Delhi High Court
Nitin Meshram vs Softmart Solutions on 22 September, 2009
Author: Gita Mittal
Bench: Gita Mittal
IN THE HIGH COURT OF DELHI
Crl.M.C. No.2586/2007
Reserved on 8th September 2009
Date of decision: 22nd September, 2009
Nitin Meshram ....Petitioner
through: Anand, Adv. & Mr. Rajshree
N. Reddy, Adv.
VERSUS
Softmart Solutions ....Respondent
through: Vivek Sood, Adv.
CORAM:
HON'BLE MS. JUSTICE GITA MITTAL
1.Whether reporters of local papers may be allowed
to see the Judgment? Yes
2.To be referred to the Reporter or not? Yes
3.Whether the judgment should be reported in the
Digest? Yes
GITA MITTAL, J
1. The present case raises a fundamental issue with regard to
necessary averments to invite vicarious liability of persons
concerned with the affairs of the company by virtue of Section 141
of the Negotiable Instruments Act for commission of an offence
under Section 138 thereof in relation to dishonouring of a cheque,
the primary liability for which falls on the drawer company.
2. The petitioner has sought quashing of the proceedings arising
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out of Complaint Case No.1718/1/03 filed by the respondent for
commission of such offences, on the ground that there is no
averment in the complaint as to how or in what manner the
petitioner was responsible for the conduct of the business of the
company or otherwise responsible in regard to its functioning. It is
submitted that the petitioner has not issued any cheque and the
averments in the complaint taken in their entirety do not disclose
commission of any offence under the Negotiable Instruments Act,
1881 by the petitioner.
3. The respondent filed a complaint under Sections 138 to 142 of
the Negotiable Instruments Act, 1881, read with Section 420 of the
Indian Penal Code against the Digitech Solutions Limited;
Shri Anoop Sareen; Shri Rajiv Goel and Shri Nitin Mishra-its directors
and one Darshan-its accountant on the allegations that they
approached and transacted with the respondent-complainant for the
purchase of computer software items and that in partial discharge
of liability, issued four cheques being Cheque nos.705515, 705516,
705517 & 705518 which were dishonoured on presentation due to
insufficiency of funds in the bank account of the company.
Proceedings against the accountant were not pressed.
4. In support of the contention noticed hereinabove, reliance is
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placed on several pronouncements of the Apex Court reported at
2005 SCC (Crl.) 1975 SMS Pharmaceutical Limited Vs. Neeta
Bhalla & Anr.; (2007) 3 SCC 693 Saroj Kumar Poddar Vs.
State (NCT of Delhi & Anr.); (2006) 10 SCC 581 Sabitha
Ramamurthy & Anr. Vs. RBS Channabasavaradhya; (2008) 8
SCC 278 Green Earth Asphalt & Power Private Limited Vs.
State of Maharashtra through PSO & Ors. & (2009) 9 SCALE
455 Jugesh Sehgal Vs. Shamsher Singh Jogi.
5. On the other hand, learned counsel for the respondent has
vehemently opposed the submissions made by the petitioner. It is
contended that the complaint was filed in the year 2003 and the
petitioner has waited to raise this challenge in the year 2007. It is
urged that the matter is at the stage of evidence and no
interference is called for at this stage. It is further urged that the
respondent-complainant has placed reliance not on Section 138
alone but the complaint contains substantive allegations inviting the
applicability of Section 141(2) of the Negotiable Instruments Act,
1881. The submission is that the pronouncements relied upon by
the petitioner do not deal with the necessary averments and
ingredients laid down under Section 141 of the Negotiable
Instruments Act, 1881. Learned counsel has urged at length that
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the expression "consent", "connivance" and "neglect" as appear in
Section 141 of the Negotiable Instruments Act, have not been
explained by the legislature and have to derive their meaning from
the meaning given to them in common parlance. My attention is
drawn to the meaning of this expression given in the Legal
Glossary issued by the Government. In support of this contention,
reliance is placed on the pronouncements of the Apex Court
reported at 2007 (4) JCC (NI) 364 Ramji Lal Vs. Amit Ved &
2007 (4) JCC 3083 Krishana Dwivedi Vs. Surender Kumar. It
6. I have heard learned counsels at great length. In order to
appreciate the submissions which have been made before this
court, it becomes necessary to notice the relevant provisions of
Sections 138 & 141 of the Negotiable Instruments Act, 1881 which
read thus:-
138. Dishonour of cheque for insufficiency,
etc. of funds in the account:- Where any cheque
drawn by a person on an account maintained by him with
a banker for payment of any amount of money to
another person from out of that account for the
discharge, in whole or in part, of any debt or other
liability, is returned by the bank unpaid, either because
of the amount of money standing to the credit of that
account is insufficient to honour the cheque or that it
exceeds the amount arranged to be paid from that
account by an agreement made with that bank, such
person shall be deemed to have committed an offence
and shall, without prejudice to any other provision of this
Act, be punished with imprisonment for (a term which
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may be extended to two years) or with fine which may
extend to twice the amount of the cheque, or with both:
Provided that nothing contained in this section shall
apply unless-
(a) the cheque has been presented to the bank
within a period of six months from the date on
which it is drawn or within the period of its
validity, whichever is earlier;
(b) the payee or the holder in due course of the
cheque, as the case may be, makes a demand
for the payment of the said amount of money by
giving a notice in writing, to the drawer of the
cheque (within thirty days) of the receipt of
information by him from the bank regarding the
return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the
payment of the said amount of money to the
payee or as the case may be, to the holder in
due course of the cheque within fifteen days of
the receipt of the said notice.
