Himachal Pradesh High Court
Mrs. Sonia Bhalla And Ors. vs Rajneesh Aggarwal And Ors. on 18 March, 2002
Equivalent citations: 2002CRILJ3053
Author: R.L. Khurana
Bench: R.L. Khurana
JUDGMENT R.L. Khurana, J.
1. The three petitioners have preferred the present petition under Section 482, Code of Criminal Procedure, for quashing of the proceedings initiated against them by the complainant-respondent No. 1 for their prosecution for the offence under Section 138, Negotiable Instruments Act, 1881.
2. Respondent No. 2, Messrs Bhalla Techtran Industries Limited, having its registered office at 116, Jorbagh, New Delhi-110003 is a limited company duly incorporated under the Companies Act, 1956. Petitioners are the Directors of such company, while respondent No. 3 is the Managing Director thereof.
3. Respondent No. 1 is a partner of the firm Messrs Finiti Times having its business address at 1, Plaza Cinema Building, H-Block, Cannaught Circus, New Delhi.
4. In September/October, 1996 respondent No. 1 had supplied watches worth Rs. 16,55,559/- to the respondent No. 2 company vide three invoices dated 16.9.1996, 7.10.1996 and 8.10.1996. Respondent No. 2, acting as Managing Director of the respondent No. 2 issued a post-dated cheque dated 31.4.1997 for a sum of Rs. 7,00,000/- drawn on Bank of Baroda. New Delhi branch in favour of the respondent No. 1 as part payment of the cost of watches. Such cheque on presentation by the respondent No. 1 for encashment/collection through his Bank was returned dishonoured with the endorsement "Payment stopped by the drawer" on 16.6.1997. In the meanwhile, respondent No. 2 company filed a suit being Suit No. 170/97 against the respondent No. 1 on 29.4.1997 at Delhi seeking to restrain respondent No. 1 from initiating criminal action against it on the basis of the dishonoured cheque. In such suit on 5.6.1997 an ex parte ad interim injunction was granted by the Civil Judge, Delhi restraining respondent No. 1 from proceeding against respondent No. 2 under the provisions of Section 138, Negotiable Instruments Act, 1881, till the final outcome of the suit. Such ex parte ad interim order was served on the respondent No. 1 on 11.6.1997. The suit filed by respondent No. 2 was ultimately dismissed on 9.2.1998 and the ad interim injunction order dated 5.6.1997 was vacated. After the vacation of the injunction order, respondent No. 1 on 12.2.1998 served the statutory notice on the petitioners and respondent Nos. 2 and 3 calling upon them to pay the amount of the dishonoured cheque. Since the petitioners and respondents 2 and 3 failed to comply with the notice, a criminal complaint came to be filed by respondent No. 1 before the Additional Chief Judicial Magistrate, Kullu, on 23.3.1998 for the prosecution of the petitioners and respondent Nos. 2 and 3 for the offence under Section 138, Negotiable Instruments Act, 1881.
5. After recording the preliminary evidence, the learned Magistrate vide his order dated 17.4.1998 summoned the petitioners and respondents 2 and 3 for their prosecution for the offence under Section 138, Negotiable Instruments Act, 1881.
6. Aggrieved, the petitioners are before this Court by way of the present petition seeking the quashing of proceedings against them inter alia on the following grounds--
(i) there are neither averments nor evidence that ths three petitioners were in any manner responsible for day-to-day business of the company-respondent No. 2 or that the offence was committed with their consent or connivance or that such offence is attributable to any neglect or their part;
(ii) no statutory notice has been proved to have been served on the petitioners;
(iii) the notice alleged to have been issued is not in accordance with law nor the same is shown to have been served within the statutory period; (iv) there are no statutory pleadings as to notice in the complaint; (v) dishonour of cheque in question not proved in accordance with law;
(vi) there was no insufficiency of funds in the Bank account of the respondent No. 1 company; and
(vii) the cheque in question was without consideration.
