Madras High Court
Renuka Ramanath vs Yes Bank Limited on 18 July, 2012
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 18.07.2012 CORAM THE HON'BLE MR.JUSTICE S.NAGAMUTHU CRL.O.P.No.19393 of 2010 and M.P.No.1 of 2010 and M.P.Nos.1 and 2 of 2011 Renuka Ramanath .. Petitioner .. Vs .. Yes Bank Limited having its office at Nehru Centre, 9th Floor, Discovery of India, Dr.A.B.Road, Worli, Mumbai-400 018. .. Respondent Prayer:- Criminal Original Petition filed under section 482 of the Code of Criminal Procedure, praying to call for the records and quash the proceedings in C.C.No.1916 of 2010 on the file of the learned XIV Metropolitan Magistrate, Egmore, Chennai. For Petitioner : Mr.A.L.Somayaji, Senior Counsel for M/s.S.Ramasubramaniam & Associates For Respondent : M/s.Paras Kuhad Akhil R.Bhansali Mr.I.Subramaniam, Senior Counsel for Amicus Curiae - - - - - ORDER
The petitioner is the 5th accused in C.C.No.1916 of 2010 on the file of the XIV Metropolitan Magistrate, Egmore, Chennai. Totally, there are as many as 9 accused in the case. The first accused is, admittedly, a company, known as "M/s.Subhiksha Trading Services Limited" (hereinafter referred to as, "the Company"). The accused 2 to 9 are the Directors of the 1st accused company. In the complaint, it is alleged that the 1st accused has committed an offence punishable under Section 138 of the Negotiable Instruments Act (hereinafter referred to as, "the Act") and since the accused 2 to 9, being the Directors of the Company, were involved in the day-to-day affairs of the company, as provided in Section 141 of the Act, they are also liable for punishment under Section 138 of the Act. Seeking to quash the said proceedings, the petitioner has come up with this petition.
2. The facts of the case would be as follows:
The 1st accused "M/s.Subhiksha Trading Services Limited" is a company incorporated under the Companies Act of 1956. The complainant is a Banking Company having operations all over India across various segments in the banking sector. The 1st accused company was engaged in the business of running a countrywide chain of retail stores. In and around August, 2007, the 2nd accused, namely, the Managing Director of the 1st accused company approached the complainant for financial assistance for the purposes of working capital and capital expenditure for the 1st accused company. Accordingly, the complainant bank extended financial facilities amounting to a total sum of Rs.50 Crores as per the terms of the financial facilities. But the amount was not repaid promptly. In partial discharge of the amount due to the complainant, on behalf of the 1st accused, the 3rd and 4th accused issued a cheque dated 20.01.2009 drawn on the Complainant's bank branch at Nungambakkam, Chennai for a sum of Rs.61 Lakhs. The said cheque was signed by the 1st accused Company's authorised signatories, namely, the 3rd and 4th accused. The cheque was presented for collection and the same was later on dishonoured for want of sufficient funds.
3. Thereafter, as required under Section 138 of the Act, individual notices were issued to all the accused demanding payment of Rs.61 Lakhs representing the cheque amount. The accused 2 to 5 deliberately evaded the receipt of the notices, it is alleged. The other accused received the notices. However, the accused 5 (the petitioner herein) and the 6th accused caused a reply notice dated 24.08.2009. In the said reply notice, the petitioner contended that she was no more a Director of the 1st accused company on or after 08.01.2009. Precisely, according to the petitioner, she resigned as a Nominee Director of the 1st accused company as early as on 08.01.2009 by sending a letter of resignation to the ICICI Venture Funds Management Company Limited which had earlier nominated her as a Nominee Director to the 1st accused Company. Thus, according to the petitioner, she was not liable to pay the amount as demanded in the legal notice issued under Section 138 of the Act. Despite the said notice, prosecution has been launched against all the 9 accused including the petitioner. It is this complaint, which the petitioner wants to quash so far as it relates to the petitioner.