141. Offences by companies:-
(1) If the person committing an offence under Section
138 is a company, every person who, at the time the
offence was committed, was in charge of, and was
responsible to the company for the conduct of the
business of the company, as well as the company, shall
be deemed to be guilty of the offence and shall be liable
to be proceeded against and punished accordingly:
Provided that nothing contained in this sub-section
shall render any person liable to punishment if he proves
that the offence was committed without his knowledge,
or that he had exercised all due diligence to prevent the
commission of such offence:
(2) Notwithstanding anything contained in sub-section
-5-
(1), where any offence under this Act has been
committed by a company and it is proved that the
offence has been committed with the consent or
connivance of, or is attributable to, any neglect on the
part of, any director, manager, secretary or other officer
of the company, such director, manager, secretary or
other officer shall also be deemed to be guilty of that
offence and shall be liable to be proceeded against and
punished accordingly."
7. In view of the primary submissions on behalf of the petitioner
noted hereinabove, it also becomes necessary to notice some of the
material averments in the complaint which read as follows:-
"1. That the complainant, a Partnership Firm is engaged
in the business of Computer Software. The accused no.1
through accused nos.2 to 5 approached and transacted
with the Complainant for the purchase of the following
Computer Software items:-
S.No Inv.No./Date Description of Software Qty. Amount
1. DO3-1256 MS WINDOWS 2000 SERVER 3 96,720.00
11-03-2003 (5USER) CD
MS OFFICE XP PROF. OEM 2 29,120.00
AUTODESK AUTOCAD 2002 1 1,12,320.00
SYMANTEC NAV 2003 SYMANTEC 5 7,280.00
ANTIVIRUS MULTI-TIER
PROTECTION (5 USER) 2 14,040.00
MS WINDOWS 2000 PROF OEM CD 9 63,882.00
2. DO3-1264 AUTODESK AUTOCAD 2002 1 1,12,320.00
13-03-2003 SYMANTEC NAV 2003 15 21,840.00
3. DO3-1323 MS PROJECT 2002 SERVER (5 USER) 1 63,440.00
27-03-2003 MS PROJECT 2002 1 25,324.00
4. DO3-1353 MS WINDOWS 2000 CAL MOLP NL 10 13,000.00
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S.No Inv.No./Date Description of Software Qty. Amount
3-03-2003 MS PROJECT 2002 SERVER CAL 5 29,068.00
MOLP NL
2. That in partial discharge of liability, the accused
persons issued the following cheques to the
complainant:-
Ch. No. Dated Bank Amount
705515 30-04-03 Syndicate Bank 1,20,000.00
st
C-34, 1 Floor, Defence Colony,
Lajpat Nagar, New Delhi - 110 024
705516 06-05-03 Syndicate Bank 1,20,000.00
st
C-34, 1 Floor, Defence Colony,
Lajpat Nagar, New Delhi - 110 024
705517 06-05-03 Syndicate Bank 1,20,000.00
st
C-34, 1 Floor, Defence Colony,
Lajpat Nagar, New Delhi - 110 024
705518 06-05-03 Syndicate Bank 1,26,283.00
st
C-34, 1 Floor, Defence Colony,
Lajpat Nagar, New Delhi - 110 024
3. That on the presentation of the aforesaid cheques,
the same were returned as dishonoured due to
insufficiency of funds in the Bank account of accused
no.1. The said cheques were presented on several
occasions, on each of which they were returned as
dishonoured for insufficiency of funds in the Bank account
of accused no.1. The intimation of dishonour was
received by complainant on/around 20th July, 2003. It is
apparent from their conduct that they never had the
intentions of making payment to the complainant for the
purchase of the aforesaid software. The accused nos.2 to
5 have fraudulently induced the complainant to supply
the aforesaid software, without the intention of making
payment, thereby leading to financial losses to the
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complainant. This act of commission and omission also
amount to cheating for which the accused persons are
liable to be punished under Section 420 I.P.C.
