Gunmala Sales Private Ltd., the Hon'ble Supreme Court at Para 3 (c) held:-...................................... Z. That in Harshendra Kumar D Vs. Rebatilal Kolby Etc. Crl. Appeal No. 360-377 of 2011.
4. It is prayed that the order dated 04.12.2015 may be set aside. Ld. Counsel has relied upon the judgments of Hon'ble Supreme Court in Sunita Palita & Ors. Vs. M/s. Panchami Stone Quarry (2022) 10 SCC 152; Gunmala Sales Private Limited Vs. Anu Mehta & Ors. (2015) 1 SCC 103; National Small Industries Corp. Ltd. Vs. Harmeet Singh Paintal & Anr. (2010) 3 SCC 330; S.M.S. Pharmaceuticals Ltd. VS. Neeta Bhalla and Anr. (2005) 8 SCC 89.
Arguments of Respondent.
5. Ld. Counsel has vehemently opposed the above prayer. He submits that the impugned order is not suffering from any infirmity. He prays for dismissal of the present petition. He relies upon the judgment of Hon'ble High Court of Delhi in Shikha Shah Vs. Renu Prmoters Pvt. Ltd. Crl.M.C. 456/2022 and Crl.M.A. 2059/2022 decided on 29.02.2024.
Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 21 of 36 Decision
6. This Court has considered the rival submissions. The law regarding the liability of directors of a company was dealt with and expounded by the Hon'ble Supreme Court firstly in S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla and Another, (2005) 8 SCC 89. The relevant part of the observations is reproduced below :-
"...(a) It is necessary to specifically aver in a complaint un- der Section 141 that at the time the offence was commit- ted, 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. Without this averment being made in a complaint, the requirements of Section 141 cannot be said to be satisfied.
(b) ...Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for conduct of its business.
The requirement of Section 141 is that 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.
(c) ...The question notes that the Managing Director or Joint Managing Director would be admittedly in charge of the company and responsible to the company for conduct of its business. When that is so, holders of such positions in a company become liable under Section 141 of the Act. By virtue of the office they hold as Managing Director or Joint Managing Director, these persons are in charge of and responsible for the conduct of business of the com- pany. Therefore, they get covered under Section 141. So Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 22 of 36 far as signatory of a cheque which is dishonoured is con- cerned, he is clearly responsible for the incriminating act and will be covered under sub-section (2) of Section
141..."
7. In K.K.Ahuja V. V.K. Vohra (2009) 10 SCC 48, the Hon'ble Supreme Court had summarised the position under Section 141 as under:
"20. The position under section 141 of the Act can be sum- marized thus :
(i) If the accused is the Managing Director or a Joint Man-
aging Director, 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 com- pany. It is sufficient if an averment is made that the accused was the Managing Director or Joint Managing Director at the relevant time. This is because the prefix `Managing' to the word `Director' makes it clear that they were in charge of and are responsible to the company, for the conduct of the business of the company.
(ii) In the case of a director or an officer of the company who signed the cheque on behalf of the company, there is no need to make a specific averment that he was in charge of and was responsible to the company, for the conduct of the business of the company or make any specific allegation about consent, connivance or negligence. The very fact that the dishonoured cheque was signed by him on behalf of the company, would give rise to responsibility under sub-sec- tion (2) of Section 141.
(iii) In the case of a Director, Secretary or Manager (as de- fined in Sec. 2(24) of the Companies Act) or a person re- ferred to in clauses (e) and (f) of section 5 of Companies Act, an averment in the complaint that he was in charge of, and was responsible to the company, for the conduct of the business of the company is necessary to bring the case un- Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 23 of 36 der section 141(1). No further averment would be neces- sary in the complaint, though some particulars will be desir- able. They can also be made liable under section 141(2) by making necessary averments relating to consent and con- nivance or negligence, in the complaint, to bring the matter under that sub-section.
(iv) Other Officers of a company can not be made liable un- der sub-section (1) of section 141. Other officers of a com- pany can be made liable only under sub-section (2) of Section 141, be averring in the complaint their position and duties in the company and their role in regard to the is- sue and dishonour of the cheque, disclosing consent, con- nivance or negligence..."
