Gujarat High Court
Sadashiv Bhikhaji Puchpute & 5 vs State Of Gujarat & on 5 May, 2017
Author: J.B.Pardiwala
Bench: J.B.Pardiwala
R/CR.MA/32759/2016 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
CRIMINAL MISC.APPLICATION (FOR QUASHING & SET ASIDE
FIR/ORDER) NO. 32759 of 2016
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SADASHIV BHIKHAJI PUCHPUTE & 5....Applicant(s)
Versus
STATE OF GUJARAT & 1....Respondent(s)
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Appearance:
MR PRATIK B BAROT, ADVOCATE for the Applicant(s) No. 1 - 6
MR ANKIT Y BACHANI, ADVOCATE for the Respondent(s) No. 2
MR HRIDAY BUCH, ADVOCATE for the Respondent(s) No. 2
MS NISHA THAKORE, APP for the Respondent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA
Date : 05/05/2017
ORAL ORDER
1. By this application under Section482 of the Code of Criminal Procedure, 1973, the applicants original accused persons seek to invoke the inherent powers of this Court praying for quashing of the proceedings of the Criminal Case No.1907 of 2016 pending before the Court of the learned Chief Judicial Magistrate, Surendranagar, arising from the complaint filed under Section138 of the N.I. Act for the dishonour of the cheques.
2. It appears from the materials on record that the applicants herein have been arraigned as an accused in their capacity as the Directors of the Shree Sai Krupa Sugar & Allied Industries Limited. They are sought to be held vicariously liable by virtue of Section141 of the Negotiable Instrument Act.
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3. The principal argument of the learned counsel appearing for the applicants is that in the complaint, there are no basic averments that at the time of commission of the offence, the applicants being the Directors of the Company were in daytoday affairs and management of the company. According to the learned counsel, in the absence of any specific averment in this regard, supported by some materials, the applicants cannot be put on trial for the offence under Section138 of the N.I. Act by taking aid of Section141 of the Act. In such circumstances referred to above, it is prayed that there being merit in this application, the same be allowed and the proceedings be quashed so far as the applicants are concerned.
4. On the other hand, this application has been vehemently opposed by Mr. Buch, the learned counsel appearing for the complainant. He submits that the complaint gave a sufficient indication that the applicants herein being the Directors of the Company have played an important role so far as the transaction is concerned. Mr. Buch invited my attention to a Page47, which is resolution passed in the meeting of the Board of Directors. The resolution reads as under: Shri Saikrupa Sugar TRUE COPY OF RESOLUTAION PASSED IN THE MEETING OF THE BOARD OF DIRECTORS OF THE COMPANY HELD ON 18th NOVEMBER, 2015 AT 5:00 PM AT THE REGISTERED OFFICE 6 - ANNASAHEN MAGAR COMPLEX, MARKET YARD PUNE - 411 037.
To delegate the power to the Managing Director and Chairman for signing the agreement with M/s Dungarmal Dhanraj & Co.238 - 242, 2nd Floor, Mega Mall, Near Milan Cinema, Surendranagar (Gujarat).
"Resolved that the Shri Saikrupa Sugar and Alleid Industries Ltd., Hiradgaon Unit agreed to Receive advance payment from Dungarmal Dhanraj & Co., Page 2 of 20 HC-NIC Page 2 of 20 Created On Wed Aug 16 06:06:01 IST 2017 R/CR.MA/32759/2016 ORDER Mehta Market, Surendranagar, Ahmedabad (Gujarat) for sale of Sugar on execution of agreement with the buyer i.e. Dungarmal Dhanraj & Co. 238 242, 2nd Floor Mega Mall, Near Milan Cinema, Surendranagar (Gujarat State)"
"Further Resolved that, Shri Rajkumar Sudhamrao Dhamdhere, Managing Director is hereby Authorized to execute agreement and related documents with Dungarmal Dhanraj & Co. 238242, 2nd Floor, Mega Mall, Milan Cinema, Surendranagar (Gujarat State) for the payment to be Advance for the supply of sugar."