4. That the legal notice dated 17.08.2003 was sent on
18.08.2003 on behalf of the complainant to the accused
persons vide which the accused were asked to make the
payment of the amount of the said cheques with interest
@ 15% per annum within 15 days of the said legal notice.
The legal notice was sent by the complainant by Regd.
A.D. Post, Speed Post and through U.P.C. And the same
have been received by the accused persons.
5. That however the accused persons have not made
any payment towards the said cheques, to the
complainant within the statutory period of 15 days from
the legal notice or even till date, and therefore the
accused persons have committed the offence of
dishonour of cheques under Sections 138-142 of the
Negotiable Instruments Act, 1881 and hence are liable for
punishment for the said offence.
6. That accused nos.2 to 5 are the principal officers of
the accused no.1. The accused nos.2 to 5 are in charge
of and responsible for the conduct of the business of the
accused no.1. The accused nos.2 to 5 with the consent
and connivance of each other have committed the
aforesaid offence. They have actively participated in the
transaction with the complainant in their capacity as
principal officers.
7. That the cause of action for filing the instant
complaint arose when the said cheques were dishonoured
and when the payment was not made to the complainant
within the stipulated period of 15 days from the receipt of
the legal notice by the accused persons."
8. The issue which has been raised before this court has arisen
for consideration in the several judgments noticed hereinabove.
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Each time, the expressions used in the complaint varied slightly.
The same can be usefully considered as to facilitate examination of
the issue as to what would constitute adequate pleadings in a
complaint to impose vicarious liability upon a person who was
either a director or a person controlling the affairs of the company.
9. The exposition of law by the Supreme Court in 2005 SCC
(Crl.) 1975 SMS Pharmaceutical Limited Vs. Neeta Bhalla &
Anr. sets out the applicable principles succinctly and can be
usefully adverted to. They read as follows:-
"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 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
-9-
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, 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.
xxx xxx xxx
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 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
- 10 -
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.
18. To sum up, there is almost unanimous judicial
opinion that necessary averments ought to be
contained in a complaint before a persons 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 spelt 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 tallies within
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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.
19. 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
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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."
10. In (2006) 10 SCC 581 Sabitha Ramamurthy & Anr. Vs.
RBS Channabasavaradhya this issue was considered in the light
of the complaint and supporting deposition. It was held as follows:
"3. In support of the said complaint petition, one
Ravidraradya, son of the complainant filed a sworn
affidavit stating:
...The accused No. 2 is the M.D. and others
are Chairman and partners. The accused-
company towards repayment of the loan,
issued a cheque in favour of the
complainant. The M.D. signed and issued the
cheque dated 23.6.2001 for Rs. 1,24,406/-
on the account maintained by the company.
On presentation of the said cheque to the
Bank for collection, the same was returned
on 30.6.2001 as insufficient funds. Notice
dated 12.7.2001 was issued through
Advocate to the accused was served on
13.7.2001. The case was filed on
27.8.2001....
Processes were directed to be issued on the said
statement for alleged commission of an offence
under Section 138 of the Negotiable Instruments Act.
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xxx xxx xxx
7. A bare perusal of the complaint petitions
demonstrates that the statutory requirements
contained in Section 141 of the Negotiable
Instruments Act had not been complied with. It may
be true that it is not necessary for the complainant
to specifically reproduce the wordings of the section
but what is required is a clear statement of fact so
as to enable the court to arrive at a prima facie
opinion that the accused are vicariously liable.
Section 141 raises a legal fiction. By reason of the
said provision, a person although is not personally
liable for commission of such an offence would be
vicariously liable therefore. Such vicarious liability
can be inferred so far as a company registered or
incorporated under the Companies Act, 1956 is
concerned only if the requisite statements, which
are required to be averred in the complaint petition,
are made so as to make the accused therein
vicariously liable for the offence committed by the
company. Before a person can be made vicariously
liable, strict compliance of the statutory
requirements would be insisted. Not only the
averments made in paragraph 7 of the complaint
petitions does not meet the said statutory
requirements, the sworn statement of the witness
made by the son of Respondent herein, does not
contain any statement that Appellants were in
charge of the business of the company. In a case
where the court is required to issue summons which
would put the accused to some sort of harassment,
the court should insist on strict compliance of the
statutory requirements. In terms of Section 200 of
the Code of Criminal procedure, the complainant is
bound to make statements on oath as to how the
offence has been committed and how the accused
persons are responsible therefore. In the event,
ultimately, the prosecution is found to be frivolous or
otherwise mala fide, the court may direct
registration of case against the complainant for mala
fide prosecution of the accused. The accused would
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also be entitled to file a suit for damages. The
relevant provisions of the Code of Criminal
Procedure are required to be construed from the
aforementioned point of view."
