Criminal Application No.1071 of 2004

30th April, 2004

Petitioner Counsel: Mr. K. K. PILLAI
Respondent Counsel: Mr. SHARAD N. BHATTAD, Mr. YENGAL

Cases Cited:
Delhi High Court, FMI Investments Pvt. Ltd. Vs. State, 2000 DCR 388 [Para 15]
Municipal Corporation of Delhi Vs. Ram Kishan Rohtagi, AIR 1983 SC 67 [Para 15,20,22]
Modern Denim Ltd. Vs. Lucas TVS Ltd, 2000 DCR 183 [Para 15]
Sham Sundar Vs. State of Haryana, AIR 1989 SC 1982 [Para 15,27]
G. L. Modi Vs. Xedd Finance and Investments Pvt. Ltd., 1998 ALL MR (Cri) JOURNAL 60=2000 DCR 119 [Para 15]
Smt. Saraswathy Amma Vs. SWIL Limited, 2000 DCR 365 [Para 15]
P. Ravinder Reddy Vs. M/s NCC Finance Ltd., 2000 DCR 193 [Para 15]
Kumari Vs. Sankara Raman, 2001(2) KLT 503 [Para 15,21]
Shailender Tiwari Vs. Meenakshi Anhal, 2003(1) DCR 192 [Para 15,21]
Anil Hada Vs. India (Acrylic, 2000 ALL MR (Cri) 136 (S.C.)=AIR 2000 SC 145 [Para 15]
Raj Laxmi Vs. Shakti Bhakoo, (2002)8 SCC 236 [Para 15,28]
A. V. Murthy Vs. B. S. Nagabasavanna, 2002 ALL MR (Cri) 709 (S.C.)=(2002)2 SCC 642 [Para 15]
MMTC Vs. Medchi, 2002 ALL MR (Cri) 230 (S.C.)=AIR 2002 SC 182 [Para 15]
M.N. Damani Vs. S. K. Sinha, 2001 ALL MR (Cri) 1488 (S.C.)=AIR 2001 SC 2037 [Para 15]
State of Karnakata Vs. M. Devenrappa, AIR 2002 SC 671 [Para 15]
S. W. Palanitkar Vs. State of Bihar, 2002(1) SCC 241 [Para 15,22]
Orient Syntex Ltd. Vs. Besant Capital Tech Limited, Akola, 1999 ALL MR (Cri) 1815=1999(3) Mh.L.J. 413 [Para 15,22]
Bharti N. Wadhwana Vs. Arjun Kishandas Jaisingh, 2000 ALL MR (Cri) 155=1999(3) Mh.L.J. 853 [Para 15,22]

JUDGMENT

JUDGMENT :- Rule, returnable forthwith by consent of the parties.

2. Six applicants in this application who are admittedly Directors of Company namely M/s Thanikkudam Bhagawati Mills Ltd. (hereinafter referred to as TBM Ltd.); of Thrissur, Kerala State, have been arrayed as the accused persons in two Criminal Complaint Cases being Criminal Complaint Case No.2768/2000 and Criminal Complaint Case No.2769/2000 both filed by the Second respondent herein the partnership firm.

Present is a common petition challenging the order of issue of process in so far as it relates to present applicants issued in those complaints.

3. It is a common ground that TBM Ltd., and the non-applicant no.2 M/s. Shreenath Cotton Co. had commercial transactions and there exists legally enforceable liability of the TBM Ltd. payable to second non-applicant.

4. On account of business transactions, according to the applicants, TBM Ltd., had issued two cheques. According to the version of the applicants, they plead in Exh.A page 21 of the petition paper book that the TBM Ltd., had sent letter dated 15-9-1999 forwarding the cheques, contents thereof read as below.

