Delhi High Court
J.N. Bhatia And Ors. vs State And Anr. on 20 December, 2006
Equivalent citations: [2008]IITR276(DELHI)
Author: A.K. Sikri
Bench: A.K. Sikri
JUDGMENT A.K. Sikri, J.
1. All these cases relate to complaints under Sections 138 and 142 of the Negotiable Instruments Act (in short the 'NI Act') based on dishonour of cheques. Further, in all these cases, the cheques are issued by and on behalf of a company incorporated under the Indian Companies Act or a partnership firm. The complainants, in addition to making the said companies/firms as principal accused, have also imp leaded certain other persons in the capacity of their being Directors or partners, as the case may be. Again, in all these cases, some of those Directors or partners have come up and have filed these petitions under Section 482 of the Code of Criminal Procedure seeking quashing of summoning orders against them. Plea is also common in these cases. It is either contended that they ceased to be the Directors/partners before the cheque(s) was/were presented which got dishonoured and, therefore, since they had no concern with the company/firm as on the date of dishonour of the cheque(s), they could not be arraigned as accused persons. Or else, their contention is that they are not the persons who were in charge and responsible for the business of the company or the firm and, therefore, could not have been implicated in the complaint case(s) in view of the provisions of Section 141 of the NI Act.
2. Though the factual situation in these cases may be somewhat different from each other, the question of law, which arises for determination, is a common one because of the commonality of the pleas raised by these petitioners and indicated above in brief. Summoning orders have been issued in all these cases. The Supreme Court has, in the case of Adalat Prasad v. Jindal 113 (2004) DLT 356 (SC) : III (2004) CCR 176 (SC) : 2004 VIII AD (SC) 533, held that after the issuance of the summoning orders, the Magistrate does not have power to review/recall the same and it is only the High Court which can pass necessary orders in this behalf under Section 482 of the Cr.P.C. It is for this reason that challenging the summoning orders passed, these petitions are filed. Though various decisions have been rendered by the Apex Court and the High Courts interpreting the provisions of Section 141 of the NI Act, cases are pouring in challenging summoning orders by certain directors/partners raising the plea that criminal liability cannot be fastened on them.
3. Therefore, in order to curb/check the said tendency and to prevent jeopardy caused to the liberty of the summoned persons as also saving them from extreme hardship and inconvenience, the Trial Court is legally obliged to scrutinize the material and allegations in the complaint cautiously before issuance of process. It is for this reason, I deem it proper to revisit these judgments and cull out the principles laid down therein which MMs are required to keep in mind before passing the summoning orders against such Directors/partners, who are additionally made accused persons in the complaints. For this, I am making Crl. M.C. No. 3514-15/ 2005 as the lead case taking note of the facts of the said case and the dispute emerging there from for better understanding of the principles which have been laid down in such cases. Therefore, I shall deal with each on its own merits.
4. Brief facts in Crl. M.C. No.-3514-15/2005, M/s. Royal Electronics have filed Criminal Complaint No. 491/2002 against M/s. A.S. Impex Ltd. and five others, thus, in all making six respondents/accused persons. The allegation in the complaint is that after negotiations between the complainant and M/s. A.S. Impex Ltd./accused No. 1 (hereinafter referred as to the Company), the company was initially paying within the credit period but thereafter started committing default in the payment of the bill amounts. As such it agreed to issue cheques in respect of purchases being made and assured that the said cheques would be cleared as and when they are presented for encashment. Number of cheques were issued, the details whereof are given in para 6 of the complaint, and on deposit of these cheques of a total amount of Rs. 10,68,405/-, the same were received back dishonoured with the remarks 'stop payment' and 'A/c closed'. It is alleged that the company, in order not to repay the amounts to the complainant, deliberately got the cheques dishonoured and there was no sufficient balance in the account. It is also alleged in the complaint that after the dishonour of the cheques, legal notice dated 13.11.2000 was sent by the complainant through its Counsel to all the accused persons by means of registered AD post as well as UPC calling upon them to make the payment of the aforesaid amount. The notices as sent were returned with the remarks 'not met' and 'refusal to take delivery' whereas the notices sent under UPC were duly served upon the respondent persons. The undelivered envelopes were returned on 22.11.2000. On the basis of these allegations, it is stated that since the payment is not made within a period of 15 days of the receipt of notice, the respondents have rendered themselves criminally liable to be punished.
5. Accused Nos. 2 to 6are arraigned in their capacity as Directors of the company. The averments, which are made qua these respondents at various places in the complaint, are extracted below:
3. The respondent Nos. 2 to 6 are the Directors as well as the person in charge of respondent No. 1 and are authorised and liable for the acts of respondent No. 1 company. Moreover, the respondent Nos. 2 to 6 are concerned about and responsible for day-to-day running of the company and as such are liable for the same.
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6. xxxxx That aforesaid cheques were issued by the respondent Nos. 1 to 6 who are also the persons in charge for running the company towards debt due and payable and it was assured by the respondent Nos. 2 to 6 that the said cheques will be honoured on presentation as there are sufficient balance in the account to discharge the liability.
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9. xxxxx The said notice as sent under registered A.D. Post were got returned with the remarks not met and refusal to take delivery, whereas the notice sent under U.P.C. Were duly served upon the respondent persons. The undelivered envelops were received back on 22.11.2000.
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11. That the above mentioned cheque issued by the respondent for and on behalf of the respondent No. 1 in favor of the complainant were towards the payment of a debt legally payable and recoverable from the respondent No. 1. However, the respondent No. 1 by fraudulently issuing the aforementioned cheques with dishonest intention, for and on behalf of the respondent No. 1 in favor of the complainant, despite knowing that there were insufficient funds in the account of the respondent No. 1 to honour the same as also got the account closed and as such have rendered the respondent No. 1 as liable for prosecution under Section 138 of the Negotiable Instruments Act. Further the respondent Nos. 2 to 6 being the person in charge of and responsible to the accused No. 1 company for the conduct of its business as rendered himself liable for prosecution under Sections 138, 141 and 142 of the Negotiable Instruments Act.
12. That the above-named respondent have cheated the complainant by inducing it to deliver the goods are mentioned here in above to the respondent No. 1 on the assurances of the respondent No. 1 that it will make the payment of the bill amount.
6. The complainant at pre-summoning stage examined himself as CW 1 and after considering his testimony and the record, following summoning order dated 19.4.2001 was passed by the learned MM:
19.4.2001 Complainant with Counsel.
CW 1 examined and discharged. CE closed. Record perused. The cheque, notice and complaint is within limitation. I am satisfied that a prima facie case is made out against accused under Section 138 of NI Act. Hence accused be summoned on filing of P.F. and R.C. for 28.11.2001.
7. It is clear from the aforesaid order that the learned MM satisfied himself that the cheque, notice and complaint were within limitation. He also recorded that prima facie case was made out against the accused under Section 138 of the NI Act.
8. This petition is filed by two persons summoned, who are accused Nos. 3 and 6 in the said complaint. They have challenged the summoning orders on two counts: (i) They do not deny that they were the Directors of the company at one point of time. However, their submission is that they resigned for the Directorship with effect from 20.9.2000. The company also submitted Form 32 with the Registrar of Companies (in short the 'ROC') on 14.11.2000. Since the cheques in question were dishonoured and information in this respect was received on 31.10.2000, i.e. after they had resigned on 20.9.2000, they cannot be made liable for the alleged offence. Moreover, they state that they are not the persons who are in charge of the company and responsible for its day-to-day affairs. Their submission is that there is nothing in the complaint to show that any act has been committed by them which would make them vicariously liable under Section 141 and bald allegations are made in the complaint alleging that they were responsible for day-to-day running of the company which are not sufficient to bring home the charge of Section 138 read with Section 141 of the NI Act. Their submission is that unless any role is assigned to such Directors in the complaint in respect of their working in the company, these Directors cannot be roped in within the ambit of the aforesaid provisions. Therefore, the question is as to what kind of allegations are to be made in the complaint. As far as the contention that they ceased to be the Directors on 20.9.2000 and, therefore, could not be implicated is concerned, the following dates are material:
(i) Alleged date of resignation from Directorship by the petitioners--20.9.200
(ii) The date on which cheques were returned dishonoured--31.10.2000/8.11.2000.
(iii) The date on which statutory notice was issued--31.11.2000.
(iv) The date on which Form 32 was submitted--14.11.2000.
