Gujarat High Court
Pravin Amrutlal Kiri & 2 vs State Of Gujarat & on 29 March, 2017
Author: J.B.Pardiwala
Bench: J.B.Pardiwala
R/CR.MA/17681/2015 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
CRIMINAL MISC.APPLICATION (FOR QUASHING & SET ASIDE
FIR/ORDER) NO. 17681 of 2015
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE J.B.PARDIWALA
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1 Whether Reporters of Local Papers may be allowed to
see the judgment ? NO
2 To be referred to the Reporter or not ?
NO
3 Whether their Lordships wish to see the fair copy of the
judgment ? NO
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of India
NO
or any order made thereunder ?
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PRAVIN AMRUTLAL KIRI & 2....Applicant(s)
Versus
STATE OF GUJARAT & 1....Respondent(s)
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Appearance:
DELETED for the Applicant(s) No. 1
MR KRUNAL R SAKSENA, ADVOCATE for the Applicant(s) No. 2 - 3
MR RITURAJ M MEENA, ADVOCATE for the Applicant(s) No. 2 - 3
MR A A ZABUAWALA, ADVOCATE for the Respondent(s) No. 2
APP for the Respondent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA
Date : 29/03/2017
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ORAL JUDGMENT
1 Rule returnable forthwith. The learned Additional Public Prosecutor waives service of notice of rule for and on behalf of the respondent No.1 State of Gujarat and Mr. A.A. Zabuawala, the learned counsel waives service of notice of rule for and on behalf of the respondent No.2.
2 By this application under Section 482 of the Code of Criminal Procedure, 1973, the applicants seek to invoke the inherent powers of this Court, praying for quashing of the proceedings of the Criminal Case No.5311 of 2013 pending in the Court of the learned Judicial Magistrate First Class, Vadodara arising from a complaint lodged under Section 138 of the Negotiable Instruments Act for the offence punishable under Section 138 of the said of Act.
3 The free English translation of the complaint reads as under:
"The complainant is engaged in the business of fabrication. The complainant is carrying on business in the name of 'Vaibhav Engineering Works'. It is a proprietary concern and the complainant is the proprietor.
The complainant knows the accused persons very well. The accused No.1 is the company. The accused No.2 is the Chairman of the company. The accused No.3 is the Director of the company and the accused No.4 is the Chief Operating Officer of the company.
The company assigned a work contract under the instructions of the accused Nos.2, 3 and 4. The complainant completed the work of the accused No.1 - company, more particularly, the T.C. Plant Page 2 of 23 HC-NIC Page 2 of 23 Created On Tue Aug 15 13:35:52 IST 2017 R/CR.MA/17681/2015 JUDGMENT (Thiamine Chloride). Right from the commencement of the work till the completion, there was no complaint by the accused persons with regard to the work. The Vice President (Project) of the accused No.1 - company, under his signature, had issued a letter of contract and work order to complete the T.C. Plant of the company. The complainant with the help of forty one workers, plants and machineries, commenced the fabrication work of the T.C. Plant and completed the same within the stipulated time period. Thereafter, under the instructions from the accused Nos.2 and 3, the General Manager (Production) of the accused No.1 - company also issued a letter appreciating the work done by the complainant. The complainant, on his letterhead, raised a bill in the sum of Rs.1,88,55,781=00 for the work done between 1st March 2011 and 29th February 2012. The bill was sent to the company after proper verification and clarification at the end of the officers of the accused No.1 - company. On 4th May 2011, on the instructions and recommendations of the accused Nos.2 and 3, an initial payment of Rs.19,60,000=00 was made to the complainant and the balance amount of Rs.1,68,95,781=00 was agreed to be paid within a short period by the accused persons. The accused persons had also filled up Form 16 of the Income Tax and deducted the T.D.S. from the said amount. Even then, the accused persons did not deem fit to repay the amount, which was due and payable by them.
The complainant was constrained to approach the accused No.1
- company for his outstanding dues. The Director of the accused No.1
- company had issued one cheque duly signed by him bearing No.054047 dated 22nd January 2013 drawn on the State Bank of India, Gujarat Vidhyapith Ahmedabad for the amount of Rs.25,00,000=00 with respect to the outstanding dues of the aforesaid bill amount to the complainant. The complainant was Page 3 of 23 HC-NIC Page 3 of 23 Created On Tue Aug 15 13:35:52 IST 2017 R/CR.MA/17681/2015 JUDGMENT assured that the cheque, on being presented to the Bank, would be honoured.
On 23rd January 2013, the complainant deposited the said cheque in his current account maintained with the H.D.F.C. at Vadodara. However, on 24th January 2013, the cheque was dishonoured with an endorsement "insufficient of funds". The Bank conveyed the same to the complainant. Thereafter, the complainant personally informed the said fact to the accused Nos.2, 3 and 4, but the accused persons did not pay any heed.