(underlined supplied)
11. The Apex Court had occasion to consider this issue again in the
pronouncement reported at (2007) 3 SCC 693 Saroj Kumar
Poddar Vs. State (NCT of Delhi & Anr.). On a consideration of
the averments made in the complaint laid before the court, the
principles laid in the earlier pronouncements were reiterated and it
was held thus:-
"12. A person would be vicariously liable for
commission of an offence on the part of a Company
only in the event the conditions precedent laid down
therefore in Section 141 of the Act stand satisfied. For
the aforementioned purpose, a strict construction
would be necessary.
13. The purported averments which have been
made in the complaint so as to make the appellant
vicariously liable for the offence committed by the
Company read as under:
"That the accused No. 1 is a public
limited company incorporated and
registered under the Companies Act,
1956, and the accused 2 to 8 are/ were
its Directors at the relevant time and
the said company is managed by the
Board of Directors and they are
responsible for the incharge of the
conduct and business of the company -
Accused No. 1. However, cheques
referred to in the complaint have been
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signed by the Accused No. 3 & 8 i.e.
Shri K.K. Pilania and Shri N.K. Munjal for
and on behalf of the Accused Company
No. 1."
14. Apart from the Company and the appellant, as
noticed hereinbefore, the Managing Director and all
other Directors were also made accused. The
appellant did not issue any cheque. He, as noticed
hereinbefore, had resigned from the Directorship of
the Company. It may be true that as to exactly on
what date the said resignation was accepted by the
Company is not known, but, even otherwise, there is
no averment in the complaint petitions as to how and
in what manner the appellant was responsible for the
conduct of the business of the Company or otherwise
responsible to it in regard to its functioning. He had
not issued any cheque. How he is responsible for
dishonour of the cheque has not been stated. The
allegations made in paragraph 3, thus, in our opinion
do not satisfy the requirements of Section 141 of the
Act."
12. So far as the averments made in the complaint which was
considered by the Apex Court in Sabita Ramamurthy vs. R.B.S.
Chhanawasvaradhya (2006) 10 SCC 581 are concerned, the
complainant had merely stated that the accused being the
company, all directors were responsible for the clearance of the
liability under section 141 of the Act and their acts and deeds were
punishable under section 138 of the Act. In this background, it was
held by the Apex Court that vicarious liability under section 141 of
the Act could be inferred only if the requisite statements which are
required to be averred in the complaint petition are made so as to
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make the accused person vicariously liable for the offence
committed by the company.
13. In (2008) 8 SCC 278 Green Earth Asphalt and Power Pvt.
Ltd. vs. State of Maharashtra & Ors, the high court had
quashed proceedings even against the respondent no. 2 firm and
the authorised signatory of the firm in which he had signed the
cheque. It was in this background held those partners which were
in charge of the affairs of the firm and responsible to it could be
proceeded against under section 141.
14. In (2009) 9 SCALE 455 Yugesh Sehgal vs. Shamsher
Singh Yoji, the complainant had filed a complaint under section
138 of the Negotiable Instrumetns Act, 1881 against four accused
persons. Para 3 of the complaint clearly stated that the cheque in
question was issued from an account which was non-existent on the
date when it was issued or that the account from where the cheque
was issued pertained to someone else. Since, as per the
complainant's own pleadings, the bank account from where the
cheque had been issued was not held in the name of the appellant
who was seeking quashing of proceedings under section 482 of
CrPC in this case, it was held that one of the requisite ingredients of
section 138 of the Negotiable Instruments Act was not satisfied and,
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therefore, continuance of the further proceedings in the complaint
against appellant/accused under section 138 of the NI act would be
an abuse of process of court. The Apex Court thus set aside the
order of the high court declared such a case to be a fit case wherein
the high court should exercise jurisdiction under section 482 of
CrPC.
15. A recent pronouncement of the Apex Court reported at 2009
(9) SCALE 87 K.K. Ahuja Vs. V.K. Vohra and Anr. is relevant on
the issues raised. On a consideration of the entire law laid down by
the Apex Court has laid down the applicable principles thus:-
8. In Saroj Kumar Poddar v. State (NCT of Delhi)
MANU/SC/0711/2007 : 2007CriLJ1419 , while dealing
with an appeal against the refusal to quash the order
taking cognizance, by an Ex-Director who had resigned
from the Board prior to the date of issuance of the
cheque, this Court held that making some bald
averment was not sufficient. In that case, the
complaint contained the following averments:
"That Accused 1 is a public limited company
incorporated and registered under the
Companies Act, 1956, and Accused 2 to 8
are/were its Directors at the relevant time
and the said Company is managed by the
Board of Directors and they are responsible
for and in charge of the conduct and
business of the Company, Accused 1.