No doubt, the case of the petitioners is that they resigned on 20.9.2000 and if that date is correct, the petitioners cannot be held responsible as the cheques were presented and dishonoured later. The cause of action for filing the complaint under Section 138 arises when the cheques are dishonoured and demand notice is sent for making payment against the dishonoured cheques. However, Form 32 was submitted only on 14.11.2000. Had the Form 32 been submitted before the dishonour of the cheques and certified copy of Form 32 been produced, one could have acted on the said certified copy and concluded that the petitioners had resigned on 20.9.2000 and, therefore, they cannot be held legally liable for making payment and, therefore, cannot be imp leaded as accused persons. Since Form 32 is submitted after the commission of the alleged offence, i.e. 14.11.2000, it becomes a disputed question as to whether they actually resigned on 20.9.2000 as alleged by them. For this they will have to produce necessary evidence and the matter can be thrashed out only during trial of the case on this aspect. I had the occasion to discuss this aspect of the matter in detail in the case of Sarla Kumar Dr. (Mrs.) v. Srei International Finance Ltd. reported as 132 (2006) DLT 363 : IV (2006) CCR 61 : 2006 IX AD (Delhi) 511.
I may mention here that the petitioners had cited judgment of Madras High Court in the case of S.B. Shankar v. Amman Steel Corporation reported as II (2002) BC 351, wherein the Court acted upon Form 32 because "the same has not been disputed by the Counsel for the respondent/complainant" and, therefore, in the facts of this case that judgment also shall have no implication.
(ii) Coming to the second contention raised by the learned Counsel for the petitioners, it was vehemently argued by Mr. Neeraj Kaul, learned Senior Counsel appearing for the petitioners, that there have to be specific allegations in the complaint as to how the petitioners as Directors were responsible for the day-to-day affairs of the company and mere reproduction of the language of Section 141 would not suffice. For this what was necessary was to state the role assigned to such Directors in the complaint in respect of their working in the company. In support of this submission reference was made to few judgments which shall be taken note of immediately after stating the legal position as contained in Section 141 of the NI Act.
9. The two provisions with which we are concerned are Section 138 and Section 141 of the NI Act. Section 138 casts criminal liability punishable with imprisonment or fine and with both on a person who issues a cheque towards discharge of a debt or liability as a whole or in part and the cheque is dishonoured by the bank on presentation. Thus, under the provisions of Section 138, any person who issues a cheque for discharge of liability and the said cheque is dishonoured, becomes criminally liable, if after the presentation of the cheque it is dishonoured and payment not made after notice of demand is given to him to make the payment within 15 days of the receipt of the said notice. If the person committing an offence under Section 138 is a company, then vicarious liability is fastened on certain other persons as well. Since we are concerned with this vicarious liability in these cases, it would be necessary to reproduce Section 141 in entirety:
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 business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to proceed against and punished accordingly:
Provided that nothing 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.
(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 purpose 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. Thus, Section 141 extends such criminal liability in case of a company to "every person", who, at the time of the offence, was in charge and was responsible for the conduct of the business of the company. Sub-section (1), by using the expression "every person" does not limit this vicarious liability only to Directors, Managers, Secretary etc. Any person who meets the test of his being responsible for the conduct of the business of the company and being in charge of the company can be held liable. Sub-section (2) of Section 141, however, makes specific provision in the case of any Director, Manager, Secretary or other Officer of the company. This is a deeming provision starting with non obstante clause, i.e. irrespective of what is stipulated in Sub-section (1) of Section 141. It stipulates that any Director, Manager, Secretary or other Officer of the company shall also be deemed to be guilty of the offence if 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 the Director, Manager, Secretary or other Officer of the company. A conjoint reading of Sub-section (1) of Section 2 would lead to the following conclusion:
(a) Every person who is in charge and responsible to the company for the conduct of the business of the company, at the time of commission of offence under Section 138, shall be deemed to be guilty of the offence;
(b) if such person is Director, Manager, Secretary or other Officer of the company, then he would be deemed to be guilty if offence is committed with his consent or connivance or is attributable to any neglect on his part. For this, it is obvious, he need not be the person in charge and responsible to the company for the conduct of the business of the company. Thus, in the case of Director, Manager, Secretary, etc., what is to be proved is that the offence was committed with his consent or connivance or is attributable to any neglect on his part. However, as a Director or Manager, etc. would also come within the expression "every person", he can also be held liable if he was in charge and responsible to the company for the conduct of the business and in that eventuality his case would be covered by Sub-section (1). Thus, if a person is not the one who fulfillls the description of Sub-section (2), in his case, it has to be necessarily proved that he was in charge and was responsible to the company for the conduct of the business of the company at the time of commission of the offence. On the other hand, in the case of a Director, Manager, Secretaryor other Officer of the company, either of the two conditions can be proved to make him criminally liable, namely, (a) he was in charge and was responsible to the company for the conduct of the business of the company or (b) the offence had been committed with his consent or connivance or is attributable to any neglect on his part.
11. Deeming provisions in Section 141 of the NI Act provides an exception to the normal rule, viz. a person is not criminally liable vicariously. A person coming within the description of Section 141, can be held vicariously liable. Since it involves criminal liability on satisfaction of ingredients mentioned in Section 141 of the Act, the conditions have to be strictly complied with. This is what is specifically observed by the Supreme Court in the case of S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Anr. , in the following terms:
4. ...Section 141 contains conditions which have to be satisfied before the liability can be extended to officers of a company. Since the provision creates criminal liability, the conditions have to be strictly complied with. The conditions are intended to ensure that a person who is sought to be made vicariously liable for an offence of which the principal accused is the company, had a role to play in relation to the incriminating act and further that such a person should know what is attributed to him to make him liable....
12. It may be stated at the outset that initial burden is on the complainant to show that "accused person" was in charge of and responsible for the affairs of the company and in case accused is a Director, then either he was in charge of and responsible to the company for the conduct of its business or the offence had been committed with his consent or connivance or is attributable to any neglect on his part. Therefore, the first requirement is that there have to be necessary averments in this behalf in the complaint. If, there is no such averment at all in the complaint and a person is arraigned as accused only on the ground that he was a Director, such a complaint qua him has to be necessarily dismissed and no summoning orders would be called for. There are number of judgments to support this view. One may usefully refer to the judgment of this Court in Smt. Saraswathy Amma and Anr. v. Swil Limited and Anr. , wherein this Court recalled the summoning order against the petitioner therein as nothing had been alleged against the petitioner in the working of the company or partnership firm. The relevant part of the said judgment reads as under:
4. ...There must be specific accusation against each of the persons arraigned as accused that such person was in charge of and responsible for the conduct of the business of the company or the firm at the relevant time when the alleged offence was committed by the company or the firm. The said requirement cannot be left the wild imagination of the complainant. Municipal Corporation of Delhi v. Ram Kishan Rohtagi .
5. ...In the instant case, there is not even a whisper nor a shred of evidence nor anything to show apart from the presumption drawn by the respondent that there is any act committed by the petitioners from which a reasonable inference can be drawn that they could also be vicariously liable. Consequently, the impugned order cannot be sustained in law as it has resulted in miscarriage of justice. It appears that while examining the matter for issuing process, the learned Magistrate did not consider the said aspect.
13. To the same effect is the judgment of this Court in Prakash Industries and Ors. v. Bajaj Auto Finance Ltd. , wherein, while recalling the summons against some of the Directors, the Court observed as under:
8. ...Applying the broad principle of law laid down in the said decision on the facts in hand, I am of the view that petitioner Nos. 3 to 9 cannot be roped in under Section 141 of the Act. I find that neither in the complaint nor in the pre-summoning evidence there is any averment or allegation which may even obliquely suggest that the said petitioners were at any point of time directly or indirectly in charge of and responsible to the accused company for the conduct of its day-to-day business. There is no material on record which may suggest that the alleged offence was committed with the consent or connivance of or was attributable to any neglect on the part of the said petitioners.
14. However, difficulty arises when the complainant states that the concerned accused was Director and also makes averment that he was in charge of and responsible for the conduct of its day-to-day business, but does not make any further elaboration as to how he was in charge of and responsible for the day-to-day conduct of the business. The question would be as to whether making this averment, namely, reproducing the language of Sub-section (1) of Section 141 would be sufficient or something more is required to be done, i.e. is it necessary to make averment in the complaint elaborating the role of such a Director in respect of his working in the company from which one could come to a prima facie conclusion that he was responsible for the conduct of the business of the company.
15. Before the decision of the Supreme Court in SMS Pharmaceuticals v. Neeta Bhalla (supra)(which I shall advert to and discuss in detail at the appropriate stage) the trend in case law shows parallel thinking in either direction. One line of cases indicate that once there is an imputation made to the effect that the concerned director/person imp leaded as accused was responsible for the conduct of the business of the company that would be sufficient and whether such a person was, in fact, responsible or not would be a matter of trial. At the stage of summoning when evidence is yet to be led by the parties, the High Court could not on assumption of facts come to a finding that the said person was not responsible for the conduct of the business. Some of the cases in which this approach was adopted are following:
(i) State of Punjab v. Kasturi Lal III (2004) CCR 53 (SC) : AIR 2004 SC 4087.
