Delhi District Court
In Re vs A-1) M/S. Tele Spectral Network Pvt. Ltd on 27 April, 2015
IN THE COURT OF SH. ASHU GARG,
Judge, Small Causes Court -cum- Addl. Senior Civil Judge -cum-
Guardian Judge -cum- Metropolitan Magistrate (New Delhi),
Patiala House Courts, New Delhi
CC No. 89/13
Unique Case ID No.
Date of Institution: 30.04.2009
Date of reserving judgement: 09.04.2015
Date of pronouncement: 27.04.2015
In re:
M/s. Mothersonsumi Infotech & Designs Ltd.
2nd Floor, F-7, Block B-1,
Mohan Cooperative Industrial Estate,
Mathura Road, New Delhi-110044 ... Complainant
versus
A-1) M/s. Tele Spectral Network Pvt. Ltd.
192/22, FF, Ramesh Market,
East of Kailash, New Delhi-110065
A-2) Sh. Manas Sahoo (Director)
[DECLARED PROCLAIMED OFFENDER]
A-3) Sh. Nalin Kumar Panchbhayiya (Director)
S/o. Sh. Yamuna Prasad Panchbhayiya
R/o. C-24, Third Floor,
Kalkaji, New Delhi- 110019 ... Accused persons
JUDGMENT:
1.The present is a complaint filed under section 138 NI Act with respect to a cheque no. 205733 dated 02.03.2009 drawn on the Bank CC No. 89/13 Page 1 of 16 of India, Okhla Industrial Estate Branch, New Delhi in favour of the complainant company M/s. Mothersonsumi Infotech & Designs Ltd. for a sum of Rs. 26,89,226/-, that got dishonoured for the reasons "Insufficient Funds". The cheque was issued on behalf of the accused no. 1 company M/s. Tele Spectral Networks Pvt. Ltd. The complaint has been filed against the said accused no. 1 company and its two directors Sh. Manas Sahoo (accused no. 2, since declared Proclaimed Offender) who is stated to be the signatory of the cheque, and Sh. Nalin Kumar Panchbhayiya (accused no. 3).
2.As per the complaint, there were business relations between the two sides wherein the accused company was its customer and a purchaser of its software products that were supplied to it as per the purchase orders placed. Against the supply of the products, the accused company issued the cheque in question. But when presented, the same got dishnoured vide cheque returning memo dated 06.03.2009. Thereafter, a demand notice dated 13.03.2009 was sent to the accused persons on 14.03.2009, but despite expiry of statutory period of fifteen days from service thereof, no payment was made and hence, the present complaint was filed in the court.
3.Pre-summoning evidence was led and on its basis, vide order dated 10.12.2009, all the three named accused persons were summoned.
4.As far as the accused no. 1 company is concerned, it remained unserved. Fresh address of the company was also furnished by the CC No. 89/13 Page 2 of 16 complainant but it could never be served even at that address. Thus, the matter never proceeded against the said company for want of its correct and complete address on which it may be served with the court process.
5.The presence of accused no. 2 could also not be secured despite repeated attempts and even by issuing coercive process. Accused no. 2 was subsequently declared as Proclaimed Offender vide order dated 05.04.2014. In view of this position, the present judgment shall deal only with the liability of accused no. 3.
6.The accused no. 3 appeared and notice of accusation under section 251 CrPC for commission of offence under section 138 NI Act was framed against him vide order dated 12.12.2013, to which he pleaded not guilty and claimed trial. He disclosed his defence to the effect that he was not the signing authority at the relevant time. He took stand that he had already resigned as director of the company before the issuance of the cheque in question. In terms of the judgement titled as Rajesh Agarwal v. State [171(2010) DLT 51], the accused no. 3 moved an application under section 145(2) NI Act, which were allowed vide order dated 07.02.2014 and the AR of the complainant was recalled for cross-examination.
