Som Distilleries And Breweries Limited vs Madhya Pradesh State Industrial ... on 30 March, 2022

[Cites 30, Cited by 7]

Madhya Pradesh High Court

Som Distilleries And Breweries Limited vs Madhya Pradesh State Industrial ... on 30 March, 2022

Reserved on : 08.12.2021 Delivered on : 30.03.2022 (O R D E R) (30.03.2022) This is an amalgam of seven congruent petitions filed under Section 482 of the Code of Criminal Procedure for seeking quashment of the complaint cases filed by the respondent against the petitioners under Sections 138, 141 and 142 of the Negotiable Instruments Act, 1881 (amended as Act of 1988) pending in the Court of Additional Chief Judicial Magistrate, Bhopal.

2. These batch of petitions are analogously decided as the issue involved therein is identical in nature and the petitions are between the indifferent parties. For the sake of convenience, the facts of M.Cr.C.55265/2021 are taken note of.

3. The facts encapsulated are that for providing financial assistance in the form of Inter Corporate Deposit ('ICD'), the respondent sanctioned and disbursed a sum of

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Rs.1 Crore to the petitioners (for brevity "SDBL") by fixing a due date for repayment as 21.03.2001. Again, an amount of Rs.2 Crore was sanctioned and disbursed to SDBL by way of ICD fixing the due date of repayment as 06.02.2002.

Thereafter, by way of third ICD, a sum of Rs.1 Crore was sanctioned and disbursed in favour of SDBL fixing a date of repayment as 13.08.2002 and finally by way of fourth ICD, a sum of Rs.3 Crore was sanctioned and disbursed by the respondent in favour of SDBL by fixing the date of its repayment as 30.10.2004.

On 28.03.2003, facing financially depleted circumstances, SDBl implored before respondent for not pursuing with the recovery proceeding. On 16.06.2003, the respondent issued a legal notice calling upon SDBL to make payments under the ICDs. On 24.04.2005, SDBL submitted a proposal for One Time Settlement ('OTS'). According to respondent, since the proposal was not in terms of the policy/guidelines of the Government of Madhya Pradesh, it was not accepted. On 02.12.2005 and 27.02.2006 SDBL informed the respondent that it had appointed Kotak Mahindra Bank for negotiating a settlement on its behalf.

According to the respondent, nothing came out of it and it was simply a manoeuvre to gain time. Thereafter, the

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respondent sent a statutory notice on 30.11.2007 to SDBL under Sections 433 and 434 of the Companies Act, 1956 calling upon SDBL to make payments within a period of 21 days as on 31.12.2005, SDBL owed respondent Rs.26,26,62,000.

Thereafter, a company petition was filed under Section 439 r/w Section 433(e) and 434 of the Companies Act, 1956 seeking for winding-up of SDBL. In that petition, following directions were issued on 03.05.2013.

"31. The Directors of the SDBL are directed to strictly comply with the requirements of Section 454 of the Act and Rule 130 of the Rules and furnish to the OL a statement of affairs in the prescribed form verified by an affidavit within a period of 21 days from the date that this order become operative as indicated in para 32 below.

They will also file affidavits, in this Court, with advance copies to the OL, within four weeks thereafter setting out the details of all the assets, both movable and immovable, of the SDBL company and enclose therewith the balance sheets, profit and loss accounts and copies of the statements of all the bank accounts for the last three years.

32. Given the history of this litigation, and the fact that SDBL claims that it is a profit making company that has the capacity to pay the admitted liability, the Court considers it appropriate to grant one more opportunity to SDBL to pay to MPSDIC the admitted liability as shown in its balance sheet as on 31st March 2010, minus the payments made by SDBL to MPSIDC thereafter, together with interest up-to-date within a period of six weeks from today.

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Accordingly this order is kept in abeyance for a period of six weeks from today. If the payment as directed above is made by SDBL to institute other appropriate proceedings in accordance with law to recover the balance amount claimed by it. If such payment is not made to MPSIDC within six weeks then this order, and in particular para 29 to 31 above, will become immediately operational. MPSIDC will immediately inform the OL and the OL will proceed to take steps in terms of paras 29 to 31 of this order. In that event, a compliance report shall be filed by the OL before the next date of hearing."