“M/s Shreenath Cotton Co., Sausar 480 106.
Dear Sirs,
Sub-Forwarding of cheques.
As requested by you, we are pleased to enclose herewith following two cheques towards the balance amount payable to you as on date towards yours cotton supply.
1.     DLB Ch. No.135891 dated 15-12-99 for Rs.20,00,000/-.
2.     DLB Ch. No.135892 dated 18-12-99 for Rs.19,36,186/-.
The above cheques have been issued to you based on the assurance given by you that you would take prior written concurrence from us before presenting the cheques for payment.
In case, if we sent you the payment by LC/DD, your may arrange to return us the cheques for due cancellation at our end.
Thanking you,       Encls : As above.
	Yours sincerely, for Thanikudam Bhagawati Mills Ltd.
Copy to :- Shri. Piyush Thakkar, Coimbatore,”

5. The underlined contents of the above quoted letter is first amongst the defences of the present applicants on the basis of which, they claim that firstly, TBM Ltd., had no obligation to honour those cheques until written concurrence was obtained from TBM Ltd., for presentation of these cheques.

6. In view of the dis-honour of cheques when presented, the Non-applicant no.2, issued the notice in compliance with the Section 138 of the N. I. Act, simultaneously claiming offence of cheating under Section 420 of the Indian Penal Code which notice is purportedly dated 26-6-2000 issued to the applicants herein, the Company TBM Ltd., its Dy. General Manager and the Factory Manager, in all 9 persons. The notice contained a specific imputations as can be read from second para thereof which reads as follows :

"2. That you noticee no.1 is a regular customer of my client and during regular course of Business you noticee had purchased goods on credit by various orders placed by you. That you noticee no.3 to 7 are Directors of you noticee No.1 Company and you noticee Nos.8 & 9 are Deputy general manager and Factory Manager respectively of you noticee No.1 Company. That you noticee no.2 and 9 are looking after day to day affairs, business and managing entire day to day affairs of noticee No.1 company and are liable and responsible for the acts done by and on behalf of noticee No.1 Company."

7. The above quoted averment contained in the notice has been responded to by the present applicants with a specific reply incorporating in para 2 of reply which is quoted below for ready reference as below :-

"The other directors i.e. Nos.3 to 7, have no role in the day to day affairs of the Company and therefore, not responsible for the acts done by the Company and therefore, cannot be held liable in any manner whatsoever. Nos.8 & 9 are only employees of the No.1 Company who have no role in running business of the company or its day to day affairs and therefore, cannot be held liable or responsible for the acts done by the Company."

The applicants have raised a plea that the TBM Ltd., was required by lead Bank to close their accounts with Dhana Laxmi Bank Ltd., Kurichikara Branch and accordingly the TBM Ltd had requested the Second Respondent herein by letter dated 19-11-1999 at Exh.B to the application to return those cheques. According to the applicants, notwithstanding these communications i.e. a forwarding letter through which the cheques were sent and the letter communicating closing of account, the Second Respondent presented the Cheques which were naturally dishonoured, the account having been closed. This consequential failure to honour the cheque did not attract criminal liability.

8. This reply was sent by the applicants' Company on or about 14-7-2000. The TBM Ltd., failed as did the present applicants, to honour the demand and commitment under the notice and the cheques subject matter. The Second Non-applicant herein filed two complaints in the Court of the Judicial Magistrate First Class, Nagpur being complaint Case No.2768/2000 in relation to Cheque of Rs.19,36,186/- bearing No.135892 dated 18-12-2000 as well as the second complaint No.2769/2000 in relation to Cheque of Rs.20,00,000/- bearing Cheque No.135891 dated 15-12-2000, and the learned Judicial Magistrate First Class Court No.2nd Nagpur, issued the process in both the cases.

9. The applicants who are accused nos.3, 4, 5 to 9 submitted an application for recalling of the process which was declined by the Court inter alia since some of the applicants had not signed the application.

10. It is seen that the present applicants filed an application Exh.36 and Exh.32 filed by them in Criminal Case No.2769/2000 and 2758/2000, respectively in the Trial Court praying for recalling of process and this time, the applications were duly signed and verified.

The pleas agitated inter alia raised the contentions in so far as the applicants are concerned, in the application for recalling of process and now press into service as follows:

(i) That the process was not issued under sections 141 of the N.I. Act and in view of Section 141 of N.I. Act, the present applicants herein who were not responsible for day to day business of the Company and were not in any manner responsible for dishonour of the cheques and there was no offence committed by them.