Therefore, on 31st January 2013, the complainant was construed to issue a Notice through his advocate by registered A.D. Post to all the accused persons at the address of the accused No.1 - company under the provisions of the Negotiable Instruments Act and the said notice was served on the accused persons on 1st February 2013, but the accused persons did not act according to the notice.
Therefore, this complaint."
4 On 20th October 2015, the following order was passed by this Court:
"At the outset, Mr. Shah, the learned counsel appearing with Mr.Saksena, learned counsel for the applicant does not press this application so far as the applicant No.1 Mr. Pravin Amrutlal Kiri is concerned. This application is disposed of as not pressed so far as applicant No.1 is concerned.
Let notice be issued to the respondents returnable on 3.12.2015. Mrs. Punani, the learned APP waives service of notice for and on behalf of the respondent No.1 State of Gujarat. Direct service on respondent No.2 is permitted.
In the meantime, let there be an adinterim order in terms of para 11(c) so far as the applicants Nos. 2 and 3 are concerned."Page 4 of 23
HC-NIC Page 4 of 23 Created On Tue Aug 15 13:35:52 IST 2017 R/CR.MA/17681/2015 JUDGMENT 5 Thus, it appears that this application seeking quashing of the proceedings of the criminal case was not pressed so far as Shri Pravin Amrutlal Kiri is concerned. He is the Chairman of the company, who had signed the cheque in question. It also appears that during the pendency of this application, the applicant No.3 arraigned as an accused in his capacity as the Chief Operating Officer of the company passed away. Therefore, I am now left with to consider the case of the applicant No.2, who happens to be one of the Directors of the company and the son of the Chairman.
6 Mr. A.L. Shah, the learned counsel appearing for the applicants vehemently submitted that the applicant No.2 is sought to be arraigned as an accused by virtue of Section 141 of the N.I. Act. The learned counsel would submit that so far as the applicant No.2 is concerned, he cannot be held vicariously liable for the offence punishable under Section 138 of the N.I. Act in the absence of any specific averment in the complaint that he was incharge of and responsible to the conduct of the business of the company at the time of the commission of the offence. Mr. Shah would submit that his client, indisputably, is the Director of the company, but, that by itself is not sufficient to fasten the vicarious liability under Section 141 of the N.I. Act. The complainant is obliged to show something as regards his role in the daytoday affairs and management of the company. Mr. Shah, in support of his submissions, has placed strong reliance on the decision of the Supreme Court in the case of Gunmala Sales Private Limited vs. Anu Mehta and others [2015 Cri. L.J. 285].
7 In such circumstances referred to above, Mr. Shah, the learned
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counsel appearing for the applicant No.2 submits that there being merit in this application, the proceedings of the complaint may be quashed so far as the applicant No.2 is concerned.
8 On the other hand, this application has been vehemently opposed by Mr. Zabuawala, the learned counsel appearing for the respondent No.2 - original complainant. Mr. Zabuawala would submit that the plain reading of the complaint would indicate that there are sufficient averments to prima facie show the involvement of the applicant in the business and affairs of the company. The learned counsel would submit that if any Director wants the process to be quashed by filing a petition under Section 482 of the Cr.P.C. on the ground that only a bald averment has been made in the complaint and that he is really not concerned with the issuance of the cheque, he must in order to persuade the Court to quash the process either furnish some sterling unconvertible material or acceptable circumstances to substantiate his contentions. The learned counsel submits that such a Director must make out a case that making him stand the trial would be an abuse of the process of Court. He cannot get the complaint quashed on the ground that no particulars are given in the complaint about his role, because ordinarily the basic averments would be sufficient to send him to trial and it could be argued that his further role could be brought out in the trial.
9 In support of his submissions, the learned counsel appearing for the complainant has placed strong reliance on two decisions of the Supreme Court:
(1) In the case of Gunmala Sales Private Limited vs. Anu Mehta and others [2015 Cri. L.J. 285] Page 6 of 23 HC-NIC Page 6 of 23 Created On Tue Aug 15 13:35:52 IST 2017 R/CR.MA/17681/2015 JUDGMENT (2) In the case of Standard Chartered Bank vs. State of Maharashtra and others [(2016) 6 SCC 62].
10 Mr. A.L. Shah, the learned counsel appearing for the applicants, in rejoinder, submitted that the contention of the learned counsel appearing for the complainant can be accepted provided that there is even a bald averment. According to Mr. Shah, there is not even a bald averment to prima facie indicate the involvement of the applicant accused as regards the daytoday affairs and management of the company. According to Mr. Shah, the complainant owes a duty to make a averment that at the time of the commission of the offence, a particular Director was incharge of and responsible in the daytoday affairs and management of the company.
