Madras High Court
S.Rajarathinavel vs Visalatchi Enterprises on 5 July, 2013
Author: T.Mathivanan
Bench: T.Mathivanan
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT DATED: 05/07/2013 CORAM THE HONOURABLE MR.JUSTICE T.MATHIVANAN Crl.O.P.(MD) No.2195 of 2008 Crl.O.P.(MD) No.2196 and Crl.O.P.(MD) No.2197 of 2008 and M.P.(MD) Nos.1, 1 & 1 of 2008 1.S.Rajarathinavel 2.K.Inbarajan 3.A.M.D.Amudhavel 4.D.Rathinavel ... Petitioners in all Crl.O.Ps Vs Visalatchi Enterprises a Partnership Firm rep.by it's Power of Attorney S.Subramanian Madurai ... Respondents in all Crl.O.Ps Prayer (in Crl.O.P.(MD.No.1295 of 2008 Petition filed under Section 482 of the Code of Criminal Procedure, to call for the records pertaining to the case in S.T.C.No.1290 of 2007, on the file of the learned Judicial Magistrate No.II, Madurai and quash the same in sofar as the petitioners herein are concerned. Prayer (in Crl.O.P.(MD.No.1295 of 2008 Petition filed under Section 482 of the Code of Criminal Procedure, to call for the records pertaining to the case in S.T.C.No.1292 of 2007, on the file of the learned Judicial Magistrate No.II, Madurai and quash the same in sofar as the petitioners herein are concerned. Prayer (in Crl.O.P.(MD.No.1295 of 2008 Petition filed under Section 482 of the Code of Criminal Procedure, to call for the records pertaining to the case in S.T.C.No.1293 of 2007, on the file of the learned Judicial Magistrate No.II, Madurai and quash the same in sofar as the petitioners herein are concerned. !For Petitioners ... Mr.S.Subbiah (in all Crl.O.Ps) ^For Respondent ... Mr.D.Sivaraman (in all Crl.O.Ps) :COMMON ORDER
Seeking the relief of quashing the criminal proceedings pertaining to the cases in S.T.C.Nos.1290, 1292 and 1293 of 2007, on the file of the learned Judicial Magistrate No.II, Madurai, the petitioners herein, who are the accused 4 to 7 in the above said cases, have filed these criminal original petitions after invoking the inherent jurisdiction of this Court under Section 482 Cr.P.C.,
2. Brief Summary:
2.1. It is the specific case of the petitioners that when they have resigned from their respective offices of the directorship of the first accused Company, long prior to the commencement of the alleged transaction between the respondent and the first accused Company, they cannot be held responsible for the bouncing back of the cheques said to have been issued by the second accused on behalf of other accused persons including the petitioners herein and they are also not liable to be prosecuted under Sections 138, 141 and 142 of Negotiable Instruments Act, 1881 (as amended by Act 2005).
2.2. The respondent Visalatchi Enterprises, a partnership firm, seems to have filed three private complaints dated 30.08.2007, before the learned Judicial Magistrate No.II, Madurai, under Sections 190(1)(A) and 200 Cr.P.C., as against seven accused persons, including the petitioners herein, to deal with them in accordance with law, as envisaged under Sections 138, 141 and 142 of Negotiable Instruments Act, 1881 (Amended Act, 2005) and the same were taken on file in S.T.C.Nos.1290, 1292 and 1293 of 2007.
2.3. As per the complaints, the second accused P.Sivaraman is the Managing Director of the first accused Company. The accused 3 to 7 (including the petitioners herein) are the Directors.
2.4. The complainant has been engaging in the business of sale of consumer goods and is doing distribution of Samsung Electronic consumer durables. During the month of March and April 2007, the accused 1 to 7 had approached and requested the complainant for the supply of Samsung Electronic Goods on credit basis and they had also promised that the dues would not be kept pending for more than 21 days. Believing the words of the accused, the complainant had started the supply of Samsung Electronic Goods. But, the accused did not keep their promise and they also did not settle the dues in time and as a result of which the dues started to accumulate.