4. In this petition, it is stated that the ICICI Venture Funds Management Company Limited nominated the petitioner as a "Nominee Director" of the 1st accused company as per Clause 12(1)(1) of the Shareholders Agreement dated 01.12.2004. The said nomination took effect from the date of her appointment, namely, 25.02.2005. That is how, the petitioner was functioning as a Nominee Director of the 1st accused company. Thereafter, according to the petitioner, she resigned from the Nominee Directorship of the 1st accused company by sending a letter to the ICICI Venture Funds Management Company Limited on 08.01.2009. It is further contended that based on the said letter of resignation, the ICICI Venture Funds Management Company Limited sent a letter to the 1st accused company withdrawing the nomination of the petitioner as a Nominee Director of the 1st accused company. Thereafter, on 19.01.2009, the ICICI Venture Funds Management Company Limited forwarded a letter to the Registrar of Companies, Chennai, informing that the ICICI Venture Funds Management Company Limited had withdrawn the nomination of the petitioner as a Nominee Director of the 1st accused company w.e.f. 08.01.2009. The said letter was also received by the Registrar of Companies, Tamil Nadu, Chennai on 21.01.2009. Thus, according to the petitioner, on or after 08.01.2009, she had nothing to do with the affairs of the 1st accused company since she was no more a Director of the 1st accused company.
5. Admittedly, in this case, the cheque in question was issued on 20.01.2009, much later from the date of resignation/withdrawal of the petitioner from the Nominee Directorship of the 1st accused company on 08.01.2009. After dishonour of the cheque, the legal notice was issued on 11.08.2009 for which reply was sent on 24.08.2009 wherein the petitioner contended that she was no more a Nominee Director of the 1st accused company on or after 08.01.2009.
6. The learned Senior Counsel appearing for the petitioner, referring to the above documents and the averments made in the petition would submit that on or after 08.01.2009, the petitioner was no more a Nominee Director of the 1st accused company and therefore, she cannot be held liable under Section 141 of the Act for the cheque issued on 20.01.2009. Nextly, the learned Senior Counsel would contend that assuming that the petitioner continued to be a Nominee Director, even then, the complaint is liable to be quashed for want of sufficient averments in the complaint to make out a prima facie case that the petitioner was in charge of the day-to-day affairs of the company. In order to substantiate his contention, the learned Senior Counsel has relied on a judgment of this Court in S.S.Lakshmana Pillai vs. Registrar of Companies and another reported in (1977)47 Comp.Cas652(Mad) wherein this Court has taken a view that in so far as a Director of the Company governed by the Companies Act is concerned, the moment, the resignation letter is sent, the Director is deemed to have resigned from the company. The learned Senior Counsel has relied on yet another judgment of the High Court of Karnataka in Mother Care (India) Limited vs. Prof.Ramaswamy P.Aiyar (MANU/KA/0760/2003) wherein the Karnataka High Court has also taken the same view that there is no provision in the Companies Act for the acceptance of the resignation since the appointment of a Director is not bilateral in character. The Karnataka High Court has gone to the extent of saying that the question of acceptance of the request to relinquish the office would not arise and filing of form No.32 in terms of Section 303(2) is only a consequential act to be performed by the company in obedience to the statutory provision. Relying on these two judgments, the learned Senior Counsel for the petitioner would submit that from 08.01.2009, the petitioner was not a nominee director.
7. The respondent has filed a counter affidavit, wherein, in paragraphs 1 and 2, it is stated as follows:
"1. I am the Senior Vice President of the Respondent/Complainant. Conversant with the facts of the case and acquainting myself with the relevant records, I am setting forth all true and genuine facts for the benign consideration of this Hon'ble Court.
