Telangana High Court
Smt. Akkinapalli Sujatha, Fathenagar, ... vs The State Of A.P., Rep.By Pp., High ... on 3 December, 2021
Author: G. Radha Rani
Bench: G. Radha Rani
THE HON'BLE Dr. JUSTICE G. RADHA RANI
CRIMINAL PETITION No.8227 of 2011
ORDER:
This petition is filed by the petitioners - A5, A7, A8 and A9 under Section 482 Cr.P.C. to quash the proceedings in CC No.1010 of 2010 on the fie of the II Additional Chief Metropolitan Magistrate, Hyderabad.
2. The 2nd respondent - de facto complainant filed a complaint before the II Additional Chief Metropolitan Magistrate, Hyderabad under Section 138 of Negotiable Instruments Act (for short 'NI Act') read with Section 141 and 142 of the Act stating that A1 was a Jewellery shop, by name, SV Jewellers Private Limited and A2 was its Managing Director and A3 to A9 were Directors of A1 company. In the month of June, 2010, A2 to A9 visited the complainant's Jewellery shop at Abids, Hyderabad and selected various jewellery items and assured the complainant that they would be going on to be their permanent customers and would place orders on various occasions like marriage seasons and festivals like Akshaya Trithiya and purchased jewellery worth Rs.7,58,600/- and issued various cheques pertaining to Axis Bank, Kukatpally assuring that the cheques would be honoured on its presentation. The complainant presented the cheques but the said cheques were returned by the drawee bank with an endorsement "INSUFFICIENT FUNDS". The complainant issued legal notices dated 28.07.2010 to A1 to A9 through RPAD but the said legal notices sent to A1 and A6 were returned as 'not Dr.GRR,J 2 CrlP.No.8227 of 2011 claimed.' The notices sent to A2 to A5 and A7 to A9 were received on 30.07.2010. Inspite of receipt of legal notices as the petitioners failed to pay the cheque amount within the stipulated time, filed the complaint.
3. Heard the learned counsel for the petitioners. There is no representation for the 2nd respondent - complainant.
4. Learned counsel for the petitioners submitted that the petitioners were the Directors of M/s.SV Jewellers Pvt. Ltd., a private limited company dealing with jewellery business. The Directors of said company due to domestic problems resigned from 02.07.2010 disconnecting their relationship with the said company. As such, the petitioners were no way concerned and connected with the affairs of and transactions of M/s.SV Jewellers Pvt. Ltd. with effect from 02.07.2010. Pursuant to the same, Form No.32 was filed before the Registrar of Companies and the same was recorded in the records of Registrar of Companies that M/s.SV Jewellers Pvt. Ltd was a company incorporated under the Companies Act, it was wholly managed, controlled and operated by the Managing Director of the said company. Though there were as many as 8 Directors, mentioned in the complaint, no one had any access directly either to the purchases or the sales or to the accounts or receipt or payments pertaining to the business of M/s. SV Jewellers Pvt. Ltd. The Managing Director was responsible for the day to day affairs of the business. No access was given to the other Directors. It was totally a one man show of the Managing Director. The petitioners were only Dr.GRR,J 3 CrlP.No.8227 of 2011 name-sake Directors without any powers or involvement in the day to day affairs of the company. The petitioners had not given any cheques of M/s.SV Jewellers at any point of time and the petitioners could not be prosecuted for the alleged offence and the same deserved to be quashed.
5. Learned counsel also submitted that the petitioners filed Crl.P. No.8231 of 2011 for quashing the proceedings in CC No.1011 of 2010 on the file of II Additional Chief Metropolitan Magistrate, Hyderabad and the same was quashed by this Court vide order dated 10.06.2021 and filed the copy of the said order. He also filed a copy of the petition filed by another Director of the company alleged to be A6 in CC No.1055 of 2010 on the file of X Additional Chief Metropolitan Magistrate, Secunderabad which was disposed of on 22.08.2014 quashing the proceedings against him.
6. Perused the record. The 2nd respondent filed a complaint against the petitioners alleging that they were Directors of A1 company, but no specific role was alleged as to how they were responsible for the conduct of the day to day business of the company. It was mentioned in the complaint that A5 to A9 selected various women jewellery items like necklaces, earrings, bangles, nose rings and jewellery worn by the bride and had shown keen interest in selection process of jewellery and appreciated various designs and workmanship. But the said facts were not relevant to prosecute them for the offence under Section 138 read with 141 of NI Act. The cheques would disclose that they were issued by A2 in the capacity of Dr.GRR,J 4 CrlP.No.8227 of 2011 the Managing Director of the A1 company. They were not signed by the petitioners.
7. It was contended by the learned counsel for the petitioners that the petitioners resigned to the post of Directors and had filed Form No.32 before the Registrar of Companies with effect from 02.07.2014. But as they were continuing as Directors in the company by the date of issuing the alleged cheques, the said point is considered not material to decide the issue.
8. The Hon'ble Apex Court in SMS Pharmaceuticals Ltd. v. Neeta Bhalla and Ors.1, held that:
"It is necessary to specifically aver in a complaint under Section 141 of the Negotiable Instruments Act, 1881 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. Merely being a director of 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.
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 peons are in charge of and responsible for 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.