(ii) Raj Lakshmi Mills v. Shakti Bhakoo .
(iii) MMTC Ltd. v. Medchl Chemicals and Pharma P. Ltd. .
(iv) V.K. Jain v. Union of India .
16. During the same period we would also find cases decided by the Courts taking the other view. This view was that mere repetition of the words incorporated in Section 141 of the NI Act would not meet the requirement in law to rope in any and every director or other Officer, Manager, Secretary etc. of the company, as the case may be. There must be something more clearly stated in the complaint. A bald allegation by merely reproducing the language of Section 141 of the NI Act would not be enough. There should be a clear and unambiguous allegation as to how the directors etc. were in charge of and responsible for the conduct of the business. In the absence of such a description in the complaint, the concerned person/director could not be made liable. The Courts went to the extent of saying that there must be description and particulars of the role played by such non-executive directors.
17. In KPJ Nair V. Jindal Menthol India Ltd. IV (2000) CCR 100 (SC) : I (2001) BC 243 (SC) : 2001 (104) Comp. Cas. 290, the Supreme Court observed that the words of Section 141(1) of the NI Act are not the magic words and the substance of the allegations read as a whole should answer and fulfill the requirements of the ingredients of the said provision.
18. In Smt. Katta Sujatha v. Fertilizers and Chem. Travancore Ltd. 111 (2005) BC 575 (SC) : II (2004) CCR 94 (SC) : 2002(4) RCR (Crl.) 502 : 2003(1) DCR 450 (SC), a two-Judge Bench of the Supreme Court after considering various earlier decisions held that complaint cannot proceed against the accused director who is not described as in charge of and responsible for the conduct of the business of the company or against whom complainant had not attributed any specific particular act in his complaint. Another two-Judge Bench of the Supreme Court in Ashok Leyland Finance Ltd. v. R.S. Aggarwal 2003 (10) SCALE 1000, did not agree with the reasoning given in Katta Sujatha's case (supra), and referred the matter to a Larger Bench after formulating the following three questions:
(a) Whether for purposes of Section 141 of the Negotiable Instruments Act, 1881, it is sufficient if the substance of the allegations read as a whole fulfill the requirements of the said section and it is not necessary to specifically state in the complaint that the persons accused was in charge of, or responsible for the conduct of the business of the company.
(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 the cheque and/or the Managing Directors or Joint Director who admittedly would be in charge of the company and responsible to the company for conduct of its business could be proceeded against.
However, the Larger Bench of the Supreme Court could not decide these three questions as the matter between the parties was compromised and the petition was withdrawn.
19. In cases like these, such an issue was bound to arise again. This occasion came up soon after the aforesaid judgment in the case of S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla (supra), when the three questions, which were formulated in the case of Ashok Leyland (supra), were again referred for determination by a Larger Bench. This was a case in which an appeal had been preferred from the judgment of the Andhra Pradesh High Court in the case of Neeta Bhalla v. S.M.S. Pharmaceuticals Ltd., Hyderabad and Anr. III (2002) BC 600 : 2004 (1) DCR 272. In that case the Court had held that mere repetition of the words incorporated in Section 141 of the NI Act would not meet the requirement of law and "there must be something more clearly stated in the complaint". While taking this view this Court had relied upon the judgment of the Supreme Court in Smt. Katta Sujatha (supra). In Ashok Leyland Finance Ltd. v. R.S. Aggarwal (supra), the reasoning given in Smt. Katta Sujatha (supra), was questioned. The reference of the matter to a three-Judge Bench, in view of this conflict, assumes importance. It is clear that by referring the aforesaid three questions the Larger Bench was called upon to decide as to which of the two views was correct. This time in this case the aforesaid three questions were considered at length and answers given. In para 6 of the judgment rendered by three-Judge Bench, the Court specifically pointed out "the question for consideration is what should be the averments in acomplaint under Sections 138 and 141". It clarified that this question assumes importance in view of the fact that, at the stage of issuing of process, the Magistrate will have before him only the complaint and the accompanying documents. It also specifically observed that since the Magistrate has power to reject the complaint at the threshold, it necessarily suggests that a complainant should make out a case for issue of process, namely, prima facie the ingredients of Sections 138 and 141 are to be satisfied. While proceeding to answer the aforesaid question, at the outset the Court clarified that simply because a person is a Director in a company, he is supposed to discharge particular functions on behalf of the company. Referring to the Chapter in the Companies Act on 'Directors' and Sections 291 to 293 containing powers of the 'Board of Directors', the Apex Court opined that a person may be a Director in a company but he may not know anything about the day-to-day functioning of the company. As a Director he may be attending meetings of the Board of Directors of the company where usually they decide policy matters and guide the course of business of the company. It may be that a Board of Directors may appoint subcommittees consisting of one or two Directors out of the Board of the company who may be made responsible for the day-to-day functioning of the company. These are matters which form part of the resolution of the Board of Directors of a company. Nothing is oral and the position in this respect was summarized in the following manner:
8. ...What emerges from this is that the role of a director in a company is a question of fact depending on the peculiar facts in each case. There is no universal rule that a director of a company is in charge of its every day affairs. We have discussed about the position of a director in a company in order to illustrate the point that there is no magic as such in a particular word, be it Director, Manager or Secretary. It all depends upon the respective roles assigned to the officers in a company. A company may have managers or secretaries for different departments, which means, it may have more than one Manager or Secretary. These officers may also be authorised to issue cheques under their signatures with respect to affairs of their respective departments. Will it be possible to prosecute a Secretary of Department B regarding a cheque issued by the Secretary of Department A which is dishonoured? The Secretary of Department B may not be knowing anything about issuance of the cheque in question. Therefore, mere use of a particular designation of an officer without more, may not be enough by way of an averment in a complaint. When the requirement in Section 141, which extends the liability to officers of a company, is that such a person should be in charge of and responsible to the company for conduct of business of the company, how can a person be subjected to liability of criminal prosecution without it being averred in the complaint that he satisfies those requirements. Not every person connected with a company is made liable under Section 141. Liability is cast on persons who may have something to do with the transaction complained of. A person who is in charge of and responsible for conduct of business of a company would naturally know why the cheque in question was issued and why it got dishonoured.
20. The Court thereafter clarified the position of a Managing Director or a Joint Managing Director, holding that the very designations of their office suggest that they are the persons in charge of a company and/or responsible for the conduct of business of the company. However, in respect of other Directors or Officers it has to be shown that they were in charge and were responsible for the conduct of the business at the time of commission of the offence. Therefore, in order to bring a case within the ambit of Section 141 of the Act, the complainant must disclose "the necessary facts which make a person liable". As to what should be the averments in a criminal complaint, the Court then took note of certain judgments of different High Courts as well as the Apex Court and the position was summed up and questions answered in the following words:
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 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.
19. In view of the above discussion, our answers to the questions posed in the reference are as under:
(a) 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 the 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 requirement of Section 141 cannot be said to be satisfied.
(b) The answer of the question posed in sub-para (b) has to be in the negative. Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for the conduct of its business. The requirement of Section 141 is that the person sought to be made liable should be in charge of and responsible for the conduct of business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a director in such cases.
(c) The answer to Question (c) has to be in the affirmative. The question notes that the Managing Director or Joint Managing Director would be admittedly in charge of the company and responsible to the company for the conduct of its business. When that is so, holders of such positions in acompany become liable under Section 141 of the Act. By virtue of the office they hold as Managing Director or Joint Managing Director, these persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 141. So far as the signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under Sub-section (2) of Section 141.
21. Thus, what follows is that mere bald allegation that a particular person (or a Director) was responsible for the conduct of the business of the company would not be sufficient. That would be reproduction of the language of Sub-section (1) of Section 141 and would be without any consequence and it is also necessary for the complainant to satisfy how the petitioner was so responsible and on what basis such an allegation is made in the complaint.
22. I may take note of another judgment of the Supreme Court recently pronounced in the case of Sabitha Ramamurthy and Anr. v. RBS Channabasavara II (2007) BC 210 (SC) : IV (2006) CCR 8 (SC) : SLP (Crl.) Nos. 6134-6135/2005, observing that matter has been set at rest by the Supreme Court in SMS Pharmaceuticals Ltd. v. Neeta Bhalla (supra).
