Gujarat High Court
Sangeetha Gopalkrishnan Nair vs State Of Gujarat on 8 November, 2023
NEUTRAL CITATION
R/CR.MA/14245/2019 JUDGMENT DATED: 08/11/2023
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/CRIMINAL MISC.APPLICATION (FOR QUASHING & SET ASIDE
FIR/ORDER) NO. 14245 of 2019
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE SANDEEP N. BHATT
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy
of the judgment ?
4 Whether this case involves a substantial question
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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SANGEETHA GOPALKRISHNAN NAIR
Versus
STATE OF GUJARAT
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Appearance:
MR. R.D.KINARIWALA(6146) for the Applicant(s) No. 1,2
MR PM DAVE(263) for the Respondent(s) No. 2
MR. P. T. CHACKO(213) for the Respondent(s) No. 3,4,5,6,7,8
MS MONALI H BHATT, APP for the Respondent(s) No. 1
VISHAL K ANANDJIWALA(7798) for the Respondent(s) No. 2
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CORAM:HONOURABLE MR. JUSTICE SANDEEP N. BHATT
Date : 08/11/2023
ORAL JUDGMENT
1. This application is filed under Section 482 of the Page 1 of 18 Downloaded on : Fri Nov 10 20:56:23 IST 2023 NEUTRAL CITATION R/CR.MA/14245/2019 JUDGMENT DATED: 08/11/2023 undefined Code of Criminal Procedure, 1973 (`the Code' for short) for quashing and setting aside the process issued by the learned Metropolitan Magistrate (NI Act), Court No.36 at Ahmedabad in Criminal Case No.6635 of 2019 qua the present applicants filed under the provisions of the Negotiable Instruments Act (`the NI Act' for short).
2. The brief facts leading to filing of this application are such the impugned complaint is filed by the respondent no.2 alleging that the complainant is a non-banking finance company constituted under the Companies Act, 1956; that the company is having its regional office at address mentioned in the cause title of the complaint; that the complainant- company is in the business of providing various loans. It is further alleged in the complaint that the complainant- company has sanctioned to the respondent no.3-accused no.1 of credit facility upto Rs.40 crores by way of channels finance facility; that the original accused nos.2 to 4 are the directors/ guarantors of the accused no.1, accused no.5 is Managing Director of the accused no.1; accused no.6 is the Director of the accused no.1, accused nos.7 and 8 (present applicants) are the Additional Directors of accused no.1 and accused nos.9 to 11 are the guarantors of the accused no.1 (against whom no process is issued yet); it is further averred in the complaint that the accused nos.2 to 11 are responsible for the day-to- Page 2 of 18 Downloaded on : Fri Nov 10 20:56:23 IST 2023
NEUTRAL CITATION R/CR.MA/14245/2019 JUDGMENT DATED: 08/11/2023 undefined day business of the accused no.1; that the accused no.3 in his capacity as director/authorized signatory of the accused no.1 has executed a channel finance agreement dated 22.2.2018 with the complainant company and thereby agreed to adhere to and comply with all the terms and conditions of the said agreement; that as per the terms and conditions of the agreement, the accused no.3 has issued the cheque in favour of the complainant towards the repayment of the said facility for Rs.18,99,63,688/- drawn on Kotak Mahindra Bank Ltd., Kunnur and that when the said cheque was presented by the complainant, it was returned dishonoured with an endorsement `Drawer's sign not as per mandate" and that the intimation of the dishonour of the cheque was received by the complainant vide memo/advise dated 29.11.2018; thereafter the demand notice was issued, however, as the accused failed to make the payment and therefore the complaint is filed and the process is issued against the accused nos.1 to 8 by the learned Metropolitan Magistrate. It is this complaint and process which are prayed to be quashed by way of this application qua the applicants i.e. accused nos.7 and 8 of the complaint.
