Bombay High Court
Satvinder Jeet Singh Sodhi And Anr vs The State Of Maharashtra on 1 July, 2022
Author: Prakash D. Naik
Bench: Prakash D. Naik
rpa 1/16 4apl74of2021.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPLICATION NO.74 OF 2021
1) Mr.Satvinder Jeet Singh Sodhi; and
2) Mr.Sakti Kumar Banerjee Anr. .. Applicants
Versus
State of Maharashtra and Anr. .. Respondents
......
Mr.Abhijeet Desai a/w. Ms.Karan Gajra i/b. M/s. Desai Legal,
Advcoate for the Applicants.
Mr.A.R. Patil, APP for the Respondent No.1-State.
Mr.Deepak Rane, Advocate for Respondent No.2.
......
CORAM : PRAKASH D. NAIK J.
DATED : JULY 01, 2022.
P.C. :
The applicants are aggrieved by order issuing
process in CC.No.3461 of 2013, passed by the Metropolitan
Magistrate 7th Court at Dadar, Mumbai.
2 The complaint was fled for offence under Section
138 of Negotiable Instruments Act ("NI Act", for short) alleging
RAJESHRI
PRAKASH that, the complainant company is engaged in business of various
AHER
Digitally signed by
RAJESHRI PRAKASH
AHER
Date: 2022.07.16
types of material handling equipments. The accused no.1 is a
18:28:34 +0530
rpa 2/16 4apl74of2021.doc
company. Accused no.10 is its secretary. Accused Nos.11 and 12
are authorised signatory of accused no.1. Accused nos.2 to 9 are
Directors of accused no.1 company. Accused nos.2 to 12 are
responsible for day to day affairs of accused no.1 company and
they are responsible for transactions of this case. Accused no.1
is the customer of complainant company. Directors of accused
no.1 had placed orders with the complainant for
Electromagnetic Oil Cooled Overband Magnetics Separator on
behalf of accused no.1. As per requirement of accused no.1
company, the complainant company delivered the material to
consignee at their instance. There was no objection from accused
regarding quality and quantity of the goods. In discharge of the
liability, the accused no.1 issued a cheque signed by accused
nos.11 and 12. The cheque was for an amount of
Rs.29,31,849.30. The cheque was presented by complainant
with their banker. It was dishonoured with reasons "Funds
insuffcient". Notice was duly served on accused nos.1, 2, 3, 6, 9,
11 and 12 on 17th August, 2013 and envelope returned to
advocate with remark, "Not claimed" regarding accused no.5
and 8. Regarding accused nos.4, 7 and 10, complainant did not
receive any postal acknowledgment. Complaint was fled on 30 th
September, 2013, for the offence punishable under Section 138
rpa 3/16 4apl74of2021.doc
of Negotiable Instruments Act ("NI Act", for short). Process was
issued.
3 Learned advocate for applicants submitted as
follows:
(a) The applicants are not responsible for day to day affairs of
accused no.1 company as they are non executive
independent Directors of the accused no.1 company. The
said fact is evident from the documents annexed to this
application.
(b) The applicants have no knowledge or information about the
transactions of this case. As per Section 149(12) of the
Companies Act an independent director or non executive
director shall be held liable only in respect of such acts of
omissions or commission by a company which had
occurred with his knowledge, attributable through Board
processes and with his consent or connivance or where he
had not acted diligently.
(c) The applicant no.1 was not served legal notice demanding
cheque amount;
rpa 4/16 4apl74of2021.doc
(d) To prosecute the accused by invoking Section 141 of the
Act, the person must be in charge of day to day activities
and responsible for the conduct of business of the company.
(e) An independent director is a member of the board of
Directors who (i) does not have a material relationship
with the company; (ii) is not part of company's executive
team and (iii) is not involved with day to day operation of
the company.
(f) To be able to list on certain exchanges, there are
requirements for the member of independent Directors of
the Board.
(g) A material relationship is a relationship that can interfere
with the exercise of a director's independent judgment.
(h) The corporate Governance Report for the year 2013 - 14
refers to composition of Board of Directors. It is mentioned
that applicants are independent non-executive Directors,
Form 32 of applicant no.1 describes him, as independent
director.
(i) Being independent Directors and lack of averments in
complaint, the applicants cannot be prosecuted for the
rpa 5/16 4apl74of2021.doc
offence under Section 138 of NI Act.
(j) Reliance is placed on following decisions:
(a) Pooja Ravinder Devidasani Vs. State of Maharashtra1.
(b) Sunita Palta & Ors. Vs. M/s. Kit Marketing Pvt. Ltd.,
decided by Delhi High Court vide Criminal M.C.1410 of
2018.
