1998(3) ALL MR (JOURNAL) 21
IN THE HIGH COURT OF JUDICATURE OF ANDHRA PRADESH AT HYDERABAD

B. SUDERSHAN REDDY, J.

Secunderabad Health Care Vs. Secunderabad Hospitals.

Cri. P. No. 755 of 1997

21st July, 1998

Petitioner Counsel: Mr. S. SRINIVAS REDDY
Respondent Counsel: M/s. P. HARINATH GUPTA and Public Prosecutor

Negotiable Instruments Act (1881) S.141 - Dishonour of Cheque - Complaint filed against the company, its managing director and also other Directors of the company - No allegation is made against the other directors that they are either in charge of the company or they are aware of the issue of cheque - Held, Magistrate erred in taking cognizance of the offence against the other directors - Proceedings against them quashed.

The requirement in law is that there must be clear, unambiguous and specific allegations against the persons who are impleaded as accused that they were incharge of and responsible to the company in the conduct of its business at the material time when the offence was committed by the company. It cannot be left to the wild imagination of the complainant. There must be specific accusation against each of the persons impleaded that such person was incharge of and responsible for the conduct of the business of the company at the relevant time when the offence was committed by the company. True, it is not necessary to disclose the evidence as to on what basis such an assertion is made by the complainant. It may be a matter of evidence and proof. [Para 9]

There is no whisper in the complaint against respondents 3 to 7. It is not even averred that they are aware of the second accused issuing cheques in question to the complainant. It is not even alleged that they are involved in day-to-day management of the affairs of the company. Nothing is stated as to in what way they shall be deemed to be guilty of the offence committed by the first accused company. The sworn statement of the complainant recorded at the time of taking cognizance also does not reveal anything against the petitioners/accused 3 to 7. For the aforesaid reasons, the process ought not to have been set in motion as against the petitioners/accused 3 to 7. [Para 12]

Cases Cited:
AIR 1983 SC 67 [Para 7]
1990 (1) APLJ 313 [Para 7]
1 (1994) B.C. 648 (Mad) [Para 7]
1997 Cri. LJ 3616 and 1985(2) ALT 518 [Para 7]
1998(4) Supreme 364 [Para 7]
1998 ALL MR (Cri) 144 (S.C.)=JT 1997(8) SC 705 [Para 10]


JUDGMENT

JUDGMENT :- This is an application filed under Section 482 of the Code of Criminal Procedure to quash the proceedings in C.C. No.897 of 1996 on the file of the learned XIth Metropolitan Magistrate, Secunderabad. The petitioners are the accused in C.C. No.897 of 1996. The first respondent is the company incorporated under the Companies Act, Respondents 2 to 7 are the Directors of the Company.

2. The respondents herein filed complaint to punish the petitioners-accused for having committed an offence Under Section 138 of the Negotiable Instruments Act (for short 'the Act.). The allegations levelled in the complaint may briefly be noticed.

3. The accused-company is a tenant of the complainant on a monthly rent of Rs. 1,80,095.40 (Rupees one lakh eighty thousand ninety five and paise forty only). It is also alleged that the accused issued the following cheques towards rent, payable by it to the complainant.

1. Cheque dated 16-4-1996 for a sum of Rs. 1,00,000/- drawn on Prudential Cooperative Urban Bank Limited.

2. Cheque dated 5-2-1996 for a sum of Rs. 1,80,095.40 Ps. drawn on S.B.H. Gunfoundry Branch.

3. Cheque dated 5-3-1996 for a sum of Rs. 1,80,095.40 Ps. drawn on S.B.H. Gunfoundry Branch, Hyderabad.

The complainant presented the cheques for encashment and all the three cheques were returned dishonoured on 3-5-1996 with an endorsement "insufficient funds". The complainant thereafter got issued notice dated 4-5-1996 to the accused and the said notices were received by all the Directors. The accused failed to pay the Cheque amount within fifteen days from the date of receipt of notices. It is under those circumstances, the complaint was filed. The complainant was examined and the learned Magistrate had taken cognizance of the case under Section 138 read with 142 of the Act and accordingly directed to issue summons.

4. It is an admitted fact that the first petitioner is a company registered under the Companies Act represented by its Managing Director the second petitioner and petitioners 3 to 7 are other Directors of the first petitioner company. In this application to quash the proceedings, the petitioners herein raised number of dispute questions of fact relating to their liability to pay the amount. The petitioners have gone to the extent of saying that the second petitioner having left with no alternative, deposited pay order in Bank account No. 14367 of the respondents at Prudential Cooperative Urban Bank Limited, Hyderabad Branch on 23-5-1996 thereby discharged the liability against the cheques dated 5-2-1996 and 5-3-1996 and 16-4-1996. It is the case of the petitioners that the present case has been filed only to harass the petitioners and any further continuation of the case would result in misuse and abuse of the process of the Court. It is the specific case of the petitioners that the second petitioner after receipt of the notices on 10-5-1996 discharged liability by depositing the amount due into the Bank account of the respondents on 23-5-1996 i.e. within the statutory period of 15 days.