7.At the trial, the complainant examined its authorised representative Sh. Anil Sethi as CW-1 as the only witness. He tendered his affidavits reiterating the contents of the complaint and relying upon the CC No. 89/13 Page 3 of 16 documents including the cheque in question Ex. CW-1/2, cheque returning memo Ex. CW-1/3, legal notice Ex. CW-1/4, postal receipts Ex. CW-1/5 and a copy of the purchase order Mark-X. During cross- examination, he informed that no separate legal notice was sent to the accused no. 3 personally but was sent only to the accused no. 2 being a director of the accused no. 1 company. He further stated that no document has been placed on record to show if they were dealing with the accused no. 3 personally, but stated that they were dealing with the company of which he was a director. He relied upon the records of the ROC (Registrar of Companies) wherein the name of the accused no. 3 was appearing as a director of the accused no. 1 company. He denied that the accused no. 3 was never dealing with the day-to-day affairs of the accused no. 1 company or that he was falsely implicated.
8.Statement of the accused no. 3 was recorded under section 313 CrPC wherein he denied the allegations and pleaded innocence. He claimed that he was a director of the accused no. 1 company only from December 2008 to February 2009, but he came to know subsequently that information was given to the ROC only in August 2009. He stated that he never dealt with the complainant company and had never participated in any of the affairs the accused no. 1 company. He expressed his ignorance about the issuance of the cheque in question. He denied the receipt of legal notice and claimed that he had no liability to pay anything to the complainant. He chose not to lead any evidence in defence.
CC No. 89/13 Page 4 of 169.It is in these circumstances that the Ld. Counsel for the complainant has argued that the complainant has been able to prove its case against the accused no. 3. Relying upon the records of the ROC, Ld. Counsel submits that accused no. 3 was an Executive Director with the accused no. 1 at the time of issuance and dishonour of the cheque and by virtue of his office, he is deemed to be aware of the transactions between the two sides. It is submitted that the complainant being a third party cannot be expected to be aware of the internal matters and arrangements between the directors and other employees and did not have means to look into the question as to who was responsible for the affairs of the company. It is contended that the complainant was dealing with the accused no. 1 company only through its two directors as deposed by its witness and therefore, the material is sufficient to establish vicarious liability of accused no. 3 as well. It is further submitted that the demand notice sent to the accused no. 2 being the director of the accused no. 1 company is deemed to be served even on accused no. 3 as well being its Executive Director.
10.On the other hand, Ld. Counsel for the accused no. 3 has argued that no case is made out against him. His argument is primarily on the ground that there is nothing on record to show the involvement of accused no. 3 in any of the transactions between the complainant and the accused no. 1 company. It is submitted that no specific role has been attributed to the accused no. 3 in the complaint or by the witness, except levelling bald allegations of his involvement. It is contended that accused no. 3 cannot be held vicariously liable for the affairs of CC No. 89/13 Page 5 of 16 accused no. 1 just because he was one of the several directors of the company. It is also argued that the demand notice was sent only to the accused no. 2 and never to the accused no. 3 and therefore, no cause of action arose against the accused no. 3.
11.I have heard the arguments advanced by the respective Ld. Counsel for both the sides and have carefully perused the material available on record.
12.A perusal of the record shows that the cheque in question was issued on behalf of the accused no. 1 company. Since the cheque was issued by a company, section 141 NI Act would come into play. In case of dishonour of any such cheque issued on behalf of a company, any person who is in charge of or responsible to the company for its affairs can also be held vicariously liable for commission of offence under section 138 NI Act. Thus, the accused no. 3 can be held vicariously liable only if it is established that he was in charge of or responsible for the business of accused no. 1 company. There is no doubt that said burdened to establish this fact is on the complainant and this burden cannot be shifted upon to the accused to show that he was not so responsible.
