Telangana High Court
Siva Kumar Gade, vs K.Balaram Prasad, on 9 December, 2021
Author: G. Radha Rani
Bench: G. Radha Rani
THE HON'BLE Dr. JUSTICE G. RADHA RANI
CRIMINAL PETITION No.5928 of 2013
ORDER:
This petition is filed by the petitioner - A4 under Section 482 Cr.P.C. to quash the proceedings against him in CC No.329 of 2012 on the file of XVII Additional Chief Metropolitan Magistrate, Hyderabad.
2. The 1st respondent - complainant filed a complaint before the XVII Additional Chief Metropolitan Magistrate, Hyderabad under Sections 138 of the Negotiable Instruments Act (for short 'NI Act') stating that he was a Post Graduate with MBA Finance. A2 to A6, being the Managing Director and Directors of M/s.Serene Global Services (A1), lured the complainant that he would acquire expertise by passing the SAP examination and that on successful completion of the examination, he would be provided with excellent job opportunities induced the complainant to join A1 company. A1 company entered into a service agreement and appointed him as "Associated Software Engineer". While appointing the complainant, the accused imposed a condition to execute a Service Agreement Bond of Rs.2,00,000/- with a condition that the complainant would be provided training to get SAP certification. As per the service agreement, the complainant paid the said deposit of Rs.2,00,000/- through demand draft bearing No.138001 dated 08.02.2011. After absorbing the complainant in the company, he was paid meagre emoluments for a few months. Thereafter, A1 failed to pay any Dr.GRR,J 2 CrlP.No.5928 of 2013 emoluments to the complainant and failed to put the complainant to the SAP certification examination. Thereafter, A2 to A6 started avoiding the complainant. The complainant and 10 to 20 other victims expressed their doubts about A1 company and demanded for refund of security deposit. Finally, A2 on behalf of A1 company at the instance of A3 to A6 issued a cheque bearing No.053799 dated 16.01.2012 for Rs.2,00,000/- drawn on Indian Bank, Moosapet Branch, Hyderabad under his signature. When the complainant presented the said cheque, the same was returned with an endorsement "Funds Insufficient." As such, the complainant issued a legal notice to the accused on 02.02.2012. As the accused failed to clear off the liability of the cheque amount, the complainant filed the complaint.
3. Heard the learned counsel for the petitioner. There is no representation by the learned counsel for the 1st respondent - complainant.
4. The learned counsel for the petitioner submitted that the petitioner was neither a Director nor drawer of the cheque to initiate proceedings against him under Section 138 of the NI Act. There was no averment in the complaint as to the role of the petitioner except describing him as a Director. The learned Magistrate could not take cognizance of the offence under Section 138 of the NI Act unless the ingredients of Section 141 and 142 of the NI Act and the averments that the liability of the person in the transaction was made out specifically as held by the Hon'ble Supreme Court in National Small Industries Corporation Limited v. Harmeet Singh Paintal and Dr.GRR,J 3 CrlP.No.5928 of 2013 Another1 and prayed to quash the proceedings against the petitioner in CC No.329 of 2012 on the file of XVI Additional Chief Metropolitan Magistrate, Hyderabad.
5. Perused the record.
6. The complaint was filed under Sections 138 of the NI Act against A1 to A6. A1 is the Company shown as represented by its Managing Director Gade Manikumar - A2. The cheque filed by the petitioner would disclose that it was issued by A2 in the capacity of the Managing Director of A1 company. Thus, the complaint or the documents filed would not disclose that the petitioner was neither the Director of the company nor issued the cheque on behalf of A1. The copy of the Engagement Agreement (Bond) filed by the petitioner would disclose that it was entered by A2 on behalf of the company with the complainant. The name of the petitioner was not found anywhere in the said bond. Nowhere in the complaint, it was mentioned that the petitioner was responsible for the affairs of the company or that he issued the cheque.
7. The Hon'ble Apex Court in National Small Industries Corporation Limited case (supra) held that not every person connected with the company, but only those in-charge of and responsible for conduct of business of the company at the time of commission of offence were vicariously liable. It was further held:
"It is very clear from Section 141 of the Act that what is required is that the person who is sought to be made vicariously liable for a criminal offence under Section 141 should be, at the time the offence was committed, in charge of, and responsible to 1 2010 (3) SCC 330 Dr.GRR,J 4 CrlP.No.5928 of 2013 the company for the conduct of the business of the company. Every person connected with the company shall not fall within the ambit of the provision. 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 the offence will be liable for criminal action. If a Director of a Company 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 a criminal offence under the provisions. The liability 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 a company.
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 co-accused 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.
For fastening the criminal liability, there is no presumption that every Director knows about the transaction. Vicarious liability on the part of a person must be pleaded and not inferred.
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.
A company, though a legal entity, can act only through its Board of Directors. The settled position is that a Managing Director is prima facie in-charge of and responsible for the company's business and affairs and can be prosecuted for offences by the company. But insofar as other Directors are concerned, they can be prosecuted only if they were in-charge of and responsible for the conduct of the business of the company.
A combined reading of Sections 5 and 291 of Companies Act, 1956 with the definitions in Section 2(24), (26), (30), (31) and (45) of that Act show that the persons specified in Section 5 are considered to be the persons who are responsible to the company for the conduct of the business of the company. But if the accused is not one of such persons 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. For making a person liable under Section 141(2), the mechanical repetition of the requirements under Section 141(1) will be of no assistance, but there should Dr.GRR,J 5 CrlP.No.5928 of 2013 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 Section 141(2) of the Act."
8. Hence, considering the above citation and as no specific averments were made by the 1st respondent - complainant as to how and in what manner the petitioner was responsible for the affairs of the company and the role played by him, it is considered fit to quash the proceedings against the petitioner - A4.
9. In the result, the Criminal Petition is allowed quashing the proceedings in CC No.329 of 2012 on the file of XVII Additional Chief Metropolitan Magistrate, Hyderabad against the petitioner - A4.
Miscellaneous petitions pending, if any, shall stand closed.
_____________________ Dr. G. RADHA RANI, J December 09, 2021 KTL