2. I submit that we have done verification about the directors of Subiksha Trading Company Private Limited and found that the name of Ms.Renuka Ramnath, the petitioner herein still reflects as one of the Directors of the Company. I submit that it is transparently clear that the petitioner herein continues to be a Director of Subiksha Trading Company Pvt. Ltd. This be so, Crl.O.P.No.19393 of 2010 which has been filed on false conjectures and surmises knowing them to be false in order to mislead this Hon'ble Court into passing favourable orders is liable to be dismissed in limine."
8. Referring to the same, the learned Counsel for the respondent would contend that from the verification of the records of the Registrar of Companies, it has come to light that the petitioner continued to be a nominee Director of the company even on the date of issuance of the cheque and on the subsequent dates. The learned Counsel would further submit that the documents dated 08.01.2009, 19.01.2009 and 05.02.2009, upon which reliance has been made by the learned Senior Counsel for the Petitioner, cannot be termed as impeachable documents. The learned Counsel would also submit that there are very serious doubts about the genuineness of these documents. He would further submit that these documents could have been created for the purposes of this case subsequently. Therefore, the genuineness of these documents are to be tested only by the trial court. Thus, according to the learned Counsel for the respondent, no reliance can be made on these documents at this juncture, for want of proof of genuineness of these documents.
9. The learned Counsel for the respondent would further contend that as per the Memorandum of Articles of Association of the 1st accused company, there has to be at least one Nominee Director on behalf of the ICICI Venture Funds Management Company Limited because ICICI was holding more than 2% of the equity shares of the 1st accused company. Therefore, the so called withdrawal and the resignation have got no validity in law. Referring to Article 21-A of the Articles of Association, the learned Counsel would contend that these letters cannot be acted upon and it shall be deemed that the petitioner continued to be a Nominee Director of the ICICI Venture Funds Management Company Limited.
10. In order to substantiate his contention, the learned Counsel would rely on a judgment of the Hon'ble Supreme Court in Harshendra Kumar D. v. Rebatilata Koley etc. reported in AIR 2011 Supreme Court 1090 wherein the Hon'ble Supreme Court has reiterated the legal position that in a proceeding under Section 482 of Cr.P.C., the High Court cannot make an oral enquiry and try to resolve the disputed question of facts. In other words, according to the learned Counsel, this Court can rely only on unimpeachable documents. The learned Counsel has also relied on yet another judgment of the Hon'ble Supreme Court in N.Rangachari v. Bharat Sanchar Nigam Limited reported in AIR 2007 Supreme Court 1682(1) to substantiate his contention that it is sufficient, if it is stated in the complaint that the accused, being a Director, was in charge of the day-to-day affairs of the company. The learned Counsel would further submit that a person normally having business or commercial dealings with a company, would satisfy himself about its creditworthiness and reliability by looking at the promoters and Board of Directors and the nature and extent of its business and its Memorandum of Articles of Association and it may not be possible for him to personally know about the affairs of the company. Relying on the said observation of the Hon'ble Supreme Court, the learned Counsel for the respondent would submit that in the case on hand, more particularly, in the records of the Registrar of Companies, the petitioner has been shown as a Director and since there are sufficient averments in the complaint to the effect that she was participating in the day-to-day affairs of the company, the complaint in this case cannot be quashed and thus, the petition is liable to be dismissed.
11. I have considered the above submissions made on either side and also perused the materials available on record.
12. At the outset, I have to state that undoubtedly, it is the law that while exercising the inherent power under Section 482 of Cr.P.C, this Court is required to refer only to undisputed and impeachable documents. If any document is disputed, then the matter should be left open to the parties to agitate only before the trial court. But in a case where the documents are not unimpeachable inasmuch as the dispute raised by the adverse party has got some basis, then, this Court cannot rely on those documents. For any reason, if the court finds that the dispute in respect of a document is raised by the adverse party, without there being any supporting material even to support remottedly, such a dispute, then the court cannot decline to look into the said document. With this legal background, let me now go into the arguments advanced by the learned Senior Counsel for the petitioner that the petitioner was no more a Nominee Director of the company on or after 08.01.2009.
