Himachal Pradesh High Court
Ashok Kumar Tyagi vs State Of H.P. And Others on 22 April, 2015
Author: Tarlok Singh Chauhan
Bench: Tarlok Singh Chauhan
1
IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA
Cr.MMO No. 29 of 2014
.
Reserved on : 17.04.2015
Decided on : 22.4.2015.
Ashok Kumar Tyagi .....Petitioner.
Vs.
State of H.P. and others .....Respondents/
Performa respondents.
Coram
The Hon'ble Mr. Justice Tarlok Singh Chauhan, Judge
Whether approved for reporting?
1
Yes
For the petitioner : Mr. Anand Sharma, Advocate.
For the respondent : Mr. Rupinder Singh Thakur & Ms.
Meenakshi Sharma, Additional Advocate
Generals, with Ms. Parul Negi, Deputy
Advocate General and Mr. J.S. Rana,
Assistant Advocate General, for respondent
No. 1.
Tarlok Singh Chauhan, J.
By way of this petition under Section 482 of the Code of Criminal Procedure re ad with Article 227 of the Constitution of India, the petitioner has sought quashing of complaint pending against him before the learned Chief Judicial Magistrate, Nahan, Sirmaur, H.P., under Whether the reporters of the local papers may be allowed to see the Judgment? Yes ::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 2 Section 18(a)(i) read with Section 27(d) of the Drugs and Cosmetic Act, 1940 (for short 'the Act').
2. It is averred that the prosecution has been launched against .
the petitioner alongwith other partners of the firm, who have been arrayed as performa respondents in this petition. The petitioner is one of the partners of respondent No. 7, which is manufacturing drugs under licence issued by the Drug Controller.
3. On 18.10.2011, the Drug Inspector visited the premises of respondent No. 7 and took samples of 13 drugs. Out of these, 11 samples were found to be of Standard Quality, whereas 2 samples were not found to be of Standard Quality, for which prosecution was launched against the petitioner and the other partners including the Company.
4. Petitioner has sought quashing of the proceedings on the ground that no cause of action survives against him because of the illegalities and irregularities committed during the analysis by the Analyst at Government Laboratory at Kandaghat, who did not have proper storage condition, as drug was required to be preserved in a temperature ranging from 8°C to 25°C. It is further contended that the prosecution of the petitioner is in violation of the provisions of Section 34 of the Act.
5. In the reply filed by the respondents No. 1 and 2, preliminary submissions have been made to the effect that there has been due compliance of the provisions of Section 34 of the Act and that the samples had been preserved and thereafter tested as per the procedure.
::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 36. I have heard the learned counsel for the parties and have gone through the records of the case.
7. During the course of hearing, the learned counsel for the .
petitioner has confined his arguments to the provisions of Section 34 of the Act, which reads thus:
"34. Offences by Companies.-(1) Where an offence under this Act has been c ommitted by 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:
r Provided that nothing contained in this sub -section shall render any such person liable to any punishment provided in this Act if he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence.
(2) Notwithstanding anything contained in sub- 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 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 accordin gly. Explanation.-For the purposes of this section-
(a) "company" means a 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."::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 4
8. It is contended that there is no whisper in the entire complaint either against the petitioner or the performa respondents as to who was in fact "incharge of and was responsible" for the conduct of the .
business of the firm at the time of the commission of the offence and the mere fact that the petitioner happens to be one of the partners, does not entitle the respondents to prosecute him. In support of his arguments, the learned counsel for the petitioner has placed reliance on the following judgments:
1. Abdul Moid and others Vs. The State 1977 Cri. L.J. 1325.
2. State of Karnataka Vs. Pratap Chand and others Drugs Cases 1981-1.
3. Municipal Corporation of Delhi Vs. Ram Kishan Rohtagi and others AIR 1983 Supreme Court 67(1)
4. D. K. Javer and others Vs. The State 1985 Cri. L. J. 1572.
5. Adarsh Marwah and another Vs. Nehar Ranjan Bhattacharya and another 1990 EFR 387.
6. State of Haryana Vs. Brij Lal Mittal and others AIR 1998 Supreme Court 2327
7. State of Maharashtra Vs. R.A. Chandawarkar and others 1999 Drugs Cases 94.
8. Pannalal Sunderlal Choksi and others Vs. State of Maharashtra and another 2001 Drugs Cases 7.
9. Aravind Babu Vs. State of Kerala 2002 (1) Criminal Court Cases 375 (Kerala).
10. Umesh Sharma and another Vs. S.G. Bhakta and others 2002 Cri L.J. 4843.
11. Deepak Kumar Vs. State of Haryana EFR 2003(1) 523.::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 5
12. N. Dandapani and another Vs. State of A.P. 2005 Drugs Cases (DC) 339.
13. Rachna Kapoor Etc. Etc. Vs. State (N.C.T. of Delhi) & Ors.
2006 Cri. L.J. (NOC) 70 (DEL).
.
14. Desh Raj and others Vs. Meena 2007(3) Shim LC 1.
15. Murari Lal Arora Vs. State of H.P. 2010(2) Him. L.R. 742
16. Aneeta Hada Vs. Godfather Travels and Tours Private Limited (2012) 5 Supreme Court Cases 661.
17. Gunmala Sales Private Limited Vs. Anu Mehta and others (2015) 1 Supreme Court Cases 103.
18. Ashish Mittal Vs. Shri Anil Chand and others, Cr.MMO No. th 111 of 2013, decided on 16 September, 2013, by the High Court of Himahcal Pradesh.
9. On the other hand, Mr. J.S. Rana, learned Assistant Advocate General would contend that all the contentions as have been raised by the petitioner, have to be considered during the trial and it is not the stage where this Court should throttle the prosecution and quash the proceedings. He too has placed reliance on the judgment of Hon'ble Supreme Court in State of Haryana Vs. Brij Lal Mittal and others (1998) 5 Supreme Court Cases 343.
