Rajasthan High Court - Jodhpur
Murugun Navamani vs M/S Ramavat Construction Pvt.Ltd on 29 May, 2013
Author: Vijay Bishnoi
Bench: Vijay Bishnoi
1
IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN
AT JODHPUR.
ORDER
1. S.B. CRIMINAL MISC. PETITION NO.2848/2012
(Murugun Navamani Vs. M/s Ramavat Construction Pvt. Ltd.)
2. S.B. CRIMINAL MISC. PETITION NO.2849/2012
(Murugun Navamani Vs. M/s Ramavat Construction Pvt. Ltd.)
3. S.B. CRIMINAL MISC. PETITION NO.2850/2012
(Murugun Navamani Vs. M/s Ramavat Construction Pvt. Ltd.)
4. S.B. CRIMINAL MISC. PETITION NO.2851/2012
(Murugun Navamani Vs. M/s Ramavat Construction Pvt. Ltd.)
5. S.B. CRIMINAL MISC. PETITION NO.2852/2012
(Murugun Navamani Vs. M/s Ramavat Construction Pvt. Ltd.)
Date of Order : 29th May, 2013
PRESENT
HON'BLE MR JUSTICE VIJAY BISHNOI
Mr. R.K. Charan for petitioner.
Mr. Narendra Thanvi for respondent.
REPORTABLE
BY THE COURT.
These instant criminal misc. petitions are filed by the petitioner while challenging the proceedings pending against him in the Court of Metropolitan Magistrate (N.I. Act Cases) No.1, Jodhpur-cum-Additional Civil Judge (Junior Division), Jodhpur (hereinafter referred to as 'the trial court') under Section 138 of the Negotiable Instrument Act, 1881 (hereinafter referred to as 'the N.I. Act') initiated on separate complaints made by the respondent Construction firm in respect of different cheques issued by the Anil Jain, Managing Director of the Company wherein the petitioner is working as Additional Director. As 2 common question of law is involved in all these criminal misc. petitions, all are decided by this common order.
Brief facts of the case are that the petitioner is working as Additional Director in Reflex Energy Ltd., a company dealing in setting up of Solar Power Plant. The respondent, a private limited construction firm, undertook several construction works on behalf of Reflex Energy Ltd. as per the work orders issued by it. The respondent firm has filed a complaint under Section 138 of N.I. Act, 1881 and has alleged that after completion of the construction works, the respondent-firm has raised a bill and sent it to the Reflex Energy Ltd. for which part payments were made to the respondent-firm through account payee cheques and those cheques were cleared, however, for the remaining payment, cheques were issued by the Reflex Energy Ltd. under the signatures of Managing Director, Anil Jain and when the said cheques were presented in the concerned Bank, the same were not honoured due to insufficient fund in the Bank account of Reflex Energy Ltd. It is further stated in the complaint that the respondent-firm had sent notices to the petitioner-firm as well as to the Directors of the Company including the petitioner but despite receipt of the notices by the petitioner and other persons, the payment has not been made and, therefore, he preferred a 3 complaint under Section 138 N.I. Act before the trial court.
On receiving the complaint, the trial court after taking cognizance for the offence punishable under Section 138 of N.I. Act against the petitioner and other accused persons and summoned them. The petitioner in compliance of the summons surrendered and the trial court after releasing the petitioner on bail read over him the substance of accusation vide order dated 27.9.2012.
The petitioner now being aggrieved with the proceedings against him in respect of the complaints preferred by the respondent-firm has preferred these misc. petitions with the prayer for quashing the proceedings initiated against him.
Learned counsel for the petitioner has contended that the petitioner is not responsible for the conduct and affairs of the company and is also not responsible for the day-to-day management of the Company and, therefore, he cannot be made vicariously liable and cannot be prosecuted for the offence punishable under Section 138 of N.I. Act due to dishonour of cheques issued by the Reflex Energy Ltd. in favour of respondent-firm.
It is further contended by learned counsel for the petitioner that the petitioner is a nominee Director in the Bord of Directors of Reflex Energy Ltd. on behalf of 4 Vama Energy Pvt. Ltd., which has invested in the Reflex Energy Ltd. It is argued that the Reflex Energy Ltd. has entered into an agreement dated 17th of Oct., 2011 with Vama Energy Pvt. Ltd. for extending such investment and as per clause 9.2(a) of the said agreement, the investing company Vama Energy Pvt. Ltd. is, therefore, required to appoint its nominee Director on the Board of Reflex Energy Ltd. Learned counsel for the petitioner has invited attention of this Court on the clause 9.2(a) (which is reproduced in the petition) of the agreement entered into between the Reflex Energy Ltd. and Vama Energy Pvt. Ltd. and argued that as per the provisions of said clause, the petitioner being a nominee director on behalf of Vama Energy Pvt. Ltd. is not responsible for day-to-day management of the Reflex Energy Ltd. nor is liable for any failure on the part of said company.