(ii) Except the bald statement that the applicants are the Directors of the Company, there is no evidence to show that at the time of Commission of the offence, they were in charge and were responsible to the Company for conduct of business of the Company and as such, they are not liable to be prosecuted.

(iii) The Managing Director has been authorised to conduct day today working of the Company and shall be responsible for the banking operations of the Company and that these resolutions are on record.

(iv) The cheques were liable to be returned due to closing of Bank account as well were not liable to be presented for payment except with written consent of TBM Ltd.

11. The said applications Exh.32 and Exh.36 were opposed by the Second Non-applicant herein who reiterated that the accused Nos.2 to 9 are looking after day to day affairs of the business and managing the entire affairs of the Company. The second non-applicant further specifically averred that:-

"averment of the accused that they are not liable for affairs of the Company is a matter of proof which is to be proved at the time of Trial."

12. The learned Trial Judge vide its order dated 10-2-2003 after having taken into account various judgments cited at bar and after having heard the parties held as follows:

"3......In para No.2 of the complaint there is nothing on record to arrive at conclusion that the accused persons are liable to be discharged. In the present case, evidence is yet to be recorded. Without recording the evidence, it is difficult to hold that the accused persons are liable to be discharged. Moreover, opportunity must be given to the parties to fight out their cases. In such circumstances, the authorities cited supra are not applicable to this case, on account of different facts circumstances."

13. That the above said order gave rise to the applicants to file Revision Application before the Sessions Court bearing No.176 and 177 of 2004 and hence, the applicants have moved this Court.

14. I have heard the parties at length, on facts as well as on questions of law.

15. The present applicants in the background of factual matrix represented, which have been herein before narrated briefly to place reliance on various judgments in order to raise and substantiate a plea that by virtue of Section 141 of N.I. Act, the applicants herein are not liable to be tried at all as they are not vicariously responsible for the actions of the Company. The applicants relied upon following Judgments :-

1. 2000 DCR 388 Delhi High Court, FMI Investments Pvt. Ltd. Vs. State & Ors.,

2. AIR 1983 Supreme Court 67, Municipal Corporation of Delhi Vs. Ram Kishan Rohtagi and Others.

3. 2000 DCR 183, Modern Denim Ltd. Vs. Lucas TVS LTD. - AIR 1989 SC 1982, Sham Sundar and others Vs. State of Haryana.

4. 2000 DCR 119 : 1998 ALL MR (Cri) JOURNAL 60, G. L. Modi Vs. Xedd Finance and Investments Pvt. Ltd.;

5. 2000 DCR 365, Smt. Saraswathy Amma & Anr. Vs. SWIL Limited and Anr.;

6. 2000 DCR 193, P. Ravindra Reddy Vs. M/s. NCC Finance Ltd. CCR 349 (AP);

7. Andhra Pradesh High Court;

8. 2001(2) KLT 503, Kumari Vs. Sankara Raman;

9. 2003(1) DCR 192, Shailender Tiwari & Ors. Vs. Meenakshi Anhal and Anr.

Per contra, the learned Counsel appearing for the non-applicant No.2 placed reliance on the following Judgments namely :

(1) AIR 2000 S.C. Pg. 145 : 2000 ALL MR (Cri) 136 (S.C.) (Anil Hada Vs. India Acrylic);

(2) (2002)8 SCC 236 (Raj Laxmi Vs. Shakti Bhakoo);

(3) (2002)2 SCC 642 : 2002 ALL MR (Cri) 709 (S.C.) (A. V. Murthy Vs. B. S. Nagabasavanna);

(4) AIR 2002 SC 182 : 2002 ALL MR (Cri) 230 (S.C.) (MMTC Vs. Medchi);

(5) AIR 2001 SC 2037 : 2001 ALL MR (Cri) 1488 (S.C.) (M.N. Damani Vs. S. K. Sinha);

(6) AIR 2002 SC 671 (State of Karnataka Vs. M. Devenrappa);

(7) 2002(1) SCC 241 (S. W. Palanitkar and others Vs. State of Bihar and another);

(8) 1999(3) Mh.L.J. 413 : 1999 ALL MR (Cri) 1815 (Orient Syntex Ltd. and others Vs. Besant Capital Tech Limited Akola);

(9) 1999(3) Mh.L.J. 853 : 2000 ALL MR (Cri) 155 (Bharti N. Wadhwana and others Vs. Arjun Kishandas Jaisingh and another).