10. I weighed the arguments of both the parties.
11. If one goes through the complaint, the only allegation with regard to compliance of Section 34 is contained in paragraph No. 9 of the complaint which reads thus:
::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 6"9. That on dated 24.12.2012, the complainant visited the premises of the firm to enquire about the person who at the time of offence was in charge of and was responsible to the company for the conduct of the business of the company, where accused .
No. 1 & 5 were present. It was disclosed by the accused No. 1 & 5 that they were the partners of the firm alongwith other four partners. A spot memo in this regard was prepared on the spot (attached as annexure P88). A photocopy of the partnership-cum - induction deed (attached as annexure-P89 to 94) signed by both the accused present was also handed over by the accused to the complainant. It is, therefore, clear that all the five accused were in charge of and was responsible to the company for the conduct of the business of the company at the time of the manufacturing both the batches of the drug in question"
12. Now, the question therefore arises as to whether the aforesaid allegations can be said to be in due compliance of the provisions of Section 34 of the Act?
13. At this stage, in order to be fair to the learned Assistant Advocate General, it may be relevant to make mention of the spot memo prepared by the Drug Inspector on 24.12.2012, which reads thus:
"SPOT MEMO The premises of M/s August Remedies, Village Ogli Kala Amb District Sirmaur, H.P. was visited by me today on 24.12.2012 regarding the verification of the constitution of the firm as on November, 2011 at the time of the manufacturing of syrup B-ZyME Batch No. 366 & 365.
Sh. Ashok Kumar Tyagi and Shri Arvind Kumar are present at the time of visit. It was disclosed by them that the firm is a partnership ::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 7 firm and during Nov, 2011 there were five partners n i cluding both of them. The other three partners were
1) Sh. I.N. Gandhi.
2) Sh. Sanjay Taneja.
.
3) Sh. Daljeet Singh.
A scanned copy of the partnership deed dated 08.09.2011 is also handed over to the undersigned by the partners present duly signed by both of them.
Sd/-
24/12/2012 (SUNNY KAUSHAL) Drugs Inspector, HQ Nahan."
Apart there from, there appears to be a hand written note of the petitioner which reads thus:
"Recd. Copy of the above mentioned 5 persons including myself were the e qual partners as on Nov.2011 to till date and are equally responsible for the day to day business.
Signed 24/12/12."
14. It is on the strength of the said note coupled with the averments made in paragraph No. 9 of the complaint that the respondents claim that the complaint as launched, is in strict conformity with the provisions of Section 34 of the Act.
15. Now, can the endorsement made on the spot memo be made the basis for holding the petitioner alongwith the co-partners liable for prosecution under the Act?
16. It cannot be disputed in so far as the offence by a partnership firm is concerned, the wordings of various other Statutes are ::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 8 virtually pari materia with those contained in section 34 of the Drugs and Cosmetics Act, 1940. For example Section 33 of the Insecticides Act, 1968, Section 141 of the Negotiable Instruments Act, 1881 and Section .
34 of the Prevention of Food Adulteration Act etc. So, one has necessarily to fall back to the pari materia provisions mentioned above so as to conclude as to whether the petitioner on the strength of the allegations made in paragraph No. 9 of the complaint coupled with the fact that he is one of the partners can be prosecuted, or does the complaint deserve to be quashed.
17. In Monaben Ketanbhai Shah and another Vs. State of Gujarat and others (2004) 7 Supreme Court Cases 15, the Hon'ble Supreme Court while considering the pari materia provisions of Section 141 of the Negotiable Instruments Act, 1881 held that the primary responsibility is on the complainant to make necessary averments in the complaint so as to make the accused vicariously liable for fastening the criminal liability. There is no presumption that every partner knows about the transaction. The obligation of the accused to prove tha t at the time the offence was committed they were not incharge and were not responsible to the firm for the conduct of the business of the firm, would arise only when firstly the complainant makes necessary averments in the complaint and establish that fact.
18. In S.M.S. Pharmaceuticals Ltd . Vs. Neeeta Bhalla and another (2005) 8 Supreme Court Cases 89, a three Judge Bench of the ::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 9 Hon'ble Supreme Court was dealing with a matter which has arisen from a reference made by a two Judge Bench of the Hon'ble Supreme Court on the following questions:
.
"(a) whether for purposes of Section 141 of the Negotiable Instruments Act, 1881, it is sufficient if the substance of the allegation read as a whole fulfill the requirements of the said section and it is not necessary to specifically state in the complaint that the persons accused was in charge of, or responsible for, the conduct of the business of the company.
(b) Whether a director of a company would be deemed to be in charge of, and responsible to, the company for conduct of the business of the company and, therefore, deemed to be guilty of the offence unless he proves to the contrary.
(c) r even if it is held that specific averments are necessary, whether in the absence of such averments the signatory of the cheque and or the Managing Directors of Joint Managing Director who admittedly would be in charge of the company and responsible to the company for conduct of its business could be proceeded against. "
The Hon'ble Supreme Court has held as under:
"4. In the present case, we are concerned with criminal liability on account of dishonour of cheque. It primarily falls on the drawer company and is extended to officers of the Company. The normal rule in the cases involving criminal liability is against vicarious liability, that is, no one is to be held criminally liable for an act of another. This normal rule is, however, subject to exception on account of specific provision being made in statutes extending liability to others. Section 141 of the Act is an instance of specific provision which in case an offence under Section 138 is committed by a Company, extends criminal liability for dishonour of cheque to officers of the Company. Section 141 contains conditions which have to be satisfied before the liability can be extended to officers of a company. Since the provision creates criminal liability, the conditions have to be strictly complied with. The conditions are intended to ensure that a person who is sought ::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 10 to be made vicariously liable for an offence of which the principal accused is the Company, had a role to play in relation to the incriminating act and further that such a person should know what is attributed to him to make him liable. In other words, persons who had nothing to do with the matter need not be roped in. A company being a juristic person, all its deeds and functions are .