Thereafter the SDBL filed a Special Leave Petition before the Supreme Court against the order dated 29.05.2013 and in the said SLP, it was informed that the offer was made by the respondent to the SDBL for settlement of dues to the tune of Rs.7,52,66,667/- and an amount of Rs.7.60 Crore by way of two demand drafts had been handed over to the respondent. Thereafter, the Supreme Court in its order dated 19.06.2013 came to observe as under:-

"In view of the said payment of Rs.7,60,00,000/- by the petitioner to the respondent, the order of the learned Company Judge directing the Official Liquidator to take charge of the petitioner Company including all the assets and the publication of the winding up order is affirmed in the Company Appeal, shall remain stayed.

Respondent is granted six weeks' time to file reply."

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The SLP was again come-up for hearing on 14.11.2014, where the respondent made a statement that the deposit ordered by the Court already made by the SDBL was kept in an 'Escrow account earning interest'. The SLP was finally dismissed by order dated 26.09.2016 with the following observations:-

"We do not find any legal and valid ground for interference. The Special Leave Petition is dismissed. Whatever amount has been deposited by the petitioner shall be returned to it along with interest, if any."

Thereafter, under the Right to Information Act, 2005, the SDBL was informed that the amount of Rs.7,60,47,000/- deposited in Escrow Account earned interest of Rs.2,16,39,378/- as on 30.04.2017.

Invoking the provisions of Section 138 of N.I.Act, a complaint case was filed by the respondent in regard to 12 cheques issued for repayment of loan amounts which were sanctioned and disbursed in favour of SDBL by the respondent. The total sum of 12 cheques came to Rs.6.71 Crore and as per the information available through RTI, up-to 30.04.2017, the amount of Rs.7,60,47.000/- earned interest of Rs.2,16,39,378/- and the total accumulated amount must have fetched more interest till date.

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Thereafter, petitions under Section 482 of CrPC were filed before the High Court seeking for quashment of respective criminal proceedings pending in relation to complaint cases filed under Section 138 of N.I.Act on the ground that in pursuance to 'One Time Settlement' Scheme, the SDBL was ready to pay the cheque amounts and as such the criminal proceedings were sought to be quashed.

By a consolidated order dated 22.04.2014, those petitions were dismissed by the High Court giving following observations:-

"14. In present criminal cases offence under NI Act has been committed years before prior to the introduction of OTS Scheme. For offence already committed years before cannot be automatically compounded as a matter of resolution of the Scheme as a matter of right. Compliance of Scheme is sincere and utmost duty of officer of Corporation, offer of petitioner can be accepted only if that tallies with the provisions of Scheme and should be in consonance with the amount due in each and every case on the basis of amount and date of cheque and date of bounce vis-a-vis date of offer.

15. Continuation of criminal proceedings will not be miscarriage of justice. Corporation cannot be forced to accept the offer of amount, which, according to them, is not as per the OTS Scheme of 2007. Interest of justice would be served if amount of each and every bounced cheque should be paid back to the Corporation as per agreement/ as per policy observing on the line as has been given in JIK. Industries case (supra).

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Relief of quashment of criminal complaints filed under section 138 NI Act cannot be granted under inherent powers of this Court, rather it is expected of the trial court that all such pending criminal cases should be disposed of expeditiously without any further delay as per law.

Petitions stand dismissed."

4. The instant petitions have been filed by the SDBL for seeking quashment of the proceedings of complaint cases mainly on two counts. Firstly, the essential ingredients of Section 141 of N.I. Act are missing as there was no description given alleging as to how petitioners No.2 and 3 were responsible for day-to-day business of the SDBL inasmuch as in the memo of complaint, the allegation made against petitioners No.2 and 3 assigning their role, does not fulfill the requirement to make them responsible for the act committed by the SDBL and as such the material ingredient for holding these petitioners responsible as per Section 141 is missing and therefore complaint against petitioners No.2 and 3 deserves to be dismissed. Secondly, during the course of argument, the learned counsel for SDBL has made alternative submission that indubitably the amount i.e. Rs.7,60,47,000/- deposited by the SDBL is still lying with the respondent and in spite of the order of the Supreme Court given while dismissing the SLP on 26.09.2016, it has not

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been returned to the SDBL so far. Learned counsel for the petitioners submitted that till 30.04.2017, interest amount over the deposited amount came to Rs.2,16,39,378/- and that amount of interest till date must have ameliorated. In the circumstance, the respondent possesses more than the amount of total value of bounced cheques i.e. Rs.6.71 Crores. As such, the amount plus interest already in possession of the respondent can be adjusted with the cheque amounts. He candidly submitted that in addition to the aforesaid adjustment, adequate compensation, if any awarded by this Court, can also be adjusted from the total amount (principal + interest) carried in Escrow Account and in possession of the respondent.