7. I heard the Counsels for the parties and have also gone through the record of the case.
8. Cheque in question is Ex. CW1/B. A perusal of the same shows that the same was issued by respondent No. 2 company in favour of respondent No. 1 by respondent No. 3 as Managing Director of the company-respondent No. 2. Such cheque was dishonoured on presentation and returned to respondent No. 1 through his bankers with the endorsement "Payment stopped by the drawer".
9. Section 141, Negotiable Instruments Act, 1881 (for short 'the Act') which reads with "Offence by Companies" reads :
"(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 (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."
10. A bare reading of the above previsions shows that if an offence under Section 138 of the Act is committed by a company, every person who at the time of commission of the offence, was in-charge of, and was responsible to the company for the conduct of business of the company, is also liable along with the company by a legal fiction. Further, if the offence is shown to have 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 is also deemed to be guilty of the offence and he shall be liable to be proceeded against along with the company.
11. Dealing with the scope and ambit of Section 141 of the Act, the Hon'ble Supreme Court in Anil Hada v. Indian Acrylic Ltd., X(1999) SLT 1=II(1999) BC 138=IV (1999) CCR 285 (SC)=(2000) 1 SCC 1, has held that the three categories of persons brought within the purview of penal liability through the legal fiction envisaged under Section 141, are :
(a) the company which committed the offence;
(b) every one who was in-charge of and was responsible for the business of the company; and
(c) any other person who is a director or officer of the company, with whose connivance or due to whose negligence the company has committed the offence.
12. In Girdharilal Gupta and Anr. v. D.N. Mehta, Collector of Customs and Anr., (1971) 3 SCR 748, the Hon'ble Supreme Court dealt with the provisions contained in Section 23C of the Foreign Exchange Regulation Act, 1947 which provisions are similar to the one contained in Section 141 of the Act. Dealing with the expression "a person in-charge of and was responsible to the company for the conduct of the business of the company" appearing in the said provisions (which expression also appears in Section 141 of the Act), it was held that in the context a person "in-charge" must mean that the person should be in overall control of the day to day business of the company or firms.
13. In Sham Sundar and Ors. v. State of Haryana, AIR 1989 SC 1982, all the partners of a firm were prosecuted, convicted and sentenced for the offence under Section 7 of the Essential Commodities Act, 1955. A contention was raised before the Hon'ble Supreme Court by the appellants therein (some of the partners of the firm) that there was no evidence adduced by the prosecution that the appellants were in-charge of the business of the partnership firm when the offence was committed and as such in the absence of such evidence the conviction and sentence of the appellants were bad and unsustainable. Dealing with the scope of Section 10 of the Essential Commodities Act, 1955 pertaining to "offences by companies", the provisions of which are analogous to that of Section 141 of the Act, it is held that the person (partner) who was entrusted with the business of the firm and was responsible to the firm for the conduct of the business, could alone by prosecuted for the offence complained of. In the absence of evidence that the appellants were in any manner responsible to the firm for the conduct of business, they were acquitted of the offence charged against them.
14. In Raj Kumar Mangla v. Indo Lowanbrau Breweries Ltd., 1997(4) Crimes 180, a cheque issued by a partner of the firm was dishonoured. The firm and the two partners of the firm were sought to be prosecuted for the offence under Section 138 of the Act. The Magistrate after recording the preliminary evidence summoned all of them as accused. One of the partners approached the High Court of Punjab and Haryana under Section 482, Code of Criminal Procedure for quashing of the complaint and the order summoning him as accused. It was contended that there were no specific allegations against him that he was responsible to the firm in terms of Section 141 of the Act. It was observed in para 10 of the report as under :
"Reverting back to the facts of the present case, it is clear that as against the petitioner there was no averment or allegation that he was responsible to the partnership for conduct of the business. It was not alleged that he was in-charge of the partnership firm. There is not even a whisper that the offence was committed with the consent or connivance or any act which can be described as neglect on his part......"