result of acts of others. Therefore, officers of a Company who are responsible for acts done in the name of the Company are sought to be made personally liable for acts which result in criminal action being taken against the Company. It makes every person who, at the time the offence was committed, was incharge of, and was responsible to the Company for the conduct of business of the Company, as well as the Company, liable for the offence. The proviso to the sub-section contains an escape route for persons who are able to prove that the offence was committed without their knowledge or that they had exercised all due diligence to prevent commission of the offence
5. Section 203 of the Code empowers a Magistrate to dismiss a complaint without even issuing a process. It uses the words "after considering" and "the Magistrate is of opinion that there is no sufficient ground for proceeding". These words suggest that the Magistrate has to apply his mind to a complaint at the initial stage itself and see whether a case is made out against the accused persons before issuing process to them on the basis of the complaint. For applying his mind and forming an opinion as to whether there is sufficient ground for proceeding, a complaint must make out a prima facie case to proceed. This, in other words, means that a complaint must contain material to enable the Magistrate to make up his mind for issuing process. If this were not the requirement, consequences could be far reaching. If a Magistrate had to issue process in every case, the burden of work before Magistrates as well as harassment caused to the respondents to whom process is issued would be tremendous.
Even Section 204 of the Code starts with the words "if in the opinion of the Magistrate taking cognizance of an offence there is sufficient ground for proceeding....." The words "sufficient ground for proceeding" again suggest that ground should be made out in the complaint for proceeding against the respondent. It is settled law that at the time of issuing of the process the Magistrate is required to see only the allegations in the complaint and where allegations in the complaint or the charge sheet do not constitute an offence against a person, the complaint is liable to be dismissed.
6. As the points of reference will show, the question for consideration is what should be the averments in a complaint under Sections 138 and 141. Process on a complaint under Section 138 starts normally on basis of a written complaint which ::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 11 is placed before a Magistrate. The Magistrate considers the complaint as per provisions of Sections 200 to 204 of the Code of Criminal Procedure. The question of requirement of averments in a complaint has to be considered on the basis of provisions contained in Sections 138 and 141 of the Negotiable Instruments Act read in the light of powers of a Magistrate referred to in .
Sections 200 to 204 of the Code of Criminal Procedure. The fact that a Magistrate has to consider the complaint before issuing process and he has power to reject it at the threshold, suggests that a complaint should make out a case for issue of process.
7. As to what should be the averments in a complaint, assumes importance in view of the fact that, at the stage of issuance of process, the Magistrate will have before him only the complaint and the accompanying documents. A person who is sought to be made accused has no right to produce any documents or evidence in defence at that stage. Even at the stage of framing of charge the accused has no such right and a Magistrate cannot be asked to look into the documents produced by an accused at that stage, State of Orissa vs. Debendra Nath Padhi [2005 (1) SCC 568].
8. The officers responsible for conducting affairs of companies are generally referred to as Directors, Managers, Secretaries, Managing Directors etc. What is required to be considered is: is it sufficient to simply state in a complaint that a particular person was a director of the Company at the time the offence was committed and nothing more is required to be said?
For this, it may be worthwhile to notice the role of a director in a company. The word 'director' is defined in Section 2 (13) of the Companies Act, 1956 as under:
"2. (13) "director" includes any person occupying the position of director, by whatever name called";
There is a whole chapter in the Companies Act on directors, which is Chapter II. Sections 291 to 293 refer to powers of Board of Directors. A perus al of these provisions shows that what a Board of Directors is empowered to do in relation to a particular company depend upon the role and functions assigned to Directors as per the Memorandum and Articles of Association of the company. There is nothing which suggests that simply by being a director in a Company, one is supposed to discharge particular functions on behalf of a company. It happens that a person may be a director in a company but he may not know anything about day-to-day functioning of the company. As a director he may be attending meetings of the Board of Directors of the Company where usually they decide policy matters and guide the course of business of a company. It may be that a Board of ::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 12 Directors may appoint sub-committees consisting of one or two directors out of the Board of the Company who may be made responsible for day -to-day functions of the Company. These are matters which form part of resolutions of Board of Directors of a Company. Nothing is oral. What emerges from this is that the role of a director in a company is a question of fact depending on the .
peculiar facts in each case. There is no universal rule that a director of a company is in charge of its everyday affairs. We have discussed about the position of a Director in a company in order to illustrate the point that there is no magic as such in a particular word, be it Director, Manager or Secretary. It all depends upon respective roles assigned to the officers in a company. A company may have Managers or Secretaries for different departments, which means, it may have more than one Manager or Secretary. These officers may also be authorised to issue cheques under their signatures with respect to affairs of their respective departments. Will it be possible to prosecute a Secre tary of Department-B regarding a cheque issued by the Secretary of Department-A which is dishonoured? The Secretary of Department-B may not be knowing anything about issuance of the cheque in question. Therefore, mere use of a particular designation of an officer without more, may not be enough by way of an averment in a complaint. When the requirement in Section 141, which extends the liability to officers of a company, is that such a person should be in charge of and responsible to the company for conduct of business of the company, how can a person be subjected to liability of criminal prosecution without it being averred in the complaint that he satisfies those requirements ? Not every person connected with a Company is made liable under Section 141. Liability is cast on persons who may have something to do with the transaction complained of. A person who is in charge of and responsible for conduct of business of a Company would naturally know why the cheque in question was issued and why it got dishonoured.