5. Shri Sanjay K. Agrawal, learned counsel appearing for the respondent has opposed the submissions made on behalf of the petitioners and submitted that the present petitions are liable to be dismissed mainly on the ground that on earlier occasion, the petitions under Section 482 of CrPC wherein the petitioners had claimed 'One Time Settlement', had already been dismissed by the High Court vide order dated 22.04.2014. He accentuated that second set of petitions for the same cause of action; claiming similar relief and between indifferent parties, is not maintainable. He

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sanguinely submitted that this Court runs short of occasion to reconsider the said aspect as has already been tested and disdained by the High Court previously in earlier round and therefore these petitions are liable to be dismissed being not maintainable. He further denied the submission made on behalf of the petitioners with regard to non-compliance of mandatory requirement of Section 141 of N.I. Act and submitted that sufficient description assigning role of the Directors (petitioners No.2 and 3) in the SDBL has been given in the complaint and as such they can be held responsible for the act viz. issuance of cheques, which is subject matter of complaint case filed under section 138 of N.I.Act and consequently appropriate punishment may be awarded to them as well. The learned counsel for the respondent also submitted that instead of entertaining these petitions and the proposal made by the petitioners for settlement, this Court can remit the matter to the Court below where the petitioners can make their request and if that is not accepted by the Court below, then only petition can be filed challenging the order of the Court below. As per Shri Sanjay K. Agrawal, petition under Section 482 filed before this Court directly is not maintainable and it would also not be proper on the part of this Court to entertain these

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petitions without giving any opportunity to the trial Court for considering the proposal made by the petitioners because ultimately it is the trial Court which has to consider the proposal, if any, is made for quashing the proceeding in view of the offer made by the petitioners for settling the dispute.

To reinforce his contentions, learned counsel for the respondent has placed reliance on various decisions in re (2007) 5 SCC 108 n. Rangachari v. Bharat Sanchar Nigam Ltd.; (2009) 10 SCC 48 K.K. Ahuja v. V.K. Vora and another; (2015)1 SCC 103 Gunmala Sales Private Limited v. Anu Mehta and Others and ILR (2019) MP 1914 Santosh v. State of M.P. & Others.

6. Shri Sanjay Agrawal, learned counsel for the petitioners submits that they have moved an application (I.A.No.22024/2021) for bringing additional submissions with documents on record and the said application has not been replied and facts mentioned therein remained uncontroverted by the respondent. In other words, the facts mentioned in the said application are deemed to be admitted by the respondents and according to learned counsel, against the ICD facility to the tune of Rs.7 Crores, the respondent possesses an amount of Rs.10,97,70,319/- and despite clear direction by the Supreme Court for refunding

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the said amount, not a single penny has been refunded, although that amount carries interest and after calculating the interest, the total amount came to Rs.12,26,86,378/- as on 01.12.2021. He also submitted that except the proceeding under Section 138 of N.I. Act, no other proceeding for recovery of loan amount has been instituted by the respondent and as such the cheque amount can be adjusted with the amount lying with the respondent and proceeding of Section 138 can be concluded by quashing the complaints. In support of his contentions, he has placed reliance on the decisions in re (2018) 14 SCC 2002 Ashoke Mal Bafna v. Upper India Steel Manufacturing and Engineering Company Ltd.; (2014) 16 SCC 1 Pooja Ravinder Devidasani v. State of Maharashtra and another; the order passed in MCrC No.1758/2015 (M.A.Harin Iqbal and another v. Hiralal Daheria and another) and an order passed in MCrC No.3113/2018 (Aswad Constructions Company v. Rakesh Singh.

7. I have heard the rival submissions of the learned counsel for the parties at length and perused the documents available on record.