13. Admittedly, the petitioner is not a Director of the company on account of any election or on account of her having personal shareholdings of the 1st accused company. Undisputedly, she was only a Nominee Director. The shareholdings of the 1st accused company were held only by another company known as "the ICICI Venture Funds Management Company Limited". Admittedly, the said company was holding more than 2% of the equity share capital of the 1st accused company. Therefore, as per Article 21-A of the Memorandum of Articles of Association of the 1st accused company, the ICICI Venture Funds Management Company Limited has got right to nominate more than one Director known as "Nominee Director" for the first accused company. For better understanding, let me now reproduce Article 21-A of the Memorandum of Articles of Association of the 1st accused company which reads as follows:
"21.A.(1) Till such time the VC Investors hold atleast 2% of the equity share capital of the Company, the VC Investor shall have a right to appoint and remove from time to time, such number of Directors proportionate to their shareholding in the company, subject to a minimum of one Director on the Board of Directors of the Company (such directors are hereinafter referred to as 'Nominee Directors')".
It is, in tune with the said Article and an agreement entered into between the ICICI and the 1st accused company on 01.12.2004, the petitioner and another were nominated by the ICICI as Nominee Directors of the 1st accused company. That is how, the petitioner was functioning as a Nominee Director of the 1st accused company.
14. Now, it is the contention of the learned Senior Counsel for the petitioner that she resigned from the Nominee Directorship of the 1st accused company w.e.f. 8.1.2009. At page 2 of the typed set of papers, the learned Senior Counsel for the petitioner has produced a letter of resignation of the petitioner submitted to ICICI Venture Funds Management Limited resigning from the Nominee Directorship of the 1st accused company. Following this letter, letter of withdrawal dated 08.01.2009 was sent by ICICI Venture Funds Management Limited to the 1st accused company withdrawing the nomination of the petitioner from nominee directorship forthwith. Of course, there is no document even to show that this letter was received by the 1st accused company. To this extent, it may appear that the respondent has a case. But, if we look into the next document, this impression will disappear. In page 3 of the typed set of papers, the learned Senior Counsel for the petitioner has produced another letter dated 19.01.2009 which was submitted by the ICICI Venture Funds Management Company Limited to the Registrar of Companies for the inspection of the Court. A copy of the said letter along with the seal of the Registrar of Companies showing acknowledgment of the same on 19.01.2009 has been produced. The said letter reads as follows:
"This is to inform you that we have by our letter dated January 8, 2009 (copy attached) withdrawn the nomination of Ms.Renuka Mamnath and Mr.Rajeev Bakshi from the Board of Subhiksha Trading Services Limited, with immediate effect. In this regard, two other directors namely, Mr.Kannan Srinivasan and Ms.Rama Bijapurkar have by their letters dated December 26, 2008 and January 9, 2009 (copies enclosed) also resigned from the Board of the Company with immediate effect.
We request you to take on record the said withdrawal/resignation of Directors with immediate effect and acknowledge receipt of the said withdrawl/resignation letters."
15. According to the learned Counsel for the respondent, this letter could have been created for the purposes of this case. But, I find no force in the said argument for the simple reason that in the original, I find the signature of the Registrar of Companies, Tamil Nadu, Chennai, acknowledging the receipt of the same on 19.01.2009. The Registrar of Companies, being a public authority, cannot be doubted. I have to presume that the said letter was received by the Registrar of Companies on 19.01.2009 and such presumption is based on the seal and signature of the Registrar of Companies. The Signature and seal found in the said document alone make this document believable and impeachable. From these facts, it is very clear that the nomination of the petitioner was withdrawn w.e.f. 08.01.2009.