2.5. On one occasion, the second accused, being the Managing Director of the first accused Company, had issued the following cheques drawn on State Bank of India, Virudhunagar Branch, on behalf of the first accused Company as well as the accused 3 to 7.
Sl.No Cheque Nos. Date Amount 1 511379 22.05.2007 26,067/- 2 511455 23.05.2007 29,500/- 3 511456 24.05.2007 9,604/- 4 511378 30.05.2007 23,313/- 5 511476 25.05.2007 16,072/- 6 511477 26.05.2007 8,428/- 7 511478 27.05.2007 19,207/- 8 511619 15.07.2007 1,15,000/- 9 511620 17.07.2007 1,15,000/- 10 511621 19.07.2007 1,15,000/- 11 511622 21.07.2007 1,15,000/- 12 511623 23.07.2007 1,10,796/-
2.6. When the complainant had presented these cheques for encashment through their banker viz.,Tamil Nadu Mercantile Bank Limited, East Avani Moola Street, Madurai during the end of May and July, 2007, all these cheques were bounced back with an endorsement 'exceeds arrangement'.
2.7. No sooner than the bouncing back of these cheques, the complainant had intimated the same to the accused. Whileso, the second accused, on behalf of other accused, had informed the complainant that due to some unexpected financial crisis, those cheques could not be honoured and he had also requested the complainant to re-present them during first week of July, 2007 and it was also promised that this time, all the cheques would be honoured.
2.8. As assured by the second accused, on behalf of the other accused, the complainant had re-presented the cheques on 12.07.2007 before their banker for encashment. Even this time also all the cheques were returned with the same endorsement 'exceeds arrangement' on 13.07.2007 and the same was also intimated to the complainant by their banker on 14.07.2007.
2.9. The attitude of the accused would go to show that the cheques were issued with an intention of cheating the complainant, knowing fully well that they would not be honoured, which is not only punishable under the provisions of the Negotiable Instruments Act, 1881 and also punishable under Sections 406, 417 and 420 I.P.C., 2.10. For the reasons stated above, the complainant has sought the relief of punishing all the accused persons with the maximum sentence and fine and he has also sought for the payment of compensation out of the fine amount under Section 357 Cr.P.C.,
3. Heard Mr.S.Subbiah, learned counsel appearing for the petitioners and Mr.D.Sivaraman, learned counsel appearing for the respondent.
4. Mr.S.Subbiah, learned counsel appearing for the petitioners, has fairly advanced his arguments admitting the fact that originally the petitioners, being the accused 4 to 7 in S.T.C.Nos.1290, 1292 and 1293 of 2007, were the directors of the first accused Company viz.,M/s.Balaji Agency Group Pvt., Ltd., a Company incorporated under the provisions of Indian Companies Act 1 of 1956.
5. He has also argued that since the petitioners were not satisfied with the performance of the first accused Company, they had sought for their retirement from the office of the directorship of the first accused Company and that the petitioners were also relieved from their respective posts of Directors from the dates as submitted to the Registrar of Companies in Form No.32. The name of the petitioners, the date of their retirement from the first accused Company and their rank in the case in S.T.C.Nos.1290, 1292 and 1293 of 2007 are detailed in the tabular column given as under:
Sl.No. Date Name Rank
1 03.01.2007 S.Rajarathin 1st Petitioner
avel (4th Accused)
2 15.11.2003 K.Inbarajan 2nd Petitioner
(5th Accused)
3 31.10.1999 A.M.D.Amutha 3rd Petitioner
vel (6th Accused)
4 31.12.2003 D.Rathinavel 4th Petitioner
(7th Accused)
6. Keeping in view of the above facts, Mr.S.Subbiah, learned counsel, has maintained that the allegations made in the complaints were prima facie false even to the knowledge of the petitioners and that when the petitioners were relieved from their respective offices of the directorship of the first accused Company with effect from 31.10.1999, 15.10.2003, 31.12.2003 and 03.01.2007 respectively, they could not be made responsible for the alleged transactions said to have been taken place between the second accused and the respondent/complainant.