8. This Court is of the following opinion:-

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9. The gleaned facts are indicative that the proceeding initiated by the respondent by filing complaint under Section 138 of N.I. Act in pursuance to the cheques issued by the SDBl against the loan amount disbursed by the respondent in favour of SDBL under the Scheme 'Inter Corporate Deposit'. It also emerges from the facts of the case that the dispute arose between the parties when SDBL had shown inability to repay the loan amount and/or clear the outstanding. Obviously, nothing has come on record and has also not been informed by any of the parties that any other recovery proceeding of that loan amount has been initiated or pending and it has also not come on record that the cheques which are subject matter of the complaint cases under N.I. Act, are related to some other transaction. Thus, it is clear that the cheques which have given rise to the proceedings of Section 138 of N.I.Act were issued in lieu of loan amount disbursed in favour of SDBL by the respondent. Indeed, an attempt was made by the parties to get the account settled under the Scheme 'One Time Settlement', but that attempt ended in fiasco as was not in consonance with the guidelines of the Government. Even in the proceeding of winding up of the SDBL, the Supreme Court has clearly ordered for refund of amount already lying with

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the respondent to SDBL, but admittedly that amount has not been refunded so far. As per the available documents on record procured by the petitioners under the RTI Act, bespeak that amount deposited by SDBL to the respondent carried interest up to 30.04.2017 came to Rs.2,16,39,378/-

and by way of additional submissions it is brought on record that the total amount with interest accumulated was Rs.10,97,71,319/- . The incipient petitions filed under Section 482 of CrPC by the SDBL for quashing the proceeding of complaint cases taking note of the Scheme 'OTS', but the High Court brushed aside that prayer by observing that the Corporation cannot be forced to accept the offer of amount which is not as per the OTS Scheme of 2007. The High Court therefore rejected the offer for settling the dispute under the OTS Scheme. But, that does not mean that the amount already lying with the respondent which had already been ordered to be refunded by the Supreme Court, cannot be used by the SDBL for giving an offer to adjust the cheque amount for which proceeding of Section 138 is pending. It is not obscure, rather a settled principle of law that the proceedings under N.I. Act by way of filing complaint under Section 138 cannot be treated to be a recovery suit and that cannot be used as a weapon to recover the amount. But, in

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the case at hand, as per the arguments advanced on behalf of the respondent, they are not accepting the offer of the SDBL when the SDBl is ready to pay the cheque amount and also ready to pay adequate compensation as determined by this Court. I find no reason to accept the submission made by the counsel for the respondent that the amount lying with them, which was admittedly directed to be repaid by the Supreme Court and that amount was not refunded by them, now cannot be used by the SDBL to adjust the amount of cheque amount. These proceedings are pending since long and it further indicates that the respondent has not initiated any proceeding for recovery of loan amount, but now depending upon these proceeding of N.I.Act, it can be inferred that they are using it as a weapon to recover their outstanding which might be higher than the amount involved in the cheques. But that is not the basic object of the provisions of N.I.Act, therefore, the offer made by the petitioner to adjust the amount lying with the respondent with the cheque amount appears to be reasonable and justified. Considering the existing factual position, when no other proceeding initiated or pending for recovery of the amount lying against the petitioner against the loan sanctioned and disbursed under the ICDs, the

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amount cannot be recovered by availing the N.I.Act. The opinion of this Court finds support by the decision of Supreme Court in re Meters and Instruments Private Limited and another v. Kanchan Mehta (2018) 1 SCC 560, wherein it has been observed by the Supreme Court that "the respondents even though are not ready to settle the dispute, Court can direct the same in the interest of justice."

10. This Court cannot be oblivious nor can it shut its eyes to see that the amount disbursed by the respondent in favour of the SDBL as a loan, is a pubic money and if they are not serious to recover the same and litigating the matter as per their own choice by not initiating any recovery proceeding, the amount which is being offered by the borrower cannot be denied to accept. The proceeding of N.I.Act cannot be kept pending only because the respondent is not willing to settle the dispute despite the fact, as has been discussed above, amount is still lying with the respondent.