3. Heard learned advocates for the parties.
4. Learned advocate Mr.Kinariwala for the applicants Page 3 of 18 Downloaded on : Fri Nov 10 20:56:23 IST 2023 NEUTRAL CITATION R/CR.MA/14245/2019 JUDGMENT DATED: 08/11/2023 undefined submits that the applicants herein are the original accused nos.7 and 8 in the complaint; that they are the additional directors and additional directors cannot be joined as an accused as the director is not defined under the provisions of the NI Act and as per Section 141, the director is with reference to the company and therefore, one has to refer to the definition clause under the Companies Act; that as per Section 2(34) of the Companies Act, 2013, the director means a director appointed on the board of the company in accordance with the provision of Companies Act, 2013; that so far as additional director is concerned, there is a provision under Section 161(1) of the Companies Act, 2013; that the additional director on a company board, is not the member of the Board but, is appointed by the member of the public or by shareholder; that the modes of appointment of the director and additional director are totally different; that the additional term is upto the next annual general meeting; that in view of this, Section 141 of the NI Act cannot be applied to the additional director and therefore, prayed to allow these applications qua the accused no.7 and 8 who are the applicants herein.
5. In support of his submissions, learned advocate Mr.Kinariwala has relied on the following citations: Page 4 of 18 Downloaded on : Fri Nov 10 20:56:23 IST 2023
NEUTRAL CITATION R/CR.MA/14245/2019 JUDGMENT DATED: 08/11/2023 undefined (1) Laxmi Dyechem V/s State of Gujarat, reported in 2012(13) SCC 375.
(2) S.P.Mani V/s Mohan Dairy V/s Snehalatha Elangovan reported in 2022(13) Scale 543.
(3) Rajeev Jain and Others V/s Ashtech Industries Pvt.Ltd., reported in 2023 SCC Online Del 3779.
6. Per contra, learned APP Ms.Bhatt for respondent no.1-state has objected these applications and submitted that this Court should not exercise its powers by interfering with the proceedings of recovery of amount and the proceedings initiated under Section 138 of the Act are perfectly justified and therefore, this Court should not exercise inherent powers under Section 482 of the Code, which otherwise, should be exercised sparingly. He, therefore, prayed to dismiss all these applications.
7. Learned advocate Mr.Dave appearing for respondent no.2-complainant submitted that the applicants herein i.e. accused nos.7 and 8 who are additional directors of the accused no.1 company and as per settled provisions of law, an Additional Director is a director having the same powers, responsibilities and duties as other directors; that the only difference between them is regards to their appointing authority and their term of office; that the accused-additional Page 5 of 18 Downloaded on : Fri Nov 10 20:56:23 IST 2023 NEUTRAL CITATION R/CR.MA/14245/2019 JUDGMENT DATED: 08/11/2023 undefined director cannot be simplicitor absolve on the ground that accused were merely `additional director' as per their averment in the memo of the application without furnishing unimpeachable and uncontroverted documentary evidence; that it is not in dispute that at the time of commission of offence, accused were working as additional directors and there is a clear averment regarding vicarious liability in complaint as also in the notice, even there is no reply to the notice. He, therefore, relying on the decisions in the cases of (i) Bharatbhai Ravatbaou Vala V/s HDFC Bank Limited reported in 2020(1) NIJ 711; (ii) Manjulaben H Pandya V/s Gurumukhdas Bhagwandas Vaswani reported in 2023(2) GLR 1238, (iii) D.Vinod Shivappa V/s Nanda Belliappa reported in 2006(6) SCC 456, prayed to dismiss these applications.
8. I have considered the submissions made by learned advocates for the parties and perused the material placed on record.
9. At the outset, the provisions invoked in the impugned complaint read as under:
"138. Dishonour of cheque for insufficiency, etc., of funds in the account.
Where any cheque drawn by a person on an account Page 6 of 18 Downloaded on : Fri Nov 10 20:56:23 IST 2023 NEUTRAL CITATION R/CR.MA/14245/2019 JUDGMENT DATED: 08/11/2023 undefined maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall without prejudice to any other provisions of this Act, be punished with imprisonment for "a term which may extend to two year", or with fine which may extend to twice the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply unless
(a) The cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier.