View of Delhi High Court:
23. Even before the Supreme Court set at rest the controversy, predominant view in most of the judgments of this Court was that mere bald allegation that a particular person/director was responsible for the conduct of business of the company would not be sufficient and it was necessary to plead as to how he was so responsible. This is the view taken in the case of Rachna Kapoor v. State (NCT) of Delhi and Ors. reported as : 2005 VI AD (Delhi) 719 : 2006 (1) NIJ 296 (Delhi). This view was reiterated in Everest Advertising Pvt. Ltd. v. State , after referring to the various judgments of the Supreme Court. The Court drew the ratio there from in the following words:
8. ...If a Director or other officer is necessarily covered by Sub-section (1) of Section 141 he need not have been mentioned again in Sub-section (2) of that section. It is clear that a Director or other officer can be prosecuted when he is covered by Sub-section (2) of Section 141. In the alternative, he can be prosecuted if he is a person in charge of and responsible to the company but not so simply on account of being a Director, Chairman or Vice-Chairman. In other words, he has to be something more than simply the Director, Chairman or Vice-Chairman. This leads to the conclusion that if a Director or other officer of a company is to be prosecuted for the offence under Section 138 of the Act, the complainant must show how the Director or other officer is responsible for the conduct of the day-to-day business of the company. The complainant may, on the other hand, show that the Director or the other officer is responsible for the offence because the offence was committed with his consent or connivance or because the offence is attributable to his commission or omission.
24. Other cases decided by this Court wherein it is held that mere repetition of the words that the person is a director of the company and responsible for the conduct of the business of the company, without specifying how he is so responsible and on what basis such allegation has been made out, would not be sufficient are the following:
(i) G.S. Rajgarhia v. Air Force Naval Housing Board 2004 (3) JCC 236 (NI).
(ii) V.P. Gupta v. National Small Industries Corporation 2004 (3) JCC 238 (NI).
(iii) V.K. Kaura v. K.K. Ahuja 2003 (67) DRJ 398.
(iv) Vipul Kr. Mittal v. Vasistha Leasing (I) Ltd. .
(v) Cdr. Shekhar Singh v. N.K. Wahi 2002 VI AD (Delhi) 1021 : 102 (2003) DLT 297.
(vi) Rachna Kapoor v. State (NCT of Delhi) (supra).
(vii) Nucor Wires Ltd. v. HMT International 1998 DCR 391.
(viii) FMI Investments Pvt. Ltd. v. State .
I may also add here that there are at least two judgments of this Court taking a contrary view. In Madan Aggarwal v. State 2006 II AD (Delhi) 37 : 128 (2006) DLT 74, this Court held that if in the averments in the complaint there is a mention that the accused persons were in charge and responsible for the conduct of the business thereof and were playing active role in the management and the day-to-day affairs of the accused company and that the company acted with consent or connivance of all the accused persons, the requirement of making the averment as per Sections 141(1) and 141(2) of the NI Act is satisfied. Similarly, in Manika Gogia v. State IV (2006) BC 260 : 2005 (4) AD (Delhi) 355, the Court was of the view that the averment that such a person was in charge of and responsible to the company was sufficient and it was not necessary for the complainant to plead how such person was so responsible inasmuch as being an outsider he could not know the internal management of the company. However, that is not correct position in law in view of SMS Pharmaceuticals Ltd. v. Neeta Bhalla (supra).
25. The same view was taken by the High Courts of Madras, Bombay and Andhra Pradesh. The view of Andhra Pradesh High Court is reflected in Neeta Bhalla v. SMS Pharmaceuticals Ltd., Hyderabad and Another (supra), which was taken in appeal before the Supreme Court in SMS Pharmaceuticals Ltd. v. Neeta Bhalla (supra). In the case of Dr. O.P. Mehra and Ors. v. Mansi Finance (Chennai) Ltd. II (2002) BC 104 : 2001 (4) RCR (Crl.) 325, the Madras High Court held that simple bald allegations in the complaint that accused Directors are managing the accused company and were jointly and severally liable for the dishonour of the cheque would not satisfy the requirement of Section 141 of the Act. Identical view of the Bombay High Court is contained in its judgment in the case of Chaitan M. Maniar v. State of Maharashtra IV (2004) BC 584. Thus, many High Courts have taken the same view, which is now reinforced by the Supreme Court in SMS Pharmaceuticals Ltd. v. Neeta Bhalla (supra). Judgment of the Supreme Court in SMS Pharmaceuticals Ltd. v. Neeta Bhalla (supra), is, therefore, on this ground also read to mean that in addition to making bald allegation in the complaint reproducing language of Section 141(1) of the NI Act, it has to be stated as to how the accused directors/other accused persons were responsible for the conduct of the affairs of the company.
26. I may hasten to add that when the aforesaid judgments were pronounced, SMS Pharmaceuticals Ltd. (supra), had not been decided. Therefore, though the law relating to averments which are required to be made is settled in the same manner as discussed above, these observations may not be applicable in the case of Chairman or Vice-Chairman as it is specifically held in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla (supra), that by their very designation, they are in charge of the affairs of the company. In the backdrop in which questions for decision were referred to the Larger Bench in SMS Pharmaceuticals Ltd. v. Neeta Bhalla (supra), and decided by it, it would be clear that the Court has held that the necessary averments which have to be made under Section 141 of the Act would be that "a clear case should be spelt out in the complaint against the person sought to be made liable". The rationale given was that "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". These observations would clearly indicate that mere reproduction of the words contained in Section 141 would not suffice and something more is to be stated as only in that eventuality the person against whom the allegations are made would be able to met the case at the trial. This view is further confirmed when we find that the judgment specifically refers to many judgments of various High Courts and approves those judgments. One of these judgments is of Andhra Pradesh High Court in the case of Secunderabad Health Care Ltd. and Ors. v. Secunderabad Hospitals Pvt. Ltd. and Ors. II (1998) BC 614 : 1999 (96) CC (AP) 106. This judgment is specifically referred to in Neeta Bhalla v. SMS Pharmaceuticals Ltd. (supra), decided by the Andhra Pradesh High Court, which was the judgment in consideration before the Supreme Court in this case. In Neeta Bhalla v. SMS Pharmaceuticals Ltd. (supra), relying upon Secunderabad Health Care Ltd. (supra), the Andhra Pradesh High Court has held that the role played by each of the accused must be clearly stated in the complaint. Further, as already noted above, same is the view of not only this Court in various judgments, particulars whereof have been given above but also of Bombay High Court in Chaitan M. Maniar v. State of Maharashtra (supra), Karnataka High Court in Nucor Wires Ltd. v. HMT International Ltd. (supra), Kerala High Court in Biju Jacob v. Annie Mathew IV (2004) BC 35 : III (2004) CCR 450 : 2004 (3) RCR (Crl) 453.
27. I may add here that it is also the principle laid down in some of the aforesaid judgments that while examining the matter from this angle, the Magistrate can take into consideration material on record suggesting that the accused was in overall control of business of the company. Purpose would suffice taking note of the following observations of the Andhra Pradesh High Court in Neeta Bhalla v. SMS Pharmaceuticals (supra):
35. However, the learned Counsel for the respondent-complainant contends that not only the complaint, but material made available along with the complaint also may have to be taken into consideration to find out as to whether any specific accusations such as is made against the persons arrayed as accused in the complaint. There is absolutely no difficulty whatsoever to agree with the said submission made by the learned Counsel for the respondent-complainant. But, is there any material available on record, revealing the role, if any, played by the petitioner herein? Is there any document made available by the respondent-complainant to make out a prima facie case against the petitioner also for the offence, if any, committed by Al company? Is there any thing on record suggesting that the petitioner was in over all control of the business of the company?
28. It can, therefore, be safely concluded that the view, which is now accepted by the Supreme Court, is that mere repetition of the phraseology contained in Section 141 of the NI Act, i.e. "the accused is in charge of and responsible for the conduct of the day-to-day affairs of the company", may not be sufficient and something more is to be alleged to show as to how he was so responsible.
29. No doubt, the complainant is an outsider and may not know the internal arrangement of the company and his knowledge, viz.-a.-viz. the company has to be limited to his personal knowledge which he derives from his dealings with the company. However, at the same time from his personal knowledge which he derives from his dealings with the company he can make necessary averments regarding the persons who dealt with him. Apart from Chairman and Managing Director, who become liable in any case, in view of the ratio laid down in SMS Pharmaceuticals v. Neeta Bhalla (supra), the complainant can specifically state as to which other director dealt with him in the course of the business and in what manner. There may be a director and/or other person who dealt with him on behalf of the company in negotiating the particular deal with the complainant and/or in issuing the cheque(s) in question or in signing the documents while dealing with the complainant, depending upon the nature of business dealings between the company and the complainant. He may also be a person who had promised the complainant that the cheque(s) would be honoured on presentation. That apart, the complainant cannot be totally in dark about the affairs of the company even though he is not in hold of the internal documents of the company. Every company incorporated under the Indian Companies Act is supposed to file its annual returns with the Registrar of Companies. Balance-sheet of the company and such annual returns are public documents. The complainant can always inspect those documents available with the Registrar of Companies, which may throw light by spelling out the role the Directors of a particular company are playing. Thus, the complainant is not in a helpless situation and can gather necessary material for the purpose of attributing role to a particular director/person while arraigning him as accused persons. However, tendency is to make all Directors as accused whether they are active Directors or not. It is for this reason that observations of the Supreme Court in SMS Pharmaceuticals v. Neeta Bhalla (supra), become relevant where it is stated that since Section 141(1) of the NI Act makes such persons vicariously liable by deeming provision, conditions contained in Section 141(1) have to be strictly complied with by demonstrating that he "had a role to play in relation to the incriminating act" and further that "such a person should know what is attributed to him to make him liable". It may, however, be added here that if the complainant is able to show and there are imputation that such a person, who is Director, Manager, Secretary or other officer of the company and the offence is committed with his consent or connivance or is attributable to any neglect on his part, he can be arraigned as accused as per the provisions of Section 141(2) of the NI Act.