7. In order to substantiate his contention, Mr.S.Subbiah, during the course of his arguments, has produced the certified copies of Form No.32 pertaining to the resignation of the petitioners from the office of the directorship of the first accused Company.
8. On a careful perusal of the certified copies of Form No.32 maintained by the Registrar of Companies, Tamil Nadu, it is explicited that the petitioners had resigned from their respective offices of the directorships of the first accused company on 03.01.2007, 15.11.2003, 31.10.1999 and 31.12.2003 respectively.
9. The certified copies of Form No.32, issued by the Office of the Registrar of Companies, Tamil Nadu, are public documents and these documents would go to disclose the fact that at the crucial time i.e., at the time of the alleged transaction said to have been taken place between the second accused, on behalf of the first accused Company and the respondent Company and also at the time of issuance of the alleged cheques on various dates viz., 22.05.2007, 23.05.2007, 24.05.2007 and 30.05.2007 respectively, the petitioners were not stick on to the office of the directorship of the first accused company as they had resigned from their respective offices.
10. As discussed herein before, Form No.32 produced by the petitioners are in the form of certified copies. Section 76 of the Indian Evidence Act, 1872 (herein after it may be referred to as 'the Act') defines the expression 'certified copies'. It contemplates that:
"76.Every public officer having the custody of a public document, which any person has a right to inspect, shall give that person on demand a copy of it on payment of the legal fees therefor, together with a certificate written at the foot of such copy that it is a true copy of such document or part thereof, as the case may be, and such certificate shall be dated and subscribed by such officer with his name and his official title, and shall be sealed, whenever such officer is authorised by law to make use of a seal, and such copies so certified shall be called certified copies."
11. Section 77 of the Act envisages that:
"77.Proof of documents by production of certified copies.-Such certified copies may be produced in proof of the contents of the public documents or parts of the public documents of which they purport to be copies."
12. Whenever the certified copies issued by the competent authority and produced before a Court of law to prove a fact in issue, that Court shall presume the said certified copies to be genuine and every document, which may be produced, purported to be a certificate, certified copy or other document, which is by law declared to be admissible as evidence of any particular fact and purports to be duly certified by any officer of the Central Government or of a State Government or by any officer in the State of Jammu and Kashmir, who is duly authorized thereto by the Central Government, provided that such document is substantially in the form and purports to be executed in the manner directed by law in that behalf.
13. The Court shall also presume that where any such document, purports to have been signed or certified by any competent officer, it is having the value of official character.
14. The expression 'Public Documents' has been defined under Section 74 of the Act and certain documents have also been enumerated as public documents under this Section.
15. Section 141(1) of the Negotiable Instruments Act, 1881 envisages about the offences by companies. Sub-section (1) to Section 141 enacts that:
"(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 punishable accordingly."
16. As it reveals from sub-section (1) to Section 141 of the Negotiable Instruments Act, 1881, the phraseology 'every person incharge' includes and connotes the meaning that every person, in connection 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 the business of the company at the time of commission of an offence, who will be liable for criminal action. The word 'person' employed in section 141 means that every person, who was in charge of and was responsible for the conduct of the business of the company, shall be deemed to be guilty, along with the company.
17. In the instant case on hand, as rightly argued by Mr.S.Subbiah, learned counsel appearing for the petitioners, it is palpable from the materials available on record specifically from the certified copies of Form No.32 produced on behalf of the petitioners, this Court is of considered view that the petitioners were not functioning as the directors of the first accused Company at the time of the alleged transaction which took place between the second accused being the managing director of the first accused Company and the respondent, because the petitioners had already resigned their respective offices as detailed herein above.