9. The position of a Managing Director or a Joint Managing Director in a company may be different. These persons, as the designation of their office suggests, are in charge of a company and are responsible for the conduct of the business of the company. In order to escape liability such persons may have to bring their case within the proviso to Section 141 (1), that is, they will have to prove that when the offence was committed they had no knowledge of the offence or that they exercised all due diligence to prevent the commission of the offence.
10. While analysing Section 141 of the Act, it will be seen that it operates in cases where an offence under Section 138 is committed by a company. The key words which occur in the Section are "every person". These are general words and take ::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 13 every person connected with a company within their sweep. Therefore, these words have been rightly qualified by use of the words " 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 etc."
What is required is that the persons who are sought to be made criminally liable under Section 141 should be at the time the offence was committed, in charge of and responsible to 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. It is only those persons who were in charge of and responsible for conduct of business of the company at the time of commission of an offence, who will be liable for criminal action. It follows from this that 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 under the provision. The liability arises from being in charge of and responsible for conduct of 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. Conversely, a person not holding any office or designation in a Company may be liable if he satisfies the main requirement of being in charge of and responsible for conduct of business of a Company at the relevant time. Liability depends on the role one plays in the affairs of a Company and not on designation or status. If being a Director or Manager or Secretary was enough to cast criminal liability, the Section would have said so. Instead of "every person" the section would have said "every Director, Manager or Secretary in a Company is liable'....etc. The legislature is aware that it is a case of criminal liability which means serious consequences so far as the person sought to be made liable is concerned. Therefore, only persons who can be said to be connected with the commission of a crime at the relevant time have been subjected to action.
11. A reference to sub-section (2) of Section 141 fortifies the above reasoning because sub-section (2) envisages direct involvement of any Director, Manager, Secretary or other officer of a company in commission of an offence. This section operates when in a trial it is proved that the offence has been committed with the consent or connivance or is attributable to neglect on the part of any of the holders of these offices in a company. In such a case, such persons are to be held liable. Provision has been made for Directors, Managers, Secretaries and other officers of a company to cover them in cases of their proved involvement.
::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 1412. The conclusion is inevitable that the liability arises on account of conduct, act or omission on the part of a person and not merely on account of holding an office or a position in a company. Therefore, in order to bring a case within Section 141 of the Act the complaint must disclose the necessary facts which .
make a person liable.
13. The question of what should be averments in a criminal complaint has come up for consideration before various High Courts in the country as also before this Court. Secunderabad Health Care Ltd. and others v. Secunderabad Hospitals Pvt. Ltd. and others [1999 (96) C.C. (AP) 106] was a case under the Negotiable Instruments Act specifically dealing with Sections 138 and 141 thereof. The Andhra Pradesh High Court held that every Director of a company is not automatically vicariously liable for the offence committed by the company. Only such Directors or Director who were in charge of or responsible to the company for the conduct of business of the company at the material time when the offence was committed alone shall be deemed to be guilty of the offence. Further it was observed that the requirement of law is that(Comp Gas p.112) "There must be clear, unambiguous and specific allegatio ns against the persons who are impleaded as accused that they were in charge of and responsible to the company in the conduct of its business in the material time when the offence was committed."
14. The same High Court in v. Sudheer Reddy v. State of Andhra Pradesh and others [2000 (99) CC (AP) 107] held that (Comp Cas p. 110):
"The purpose of Section 141 of the Negotiable Instruments Act would appear to be that a person who appears to be merely a director of the Company cannot be fastened with criminal liability for an offence under Section 138 of the Negotiable Instruments Act unless it is shown that he was involved in the day-today affairs of the company and was responsible to the company."
Further, it was held that allegations in this behalf have to be made in a complaint before process can be issued against a person in a complaint. To same effect is the judgment of the Madras High Court in R. Kannan v. Kotak Mahindra Finance Ltd. 2003 (115) CC (Mad) 321. In Lok Housing and Constructions Ltd. v. Raghupati Leasing and Finance Ltd. and another [2003 (115) CC (Del) 957], the Delhi High Court noticed that there were clear averments about the fact that accused No.2 to 12 were officers in charge of and responsible to the company in the conduct of day -
::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 15to-day business at the time of commission of offence. Therefore, the Court refused to quash the complaint. In Sunil Kumar Chhaparia v. Dakka Eshwaraiah and another [2002 (108) CC (AP) 687, the Andhra Pradesh High Court noted that there was a consensus of judicial opinion that: (Comp Cas p. 691) .
" a director of a company cannot be prosecuted for an offence under Section 138 of the Act in the absence of a specific allegation in the complaint that he was in charge of and responsible to the company in the conduct of its business at the relevant time or that the offence was committed with his consent or connivance."
The Court has quoted several judgments of various High Courts in support of this proposition. We do not feel it necessary to recount them all.
15. Cases have arisen under other Acts where similar provisions are contained creating vicarious liability for officers of a company in cases where primary liability is that of a company. State of Karnataka v. Pratap Chand and others 1981 (2) SCC 335 was a case under the Drugs and Cosmetics Act, 1940. Section 34 contains a similar provision making every person in charge of and responsible to the company for conduct of its business liable for offence committed by a company. It was held that a person liable for criminal action under that provision should be a person in overall control of day-to-day affairs of the company or a firm. This was a case of a partner in a firm and it was held that a partner who was not in such overall control of the firm could not be held liable. In Municipal Corporation of Delhi v. Ram Kishan Rohtagi and others [1983 (1) SCC 1], the case was under the Prevention of Food Adulteration Act. It was first noticed that under Section 482 of the Criminal Procedure Code in a complaint, the order of a Magistrate issuing process against the accused can be quashed or set aside in a case where the allegation made in the complaint or the statements of the witnesses recorded in support of the same taken at their face value make out absolutely no case against the accused or the complaint does not disclose the essential ingredients of an offence which is arrived at against accused. This emphasises the need for proper averments in a complaint before a person can be tried for the offence alleged in the complaint.
