@JUDGMENTTAG-ORDER
Kanchan Chakraborty, J.@mdashAll the revision applications mentioned in this caption above are directed against proceedings u/s 138 of Negotiable Instruments Act initiated by the opposite party No. 2 M/s. Prithvi Energy Ltd. and M/s. Garkot (India) Pvt. Ltd. wherein the petitioner has been made accused No. 5. Since all the proceedings are identical and same legal issue arises, they are being disposed of by this common judgment.
2. A short but important question as to whether the petitioner, being a Director of a company simpliciter, can be prosecuted for committing an offence u/s 138 read with Section 141 of the Negotiable Instruments Act, has been raised in these revision applications.
3. The Director Shankar Menon (shown as accused No. 5) claimed that he was not vicariously liable for act of the principle offender i.e., the company M/s. Carritt Moran Company (P. Ltd.) for commission of alleged offence u/s 138 read with Section 141 of the Negotiable Instruments Act. He has prayed for quashing of the proceedings initiated against him by the opposite party No. 2 M/s. Prithvi Energy Ltd. and M/s. Garkot (India) Pvt. Ltd. against M/s. Carritt Moran Company (P. Ltd.) together with five others including himself.
4. Reference to the factual aspects, in details, is not required to be given as the specific question of law has been raised at the Bar is what would be the necessary averment one must make in a petition of complaint to fasten a director of a private ltd. company besides the company, Managing Director and others in view of Section 141 of the Negotiable Instruments Act (hereinafter referred to as the Act).
5. The specific averment made in the petitions of complaint against the present petitioner Shankar Menon goes like this -
That the accused No. 1 is a private limited company and incorporated under the provisions of the Companies Act, 1956 and the accused Nos. 2 & 3 are the Managing Directors of the accused No. 1 and the accused Nos. 4, 5 & 6 are the directors of the accused No. 1 and the accused Nos. 2 to 6 are controlling the day to day affairs of the business of the accused No. 1 and also liable for the affairs of the accused No. 1 at the relevant point of time the offence for which the present complaint is being filed.
6. The question is whether the averments mentioned above in the petitions of complaint fulfill the requirements of Section 141 of the Act or not.
7. The following decisions of the Hon''ble Apex Court have been referred to from the Bar:-
i)
ii)
iii)
iv) N. Rangachari v. BSNL - 2007 (2) E Cr. Notes 568.
v)
vi) S. M. S. Pharmaceuticals Limited (2) - 2007 (2) Supreme 459.
8. Mr. Ayan Bhattacharya, learned Counsel appearing for the opposite party has also referred to a decision of this Court in Manoj Jalan v. State of West Bengal and Anr. - E. Cr. N 2010(1) (Cal) 38.
9. This Court also has ventured to look at the following decisions of the Hon''ble Apex Court :-
a)
b)
c)
d)
10. Mr. Subhamoy Bhattacherjee, learned Counsel on behalf of the petitioner contended that true it is the proposition of law enunciated it
(i) The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every Director knows about the transaction.
(ii) Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company.
(iii) Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be averred in the complaint/petition, are made so as to make the accused therein vicariously liable for offence committed by the company along with averments in the petition containing that the accused were in charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with.
(iv) Vicarious liability on the part of a person must be pleaded and proved and not inferred.
(v) If the accused is a Managing Director or a Joint Managing Director then it is not necessary to make specific averment in the complaint and by virtue of their position they are liable to be proceeded with.
(vi) If the accused is a Director or an officer of a company who signed the cheques on behalf of the company then also it is not necessary to make specific averment in the complaint.
(vii) 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.
11. While dismissing the appeals the Hon''ble Court held :
In the light of the above discussion and legal principles, we are in agreement with the conclusion arrived at by the High Court and in the absence of specific averment as to the role of the respondents and particularly in view of the acceptable materials that at the relevant time they were in no way connected with the affairs of the Companies, we reject all the contentions raised by the learned Counsel for the appellants.
12. Mr. Ayan Bhattacharya, learned Counsel appearing on behalf of the opposite party/ de facto complainant contended that in Ram Raj Singh (supra) it was not held that it has to be disclosed in the complaint as to how the Director is responsible for the conduct of the business of the company or part played by him in the transaction.
13. Mr. Bhattacharya contended that in
14. In
To sum up, there is almost unanimous judicial opinion that necessary averments ought to be contained in a complaint before a person can be 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 u/s 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.