16. Thereafter, on 05.02.2009, the petitioner herself has sent a letter to the Board of Directors of the 1st accused company wherein also she has reiterated the above. The said letter reads as follows:
"I have resigned from the Board of Subhiksha Trading Services Limited (Subhiksha) with effect from January 8, 2009. This fact has also been intimated to the Board of Directors of Subhiksha by ICICI Venture Funds Management Company Limited vide their letter dated January 8, 2009, withdrawing my nomination from the Board of Subhiksha with immediate effect, a copy of same is enclosed."
From these three letters, it is crystal clear that the nomination was withdrawn on 08.01.2009 and thereafter, the petitioner ceased to be a Nominee Director .
17. But the learned Counsel for the respondent would submit that as per Clause 21-A of the Memorandum of Articles of Association, there has to be at least one nominee director on behalf of the ICICI Venture Funds Management Company Limited. In this case, since there was no other nominee director on behalf of the ICICI company, the so called withdrawal of the petitioner is not valid, he contended. But a perusal and a close reading of Article 21-A would go to show that it gives only a right to the Venture Company viz., the ICICI Venture Funds Management Company Limited to have a minimum of one nominee Director and subject to a maximum number of Directors which shall be proportionate to the shareholdings. But it does not create any liability on the part of the the ICICI Venture Funds Management Company Limited to have at least one Nominee Director. To repeat, I have to state that it is only the right of the the ICICI Venture Funds Management Company Limited to have a Director and there is no compulsion to have Directors in the 1st accused company. Therefore, this contention of the learned Counsel for the respondent is rejected.
18. Now coming to the judgments upon which reliance has made by the learned Counsel on either side, let me now first refer to S.S.Lakshmana Pillai vs. Registrar of Companies and another reported in (1977)47 Comp.Cas652(Mad). In that case, the foremost question which came up for consideration before this Court was as to whether the resignation of a Director of a Company governed by the Companies Act requires any acceptance and whether it would take effect from the date of resignation or from the date of acceptance. Hon'ble Justice Ratnavel Pandian (as he then was) had to elaborately go into various provisions, more particularly, Sections 283 and 284 of the Companies Act as well as the scheme of the Act. At last, His Lordship has found that the Companies Act is very silent about the resignation of any Director. His Lordship has held that because there is no provision governing the resignation of a Director from the Board of Directors of the Company, the resignation is governed by common law principles. In paragraph 28 of the said judgment, His Lordship has held as follows:
"28. This letter was acknowledged by the first respondent on June 28, 1973, whereby the first respondent wanted further information as to whether the resignation has been accepted by the company. Admittedly, there is no provision in the memorandum of articles prescribing any condition that the resignation tendered by a director of a company will take effect after its acceptance by the company or the board of directors. For the above stated reasons and in the absence of any provision either in the Act or in the memorandum or articles, I am of the view that the director who had submitted his resignation would be deemed to have resigned from his office from the date of the submission of his resignation, when his intention is unequivocally expressed either orally or by a letter. A fortiori, in the instant case, the petitioner by his letter dated December 4, 1972, has tendered his letter of resignation, resigning his directorship from the evening of December 4, 1972, and the said letter has been acknowledged by the first respondent, the Registrar of Companies and, therefore, I hold that the resignation had taken effect from December, 4, 1972, and consequently the petitioner has ceased to hold the office form the evening of December 4, 1972."