However, cheques referred to in the
complaint have been signed by Accused 3
and 8 for and on behalf of Accused 1
Company."
In spite of the averment that accused were Directors
at the relevant time and were responsible for and in
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charge of the conduct of the business of the company,
this Court held that allegations in the complaint, even
if taken to be correct in their entirety, did not disclose
any offence by the appellant, on the following
reasoning:
"Apart from the Company and the appellant,
as noticed hereinbefore, the Managing
Director and all other Directors were also
made accused. The appellant did not issue
any cheque. He, as noticed hereinbefore, had
resigned from the Directorship of the
Company. It may be true that as to exactly on
what date the said resignation was accepted
by the Company is not known, but, even
otherwise, there is no averment in the
complaint petitions as to how and in what
manner the appellant was responsible for the
conduct of the business of the Company or
otherwise responsible to it in regard to its
functioning. He had not issued any cheque.
How he is responsible for dishonour of the
cheque has not been stated. The allegations
made in paragraph 3, thus, in our opinion do
not satisfy the requirements of Section 141 of
the Act.
(emphasis supplied)
9. In two subsequent decisions - SMS Pharmaceuticals
v. Neeta Bhalla MANU/SC/7125/2007 : (2007)4SCC70
[for short 'SMS Pharma (II)'] and Everest Advertising
(P) Ltd. v. State, Govt. of NCT of Delhi
MANU/SC/1767/2007 : 2007CriLJ2442 , relating to
complaints against Directors of a company, the very
same two-Judge Bench which decided Saroj Kumar
Poddar, clarified that the observations therein that
`the complaint should contain averments as to how
and in what manner the accused was responsible for
the conduct of the business of the company, or
otherwise responsible for its functioning' were with
reference to the particular facts of that case and
should not be considered as a general proposition of
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law. But latter decisions dealing with liability of
directors - N.K. Wahi v. Shekhar Singh
MANU/SC/1198/2007 : AIR2007SC1454 , DCM Financial
Services Ltd. v. J. N. Sareen MANU/SC/7699/2008 :
2008CriLJ3178 , and Ramraj Singh v. State of MP (a
decision of a Bench of three Judges)
MANU/SC/0593/2009 : 2009(5)SCALE670 , have
reiterated the principle laid down in Saroj Kumar
Poddar. The prevailing trend appears to require the
complainant to state how a Director who is sought to
be made an accused, was in charge of the business of
the company, as every director need not be and is not
in charge of the business of the company. If that is the
position in regard to a director, it is needless to
emphasise that in the case of non-director officers,
there is all the more the need to state what his part is
with regard to conduct of business of the company and
how and in what manner he is liable.
xxx xxx xxx
11. The criminal liability for the offence by a company
under Section 138, is fastened vicariously on the
persons referred to in Sub-section (1) of Section 141 by
virtue of a legal fiction. Penal statutes are to be
construed strictly. Penal statutes providing
constructive vicarious liability should be construed
much more strictly. When conditions are prescribed for
extending such constructive criminal liability to others,
courts will insist upon strict literal compliance. There is
no question of inferential or implied compliance.
Therefore, a specific averment complying with the
requirements of Section 141 is imperative. As pointed
out in K. Srikanth Singh v. North East Securities Ltd.
2007 (12) SCC 788, the mere fact that at some point of
time, an officer of a company had played some role in
the financial affairs of the company, will not be
sufficient to attract the constructive liability under
Section 141 of the Act.
12. Sub-section (2) of Section 141 provides that a
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Director, Manager, Secretary or other officer, though
not in charge of the conduct of the business of the
company will be liable if the offence had been
committed with his consent or connivance or if the
offence was a result of any negligence on his part. The
liability of persons mentioned in Sub-section (2) is not
on account of any legal fiction but on account of the
specific part played - consent and connivance or
negligence. If a person is to be made liable under Sub-
section (2) of Section 141, then it is necessary to aver
consent and connivance, or negligence on his part.