It is further contended by learned counsel for the petitioner that as per Section 141 of the N.I. Act, the respondent Firm should spell out as to how and in what manner, the petitioner was in charge or was responsible for the conduct of the business of the Reflex Energy Ltd. However, from the bare perusal of the complaints preferred by the respondent-firm, it is clear that the role of the petitioner in day to day working of the Reflex Energy Ltd. 5 has not been spelt out and very general and bald allegations have been made. It is further contended that in absence of any such details, regarding the role of the petitioner in day to day working in Reflex Energy Ltd., the requirement of Section 141 cannot be said to be fulfilled and, therefore, the complaint lodged by the respondent- firm impleading the petitioner as accused is nothing but an abuse of process of law and the proceedings against him are liable to be quashed and set aside.
Learned counsel for the petitioner relied upon the the judgments of the Hon'ble Supreme Court rendered in National Small Industries Vs. Harmeet Singh Paintal & Anr. reported in 2010(3) SCC 330, N.K. Wahi Vs. Shekhar Singh and Ors. reported in 2007 (9) SCC 481 and Anita Malhotra v. Apparel Export Promotion Council reported in (2012) 1 SCC 520.
On the other hand, learned counsel for the respondent-firm has argued that in the complaint preferred by the respondent-firm, it is clearly averred that the petitioner is responsible for the affair of the defaulter company and is also responsible for the conduct of the business of the said company and the said averments are sufficient to prove the case under Section 141 of the N.I. Act and as such no case for interference is made out. 6
Learned counsel for respondent has invited attention of this Court towards para 8 of the complaint and has argued that it is clearly averred in the complaint that the petitioner is also responsible for making payment of cheques issued in favour of the respondent-firm.
Learned counsel for the respondent has placed reliance upon the judgment of Hon'ble Supreme Court in case of K.K. Ahuja Vs. V.K. Vora & Ors. reported in 2009(3) Apex Court Judgments 050 (S.C.).
Heard learned counsel for the parties and perused the record.
For the purpose of proper adjudication of the controversy, the provisions of Sections 138 & 141 of the Negotiable Instrument Act, 1881 are reproduced below:
"138. Dishonour of cheque for insufficiency, etc., of funds in the account.- Where any cheque drawn by a person on an account 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 7 agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may extend to one 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 in due 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 fifteen days of the receipt of information by him from the bank regarding the return of the cheque 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 be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.
Explanation.- For the purposes of this section, "debt or other liability" means a legally enforceable debt or other liability. .......
.......
8
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, 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 9 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.
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 relation to a firm, means a partner in the firm."
The Hon'ble Supreme Court in National Small Industries' case (supra) after taking into consideration a catena of decisions of Hon'ble Apex Court including K.K. Ahuja's case (supra) and the provisions of Section 138 has held as under:-
"33. Though, the learned counsel for the appellants is relying on a recent decision i.e. in K.K. Ahuja vs. V.K. Vora, it is clearly recorded that in the complaint it was alleged that the accused were in-charge of and were responsible for the conduct of the day-to-day business of the accused Company and further all the accused were directly and actively involved in the financial dealings of the Company and the same was also reiterated in the pre- summoning evidence. Furthermore, this 10 decision also notes that it is necessary to specifically aver in a complaint that the person accused was in-charge of and responsible for the conduct of the business of the Company.
34. After noting Saroj Kumar Poddar's case and N.K. Wahi's case, this Court further noted in para 15 that : (K.K. Ahuja case, SCC p.57) "15. The prevailing trend appears to require the Complainant to state how a Director who is sought to be made an accused, was in-charge of the business of the Company, as every Director need not be and is not in- charge of the business of the Company."
35. In Para 17, this Court has further recorded that : (K.K. Ahuja case, SCC p.58)"
"17.....When conditions are prescribed for extending such constructive criminal liability to others, courts will insist upon strict literal compliance. There is no question of inferential or implied compliance. Therefore, a specific averment complying with the requirements of Section 141 is imperative."
Though the Court then said that an averment in the complaint that the accused is a Director and in-charge of and responsible for the conduct of the business may be sufficient but this would not take away from the requirement that an overall 11 reading of the complaint has to be made to see whether the requirements of Section 141 have been made out against the accused Director or not. Furthermore, this decision cannot be said to have overruled the various decisions of this Court.
36. Section 291 of the Companies Act, 1956 provides that "291. General powers of Board--(1) subject to the provisions of [that] Act, the Board of Directors of a company shall be entitled to exercise all such powers, and to do all such acts and things, as the company is authorized to exercise and do:"
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.