30. In view of the judgment of the Supreme Court in Adalat Prasad (supra), after summoning orders are passed by the Trial Court, it has no power to recall the same and in that case, the remedy available to the aggrieved party is to approach the High Court alone by filing petition under Section 482 of the Code of Criminal Procedure. Because of this position in law, the responsibility of the Magistrates to carefully examine the complaint and the pre-summoning evidence before issuing the summons becomes paramount. It is observed that not only the summons are issued against all those who are imp leaded as directors where the prime accused is the company even when there are no averments there against sometimes even without taking care as to whether other ingredients under Sections 138, 142 of the NI Act are prima facie satisfied or not.
31. Summoning an accused in a criminal case is not an empty formality. The Court issuing process under Section 204 of Cr.P.C. has to be satisfied on the basis of complaint, documents and other material on record that there are sufficient grounds for proceeding against him See Charanjit Singh v. D.B. Merchang Banking Services Ltd. . In a criminal case, it is for the complainant to allege and make out all the ingredients of the offence before calling upon the Court to proceed against an accused. Only those presumptions which are permissible under the law are permitted to be raised against an accused. All other facts are required to be established by the complainant/prosecution. Summoning of an accused in a criminal case is a serious matter. Criminal law cannot be set into motion as a matter of course. It is not that the complainant has to bring only two witnesses to support his allegations in the complaint to have the criminal law set in motion. The order of the Magistrate summoning the accused must reflect that he has applied his mind to the facts of the case and the law applicable thereto. He has to examine the nature of allegations made in the complaint and the evidence, both oral and documentary, in support thereof and whether that would be sufficient for the complainant to succeed in bringing home charge to the accused. It is not that the Magistrate is a silent spectator at the time of recording of preliminary evidence before summoning of the accused. The Magistrate has to carefully scrutinize the evidence brought on record and may even himself put questions to the complainant and his witnesses to elicit answers in order to find out the truthfulness of the allegations or otherwise and then examine if any offence is prima facie committed by all or any of the accused (See Pepsi Foods Ltd. and Anr. v. S.J. Magistrate and Ors. . No doubt, the Magistrate can discharge the accused at any stage of the trial if he considers the charge to be groundless, but the accused is entitled to approach the High Court under Section 482 of the Cr.P.C. or Article 227 of the Constitution to have the proceeding quashed against him when the complaint does not make out any case against him, instead of having to undergo the agony of a criminal trial.
32. After discussing the legal position and analysing the principles which have evolved, let me now deal with each case at hand.
Crl.M.C. No. 3514-15/2005:
In these cases the accused company is M/s. A.S. Impex Ltd. Mr. Arun Bhatia is imp leaded as accused No. 2 in the capacity of Managing Director of accused No. 1 company. Other accused persons, namely, accused Nos. 3 to 6 are imp leaded as the Directors of accused No. 1 company. The averments qua them are contained in para-2 of the complaint, which read as under:
That the accused No. 1 is a limited company and the accused Nos. 2 to 6 are its Directors and persons in charge of and are responsible for day-to-day affairs of the business of accused No. 1 company.
Apart from the aforesaid averments, nothing else is stated as to how they were so responsible.
Conclusion:
In view of my detailed discussion above, such a complaint is not maintainable against the petitioners herein, who are accused Nos. 3 and 6, namely, Sh. J.N. Bhatia and Sh. Anand Krishna. Summoning order qua the petitioners is accordingly quashed and the complaint qua them is dismissed.
Crl. M.C. Nos. 135/05, 136/05, 144/05 and 240/2005 These three complaints are filed by M/s. EITA India Ltd. and accused company is M/s. A.S. Impex Ltd. Mr. Arun Bhatia is accused No. 2 in the capacity of Managing Director of the company, others are imp leaded by virtue of their being Directors. These petitions are filed by accused Nos. 4 and 5. Averments are same as in the aforesaid complaint, to the following effect:
That the accused No. 1 is a limited company and the accused Nos. 2 to 6 are its Directors and persons in charge of and are responsible for day-to-day affairs of the business of accused No. 1 company.
It is the specific case of the petitioner that they were non-working Directors of the company and they had resigned from the company much prior to the issuance of the cheques in question and Form 32 was also filed with the Registrar of Companies. It is also stated that they have not signed the cheques; there are bald allegations that they were responsible for the day-to-day affairs and no material has been produced on record which would indicate that they were in charge of the affairs of the company or were vicariously liable. For the reasons given above, these petitions are also liable to succeed. The summoning orders qua the petitioner herein (accused Nos. 4 and 5) are quashed and the complaint qua them is dismissed.
The petitions are disposed of.Crl. M.C. No. 240/2005
33. Apart from the fact that the complainant here is one M/s. Nishant Electronics, accused are same persons, namely, M/s. A.S. Impex Ltd. in which Mr. Arun Bhatia is imp leaded a Managing Director and others as Directors, including Col. J.N. Bhatia, Smt. Sujata Bhatia and Sh. Anand Krishna (the petitioners herein), who are accused Nos. 3 to 5. The allegations qua them are identical as noted in the aforesaid complaints. In addition, the only averment made is that the cheques were signed by accused No. 2 and the accused Nos. 3 to 6 were aware of their liabilities. It is, thus, clear that apart from bald allegations that the petitioners were responsible for the conduct of day-to-day affairs of the company, nothing is produced on record to substantiate this averment nor any role is assigned to them. These petitions are accordingly allowed. The summoning orders qua the petitioners herein (accused Nos. 3 to 5) are quashed and the complaint qua them is dismissed.
The petition is disposed of.
Crl.M.C. Nos. 2914/04, 2915/04, 2831/04, 2913/04 and 2836/04
34. Brig. H.S. Nanda (Retd.)(respondent herein) is the complainant, who has files all these complaints against the same set of persons. Accused No. 1 is Premier Vinyl Flooring Ltd. Accused No. 2 was imp leaded in the capacity of Chairman and accused No. 3 as Managing Director. After filing of the complaint, accused No. 2 has died and, therefore, proceedings qua him have abated. Accused Nos. 4 to 10 are imp leaded as Directors of accused No. 1. Summoning orders have been issued against all these accused persons and challenging the summoning orders, the aforesaid petitions are filed by Sh. Amitabh Ghosh, who is arraigned as accused No. 6 in the capacity of Director.
35. The averments in the complaint would show that some loan was given by the complainant to the accused No. 1 company and for repayment of the said loan the company had issued two cheques. Since the facts and question of law is common, we may take note of facts in Crl.M.C. No. 2913/04 for the sake of convenience. As per the averments made in this petition, loan of Rs. 14 lacs was given by the complainant to the company by two cheques dated 23.4.1996 and 13.6.1996 for Rs. 10 lacs and Rs. 4 lacs respectively. In respect of first Installment of loan Sh. A.K. Goenka, accused No. 4 acknowledged receipt of the said cheque and also delivered 84,000 equity shares of accused No. 1 company as security against the loan amount. In respect of second Installment of loan Sh. Goenka vide letter dated 13.6.1996 acknowledged the loan and delivered 39378 equity shares of accused No. 1 company as security. It is averred that in July, 1997, a cheque of Rs. 3 lacs was given by the accused for repayment of loan in partial discharge of the liability which was encashed. Thereafter, two cheques both dated 31.12.1998 drawn on Punjab National Bank for Rs. 4 lacs and Rs. 7 lacs respectively were given but these cheques were dishonoured. Notice of demand dated 8.2.1999 was issued through an Advocate to the accused company, which was replied vide letter dated 15.2.1999, however, in spite of the demand, payment was not made within the stipulated period. In para 12 following averments are made qua these Directors:
That the accused No. 1 is the company on whose behalf of the cheques were issued, while accused No. 2 being the Chairman, accused No. 3 the Managing Director and accused Nos. 4 to 10 being the Directors of accused No. 1, are all in charge and responsible for the conduct of day-to-day business, functioning management and decision taking of the company and are hence jointly and severally liable for the dishonour of the said cheques. The cheque in question were signed by accused No. 3 and accused No. 4 with the consent and knowledge of the other accused. Without prejudice to what has been stated above, accused No. 4 Sh. A.K. Goenka, as per the letters dated 23.4.1996 and 13.6.96 is also liable for prosecution in his personal capacity.