18. The vicarious liability rendering them to be prosecuted would arise only if the petitioners were responsible to the Company for the conduct of the business of the Company. But, in sofar as the petitioners are concerned, the vicarious liability cannot be fastened on them as they had already resigned from the office of the directorship of the first accused company. In other words, this Court would say that 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.
19. It may be more relevant to note here that the liability depends on the role, one plays in the affairs of a company. 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 can be subjected to action.
20. On the question as to who would be persons responsible to the company for the conduct of it's business, it could be answered that a company though a legal entity can act only through it's board of directors. The settled position is that a managing director is prima facie in-charge of any responsible for the company's business and affairs and can be prosecuted for offences by the company. But, in so far as the other directors are concerned, they can be prosecuted only if they were in-charge of and responsible for the conduct of the company's business.
21. A combined reading of Sections 5 and 291 of the Companies Act, 1956, with the definitions in Clauses (24), (26), (30), (31), (45) of Section 2 of that Act would show that the following persons are considered to be the persons, who are responsible to the company for the conduct of the business of the company:
(a) the managing director/s;
(b) the whole-time director/s;
(c) the manager;
(d) the secretary;
(e) any person in accordance with those directions or instructions the board of directors of the company is accustomed to act;
(f) any person charged by the Board with the responsibility of complying with that provision (and who has given his consent in that behalf to the board); and
(g) where any company does not have any of the officers specified in clauses
(a) to (c), any director or directors who may be specified by the Board in this behalf or where no director is so specified, all the directors.
22. In support of his contention, Mr.S.Subbiah, learned counsel appearing for the petitioners has also placed reliance upon the following decisions:
i. K.K.Ahuja vs. V.K.Vora and another, reported in 2009(5) CTC 81; ii. Ronaldo Colaco vs. M/s.Nelsun Paper Mills Limited, reported in 2009-1- L.W.(Crl.) 175; and iii. Anita Malhotra vs. Apparel Export Promotion Council and another, reported in (2012) 1 SCC 520.
23. In K.K.Ahuja's case (cited supra), R.V.Raveendran, J., while speaking on behalf of the Division Bench of the Apex Court, in paragraph No.9, has observed as under:
"9.In two subsequent decisions S.M.S.Pharmaceuticals v. Neeta Bhalla, 2007 (2) CTC 86(SC):2007 (4) SCC 70 [for short 'SMS Pharma (II)' and Everest Advertising (P) Ltd. v. State, Govt. of NCT of Delhi, 2007 (5) SCC 54, relating to complaints against Directors of a Company, the very same Two-Judge Bench which decided Saroj Kumar Poddar, clarified that the observations therein that 'the Complaint should contain averments as to how and in what manner the accused was responsible for the conduct of the business of the Company, or otherwise responsible for its functioning' were with reference to the particular facts of that case and should not be considered as a general proposition of law. But latter decisions dealing with liability of Directors N.K.Wahi v. Shekhar Sing, 2007 (9) SCC 481 ; DCM Financial Services Ltd. v. J.N.Sareen, 2008(8) SCC 1, and Ramraj Singh v. State of MP, 2009(5) SCALE 670 (a decision of a Bench of Three Judges), have reiterated the principle laid down in Saroj Kumar Poddar. The prevailing trend appears to require the complainant to state how a Director who is sought to be made an accused, was in charge of the business of the Company, as every Director need not be and is not in charge of the business of the Company. If that is the position in regard to a Director, it is needless to emphasis that Ronaldo Colaco in the case of non-Director Officers, there is all the more the need to state what his part is with regard to conduct of business of the Company and how and in what manner he is liable."