16. In State of Haryana v. Brij Lal Mittal and others 1998 (5) SCC 343 it was held that vicarious liability of a person for being prosecuted for an offence committed under the Act by a company arises if at the material time he was in charge of and was also responsible to the company for the conduct of its business. Simply because a person is a director of a company, it does not ::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 16 necessarily mean that he fulfils both the above requirements so as to make him liable. Conversely, without being a director a person can be in charge of and responsible to the company for the conduct of its business.
17. K.P.G. Nair v. Jindal Menthol India Ltd. [2001 (10) SCC .
218] was a case under the Negotiable Instruments Act. It was found that the allegations in the complaint did not in express words or with reference to the allegations contained therein make out a case that at the time of commission of the offence, the appellant was in charge of and was responsible to the company for the conduct of its business. It was held that requirement of Section 141 was not met and the complaint against the accused was quashed. Similar was the position in Katta Sujatha v. Fertilizers & Chemiucals Travancore Ltd. and another [ 2002 (7 SCC 655]. This was a case of a partnership. It was found that no allegations were contained in the complaint regarding the fact that the accused was a partner in charge of and was responsible to the firm for the conduct of business of the firm nor was there any allegation that the offence was made with the consent and connivance or that it was attributable to any neglect on the part of the accused. It was held that no case was made out against the accused who was a partner and the complaint was quashed. The latest in the line is the judgment of this Court in Monaben Ketanbhai Shah and another v. State of Gujarat and others [2004 (7) SCC 15]. It was observed as under: (SCC p.17, para 4) "4. It is not necessary to reproduce the language of Section 141 verbatim in the complaint since the complaint is required to be read as a whole. If the substance of the allegations made in the complaint fulfill the requirements of Section 141, the complaint has to proceed and is required to be tried with. It is also true that in construing a complaint a hyper-technical approach should not be adopted so as to quash the same. The laudable object of preventing bouncing of cheques and sustaining the credibility of commercial transactions resulting in enactment of Sections 138 and 141 has to be borne in mind. These provisions create a statutory presumption of dishonesty, exposing a person to criminal liability if payment is not made within the statutory period even after issue of notice. It is also true that the power of quashing is required to be exercised very sparingly and where, read as a whole, factual foundation for the offence has been laid in the complaint, it should not be quashed. All the same, it is also to be remembered that it is the duty of the court to discharge the accused if taking everything stated in the complaint as correct and construing the allegations made therein liberally in favour of the complainant, the ingredients of the offence are ::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 17 altogether lacking. The present case falls in this category as would be evident from the facts noticed hereinafter."
It was further observed: (SCC pp.18019, para 6) "6 The criminal liability has been fastened on .
those who, at the time of the commission of the offence, were in charge of and were responsible to the firm for the conduct of the business of the firm. These may be sleeping partners who are not required to take any part in the business of the firm;
they may be ladies and others who may not know anything about the business of the firm. The primary responsibility is on the complainant to make necessary averments in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every partner knows about the transaction. The obligation of the appellants to prove that at the time the offence was committed they were not in charge of and were not responsible to the firm for the conduct r of the business of the firm, would arise only when first the complainant makes necessary averments in the complaint and establishes that fact. The present case is of total absence of requisite averments in the complaint."
18. To sum up, there is almost unanimous judicial opinion that necessary averments ought to be contained in a complaint before a person can be subjected to criminal process. A liability under Section 141 of the Act is sought to be fastened vicariously on a person connected with a Company, the principal accused being the company itself. It is a departure from the rule in criminal law against vicarious liability. A clear case should be spelled out in the complaint against the person sought to be made liable. Section 141 of the Act contains the requirements for making a person liable under the said provision. That respondent falls within parameters of Section 141 has to be spelled out. A complaint has to be examined by the Magistrate in the first instance on the basis of averments contained therein. If the Magistrate is satisfied that there are averments which bring the case within Section 141 he would issue the process. We have seen that merely being described as a director in a company is not sufficient to satisfy the requirement of Section 141. Even a non director can be liable under Section 141 of the Act. The averments in the complaint would also serve the purpose that the person sought to be made liable would know what is the case which is alleged against him. This will enable him to meet the case at the trial.
::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 1819 .In view of the above discussion, our answers to the questions posed in the Reference are as under:
(a) It is necessary to specifically aver in a complaint under Section 141 that at the time the offence was committed, the person accused was in charge of, and responsible for the conduct .
of business of the company. This averment is an essential requirement of Section 141 and has to be made in a complaint. Without this averment being made in a complaint, the requirements of Section 141 cannot be said to be satisfied.
(b) The answer to question posed in sub-Para (b) has to be in negative. Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for conduct of its business. The requirement of Section 141 is that 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.
(c) The answer to question (c) has to be in affirmative. The question notes that the Managing Director or Joint Managing Director would be admittedly in charge of the company and responsible to the company for conduct of its business. When that is so, holders of such positions in a company become liable under Section 141 of the Act. By virtue of the office they hold as Managing Director or Joint Managing Director, these persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 141. So far as signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under sub-section (2) of Section 141".
19. In National Small Industries Corporation Limited Vs. Harmeet Singh Paintal and another (2010) 3 Supreme Court Cases 330 after reviewing all its earlier judgements, the Hon'ble Supreme Court summarized the legal position as follows:
"22. Therefore, this Court has distinguished the case of persons who are in -charge of and re sponsible for the conduct of the business of the company at the time of the offence and the persons who are merely holding the post in a company and are not in-charge of and responsible for the conduct of the business of the company. Further, in order to fasten the vicarious liability in ::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 19 accordance with Section 141, the averment as to the role of the concerned Directors should be specific. The description should be clear and there should be some unambiguous allegations as to how the concerned Directors were alleged to be in- charge of and was responsible for the conduct and affairs of the company."