36. From the aforesaid, it is clear that while accused Nos. 2 and 3 are imp leaded as the Chairman and the Managing Director respectively, in respect of accused Nos. 4 to 10, what is stated is that "being the Directors of accused No. 1, are all in charge of and responsible for the conduct of day-to-day business, functioning, management and decision making of the company" and in that capacity, it is alleged, they are jointly and severally liable for the dishonour of the said cheques. There is no specific role attributed to accused Nos. 5 to 10 and the petitioner is one of them being accused No. 6. In respect of accused Nos. 2 and 3, there is no problem because of their designation. Further, specific role is mentioned about accused No. 3 as signatory of the cheque and accused No. 4 as the signatory as well as the person who had acknowledged the loan and delivered the shares by way of security. However, what is stated qua the other accused persons (accused Nos. 5 to 10) is that the cheques in question were signed "with the consent and knowledge of the other accused." But that may not by itself bring the case under Section 141(2) of the NI Act in view of what is stated hereinafter.
37. In this petition specific averment is made by the petitioner that he was neither a Director of the company nor at all in charge of the company nor involved in day-to-day running of the company at the time of commission of the alleged offence in February and March, 1999 when the cheques were dishonoured. What is stated is that the petitioner had resigned from the company on 4.2.1998 and copy of Form 32 was also submitted with the Registrar of Companies. Certified copy of Form 32 issued by the office of the Registrar of Companies is enclosed as per which, the petitioner resigned with effect from 4.2.1998. Cheques in question are dated 31.12.1998, which were issued much after the resignation of the petitioner as the Director and were dishonoured subsequently and notice of demand is also dated 8.2.1999 on which date the petitioner was not the Director, as certified copy of Form 32 obtained from the Registrar of Companies is filed indicating that the resignation was also intimated on 26.2.1998, which can be acted upon in view of judgment of this Court in Sarla Kumar Dr. (Mrs.) v. Srei International Finance Ltd. (supra). The summoning order qua the petitioner is liable to be quashed. It is accordingly quashed and the complaint qua him is dismissed.
These petitions are disposed of.
Crl. M.C. No. 1162/200338. M/s. Ahuja Impex Pvt. Ltd. is the complainant, which has filed complaint under Section 138 of the Negotiable Instruments Act (in short the 'NI Act'). The main accused is M/s. Motorol Specialty Oils Ltd. There are seven other persons arraigned as accused. The petitioner, who has filed this petition, is accused No. 2, who is mentioned in the cause title as the Chairman of the accused No. 1 company. In para 2 of the complaint it is mentioned that accused No. 1 company issued four cheques of Rs. 20 lacs each aggregating Rs. 80 lacs, all dated 30.4.2000 drawn on Indo Sind Bank Ltd., which were dishonoured. The bankers returned the cheques with the remarks "stop payment" vide memo dated 14.11.2000, which was received by the complainant on 21.11.2000. Notice of demand dated 24.11.2000 was sent but in spite of the notice, when this payment was not made, the aforesaid complaint has been filed. It is the contention of the petitioner that there are no averments qua him in the complaint. It is also contended that the complainant had filed suit for recovery and in the said suit decree has been passed on the basis of consent terms for a sum of Rs. 80 lacs and after the passing of the decree there was no reason to continue with the complaint. It was also submitted that there was no pleading to the effect that any representation was made or assurance was given that the cheques in question given by the petitioner would be honoured. It was further pleaded that the petitioner was not party to the agreement on the basis of which consent decree had been passed nor had he signed the cheques.
As pointed out above, in the complaint the petitioner is imp leaded as the Chairman of the accused No. 1 company. Apart from that it is specifically pleaded in para 10 that the notice was served upon the accused persons categorically stating that in case payment is not received within 15 days, it would be deemed that they have committed the offence under Section 138 read with Section 141 of the NI Act. It is also specifically pleaded that the accused persons had means read to cheat the complainant and they had led the complainant to believe that they would be making the payment due to them by honouring the cheques and persuaded the complainants to sign the consent terms and such deception continued till the deposit of cheques by the complainant in their account.
In para 13 of the complaint it is specifically averred that the accused persons, including the petitioner were in charge of and responsible for the conduct of day-today business of the accused No. 1. This statement coupled with the fact that the petitioner is described as the Chairman of the accused No. 1 company. In view of the judgment in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla (supra), he being Chairman would clearly be covered by Section 141 of the NI Act. Above all, the most important factor that goes against the petitioner is that he is one of the signatories of the cheques in question.
Though at the time of arguments it was denied that the petitioner had signed the cheques, Trial Court record, which was summoned, shows that he is one of the signatories. When these are the facts appearing, the complaint cannot be quashed under Section 482 of the Code of Criminal Procedure. The disputes raised by the petitioner would form his defense for which evidence would be required and they are disputed questions of fact. This petition is accordingly dismissed.
Crl.M.C. Nos. 658/2003, 660/2003 and 662/2003
39. One K.K. Ahuja has filed complaint under Section 138 read with Section 141 of the NI Act on the basis of three cheques for Rs. 3 lacs, Rs. 10 lacs and Rs. 3 lacs respectively, all drawn on UTI Bank Ltd., which were dishonoured with the remarks "payment stopped by drawer" from the bank. These cheques were issued by M/s. Motorol Speciality Oils Ltd., which is arraigned as accused No. 1. Accused No. 2 is imp leaded as the Chairman, accused No. 3 as the Managing Director, accused Nos. 4 to 6 as Directors, accused No. 7 in the capacity of Vice-President (Commercial), accused No. 8 as the General Manager and accused No. 9 as the Dy. General Manager. Summoning orders have been issued and these three petitions are filed challenging these summoning orders. In Crl.M.C. No. 658/03 the petitioner is accused No. 8, who is the General Manager of the accused No. 1 company. In Crl.M.C. No. 660/03, the petitioners are accused Nos. 2,4, 5 and 6, Crl.M.C. No. 662/03 is filed by accused No. 7. In para 2 of the complaint it is stated as under:
The accused No. 1 is a limited company having its office at the address mentioned in the cause title. The accused Nos. 2 to 6 are the Directors of the accused No. 1, accused Nos. 7, 8 and 9 are the Vice-President (Finance), General Manager and Deputy General Manager of the accused No. 1 who are directly and actively involved in the financial dealings of the accused company with accused Nos. 2 to 9. Hence all the accused are liable for action under Section 138 r/w Section 141 of the Negotiable Instruments Act.
In para 5 of the complaint it is mentioned that notice was issued to all the accused persons after dishonour of the cheque and it was specifically stated that if they fail to make payment within 15 days of the receipt of the said notice, they shall be deemed to have committed offence under Section 138 read with Section 141 of the NI Act. It is further alleged that all the accused persons received the notice but failed to make the payment. Further averments made qua the petitioners are in paras 11 and 13 of the complaint, which read as under:
11. The complainants state that the accused had means read to cheat the complainants inasmuch as all the accused deceived the complainants into believing that they will make the payments due to them by honouring the cheques and such deception continued till the deposit of the cheques by the complainants in his account. The accused, however, surreptitiously instructed their bankers to stop the payment of the same. The complainants therefore submit that all the accused committed an offence of cheating under Section 420 of the Indian Penal Code.
12. xxx xxx xxx
13. The complainants state that the aforesaid cheques were drawn by the accused No. 2 on behalf of the accused No. 1. Moreover, at the time of offence under Section 420 of the Indian Penal Code and under Section 138 of the Negotiable Instruments Act, the accused Nos. 2 to 9 were in charge of and responsible for the conduct of day-today business of the accused No. 1. The accused Nos. 2 to 9 were therefore deemed to be guilty of the offence under Section 138 read with Section 141 of Negotiable Instruments Act and under Section 420 of the Indian Penal Code are liable to be prosecuted and punished accordingly.
Insofar as Mr. S.K. Gandhi is concerned, as already noted above in Crl.M.C. No. 1162/2003, since he is imp leaded in the capacity of Chairman and is also signatory to the cheque, the summoning orders qua him are valid.
Apart from Mr. S.K. Gandhi, other signatory is Mr. C.K. Gandhi, accused No. 4 (petitioner No. 2 in Crl.M.C. No. 660/03) and, therefore, the petition filed by him would also fail. It may be stated that specific averment is made that he is in charge of and responsible for the conduct of the affairs of the company and this fact coupled with the fact that he has signed the cheque would disclose that there are adequate averments describing his role and, thus, onus would shift upon him to prove otherwise for which he may lead evidence before the Trial Court.