16. Rival contentions can thus be dealt with if summarised in brief as follows :

(i) Can prosecution against the applicants be quashed on the ground of liberty available to them to claim having no nexus with the crime complained under Section 141 of N.I. Act.

(ii) What is the stage when the defence, if any that the applicants are unconnected is to be raised, dealt with and decided.

17. The applicants' plea is countered by Second non-applicant contending that :-

(a) the applicants in the present case have at no point denied that the liability of Civil nature did not exist between TBM Ltd and M/s Shreenath Cotton Co.;

(b) the said TBM Company issued letter Exh.B demanding return of cheques, it did not substitute the cheques by valid cheques to keep up its plea and promise.

(c) any presumption was not or not available to the effect that the cheques were delivered through letter dated 15-9-1999 on the condition of being presented only with prior concurrence particularly when the second non-applicant is disputing both these communications Exh.A as well as Exh.B.

18. In view of the aforesaid grounds opposing the present application which have been raised by the non-applicants the points which emerge are as follows :

(i) That the complainant second non-applicant has in adequate terms averred in the complaint that the present applicants dispute that they are involved in day today management and administration of the Company.

(ii) That there exists a defence for the Company namely that the cheques were not liable to be presented as well that the closing of account was communicated are not admitted facts as far as Second non-applicant is concerned and existence of these facts cannot be accepted to be an admitted position and, therefore, its truthfulness or correctness cannot be accepted without proceeding with the trial.

(iii) That the Directors' claim that they are not liable for any action under Section 138 of N.I. Act is a right available to the Directors under proviso to sub-section 1, which is again governed qualified by a right that emerges from sub-section 2 of section 141 of N.I. Act, 1881.

19. In the aforesaid background, this Court has to advert to the law as it emerges as it governs the field, and shall govern the controversy. It is, therefore, necessary to take resume of the Judgments cited at bar.

20. The gist that emerges upon discreet examination of the ratio of various judgments relied upon by the applicants can be adverted to by referring to some of the observations and conclusions thereupon from the Judgment reported in AIR 1983 Supreme Court 67, Municipal Corporation of Delhi Vs. Ram Kishan Rohtagi and others. In this case, referring to the pleadings attributing liability to the Directors, Their Lordships of Supreme Court by quoting the pleadings in the given case observed thus :

"12..... The only point on which the controversy centres is as to whether or not on the allegations, the Manager as also the other respondents 1 to 5 committed any offence. The main clause of the complaint which is the subject matter of the dispute is clause no.5 which may be extracted thus:

"5. That the accused No.3 is the Manager of accused No.2 and accused Nos.4 and 7 are the Directors of accused No.2 and as such they were in charge of and responsible for the conduct of business of accused No.2 at the time of sampling."

(Underline provided for emphasis). The above pleading was regarded by Their Lordships of Supreme Court to be scanty enough and Their Lordships therefore, observed in para 15 as follows :

"15.... .... So far as the Directors are concerned, there is not even a whisper nor a shred of evidence nor anything to show apart from the presumption drawn by the complainant, that there is any act committed by the Directors from which a reasonable inference can be drawn that they could also be vicariously liable. In these circumstances, therefore, we find ourselves in complete agreement with the argument of the High Court that no case against the Directors (accused Nos.4 to 7) has been made out ex facie on the allegations made in the complaint and the proceedings against them were rightly quashed."

All judgments relied upon by the applicants revolve around what has been ruled in the case supra. What are the exact imputations contained in the complaint and as to how the nexus is borne out governs the considerations at the stage of issue of process, and would emerge to be the indicator pointing towards the Directors to at least prima facie, hold them responsible to face the trial of a case under Section 138 of the N.I.Act.

