Telangana High Court
M/S Celebrity Cricket League Private ... vs M/S.Focus Tours And Travels Pvt. Ltd on 6 July, 2023
Author: M.Laxman
Bench: M.Laxman
THE HON'BLE SRI JUSTICE M.LAXMAN
CRIMINAL PETITION Nos.4068 of 2019, 989 and 998 OF 2020
COMMON ORDER:
1. Since the challenge in all the criminal petitions is to the same proceedings, they are disposed of by way of this common order.
2. All these criminal petitions are filed under Section 482 of the Code of Criminal Procedure (Cr.P.C.), 1973 seeking to quash the proceedings against the petitioners/accused Nos.1 to 9 in C.C.No.11 of 2019 on the file of VI Special Magistrate Court at Erramanzil, which is transferred and renumbered as C.C.No.10518 of 2022 pending on the file of VIII Metropolitan Magistrate, Hyderabad (hereinafter referred to as 'Court below'), registered for the offence punishable under Section 138 of the Negotiable Instrument Act, 1881 (for short 'N.I.Act').
3. Criminal Petition No.4068 of 2019 is filed by accused No.7, Criminal Petition No.989 of 2020 is filed by accused Nos.3 to 6, 8 and 9 and Criminal Petition No.998 of 2020 is filed by accused Nos.1 and 2. Respondent No.1 in all the criminal petitions is complainant before the Court below. For the sake of convenience, 2 the parties are hereinafter referred to as they were arrayed in the complaint before the Court below.
4. The case of the complainant, in brief, is that the complainant is involved in the business of tours, travels, airline ticketing and other travel related services. The complainant is a private limited company incorporated under the Companies Act, 1956. In the course of their business activities, the accused approached for airline tickets and tickets were issued to them by the complainant. In this regard, the accused fell due, an amount of Rs.1,15,39,559/- including interest. In discharge of said liability, the accused initially issued two cheques bearing Nos.029532 and 029541 for an amount of Rs.1,09,39,559/- and Rs.4,00,000/- respectively drawn on Axis Bank, in favour of the complainant. On presentation, said cheques were dishonoured, as such, criminal proceedings were initiated by the complainant in C.C.No.100 of 2016 under Section 138 of the N.I.Act against the accused. During the pendency of such criminal proceedings, there was a settlement between parties and the accused agreed to pay an amount of Rs.81,96,015/-. In pursuance of such settlement, both the parties entered into a Memorandum of Understanding (for short 'MOU') dated 23.07.2018 and criminal proceedings in C.C.No.100 of 2016 were dropped by the 3 complainant. As per the said MOU, the accused issued four fresh cheques in favour of the complainant, out of which two cheques were honoured. However, cheque bearing Nos.029565 and 029566 dated 15.08.2018 and 30.10.2018 respectively issued for an amount of Rs.20,00,000/- and Rs.26,96,015/- respectively drawn on Axis Bank, Jubliee Hills Branch, were dishonoured with the reason 'Signature not as per Mandate'. Subsequently, as there was no response from the accused, in spite of issuance of legal notice, the present criminal proceedings were initiated and the same are pending before the Court below.
5. The main challenge of accused Nos.2 to 9 is that there are no averments in the complaint to the effect that they are Directors in-charge of accused No.1-company and responsible for day-to- day affairs of the company. Further, accused No.2 contended that there is no averment that accused No.2 is also in-charge of accused No.1 and he is responsible for day-to-day affairs of accused No.1-company.
6. According to the learned counsel for the petitioners/accused, the averment, which is made in the present complaint, is not sufficient enough to prosecute the Directors in terms of Section 141 of the N.I.Act and as per the decision of Apex Court in the 4 case of S.M.S. Pharmaceuticals Limited vs. Neeta Bhalla1. He relied upon the said decision to contend that there should be an averment to the effect that when the offence was committed, the Directors were in-charge of company, as such, they are responsible for day-to-day affairs of the company. According to the learned counsel for the petitioners/accused, in the present complaint, no such averments are mentioned, and hence, the present criminal proceedings are liable to be quashed.
7. Learned counsel for respondent No.1/complainant has contended that the averments clearly show that accused Nos.2 to 9 are Directors of accused No.1-company participating in day-to- day affairs of the company and they are well aware of the business transactions between the complainant and accused No.1- company. Further, they were also aware of issuance of cheques in respect of legally enforceable debt of accused No.1-company and all of them have also received the legal notices. All the above averments clearly show that requirements under Section 141 of the N.I.Act are satisfied. It is also his contention that MOU was entered by accused No.2 in capacity of Managing Director of accused No.1-company. Therefore, he cannot say that he is ordinary Director of the company, so as to plead that he is not in- 1 (2007) 4 SCC 70 5 charge and is not responsible for day-to-day affairs of accused No.1-company.
8. In the light of above contentions, in order to answer the same, it is apt to refer to para Nos.10 and 11 of the complaint, which read as under:
"10. All the accused 2 to 9 are the Directors of the Company/Accused No.1 and participating in day to day affairs of the Company/Accused No.1 and well aware of the business transactions between the Complainant and the Accused No.1 and the issuance of the Cheques in discharge of the legal liability and received the legal notice dated 19/11/2018 issued by the Complainant through his counsel.