11. Further, this Court cannot give a stamp of approval to the submission of counsel for the respondent that the matter should be relegated to the trial court and offer could be placed there and if that is unaccepted, then only this court attains jurisdiction to entertain the petition under

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482 of CrPC. Since the issue is being unjustifiably elasticated for two decades as the complaint cases are pending since 2001 and so on, therefore, as this Court is vouchsafed with inherent power under Section 482 of CrPC to resolve the dispute rather to relegate the matter to the trial Court. Thus, this submission of the respondent is unjustified and unreasonable. Quite apart, 'Uneasy lies in the head which bears the crown" - it stands to reason here that the judiciary is saturated with the lawsuits and if opportunity is legally arisen to uproot such worthy cases, then it will not only relieve the burden, but will surely help in removing the weeds from the overgrown garden of pendency in the Courts. In the existing circumstances, this Court can exercise the inherent power enshrined under Section 482 of CrPC to entertain the petition and to see whether offer made by the petitioner can be accepted or not. In the petitions earlier filed and got dismissed by the High Court from the observations made in the concluding part of the order, reproduced hereinabove, it is clear that the High court refused to quash the proceeding as they were sought to be quashed on the basis of OTS Scheme, but here the SDBL has come up with the case that cheque amount can be adjusted with the amount of the SDBL lying with the

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respondent and was directed by the Supreme Court to refund that amount to SDBL, but that has not been done by the respondent and the said amount is lying in Escrow account carrying multiple interest and as per the facts that amount has been accumulated to the tune of Rs.10,97,70,319/-.

12. Adverting to the another reason, by which, the SDBl is seeking quashment of the complaints on the ground that requirement of Section 141 of N.I.Act has not been fulfilled. For the purpose of ready reference, I profitably quote the provisions of Section 141 of N.I.Act 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 Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be,

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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."

13. In re Ashoke Mal Bafna (supra), placed reliance by learned counsel for the petitioners, the Supreme Court in paragraphs 8, 9 and 10 interpreting the provisions of Section 141, has observed as under:-

"8. Interpreting the provisions of Section 141 this Court in National Small Industries Corporation v. Harmeet Singh Paintal & Anr. (2010) 3 SCC 330 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

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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 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 & Ors. AIR 2015 SC 675].

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."

14. Further, in re Pooja Ravinder Devidasani (supra), the Supreme Court has observed as under:-

"17. There is no dispute that the appellant, who was wife of the Managing Director, was appointed as a Director of the Company-M/S Elite International Pvt. Ltd. on 1st July, 2004 and had also executed a Letter of Guarantee on 19th January, 2005. The cheques in question were issued during April, 2008 to September, 2008. So far as the dishonor of Cheques is concerned, admittedly the cheques were not signed by the appellant. There is also no dispute that the appellant was not the Managing Director but only a non-executive Director of the Company. Non- executive Director is no doubt a custodian of the governance of the Company but does not involve in the day-to-day affairs of the running of its business and only monitors the

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executive activity. To fasten vicarious liability under Section 141 of the Act on a person, at the material time that person shall have been at the helm of affairs of the Company, one who actively looks after the day-to-day activities of the Company and particularly responsible for the conduct of its business. Simply because a person is a Director of a Company, does not make him liable under the N.I. Act. Every person connected with the Company will not fall into the ambit of the provision. Time and again, it has been asserted by this Court that only those persons who were in charge of and responsible for the conduct of the business of the Company at the time of commission of an offence will be liable for criminal action. A Director, who was not in charge of and was 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.I. Act. In National Small Industries Corporation (supra) this Court observed:

"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.

A company may have a number of Directors and to make any or all the Directors as accused in a complaint merely on the basis of a statement that they are in charge of and

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responsible for the conduct of the business of the company without anything more is not a sufficient or adequate fulfillment of the requirements under Section 141.

18. In Girdhari Lal Gupta Vs. D.H. Mehta & Anr. (1971) 3 SCC 189, 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.

19. A Director of a Company is liable to be convicted for an offence committed by the Company if he/she was in charge of and was responsible to the Company for the conduct of its business or if it is proved that the offence was committed with the consent or connivance of, or was attributable to any negligence on the part of the Director concerned [See: State of Karnataka Vs. Pratap Chand & Ors. (1981) 2 SCC 335].

20. 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 N.I. 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.

21. In Sabitha Ramamurthy & Anr. Vs. R.B.S. Channbasavaradhya (2006) 10 SCC 581, it was held by this Court that it is not necessary for the complainant to specifically reproduce the wordings of the section but what is required is a clear statement of fact so as to enable the court to arrive at a prima facie opinion that the accused is vicariously liable.

