Karnataka High Court
Sri Venkatratnam Naidu Adhikari vs Sri A V Balasubramanya on 3 December, 2018
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 3RD DAY OF DECEMBER, 2018
BEFORE
THE HON'BLE MR. JUSTICE ASHOK G. NIJAGANNAVAR
WRIT PETITION NO. 49599/2016 (GM-RES)
C/W. CRIMINAL PETITION NO.7623/2016
IN WRIT PETITION NO. 49599/2016:
BETWEEN:
Sri Venkatratnam Naidu Adhikari
Aged 34 years
S/o. Sri Narasimha Rao Venkata Adhikari
Presently residing at: B-2154
Prestige Notting Hill, Kalena Agrahara
Bannerghatta Main Road
Near Minakshi Temple
Bangalore-560 076.
... Petitioner
(By Sri K. Ramachandraa, Advocate)
AND:
1. Sri A.V. Balasubramanya
S/o Sri Venkatasubbu
R/at Samartha Krupa, 3372,
13th Cross, 2nd Main, Shastri Nagar
Bangalore-560 028.
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2. American Road Technology &
Solutions Private Limited
Represented by its Director
No.510 B, Mittal Towers
M.G. Road,
Bangalore-560 001.
3. Sri Bhanuprabhakrishna Hebbar
Director
American Road Technology &
Solutions Private Limited
No.510 B, Mittal Towers
M.G. Road
Bangalore-560 001.
4. Sri M.G. Mohan Kumar
Director
American Road Technology &
Solutions Private Limited
Flat No.415, Sri Ranga Apartments
No.21, Temple Road
Malleshwaram
Bangalore-560 003.
5. Sri Purushothama Banglaore Kalachari
Director
American Road Technology &
Solutions Private Limited
Flat No.121, 11th Cross, 6th 'A' Main
60 Feet Road, J.C.Nagar
Bangalore-560 086.
... Respondents
(By Sri C.P. Praveen, Adv., for R1,
R2 to R5 served)
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***
This Writ Petition is filed under Articles 226 and
227 of the Constitution Of India, praying to quash the
proceedings in CC 24310/2015 on the file of the learned
XVI Additional Chief Metropolitan Magistrate at
Bangalore for the offences punishable under Section
138 of Negotiable Instruments Act, 1881 insofar as the
petitioner is concerned vide Annexure-G.
IN CRIMINAL PETITION NO. 7623/2016:
BETWEEN:
Smt. Bhanuprabha Krishna Hebbar
W/o. Om Prakash,
Non-Executive Director
No.604/B, Queens Apatment
Queens Circle
Bengaluru-560 001.
... Petitioner
(By Sri D.L.N. Rao, Senior Counsel along with
Sri Anirudh Anand, Adv.)
AND:
Sri A.V. Subramanya
S/o Sri Venkatasubbu
R/at Samartha Krupa
3372, 13th Cross, 2nd Main
Shastri Nagar
Bangalore-560 028.
.... Respondent
(By Sri C.P. Praveen, Adv.)
***
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This Criminal Petition is filed under Section 482 of
Cr.P.C. praying to quash the proceedings in C.C.
No.24310/2015 on the file of XVI A.C.M.M., Bangalore,
vide Annexure-G.
These Petitions coming on for Preliminary Hearing,
in 'B' Group this day, the Court made the following:
ORDER
The petitioner in Crl. P. No.7623/2016 who is accused No.2 in C.C. No.24310/2015 and the petitioner in W.P. No.49599/2016 who is accused No.5 in C.C. No.24310/2015 have sought for quashing the proceedings in C.C. No.24310/2015 on the file of XVI Additional Chief Metropolitan Magistrate, Bangalore for the offence punishable under Section 138 of the Negotiable Instruments Act (for short 'N.I. Act').
2. The facts leading to these petitions are that, the complainant Sri A.V. Balasubrmanya filed a private 5 complaint in P.C.R No.10181/2015 against accused Nos. 1 to 5 alleging that he had given collateral security in respect of his properties in order to facilitate the Company to borrow the loan as he was also the shareholder in the said Company. As the complainant had given his properties as security to the Bank in respect of the loan borrowed by the Company, the Company had agreed to pay a monthly fees of Rs.2,25,000/- to the complainant for a period of 18 months and if the security is extended beyond 18 months, in such case Rs.2,75,000/- in addition to the annual bonus of Rs.6,00,000/-.