Thus, it is crystal clear that the resignation will take effect from the moment, the resignation letter is sent and the same is later on acknowledged by the Company. Similar view has been taken by the Karnataka High Court as well in Mother Care (India) Limited vs. Prof.Ramaswamy P.Aiyar (MANU/KA/0760/2003). In paragraph 12 of the said judgment, while considering a similar question, the learned Single Judge has held as follows:
"...As the appointment of a Director is not a bilateral character, the question of acceptance of the request to relinquish the office would not arise. Filing of Form No.32 in terms of Section 303(2) of the Act is only a consequential act to be performed by the company in obedience to the statutory provision. If such a form is filed with the Registrar of Companies, it is a proof of a Director ceasing to be a director. But, it is not an act to be complied with in order to make a resignation valid. Therefore, as the resignation by a direction, relinquishing his office as such director is of an unilateral character, it comes into effect when the act of such resignation to relinquish the office is communicated to the Board. In law, the Board to whom the act of relinquishment is communicated is not required to take any action by way of accepting resignation and therefore, the relinquishment takes effect from the date of such communication where the resignation is intended to operate in praesenti. In order to make the said resignation effective, it is not necessary that the Board should accept it. Whether the Board accepts the resignation or not if the resignation is intended to operate in paraesenti the resignation comes into effect when such intention to relinquish the office is communicated to the Board. In that view of the matter, once a resignation letter is submitted to the Board, the date of which the intention to relinquish is communicated to the Board, that is the date from which the Director ceases to be a Director of the Company."
19. From these two judgments, it is very clear that for want of a provision in the Companies Act governing the resignation of a Director, it should be held that the resignation takes effect the moment, the letter of resignation is submitted. Here in this case, a distinction is sought to be made by the learned Counsel for the respondent that no resignation letter was sent by the petitioner to the 1st accused company. In other words, the learned Counsel would contend that the letter dated 19.01.2009 cannot be considered because there is no proof that it was submitted to the 1st accused company. This argument is not acceptable to this Court for more than one reason. First of all, the question of resigning from the Directorship will arise, if only, the petitioner happens to be a Director and not a Nominee Director. If he is a Nominee Director, he is primarily responsible for the company which nominated him. He may send his resignation to the company which nominated him and even without any such resignation letter, the company which nominated him will be at liberty to withdraw his nomination. In either event, if a resignation letter is submitted by a Nominee Director to the company which nominated him, thereafter it is for that company to act upon the same and to withdraw the nomination of the Nominee Director. As there is no provision for resignation by the Director, there is no provision for withdrawal also in the Companies Act. But such withdrawal is governed, in the instant case, by the Memorandum Articles of Association.
20. As I have referred to above, under Article 21-A of the Memorandum of Articles of Association, the ICICI Venture Funds Management Company Limited has got right to withdraw. The moment, it is withdrawn, as has been held by this Court as well as by the Karnataka High Court, it takes effect forthwith. Thereafter, the nominee Director has got no right to insist that he will continue to be the nominee Director. The continuance of his nomination is subject to the pleasure of the company which nominated him. The moment, the pleasure is lost and withdrawal is made by the company which nominated him, thereafter, he ceases to be a Nominee Director of that company. In this case, from the letter of withdrawal sent to the 1st accused company and the letter of information sent to the Registrar of Companies, it has been prima facie proved by means of impeachable documents that the petitioner was not a Nominee Director of the 1st accused company on or after 08.01.2009. Therefore, she is not liable for punishment under Section 138 of the Act for the alleged offence said to have been committed by the 1st accused company subsequent to 08.01.2009.
21. Coming to the second ground raised by the learned Senior Counsel for the petitioner that there are no averments in the complaint that the petitioner was responsible for the day-to-day affairs of the company, I feel that I need not deeply go into the said question because I am inclined to quash the proceedings against the petitioner on the first ground itself.
22. In the result, the Criminal Original Petition is allowed and the case in C.C.No.1916/2010 pending on the file of the learned XIV Metropolitan Magistrate, Egmore, Chennai, is hereby quashed in so far as the petitioner alone is concerned. The trial court is at liberty to proceed with the trial as against the other accused. Consequently, connected Miscellaneous Petitions are closed.
18.07.2012 Index : Yes Internet : Yes tsi S.NAGAMUTHU, J.
tsi To
1. The XIV Metropolitan Magistrate, Egmore, Chennai.
2. The Public Prosecutor, High Court, Madras.
CRL.O.P.No.19393 of 201018.07.2012