Madras High Court
M. Chockalingam vs Sundaram Finance Service Ltd. on 6 August, 1999
Equivalent citations: 2000CRILJ137
ORDER S. Thangaraj, J.
1. The petitioner, who is the 4th accused in C.C. No. 2929/98 on the file of the XIII Metropolitan Magistrate, Egmore, Madras, has filed this petition Under Section 482, Cr. P.C. to quash the said proceedings.
2. The respondent M/s. Sundaram Finance Service Ltd. Chennai 14, represented by its Executive S. Suresh, has filed a complaint Under Section 138, Negotiable Instruments Act alleging that in the usual course of the complainant's business, the 1st accused availed bill discounting facility from the complainant for a sum of Rs. 22,50,000 as per bill discounting agreement dt. 19-3-1993 against invoices dated 3-2-97 and 4-2-97. The accused towards the said loan, issued a cheque bearing No. 243249 dt. 27-12-97 for Rs. 22,50,000 drawn on Indian Bank, Alwarpet Branch, Chennai 18. The cheque was presented for payment by the complainant on 27-12-97 in State Bank of Travancore, Mount Road, Chennai 2, and the same was returned on 30-12-1997 with an endorsement "funds insufficient". The petitioner has issued notice to all the accused persons. Even after the receipt of the notice, the amount was not paid. Therefore, the respondent herein has filed the complaint against the accused 1 to 7.
3. The petitioner who as the 4th accused in the said complaint, on receipt of the notice from the complainant, had sent a reply dated 23-1-98 contending that he ceased to be a Director of the 1st accused/company for the last 10 years, however, the respondent has contended that the name of the 4th accused was found in the 37th Annual Report of the 1st accused/company, which shows that he was a director up to 31-3-1996. The petitioner has contended that he had informed that he had ceased to be a Director of the 1st accused/company and never participated in the business of the company for the last 10 years and not attended the board meeting held by the company. The petitioner has also sent form No. 32, showing that he has ceased to be a Director of the company, to the Registrar of Companies, Coimbatore.
4. It was argued on the side of the petitioner that the cheque dt. 27-12-97 was issued to the respondent herein for the sum of Rs. 22,50,000 and at that time the petitioner was not a Director of the company and the cheque was returned unpaid on 30-12-1997 and thereafter the respondent has issued a notice to the petitioner herein for which he has issued a reply dt. 31-1-98.
Section 141(1) of the Negotiable Instruments Act, which deals with offences by company says --
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.
5. The petitioner herein was a Director of the company and from 20-3-97 he ceased to be a Director of the company. The cheque was issued later i.e. on 27-12-97 and there is no averment in the complaint filed by the respondent herein that at the time when the offence was committed, the petitioner was in-charge of or was responsible to the company for the conduct of the business of the company.
The Apex Court in (Sham Sundar v. State of Haryana) held --
It would be a travesty of justice to prosecute all partners and ask them to prove under the proviso to Sub-section (1) that the offence was committed without their knowledge. It is significant to note that the obligation for the accused to prove under the proviso that he offence took place without his knowledge or that he exercised all due diligence to prevent such offence arises only when the prosecution establishes that the requisite condition mentioned in Sub-section (1) is established. The requisite condition is that the partner was responsible for carrying on the business and was during the relevant time in-charge of the business. In the absence of any such proof no partner could be convicted.
Following the above decision, their Lordships of the Supreme Court have rendered one more decision in (State of Haryana v. Brij Lal Mittal) (1998) 4 Supreme 364 at page 369 : 1998 Cri LJ 3287 at p. 3290 held --"Simply because a person is a Director of the company it does not necessarily mean that he fulfils both the above requirements so as to make him liable. Conversely, without being a Director a person can be in-charge of and responsible to the company for the conduct of its business. From the complaint in question we, however, find that except a bald statement that the respondents were Directors of the manufacturers, there is no other allegation to indicate, even prima facie, that they were in-charge of the company and also responsible to the company for the conduct of its business." Though these two decisions are respectively under Essential Commodities Act and Drugs and Cosmetics Act and the present case is one under the Negotiable Instruments Act, the principle is the same as far as the Directors of the company are concerned.
6. There is no averment in the complaint filed by the respondent herein that the petitioner herein, who was the 4th accused, as Director of the company was in-charge of, and was responsible to the company for the conduct of the business of the company. The petitioner has shown sufficient proof that he ceased to be a Director of the company at the worst from 1997 and form No. 32 sent to the Registrar of Companies, Coimbatore shows that he had ceased to be a Director of the company with effect from 20-3-1997.
This Court in (Senthil Kumaran Tea Industries v. Rajkumar) (1994) 1 Mad LW (Cri) 278 held that there must be averment to implicate the Directors as shown under Section 141(1) of the Negotiable Instruments Act.