[pic]Section 141 raises a legal fiction. By reason of the said provision, a person although is not personally liable for commission of such an offence would be vicariously liable therefor. Such vicarious liability can be inferred so far as a company

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registered or incorporated under the Companies Act, 1956 is concerned only if the requisite statements, which are required to be averred in the complaint petition, are made so as to make the accused therein vicariously liable for the offence committed by the company. By verbatim reproducing the wording of the Section without a clear statement of fact supported by proper evidence, so as to make the accused vicariously liable, is a ground for quashing proceedings initiated against such person under Section 141 of the N.I. Act.

22. As held by this Court in Pepsi Foods Ltd.

& Anr. Vs. Special Judicial Magistrate & Ors. (1998) 5 SCC 343, summoning of an accused in a criminal case is a serious matter. Criminal law cannot be set into motion as a matter of course. The order of the Magistrate summoning the accused must reflect that he has applied his mind to the facts of the case and the law applicable thereto. He has to examine the nature of allegations made in the complaint and the evidence both oral and documentary in support thereof and would that be sufficient for the complainant to succeed in bringing charge home to the accused. It is not that the Magistrate is a silent spectator at the time of recording of preliminary evidence before summoning of the accused. The Magistrate has to carefully scrutinise the evidence brought on record and may even himself put questions to the complainant and his witnesses to elicit answers to find out the truthfulness of the allegations or otherwise and then examine if any offence is prima facie committed by all or any of the accused.

xxx xxx

30. Putting the criminal law into motion is not a matter of course. To settle the scores between the parties which are more in the nature of a civil dispute, the parties cannot be permitted to put the criminal law into motion

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and Courts cannot be a mere spectator to it. Before a Magistrate taking cognizance of an offence under Section 138/141 of the N.I. Act, making a person vicariously liable has to ensure strict compliance of the statutory requirements. The Superior Courts should maintain purity in the administration of Justice and should not allow abuse of the process of the Court. The High Court ought to have quashed the complaint against the appellant which is nothing but a pure abuse of process of law."

15. The High Court in the case of M.A. Harin Iqbal (supra) has dismissed the complaint relying upon the case of Supreme Court in re Standard Chartered Bank v. State of Maharastra (2016) 6 SCC 62, dismissing the complaint holding that there was no sufficient allegation made in the complaint that the accused holding the post of Chairman, Managing Director and Executive Director were the persons responsible and in charge of day-to-day business of accused/Company. Again, in the case of Aswad Construction Company (supra), the High Court relying upon several decisions including the decisions of Supreme Court in re Standard Chartered Bank (supra) and in re National Small Industries Corporation Limited v.

Harmeet Singh Paintal and another (2010) 3 MPLJ SC 86, dismissed the complaint as the said complaint did not

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contain sufficient averment to fulfill the requirement of Section 141.

16. In re N. Rangachari (supra), placed reliance by the learned counsel for the respondent, in paragraphs 19, 21 and 26, the Supreme Court has observed as under:-

"19. Therefore, a person in the commercial world having a transaction with a company is entitled to presume that the directors of the company are incharge of the affairs of the company. If any restrictions on their powers are placed by the memorandum or articles of the company, it is for the directors to establish it at the trial. It is in that context that Section 141 of the Negotiable Instruments Act provides that when the offender is a company, every person, who at the time when the offence was committed was incharge of and was responsible to the company for the conduct of the business of the company, shall also be deemed to be guilty of the offence along with the company. It appears to us that an allegation in the complaint that the named accused are directors of the company itself would usher in the element of their acting for and on behalf of the company and of their being incharge of the company. In Gower and Davies' Principles of Modern Company Law (Seventh Edition), the theory behind the idea of identification is traced as follows: "It is possible to find in the cases varying formulations of the under-lying principle, and the most recent definitions suggest that the courts are prepared today to give the rule of attribution based on identification a somewhat broader scope. In the original formulation in the Lennard's Carrying Company case Lord Haldane based identification on a person "who is really the directing mind and will of the corporation, the very ego and centre of the

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personality of the corporation". Recently, however, such an approach has been castigated by the Privy Council through Lord Hoffmann in the Meridian Global case as a misleading "general metaphysic of companies". The true question in each case was who as a matter of construction of the statute in question, or presumably other rule of law, is to be regarded as the controller of the company for the purpose of the identification rule."