"39. From the above discussion, the following principles .
emerge:
(i) The primary responsibility is on the complainant to make specific averments as are re quired 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.
(iii) rVicarious 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 accused is Managing Director or 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 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 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."::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 20
20. On the strength of the aforesaid judgments of the Hon'ble Supreme Court, it can safely be concluded that it is the prime responsibility of the complainant to make specific averments with respect .
to the accused being at the relevant time incharge as also responsible for the conduct of the business. But then, the mere fact that one happens to be a partner of the firm would not in itself be sufficient to make him liable, because there is no deemed liability of such partner. The averment assumes importance because it is the basis and essential averment which persuades the Magistrate to issue the process against the partner.
Thus, if this basic averment is missing, the Magistrate is legally justified in not issuing process.
21. Here the court is concerned with the question as to what should be the approach of this Court when it deals with the petition filed under Section 482 of the Code of Criminal Procedure read with Article 227 of the Constitution of India for quashing such a complaint against the partner. If the necessary averment is there, must this Court dismiss the petition as a rule observing that the trial must go on. Is this Court precluded from looking into further circumstances if any?
22. Inherent power under Section 482 of the Code of Criminal Procedure is to be invoked to prevent the abuse of process of any Court or otherwise to secure the ends of justice. Can such fetters be put on the inherent powers? The answer is obviously no. In taking this view, I am fortified by the observations made by the Hon'ble Supreme Court in ::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 21 Gunmala Sales Private Limited and others Vs. Anu Mehta and others (2015)1 Supreme Court Cases 103, wherein the Hon'ble Supreme Court has observed as under:
.
"28. We are concerned in this case with Directors who are not signatories to the cheques. So far as Directors who are not signatories to the cheques or who are not Managing Directors or Joint Managing Directors are concerned, it is clear from the conclusions drawn in the above- mentioned cases that it is necessary to aver in the complaint filed under Section 138 read with Section 141 of the NI Act that at the relevant time when the offence was committed, the Directors were in charge of and were responsible for the conduct of the business of the company. This is a basic requirement. There is no deemed liability of such Directors. This averment assumes importance because it is the basic and essential averment which persuades the Magistrate to issue process against the Director. That is why this Court in SMS Pharma-(1) observed that the question of requirement of averments in a complaint has to be considered on the basis of provisions contained in Sections 138 and 141 of the NI Act read in the light of the powers of a Magistrate referred to in Sections 200 to 204 of the Code which recognize the Magistrate's discretion to reject the complaint at the threshold if he finds that there is no sufficient ground for proceeding. Thus, if this basic averment is missing the Magistrate is legally justified in not issuing process.
But here we are concerned with the question as to what should be the approach of a High Court when it is dealing with a petition filed under Section 482 of the Code for quashing such a complaint against a Director. If this averment is there, must the High Court dismiss the petition as a rule observing that the trial must go on? Is the High Court preclu ded from looking into other circumstances if any? Inherent power under Section 482 of the Code is to be invoked to prevent abuse of the process of any court or otherwise to secure ends of justice. Can such fetters be put on the High Court's inherent powers? We do not think so.
29. SMS Pharma-(1), undoubtedly, says that it is necessary to specifically aver in the complaint that the Director was in charge of and responsible for the conduct of the company's business at the relevant time when the offence was committed. It says that this is a basic requirement. And as we have already noted, this averment is for the purpose of persuading the Magistrate to issue process. If we revisit SMS Pharma-(1), we find that after referring to the various provisions of the Companies Act it is observed that those provisions show that what a Board of Directors is empowered to do in relation to a particular company depends upon the roles and functions ::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 22 assigned to Directors as per the memorandum and articles of association of the company. There is nothing which suggests that simply by being a Director in a company, one is supposed to discharge particular functions on behalf of a company. As a Director he may be attending meetings of the Board of Directors of the company where usually they decide policy matters and .
guide the course of business of a company. It may be that a Board of Directors may appoint sub-committees consisting of one or two Directors out of the Board of the company who may be made responsible for the day -to-day functions of the company. This Court further observed that what emerges from this is that the role of a Director in a company is a question of fact depending on the peculiar facts in each case and that there is no universal rule that a Director of a company is in charge of its everyday affairs. What follows from this is that it cannot be concluded from SMS Pharma-(1) that the basic requirement stated therein is sufficient in all cases and whenever such an averment is there, the High Court must dismiss the petition filed praying for quashing the process. It must be remembered that the core of a criminal case are its facts and in factual matters there are no fixed formulae required to be followed by a court unless it is dealing with an entirely procedural matter. We do not want to discuss 'the doctrine of Indoor Management' on which submissions have been advanced. Suffice it to say, that just as the complainant is entitled to presume in view of provisions of the Companies Act that the Director was concerned with the issuance of the cheque, the Director is entitled to contend that he was not concerned with the issuance of cheque for a variety of reasons. It is for the High Court to consider these submissions. The High Court may in a given case on an overall reading of a complaint and having come across some unimpeachable evidence or glaring circumstances come to a conclusion that the petition deserves to be allowed despite the presence of the basic averment. That is the reason why in some cases, after referring to SMS Pharma-(1), but considering overall circumstances of the case, this Court has found that the basic averment was insufficient, that something more was needed and has quashed the complaint.
30. When a petition is filed for quashing the process, in a given case, on an overall reading of the complaint, the High Court may find that the basic averment is sufficient, that it makes out a case against the Director; that there is nothing to suggest that the substratum of the allegation against the Director is destroyed rendering the basic averment insufficient and that since offence is made out against him, his further role can be brought out in the trial. In another case, the High Court may quash the complaint despite the basic averment. It may come across some unimpeachable evidence or acceptable circumstances which may in its opinion lead to a conclusion that the Director could never ::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 23 have been in charge of and responsible for the conduct of the business of the company at the relevant time and therefore making him stand the trial would be abuse of the process of court as no offence is made out against him.