24. In tune with Section 141(1) of the Negotiable Instruments Act, 1881, in paragraph No.10, His Lordship has held as to who may be held responsible and guilty of the offence and shall be liable to be proceeded against and punished. Paragraph No.10 is extracted as under:
"10.Having regard to Section 141, when a cheque issued by a Company (incorporated under Companies Act, 1956) is dishonoured, in addition to the Company, the following persons are deemed to be guilty of the offence and shall be liable to be proceeded against and punished:
(i) 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;
(ii) any Director, Manager, Secretary or other officer of the Company with whose consent and connivance, the offence under Section 138 has been committed; and
(iii)any Director, Manager, Secretary or other Officer of the Company whose negligence resulted in the offence under Section 138 of the Act, being committed by the Company.
While liability of persons in the first category arises under sub-section (1) of Section 141, the liability of persons mentioned in categories (ii) and (iii) arises under sub-section (2). The scheme of the Act, therefore is that a person who is responsible to the Company for the conduct of the business of the Company and who is in charge of business of the Company is vicariously liable by reason only of his fulfilling the requirements of sub-section (1). But, if the person responsible to the Company for the conduct of business of the Company, was not in charge of the conduct of the business of the Company, then he can be made liable only if the offence was committed with his consent or connivance or as a result of his negligence."
25. In Ronaldo Colaco's case, (cited supra), the learned single Judge of this Court has held that:
"Petitioner was not the Director during the relevant time of issuing the cheques numbering six involved in this case and as such he cannot be held vicariously liable for the offences committed by the company and on this sole ground the proceedings is liable to be quashed. It is clear that Form-32, coupled with the perusal of the 5th Annual Report for the period from 2001-2002, the petitioner was neither the Chairman nor a Director during the relevant period. In the absence of any specific allegation to the effect as to how and in what manner the petitioner,A-1, is in-charge for the day-to-day affairs of the company, the petitioner cannot be held vicariously liable for the offence said to have been committed by the company."
26. In Anitha Malhotra's case (cited supra), while penning down the Judgment on behalf of the Division Bench, P.Sathasivam, J., has observed that:
"Though it is not proper for the High Court to consider the defence of the accused or conduct a roving enquiry in respect of merits of the accusation, but if on the face of the document which is beyond suspicion or doubt, placed on record by the accused and if it is considered that the accusation against her cannot stand, in such a matter, in order to prevent injustice or abuse of process, it is incumbent on the High Court to look into those document/documents which have a bearing on the matter even at the initial stage and grant relief to the person concerned by exercising jurisdiction under Section 482 CrPC."
27. On the other hand, Mr.D.Sivaraman, learned counsel appearing for the respondent, has adverted to that after repeated demands, the second accused on behalf of 1st, 3rd to 7th accused had signed and issued the cheques specified in the complaint drawn on State Bank of India, Virudhunagar Branch and that when the cheques were presented for encashment all the cheques were returned with an endorsement as 'Exceeds arrangement'. Therefore, the attitude of the accused would go to establish the fact that the cheques were issued with an intention of cheating the complainant knowing fully well that the cheques would not be honoured and it would be returned, which is not only punishable under the provisions of the Negotiable Instruments Act, but also punishable under Sections 406, 417 and 420 I.P.C.,
28. He has also argued that the second accused Mr.P.Sivaraman is the managing director of the first accused Company and the third to seventh accused are the directors of the first accused company and that they are the only persons known to the complainant, who are in-charge of day-to-day management of the first accused company and actually involved in the conduct of the business of the first accused company at the time when the offence was committed and therefore they are liable to be prosecuted along with the first accused company.
29. In support of his contention, he has placed reliance upon the following decisions:
i. Rajkumar Menon and another v. M/s.Upasana Finance Limited, Chennai, reported in (2004) MLJ (Crl.) 315;
ii. Malwa Cotton and Spinning Mills Ltd., v. Virsa Singh Sidhu and Others, reported in (2008) 3 MLJ (Crl) 1084 (SC);
iii. D.Sendilkumar v. M.Sadasivam, reported in CDJ 2008 MHC 1714; and iv. Abdul Salam and another v. Taj Trading Corporation, reported in (2010) 1 MLJ (Crl) 1084.