37. A combined reading of Sections 5 and 291 of Companies Act, 1956 with the definitions in clauses (24), (26), (30), (31) and (45) of Section 2 of that Act would show that the following persons are considered to be the persons who are responsible to the company for the conduct 12 of the business of the company:
(a) the Managing Director(s);
(b) the whole-time Director(s);
(c) the Manager;
(d) the Secretary;
(e) any person in accordance with whose directions or instructions the Board of Directors of the company is accustomed to act;
(f) any person charged by the Board of Directors with the responsibility of complying with that provision;
Provided that the person so charged has given his consent in this behalf to the Board;
(g) where any company does not have any of the officers specified in clauses (a) to
(c), any director or directors who may be specified by the Board in this behalf or where no director is so specified, all the directors:
Provided that where the Board exercises any power under clause (f) or clause (g), it shall, within thirty days of the exercise of such powers, file with the Registrar a return in the prescribed form.
38. But if the accused is not one of the persons who falls under the category of "persons who are responsible to the company for the conduct of the business of the company" then merely by stating that "he was in-charge of the business of the 13 company" or by stating that "he was incharge of the day-to-day management of the company" or by stating that "he was in-
charge of, and was responsible to the company for the conduct of the business of the company", he cannot be made vicariously liable under Section 141(1) of the Act. To put it clear that for making a person liable under Section 141(2), the mechanical repetition of the requirements under Section 141(1) will be of no assistance, but there should be necessary averments in the complaint as to how and in what manner the accused was guilty of consent and connivance or negligence and therefore, responsible under sub-section (2) of Section 141 of the Act.
39. From the above discussion, the following principles emerge :
(i) The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable.
For fastening the criminal liability, there is no presumption that every Director knows about the transaction.
(ii) Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company. 14
(iii) Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be averred in the complaint/petition, are made so as to make accused therein vicariously liable for offence committed by company along with averments in the petition containing that accused were in-charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with.
(iv) Vicarious liability on the part of a person must be pleaded and proved and not inferred.
(v) If the accused is Managing Director or a Joint Managing Director then it is not necessary to make specific averment in the complaint and by virtue of their position they are liable to be proceeded with.
(vi) If the accused is a Director or an Officer of a company who signed the cheques on behalf of the company then also it is not necessary to make specific averment in complaint.
(vii) The person sought to be made liable should be incharge 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."
15
Now in the light of principles laid down bythe Hon'ble Apex Court in National Small Industries' case (supra), a critical examination of the complainants preferred on behalf of the respondent-firm reveals that no specific averment has been made in the complaint in respect of the petitioner's role that how he is responsible for the conduct of day to day business of Reflex Energy Ltd. In the case on hand, particularly, in para 8 of the complaint, except the mere bald and cursory statement with regard to the petitioner, the complainant has not specified his role in the day to day affairs of the Reflex Energy Ltd. The para No.8 of the complaints is reproduced as under:-
"यह ह क अभ यक नबर-1 ररफक एनर
भ भ टड ए पन ह तथ अभ यक नबर-2 इ
पन ड यरकटर ह व अभ यक नबर-3 नजरग
ड यरकटर ह व अभ यक नबर-4 एडडशन ड यरकटर
ह व अभ यक नबर-5 ड यरकटर ह, इ भ ए व'
पररव द)गण पततष न . र वत न टकशन
प इवट भ भ टड ' ददय गय उक च 4 र भश
दन ' प बद व जरम व र ह।"
The petitioner is merely an additional
Director in the Company and not a Managing Director or a Joint Managing Director. As per clause 9.2(a) of the agreement entered into between Reflex Energy Ltd. and Vama Energy Pvt. Ltd, the petitioner is a nominee 16 Director in the Board of Reflex Energy Ltd. on behalf of Vama Energy Pvt. Ltd., the petitioner is not liable for day to day business of the Reflex Energy Ltd.
In the overall view of the matter and in view of the principles laid down by the Hon'ble Apex Court in National Small Industries (supra), it is held that the petitioner cannot be made vicariously liable for offence committed by the Reflex Energy Ltd. and continuance of the criminal proceedings against the petitioner in respect of complaints made by the respondent-firm is nothing but an abuse of process of law.
In view of above discussions, these criminal misc. petitions filed by the petitioner are allowed and the complaints Nos.1265/2012, 1266/2012, 1264/2012, 1263/2012 and 1267/2012 pending in the Court of Additional Civil Judge (JD) and Metropolitan Magistrate (N.I. Act Cases) No.1, Jodhpur against the petitioner are quashed. The learned trial court may proceed against other accused persons in accordance with law.
[VIJAY BISHNOI],J.
Babulal/