11. All the Accused No.1 to No.9 have received the legal notice dt.19/11/2018 on 26/11/2018 and all the Accused even after receipt of the notice has failed to make the payment as demanded under section 138 of Negotiable Instruments Act, 1881. The Registered Post Receipts and the Postal department acknowledgments for delivery of the notice to the accused and receipt of the notice by the Accused are filed herewith."
9. It is also apt to refer to Section 141 of the N.I.Act, which reads as follows:
"Section 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 sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence:
[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 6 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 sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
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."
10. It is also apt to refer to para No.18 of S.M.S. Pharmaceuticals Limited (cited supra) judgment, which is relevant and reads as under:
18. Referring to this Court's earlier decisions in K.P.G. Nair v. Jindal Menthol India Ltd. [(2001) 10 SCC 218 : 2002 SCC (Cri) 1038] and Monaben Ketanbhai Shah v. State of Gujarat [(2004) 7 SCC 15 : 2004 SCC (Cri) 1857] it was stated :
"18. To sum up, there is almost unanimous judicial opinion that necessary averments ought to be contained in a complaint before a person can be subjected to criminal process. 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 7 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."
11. A reading of Section 141 of the N.I.Act, it is clear that there are two requirements which are required to be pleaded for proceedings against each of the Directors of a company. The first requirement is that the Director was in-charge of the company. The second requirement is that the Director is responsible for conduct of business of the company as well as the company, at the time of commission of offence. The relevant date for prosecution of other Directors is the date of commission of offence. On the date of commission of offence, the Directors who are on board must be in-charge and they must be responsible for the day-to-day affairs of the company. If these conditions are fulfilled, such Directors are liable for prosecution for the offence occurred and not every Director, who is on board of the company.
12. A reading of the decision of the Apex Court in S.M.S. Pharmaceuticals Limited (cited supra) makes it clear that the complaint must contain a specific averment to the effect that all the Directors who are on the board were in-charge and were 8 responsible for day-to-day affairs of the company, when the offence was committed.
13. Further, a reading of the relevant pleadings of the complaint referred above clearly demonstrates that the only averment made is that accused Nos.2 to 9 were Directors of accused No.1- company and that they participated in the day-to-day affairs of the company, and as such, they were aware of the transaction of issuance of cheques in respect of legally enforceable liability. It is also averred that they have received legal notices. The requirement of being in-charge of the company and conducting the day-to-day affairs of the company, when the offence was committed has not been averred in the complaint. Therefore, the requirement of Section 141 of the N.I. Act has not been satisfied to proceed with the criminal prosecution against accused Nos.2 to 9.
14. Dealing with the contention of accused No.2, he issued cheques and entered into MOU with the complainant. The said MOU was entered to settle the criminal complaint, which was made against accused No.1-company and its Directors and Managing Director. When such MOU and cheques were signed by accused No.2 in the capacity of Managing Director of accused No.1, it is not required that there must be a pleading to the effect 9 that he is in-charge and is responsible for day-to-day affairs of the company. The post held by accused No.2 is Managing Director which is a factor to indicate that he is in-charge and responsible for day-to-day affairs of the company. Hence, the contention of accused No.2 is devoid of merit.
15. Learned counsel for the petitioner in Criminal Petition No.4068 of 2019/accused No.7 contended that accused No.7 has resigned from board of company on 22.03.2018 and his resignation was accepted on 23.03.2018 and the same was filed with Registrar of Companies on the same day. According to him, cheques were issued on 15.08.2018, and hence, he is not liable for prosecution.
16. It is the contention of the learned counsel for respondent No.1/complainant that form filed by accused No.7 with regard to his resignation may not be taken into consideration while dealing with proceedings under Section 482 of Cr.P.C. Thus, the said document can be rejected as it is not of sterling and unimpeachable character.
17. As rightly contended by the learned counsel for respondent No.1/complainant unless convincing material which is sterling and unimpeachable in character is produced by the accused, 10 which are not part of the complaint, quashment of criminal proceedings cannot be done.
18. In the present case, the certified copies of alleged documents from the Registrar of Companies are not filed and truthfulness of the same is in dispute. Therefore, such a contention cannot be accepted in the present proceedings.
19. In view of the above discussions, the criminal proceedings against accused Nos.3 to 9 are liable to be quashed as they did not satisfy the requirements under Section 141 of the N.I.Act. Further, the criminal proceedings against accused No.2 cannot be quashed as he entered into MOU with the complainant by holding the post of Managing Director of accused No.1-company, as in- charge and as he was also responsible for day-to-day affairs of accused No.1-company.
20. In the result, Criminal Petition No.4068 of 2019 and 989 of 2020 are allowed and consequently, criminal proceedings against accused Nos.3 to 9 in C.C.No.10518 of 2022 pending on the file of VIII Metropolitan Magistrate, Hyderabad, are quashed and accused Nos.3 to 9 are acquitted. Further, the Criminal Petition No.998 of 2020 is dismissed and the Court below is directed to proceed with the criminal proceedings in C.C.No.10518 of 2022 11 against accused Nos.1 and 2. No order as to costs. Miscellaneous applications, if any, pending shall stand closed.
______________________ JUSTICE M.LAXMAN Date: 06.07.2023 GVR