5. I am not inclined to express any opinion whatsoever with reference to the plea taken by the petitioners, inasmuch as it is not possible for this Court to express any opinion on such dispute questions of fact. It is for the petitioners to take the plea and establish the same before the trial Court and it is for the trial Court to make enquiry and consider the same. It is settled law that this Court in exercise of its jurisdiction under Section 482 of Cr.P.C. cannot make any roving enquiry into any disputed questions of fact and record any findings. May be for the said reason, the learned Counsel for the petitioners Sri S. Srinivas Reddy did not urge before this Court to quash the complaint on the said ground stated in the petition. Therefore, it would not be appropriate to express any opinion whatsoever on the question as to whether the petitioners have discharged their liability.

6. However, the learned Counsel for the petitioners would urge that the complaint against the petitioners 3 to 7 is not maintainable as they have not issued the cheques in question. The cheques were issued by the second petitioner in the capacity of the Managing Director of the first petitioner company. It is urged by the learned Counsel that there is no specific allegation against petitioners 3 to 7 that they were responsible to the company for the conduct of the business of the company. It is urged by the learned Counsel that petitioners 3 to 7 cannot be held liable for the offence if any committed by the first petitioner company. It is only the said question that arises for consideration in this petition.

7. A bare reading of the complaint would disclose nothing against the petitioners 3 to 7. No allegations are levelled against them. The complaint is drafted in vague and indefinite terms. It reads as though all the petitioners herein have signed the cheques which remain dishonoured. It is alleged that the complainant issued notice dated 4-5-1996 to the accused and it is further alleged that notices were received by all the Directors. There is no specific allegation against petitioners 3 to 7 that at the relevant time, they were incharge of and were responsible to the company for the conduct of the business of the company. There is not even a whisper. At this stage, it would be appropriate to notice Section 141 of the Act.

"141. Offences by companies :- (1) If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly;

Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence.

(2) Notwithstanding anything contained in sub-section (1), where any offence under this Act 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."

The law on the question as to under what circumstances every person who at the relevant time the offence was committed by the company could be held liable for the offence and proceeded is not res integra. In Municipal Corporation of Delhi v. Ram Kishan Rohtagi and others, AIR 1983 SC 67 while dealing with the provisions under Prevention of Food Adulteration Act, which is in pari materia with the provision under the present Act observed that :

"So far as the Directors are concerned, there is not even a whisper nor a shared up evidence nor anything to show apart from the presumption drawn by the complainant that there is any act committed by the Directors from which reasonable inference can be drawn that they could also be vicariously liable. In this circumstances, therefore, we find ourselves in complete agreement with the argument of the High Court that no case against the Directors has been made out ex facie on the allegations made in the complaint and the proceedings against them were rightly quashed."

In M/s. Tropical Agro System (P) Ltd. Guntur and others v. State of A.P. Rep. by Joint Director of Agriculture, Guntur, 1990(1) APLJ 313, while interpreting Section 33(1) of Insecticides Act, 1968 which is similar to Section 141 of the Act, this Court held that:

"A3 and A4 are the Directors of the Company. It is not alleged that they are responsible for the conduct of the business of the company. Therefore, I agree with the contention of the learned Counsel for the petitioners that A3 and A4 cannot be held responsible for the offence."

The Madras High Court in R. Sekar v. S.P. Arjuna Raja, 1 (1994) B.C. 648. (Mad.) observed that :

"When an offence is committed by a company, every person who at the time the offence was committed was incharge and was responsible to the company for the conduct of the business, shall be liable to be proceeded against and punished along with the company. The basic requirement would be that there must be some little material to indicate that the petitioners were incharge and were responsible for the conduct of the business of the company. Such averment being absent in the complaint, sworn statement and the document accompanying the complaint, the contention of the petitioner's Counsel will have to be necessarily upheld. A civil liability as partner will not suffice to prosecute them."

This Court is Criminal Petition Nos. 3584 and 3585 of 1997 dated 22-12-1997 held that :

"It has been consistently held by this Court that unless there are allegations in the complaint filed for the offence punishable under section 138 of the Act that the Directors or partners of a Company or Firm are also incharge and responsible for the management of the business of the company or firm, they are not liable to be prosecuted. Vide 1997 Cri. LJ, 3616 and 1985(2) ALT 518."

In State of Haryana v. Brij Lal Mittal and others, 1998(4) Supreme 364 the Apex Court while construing Section 34(1) of the Drugs and Cosmetics Act, 1940 which is exactly similar to Section 141 of the Act held :

"It is thus seen that the vicarious liability of a person for being prosecuted for an offence committed under the Act by a company arises if at the material time he was incharge of and was also responsible to the company for the conduct of its business. Simply because a person is a director of the company it does not necessarily mean that he fulfills both the above requirements so as to make him liable. Conversely, without being a director a person can be incharge of and responsible to the company for the conduct of its business. From the complaint in question we, however, find that except a bald statement that the respondents were directors of the manufacturers, there is no other allegation to indicate, even prima facie, that they were incharge of the company and also responsible to the company for the conduct of its business."