3. The petitioner in Criminal Petition No.7623/2016 had executed an agreement in favour of the complainant on behalf the Company as a Director. Thereafter, accused Nos. 1 to 5 failed to 6 perform their part of the contract by not paying monthly fees and bonus to the complainant from October-2013 to February-2015. Accused No.3, Sri M.G. Mohan Kumar being the Director, who is in- charge of the day-to-day affairs of the Company, had issued two cheques bearing No. 542241 dated 24.02.2015 for Rs.5,00,000/- and another cheque bearing No. 542242 dated 24.02.2015 for Rs.5,00,000/- drawn on Canara Bank, Cantonment Branch, Bangalore. When the said cheques were presented only one cheque bearing No.542241 for Rs.5,00,000/- was honoured and another cheque bearing No.542242 for Rs.5,00,000/- was dishonoured. Accused No.3 being responsible for all the day-to-day affairs of the Company as on 24.02.2015 has deliberately and intentionally issued cheques even though there was no sufficient fund in 7 the accounts of the Company. After dishonour of one cheque, the complainant issued legal notice, but accused failed to make the payment. Thus, the complainant filed P.C.R. No. 10181/2015 and thereafter it was registered as C.C.No.24310/2015.
4. Heard.
5. The learned counsel for the petitioners in Crl. Petition No.7623/2016 and W.P. No.49599/2016 strenuously contended that as on the date of the issuance of cheques, both these petitioners were not in-charge of the affairs of the Company. They were not even the signatories to the cheques issued in favour of the complainant. Even though the accused No.2/petitioner in Crl. Petition No.7623/2016 had executed an agreement dated 12.09.2013 in favour of 8 the complainant, she had signed it as a Director in- charge of the affairs of the Company. Thereafter, she ceased to be the Managing Director. As on the date of issuance of cheque, she was only a Non-executive Director. As such, no liability can be fixed. In support of the contentions, the learned counsel for the petitioner has relied on the following decisions:
(i) (2005) 8 Supreme Court Cases 89 -
S.M.S. PHARAMACEUTICALS LTD.
Versus NEETA BHALLA AND
ANOTHER
(ii) Criminal Appeal Nos. 2604-
2610/2014 arising out of Special Leave Petition (CRL) Nos. 9133-
9139/2010 - POOJA RAVINDER
DEVIDASANI VERSUS STATE OF
MAHARASHTRA & ANR.
9
(iii) CRIMINAL PETITION NO.663/2014 C/W CRIMINAL PETITION NOS.
664/2014, 665/2014, 666/2014 -
Salil Gandhi Vs. M/s. World Tel Sports India Pvt. Ltd.
(iv) CRIMINAL PETITION NO.6036/2016 -
Yusuf Iqbal Yusuf vs. M/s. Bhoruka Park Pvt. Ltd..
6. The learned counsel for the petitioner in W.P.No.49599/2016 has relied on the decision reported in (2016) 6 SCC in the case of TAMIL NADU NEWS PRINT AND PAPERS LIMITED Versus D. KARUNAKAR AND OTHERS.
7. Per contra, the learned counsel for the complainant strenuously contended that these two petitioners are also liable for the dishonour of the 10 cheque of the Company. The petitioner-accused in Criminal Petition No.7623/2016 had executed an agreement dated 12.9.2013 in favour of the complainant. Thereafter in the year 2017, she has executed an agreement in favour of Canara Bank to the effect of pledging the properties belonging to the complainant. The petitioner in W.P. No.49599/2016 is also liable as he had also taken active part in the day-to-day affairs of the Company initially as an employee thereafter as a Director of the Company. Thus, at this stage, there are no valid grounds to quash the proceedings.
8. On giving thoughtful consideration to the arguments advanced by the learned counsel for the petitioners and the respondent/complainant, the question that arise for determination are that: 11
(a) Whether the petitioners are
liable for prosecution under
Section 138 read with Section
141 of N.I. Act for the alleged
offences of dishonour of the
cheque committed by the
Company?