5. According to Mr. Buch, the applicants herein in the meeting convened on 18/11/2015 delegated the power to the Managing Director and the Charmian for signing the agreement with the complainant. Mr. Buch, thereafter, invited my attention to the agreement, which is Page 39 and more particularly, Clause10 thereof, which reads as under:
10. Chairman Mr. Vikram Babanrao Pachpute and the Managing Director Mr. Rajkumar Sudamrao Dhamdhere of the FIRST PART have given affidavit cum undertaking that upon failure in performance by the FIRST PART, they will do the needful to repay the payment and the losses to the SECOND PART in their personal liability and upon failure by them to do so the SECOND PART can enforce attachment to the properties of the FIRST PART alongwith Directors and in such case FIRST PART can not take any type of objection outside or within the Court.
6. In such circumstances referred to above, Mr. Buch prays that there is no merit in this application, the same is rejected.
7. Having heard the learned counsel appearing for the parties and having considered the materials on record, the only question that falls for my consideration is whether the proceedings should be quashed so far as the applicants are concerned.
8. In the complaint, the following has been averred : (1) That M/s. Dungarmal Dhanraj & Co. is a proprietorship Page 3 of 20 HC-NIC Page 3 of 20 Created On Wed Aug 16 06:06:01 IST 2017 R/CR.MA/32759/2016 ORDER concern having its registered office at the address cited above and is represented by its proprietor Mr. Lalit Dhanraj Kella, present complainantcompany is engaged in the business of wholesale sugar trading and supply to the bulk consumers and accused no.1 is Limited Company, Accused No.2 is a Chairman of said Company, and accused No.3 Managing Director of the Company and accused No.4 to 9 are Directors of the Company. Accused are engaged in the business of processing sugarcane into Sugar and sale of Sugar. It is stated that the factory of accused is situated at Po. Hiradgaon, Tal. Shrigonda, Dist. Ahmednagar - 413701 (Maharashtra). In view of the nature of business engaged by accused, the accused had approached present complainantcompany for sale of 2500MT of Sugar S/30 in 50Kg. PP Bag of the coming production year 201516 at the rate of Rs.2000/ per quintal as specified as per agreement dated 04122015 which is entered into for the quantity of 2500 MT between parties, i.e. accused and present complainantcompany At. Surendranagar. As per the said agreement, the delivery of goods was to commence w.e.f. February - 2016 and it was accordingly agreed by accused and hence, it was responsibility of accused to make delivery of goods as per the terms mentioned in agreement.
(2) An agreement has been executed between the parties and as per the conditions No.3, it is agreed that even if delivery of single bag is given short to present complainantcompany, it will be considered as the failure of performance by accused. In such circumstances, it will be personal liability of all accused and the Company Chairman, Managing Directors as well as Directors and Additional Director can also be liable for the same.
It is stated that accused have not supplied goods at all to present complainantcompany as per the terms of the agreement, and accused have failed to comply terms of agreement.
(3) The said agreement also contains details relating to the cheques given by accused to present complainantcompany in Condition No.3. The said condition clearly mentions that if single beg is given short by accused, it will be considered as failure of performance. Since accused have failed to company with the said agreement, present complainant company had informed the accused often and often time by letters and Email about failure of performance on accused part, but thereafter accused had not taken care to give reply to present complainant company and accused had failed to comply with the same and hence, present complainantcompany was left with no option but to deposit the said cheques for encashment on 27/6/2016.