8. On similar lines, the Hon‟ble Apex Court in National Small Industries Corp. Ltd. V. Harmeet Singh Paintal (2010) 3 SCC 330 carved out the following principles:
"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 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 commit- ted by the company along with averments in the petition Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 24 of 36 containing that the accused were in charge of and responsi- ble 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 Manag- ing Director then it is not necessary to make specific aver- ment 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 com- plaint.
9. In S.P. Mani and Mohan Dairy vs. Dr. Snehlatha Elangovan 2022 SCC OnLine SC 1238, Hon'ble Supreme Court has reiterated the law as under :-
45. Once the necessary averments are made in the statutory notice issued by the complainant in regard to the vicarious lia-
bility of the partners and upon receipt of such notice, if the partner keeps quiet and does not say anything in reply to the same, then the complainant has all the reasons to believe that what he has stated in the notice has been accepted by the no- ticee. In such circumstances what more is expected of the complainant to say in the complaint.
........................................................................... ............
47. Our final conclusions may be summarised as under:
a.) 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 ac- cused partner of the firm was aware about each and every transaction. On the other hand, the first proviso to subsection (1) of Section 141 of the Act clearly lays down that if the ac-
Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 25 of 36 cused is able to prove to the satisfaction of the 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 of punishment. b.) The complainant is supposed to know only generally as to who were in charge of the affairs of the company or firm, as the case may be. The other administrative matters would be within the special knowledge of the company or the firm and those who are in charge of it. In such circumstances, the com- plainant is expected to allege that the persons named in the complaint are in charge of the affairs of the company/firm. It is only the Directors of the 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 or the partners in a firm to show before the court that at the relevant point of time they were not in charge of the affairs of the company. Advertence to Sections 138 and Section 141 respectively of the NI Act shows that on the other elements of an offence un- der Section 138 being satisfied, the burden is on the Board of Directors or the officers in charge of the affairs of the com- pany/partners of a firm to show that they were not liable to be convicted. The existence of any special circumstance that makes them not liable is something that is peculiarly within their knowledge and it is for them to establish at the trial to show that at the relevant time they were not in charge of the affairs of the company or the firm.
c.) Needless to say, the final judgement and order would de- pend on the evidence adduced. Criminal liability is attracted only on those, who at the time of commission of the offence, were in charge of and were responsible for the conduct of the business of the firm. But vicarious criminal liability can be in- ferred against the partners of a firm when it is specifically averred in the complaint about the status of the 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. d.) If any Director wants the process to be quashed by filing a petition under Section 482 of the Code on the ground that Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 26 of 36 only a bald averment is made in the complaint and that he/she is really not concerned with the issuance of the cheque, he/she must in order to persuade the High Court to quash the process either furnish some sterling incontrovertible material or acceptable circumstances to substantiate his/her contention. He/she must make out a case that making him/her stand the trial would be an abuse of process of Court.
48. We reiterate the observations made by this Court almost a decade back in the case of Rallis India Ltd v. Poduru Vidya Bhusan & Ors., (2011) 13 SCC 88, as to 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 NI Act (which is pari materia with identical sections in other Acts like the Food Safety and Standards Act, 2006; the erstwhile Prevention of Food Adulteration Act, 1954; etc.) is susceptible to abuse by un- scrupulous companies to the detriment of unsuspecting third parties."
10. In Siby Thomas Vs. M/s. Somany Ceramics Ltd. 2023 Livelaw (SC) 869, Hon'ble Supreme Court has reiterated the law as under :-
9. Bearing in mind the averments made in the complaint in relation to the role of the appellant and subsection (1) of Section 141, we will have to appreciate the rival con-
tentions. Going by the decision relied on by the respondent in S.P. Mani's case (supra) it is the primary responsibility of the complainant to make specific averments in the com- plaint, so as to make the accused vicariously liable. Relying on paragraph 47(b) of the said decision learned counsel ap- pearing for the respondent would also submit that the com- plainant is supposed to know only generally as to who were in charge of the affairs of the company or firm, as the case Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 27 of 36 maybe and he relied on mainly the following recitals there- under:
"47......
a.) ......
b.) The complainant is supposed to know only generally as to who were in charge of the affairs of the company or firm, as the case may be. The other administrative matters would be within the special knowledge of the company or the firm and those who are in charge of it. In such cir- cumstances, the complainant is expected to al- lege that the persons named in the complaint are in charge of the affairs of the company/firm."