So far as accused Nos. 5 and 6 are concerned, apart from the fact that they are the Directors, it is not at all stated as to what role they are performing and how they are in charge of the affairs of the company. In view of my discussion above, the summoning orders against these two persons are liable to be quashed.
Insofar as Mr. N.B. Rindani (petitioner in Crl.M.C. No. 662/2003) and Mr. Deepak Rawal (petitioner in Crl.M.C, No. 658/2003) are concerned, they are imp leaded in the capacity of Vice-President (Commercial) and the General Manager respectively. Apart from stating that they are directly and actively involved in the financial dealings of the accused company, no specific particulars are stated as to how they are involved and allegations are of general nature. Though it is alleged that legal notice demanding the amount was sent and in spite thereof they have not made the payment, record shows that demand notice is addressed only to accused No. 1 and accused No. 3. Therefore, there is no separate notice sent to these persons and, thus, there was no occasion for them to reply. Notice to the accused company may be notice to the Directors as well. However, when accused Nos. 7 and 8 are only employees of the accused No. 1 company and are imp leaded in that capacity, the ingredients of Sub-section (1) of Section 141 of the NI Act are to be satisfied and for lack of necessary averments in this behalf, the complaint against these two persons also cannot be maintained. Summoning orders against these two persons, therefore, shall also be quashed and the complaint qua them is dismissed.
As a consequence of the aforesaid discussion, Crl.M.C. Nos. 658/2003 and 662/2003 are allowed and the summoning orders are quashed against the petitioners therein, viz., Mr. Deepak Rawal and Mr. N.B. Rindani.
Insofar as Crl.M.C. No. 660/2003 is concerned, it is dismissed qua petitioner Nos. 1 and 2, viz., Mr. S.K. Gandhi and Mr. C.K. Gandhi and allowed qua the petitioner Nos. 3 and 4, viz., Mr. M.S. Thakkar and Mr. R.C. Sharma. Accordingly, the summoning orders against the accused Nos. 3 and 4 are hereby quashed.
Crl. M.C. Nos. 659/2003, 661/2003 and 667/2003
40. Facts are identical in these cases as in the earlier cases. Complainant is same, namely, Mr. K.K. Ahuja. This complaint is on the basis of dishonour of five cheques in the sum of Rs. 5 lacs each. Accused No. 1 is M/s. Motorol Specialty Oils Ltd. and accused Nos. 2 to 9 are the same persons as in the above cases. The averments made qua these persons are also identical. For the reasons stated above, Crl.M.C. No. 659/2003 filed by accused No. 8, viz. Deepak Rawal, General Manager of the accused No. 1 company stands allowed and the summoning order qua him is quashed.
41. Crl.M.C. No. 661/2003 is dismissed qua petitioner Nos. 1 and 2, viz. Mr. S.K. Gandhi and Mr. C.K. Gandhi and allowed qua the petitioner Nos. 3 and 4, viz., Mr. M.S. Thakkar and Mr. R.C. Sharma. Accordingly, the summoning orders against the petitioner Nos. 3 and 4 are hereby quashed.
42. Crl.M.C. No. 667/2003 filed by Mr. N.B. Rindani (accused No. 7 in the complaint) is allowed and the summoning order qua him is quashed.
Crl. M.C. Nos. 1166/2003, 1168/2003, 1169/2003 and 1318/2003
43. The complainant in this case is M/s. Delhi Paints and Oils Trades, who has filed complaint on the basis of three dishonoured cheques for Rs. 30 lacs. Accused No. 1 is M/s. Motorol Specialty Oils Ltd. and accused Nos. 2 to 9 are the same persons as in the aforesaid cases.
In so far as Crl.M.C. No. 1166/2003 is concerned, it is dismissed qua the petitioners Nos. 1 and 2, viz., Mr. S.K. Gandhi and Mr. C.K. Gandhi and allowed qua the petitioner Nos. 3 and 4, viz., Mr. M.S. Thakkar and Mr. R.C. Sharma. Accordingly, the summoning orders against the petitioner Nos. 3 and 4 are hereby quashed.
44. Crl.M.C. No. 1168/2003 is allowed and the summoning order against the petitioner (accused No. 7 in the complaint) Mr. N.B. Rindani is quashed.
45. Crl.M.C. No. 1169/2003 filed by accused No. 8 Mr. Deepak Rawal is allowed and the summoning order qua him is quashed.
46. Crl. M.C. No. 1318/2003This petition filed by accused No. 9 is allowed. I may mention that Mr. V.K. Vora (petitioner herein) had filed petition seeking quashing of summoning orders, which was allowed by this Court vide order dated 10.10.2002 and the respondents filed SLP thereagainst in which leave has been granted by the Supreme Court vide order dated 8.9.2003 and operation of the order dated 10.10.2002 is also stayed. However, in view of the subsequent case law and particularly, the judgment of the Supreme Court in SMS Pharmaceuticals v. Neeta Bhalla (supra), in the year 2005, I have applied the principles laid down by the Supreme Court in that case as per which the petition of Mr. V.K. Vora warrants to succeed. This petition is accordingly allowed and the summoning order qua the petitioner Mr. V.K. Vora is quashed.
47. CrL M.C. No. 2746/2004In this case the complaint is against M/s. VHEL Industries Ltd., which is accused No. 1. Accused Nos. 2 to 4 are the Directors. Accused No. 5 is the Executive Director. Accused No. 6 is stated to be President, Cable Division and accused No. 7 is General Manager (F&A) of the accused No. 1 company. The petition is filed by accused No. 7 Mr. N.K., General Manager (F&A). Since he is a Director, naturally he is sought to be imp leaded by virtue of Sub-section (1) of Section 141 of the NI Act. It is stated that in para 2 that the accused Nos. 2 to 7 were collectively responsible for day-to-day running of the affairs of accused No. 1 company during the relevant period. All dealings in respect of the transaction between the complainant and the accused No. 1 were conducted by the accused Nos. 2 to 7. Accused Nos. 5 and 6 are the authorised signatories of the cheque in question. Apart from the aforesaid averments appearing in para 2, there are no other averments qua the petitioner.
Case of the petitioner is that there are no specific averments against him; he was only General Manager (F&A) and resigned much before the presentation of the cheque in question which he had not signed as well.
Learned Counsel for the respondent No. 2/complainant, on the other hand, submitted that there were specific averments against him. Perusal of para 2 would show that apart from general allegation that accused Nos. 2 to 7 were collectively responsible for day-to-day affairs and all dealings in respect of the transaction between the complainant and the accused No. 1 were conducted by the accused Nos. 2 to 7, there are no specific allegations against the petitioner. What was the role played by the petitioner and what type of transaction was conducted by him on behalf of accused No. 1 with the complainant is not stated. Instead, general statement is made that the accused Nos. 2 to 7 dealt with the complainant on behalf of accused No. 1. During arguments it was sought to be explained by the learned Counsel for the complainant that lease agreement in question was signed by the petitioner on behalf of accused No. 1 company and this lease agreement he could sign on behalf of the company only after authorisation by the Board of Directors for conducting the affairs of the company. However, he candidly admitted that the said lease agreement was not filed and in the pre-summoning evidence it was not brought on record and/or proved. If what the complainant says is conrrect, it was very easy for the complainant to make specific imputations qua the petitioner by stating his role in the petition. However, he failed to do so and even if general statement is made in the complaint, he failed to substantiate by producing the lease agreement on record. In these circumstances, going by the ratio of SMS Pharmaceuticals v. Neeta Bhalla (supra), I have no option but to quash the summoning order qua the petitioner. Accordingly, the summoning order against the petitioner is quashed and the complaint qua him is dismissed.
The petition is disposed of.
48. Crl.M.C. Nos. 6268, 6284, 6285, 6286, 6287, 6288, 6289, 6290, 6291, 6292,6293, 6294, 6295, 6390, 6393, 6433, 6434, 6435, 6436, 6437, 6439, 6440/2005 These petitions are filed by the petitioner Mukesh Punjwani challenging the summoning orders passed in different complaints filed by the complainants under Section 138 read with Section 1 of the Negotiable Instruments Act. Since similar issue is involved in all the aforementioned cases and law in respect thereto has been discussed by me in detail heretofore, facts of Crl.M.C. No. 6286/2005 are stated for the sake of brevity.
Complainant in this case is M/s. Associate India Financial Services Ltd. Accused No. 1 is M/s. Brown Paper Technologies Ltd., which was earlier known as M/s. Shirke Paper Mills Ltd. Loan-cum-Hire Purchase Agreement No. 363873 dated 21.3.2001 was entered into and loan was advanced by the complainant under the said agreement, which was to be paid in 36 monthly equated Installments of Rs. 6,23,924/-. Post-dated cheques were issued and on the dishonour of these cheques, these complaints are filed. Apart from accused No. 1, four other persons are arraigned as accused persons, i.e. accused Nos. 2 to 4 in the capacity of Directors and accused No. 5 as the General Manager (Finance).