13.It is an admitted position that the accused no. 3 is not the signatory to the cheque in question. In case of a company, its Directors, officers or other employees can be held vicariously liable only with the aid of section 141 NI Act. However, it is well settled that any and every CC No. 89/13 Page 6 of 16 Director, officer or employee of a company cannot be held liable just because he happens to be in service of the said company. A company is a separate juristic entity and is run by its officials. All such officials cannot be held to be responsible for every act of the company just because of the reason that they hold a particular post. The burden would be upon the complainant only to aver and prove by leading positive evidence to show that such an employee or a Director was in charge of or responsible for the day to day affairs of the accused company so as to hold him vicariously liable. In the absence of such a role specifically attributed to them, any or every Director, officer or employee of a company cannot be held liable. It is also well settled that the complainant has to explain by bringing on record the necessary facts that how and in what manner such persons can be held liable and a bald averment that they were so responsible for the conduct of affairs of the company, would not serve the purpose. The Hon'ble Supreme Court of India in SMS Pharmaceuticals Ltd. v. Neeta Bhalla [(2005) 8 SCC 89] has laid down that it is necessary for the complainant to specifically aver in the complaint that at the time when the offence was committed, the person accused was in charge of or responsible for the conduct of business of the company. Without this averment being made, requirements of section 141 NI Act would not be satisfied. All the Directors in a company (or other officers or employees) cannot be deemed to be in charge of or responsible for the conduct of business of the company. With the exception of a Managing Director or the signatory of the cheque, to implicate any other person as vicariously liable, there has to be specific averment CC No. 89/13 Page 7 of 16 and proof of his role.
14.The Hon'ble Supreme Court of India subsequently in the case titled as National Small Industries Corporation Ltd. v. Harmeet Singh Paintal [167 (2010) DLT 143] held that vicarious liability on the part of a person must be pleaded and proved and not inferred. The said liability does not arrive merely on the basis of designation or office which a person holds in a company and a bald cursory statement in a complaint that a Director made an accused was in charge of or responsible to the company for the conduct of its affairs, without anything more as to his role, would not be sufficient.
15.Relying upon the law so laid down, it becomes clear that a director cannot be held liable for the affairs of a company just because of his holding a position as such a director. There can be any number of directors, shareholders and employees of the company dealing in all kinds of transactions, but any and all of them cannot be held vicarious liable for the dishonour of a cheque issued on behalf of a company. There has to be specific averment in the complaint attributing a specific role to any such director made as an accused so as to proceed against him. Such averment has to be supported by adequate proof of allegations. In the absence of such averment and proof, no liability can be attributed to a director of a company, as there is no rule of law that makes ever director of a company responsible for the affairs of the company for all its acts.
CC No. 89/13 Page 8 of 1616.Having said so, it is seen that as per the complaint, the accused company, through its directors, is stated to be a customer of the complainant. It is averred that the accused no. 2 and 3 as directors of accused no. 1 company had been placing purchase orders with the complainant for supply of its articles towards which the cheque was issued. Other than this, no specific role whatsoever has been attributed to accused no. 3 in his individual capacity.
17.Record shows that even at initial stage when affidavit of CW-1 was tendered in pre-summoning evidence, the court had sought clarification with respect to the liability of accused no. 2 and 3, as reflected in order dated 07.07.2009. Upon this, CW-1 tendered an additional affidavit along with a copy of a purchase order Mark-X, wherein he deposed that the accused no. 2 and 3, being the directors of the accused no. 1 company, were liable for day-to-day functioning of the said company. He reiterated that accused no. 2 and 3 used to be regular customers of the complainant and had been placing purchase orders with it. He deposed that the cheque in question was issued by the directors of accused no. 1 company, though it was signed only by the accused no. 2.
18.It is thus seen that no specific role had been attributed to accused no. 3 by the complainant in its complaint. Only general averment as aforesaid has been made in the additional affidavit of CW-1 to the effect that accused no. 2 and 3 were acting on behalf of accused no. 1 company being its directors. A joint reading of the complaint and CC No. 89/13 Page 9 of 16 affidavit of CW-1 would show that the liability of accused no. 3 has been drawn only on the basis of the fact that he was a director of the accused no. 1 company and nothing beyond. Even the averment, that he was responsible for the affairs of the company, has been inferred only on the pretext that he was a director.