11 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 complaint should be quashed so far as the applicants is concerned.
12 The submission of the learned counsel appearing for the complainant noted above is based on the observations of the Supreme Court in the case of Gunmala Sales Private Ltd. (supra) as contained in paras 29 and 30. I may quote the observations made in paras 29 and 30 as under:
"29. 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 Page 7 of 23 HC-NIC Page 7 of 23 Created On Tue Aug 15 13:35:52 IST 2017 R/CR.MA/17681/2015 JUDGMENT 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 abuse of the process of court as no offence is made out against him.
30. 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 uncontrovertible material or acceptable circumstances to substantiate his contention. He must make out a case that making him stand the trial would be abuse of the 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 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."
13 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:
"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 Page 8 of 23 HC-NIC Page 8 of 23 Created On Tue Aug 15 13:35:52 IST 2017 R/CR.MA/17681/2015 JUDGMENT 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 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 Page 9 of 23 HC-NIC Page 9 of 23 Created On Tue Aug 15 13:35:52 IST 2017 R/CR.MA/17681/2015 JUDGMENT 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 three Judge 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 Page 10 of 23 HC-NIC Page 10 of 23 Created On Tue Aug 15 13:35:52 IST 2017 R/CR.MA/17681/2015 JUDGMENT reference on three issues. The answers on two issues which are relevant 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 far reaching. 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 Page 11 of 23 HC-NIC Page 11 of 23 Created On Tue Aug 15 13:35:52 IST 2017 R/CR.MA/17681/2015 JUDGMENT 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 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) Page 12 of 23 HC-NIC Page 12 of 23 Created On Tue Aug 15 13:35:52 IST 2017 R/CR.MA/17681/2015 JUDGMENT 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: "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 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".
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: Page 13 of 23 HC-NIC Page 13 of 23 Created On Tue Aug 15 13:35:52 IST 2017 R/CR.MA/17681/2015 JUDGMENT "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. 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 Page 14 of 23 HC-NIC Page 14 of 23 Created On Tue Aug 15 13:35:52 IST 2017 R/CR.MA/17681/2015 JUDGMENT 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.
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 sub section (2) of Section 141.
(iii) In the case of a Director, secretary or manager [as defined in
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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 subsection.
(iv) Other officers of a company cannot be made liable under subsection (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 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 Page 16 of 23 HC-NIC Page 16 of 23 Created On Tue Aug 15 13:35:52 IST 2017 R/CR.MA/17681/2015 JUDGMENT 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 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 3092010 but no incontrovertible Page 17 of 23 HC-NIC Page 17 of 23 Created On Tue Aug 15 13:35:52 IST 2017 R/CR.MA/17681/2015 JUDGMENT 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: "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.
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R/CR.MA/17681/2015 JUDGMENT
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.
Xxxxx xxxxx
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. Hereto annexed the marked as Exhibit 'B' is a copy of the said sanction letter dated 28th April 2012. xxxxx xxxxx
10. I say that the accused Nos.1 to 7 were aware that the aforesaid Page 19 of 23 HC-NIC Page 19 of 23 Created On Tue Aug 15 13:35:52 IST 2017 R/CR.MA/17681/2015 JUDGMENT 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)."
14 In complaint, there are specific averments as regards the role played by the applicant herein so far as the work contract which was assigned to the complainant is concerned. It is not as if the applicant herein is a complete alien to the company. Indisputably, he is one of the Directors of the company and also happens to be the son of the Chairman. On three places in the complaint, I find reference of the applicant in one way or the other.
15 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 20 of 23HC-NIC Page 20 of 23 Created On Tue Aug 15 13:35:52 IST 2017 R/CR.MA/17681/2015 JUDGMENT "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."
16 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 Section 138 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 conduct of the business of the Company. It is necessary ingredient which would be sufficient to proceed against such Directors. However, I may Page 21 of 23 HC-NIC Page 21 of 23 Created On Tue Aug 15 13:35:52 IST 2017 R/CR.MA/17681/2015 JUDGMENT 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].
17 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 in charge 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 complaint, which is reproduced above, it can safely be said that there is no specific or even a general allegation made against the appellants."Page 22 of 23
HC-NIC Page 22 of 23 Created On Tue Aug 15 13:35:52 IST 2017 R/CR.MA/17681/2015 JUDGMENT 18 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.
19 For the foregoing reasons, this application fails and is hereby rejected. Rule is discharged. The adinterim order granted earlier stands vacated.
(J.B.PARDIWALA, J.) chandresh Page 23 of 23 HC-NIC Page 23 of 23 Created On Tue Aug 15 13:35:52 IST 2017