Criminal Application (APL) No.338 of 2018

8th February, 2019.

Petitioner Counsel: Shri SUSHIL NIMBHAR h/f. Shri A.A. CHOUBE
Respondent Counsel: Shri MASOOD SHARIF

Cases Cited:
S.M.S. Pharmaceuticals Ltd Vs. Neeta Bhalla, 2005(5) ALL MR 1118 (S.C.)=(2005)8 SCC 89 [Para 7,8]
Gunmala Sales Private Limited and others Vs. Navkar Infra Projects Private Limited and others, 2014 ALL MR (Cri) 4446 (S.C.)=(2015)1 SCC 103 [Para 8,9,10]
N. Rangchari Vs. BSNL, 2007 ALL MR (Cri) 1437 (S.C.)=(2007)5 SCC 108 [Para 8]
Standard Chartered Bank Vs. State of Maharashtra, 2016 ALL MR (Cri) 2238 (S.C.)=2016 Law Suit (SC) 344 [Para 10]
Mr. Rajeev Khandelwal Vs. The State of Maharashtra & Anr., 2013 ALL MR (Cri) 1946 [Para 10]
National Small Industries Corporation Limited Vs. Harmeet Singh Paintal and Another, 2010 ALL MR (Cri) 921 (S.C.) [Para 10]

JUDGMENT

JUDGMENT :- The applicant, who is arrayed as accused in Complaint Case 24311/2017, is seeking quashment of the order dated 07-2-2018 of issuance of process for offence punishable under Section 138 of the Negotiable Instruments Act, 1881.

2. Shri Sushil Nimbhar, learned Counsel for the applicant would submit that the complaint lacks the basic averments necessary to clothe the Magistrate with the jurisdiction to issue process for offence punishable under Section 138 of the Negotiable Instruments Act ("Act" for short). The submission is that Section 141 of the Act, by deeming fiction makes a director or partner vicariously liable for the offence committed by the company or firm, provided that the director or partner is responsible to the company or firm for conduct of business. The submission is that the averments in the complaint do not satisfy the test of Section 141 of the Act inasmuch as only bald averments are made without spelling out how and in what manner the applicant is responsible for the conduct of the business of the company. In rebuttal, Shri Masood Sharif, learned Counsel for the non-applicant-complainant would submit that it is not necessary to spell out the specific role of the director qua the transaction and it would suffice if the complaint incorporates the basic averments that the director is responsible to the company for the conduct of its business.

3. In the context of the rival submissions, scrutiny of the averments in the complaint is in order. Paragraph 2 of the complaint reads thus :

"2. It is submitted that the company is dealing in the business of manufacturing of industrial valve casting and heavy engineering casting in all grades and is supplying the material to its clients including the accused. The accused no.1 is a company, of which the accused nos. 2 to 4 are the directors who are purchasing the material from the complainant. It has been represented to the complainant that the accused no.1 is the company of which the accused nos.2 to 4 are the Directors and being the directors of the accused no.1 is actively participating in the business dealings of the accused no.1 and is responsible for the day to day affairs of the accused no.1 and are representing the accused no.1 in all the business dealings with the complainant. The accused are responsible for the day to day business activities and dealings and are jointly and severally liable and responsible for all the acts and dealings of the accused no.1 company with the complainant."

Paragraph 6 of the complaint reads thus :

"6. The aforesaid Cheques were issues by the accused, were drawn on Canara Bank, Prime Corporate Branch, Pune-411 001, drawn in favour of the complainant. The said cheques were issued from the account of the accused no.1 and were duly signed by the accused person. The said cheques were issued by the accused against the aforesaid legally enforceable debt of the accused towards the complainant. It may not be out of place to mention herein that the accused nos.1 to 4 are jointly and severally responsible to pay to the complainant the amounts under the aforesaid cheques inasmuch as the said cheques were issued by the accused person towards the legally enforceable debt and liability of the accused person towards the complainant. The accused person are jointly and severally liable and responsible for clearing the said cheques and payment of the amount under the aforesaid 3 cheques."