30. In Rajkumar Menon's case (cited supra), a plea was taken by the petitioners therein that they were ceased to be the directors of the company on whose behalf the cheque was signed, on the date of the presentation of the cheque, on the basis of an unmarked document. This plea was not accepted by the learned single Judge of this Court and held that it was for the petitioners to prove by marking the document in the trial to establish that they were ceased to be the directors of the company on the date of the presentation of the cheque and they were not in charge of the day to day affairs of the company.
31. In Malwa Cotton and Spinning Mills Ltd's case (cited supra), it is held that whether in fact the respondent No.1's claim to have resigned was factually correct would have been established in trial and the High Court could not have passed the impugned judgment while dealing with the application under Section 482 of the Criminal Procedure Code. Further, it is held that in a petition filed under Section 482 of the Code of Criminal Procedure, 1973 to quash the proceedings relating to the complaint filed against an accused/Director of the Company alleging commission of offence punishable under Section 138 of the Negotiable Instructions Act, 1881 the High Court is not justified in quashing the said proceedings on the ground that the accused had resigned from the Directorship before the cheques were issued, since the question as to whether in fact the claim of the accused pertaining to his resignation was factually correct or not, is not a question which could have been gone into a proceeding under Section 482 of the Code of Criminal Procedure, 1973.
32. On coming to the instant case on hand, it is the specific case of the petitioners that when they had resigned from their office of the directorship of the first accused company long prior to the the alleged transaction and issuance of cheques, it is too much for the respondent to contend that the petitioners were not only the directors of the first accused company but they were also actually in-charge of it's day-to-day management.
33. Mr.S.Subbiah, learned counsel appearing for the petitioners has also argued that when the petitioners resigned from their respective offices of the directorship of the first accused company much earlier to the dates specified in Form No.32 namely 31.10.1999, 15.10.2003, 31.12.2003 and 03.01.2007 respectively were infact ceased to hold the office, it would be a futile effort on the part of the respondent to implicate the petitioners as if they were in day-to-day management and incharge of the company.
34. In the instant case on hand, as it has been stated herein before, the documents viz., Form No.32 produced by the learned counsel appearing for the petitioners, are all public documents as contemplated under Section 74(2) of the Indian Evidence Act, 1872 and also in terms of Section 610 and 163 of the Companies Act, 1956 and therefore no doubt they are admissible in evidence and on the face of the documents, this Court is of considered view that it is beyond suspicion or doubt, placed on record by the accused and if it is considered, the accusation against the petitioners cannot stand and therefore the documents viz., Form No.32 have a bearing on the matter even at the initial stage and therefore as observed by the Apex Court in Anita Malhotra's case (cited supra), the relief, which is sought for in the petition can very well be granted by exercising the inherent jurisdiction of this Court under Section 482 Cr.P.C.,
35. As observed by R.V.RAVEENDRAN, J., on behalf of the Division Bench in K.K.Ahuja's case (cited supra), the prevailing trend appears to require the complainant to state as to how a Director who is sought to be made an accused, was in charge of the business of the Company, as every Director need not be and is not in charge of the business of the Company.
36. In the instant case on hand also, the respondent, who is the complainant in the above said cases has not stated as to how the complaints have been filed against the petitioners. In the absence of appropriate answer on the part of the respondent, this Court, without any hesitation, can exercise the inherent jurisdiction of this Court under Section 482 Cr.P.C., and quash the criminal proceedings of the case in S.T.C.Nos.1290, 1292 and 1293 of 2007, on the file of the learned Judicial Magistrate No.II, Madurai, in respect of the petitioners alone.
37. In the result, these criminal original petitions are allowed and the criminal proceedings in S.T.C.Nos.1290, 1292 and 1293 of 2007, on the file of the learned Judicial Magistrate No.II, Madurai are quashed in respect of the petitioners alone. Consequently, connected miscellaneous petitions are closed.
krk To The Judicial Magistrate No.II, Judicial Magistrate Court No.II, Madurai