14. The words "every person who, at the time of the
offence was committed, was in charge of, and was
responsible for the conduct of the business of the
company" occurs not only in Section 141(1) of the Act
but in several enactments dealing with offences by
companies, to mention a few - Section 278B of the
Income Tax Act, 1961, Section 22C of Minimum Wages
Act, 1948, Section 86A of the Employees State
Insurance Act, 1948, Section 14A of Employees
Provident Fund and Miscellaneous Provisions Act,
1952, Section 29 of Payment of Bonus Act, 1965,
Section 40 of The Air (Prevention and Control of
Pollution) Act, 1981 and Section 47 of Water
(Prevention and Control of Pollution) Act, 1974. But
neither Section 141(1) of the Act, nor the pari materia
provisions in other enactments give any indication as
to who are the persons responsible to the company, for
the conduct of the business of the company. Therefore,
we will have to fall back upon the provisions of
Companies Act, 1956 which is the law relating to and
regulating companies. Section 291 of the said Act
provides that subject to the provisions of that Act, the
Board of Directors of a company shall be entitled to
exercise all such powers, and to do all such acts and
things, as the company is authorised to exercise and
do. A company though a legal entity can act only
through its Board of Directors. The settled position is
that a Managing Director is prima facie in charge of
and responsible for the company's business and affairs
and can be prosecuted for offences by the company.
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But insofar as other directors are concerned, they can
be prosecuted only if they were in charge of and
responsible for the conduct of the company's business.
A combined reading of Sections 5 and 291 of
Companies Act, 1956 with the definitions in clauses
(24), (26), (30), (31), (45) of Section 2 of that Act
would show that the following persons are considered
to be the persons who are responsible to the company
for the conduct of the business of the company :
(a) the managing director/s;
(b) the whole-time director/s;
(c) the manager;
(d) the secretary;
(e) any person in accordance with whose
directions or instructions the Board of
directors of the company is accustomed to
act;
(f) any person charged by the Board with the
responsibility of complying with that provision
(and who has given his consent in that behalf
to the Board); and
(g) where any company does not have any of the
officers specified in clauses (a) to (c), any
director or directors who may be specified by
the Board in this behalf or where no director is
so specified, all the directors.
It follows that other employees of the company, cannot
be said to be persons who are responsible to the
company, for the conduct of the business of the
company.
15. Section 141 uses the words "was in charge of, and
was responsible to the company for the conduct of the
business of the company". It is evident that a person
who can be made vicariously liable under Sub-section
(1) of Section 141 is a person who is responsible to the
company for the conduct of the business of the
company and in addition is also in charge of the
business of the company. There may be many
directors and secretaries who are not in charge of the
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business of the company at all. The meaning of the
words "person in charge of the business of the
company" was considered by this Court in Girdhari Lal
Gupta v. D.N. Mehta MANU/SC/0487/1971 :
[1971]3SCR748 followed in State of Karnataka v.
Pratap Chand MANU/SC/0237/1981 : 1981CriLJ595 and
Katta Sujatha v. Fertiliser & Chemicals Travancore Ltd.
MANU/SC/0897/2002 : (2002)7SCC655 . This Court held
that the words refer to a person who is in overall
control of the day to day business of the company. This
Court pointed out that a person may be a director and
thus belongs to the group of persons making the policy
followed by 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 be in charge of only
some part of the business.
16. Therefore, if a person does not meet the first
requirement, that is being a person who is responsible
to the company for the conduct of the business of the
company, neither the question of his meeting the
second requirement (being a person in charge of the
business of the company), nor the question of such
person being liable under Sub-section (1) of Section
141 does not arise. To put it differently, to be
vicariously liable under Sub-section (1) of Section 141,
a person should fulfill the 'legal requirement' of being a
person in law (under the statute governing companies)
responsible to the company for the conduct of the
business of the company and also fulfill the 'factual
requirement' of being a person in charge of the
business of the company.
17. Therefore, 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' (listed in para 14 above),
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then merely by stating that 'he was in charge of the
business of the company' or by stating that 'he was in
charge of the day to day management of the company'
or by stating that he was in charge of, and was
responsible to the company for the conduct of the
business of the company', he cannot be made
vicariously liable under Section 141(1) of the Act.
18. It should, however, be kept in view that even an
officer who was not in charge of and was responsible
to the company for the conduct of the business of the
company can be made liable under Sub-section (2) of
Section 141. For making a person liable under Section
141(2), the mechanical repetition of the requirements
under Section 141(1) will be of no assistance, but there
should be necessary averments in the complaint as to
how and in what manner the accused was guilty of
consent and connivance or negligence and therefore,
responsible under Sub-section (2) of Section 141 of the
Act.
19. Another aspect that requires to be noticed is that
only a Director, Manager, Secretary or other officer can
be made liable under Sub-section (2) of Section 141.