(4) It is stated that as per the terms of agreement present complainant company had paid in advance sum of Rs.5,00,00,000/ Page 4 of 20 HC-NIC Page 4 of 20 Created On Wed Aug 16 06:06:01 IST 2017 R/CR.MA/32759/2016 ORDER (Rupees Five Crore Only) through Bank. However, accused have not supplied the goods as per agreement and accused have failed to comply the terms of agreement and therefore all accused are liable to pay total sum of Rs.10,00,00,000/ (Rupees Ten Crores Only) and present complainantcompany is entitled to encahs the cheques given by accused and hence present complainantcompany had deposited Cheque No.186317 of Rs.5,00,00,000/ (Rupees Five Crore Only) and Cheque No.186318 of Rs.5,00,00,000/ (Rupees Five Crore Only) issued by you of Bank of India which have been dishonoured. There is legal dues of present complainant company and accused are bound to pay such amount however accused have failed to do so accused were very well aware that present complainantcompany are entitled to get Rs.10 Crore from accused and accused were also well aware that present complainantcompany may deposit the cheques issued by accused for satisfaction of dues. However accused have intentionally not kept sufficient fund in Bank account and accused have committed criminal breach of trust and all accused are liable to be prosecuted under the Provisions of Negotiable Instrument Act.
(5) Accordingly, present complainantcompany deposited cheques bearing Nos.186317 and 186318, Rs.5,00,00,000/ (Rupees Five Crore Only) each, and Rs.10,00,00,000/ (Rupees Ten Crore Only) intoto, drawn on the Bank of India, Shrigonda Branch, Ahmednagar (Maharashtra) issued by accused and duly signed by Chairman and Managing Director in favour of present complainantcompany, with his Bank, viz., Dena Bank and the said Bank has as per its Return Memo dated : 27/06/2016 returned the aforesaid cheques as dishonoured and unpaid with return memo endorsement as "Funds Insufficient." thus, the cheques issued by accused in favour of present complainantcompany have been dishonoured and bounced, which amounts to the offence under the Provisions of the Negotiable Instrument Act.
(6) Further the agreement in question is executed by the Chairman and Managing Director of accused company on the basis of the resolution passed by all the Directors and personal guarantee was also given by the Managing Directors of the Company and they have been served with legal notices for being part of the criminal conspiracy as well as for failure in fulfilling their commitment.
(7) It is stated that the complainantcompany sent the legal notice to accused, through registered posts as well as by way of courier service and also sent by email of accused email address. It is stated that the legal notice sent to the accused duly serve as the notice by the way of register post has been serve on Dt.13/07/2016. It is further stated that accused had not paid any amount of cheques and they have not comply with the notice and therefore present complainant Page 5 of 20 HC-NIC Page 5 of 20 Created On Wed Aug 16 06:06:01 IST 2017 R/CR.MA/32759/2016 ORDER company has constrain to file present complain against the accused.
It is stated that the aforesaid cheque dishonor due to the reason of "funds insufficient". It is stated that the accused party were well aware that there is dues and the present complainantcompany may deposit above mentioned cheques for the said dues, however the accused with malafide intention did not maintain sufficient balance and therefore the abovementioned cheques have been dishonored. It is also stated that present complainantcompany was inform by his bank and had informed that the cheques were dishonored due to the reason "funds insufficient". That the said intimation was received on dtd.27/06/2016. It is stated that the complainant herein had sent the notice to the accused within prescribed time by the law. It is also stated that proper opportunity for payment of cheque has been given to the accused, however they have failed to make payment and till date no such amount has been paid by the accused to the present complainantcompany.
(8) The cause of action has arisen when the cheques were dishonored and the accused had failed to make payment of aforesaid cheque amount within the stipulated period. It is submitted that all the transactions took place at the complainantcompany, and the cheques were presented by the complainantcompany with Dena Bank, Surendranagar, within the jurisdiction of this Hon'ble Court. So, this Hon'ble Court has jurisdiction to entertain, try and dispose of the complaint.
(9) The complainant, therefore, prays to this Hon'ble Court to register the complaint against the present accused and issue summons and warrants against the present accused and proceed against all the accused. It is humbly prayed that the accused may be convicted for the offence punishable under section 138 read with section 141 of the Negotiable Instrument Act. And be pleased to imposed heavy fine and the cheques amount Rs.10,00,00,000/ (Rupees Ten Crore Only) may be ordered to be paid to the complainant.