4. It is further averred, inter alia in paragraph 13 of the complaint that the applicant is instrumental in the business dealings and has actively participated in conduct of the business with the complainant.

5. Section 141 of the Act reads thus:

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

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

[Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.]

(2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

Explanation. - For the purposes of this section,-

(a) "company" means anybody corporate and includes a firm or other association of individuals; and

(b) "director", in relation to a firm, means a partner in the firm".

6. It is well settled, and reference to the catena of decisions enunciating the position of law is not really necessary, that a director or a partner can not be fastened with vicarious liability unless he was in charge of, and was responsible to the firm for the conduct of the business of the firm. A director or a partner can not be deemed to be liable, and that the director and partners is vicariously liable for the offence committed by the company or firm must be pleaded and proved like any other fact. In the absence of the necessary averments in the complaint, which averments may not necessarily confirm to or mechanically reproduce the language of section 141 of the Act, it would impermissible for the Court to take cognizance of the complaint. The very sine qua non for issuance of process is that the complaint, holistically read and understood, must aver that the directors or partners who are arrayed as accused were responsible to the company or firm for the conduct of the business.

7. The leading judgment of the Hon'ble Apex Court in S.M.S. Pharmaceuticals Ltd ..vs.. Neeta Bhalla, (2005)8 SCC 89 : [2005(5) ALL MR 1118 (S.C.)] was answering a reference made by a two Judge Bench. The questions which fell for determination by the three Judge Bench were thus:

"(a) Whether for purposes of Section 141 of the Negotiable Instruments Act, 1881, it is sufficient if the substance of the allegation read as a whole fulfill the requirements of the said section and it is not necessary to specifically state in the complaint that the person 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 of the cheque and or the managing directors or joint managing director who admittedly would be in charge of the company and responsible to the company for conduct of its business could be proceeded against."

The questions formulated were answered by the Hon'ble Apex Court thus:

"(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 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 requirements of Section 141 cannot be said to be satisfied.

(b) The answer to 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 the 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 a company 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."

8. Several decisions of the Hon'ble Apex Court, of two Judge Bench have considered and followed the three Judge Bench decision in S.M.S. Pharmaceuticals Ltd ..vs.. Neeta Bhalla [2005(5) ALL MR 1118 (S.C.)]. In Gunmala Sales Private Limited and others..vs..Navkar Infra Projects Private Limited and others, (2015)1 SCC 103 : [2014 ALL MR (Cri) 4446 (S.C.)], the two Judge Bench of the Hon'ble Apex Court exhaustively considered the earlier decisions including S.M.S. Pharmaceuticals Ltd ..vs.. Neeta Bhalla [2005(5) ALL MR 1118 (S.C.)]. In Gunmala Sales Private Limited and others..vs..Navkar Infra Projects Private Limited and others [2014 ALL MR (Cri) 4446 (S.C.)], the Hon'ble Apex Court, while noting that a slightly different view was taken in N. Rangchari ..vs.. BSNL, (2007)5 SCC 108 : [2007 ALL MR (Cri) 1437 (S.C.)], held that the three Judge Bench in S.M.S. Pharmaceuticals Ltd ..vs.. Neeta Bhalla [2005(5) ALL MR 1118 (S.C.)] holds the field. In Gunmala Sales Private Limited and others..vs..Navkar Infra Projects Private Limited and others [2014 ALL MR (Cri) 4446 (S.C.)], while enunciating that the averment that the partners were in charge of and were responsible for the conduct of the business of the firm is a basic requirement which persuades the Magistrate to issue process against the partners, the Hon'ble Apex Court posed the question whether the High Court must dismiss the petition under section 482 of the Code as a rule if it is found that the complaint does incorporate the basic averments. The question is answered thus:

"29. SMS Pharma-(1), undoubtedly, says that it is necessary to specifically aver in the complaint that the Director was in charge of and responsible for the conduct of the company's business at the relevant time when the offence was committed. It says that this is a basic requirement. And as we have already noted, this averment is for the purpose of persuading the Magistrate to issue process. If we revisit SMS Pharma-(1), we find that after referring to the various provisions of the Companies Act it is observed that those provisions show that what a Board of Directors is empowered to do in relation to a particular company depends upon the roles and functions assigned to Directors as per the memorandum and articles of association of the company. There is nothing which suggests that simply by being a Director in a company, one is supposed to discharge particular functions on behalf of a 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 a company. It may be that a Board of Directors may appoint sub-committees consisting of one or two Directors out of the Board of the company who may be made responsible for the day-to-day functions of the company. This Court further observed that 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 and that there is no universal rule that a Director of a company is in charge of its everyday affairs. What follows from this is that it cannot be concluded from SMS Pharma-(1) that the basic requirement stated therein is sufficient in all cases and whenever such an averment is there, the High Court must dismiss the petition filed praying for quashing the process. It must be remembered that the core of a criminal case are its facts and in factual matters there are no fixed formulae required to be followed by a court unless it is dealing with an entirely procedural matter. We do not want to discuss 'the doctrine of Indoor Management' on which submissions have been advanced. Suffice it to say, that just as the complainant is entitled to presume in view of provisions of the Companies Act that the Director was concerned with the issuance of the cheque, the Director is entitled to contend that he was not concerned with the issuance of cheque for a variety of reasons. It is for the High Court to consider these submissions. The High Court may in a given case on an overall reading of a complaint and having come across some unimpeachable evidence or glaring circumstances come to a conclusion that the petition deserves to be allowed despite the presence of the basic averment. That is the reason why in some cases, after referring to SMS Pharma-(1), but considering overall circumstances of the case, this Court has found that the basic averment was insufficient, that something more was needed and has quashed the complaint."

"30. When a petition is filed for quashing the process, in a given case, on an overall reading of the complaint, the High Court may find that the basic averment is sufficient, that it makes out a case against the Director; that there is nothing to suggest that the substratum of the allegation against the Director is destroyed rendering the basic averment insufficient and that since offence is made out against him, his further role can be brought out in the trial. In another case, the High Court may quash the complaint despite the basic averment. It may come across some unimpeachable evidence or acceptable circumstances which may in its opinion lead to a conclusion that the Director could never have been in charge of and responsible for the conduct of the business of the company at the relevant time and therefore making him stand the trial would be abuse of the process of court as no offence is made out against him."

9. Gunmala Sales Private Limited and others..vs..Navkar Infra Projects Private Limited and others [2014 ALL MR (Cri) 4446 (S.C.)] thus articulates that while it would be legally impermissible for the Magistrate to take a cognizance in the absence of the basic averments in the complaint, even if the complaint incorporates the basic averments, the inherent power under section 482 of the Code to prevent the abuse of process of law, can not be fettered and the High Court is not as a rule obligated to dismiss the petition under section 482 of the Code. Notwithstanding that the complaint incorporates the basic averments, this Court is not precluded from quashing the order of issuance of process if there is unimpeachable and incontrovertible evidence or acceptable circumstances which would rule out the role of the named accused in the transaction. However, ordinarily if the complaint incorporates the basic averments, this Court would be slow to interfere and nip the trial in the bud. It would be in rare and exceptional circumstances that despite the basic averments, recourse to inherent power would be taken to quash the complaint if the role of the director or partner named as accused is excluded by unimpeachable and incontrovertible material or circumstances.