But under Sub-section (1) of Section 141, it is
theoretically possible to make even a person who is
not a director or officer, liable, as for example, a
person falling under category (e) and (f) of Section 5 of
Companies Act, 1956. When in SMS Pharma (I), this
Court observed that 'conversely, a person not holding
any office or designation in a company may be liable if
he satisfies the requirement of being in charge of and
responsible for conduct of the business of the
company', this Court obviously had in mind, persons
described in clauses (e) and (f) of Section 5 of
Companies Act. Be that as it may.
20. The position under Section 141 of the Act can be
summarized thus :
(i) xxx xxx xxx
(ii) xxx xxx xxx
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(iii) In the case of a Director, Secretary or Manager (as
defined in Section 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.
(iv) Other Officers of a company can not 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.
(Underlining supplied)
16. So far as the expressions "neglect", "consent" and
"connivance" are concerned, the same have been described in the
legal glossary of the Government of India thus:
"Neglect: to disregard; to pay little or no attention
to; to fail to perform, render, discharge (a duty) to
take (a precaution).
Consent: a concurrence of will
Connivance: passive consent; a corrupt or guilt
assent to wrong doing not involving actual
participation in it, but implying knowledge of and
failure to prevent or oppose it"
These meanings would guide the consideration of the acts and
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omissions attributed to the petitioner under sub-section 2 of Section
141 of the statute.
17. Before this court, the respondent has not only described the
petitioner as a director of the company but the complaint makes a
specific allegation that the petitioner along with the other accused
persons approached and transacted with the complainant for the
purchase of software items; the accused persons (which included
the petitioner arrayed as accused person no.4 in the complaint)
issued cheques to the complainant; that the accused persons never
had any intention of making payment to the complainant for the
purchase of the software; the accused nos.2 to 5 (including the
present petitioner) have fraudulently induced the complainant to
supply software without the intention of making payment, thereby
leading to financial loss to the complainant; the legal notice dated
17th August, 2003 was sent on 18th August, 2003 on behalf of the
complainant to all the accused persons which asked them to make
payment of the amount of cheque. Despite receipt of the legal
notice, the accused persons (including the petitioner), have not
made any payment towards the amount of the cheques to the
complainant within fifteen days from the receipt of the legal notice
and consequently have committed the offence of dishonour of
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cheques under Section 138/141 of the Negotiable Instruments Act,
1881. It has been specifically averred in para 6 of the complaint
that the petitioner as well as the other accused are principal officers
of the accused company and are responsible for the conduct of its
business. It is urged that the accused persons have with the
consent and connivance of one another, committed the said
offences. In para 6 noticed hereinabove, the respondent has made
a specific averment that accused nos.2 to 5 have actively
participated in the transaction with the complainant in their
capacity as principal officers of the company.
So far as the cause of action for filing the complaint is
concerned, in para 7 of the complaint, the complainant has stated
that the cause of action arose when the cheques were dishonoured
and on the failure to make the payment to the complainant within
the stipulated period of 15 days from the receipt of the legal notice
by the accused person.
18. From the above it appears that the respondent-complainant
has not merely reproduced the words of the statute merely but has
actually attributed certain acts of commission and omission against
the petitioner. Apart from the averment that the petitioner is a
director, it has been specifically averred that the petitioner
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negotiated and participated in the dealings and transactions with
the complainant. It has also been contended that despite the
service of the legal notice upon the petitioner, the petitioner has
failed to make payment of the same. In addition to the above, it
has been urged that the offence alleged by the company has been
committed with the consent and connivance of the accused nos.2 to
5 with one another. No reply was even sent by the petitioner to
the legal notice.
19. It needs no elaboration that while testing the maintainability of
a complaint on the ground that it fails to disclose any commission of
offence or the order of summoning by the trial court, it is trite that
the complaint has to be examined and the averments made therein
have to be taken as true at their face value.
20. The pleas taken up by the petitioner are undoubtedly in the
nature of defence which could be urged before the trial court.
However on a consideration of the allegations made in the
complaint taken at the face value as noted hereinabove, the
complaint filed by the petitioner is one in which the necessary
averments attracting the applicability of section 138 and 141 of the
Negotiable Instruments Act are made out.
The present case challenges a summoning order. In view of
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the principles laid down in para 17 of K.K. Ahuja Vs. V.K. Vora &
Anr. (supra), the challenge in the instant case is misconceived.