4 Learned counsel for respondent has submitted that
there are suffcient averments in the complaint to indicate the
role of the applicants. The grounds urged by the applicants that
they are independent non executive Directors or that there are
no averments to satisfy the requirements of Section 141 of NI
Act is required to be appreciated during the trial. On the basis of
the facts stated in the complaint that Court took cognizance of
the complaint. It is submitted that the applicants have not
brought any unimpeachable evidence which leads to conclusion
that the applicants were not in-charge and responsible for the
conduct of business of the accused company, at the time of
commission of offence. The documents relied upon by the
applicant cannot be considered at this stage. Statutory notices
were dispatched to applicants on last known address. The postal
1 AIR 2015 SC 675
rpa 6/16 4apl74of2021.doc
envelopes returned with remarks not claimed. It is not
incumbent upon the complainant to eloborate in the complaint,
role played by each Directors in the transaction forming the
subject matter of the complaint. Reliance is placed on the
decision of the Supreme Court in the case of Ashutosh Ashok
Parasrampuriya and Anr. Vs. M/s.Gharrkul Industries Pvt. Ltd.
And Ors.2
5 The applicants are arrayed as accused nos.5 and 8
in the complaint. The Corporate Governance Report for the year
2013 - 14 refers to composition of Board of Directors as on 31 st
March,2014 and describes applicants as independent non
executive director. The complaint for offence under Section 138
of NI Act was fled on 30 th September, 2013. In the complaint, it
is averred that, accused no.1 company. Accused nos.11 and 12
are authorised signatory of accused no.1. Accused nos.2 to 12
are responsible for day to day affairs of accused no.1 company
and responsible for transactions in this case. The transaction
referred to in the complaint is delivery of material as per
requirement of accused no.1 company and issuance of cheque
singed by accused nos.11 and 12 towards discharge of liability
and dishonour of said cheque. Beyond the aforesaid averment,
2 2021 All SCR (Cri)2122
rpa 7/16 4apl74of2021.doc
no overtact is attributed to the applicant.
6 Section 149 (6)(9) and (12) of the Companies Act reads as
follows:
"149(6) An Independent director in relation to a
company, means a director other than a managing
director or a whole time director or a nominee director
-(a) who, in the opinion of the Board, is a person of
integrity and possesses relevant expertise and
experience;
(b) (i) who is or was not a promoter of the company or
its holding, subsidiary or associate company;
(ii) who is not related to promoters or directors in
the company, its holding, subsidiary or associate
company;
(c) who has or had no pecuniary relationship with the
company, its holding, subsidiary or associate
company, or their promoters, or directors, during
the two immediately preceding fnancial years or
during the current fnancial year;
(d) none of whose relatives has or had pecuniary
relationship or transaction with the company, its
holding, subsidiary or associate company, or other
promoters, or directors, amounting to two percent
or more of its gross turnover or total income or
ffty lakh rupees or such higher amount as may be
rpa 8/16 4apl74of2021.doc
prescribed, whichever is lower, during the two
immediately preceding fnancial years or during
the current fnancial year;
(e) who, neither himself nor any of his relatives--
(i) holds or has held the position of a key managerial
personnel or is or has been employee of the
company or its holding, subsidiary or associate
company in any of the three fnancial years
immediately preceding the fnancial year in which
he is proposed to be appointed;
(ii) is or has been an employee or proprietor or a
partner, in any of the three fnancial years
immediately preceding the fnancial year in which
he is proposed to be appointed, of--
(A) a frm of auditors or company secretaries in
practice or cost auditors of the company or its
holding, subsidiary or associate company; or
(B) any legal or a consulting frm that has or had any
transaction with the company, its holding,
subsidiary or associate company amounting to ten
per cent. or more of the gross turnover of such
frm;
(iii) holds together with his relatives two per cent. or
more of the total voting power of the company; or
rpa 9/16 4apl74of2021.doc
(iv) is a Chief Executive or director, by whatever name
called, of any nonproft organisation that receives
twenty-fve per cent. or more of its receipts from
the company, any of its promoters, directors or its
holding, subsidiary or associate company or that
holds two per cent. or more of the total voting
power of the company; or
(f) who possesses such other qualifcations as may be
prescribed.
(7) .....
(8) .....
(9) Notwithstanding anything contained in any other
provision of this Act, but subject to the provisions
of sections 197 and 198, an independent director
shall not be entitled to any stock option and may
receive remuneration by way of fee provided under
sub-section (5) of section 197, reimbursement of
expenses for participation in the Board and other
meetings and proft related commission as may be
approved by the members.
(10) .....
(11) .....
(12) Notwithstanding anything contained in this Act--
(i) an independent director;
(ii) a non-executive director not being promoter or
key managerial personnel, shall be held liable, only
in respect of such acts of omission or
commission by a company which had occurred
rpa 10/16 4apl74of2021.doc
with his knowledge, attributable through Board
processes, and with his consent or connivance or
where he had not acted diligently."
7 The aforesaid provision indicate that the
independent director or non executive director not being a
promoter of or key managerial persons shall be held liable, only
in respect of such acts of omission or commission by a company
which had occurred with his knowledge, attributable through
Board processes, and with his consent or connivance or where
he had not acted diligently.
8 In the case of Pooja Ravinder Devidasani Vs. State
of Maharashtra (Supra), the Supreme Court has observed that
the appellant therein was 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 company for running of its business and
observing/monitoring the activities. 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
rpa 11/16 4apl74of2021.doc
business. Every person connected with the company will not fall
within ambit of the provision. Simply because a person is
director of company does not make him liable under the NI Act.