31. When in view of the basic averment process is .
issued the complaint must proceed against the Directors. But, if any Director wants the process to be quashed by filing a petition under Section 482 of the Code on the ground that only a bald averment is made in the complaint and that he is really not concerned with the issuance of the cheque, he must in order to persuade the High Court to quash the process either furnish some sterling uncontrovertible material or acceptable circumstances to substantiate his contention. He must make out a case that making him stand the trial would be abuse of the process of court. He cannot get the complaint quashed merely on the ground that apart from the basic averment no particulars are given in the complaint about his role, because ordinarily the basic averment would be sufficient to send him to trial and it could be argued that his further role could be brought out in the trial. Quashing of a complaint is a serious matter. Complaint cannot be quashed for the asking. For quashing of a complaint it must be shown that no offence is made out at all against the Director.
32. In this connection, it would be advantageous to refer to Harshendra Kumar D v. Rebatilata Koley & Ors.,[22] where process was issued by the Magistrate on a complaint filed under Section 138 read with Section 141 of the NI Act. The appellant therein challenged the proceeding by filing revision application under Section 397 read with Section 401 of the Code. The case of the appellant-Director was that he had resigned from Directorship. His resignation was accepted and notified to the Registrar of Companies. It was averred in the complaint that the appellant was responsible for the day-to-day affairs of the company and it was on his and other Directors assurance those demand drafts were issued. Despite this averment, this Court quashed the complaint taking into account resolution passed by the company, wherein it was reflected that the appellant had resigned from the post of Director much prior to the issuance of cheque and the fact that the company had submitted Form-32. It was argued before this Court that the documents furnished by the accused could not have been taken into account. Repelling this submission this Court observed as under:
"24. In Awadh Kishore Gupta this Court while dealing with the scope of power under Section 482 of the Code observed: (SCC p. 701, para 13) "13. It is to be noted that the investigation was not complete and at that stage it was impermissible for the High Court to look into materials, the acceptability of which is ::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 24 essentially a matter for trial. While exercising jurisdiction under Section 482 of the Code, it is not permissible for the court to act as if it was a trial Judge."
25. In our judgment, the above observations cannot be read to mean that in a criminal case where trial is yet to take place .
and the matter is at the stage of issuance of summons or taking cognizance, materials relied upon by the accused which are in the nature of public documents or the materials which [pic]are beyond suspicion or doubt, in no circumstance, can be looked into by the High Court in exercise of its jurisdiction under Section 482 or for that matter in exercise of revisional jurisdiction under Section 397 of the Code. It is fairly settled now that while exercising inherent jurisdiction under Section 482 or revisional jurisdiction under Section 397 of the Code in a case where complaint is sought to be quashed, it is not proper for the High Court to consider the defence of the accused or embark upon an enquiry in respect of merits of the accusations. However, in an appropriate case, if on the face of the documents -- which are beyond suspicion or doubt
-- placed by the accused, the accusations against him cannot stand, it would be travesty of justice if the accused is relegated to trial and he is asked to prove his defence before the trial court. In such a matter, for promotion of justice or to prevent injustice or abuse of process, the High Court may look into the materials which have significant bearing on the matter at prima facie stage.
26. Criminal prosecution is a serious matter; it affects the liberty of a person. No greater damage can be done to the reputation of a person than dragging him in a criminal case. In our opinion, the High Court fell into grave error in not taking into consideration the uncontroverted documents relating to the appellant's resignation from the post of Director of the Company.
Had these documents been considered by the High Court, it would have been apparent that the appellant has resigned much before the cheques were issued by the Company."
33. As already noted in Anita Malhotra, relying on Harshendra Kumar, this Court quashed the complaint filed under Section 138 read with Section 141 of the NI Act relying on the certified copy of the annual return which was a public document as per the Companies Act read with Section 74(2) of the Evidence Act, which established that the appellant/Director therein had resigned from the Directorship much prior to the issuance of cheques. This was done despite the fact that the complaint contained the necessary averments. In our opinion, therefore, there could be a case where the High Court may feel that filing of the complaint against all Directors is abuse of the process of court. The High Court would be justified in such cases in quashing the complaint after looking into the material furnished by the ::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 25 accused. At that stage there cannot be a mini trial or a roving inquiry. The material on the face of it must be convincing or uncontrovered or there must be some totally acceptable circumstances requiring no trial to establish the innocence of the Directors.
.
34. We may summarize our conclusions as follows:
34.1. Once in a complaint filed under Section 138 read with Section 141 of the NI Act the basic averment is made that the Director was in charge of and responsible for the conduct of the business of the company at the relevant time when the offence was committed, the Magistrate can issue process against such Director;
34.2. If a petition is filed under Section 482 of the Code for quashing of such a complaint by the Director, the High Court may, in the facts of a particular case, on an overall reading of the complaint, refuse to quash the complaint because the complaint contains the basic averment which is sufficient to make out a case against the Director.