21. A person normally having business or commercial dealings with a company, would satisfy himself about its creditworthiness and reliability by looking at its promoters and Board of Directors and the nature and extent of its business and its Memorandum or Articles of Association. Other than that, he may not be aware of the arrangements within the company in regard to its management, daily routine, etc. Therefore, when a cheque issued to him by the company is dishonoured, he is expected only to be aware generally of who are incharge of the affairs of the company. It is not reasonable to expect him to know whether the person who signed the cheque was instructed to do so or whether he has been deprived of his authority to do so when he actually signed the cheque. Those are matters peculiarly within the knowledge of the company and those in charge of it. So, all that a payee of a cheque that is dishonoured can be expected to allege is that the persons named in the complaint are in charge of its affairs. The Directors are prima facie in that position.

26. In the case on hand, reading the complaint as a whole, it is clear that the allegations in the complaint are that at the time at which the two dishonoured cheques were issued by the company, the appellant and another were the Directors of the company and were incharge of the

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affairs of the company. It is not proper to split hairs in reading the complaint so as to come to a conclusion that the allegations as a whole are not sufficient to show that at the relevant point of time the appellant and the other are not alleged to be persons incharge of the affairs of the company. Obviously, the complaint refers to the point of time when the two cheques were issued, their presentment, dishonour and failure to pay in spite of notice of dishonour. We have no hesitation in overruling the argument in that behalf by the learned Senior Counsel for the appellant.

17. Then, in re K.K. Ahuja (supra), placed reliance by learned counsel for the respondent, the Supreme Court has observed in paragraphs 26 and 27 as under:-

"26. Another aspect that requires to be noticed is that only a Director, Manager, Secretary or other officer can be made liable under sub-section (2) of section 141. But under sub-section (1) of section 141, it is theoretically possible to make even a person who is not a director or officer, liable, as for example, a person falling under category (e) and (f) of section 5 of Companies Act, 1956. When in SMS Pharma (I), this Court observed that 'conversely, a person not holding any office or designation in a company may be liable if he satisfies the requirement of being in charge of and responsible for conduct of the business of the company', this Court obviously had in mind, persons described in clauses (e) and (f) of section 5 of Companies Act. Be that as it may.

27. The position under section 141 of the Act can be summarized thus :

(i) If the accused is the Managing Director or a Joint Managing Director, it is not necessary to make an averment in the

-:- 28 -:-

complaint that he is in charge of, and is responsible to the company, for the conduct of the business of the company. 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-section (2) of Section 141.

(iii) In the case of a Director, Secretary or Manager (as defined in Sec. 2(24) of the Companies Act) or a person referred 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 under section 141(1). No further averment would be necessary in the complaint, though some particulars will be desirable. They can also be made liable under section 141(2) by making necessary averments relating to consent and connivance or negligence, in the complaint, to bring the matter under that sub-section.

(iv)Other Officers of a company can not be made liable under sub-section (1) of section 141. Other officers of a company can be made liable only under sub-section

-:- 29 -:-

(2) of Section 141, be averring in the complaint their position and duties in the company and their role in regard to the issue and dishonour of the cheque, disclosing consent, connivance or negligence."

18. Further, in re Gunmala Sales Private Limited (supra), relied upon by the learned counsel for the respondent, the Supreme Court in paragraph 34 has observed as under:-

"34. We may summarize our conclusions as follows:

34.1 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 business of the company at the relevant time when the offence was committed, the Magistrate can issue process against such Director;

34.2 If a petition is filed under Section 482 of the Code for quashing of such a complaint by the Director, the High Court may, in the facts of a particular case, on an overall reading of the complaint, refuse to quash the complaint because the complaint contains the basic averment which is sufficient to make out a case against the Director.