10. We are of the considered view that the respondent has misread the said decision.Under the sub-caption 'Specific Averments in the complaint', in paragraph 41 and sub-para- graphs (a) and (d) as also in paragraph 42 thereof, it was held in the decision in S.P. Mani's case (supra) thus: -
"41. In Gunmala Sales Private Limited (supra), this Court after an exhaustive review of its ear- lier decisions on Section 141 of the NI Act, sum- marized its conclusion as under:-
"(a) Once in a complaint filed under Section 138 read with Section 141 of the NI Act the basic averment is made that the Director was in charge of and responsible for the conduct of the busi-
ness of the company at the relevant time when the offence was committed, the Magistrate can issue process against such Director;
(b) ......
(c) ......
(d) No restriction can be placed on the High Court's powers under Section 482 of the Code. The High Court always uses and must use this power sparingly and with great circumspection Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 28 of 36 to prevent inter alia the abuse of the process of the Court. There are no fixed formulae to be fol- lowed by the High Court in this regard and the exercise of this power depends upon the facts and circumstances of each case. The High Court at that stage does not conduct a mini trial or rov- ing inquiry, but nothing prevents it from taking unimpeachable evidence or totally acceptable circumstances into account which may lead it to conclude that no trial is necessary qua a particu- lar Director."
42. The principles of law and the dictum as laid in Gunmala Sales Private Limited (supra), in our opinion, still holds the field and reflects the cor- rect position of law."
11. In the light of the afore-extracted recitals from the deci- sion in Gunmala Sales Private Limited v. Anu Mehta 1 , quoted with agreement in S.P. Mani's case (supra) and in view of sub-section (1) of Section 141 of the N.I. Act it cannot be said that in a complaint filed under Section 138 read with Section 141 of the N.I. Act to constitute basic averment it is not required to aver that the accused con- cerned is a person who was in charge of and responsible for the conduct of the business of the company at the relevant time when the offence was committed. In paragraph 43 of S.P. Mani's case (supra) it was held thus:
"43. In the case on hand, we find clear and spe- cific averments not in the complaint but also in the statutory notice issued to the respondent."
It is thereafter that in the decision in S.P. Mani's case (supra) in paragraph 47 (a) it was held that the primary responsibility of the complainant is to make specific averments in the complaint so as to make the accused vicariously liable.
14. In view of the factual position relating the averments re- vealed from the complaint as aforesaid it is relevant to refer to the decisions relied on by the learned counsel appearing Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 29 of 36 for the appellant. In the decision in Anita Malhotra's case (supra) in paragraph 22 it was held thus:-
"22. This Court has repeatedly held that in case of a Director, the complaint should specifically spell out how and in what manner the Director was in charge of or was responsible to the ac- cused company for conduct of its business and mere bald statement that he or she was in charge of and was responsible to the company for con- duct of its business is not sufficient. (Vide Na- tional Small Industries Corpn. Ltd. v. Harmeet Singh Paintal). In the case on hand, particularly, in Para 4 of the complaint, except the mere bald and cursory statement with regard to the appel- lant, the complainant has not specified her role in the day-to-day affairs of the Company. We have verified the averments as regards to the same and we agree with the contention of Mr. Akhil Sibal that except reproduction of the statu- tory requirements the complainant has not speci- fied or elaborated the role of the appellant in the day-to-day affairs of the Company. On this ground also, the appellant is entitled to succeed."
15. Paragraph 19 of the Ashok Shewakramani's case (supra) is also relevant for the purpose of the case and it, in so far as relevant, reads thus:
"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 vicari- ous liability is attracted when the ingredients of subsection 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 the company shall be deemed to be guilty of the offence under Section 138 of the NI Act. In the Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 30 of 36 light of sub-section 1 of Section 141, we have perused the averments made in the complaints subject matter of these three appeals. The allega- tion 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 re- quirement 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 commit- ted was in charge of and was responsible to the company for the conduct of the business of the company. Merely because somebody is manag- ing the affairs of the company, per se, he does not become in charge of the conduct of the busi- ness 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 subsection 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 con- clude that the allegation of the second respon- dent 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 Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 31 of 36 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."