19.Apparently, accused no. 3 is not the signatory to the cheque in question. Similarly, there is no document on record to show that accused no. 3 ever had any personal dealing with the complainant company. The purchase order Mark-X bears the signatures of accused no. 2 only. As admitted by CW-1, there is no document to show that accused no. 3 had ever dealt with the complainant company. His stand is only to the extent that they were dealing with the company and accused no. 3 is liable being its director. There is no witness examined by the complainant who might have ever dealt with the accused no. 3 at any point of time.
20.In the absence of any such documentary or oral evidence to show his involvement, it can be said that there is nothing to attribute vicarious liability upon accused no. 3. Therefore, it can said that the complainant has not been able to discharge its initial burden to show that the accused no. 3 was in charge of or responsible to the company for its business affairs.
21.At this stage, Ld. Counsel for the complainant has strongly relied upon the records of the ROC, a certified copy of which has been CC No. 89/13 Page 10 of 16 placed on record. This document shows that the accused no. 3 was appointed as Executive Director of the accused no. 1 company on 01.12.2008.
22.This document has nowhere been denied by the accused no. 3 nor its authenticity challenged. In view of this record, it is clear that the accused no. 3 was a director of the accused no. 1 company. Once this fact is so established, the burden would be upon the accused no. 3 to prove his stand that he had resigned from the company before the cheque in question was issued. However, it is pertinent to note that no such document has been brought on record by the accused no. 3 to show that he had so resigned. No resignation letter or acceptance thereof has been produced by him on record. No intimation which is mandatory to be furnished to the ROC has been placed on record by the accused no. 3 to show that he had resigned in February 2009 as claimed by him in his statement under section 313 CrPC. In the absence of any such material on record, it can be safely said that the accused no. 3 had failed to establish his defence that he had already resigned from the company before the cheque in question was issued or dishonoured.
23.However, the question would still remain as to if accused o. 3 can still be held vicariously liable on the ground of his being an Executive Director in the accused no. 1 company.
CC No. 89/13 Page 11 of 1624.Ld. Counsel for the complainant has relied upon a judgements titled as Harshendra Kumar D. v. Rebatilata Koley [Crl. Appeal No. 360-377/2011 dated 08.02.2011, Supreme Court of India], A. K. Singhania v. Gujarat State Fertilizer Co. Ltd. [Crl. Appeal No. 1692-1718/2013 dated 17.10.2013, Supreme Court of India], Gunmala Sales Pvt. Ltd. v. Anu Mehta [Crl. Appeal No. 2228/2014 dated 17.10.2014, Supreme Court of India], and Shree Raj Travels & Tours Ltd. v. Destination of the World Pvt. Ltd. [Crl. MC No. 2652/2010, dated 23.09.2010, Delhi High Court].
25.I have gone through the said precedents. The law so laid down in these cases is well settled, recognized and binding. It is no more an issue of discussion that vicarious liability of a Managing Director of a company can be inferred by virtue of his post and that of signatory by virtue of his act, but as far as other directors are concerned, it is a matter of evidence and proof and no such liability can be inferred. There is no deemed liability of a director and he cannot be held liable just because he happens to be a director. Further, the consideration is different at the initial stages when a person seeks quashing of complaint or recalling of summoning orders. In that position, the courts look for some material to proceed against a person. But the consideration is different while disposing of the matter finally after evidence is adduced by the parties. Some averments against a person would justify his implication and not to quash the proceedings against him, but if such averments remain not proved even in evidence, the person deserves to be acquitted.