(b) Whether the averments made in the complaint and legal notice prima facie make out a case that the accused/petitioners have committed the offences under Section 138 read with Section 141 of N.I. Act?
9. It is the admitted fact that the petitioners are Directors of the Company. According to the complainant, the petitioner-accused in Crl. P. No.7623/2016 had executed an agreement dated 12 12.9.2013 in favour of complainant for making certain payments to the complainant as the complainant had provided collateral security to the Bank in respect of loan to be borrowed by the Company. Admittedly, the cheques were not signed by the petitioners and these petitioners were not the Managing Directors, but only Non-executive Directors of the Company as on the date of issuance of cheques.
10. The learned counsel for the petitioner in W.P.49599/2016 submitted that the petitioner ceased to be the Director on 29.09.2014. Thus, it is evident that these petitioners were not the custodian of the governance of the Company and they were not involved in the day-to-day running affairs of the Company. To fasten the vicarious liability under Section 141 of N.I. Act, the person at the material 13 time shall have to be at the helm of affairs of the Company, one who actively looks after the day-to-day activities of the company and particularly responsible for the conduct of its business.
11. Section 141 clauses (i) and (ii) of the N.I. Act reads as under:
"(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 14 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 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 15 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. In a decision reported in (2005) 8 SCC in the case of S.M.S. PHARAMACEUTICALS LTD. Versus NEETA BHALLA AND ANOTHER the Hon'ble Supreme court has observed at Para No.10 as under:
"10. While analyzing Section 141 of the Act, it will be seen that it operates in cases where an offence under Section 138 is committed by a company. The key words which occur in the section are "every 16 person". These are general words and take every person connected with a company within their sweep. Therefore, these words have been rightly qualified by use of the words:
"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, etc".
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 17 and responsible for the conduct of business of the company at 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 a designation or office 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 18 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"
13. In Para No.11 of the above decision, the Supreme Court has observed as under:
"11. A reference to sub-section(2) of Section 141 fortifies the above reasoning because sub-section(2) envisages direct involvement of any director, manager, secretary or other officer of a company in the commission of an offence. This section operates when in a trial it is proved that the 19 offence has been committed with the consent or connivance or is attributable to neglect on the part of any of the holders of these offices in a company. In such a case, such persons are to be held liable. Provision has been made for directors, managers, secretaries and other officers of a company to cover them in cases of their proved involvement."
14. In another unreported decision in Crl. Petition Nos. 2605-2610/2014, it is asserted by the Apex Court that only those persons who are in-charge and responsible for the conduct of the business of the Company at the time of commission of offence will be liable for criminal action. A Director who was not in- charge and not responsible for the conduct of business of the Company at the relevant time will not be liable for offence under Section 141 of N.I. Act. 20
15. In the present case, the averments made in the legal notice and the private complaint do not make out a case that on the date of issuance of cheque, the petitioners were in-charge of the day-to-day affairs of the Company and they have issued the cheques in favour of the complainant. No material is placed on record to show that these petitioners were the authorised persons to run the business of the Company and as such, they are liable for the offence committed by the company under Section 141 of N.I. Act.
16. The Law laid down by the Apex Court is that for making a Director of Company liable for the offence committed by the Company under Section 141 of N.I. Act, there must be specific averments against the 21 Directors showing as to how and in what manner they were responsible for conduct of business of the Company. Section 141 raises legal fiction, by reason of the said provision, a person although was not liable for commission of such an offence would be vicariously liable. Therefore, in these two petitions, the documents produced go to show that the petitioners were only the non-executive Directors and there are no specific averments regarding the active role played by these petitioners as Managing Directors or Executive Directors in issuance of cheques for conducting the business of the Company so as to make vicariously liable for the offence committed by Company.
17. For the foregoing reasons, I am of the view that there are valid grounds for quashing the proceedings 22 in C.C.No.24310/2015 as far as petitioners are concerned.
18. Hence, I proceed to pass the following:
ORDER Both the petitions are allowed.
Proceedings in C.C.No.24310/2015 are quashed against these petitioners.
Sd/-
JUDGE Sbs*