(b) The payee or the holder induce course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer, of the cheque, "within thirty days" of the receipt of information by him from the bank regarding the return of the cheques as unpaid, and
(c) The drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may Page 7 of 18 Downloaded on : Fri Nov 10 20:56:23 IST 2023 NEUTRAL CITATION R/CR.MA/14245/2019 JUDGMENT DATED: 08/11/2023 undefined be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.
Explanation: For the purpose of this section, "debt or other liability"
means a legally enforceable debt or other liability."
"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 proceeded against and punished accordingly:
Provided that nothing contained in this subsection 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, he shall not be liable for prosecution under this Chapter. (2) Notwithstanding anything contained in subsection (1), where any offence under this Act has been committed by a Page 8 of 18 Downloaded on : Fri Nov 10 20:56:23 IST 2023 NEUTRAL CITATION R/CR.MA/14245/2019 JUDGMENT DATED: 08/11/2023 undefined company and it is proved that the offence has been committed with the consent or connivance of, or is attribute to, any neglect on the part of, any director, Manager, secretary, or other office 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.
Explanation. For the purposes of this section,
(a) "company" means any body corporate and includes a firm or other association of individuals; and
(b) "Director", in relating to a firm, means a partner in the firm."
142. Cognizance of offences.--
[(1)] Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),--
(a) no court shall take cognizance of any offence punishable under section 138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the cheque;
(b) such complaint is made within one month of the date on which the cause of action arises under clause (c) of the proviso to section 138: 2 [Provided that the cognizance of a complaint may be taken by the Court after the prescribed period, if the complainant satisfies the Court that he had sufficient cause for not making a complaint within such Page 9 of 18 Downloaded on : Fri Nov 10 20:56:23 IST 2023 NEUTRAL CITATION R/CR.MA/14245/2019 JUDGMENT DATED: 08/11/2023 undefined period;]
(c) no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under section 138.].
[(2) The offence under section 138 shall be inquired into and tried only by a court within whose local jurisdiction,--
(a) if the cheque is delivered for collection through an account, the branch of the bank where the payee or holder in due course, as the case may be, maintains the account, is situated; or
(b) if the cheque is presented for payment by the payee or holder in due course, otherwise through an account, the branch of the drawee bank where the drawer maintains the account, is situated.
Explanation.--For the purposes of clause (a), where a cheque is delivered for collection at any branch of the bank of the payee or holder in due course, then, the cheque shall be deemed to have been delivered to the branch of the bank in which the payee or holder in due course, as the case may be, maintains the account.] [142A. Validation for transfer of pending cases.--
(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974) or any judgment, decree, order or direction of any court, all cases transferred to the court having jurisdiction under sub-section (2) of Page 10 of 18 Downloaded on : Fri Nov 10 20:56:23 IST 2023 NEUTRAL CITATION R/CR.MA/14245/2019 JUDGMENT DATED: 08/11/2023 undefined section 142, as amended by the Negotiable Instruments (Amendment) Ordinance, 2015 (Ord. 6 of 2015), shall be deemed to have been transferred under this Act, as if that sub-section had been in force at all material times. (2) Notwithstanding anything contained in sub-section (2) of section 142 or sub-section (1), where the payee or the holder in due course, as the case may be, has filed a complaint against the drawer of a cheque in the court having jurisdiction under sub-section (2) of section 142 or the case has been transferred to that court under sub-section (1) and such complaint is pending in that court, all subsequent complaints arising out of section 138 against the same drawer shall be filed before the same court irrespective of whether those cheques were delivered for collection or presented for payment within the territorial jurisdiction of that court.