10. In Standard Chartered Bank vs. State of Maharashtra, 2016 Law Suit (SC) 344 : [2016 ALL MR (Cri) 2238 (S.C.)], which is again a Two Judge Bench decision, the observations in Gunmala Sales Private Limited and others vs. Navkar Infra Projects Private Limited and others [2014 ALL MR (Cri) 4446 (S.C.)] are referred to and quoted with approval. A decision of a learned Single Judge in Mr. Rajeev Khandelwal v. The State of Maharashtra & Anr., 2013 ALL MR (Cri) 1946, does take a view that the role of the accused must be specifically spelt out. The relevant observations of the learned Single Judge are thus :

"9. It is thus clear, the complainant in a prosecution under Section 138 read with 141 of the Negotiable Instruments Act has to spell out a clear case against the person sought to be made liable by aid of Section 141 of the Negotiable Instruments Act as it is imperative for the complainant to indicate, such person falls within the parameters of Section 141 of the Negotiable Instruments Act. Even if, it is stated in the complaint that the petitioner was a Director, however, that will not suffice as the record illustrates the petitioner was not a Director of the company nor incharge for the day-to-day affairs of accused-company. In paragraph 11 of the complaint it was stated, "accused nos.2 to 6 personally approached the complainant company for appointment of the complainant company as exclusive financial advisor of accused no.1 and gave assurance of payment against the services to be rendered by the Complainant. The Accused nos.2 to 6 were personally interacting with the complainant company from time to time. The accused nos. 2 to 6 were looking after the functioning of Accused no.1 when the Accused approached Complainant for advisory services, when the cheques in question were issued." These averments should have been supported with linkage of corresponding documents chaining personal involvement of petitioner in interacting with the complainant or making the complainant to believe that the transaction is to be shouldered by the petitioner."

With due respect to the view taken by the learned Single Judge, the observation that the averments should have been supported with linkage of corresponding documents chaining personal involvement of petitioner in interacting with the complainant for making the complainant to believe that the transaction is to be shouldered by the petitioner is too broad a statement and is not consistent with the authoritative enunciation of law by the Hon'ble Apex Court, including the observation in Gunmala Sales Private Limited and Others ..vs.. Navkar Infra Projects Private Limited and others [2014 ALL MR (Cri) 4446 (S.C.)] which reads thus:

"30. When a petition is filed for quashing the process, in a given case, on an overall reading of the complaint, the High Court may find that the basic averment is sufficient, that it makes out a case against the Director; that there is nothing to suggest that the substratum of the allegation against the Director is destroyed rendering the basic averment insufficient and that since offence is made out against him, his further role can be brought out in the trial". (emphasis supplied)

A bald cursory statement in a complaint that the director is incharge and responsible to the company for the conduct of the business of the company without anything more as to the role of the director may not suffice as is observed by the Hon'ble Apex Court in paragraphs 13 to 15 in National Small Industries Corporation Limited ..vs.. Harmeet Singh Paintal and Another [2010 ALL MR (Cri) 921 (S.C.)]. However, the observations cannot be stood to mean that the specific role played by the director qua the transaction must be spelt out with particularity and by placing on record documentary material.

11. The submission that even if it is assumed arguendo, that the complaint incorporates the basic averments, the substratum of the case made out in the complaint against the accused is destroyed by unimpeachable and incontrovertible material on record is predicated on the tax/sale invoices placed on record by the complainant in the summary suit. Even if the said material is taken at face value, it is difficult to accept the submission that the material clinchingly establishes that the applicants-accused did not have any role in or concern with the transaction or the issuance of cheques. The fact that the applicants have not placed the purchase order would not per se exclude their role or involvement. It is obvious that the purchase orders would be placed by either the company or firm or on its behalf by a director or officer or other employee. The fact that the invoices placed on record do not refer to the applicants-accused does not take the case of the applicants-accused any further.

12. In the light of the discussion supra, the challenge to the order of issuance of process must fail. However, the personal presence of the applicant-accused is exempted unless the trial Court, for reasons to be recorded, finds that the personal presence of the applicant-accused is absolutely necessary. Subject to the said observation and direction, the application is rejected with no order as to cost.

Application dismissed.