9. In a very recent pronouncement of the Supreme Court in the case of Standard Chartered Bank (supra), His Lordship Dipak Mishra, J. has very succinctly explained and discussed the issue in question after an exhaustive review of all earlier decisions of the Supreme Court on the point. I may quote the relevant observations made in paras 9 to 34 as under:
Page 6 of 20HC-NIC Page 6 of 20 Created On Wed Aug 16 06:06:01 IST 2017 R/CR.MA/32759/2016 ORDER "9. To appreciate the controversy in proper perspective, it is appropriate to refer to Sections 138 and 141 of the Act. Section 138 reads as follows: "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 bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may 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.
Explanation.For the purposes of this section, debt or other liability means a legally enforceable debt or other liability.
10 On a studied scrutiny of the aforesaid provision, it is quite limpid that to constitute the criminal liability the complainant is required to show that a cheque was issued; that it was presented in the bank in question; that on due presentation, it was dishonoured; that, as enshrined in the provision, requisite notice was served on the person who was sought to be made liable for criminal liability; and that in spite of service of notice, the person who has been arraigned as an accused did not comply with the notice by making payment or fulfilling other obligations within the prescribed period, that is, 15 days from the date of receipt of notice.
11. Section 141 of the Act deals with offences by companies. It reads as follows:
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 Page 7 of 20 HC-NIC Page 7 of 20 Created On Wed Aug 16 06:06:01 IST 2017 R/CR.MA/32759/2016 ORDER 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 subsection shall render any person liable to 9 punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence:
Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.
(2) Notwithstanding anything contained in subsection (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.
Explanation.For the purposes of this section (a) company means any body corporate and includes a firm or other association of individuals; and
(b) director, in relation to a firm, means a partner in the firm.
12 On a perusal of the aforesaid provision, it is clear as crystal that if the person who commits an offence under Section 138 of the Act is a company, the company as well as other person in charge of or responsible to the company for the conduct of the business of the company at the time of commission of the offence is deemed to be guilty of the offence. Thus, it creates a constructive liability on the persons responsible for the conduct of the business of the company.
13. At one point of time, an issue had arisen before this Court, whether a complaint could be held to be maintainable without making the company a party. The said controversy has been put to rest by a threeJudge Bench decision in Aneeta Hada v. Godfather Travels and Tours Private Limited6 wherein it has been held that when the company can be prosecuted, then only the persons mentioned in the other categories could be vicariously liable for the offence subject to the averments in the petition and proof thereof. It has been further held therein that there cannot be any vicarious liability unless there is a prosecution against the company. In the case at hand, the company has been arrayed as the accused No. 1 along with the Chairman and other Directors.
14 Now, we must go back in time to appreciate what has been stated in S.M.S. Pharma I (supra), wherein a threeJudge Bench answered a reference on three issues. The answers on two issues which are relevant Page 8 of 20 HC-NIC Page 8 of 20 Created On Wed Aug 16 06:06:01 IST 2017 R/CR.MA/32759/2016 ORDER for the present purpose are as follows:
(a) ..........
(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) 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 or 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.
15 The threeJudge Bench referred to Section 138 and 141 of the Act, Sections 203 and 204 of CrPC and observed that a complaint must contain material to enable the Magistrate to make up his mind for issuing process and if this were not the requirement, consequences would be farreaching. If a Magistrate has to issue process in every case, the burden of work before the Magistrate as well as the harassment caused to the respondents to whom process has to be issued would be tremendous. It has been observed therein that Section 204 of the CrPC commences with the words if in the opinion of the Magistrate taking cognizance of an offence there is sufficient ground for proceeding and that apart, the words sufficient ground for proceeding again suggest that ground should be made out in the complaint for proceeding against the respondent. The threeJudge Bench has ruled that 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 the allegations in the complaint or the chargesheet do not constitute an offence against a person, the complaint is liable to be dismissed.
16 After so stating, the Court adverted to the complaint filed under Section 138 of the Act and opined that the complaint should make out a case for issue of process. As far as the officers responsible for conducting the affairs of the company are concerned, the Court referred to various provisions of the Companies Act, 1956 and analysed Section 141 of the Act to lay down as follows: "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 the 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 Page 9 of 20 HC-NIC Page 9 of 20 Created On Wed Aug 16 06:06:01 IST 2017 R/CR.MA/32759/2016 ORDER not be liable under the provision. The liability arises from being in charge of and responsible for the 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 the 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."