21. The Karnataka High Court in 2001(2) KLT 503, Kumari Vs. Sankara Raman has observed that sub-section 2 of Section 141 of N.I. Act has independent operation which equips the complainant with her right to prove that the Directors are liable. Though in the Karnataka case the Court was pleased to quash the proceedings, again on the fact that there existed lack of averments in relation to liability of the Directors. The judgment namely 2003(1) DCR 192, Shailender Tiwari & Ors. Vs. Meenakshi Anhal and anr., the Delhi High Court examined the matter of Directors' liability and in no ambiguous terms observed that the Directors who were full time Directors were liable since no documents placed on record, nor the deposition of the complaint's witness no.1 were worth taking note and therefore, other Directors were not liable to be proceeded. It follows automatically that in that case question came to be decided before the Delhi High Court on the basis of the pleadings as well as the evidence.

22. Learned Counsel for the non-applicants placed reliance on two judgments of this Court first being 2002(1) SCC 241 S. W. Palanitkar and others Vs. State of Bihar and another and the case of Orient Syntex Limited and others Vs. Besant Capital Tech Limited, Akola, reported in 1999(3) Mh.L.J. 413 and Bharti N. Wadhawana and others Vs. Arjun Kishandas Jaisingh and another reported in 1999(3) Mh.L.J. 853.

In the aforesaid judgment of the Hon'ble Supreme Court i.e. S. W. Palantikar's case, the matter that was under consideration as to what should be the procedure to be adopted by the Court while considering the matter while taking cognisance and issue of process. The Second Non-applicant is placing the reliance on this Judgment to the limited extent namely the matters which were liable to be considered by the Trial Court at the time of issue of process, have been appropriately considered by learned Trial Court. In the present case, there is no challenge to the question of manner of exercise of jurisdiction by the Trial Court, rather entire thrust of challenge is in relation to adequacy of material in the body of the complaint attaching liability to the applicants herein.

In both the Judgments Orient Syntex Ltd., as well as Bharti N. Wadhwana supra, this Court has taken a view that all that has to be seen as to what did the complaint contain and verification statement as regards the liability of Directors was matter on the basis of which these Judgments have been delivered. Apparently these judgments had gone against the complainants concerned in the complaints under Section 138 of the N.I. Act, however, again on the point as to what was pleaded as to the nexus of the Directors.

Now coming to the facts of the case in hand, the averments contained in the complaint have already been referred to by quotation thereof in para No.6 aforesaid. If the contents of the complaint as were quashed in various cases including by Hon'ble Supreme Court in the reported Judgment AIR 1983 SC Page 67 where their Lordships had found that the narration was too scant to attract liability of action under Section 138 of the N.I.Act, the averments contained in para 2 of the complaint filed by the second non-applicant herein narrating the status of the accused persons present applicants, the complainant is not liable to be branded as "scant enough to enable the Tribal Court to have refused to take cognizance". The applicants' case is that as the imputations against them do not sufficiently spell out that they are involved in the day today business and activities of the Company, and that, they are not supposed to be conversant with the day today banking transactions, and that they are not liable vicariously for the action taken by the local management.

23. The conduct of the applicants that their Company on their own showing did not replace the cheques goes to show that the conduct does not reveal even the traces of fairness that has been sought to be argued where learned Counsel for applicant contended that but for filing of case under Section 138 of N.I. Act, the dispute could have been settled, so also that the failure to discharge the obligation under the cheque had occurred since the TBM Ltd., could not recover its receivables from other debtors.

24. The question as to whether the applicants are really not involved in the day today affairs as well as to whether the complainant is in a position to show that the offence was committed by consent or in connivance of the accused persons as can be done under sub-section 2 of Section 141 of N.I. Act is a matter to be dealt with in the course of trial alone as a right of rebuttal and never at the stage of issue of process.

25. The matters due to which Directors claim to have an immunity are the matters of personal knowledge of the Directors and fall within the compass of section 106 of Evidence Act being matters of personal knowledge due to indoor management of the Company are liable to come on record only by proof of facts in the event the Directors put up a defence by taking recourse to the Section 141(1) of N.I. Act.