21. Yet another submission urged on behalf of the petitioner
deserves to be considered. It is contended that the respondent has
arrived at a settlement and in this behalf on 7th October, 2005, an
amount of Rs.1 lakh has been received before the trial court by way
of a demand draft. Learned counsel for the respondent/complainant
has explained that a settlement was being explored with Sh. Anoop
Sareen and Shri Rajeev Goel who were arrayed as accused person
nos. 2 and 3. No settlement was ever contemplated or negotiated
with the present petitioner. No payment has been made or
received from the petitioner. No details of any settlement have also
been placed on record. In this background, settlement, if any, with
any of the other accused persons would not assist the petitioner in
any manner.
22. So far as a settlement is concerned, the legal principles which
govern the same have been succinctly stated by this court in the
pronouncement reported at 106 (2003) DLT 708 Jindal Aromatic
vs. South Spices Exports Pvt. Ltd. in the following terms :-
"23. The legal position which emerges from the
aforesaid judgment is that an accord discharges the
performance of obligations under the contract. A
dispute pertaining to satisfaction furnishes a fresh
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and independent cause of action, until and unless it is
provided that the performance of the satisfaction was
a condition precedent for discharge under the
contract. If promise is received in satisfaction, it is a
good satisfaction, but if the performance and not the
promise is intended to operate in satisfaction, then
there will be no satisfaction without performance.
Wherever there is an accord, obligations under the
original contract would be discharged until and
unless it is specifically provided that the performance
of the satisfaction would discharge the obligations
under the contract."
23. The plea of a petitioner that the respondent-complainant had
arrived at a settlement and received payment of amounts as well
pursuant thereto meriting quashing of the criminal complaint
therefore is contrary to the well settled principle on this issue.
Apart from the fact that whether an accord having been arrived at
between the parties would amount to discharge of performance of
obligations under the contract between them and whether the same
could discharge the criminal liability for commission of an offence
under the Negotiable Instruments Act is a separate issue. The
question which requires to be considered is as to whether there was
any settlement of the original cause based whereon the complaint
was filed. In the instant case, there is nothing on record to show
that the parties had arrived at any settlement or the terms of
accord if any, between the parties.
From the above, it is also evident that a mere plea of a
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settlement would not ipso facto lead to a conclusion that the
original cause is therefore brought to an end. The accord or the
terms of the settlement have to be placed and examined. The
intent of the parties is required to be determined from a scrutiny
thereof. It has to be ascertained as to whether the parties intended
the accord by itself to bring the disputes to an end or the
satisfaction of the terms thereof which would do so.
24. In the instant case no accord or terms or conditions of any
settlement have been placed on record. There is nothing on record
to show discharge of even the civil liability by any accord or terms
or conditions thereof. In this background, the submission that there
was a settlement which could defeat the maintainability of the
criminal proceedings is factually baseless and devoid of legal merit.
25. In support of the plea that the present petition is highly
belated, learned counsel for the respondent has drawn my attention
to the pronouncement of this court reported at 2007 (4) JCC (NI)
364 Ramji Lal vs. Anant Yadav (since expired) in this case, the
court had refused to exercise inherent powers under section 482 of
the CrPC for quashing of a complaint case which was pending for
trial for more than five years holding that the petition for quashing
was an abuse of the process of law which was dismissed with costs.
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26. Again in 2007 (4) JCC 3083 Krishna Dvivedi vs. Sunder
Kr., this court held that the plea taken in the petition for quashing
of the criminal complaint was really in the nature of the defence of
the petitioner which he could take during the trial and that this
court was not the forum to conduct the trial between the parties. It
was also observed that the order of summoning was passed more
than two years before the challenge thereto and that there was no
explanation for the delay. In these circumstances, again the
petition under section 482 of the CrPC seeking quashing of the
prosecution was allowed.
27. Before this court, the matter has been pending before the trial
court since 2003 and a challenge has been laid to the proceedings
only in 2007. There is no explanation at all for the delay which has
ensued.
28. The last submission on behalf of the petitioner was that he has
been wrongly described as Nitin Meshram in the complaint whereas
his correct name is Nitin Mishra. So far as this submission is
concerned, it is noteworthy that in addition to the name, the
complaint has indicated that the petitioner arrayed as respondent
no.5 was the director of the firm. The petitioner has rightly
understood that the reference was to him and has made no
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objection after he was summoned to stand trial in the case. The
petitioner accepted the summons as described in the complaint and
applied for bail. No dispute as to identity has been raised at any
time before the trial court where the complaint has remained
pending since 2003.
29. In view of the above discussion, it is held that in the instant
case, the complaint does not deserve to be rejected at the outset
and the complainant is required to be given an opportunity to
establish its case.
For all these reasons this petition is dismissed with costs which
are quantified at Rs.20,000/-.
30. It is made clear that nothing herein contained is an expression
of opinion on the merits of the allegations in the complaint.
September 22, 2009 Gita Mittal, J.
aa
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