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 1 (2007) 4 SCC 70 Dr.GRR,J 5 CrlP.No.8227 of 2011 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. 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." In K.K.Ahuja v. V.K.Vora and Another2, the Hon'ble Apex Court held that:
"If a mere reproduction of the wording of section 141(1) in the complaint is sufficient to make a person liable to face prosecution, virtually every officer/employee of a company without exception could be impleaded as accused by merely making an averment that at the time when the offence was committed they were in charge of and were responsible to the company for the conduct and business of the company. That would be absurd and not intended under the Act. As the trauma, harassment and hardship of a criminal proceedings in such cases, may be more serious than the ultimate punishment, it is not proper to subject all and sundry to be impleaded as accused in a complaint against a company, even when the requirements of section 138 read and section 141 of the Act are not fulfilled.
The words "person in charge of the business of the company"
refer to a person who is overall control of the day to day business of the company. A person may be a Director and thus belongs to the group of person making the policy followed by 2 (2009) 10 SCC 48 Dr.GRR,J 6 CrlP.No.8227 of 2011 the company, but yet may not be in charge of the business of the company, that a person may be a manager who is in charge of the business but may not be in overall charge of the business; and that a person may be an officer who may in charge of only some part of the business.
To be vicariously liable under Section 141(1), a person should be responsible to the company for the conduct of the business of the company and also a person in charge of the business of the company. The averment in a complaint that an accused is a Director and that he is in charge of and is responsible to the company for the conduct of the business of the company, duly affirmed in the sworn statement, may be sufficient for the purpose of issuing summons to him. 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 company" or "he was in charge of the day- to-day management of the company" or "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.
The position under section 141 of the Act can be summarized thus:
(i) If the accused is the Managing Director or a Joint Managing Director, it is not necessary to make an averment in the complaint that he is in charge of, and is responsible to the company, for the conduct of the business of the company. It is sufficient if an averment is made that the accused was the Managing Director or Joint Managing Director at the relevant time. This is because the prefix `Managing' to the word `Director' makes it clear that they were in charge of and are responsible to the company, for the conduct of the business of the company.
(ii)In the case of a director or an officer of the company who signed the cheque on behalf of the company, there is no need to make a specific averment that he was in charge of and was responsible to the company, for the conduct of the business of the company or make any specific allegation about consent, connivance or negligence. The very fact that the dishonoured cheque was signed by him on behalf of the company, would give rise to responsibility under sub-section (2) of Section 141.
(iii) In the case of a Director, Secretary or Manager (as defined in Sec. 2(24) of the Companies Act) or a person referred to in clauses (e) and (f) of section 5 of Companies Act, an averment in the complaint that he was in charge of, and was responsible to the company, for the conduct of the business of the company is necessary to bring the case under section 141(1). No further averment would be necessary in the complaint, though some particulars will be desirable. They can also be made liable under section 141(2) by making necessary averments relating to consent and connivance or negligence, in the complaint, to bring the matter under that sub-section.
Dr.GRR,J 7 CrlP.No.8227 of 2011
(iv) Other Officers of a company cannot be made liable under sub-section (1) of section 141. Other officers of a company can be made liable only under sub-section (2) of Section 141, be averring in the complaint their position and duties in the company and their role in regard to the issue and dishonour of the cheque, disclosing consent, connivance or negligence." In Aparna A Shah v. Sheth Developers Pvt. Ltd. and Another3, the Hon'ble Apex Court on the aspect that only a drawer of cheque is liable for prosecution, held that:
"Criminal liability on account of dishonour of a cheque primarily falls on the drawer, if it is a Company, then Drawer Company and is extended to the officers of the company. The normal rule in the cases involving criminal liability is against vicarious liability. 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. As a matter of fact, Section 141 contains conditions which have to be satisfied before the liability can be extended. Inasmuch as the provision creates a criminal liability, the conditions have to be strictly complied with. In other words, the 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 the result of acts of others. Therefore, the officers of the company, who are responsible for the acts done in the name of the company, are sought to be made personally liable for the acts which result in criminal action being taken against the company. In other words, it makes every person who, at the time the offence was committed, was in- charge of, and was responsible to the company for the conduct of business of the company, as well as the company, liable for the offence. It is true that the proviso to sub- section enables certain persons to prove that the offence was committed without their knowledge or that they had exercised all due diligence to prevent commission of the offence. It is true that the proviso to sub-section (1) of Section 141 of the NI Act enables certain persons to prove that the offence was committed without their knowledge or that they had exercised all due diligence to prevent commission of the offence. The liability under Section 141 of the N.I. Act is sought to be fastened vicariously on a person connected with the company, the principal accused being the company itself. It is a departure from the rule in criminal law against vicarious liability."
9. Hence considering the above citations and considering the fact that the petitioners - A5, A7, A8 and A9 were not the drawers of the cheques and had not signed the same and no specific averments 3 (2013) 8 SCC 71 Dr.GRR,J 8 CrlP.No.8227 of 2011 were made in the complaint against them showing the role played by them as to how they were responsible for the conduct of day to day business of the company, it is considered fit to quash the proceedings against the petitioners - A5, A7, A8 and A9 in CC No.1010 of 2010.
10. In the result, the Criminal Petition is allowed quashing the proceedings against the petitioners - A5, A7, A8 and A9 in C.C. No.1010 of 2010 on the file of II Additional Chief Metropolitan Magistrate, Hyderabad.
Miscellaneous petitions pending, if any, shall stand closed.
_____________________ Dr. G. RADHA RANI, J December 03, 2021 KTL