15. In second S.M.S. Pharmaceuticals Limited - 2007 (2) Supreme 459, the same principle has been reiterated and it was held :
Section 141 of the Act does not say that a Director of a company shall autocratically be vicariously liable for commission of an offence on behalf of the company and what is necessary sufficient averment should be made to show that the person who is sought to be proceeded against on the premise of his being vicariously liable for commission of an alleged offence by the company must be incharge and shall also be responsible to the company in the conduct of its business. The decision in Saroj Kumar Poddar (supra) which is banked upon by the petitioner has been referred to in second SMS case where in the same Hon''ble Judge who spoke in Saroj Kr. Poddar case wrote the following lines;
A faint suggestion was made that this Court in
16. In N. Rangachari v. BSNL 2007 (2) Law Herald SC 1379. The Apex Court observed :
A person normally having a business or commercial dealing with a company, would satisfy himself about its creditworthiness and reliability by looking at its promoters and Board of Directors and the nature and extent of its business and its Memorandum or Articles of Association. Other than that, he may not be aware of the arrangements within the company in regard to its management, daily routine, etc. Therefore, when a cheque issued to him by the company is dishonoured, he is expected only to be aware generally of who are incharge of the affairs of the company. It is not reasonable to expect him to know whether he has been deprived of his authority to do so when he actually signed the cheque. Those are matters peculiarly within the knowledge of the company and those in charge of it. So, all that a payee of cheque that is dishonoured can be expected to allege is that the persons named in the complaint are in charge of its affairs. The Directors are prima facie in that position.
17. In K. K. Ahuja v. V. K. Vora & Anr. (supra) it was held :
The position u/s 141 of the Act can be summarised thus:
i) If the accused is the Managing Director or a Joint Managing Director it is not necessary to make an averment in the complaint that he is in charge of, and is responsible to, the company, for the conduct of the business of the company. It is sufficient if an averment is made that the accused was the Managing Director or Joint Managing Director at the relevant time. This is because the prefix ''Managing'' to the word ''Director'' makes it clear that they were in charge of, and are responsible to, the company, for the conduct of the business of the company.
ii) In the case of a Director or an officer of the company who signed the cheque on behalf of the company, there is no need to make a specific averment that he was in charge of, and was responsible to, the company, for the conduct of the business of the company or make any specific allegation about consent, connivance or negligence. The very fact that the dishonoured cheque was signed by him on behalf of the company, would give rise to responsibility under sub-section (2) of section 141.
iii) In the case of a Director Secretary or Manager (as defined in section 2 (24) of the Companies Act) or a person referred to in clauses (e) and (f) of section 5 of Companies Act, an averment in the complaint that he was in charge of, and was responsible to, the company for the conduct of the business of the company is necessary to bring the case u/s 141(1). No further averment would be necessary in the complaint, though some particulars will be desirable. They can also be made liable u/s 141 (2) by making necessary averments relating to consent and connivance or negligence in the complaint, to bring the matter under that sub-section.
iv) Other officers of a company can not be made liable under sub-section (1) of section 141. Other officers of a company can be made liable only under sub section (2w) of section 141, by averring in the complaint their position and duties in the company and their role in regard to the issue and dishonour of the cheque, disclosing consent, connivance or negligence.
17A. In
18. To appreciate Section 141 of the Act, it would be pertinent to set out the same. Section 141 of the act runs as follows :
141. Offences by companies.-(1) if the committing an offence u/s 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 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.
19. It is very clear from the provision u/s 141 of the Act that what is required is that the persons who are sought to be made vicariously liable for a criminal offence u/s 138 read with 141 should be, at the time the offence was committed, was incharge of and was responsible to the company for the conduct of the business of the company. Every person connected with the company does not fall within the ambit of the provision. The liability arises from being in charged of and responsible for the conduct of the business of the company at the relevant time when the offence was committed and not on the basis of merely holding a designation or office in a company.
20. In K. K. Ahuja (supra), the Hon''ble Apex Court taken into consideration the decision of S. M. S. Pharmaceuticals Ltd. (supra) and observed that a mere reproduction of the wordings of section 141(1) in the complaint is not sufficient to make a person liable to face prosecution. Virtually every officer/employee of a company without exception could be impleaded as accused by merely making an averment that at the time when the offence was committed they were in charge of and were responsible to the company for the conduct and business of the company. That would be absurd and not intended by the Act. The Hon''ble Court held further that a Deputy General Manager is not a person who is responsible to the company for the conduct of the business of the company. He does not fall under any of the categories (a) to (g) listed in Section 5 of the Companies Act. Therefore, the question whether he was in charge of the business of the company or not, is irrelevant. He cannot be made vicariously liable u/s 141 (1) of the Act. If he has to be made liable u/s 141(2), the necessary averments relating to consent/connivance/negligence should have been made. When no such averment is made, the Deputy General Manger could not be prosecuted either under sub-section (1) or under sub-section (2) of Section 141 of the Act.
21. Section 141 is a penal provision creating vicarious liability, and which, as per settled law, must be strictly construed. It is therefore, not sufficient to make a bald cursory statement in a complaint that a director (arrayed as an accused) is in-charge of and responsible to the company for the conduct of the business of the company without anything more as to the role of the director. But the complaint should spell out as to how and in what manner the petitioner was incharge of and was responsible to the accused company for the conduct of his business. This is in consonance with strict interpretation of statute specially, where such statutes create vicarious liability.