(3) If, on the date of the commencement of the Negotiable Instruments (Amendment) Act, 2015 (26 of 2015), more than one prosecution filed by the same payee or holder in due course, as the case may be, against the same drawer of cheques is pending before different courts, upon the said fact having been brought to the notice of the court, such court shall transfer the case to the court having jurisdiction under sub-section (2) of section 142, as amended by the Negotiable Instruments (Amendment) Ordinance, 2015 (Ord. 6 of 2015), before which the first case was filed and is pending, as if Page 11 of 18 Downloaded on : Fri Nov 10 20:56:23 IST 2023 NEUTRAL CITATION R/CR.MA/14245/2019 JUDGMENT DATED: 08/11/2023 undefined that sub-section had been in force at all material times.]
10. From the aforesaid provisions, it is clear that a person who is the signatory to the cheque and the cheque is drawn by that person on an account maintained by him and the cheque has been issued for the discharge, in whole or in part, of any debt or other liability and the said cheque has been returned by the bank unpaid, such person can be said to have committed an offence. Section 141(1) of the NI Act deals with the offences committed by the companies and every person, who at the time of the offence, was in-charge of and was responsible to the company in the conduct of the business, is liable to be proceeded against and punished accordingly. The proviso to Section 141(1) of the NI Act provides that where a person is nominated as a Director of 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, he shall not be liable for prosecution under this Chapter.
Section 161 of the Companies Act also provides for appointment of additional director, alternate director of nominee director. Section 161(1) provides that the articles of a company may confer on its Board of Directors the power to appoint any person, other than a person who fails to get Page 12 of 18 Downloaded on : Fri Nov 10 20:56:23 IST 2023 NEUTRAL CITATION R/CR.MA/14245/2019 JUDGMENT DATED: 08/11/2023 undefined appointed as a director in a general meeting, as an additional director at any time who shall hold office up to the date of the next annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier.
11. Considering the above-mentioned provisions, if the case of the applicants is perused, it is mentioned in the complaint itself that they are the additional directors of the company. In terms of Section 141 of the NI Act, every director of the company does not automatically become vicariously liable for the commission of an offence by the company. It is required that sufficient averments are made to show that the person who is alleged to be made vicariously liable, was in-charge and was also responsible to the company for conduct of its business. In the present case, there is no specific averment in the complaint against the applicants that they are responsible for the day-to-day affairs of the company.
12. At this juncture, it will be fruitful to refer to the judgment in the case of Rajeev Jain and others (supra), wherein after considering various judgments of the Hon'ble Apex Court, it is held in paragraphs 29 to 33 as under: Page 13 of 18 Downloaded on : Fri Nov 10 20:56:23 IST 2023
NEUTRAL CITATION R/CR.MA/14245/2019 JUDGMENT DATED: 08/11/2023 undefined "29. It is contended that the petitioners, in the present case, are Managing Directors, Non-Executive Directors), Executive Directors) and Additional Directors of the accused company.
30. The role of a Director is well-defined is the Companies Act, 2013. Section 161 of the Companies Act, 2013, provides for appointment of an Additional Director. The Additional Director holds an office during the absence of a director, when the director is not in India for at least a period of three months. In terms of Section 149(12) the Companies Act, 2013, Non-executive directors are external professionals and are not involved in the everyday activities of the company whereas as per rule 2(k) of The Companies (Specification of Definition Details) Rules, 2014, Executive Director means a whole-time director as defined in Section 2(94) of the Companies Act, 2013.
31. In so far as the Managing Directors are concerned, they cannot contend to be not responsible for the day-to-day functioning of the company and no specific role is required to be assigned qua them in the complaint [Ref Sunita Palita v. Panchami Stone Quarry, 2022 SCC Online SC 945].
Whether they are liable to be convicted for the offence, if any, would be a matter of trial and the complaint qua them, cannot be quashed at this stage.