17 After so stating, the Court placed reliance on subSection 2 of Section 141 of the Act for getting support of the aforesaid reasoning as the said subSection envisages direct involvement of any Director, Manager, Secretary or other officer of a company in the commission of an offence. The Court proceeded to observe that the said provision 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 the offices in a company. It has also been observed that provision has been made for directors, managers, secretaries and other officers of a company to cover them in cases of their proved involvement. It is because a person who is in charge of and responsible for conduct of business of a company would naturally know why a cheque in question was issued and why it got dishonoured and simultaneously it means no other person connected with a company is made liable under Section 141 of the Act. The liability arises, as the threeJudge Bench opined, on account of conduct, act or omission on the part of an officer and not merely on account of holding office or position in a company and, therefore, in order to bring a case within Section 141 of the Act, the complaint must disclose the necessary facts which makes a person liable. In the said case, the Court has referred to the decisions in Secunderabad Health Care Ltd. v. Secunderabad Hospitals (P) Ltd. [1999 (96) Comp Case 106], V. Sudheer Reddy v. State of A.P.[2000 (107) Comp Case 107], R. Kanan v. Kotak Mahindra Finance Ltd. [2003 (115) Comp Case 321], Lok Housing ad Constructions Ltd. v. Raghupati Leasing and Finance Ltd [2003 (115) Comp Case 957], Sunil Kumar Chhaparia v. Dakka Eshwaraiah [2002 (108) Comp Case 687], State of Haryana v. Brij Lal Mittal [1998 (5) SCC 343], K.P.G. Nair v. Jindal Menthol India Ltd. [2001 (10) SCC 218], Katta Sujatha v. Fertilizers & Chemicals Travancore Ltd. [2002 (7) SCC 655] and eventually expressed thus: Page 10 of 20 HC-NIC Page 10 of 20 Created On Wed Aug 16 06:06:01 IST 2017 R/CR.MA/32759/2016 ORDER "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 the respondent falls within the 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 nondirector 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."
18 On the basis of the aforesaid analysis, the Court in this regard concluded that: "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."
19 After the threeJudge Bench answered the reference, the matter was placed before a twoJudge Bench. The twoJudge Bench, hearing S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and another [2007 (4) SCC 70] (hereinafter referred to as SMS Pharma II), reproduced a passage from Sabitha Ramamurthy v. R.B.S. Channabasavaradhya [2006 (10) SCC 581] which reads as follows: "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 therefor.
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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 with the statutory requirements would be insisted."
20 Thereafter the Court referred to the authority in Saroj Kumar Poddar v. State (NCT of Delhi) and another [2007 (3) SCC 693] and noted the observations which we think it apt to reproduce: "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 para 3, thus, in our opinion do not satisfy the requirements of Section 141 of the Act."
21. The said observations were clarified by stating that: "26. A faint suggestion was made that this Court in Saroj Kumar Poddar (supra) has laid down the law that the complaint petition not only must contain averments satisfying the requirements of Section 141 of the Act but must also show 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. A plain reading of the said judgment would show that no such general law was laid down therein. The observations were made in the context of the said case as it was dealing with a contention that although no direct averment was made as against the appellant of the said case fulfilling the requirements of Section 141 of the Act but there were other averments which would show that the appellant therein was liable therefor."
22 The said clarification was reiterated in Everest Advertising (P) Ltd. v. State, Govt. of NCT of Delhi and others18.
23 In the said case, taking note of the assertions in the complaint which were really vague, the Court declined to interfere with the order passed by the High Court which had opined that the complainant did not disclose commission of offence against the accused persons.
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24 Be it noted, the observations made in Saroj Kumar Poddar (supra) and clarification given in SMS Pharma II (supra) and Everest Advertising (P) Ltd. (supra) were taken note of in K.K. Ahuja v. V.K. Vora and Anr 2009 (10) SCC 48]. In the said case, the Court explaining the position under Section 141 of the Act has stated thus: "The position under Section 141 of the Act can be summarised 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 subsection (2) of Section 141.