8. From an analysis of the judicial opinion, what emerges is that every Director of the company is not automatically vicariously liable for the offence committed by the company. Only such Director or Directors who were incharge and responsible to the company for the conduct of the business of the company at the material time when the offence was committed by the company alone shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. It is not as if every Director and the Board of Directors can be said to be responsible to the company for the conduct of its business. It is not as if every Director participates in day today management of the affairs of the company. It is needless to reiterate that only such Directors who were incharge and were responsible for the conduct of the company's business alone shall be deemed to be guilty of the offence under Section 138 of the Act. The person incharge and responsible to the company for the conduct of the business of the company need not be a Director. He can be an officer of the company or a Manager or the Secretary as the case may be. But he is authorised to be incharge for the conduct of the business of the company. The persons responsible for the conduct of the business and incharge of the business of the company need not necessarily be a Director. Therefore, what is required for holding a person vicariously liable for the offence committed by a company, is the actual role played by such person in the management and conduct of the business of the company. All such persons who are responsible in the management of the business of the company and incharge of its business at the material time when the offence was committed by the company shall be deemed to be guilty of the offence.

9. The requirement in law is that there must be clear, unambiguous and specific allegations against the persons who are impleaded as accused that they were incharge of and responsible to the company in the conduct of its business at the material time when the offence was committed by the company. It cannot be left to the wild imagination of the complainant. There must be specific accusation against each of the persons impleaded that such person was incharge of and responsible for the conduct of the business of the company at the relevant time when the offence was committed by the company. True, it is not necessary to disclose the evidence as to on what basis such an assertion is made by the complainant. It may be a matter of evidence and proof.

10. The learned Magistrate is duty bound to examine meticulously the contents of the complaint, sworn statement of the complainant and witnesses if any examined and the document filed along with the complaint before taking cognizance of the case. The learned Magistrate is required in law to pass an order reflecting the application of mind for taking cognizance of the case. Setting criminal law in motion is fraught with serious consequences. The learned magistrate should satisfy to himself that the allegations made in the complaint on its face value and the sworn statement coupled with the documents filed prima facie reveal the commission of offence complained. The accused can be summoned only upon the learned Magistrate reaching such conclusion. The Apex Court in M/s. Pepsi Foods Ltd. and another v. Special Judicial Magistrate and others, JT 1997(8) S.C. 705 = (1998 ALL MR (Cri) 144) held that:

"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 into 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 would that be sufficient for the complainant to succeed in bringing charge home 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. Magistrate has to carefully scrutinise the evidence brought on record and may even himself put questions to the complainant and his witnesses to elicit answers 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."

11. This Court would be well within its limits to quash the proceedings in exercise of its jurisdiction under section 482 of Cr.P.C. in a case where the criminal law is set in motion by the Magistrate by summoning the accused without applying mind as to whether the complaint coupled with sworn statement of the complainant reveal commission of an offence complained. Non application of mind by the Magistrate, in a given case itself would vitiate the proceedings and give rise to a cause for interference of this Court in exercise of its inherent jurisdiction under Section 482 of Cr.P.C. Taking cognizance of any case without adverting to the contents of the complaint and the sworn statement and the statement of witnesses, if any, or without recording that the allegations made in the complaint reveal the commission of the complained offence would be without jurisdiction. I may however hasten to add that it is not the requirement in law that a Magistrate while taking cognizance of the case need write any elaborate order. It would be sufficient, if the proceedings disclose the application of mind to the contents of complaint and material made available on record.

12. In this back-ground, let me examine the contents of the complaint on hand. There is no whisper in the complaint against respondents 3 to 7. It is not even averred that they are aware of the second accused issuing cheques in question to the complainant. It is not even alleged that they are involved in day-to-day management of the affairs of the company. Nothing is stated as to in what way they shall be deemed to be guilty of the offence committed by the first accused company. The sworn statement of the complainant recorded at the time of taking cognizance also does not reveal anything against the petitioners/accused 3 to 7. For the aforesaid reasons, the process ought not to have been set in motion as against the petitioners/accused 3 to 7. The allegations levelled against the first and second petitioners are clear. The second petitioner is admittedly was the M.D. and was incharge of the company. The truth or otherwise of the allegations levelled against even petitioners 1 and 2 in the complaint is a different matter altogether.

13. For the reasons, the proceedings in C.C. No.897 of 1996, insofar as it relates to the petitioners accused 3 to 7 are hereby quashed. The trial Court shall proceed with the enquiry and trial only as against the petitioners/accused No.1 and 2 in accordance with law uninfluenced by the observations, if any, made in this order, as this Court did not express any opinion on the merits of the case.

14. Criminal petition is accordingly partly allowed.

Petition partly allowed