32. The Hon'ble Supreme Court, in the case of Pooja Page 14 of 18 Downloaded on : Fri Nov 10 20:56:23 IST 2023 NEUTRAL CITATION R/CR.MA/14245/2019 JUDGMENT DATED: 08/11/2023 undefined Ravinder Devidasani v. State of Maharashtra, (2014) 16 SCC 1, had held that even though non-executive Director is a custodian of the governance of a company but is not involved in the day-to-day affairs of the running of its business and only monitors the executive activity. A company may have a number of Directors, however, not all of them could be subjected to the prosecution only on the statement that they are in-charge of and are responsible for the conduct of the business of the company. In the absence of any specific role being assigned to the Director, who is otherwise a non-executive Director, no vicarious liability can be assigned.
33. In the present case, the general allegations have been made against all the petitioners that they are responsible for the conduct of the business of the accused company. The document filed along with the petitions, have not been controverted by the respondents, which show that Petitioner No.1 and Petitioner No.3 are Managing Directors of the accused company. Petitioner No.2 is a Non-Executive Director, Petitioner No.4 is an Executive Director, whereas Petitioners 5,6 and 7 are Additional Directors."
13. In view of the above discussion, I am of the opinion that general allegations have been made against all the accused including the present applicants that they are responsible for the conduct of the business of the accused Page 15 of 18 Downloaded on : Fri Nov 10 20:56:23 IST 2023 NEUTRAL CITATION R/CR.MA/14245/2019 JUDGMENT DATED: 08/11/2023 undefined company. It is not stated specifically that the applicants herein whether the additional directors are in charge of the finances or of the head related to the transaction which led to the dishonour of the cheque. The ingredients of the sections invoked of the NI Act are not made out in this case.
14. In the case of Inder Mohan Goswami and Another versus State of Uttaranchal reported in (2007) 12 SCC 1, para : 23 & 24 thereof, which read as under :
"23. This Court in a number of cases has laid down the scope and ambit of courts' powers under Sec. 482 CrPC. Every High Court has inherent power to act ex debito justitiae to do real and substantial justice, for the administration of which alone it exists, or to prevent abuse of the process of the court. Inherent power under Sec. 482 CrPC can be exercised:
[(i) to give effect to an order under the Code;] [(ii) to prevent abuse of the process of court, and] Page 16 of 18 Downloaded on : Fri Nov 10 20:56:23 IST 2023 NEUTRAL CITATION R/CR.MA/14245/2019 JUDGMENT DATED: 08/11/2023 undefined [(iii) to otherwise secure the ends of justice.]
24. Inherent powers under Sec. 482 CrPC though wide have to be exercised sparingly, carefully and with great caution and only when such exercise is justified by the tests specifically laid down in this section itself'. Authority of the court exists for the advancement of justice. If any abuse of the process leading to injustice is brought to the notice of the court, then the court would be justified in preventing injustice by invoking inherent powers in absence of specific provisions in the statute. Discussion of decided cases."
15. In view of above settled position of law and after considering the facts as alleged in the complaints and circumstances of the present case as prima facie ingredients of Section 138, Section 141 and 142 of NI Act are not satisfied and applicants are not liable, the continuation of further proceedings pursuant to the said complaints will cause greater hardships to the applicants and no fruitful purpose would be served if such further proceedings are allowed to be continued. The Court must ensure that criminal proceedings is not used as instrument of harassment or for seeking private vendetta or with ulterior motive to pressurise Page 17 of 18 Downloaded on : Fri Nov 10 20:56:23 IST 2023 NEUTRAL CITATION R/CR.MA/14245/2019 JUDGMENT DATED: 08/11/2023 undefined accused or to settle the score.
16. Resultantly, this application is allowed. The process issued by the learned Metropolitan Magistrate (NI Act), Court No.36 at Ahmedabad in Criminal Case No.6635 of 2019 qua the present applicants is quashed. Rule is made absolute. Direct service is permitted.
(SANDEEP N. BHATT,J) SRILATHA Page 18 of 18 Downloaded on : Fri Nov 10 20:56:23 IST 2023