(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 the 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) of the Act. 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 cannot be made liable under sub section (1) of Section 141. Other officers of a company can be made liable only under subsection (2) of Section 141, by 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."
25 In Harmeet Singh Paintal (supra), a twoJudge Bench did not agree with the stand of the appellant, emphasized on the averments and found that in the complaint petition there were no specific averments and, accordingly, dismissed the appeal filed by the Page 13 of 20 HC-NIC Page 13 of 20 Created On Wed Aug 16 06:06:01 IST 2017 R/CR.MA/32759/2016 ORDER appellantCorporation therein. The Court in paragraphs 17 and 18 of the judgment reproduced the part of the complaint. We have carefully perused the said averments in the claim petition and we are of the opinion that there cannot be any shadow of doubt that the assertions made therein did not meet the requirements of Section 141 of the Act.
26 In A.K. Singhania (supra), after referring to the previous judgments, the Court found that it was difficult to infer that there was any averment that the two accused persons who had come to this Court, were in charge and responsible for the conduct of the business of the Company at the time the offence was committed. The allegation in the complaints in sum and substance was that business and financial affairs of the Company used to be decided, organized and administered by accused persons along with other Directors.
27 In Gunmala Sales Pvt. Ltd. (supra) the Court was concerned with Directors who issued the cheques. This authority, as we notice, has to be appositely understood. The twoJudge Bench referred to SMS Pharma I and other earlier decisions, and came to hold that: "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 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 an abuse of 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 incontrovertible material or acceptable circumstances to substantiate his contention. He must make out a case that making him stand the trial would be an abuse of 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 Page 14 of 20 HC-NIC Page 14 of 20 Created On Wed Aug 16 06:06:01 IST 2017 R/CR.MA/32759/2016 ORDER 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." [Emphasis supplied] 28 After so stating, the Court proceeded to summarise its conclusions, appreciated the averments made in the complaint petition and opined thus: ".....Pertinently, in the application filed by the respondents, no clear case was made out that at the material time, the Directors were not in charge of and were not responsible for the conduct of the business of the Company by referring to or producing any incontrovertible or unimpeachable evidence which is beyond suspicion or doubt or any totally acceptable circumstances. It is merely stated that Sidharth Mehta had resigned from the directorship of the Company on 309 2010 but no incontrovertible or unimpeachable evidence was produced before the High Court as was done in Anita Malhotra [2012 (1) SCC 520] to show that he had, in fact, resigned long before the cheques in question were issued. Similar is the case with Kanhaiya Lal Mehta and Anu Mehta. Nothing was produced to substantiate the contention that they were not in charge of and not responsible for the conduct of the business of the Company at the relevant time. In the circumstances, we are of the opinion that the matter deserves to be remitted to the High Court for fresh hearing. However, we are inclined to confirm the order passed by the High Court quashing the process as against Shobha Mehta. Shobha Mehta is stated to be an old lady who is over 70 years of age.
Considering this fact and on an overall reading of the complaint in the peculiar facts and circumstances of the case, we feel that making her stand the trial would be an abuse of process of court. It is however, necessary for the High Court to consider the cases of other Directors in light of the decisions considered by us and the conclusions drawn by us in this judgment."
29 We have referred to the aforesaid decision in extenso, as we are of the convinced opinion that the analysis made therein would squarely apply to the case at hand and it shall be clear when we reproduce certain passages from the complaint.
30 Prior to that, we may profitably refer to a twoJudge Bench decision in Tamil Nadu News Print & Papers Ltd. v. D. Karunakar and Others 2015 (8) Scale 733]. In the said case, the Court has referred to the decision rendered in S.M.S. Pharma I (supra) and, thereafter, taken note of the averments made in the complaint. Be it noted, in the said case it had been averred in the complaint petition that the accused Nos. 2 to 9 were Directors and were in day to day management of the accused company and in that context the Court has opined as follows: Page 15 of 20 HC-NIC Page 15 of 20 Created On Wed Aug 16 06:06:01 IST 2017 R/CR.MA/32759/2016 ORDER "Upon perusal of the complaint, we find that an averment has been made to the effect that Accused Nos.3 to 10 were in fact, incharge of the daytoday business of Accused No.1company."