34.3. In the facts of a given case, on an overall reading of the complaint, the High Court may, despite the presence of the basic averment, quash the complaint because of the absence of more particulars about role of the Director in the complaint. It may do so having com e across some unimpeachable, uncontrovertible evidence which is beyond suspicion or doubt or totally acceptable circumstances which may clearly indicate that the Director could not have been concerned with the issuance of cheques and asking him to stand the trial would be abuse of the process of the court. Despite the presence of basic averment, it may come to a conclusion that no case is made out against the Director. Take for instance a case of a Director suffering from a terminal illness who was bedridden at the relevant time or a Director who had resigned long before issuance of cheques. In such cases, if the High Court is convinced that prosecuting such a Director is merely an arm -
twisting tactics, the High Court may quash the proceedings. It bears repetition to state that to establish such case unimpeachable, uncontrovertible evidence which is beyond suspicion or doubt or some totally acceptable circumstances will have to be brought to the notice of the High Court. Such cases may be few and far between but the possibility of such a case being there cannot be ruled out. In the absence of such evidence or circumstances, complaint cannot be quashed;
34.4. No restriction can be placed on the High Court's powers under Section 482 of the Code. The High Court always uses and must use this power sparingly and with great ::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 26 circumspection to prevent inter alia the abuse of the process of the Court. There are no fixed formulae to be followed by the High Court in this regard and the exercise of this power depends upon the facts and circumstances of each case. The High Court at that stage does not conduct a mini trial or roving inquiry, but, nothing prevents it from taking unimpeachable evidence or totally .
acceptable circumstances into account which may lead it to conclude that no trial is necessary qua a particular Director."
23. Now, reverting to the facts of the case, it would be seen that no doubt in paragraph No. 9 of the complaint it has been averred that the petitioner alongwith other partners was incharge and responsible to the firm for the conduct of the business and the complainant has also placed on record a copy of an endorsement made by the petitioner himself acknowledging the fact that he alongwith the other petitioners is equally responsible for day to day business, but does this meet the requirement of Section 34 of the Act?
24. The law does not presume that every partner is incharge of and responsible to the firm. A perusal of Section 34 as a whole would show that there is a presumption of being guilty against a person, who is incharge of and responsible to the firm, and such a person is liable to be punished unless he proves that offence was committed without his knowledge or inspite of exercise of due diligence to prevent the commission of offence. By virtue of Sub -section (2), by a non obstante clause in its opening part, the prosecution is obliged to prove 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, ::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 27 Secretary or other officer of the company and in this case, partner or any other officer of the partnership firm/partnership before drawing a presumption of being guilty against such individual.
.
25. Taking into consideration the overriding effect given to Sub -
section(2), it will be responsibility of the prosecution to first indicate and prove that objectionable drug was manufactured with the consent or in connivance of the partner or production of the said drug is attributable to any neglect on the part of the partner, only thereafter he would be presumed to be the person incharge of and responsible to the firm for the conduct of business and will be obliged to establish absence of knowledge or exercise of due diligence in order to seek exoneration.
26. The cases cited by the learned counsel for the petitioner and the respondents are mainly those cases wherein there was no whisper in the complaint as to whether the accused therein at the relevant time, was incharge and was responsible to the firm for the conduct of the business of the firm. But, in this case there is some averment regarding the complexity and involvement of the petitioner, therefore, in such a situation, we essentially have to fall back to the observations as contained in Gunmala's case (supra). In case the judgment is minutely analyzed, it clearly lays down that simply being a partner of a firm, one is supposed to discharge a particular function on behalf of the partnership firm. As a partner, he may be attending meetings of the firm, which usually decides policy matters and guides the course of business ::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 28 of the firm. It may be that the partners may appoint a sub committee consisting of one or two partners, who may be made responsible for the day today functions of the firm.
.
27. The role of a partner in a firm is a question of fact depending upon the peculiar facts in each case and there is no universal rule that a partner of a firm is incharge of its every day affairs. It also follows that the mere fact that some allegations have been made in the complaint by itself would not mean that this Court must dismiss the petition, because it has to be remembered that the core of a criminal case are its facts and in factual matters there are no fixed formulae required to be followed by the Court unless it is dealing with an entirely procedural matter.
28. It is more than settled that in case of a partner, the complaint should specifically spell out how and in what manner the partner was incharge of or was responsible to the firm for the conduct of its business and mere bald and cursory statement that he was the incharge of and was responsible to the firm for the conduct of its business is not sufficient.
29. At this stage, I may notice that the petitioner has placed on record the certificate of re newal of licence to manufacture, wherein the details of the persons who are responsible for manufacturing the drug have been set out and these names are other than those of the partners of the firm. The petitioner has placed certain other documents which, prima facie, establish that it is not he who at the relevant time was ::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 29 incharge and responsible to the firm for the conduct of the business of the firm. The petitioner has annexed copy of authorization in favour of one Manu Kumar, which was passed on 25th August 2006, which prima facie .
shows that from the said date onwards it was Manu Kumar who would be responsible for the conduct of business with respect to the manufacturing and its quality. It is further specifically mentioned that the authorization was being given with the consent of all the partners, who have introduced his name unanimously. That apart the petitioner has placed on record a copy of letter issued by the Drug Licensing Authority, Himachal Pradesh to the company acknowledging Sh. Manu Kumar to be the holder of the manufacturing drug licence. There is yet again another communication dated 9.12.2005 issued by the Drug Controller approving the names of certain persons to be the Manufacturing Chemist, which does not include the name of the petitioner or the other partners.
30. Notably, the respondents in their reply have not disputed the authenticity, veracity or correctness of these documents. Therefore, this Court can take into consideration this sterling incontrovertible material and acceptable circumstance which lends credence to the version put forth by the petitioner.
31. On the basis of the aforesaid discussions, I am of the considered opinion that in case the petitioner is made to stand a trial, the same would be an abuse of process of Court. The complaint qua the ::: Downloaded on - 15/04/2017 18:02:22 :::HCHP 30 petitioner deserves to be quashed because of absence of more particulars about the role of the petitioner in the complaint.
32. Resultantly, the present petition is allowed and accordingly .
the Complaint Case No. 05/3 of 2013, titled as State of Himachal Pradesh Vs. Ashok Kumar Tyagi and others, pending before the learned Chief Judicial Magistrate, District Sirmaur at Nahan, H.P., in so far as the petitioner is concerned, is hereby quashed. The petition stands disposed of leaving the parties to bear their own costs.
April 22, 2015
(bhupender/hem )
r to (Tarlok Singh Chauhan)
Judge
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