Summoning orders are issued in all these cases. Sh. Mukhesh Punjwani, who is accused No. 4, has filed these petitions raising similar plea that he had tendered his resignation on 1.3.2002, which was accepted on 10.3.2002 and thereafter, Form 32 was filed with the Registrar of Companies. Cheques were allegedly issued on 20.3.2002, namely, after his resignation and were dishonoured much thereafter when he was not the director. It is further contended that apart from bald allegation that he was in charge of the affairs of the company, nothing is stated as to how he was in charge of and/or responsible for the conduct of the day-to-day business of the accused No. 1 company. The averments qua the petitioner herein contained in all these complaints are as under:
The accused Nos. 2 to 4 are the Directors and accused No. 5 is the General Manager Finance, who are responsible for the day-to-day affairs of accused No. 1 company and are jointly and severally liable for the acts and liabilities of the accused No. 1 company.
On the basis of these bald averments, I am afraid, proceedings could not have been maintained against the petitioner herein, as it is not specifically stated as to how the petitioner was in charge of and responsible for the affairs of the company. The summoning orders qua the petitioner are hereby quashed and the complaints qua him are dismissed.
49. Crl.M.C. Nos. 3512/2005, 3607/2005, 3608/2005, 3610/2005, 3611/2005, 3612/ 2005, 3613/2005, 3614/2005, 3616/2005, 3617/2005, 3618/2005, 3620/2005, 3621/2005, 3623/2005 and 3624/2005.
Complaints in these cases are against M/s. Net Work Nexus Pvt. Ltd. Apart from this company being arrayed as accused No. 1, accused Nos. 2 to 6 are implicated in the capacity of Directors of accused No. 1. These petitions are filed by S/Sh. Sanjeev Arora, Gagan Makkar and Mukesh Khurana, who are the accused Nos. 2,5 and 6 in these complaints. It is the case of these three persons that they had resigned as Directors of the accused No. 1 company with effect from 7.1.2004, whereas the cheques in question are issued thereafter, which were dishonoured and, therefore, as on the date of issuance of cheque or the date when they were got dishonoured the petitioners were not the Directors. It is also their case that apart from the bald averment that they are in charge of and responsible for the conduct of day-to-day affairs of the company, no specific role has been assigned. Photocopies of the certified copies of Form 32 submitted with the Registrar of Companies are filed as per which, they were appointed as Directors on 6.12.2003 and they resigned with effect from 7.1.2004. These certified copies of Form 32 are to be given credence, which would show that they were Directors hardly for one month. Further, part from reproducing the language of Section 141(1) of the NI Act alleging that they were responsible for the affairs of the company, no material has been produced in support thereof. These petitions are accordingly allowed and the complaint qua these petitioners is hereby quashed.
Crl.M.C. No. 4257/200050. DCM Financial Services Ltd. is the complainant in this case and accused No. 1 is M/s. Perfect Drugs Ltd. Accused Nos. 2 to 7 are imp leaded in the capacity of they being the Directors of the accused No. 1 company. The averments qua them in the complaint read as under:
That the accused No. 1 is a company/firm and the accused Nos. 2 to 7 were in charge and were responsible to the accused No. 1 for the conduct of the business of the accused No. 1, at the time when offence was committed. Hence, the accused Nos. 2 to 7, in addition to the accused No. 1, are liable to be prosecuted and punished in accordance with law by this Hon'ble Court, as provided by Section 141 of the NI Act, 1881. Further the offence has been committed by the accused No. 1 with the consent and connivance of the accused Nos. 2 to 7.
In the memo of parties accused No. 2 is shown as the Chairman and accused No. 3 as the Managing Director. Summoning orders have been issued and this petition is preferred by three petitioners, who are accused Nos. 4, 5 and 7 in the complaint, seeking quashing of the said complaint. Ground for challenge is that neither in the complaint nor in the notice as well as the statement on oath relationship of the petitioners with the accused company has been stated. There are no material allegations as to how the petitioners were in charge of and responsible for the conduct of day-to-day business of the company. The averments qua them in the complaint have already been reproduced above and in view of the position of law discussed heretofore, I am of the view that submission of the petitioners has merit inasmuch as apart from bald averment that they were in charge of the affairs of the company it is not at all stated as to on what basis this statement is made. It is also not denied that no notice in respect of dishonour of the cheque was sent to the petitioners calling upon them to make the payment. This petition accordingly succeeds, summoning orders qua these petitioners, who accused Nos. 4,5 and 7 in the complaint, are quashed and the complaint qua them is dismissed.
Crl. M.C. Nos. 5660/2005, 5666/2005, 5667/2005, 5669/2005, 6394/2005, 6395/ 2005, 6432/2005 and 6441/2005
51. All these cases complaints are filed by M/s. Chinatrust Commercial Bank in which the accused company is M/s. Shamken Spinner Ltd. (accused No. 1). Accused No. 1 had approached the complainant for grant of certain credit facilities and term loan as well as working capital facility to the tune of Rs. 5 crores each was granted. As per the averments made in the complaints, accused No. 1 committed default in payment of equated monthly Installments as per the schedule agreed to by it in terms of the loan agreement. Rescheduling of the outstanding amount was done and at that time the accused No. 1 company gave certain post-dated cheques. These cheques were dishonoured and on that basis, complaints in question are filed whenever after legal notice demand is not met. Apart from the company, Mr. H.B. Chaturvedi is imp leaded as a Chairman and Managing Director and Mr. Amit Chaturvedi as the Vice-Chairman/Director and Mr. Sanjay Chaturvedi as the Joint Managing Director. Accused Nos. 5 to 10 are the Directors. The petitioner herein is accused No. 10 in all these complaints. In the complaint averments qua the accused persons are contained in para 3, which read as under:
The accused No. 1 is a company duly incorporated under the Companies Act, 1956 and having its registered office at 94, KM Stone, Delhi-Mathura Road, village Kotwan, Kosi Kalan, District Mathura, Uttar Pradesh. The accused No. 2 is the Managing Director and the accused Nos. 3 to 9 are Directors of accused No. 1 company, who being in charge of accused No. 1 company, are responsible to the accused No. 1 for the conducts of its business and its day-to-day affairs, and the accused No. 1 company as well and are thus, jointly and severally liable for the acts and liabilities of the accused No. 1 company. The accused Nos. 3 and 4 are also the signatories of the dishonoured cheques.
It would be seen from the above that the complaint mentions only accused Nos. 3 to 9 and 10. This may be treated/as bona fide mistake inasmuch as in most of the complaints the petitioner herein is accused No. 9 and presumably because of this reason even the petitioner did not join issue on this aspect. Fact remains that the petitioner is imp leaded as Director stating that he along with others "being in charge of accused No. 1 company, are responsible to accused No. 1 company for the conduct of its business and its day-to-day affairs". In the petition filed, it is stated by the petitioner that he was Director of the company from March 2004 to 9th August, 2004. Certified copy of Form 32 is filed in support of this submission and as per the certified copy, Form 32 was deposited with the Registrar of Companies on 27.8.2004. All these cheques, which have been dishonoured are of a date after August, 2004. It would also be of interest of note that in the loan agreement though no date when the loan agreement was signed was stipulated, even the rescheduling of the loan was done in July, 2003 when the post-dated cheques were allegedly given and the petitioner was not a Director at that time. Certified copy of Form 32 has to be acted upon in view of my judgment, Sarla Kumar Dr. (Mrs.) v. Srei International Finance Ltd. (supra). That apart, it has been categorically stated in the petition that when the legal notice was sent to the petitioner, it was returned back with the remarks that the petitioner was no longer available at the address of the company as a Director. Though this fact is disputed, what is admitted in the reply is that the envelope containing the notice to the petitioner was returned with the remarks that he was not available at the given address, which was the address of the company. It is clear from the above that neither at the time of granting loan nor at the time of dishonour of the cheques in question the petitioner was connected with the company. That apart, it is not at all stated as to in what manner and how the petitioner was responsible to the accused No. 1 company for the conducts of its business and its day-to-day affairs. In view of my discussion above, these petitions are accordingly allowed. The summoning order qua the petitioner is quashed and the complaint qua him is dismissed.Crl. M.C. No. 6432/2005
52. In this case the cheques are dated 22.5.2004 and 22.6.2004, which were "dishonoured on 8.7.2004 and 1.7.2004. It is the submission of the petitioner that at that time he had already initiated process to resign from the company as its Director. This may not be a valid argument in so far as this case is concerned. However, on the ground that no role has been attributed to the petitioner being responsible to the accused No. 1 company for the conducts of its business and its day-to-day affairs. This petition has to be allowed on this short ground. It is accordingly allowed. The summoning order qua the petitioner is quashed and the complaint qua him is dismissed.