31 We have referred to these decisions as they explicitly state the development of law and also lay down the duty of the High Court while exercising the power of quashing regard being had to the averments made in the complaint petition to attract the vicarious liability of the persons responsible under Section 141 of the Act.
32 Now, is the time to scan the complaint. Mr. Divan, learned senior counsel appearing for the appellantbank, has drawn our attention to paragraphs 2, 4 and 10 of the complaint petition. They read as follows: "2. I further say that I know the accused above named. The accused No.1 is a Company incorporated under the Companies Act, 1956 having its registered address as mentioned in the cause title. The accused Nos.2 to 7 are the Chairman, Managing Director, Executive Director and whole time Director and authorized signatories of accused No.1 respectively. As such being the Chairman, Managing Director, Executive Director and Whole Time Director were and are the persons responsible and in charge of day to day business of the accused No.1 viz.when the offence was committed. The accused Nos.6 and 7 being signatories of the cheque are aware of the transaction and therefore the accused Nos.2 to 7 are liable to be prosecuted jointly or severally for having consented and/or connived in the commission of present office in their capacity as the Chairman, Managing Director, Executive Director, Whole Time Director and authorized signatories of accused No.1, further the offence is attributable to accused Nos.2 to 7 on account of their neglect to ensure and make adequate arrangements to Honour the cheque issued by accused No.1 and further on account of the neglect of accused Nos.1 to 7 to comply with the requisition made in the Demand Notice issue under the provisions of Section 138(c) of the Negotiable Instruments Act within the stipulated period. The accused are therefore liable to be proceeded.
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4. I say that the Accused No. 1 through Accused Nos. 2 and 3 approached the Complainant Bank at its Branch situated at Mumbai for a Short Term Loan facility for a sum of Rs. 200 Crore to meet the expenditure of Four ORV vessels being built at ABG Shipyard. After verifying the documents submitted the Complainant Bank vide its sanction letter dated 28th April 2012 sanctioned the said Facility for the purpose mentioned therein. The said terms and conditions mentioned in the sanction letter dated 28th April 2012 were duly accepted by the Accused No. 1 by signing the same. Accused No.1 also agreed to pay interest at the negotiated rate by the Complainant bank.
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Hereto annexed the marked as Exhibit B is a copy of the said sanction letter dated 28th April 2012.
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10. I say that the accused Nos.1 to 7 were aware that the aforesaid cheque would be dishonoured for being Account Blocked and all the accused, in active connivance mischievously and intentionally issued the aforesaid cheques in favour of the complainant Bank.
33 The aforesaid averments, as we find, clearly meet the requisite test. It is apt to mention here that there are seven accused persons. Accused No.1 is the Company, accused Nos.2 and 3 are the Chairman and Managing Director respectively and accused Nos.6 and 7 were signatory to the cheques. As far as the accused Nos.4 and 5 were concerned, they were wholetime Directors and the assertion is that they were in charge of day to day business of the Company and all of them had with active connivance, mischievously and intentionally issued the cheques in question.
34 Thus, considering the totality of assertions made in the complaint and also taking note of the averments put forth relating to the respondent Nos. 2 and 3 herein that they are wholetime Director and Executive Director and they were in charge of day to day affairs of the Company, we are of the considered opinion that the High Court has fallen into grave error by coming to the conclusion that there are no specific averments in the complaint for issuance of summons against the said accused persons. We unhesitatingly hold so as the asseverations made in the complaint meet the test laid down in Gunmala Sales Pvt. Ltd. (supra).
10. In complaint, there are specific averments as regards the role played by the applicants herein so far as the work contract, which was assigned to the complainant is concerned. It is not as if the applicants herein are a complete alien to the company. Indisputably, they are one of the Directors of the company. On three places in the complaint, I find reference of the applicants in one way or the other.