11. As to the cases pertaining to 'Independent Directors', the Hon'ble Supreme Court observed as under in Sunita Palita and Ors. Vs. M/s. Panchami Stone Quarry (2022) 10 SCC 152 :-
"40. There can be no doubt that in deciding a Criminal Revisional Application under section 482 of the Cr.P.C. for quashing a proceeding under Section 138/141 of the NI Act, the laudable object of preventing bouncing of cheques and sustaining the credibility of commercial transactions resulting in enactment of the said Sections has to be borne in mind. The provisions of Section 138/141 of the NI Act create a statutory presumption of dishonesty on the part of the signatory of the cheque, and when the cheque is issued on behalf of a company, also those persons in charge of or responsible for the company or the business of the company. Every person connected with the company does not fall within the ambit of Section 141 of the NI Act.
41. 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, in- ter 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 committed, and not on the basis of merely holding a designation or office in Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 32 of 36 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.
42. 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.
43. The High Court correctly observed that three categories of persons were covered by Section 141 of the NI Act - the company who committed the offence as alleged; everyone who was in-charge of or was responsible for the business of Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 33 of 36 the company and any other person who was a Director or a Manager or a Secretary or Officer of the Company with whose connivance or due to whose neglect the company had committed the offence.
44. Even though the High Court deprecated the adoption of a hyper technical approach in construing pleadings, to quash criminal proceedings, the High Court adopted a hyper technical approach in rejecting the application under Section 482 of the Cr.P.C., on a cursory reading of the formalistic pleadings in the complaint, endorsing the contents of Section 141 of the NI Act, without any particulars. What the High Court overlooked was, the contention of these Appellants that they were non- Executive Independent Directors of the Accused Company, based on unimpeachable materials on record. The High Court observed that in the petition it had specifically been averred that all the accused persons were responsible and liable for the whole business management of the Accused Company, and took the view that the averments in the complaint were sufficient to meet the requirements of Section 141 of the NI Act.
45. As held by this Court in National Small Industries Corporation Ltd. Vs. Harmeet Singh Paintal quoted with approval in the subsequent decision of this Court in Pooja Ravinder Devidasani Vs. State of Maharashtra (supra) the impleadment of all Directors of an Accused Company 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, does not fulfil the requirements of Section 141 of the NI Act.
Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 34 of 36
46. In any event there could be no justification for not dispensing with the personal appearance of the Appellants, when the Company had entered appearance through an authorized officer. As held by this Court in Pepsi Foods Ltd. V. Special Judicial Magistrate and Ors. summoning an accused person cannot be resorted to as a matter of course and the order must show application of mind."
12. Thus, the settled position of law is that for a Director of a company to be summoned u/s 138 NI Act r/w Section 141 NI Act, the record must reflect specific averments (against the said Director) as mentioned in the aforegoing citations.
13. A bare perusal of the Trial Court Record reflects that the above said complaint was filed under section 138 NI Act by the respondent herein against GEI Industrial Systems Ltd. and its Directors on account of dishonour of relevant cheque(s). Respondent herein has averred categorically in the above said complaint that revisionist herein is a Director of GEI Industrial Systems Ltd. and is Incharge and responsible for day to day affairs of GEI Industrial Systems Ltd. Respondent herein also placed on record Form-DIR-12 pertaining to GEI Industrial Systems Ltd., which reflects the name of revisionist herein as an Additional Director, Category - Independent. Being aware of the nature of association of the revisionist herein with GEI Industrial Systems Ltd., it was incumbent upon the respondent herein to specify the exact role of the revisionist herein in respect of Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 35 of 36 the issuance of cheque(s) or its dishonour. In the absence of specific pleadings / averments against the revisionist herein, criminal proceedings u/s 138 r/w Section 141 of NI Act could not have been instituted only because of the above said designation of the revisionist herein. Moreso, in view of the facts that the revisionist herein joined GEI Industrial Systems Ltd., in the above said capacity, only on 30.03.2015 (i.e. much beyond the execution of Factoring Agreement between the parties) and that the revisionist herein is not a Signatory to the cheque(s). For the aforesaid reasons, the summoning order dated 04.12.2015 is liable to be set aside qua the revisionist herein. Ordered accordingly.
14. TCR be sent back along with the copy of this judgment.
15. Revision file be consigned to record room.
Digitally
signed by
Announced & Dictated in the LOVLEEN
LOVLEEN
Date:
2024.09.30
Open Court today i.e. 30.09.2024. 16:30:21 +0530 (Lovleen) ASJ-03 (South East) Saket Courts, Delhids Crl. Revision No: 5/2024 Shibu Thomas Vs. IFCI Factors Ltd. page no. 36 of 36