26. It would be fruitful to refer to the last submission which was made by the learned Counsel for applicants when he was confronted with the situation as has emerged and referred to in foregoing paras, in response, the learned Counsel for applicant has submitted that in the event process is issued only against the Company, its Managing Directors or the Officers who were actively participating in the day to day business and in the course of trial, the trial Court finds that other Directors too are responsible, it shall still be open for the Trial Court to call for such other accused to answer the charge. After giving peaceful consideration to this aspect, it becomes vivid that permitting such a situation to occur, it will lead to requiring the Trial Court to go into a fishing enquiry having tantamount to investigation or enquiry of a case though the complainant has come before the Court with a plea that as in the present case :-

"that the accused Nos.2 to 9 are looking after day today affairs, business and managing the entire affairs of the accused no.1 Company and are liable and responsible for the acts done and on behalf of the accused no.1 Company and are hence, liable for penal action for the offence committed by the accused no.1 Company".

It will have to be noted that denial of such averment does not ipso facto tantamount to creation of a fetter on the Court namely that once the liability is disputed that the Court would be under an obligation either to hold a prior enquiry i.e. prior to issue of process and then alone take cognisance of an offence complained of through a private complaint.

27. The applicants further relied on the question of the Directors' liability on the reported Judgment AIR 1989 SC 1982 Sham Sunder and others Vs. State of Haryana is liable to be viewed with point of view of the definition of the term Company and Director as provided in Section 10 of the Essential Commodities Act and the crux of the matter again lies in the proviso to section 10(1) of the Essential Commodities Act where a right has been vested in the accused under the provisions of the said Act. The strict proof that when the contravention took place/did occur without his knowledge or that he had exercised all due diligence to prevent the contravention is the point of tilting the balance of justice in favour of the accused Directors.

This Judgment which is relied upon by the applicants, therefore, decides the exact issue that is arising in the present case. In any of these judgments referred to by the applicants, an aspect namely that sub-section 2 of section 141 of N.I. Act, which does in fact, operate to be the proviso to the proviso of sub-section 2 of 141 of N.I. Act, has not been ruled upon in such fashion thereby granting to the Directors total immunity. Status of sub-Section 2 of Section 141 is thus clear and leaves no ambiguity whatsoever to the effect that it equips the complainant with a device to prove as to how Directors claiming by virtue of and upon proof of facts forming condition precedent of proviso to sub-sections of Section 141, is still liable, and needless to hold as it follows that this right presupposes Directors claiming immunity have to face the trial.

28. The interpretation and conclusions reached in foregoing para are fortified by Judgment of Hon'ble Supreme Court reported in (2002)8 SCC 236 wherein CJ B. N. Kirpal, K. G. Balkrishnan and Arijit Pasayat held as regards Section 141 of N.I.Act that :-

"3. The High Court invoked the provisions of Section 141 of the Negotiable Instruments Act and came to the conclusion that as the respondent was not in charge or responsible for the conduct of the business, therefore the order summoning her was bad in law.

4. We are of the opinion that at the stage of summoning when evidence was yet to be led by the parties, the High Court could not on an assumption of facts come to a finding of fact that the respondent was not responsible for the conduct of the business. On this ground alone, these appeals are allowed and the impugned decision of the High Court is set aside."

It would not be necessary to refer to all other Judgments referred to by non-applicant no.2 as those pertain to High Court's powers and limitations/restraints to be followed by High Court while quashing process in the cases under Section 138 of the N. I. Act, as I am not exercising powers under Section 482 of Cr.P.C. and rather declining to do so more particularly exercise of jurisdiction in such cases shall amount to stopping the enquiry at the threshold and permitting those who need to be tried to escape the trial itself leave apart the conviction and sentence if at all which might otherwise follow.

29. In the result, I have reached a conclusion upon full consideration of the pleadings, rival contentions, law cited before me and the arguments advanced that there being sufficient and adequate pleadings rendered by the complainant which is coherent from the moment of issue of first notice, that present applicants believe that they are not liable, is in fact, a plea in defence liable to be put forth before and to be tested by the Trial Court, than a plea of opposition to the issue of process.

30. The Criminal Application No.1071 of 2004 fails.

Rule discharged.

Application dismissed.