Only those persons who are incharge and responsible for the
conduct of business of the company at the time of commission of
the 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 offence by invoking Section 141 of NI Act.
9 In the case of Ashutosh Ashok Parasrampuriya and
Anr. Vs. M/s.Gharrkul Industries Pvt. Ltd. And Ors. (Supra) ,
relied upon by learned advocate for respondent/complainant the
factual matrix was that, according to complainant, the accused-
appellants therein had agreed that the amount received from
complainant would be returned within a specifed time as agreed
in memorandum of undertaking and accordingly payments were
made by respondent/complainant as and when demanded by
various cheques. Letter was issued to the said appellants
demanding balance-sheet of the company, which was supplied
and accordingly accounts were confrmed by the appellants and
they issued a letter admitting the outstanding balance of
rpa 12/16 4apl74of2021.doc
complainant. According to complainant, the appellants were
Directors of accused company and were responsible for conduct
of their business for the affairs of the company. The fnancial
assistance was provided to accused by executing MOU, which
was signed by one of the appellant with consent of all the other
appellants in the presence of two witnesses. All the appellants
had agreed that amount would be refunded within stipulated
time. The contention of the appellants was that there are no
suffcient averments in the complaint against the appellants to
make them vicariously liable. It is also contended that the
appellants were non-executive Directors. However, the
complainants counsel had urged that, although some of the
appellants claimed themselves to be a non-executive director,
the record indicate that, they are Directors of the company and
in support thereof, Form 32, which was obtained from the
Registrar of company was relied upon, which clearly indicated
that they are Directors of company. Apparently, in the light of
facts of the case, it was observed that the submission that the
appellants are non-executive Directors, considering the
documentary evidence placed on record viz. Form 32 issued by
the Registrar of Companies, wherein the said appellants were
shown to be Directors of the company, it would be open for the
rpa 13/16 4apl74of2021.doc
appellants to justify their claim during course of trial. The facts
referred to in complaint also attributes role to the accused
therein. The Supreme Court held that there were suffcient
averments against the appellants/accused. In the complaint
under challenge before this Court, the facts would differ and the
appellants submission is that they were independent non
executive Directors. There is no reason to discard the
documents relied by applicants. Role of independent director is
reflected in the provisions of Companies Act quoted hereinabove.
10 Learned counsel for the petitioner has also relied
upon the decision of the Delhi High Court passed in
Cri.M.C.No.1410 of 2018 dated 3rd March, 2020, in the case of
Sunita Palta & Ors. Vs. M/s. Kit Marketing Pvt. Ltd. , the
submission of the petitioners in the said case was that they are
independent non executive Directors and were not involved in
the day to day affairs of the company at any point of time. They
were not Managing Directors nor signatories to the cheque.
Form No.32 showed that they were independent non executive
additional director and independent non executive director.
The objection of the complainant was that the said issue can be
decided during the trial. The Delhi High Court relied upon the
rpa 14/16 4apl74of2021.doc
decision of Supreme Court in the case of S.M.S. Pharmaceuticals
Ltd. Vs. Neeta Bhalla3 and Pooja Ravinder Devidasani Vs. State
of Maharashtra (Supra), and K.K. Ahuja Vs. V.K. Vora4 and
Chintalapati Srinivasa Raju Vs. Securities and Exchange Board
of India5. It was observed that the petitioner therein were
neither Managing Directors nor authorised signatories of the
accused company. Except the general allegations, no specifc role
was attributed to them.
11 In the case of Chitalapati Srinivasa Raju Vs.
Securities and Exchange Board of India (Supra) it is held as
follows:
"23 Non executive directors are, therefore,
persons who are not involved in the day to day
affairs of the running of the company and are not in
charge and not responsible for the conduct of the
business of the company."
12 The documents on record indicate that the the
applicants are independent non executive Directors. In the light
of the averments made in the complaint, role of independent
3 (2005) 8 SCC 89
4 (2009)10 SCC 48
5 (2018) 7 SCC 443
rpa 15/16 4apl74of2021.doc
Directors, documents on record, petitioners cannot be
prosecuted for the offences punishable under Section 138 of NI
Act by invoking Section 141 of the said Act.
13 The applicants were independent non executive
Directors of accused no.1 company. Considering the facts of this
case, in exercise of inherent powers of this Court under Section
482 of Cr.P.C., the proceedings against them are required to be
quashed. Learned counsel for the respondent-complainant
submitted that the trial as against the other accused may be
expedited.
14 Hence, I pass the following order:
:: O R D E R ::
(i) Criminal Application No.74 of 2021, is allowed;
(ii) Criminal proceedings along with the order issuing process passed in CC.No.3461 of 2013, pending before the Court of Metropolitan Magistrate 7th Court at Dadar, Mumbai, against the applicants, are quashed and set aside;
rpa 16/16 4apl74of2021.doc
(iii) Trial against the other accused is expedited;
(iv) Criminal Application stands disposed of accordingly.
(PRAKASH D. NAIK, J.)