15. Again in State of Haryana v. Brij Lal Mittal and Ors., IV (1998) SLT 796=II (1998) CCR 246 (SC)=1998(5) SCC 343, dealing with Section 34 of the Drugs and Cosmetics Act, 1940, the provisions of which are analogous to the provisions contained in Section 141 of the Act, it was held by the Hon'ble Apex Court that the vicarious liability of a person for being prosecuted for an offence committed by a company arises if at the material time he was in-charge of and was responsible to the company for the conduct of its business. Simply because a person is a director of the company it does not necessarily mean that he fulfills both the requirements under the section 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.
16. Noticing that except a bald statement in the complaint that the respondents therein were directors of the company, there was 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 complaint against the respondents therein was held liable to be quashed.
17. In K.P.G. Nair v. Jindal Menthol India, VII (2000) SLT 189=1 (2001) BC 243 (SC)=IV (2000) CCR 100 (SC)=JT 2000 (Suppl.) SC 519, dealing with the provisions of Section 141 of the Act, it was held by the Hon'ble Apex Court that a person, other than the company, can be proceeded against under these provisions only if that person was in charge of and was responsible to the company for the conduct of its business. It was further held that though the words of Section 141(1) of the Act need not be incorporated in a complaint as magic words, the substance of the allegations read as a whole, should answer and fulfil the requirements of the ingredients of the said provision (for being proceeded against for an offence which he is alleged to have committed). Noticing that the allegations made in the complaint did not, either in express words or with reference to the allegations contained therein, make out a case that at the time of commission of the offence, the appellant therein was in-charge of and was responsible to the company for the conduct of its business, the complaint against the appellant was quashed,
18. It is thus well settled that the vicarious liability of a person for being prosecuted for commission of an offence by a company arises only if at the time when the offence is alleged to have been committed, he was in-charge of and was responsible to the company for the conduct of its business. It is necessary that there must be averment in the complaint that such person was in-charge of and was also responsible to the company for the conduct of business of the company, or, that the offence was committed by the company, his consent or connivance, or is attributable to any neglect on his part. If there is no such averment, there should be other material available before the Magistrate to indicate that such person was in-charge of and was responsible to the company for the conduct of its business.
19. In the present case, a bare perusal of the complaint lodged by respondent No. 1 before the Magistrate shows that save and except a bald statement in para 1 that the petitioners are the Directors of the company respondent No. 2, there are no averments/allegations that the petitioners were in-charge of and responsible to the company for the conduct of its business. There is also not even a whisper that the offence was committed by the company respondent No. 2 with the consent or connivance of the petitioners or that the same was attributable to any act of neglect on the part of the petitioners. So much so, the respondent No. 1 while appearing as CW1 during the course of inquiry under Section 202, Code of Criminal Procedure, also has not'stated even a single word in this regard. Nor any other material is available on the record in this regard. Merely because the petitioners were/are Directors of the company respondent No. 2, they cannot be held vicariously liable and as such the complaint as against them as well as the order dated 17.4.1998 of the learned Magistrate summoning them to face trial for the offence under Section 138 of the Act are liable to be quashed.
20. The other contentions raised in the present case need not be gone into since the same have been rendered infructuous insofar as the petitioners are concerned, in view of the fact that the complaint against them and the order dated 17.4.1998 of the Magistrate have been held to be liable to be quashed.
21. As a result, the present petition is allowed, the complaint under Section 138 of the Act and the summoning order dated 17.4.1998 of the learned Magistrate as against the petitioners are quashed. The proceedings as against respondents 2 and 3 shall continue in accordance with law.
22. Before parting, it may be observed that a prayer was made on behalf of the parties that since a number of similar cases pending between the parties have been ordered to be transferred to the Court of Chief Judicial Magistrate, Shimla, for disposal, the present case also may be transferred to the said Court for disposal in accordance with law. The criminal case, being Case No. 95/1 of 1998, Rajneesh Agarwal v. Bhalla Techtran Industries Ltd. and Ors., pending in the Court of Additional Chief Judicial Magistrate, Kullu, is therefore, withdrawn from the said Court and transferred to the files of the Chief Judicial Magistrate, Shimla, for disposal in accordance with law. The Additional Chief Judicial Magistrate, Kullu, shall transmit the record of the case immediately to the Chief Judicial Magistrate, Shimla, in accordance with law.