CC No. 89/13 Page 12 of 1626.In the present case, there is nothing on record to show that the accused no. 3 was a Managing Director or Joint Managing Director of the accused no. 1 company so as to attribute vicarious liability upon him by virtue of his position. Merely because he was appointed as an Executive Director in the company, that he would not make his position akin to that of a Managing Director. There is nothing to show that the nature of work and responsibility of the accused no. 3 as Executive Director was same as a Managing Director. The material on record does not show as to how many directors were there in the accused no. 1 company, who was the managing director, who was the executive director and who were the other directors. The complainant has not placed on record the Memorandum and Articles of Association of the accused no. 1 company, which are in public domain and not secret documents, which would have gone to establish as to who were the directors of the accused no. 1 company and what were their roles and responsibilities. This document being in public domain would have been the best evidence to be produced by the complainant to show the role and liability of accused no. 3 in his capacity as an Executive Director. But absence of this document would also leave a missing link to establish liability of the accused no. 3.
27.Though the submissions of Ld. Counsel for the complainant, that being an outsider the complainant is not expected to know about the internal matters of the accused no. 1 company, appear to be justified, yet it is to be understood that taking such a ground would not give the CC No. 89/13 Page 13 of 16 complainant any right to attribute accusation and implead all the directors or employees or shareholders of a company for all its affairs. If such an interpretation is to be given, then all the directors of a company would be liable to be prosecuted of every single act of the company. But such an interpretation is not permissible. To attribute criminal liability to any particular director, there has to be specific role attributed to him and the complainant has to be lead positive evidence to show that such a director was in charge of or responsible to the company for its affairs. It could therefore be said that criminal liability under section 138 / 141 NI Act cannot be fastened merely on the basis of accused no. 3 being an Executive Director in the accused no. 1 company.
28.It is further claimed by the accused no. 3 that he never received any legal notice from the complainant. It is an admitted position that the legal demand notice Ex. CW-1/4 was sent only to the accused no. 2 being the director of the accused no. 1 company. The question is whether such a notice is deemed to be served accused no. 3 as well.
29.It is to be understood that a notice sent to a principal officer of a company is valid service upon the company itself. Since accused no. 2 was a Director of accused no. 1 company, he was a principal officer. Legal notice clearly mentioned the details of the cheque and therefore accused no. 2 being the director of the accused no. 1 company was well aware of the transaction under which the cheque was issued. Therefore, service of legal notice upon accused no. 2 can be said to be CC No. 89/13 Page 14 of 16 valid service upon accused no. 1 company. Once a notice is held to be duly served upon the company, the law does not require any notice to be served on every individual Directors who can be held vicariously liable under section 141 NI Act for the commission of offence by the company. As held in the judgement titled as Wg. Cdr. R.R.J. Dass v. Satya Bhamalal [2002 VI AD (Delhi) 595], no such separate notice is required to be served on all the directors and the notice sent to a company would be sufficient notice to all such persons who can be held vicariously liable being incharge of or responsible for the affairs of the company. Therefore, even if no separate notice was sent individually to the accused no. 3, the notice sent to the accused no. 2 in the capacity of a director of the accused no. 1, would be sufficient notice to him, provided the complainant is able to establish that the accused no. 3 can also be held vicariously liable.
30.But in this case, such service of notice upon accused no. 2 on behalf of accused no. 1 would be ineffective qua accused no. 3 as the material on record is not sufficient to establish that the said accused no. 3 was in charge of or responsible to the accused no. 1 company for its affairs.
31.In view of the above discussion, it can be said that the complainant has not been able to establish that the accused no. 3 was in charge of or responsible for the business of the accused no.1 company so as to make him vicariously liable for dishonour of the cheque in question. The accused no. 3 is therefore acquitted of the charges. His bail bond CC No. 89/13 Page 15 of 16 shall however remain in force for the next six months in terms of section 437-A, CrPC.
32.File be consigned to the record room. The proceedings against accused no. 1 company shall revive as and when the complainant is able to trace its whereabouts so as to serve it with summons and also upon arrest of accused no. 2 who has been declared a Proclaimed Offender.
Announced in the open court this 27th day of April 2015 ASHU GARG JSCC/ASCJ/GJ/MM (New Delhi), PHC CC No. 89/13 Page 16 of 16