In (Alfred Borg & Co. v. Antox India (P) Ltd.) 1992 Mad LW (Cri) 120 at page 125 this Court held --
In catena of cases, the Apex Court has held, that initiating prosecution against sleeping partners or women, when the company is the main offender, cannot be sustained unless there was basic material to show that such partners or Directors were also in-charge of and responsible for the conduct of the business of the company.
7. When there is no allegation in the complaint that the present petitioner, who is the 4th accused, was in-charge of and was responsible to the company for the conduct of the business of the company, he cannot be held liable for the commission of the alleged offence Under Section 138 of the Negotiable Instruments Act.
8. Learned counsel for the petitioner has relied on certain decisions, opposing the prayer made by the petitioner in this petition.
In (Smt. Davinder Kaur v. Small Scale Industries Development Bank of India), (1998) 3 Crimes 548 wherein the Andhra Pradesh High Court held that there were allegations to the effect that the petitioners were assisting the Managing Director in running the business of the company and materials on record did not conclusively establish that the petitioners had ceased to be Directors of the company by date of issuance of cheque, such questions of fact were decided in a petition Under Section 482, Cr. P.C. and on that ground the petition was dismissed.
In the instant case, the facts are different, first of all, there was no allegation to satisfy Section 141(1) of the Negotiable Instruments Act. Secondly, the petitioner has proved through documentary evidence that he ceased to be a Director of the company much earlier to the date of issuance of cheque. Therefore the decision of the Addhra Pradesh High Court is not applicable to the instant case.
The respondent has relied on a decision of the Bombay High Court, Panaji Bench in (Rajan Kinnerkar v. Eric Cordeiro) (1994) 80 Com. Cas 487, wherein it was held that the fact of ceasing to be Director has to be recorded by the trial Court and the complaint Under Section 138, Negotiable instruments Act cannot be quashed in a petition filed by the Director Under Section 482, Cr. P.C. Similar view was taken by the Punjab and Haryana High Court in (Mrs. Manju Podar v. Ashwani Kumar) (1996) 86 Com Cas 631. However, in the said case there was allegation in the complaint that the persons accused of the offence were Directors and were in-charge of and responsible for the conduct of the company's business and as such prima facie case has been made out and the question whether they were actually in-charge of company's affairs has to be decided in the trial.
In the instant case, there is no such allegation in the complaint filed by the respondent. Therefore, it can be sai,d that here is no evidence to connect the accused with the offence Under Section 138, Negotiable Instruments Act.
This Court in (HabibunnisaAkhtar v. S. & S. Industries and Enterprises Ltd.) (1995) 83 Comp Cas 593, held that on the basis of the extract from Registrar of Firms produced to show that the accused was not partner of the firm when allegations in the complaint are made out, that the accused was a partner, that the question should be decided only in the trial and the complaint cannot be quashed, However, there is no allegation in the complaint as contemplated Under Section 141 of the Negotiable Instruments Act and also there is no evidence that the accused was responsible for the issuance of the cheque which was subsequently dishonoured and that the accused was a Director of the company on the date of the alleged offence. In such circumstances, when the facts of the present complaint are quite distinct and different from that of the facts in the case cited, the said decision is not applicable to the present case.
9. We have already seen the decisions of the Supreme Court in and (1998) 4 Supreme 364 : 1998 Cri LJ 3287 wherein their Lordships have held that except a bald statement that the respondents were Directors of the manufacturers, there is no other allegation to indicate, even prima facie, that they were in-charge of the company and also responsible to the company for the conduct of its business, the case against such persons shall not lie.
This Court in (Muruganandam v. State) (1998) 3 Crimes 428 : 1998 Cri LJ 3722 after analysing many decisions held that on the basis of the materials placed, the lower Court was not justified in framing charge against the accused. In such circumstances, it will be travesty of justice to ask the petitioner to face trial.
10. While considering the facts of the case, there is absolutely no allegation in the complaint that the petitioner was a Director on the date when the offence was committed or that he was in-charge of and was responsible to the company for the conduct of the business of the company and the cheque was issued by the company after the petitioner ceased to be a Director of the said company. There is no justification in continuing the case in C.C. No. 2929/98 on the file of the XIII Metropolitan Magistrate, Egmore, Madras against the petitioner. Section 482, Cr. P.C. empowers this Court to exercise its inherent jurisdiction to prevent the abuse of process of Court or otherwise to secure the ends of justice. The present complaint against the petitioner/4th accused has to be quashed in order to prevent the abuse of process of Court and also to secure the ends of justice.
In the result, Cri. O.P. No. 10744/98 is allowed, the case against the petitioner/4th accused in C.C. No. 2929/98 on the file of the XIII Metropolitan Magistrate is quashed. However, the learned Magistrate can proceed against the other accused in the case in accordance with law. Consequently, there are no orders necessary in Cri. M.P. Nos. 4431 & 4432/98.