34.3 In the facts of a given case, on an overall reading of the complaint, the High Court may, despite the presence of the basic averment, quash the complaint because of the absence of more particulars about role of the Director in the complaint. It may do so having come across some unimpeachable, uncontrovertible evidence which is beyond suspicion or doubt or totally acceptable circumstances which may clearly indicate that the Director could not have been concerned with the issuance of cheques and asking him to stand the trial

-:- 30 -:-

would be abuse of the process of the court. Despite the presence of basic averment, it may come to a conclusion that no case is made out against the Director. Take for instance a case of a Director suffering from a terminal illness who was bedridden at the relevant time or a Director who had resigned long before issuance of cheques. In such cases, if the High Court is convinced that prosecuting such a Director is merely an arm- twisting tactics, the High Court may quash the proceedings. It bears repetition to state that to establish such case unimpeachable, uncontrovertible evidence which is beyond suspicion or doubt or some totally acceptable circumstances will have to be brought to the notice of the High Court. Such cases may be few and far between but the possibility of such a case being there cannot be ruled out. In the absence of such evidence or circumstances, complaint cannot be quashed; 34.4 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 to prevent inter alia the abuse of the process of the Court. There are no fixed formulae to be followed 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 roving 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 particular Director."

19. Before I summarise my conclusion, it would be apt to go-through the averments made in the complaint. Paragraph 3 which specifies the allegation made against petitioners No.2 and 3, is reproduced hereinunder:-

-:- 31 -:-

3. ;g fd vfHk;qDr Øekad 1 dEiuht ,DV 1956 ds varxZr ,d iath;r dEiuh gS vkSj Jh ts-ds-vjksjk mlds ps;jeSu de eSusftax Mk;jsDVj ,oa 'ks"k vfHk;qDrx.k mlds Mk;jsDVj gS ftUgsa izR;sd dks dEiuh ds izR;sd dk;Z ,oa laO;ogkj dh tkudkjh ,oa Kku jgrk gS vkSj dEiuh ds izR;sd dk;Z ds fy, izR;sd vfHk;qDr ftEesnkj gSA

20. Juxtaposing the averments made in the complainant with the requirement as has been observed by the Supreme Court In re Ashoke Mal Bafna (supra), it is clear that the averment made specifying the role of petitioners No.2 and 3 are not sufficient and fulfilling the requirement of Section 141 of N.I.Act. The Supreme court in the case of in re Pooja Ravinder Devidasani (supra) has observed that "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 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

-:- 32 -:-

liable for criminal action." and further observed that "By verbatim reproducing the words of the section without a clear statement of fact supported by proper evidence, so as to make the accused vicariously liable, is a ground for quashing proceedings initiated against such person under Section 141 of the NI Act.".

21. The overall circumstances and the averments made in the complaint and the excellent ratiocination prima facie made the argument of learned counsel for the petitioners more impressionable, but this Court is uninterested being disinterested to step into that question for the reason that the offer made by the petitioners for adjustment of amount appears reasonable and impregnable. Ergo, to break the chain of elongated litigation pursued unnecessarily for more than two decades and to bring the discord to its logical end, I am of the considered view that the complaint cases should be quashed by adequately compensating the respondent.

22. In view of the above discourse, these petitions are allowed. The proceedings of all the complaint cases, which have given rise to these petitions, are hereby quashed. It is directed that from the deposited amount of the SDBL which is lying in Escrow Account and in possession of the

-:- 33 -:-

respondent, the total cheque amounts, in all the complaint cases, shall be adjusted and further an amount of Rs.50 Lac towards compensation and Rs.20 Lac towards cost of litigation shall also be adjusted. The petitioners, therefore, are discharged for the satisfaction of legal liability/debt payment to the respondent under the cheques.

The petitions stand allowed with the aforesaid direction.

(Sanjay Dwivedi) Judge sudesh SUDESH Digitally signed by SUDESH KUMAR SHUKLA DN: c=IN, o=HIGH COURT OF MADHYA PRADESH, ou=HIGH COURT OF MADHYA PRADESH, postalCode=482001, st=Madhya KUMAR Pradesh, 2.5.4.20=1d5e479f08e68eda8f9271dbbe2c4 bc3916264aec736f7c5f5885257f5eeaeb7, pseudonym=70EE703D36E97ABB20BA3C79 C921929E09400A16, SHUKLA serialNumber=7D462390C18350EF7C40811 B12AB45D82AF1259878762BAC356DCFA87 7F02654, cn=SUDESH KUMAR SHUKLA Date: 2022.03.31 13:28:45 +05'30'

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