22. In National Small Industries Limited: (AIR 2010 SC 569) (supra), the Hon''ble Court after discussing its earlier decisions on the point, observed :
A company may have a number of directors and to make any or all the directors as accused in a complaint merely on the basis of a statement that they are in charge of and responsible for the conduct of the business of the company without anything more is not sufficient or adequate fulfillment of the requirements u/s 141.
23. It was held further :
In a catena of decisions, this Court has held that for making Directors liable for the offences committed by the company u/s 141 of the Act, there must be specific averments against the Directors, showing as to how and in what manner the Directors were responsible for the conduct of the business of the company.
24. It was held further :
In a subsequent decision in N. K. Wahi v. Sekher Singh while following the precedence of S.M.S. Pharmaceutical (one case), Sabitha Rangamurti''s case and Soroj Kumar Poddar''s case this Court reiterate that for lunching the prosecution against the alleged Directors, there must be a specific allegation in the complaint as to the part played by them in the prosecution.
25. In K. K. Ahuja, the Hon''ble Court observed :
When condition-------------which prescribed for extending such constructive criminal liability to others., the Court will insist upon strict literal compliance. There is no question of inferential or implied compliance. Therefore, a specific averment complying with the requirements of Section 141 is imperative.
26. The Hon''ble Apex Court quoting that view in K. K. Ahuja observed in National Small Industries Limited (AIR 2010 SC 569) (supra) that though the Court then said that an averment in the complaint that the accused is Director and in charge and responsible for the conduct of the business may be sufficient but this would not take away the requirements that a overall reading of the complaint has to be made to see whether the requirements of Section 141 have been made out against the accused Director or not. Further more, this decision can not be said to have overruled the various decisions of this Court.
27. In National Small Industries Limited (AIR 2010 SC 569) (supra) the Hon''ble Court held :
But if the accused is not one of the persons who falls under the category of "persons who are responsible to the company for the conduct of the business of the company" then merely by stating that "he was in charge of the business of the company" or by stating that "he was in charge of the day-to-day management of the company" or by stating that "he was in charge of, and was responsible to the company for the conduct of the business of the company", he cannot be made vicariously liable u/s 141(1) of the Act. To put it clear that for making a person liable u/s 141(2), the mechanical repetition of the requirements u/s 141(1) will be of no assistance, but there should be necessary averments in the complaint as to how and in what manner the accused was guilty of consent and connivance or negligence and therefore, responsible under sub-section (2) of Section 141 of the Act.
28. In the instant cases, in fact and in substance, the reproduction of the language of Section 141 has been made in the petition of complaint in paragraph 2 and thereby the defacto complaint wanted to fasten all the Directors even the petitioner herein who is a man of Bangalore, for the alleged offence u/s 138 read with Section 141 of the Act. The averment in paragraph 2 in the petition of complaint has already been mentioned earlier and if the petition of complaint is read as a whole it does not show or indicate the petitioner can be made vicariously liable u/s 141(1) of the Act. In National Small Industries Limited the specific averment in the complaint was :
that accused No. 2 is the Managing Director and accused No. 3 is the Director of the accused company. Accused Nos. 2 and 3 are in charge and responsible for the conduct of the business of the company, accused No. 1 and hence are liable of the offence.
29. In the another petition taken up together with National Small Industries Limited, the averment in the petition of complaint was :
that accused No. 1 is a company/firm and accused Nos. 2 to 9 were incharge and were responsible to the accused No. 1 for the conduct of the business at the time when offence was committed. Hence, accused Nos. 2 to 9 in addition to accused No. 1, are liable to be prosecuted and punished in accordance with law by this Hon''ble Court as provided of Section 141 of the N.I. Act, 1981. Further the offence has been committed by the accused No. 1 with the consent and connivance of the accused Nos. 2 to 9.
30. The Hon''ble Court in paragraph 42 dismissed the appeal on the ground that in absence of specific averment as to the role of the respondent and-------------------.
31. The facts and circumstances of the cases in hand are similar to that of cases before the Apex Court in National Small Industries Limited (AIR 2010 SC 569) (supra). The averment in the petitions of complaint made against the present petitioner Sekhar Menon can not be said to be specific averment as to his role in the matter of issuance of the alleged cheques by the accused No. 1 company and the Managing Director of it. He is a man of Bangalore and can not be said to be in a position to take part in day-to-day affairs of the company and in charge and responsible of the business of the company by virtue of his position. The bald statement in the petition of complaint does not appear to be sufficient enough to fasten him for the alleged act committed by the company by invoking the provisions of Section 141 of the N.I. Act.
32. In view of discussion above, I allow the applications. All the prosecution under caption against the petitioner stand quashed. Interim order of stay, if any, stands vacated.