11. In case of offence by company for the dishonour of cheque, the culpability of the Directors has to be decided with reference to Section 141 of the Act. The same reads as follows:
Page 17 of 20HC-NIC Page 17 of 20 Created On Wed Aug 16 06:06:01 IST 2017 R/CR.MA/32759/2016 ORDER "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 incharge 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 subsection shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence:
Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.
(2) Notwithstanding anything contained in subsection (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.
Explanation. For the purposes of this section,
(a) "company" means any body corporate and includes a firm or other association of individuals; and
(b) "director", in relation to a firm, means a partner in the firm."
12. From a plain reading of the aforesaid provision, it is evident that every person who at the time the offence was committed is in charge of and responsible to the Company shall be deemed to be guilty of the offence under Section138 of the Act. In the face of it, will it be necessary to specifically state in the complaint that the person accused was incharge of and responsible for the conduct of the business of the Company? In my opinion, in the case of offence by Company, to bring its Directors within the mischief of Section 138 of the Act, it shall be necessary to allege that they were incharge of and responsible to the Page 18 of 20 HC-NIC Page 18 of 20 Created On Wed Aug 16 06:06:01 IST 2017 R/CR.MA/32759/2016 ORDER conduct of the business of the Company. It is necessary ingredient which would be sufficient to proceed against such Directors. However, I may add that as no particular form is prescribed, it may not be necessary to reproduce exact the words of the section. If reading of the complaint shows and substance of accusation discloses the necessary averments, that would be sufficient to proceed against such of the Directors and no particular form is necessary. However, it may not be necessary to allege and prove that, in fact, such of the Directors have any specific role in respect of the transaction leading to the issuance of cheque. Section 141 of the Act makes the Directors in charge and responsible to Company "for the conduct of the business of the Company" within the mischief of Section 138 of the Act and not particular business for which the cheque was issued. One should not read more than what has been mandated in Section 141 of the Act. [See: A.K. Singhani vs. GSFC , 2014 Cri. L.J. 340].
13. In Mannalal Chmaria and another vs. State of West Bengal [2014 Cri. L.J. 2160], the Supreme Court, on the very same issue, made certain observations which are important for the purpose of deciding this application:
9. The law on the subject is now very wellsettled by a series of decisions rendered by this Court and it is not necessary to repeat the views expressed time and again. Suffice it to say, that the law has once again been stated in A. K. Singhania v. Gujarat State Fertilizer Company Ltd. [AIR 2014 SC 71 : 2013 AIR SCW 6195] to the effect that it is necessary for a complainant to state in the complaint that the person accused was incharge of and responsible for the conduct of the business of the company. Although, no particular form for making such an allegation is prescribed, and it may not be necessary to reproduce the language of Section 138 of the Negotiable Instruments Act, 1881, but a reading of the complaint should show that the substance of the accusation discloses that the accused person was incharge of and responsible for the conduct of the business of the company at the relevant time. From the averment made in the Page 19 of 20 HC-NIC Page 19 of 20 Created On Wed Aug 16 06:06:01 IST 2017 R/CR.MA/32759/2016 ORDER complaint, which is reproduced above, it can safely be said that there is no specific or even a general allegation made against the appellants.
14. Thus, although in the complaint in question, there is no specific averment in so many words that the accused herein at the time of the commission of the offence, was incharge of and responsible for the conduct of the business of the company, yet reading the other averments, it can safely be said that the accused had played some role indicating his involvement in the daytoday affairs and management of the company. The substance of the accusations discloses prima facie that the applicant herein was incharge of and responsible for the conduct of the business of the company at the relevant point of time. If that be so, then the observations of the Supreme Court as contained in para 31 of Gunmala Sales Private Ltd (supra) would come into play.
15. In view of the above, this application is fails and is hereby rejected. Rule is discharged. Adinterim order earlier granted stands vacated.
(J.B.PARDIWALA, J.) aruna Page 20 of 20 HC-NIC Page 20 of 20 Created On Wed Aug 16 06:06:01 IST 2017