Aruna Suresh, J.@mdashThe present petition has been filed by the petitioners u/s 482 Cr.PC for quashing of the Criminal complaint No. 184/1 of 2005 u/s 138/141 of Negotiable Instruments Act, 1881 (hereinafter as N.I. Act) as well as the summoning order dated 15.3.2005 against the petitioners. The said complaint is pending before learned Metropolitan Magistrate Shri Rakesh Kumar, Tis Hazari Courts, Delhi. A cheque bearing No. 964109 drawn on State Bank of India, Faridabad, Haryana issued on 24.12.2004 by the petitioners as alleged in the complaint was dishonoured and hence formed the subject matter of the present dispute. The petitioners are respondent Nos. 3 and 4 in the complaint being directors of Respondent No. 1 M/S Khemka Ispat Ltd. registered under the Companies Act, The complainant Sh. Prem Kanodia is the Proprietor of M/s Century Metal.
2. It is alleged in the complaint that M/s Khemka Ispat Ltd., (hereinafter as the company) approached the complainant for purchase of various kinds of Aluminum goods which were supplied by the complainant as per the orders placed. Cheque bearing No. 964109 dated 24.12.2004 for Rs. 9,54,344/- drawn on State Bank of India, Faridabad, Haryana was issued by Mr. R.P. Khema, Smt. Jayshree Khemka, petitioner No. 1 and Ms. Deepti Khemka, petitioner No. 2 to discharge the liability of the company and the cheque bore signatures of Mr. R.P. Khemka. The cheque was presented for encashment by the complainant to his banker. However, the cheque was dishonoured and was returned unpaid by the banker of the respondent No. 1 company with the remarks ''exceeds arrangement'' vide memo dated 27.12.2004 which was received by the complainant along with the bounced cheque. The complainant contacted respondents over telephone but in vain. Consequently, a legal notice dated 7.1.2005, posted on 11.1.2005 was issued u/s 138 of the N.I. Act vide registered AD and UPC, wherein demand for payment of the cheque amount within fifteen days was made from the company. The complainant also sent notice to Mr. R.P. Khemka and petitioner Nos. 1 and 2 being the directors of M/s. Khemka Ispat Ltd. who refused to receive the notice as per remarks of the postal authority. The notice sent through UPC had also not been received back.
3. It is alleged in the complaint that the respondents were having knowledge of the notice for demand, however they have failed to make payments of dishonoured cheque amount and therefore, have committed an offence u/s 138 of the N.I. Act for which respondent Nos. 2 to 4 are liable jointly as well as severally as the cheque was signed by respondent No. 2 and was tendered by respondent Nos. 2 to 4 on behalf of respondent No. 1 company.
4. Mr. Sunil Fernandes, learned Counsel for the petitioners has pleaded that at the time when cheques were issued, the petitioners had already resigned on 22.12.2004 from their capacity as directors and has placed on record true copy of form No. 32 containing the particulars of appointment of directors and changes among directors of the company dated 22.12.2004. It is submitted by the petitioners that they did not hold the post of directors in the company at the time of issuance of the impugned cheque and therefore, cannot be made liable u/s 141 of the N.I. Act. It is also pleaded that the petitioners are neither signatories to the cheque nor are responsible in any manner for transactions leading to issuance of the said cheque. The petitioners were non-executive directors of the accused company and as such were never responsible or involved in its day to day activities.
5. Learned Counsel for the petitioners has placed reliance on the following judgments of the Supreme Court:
i.
ii.
iii.
iv.
v.
vi.
vii. K.P.G. Nair v. State and Ors. 143 (2007) DLT 741
6. In response, Mr. V.K. Sharma, learned Counsel for the respondent has stated that the petitioners are liable since the goods were supplied to them vide bill Nos. 109 dated 15.7.2002 and 110 dated 5th July 2002 and the supply was within their knowledge as at that time the petitioners were directors of the accused company and also that part payment of the supply was made by the petitioners vide cheque dated 11.10.2004. It is further submitted that upon inspection of record from the registrar of the companies, it was clarified on 11.3.2005 that the petitioners remained as directors of the company M/s Khemka Ispat Ltd and the document Form 32 presented by the petitioners is a forged and fabricated document as no such document is on record of the Registrar of Companies (ROC) File. Further, the petitioners are not strangers to each other and are related to each other. The petitioners have not made ''State'' as a party in the present petition and hence the present petition is not maintainable. It is also urged that the petitioners have already been enlarged on bail. The respondent has placed reliance on a judgment of the Supreme Court
7. To appreciate the arguments of the learned Counsel for the parties, it is necessary to look into the provisions contained u/s 141 of the Negotiable Instruments Act, which are reproduced as under:
Section 141. Offences by companies.-
(1) If the person 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:
8. From bare reading of the abovesaid provisions it is clear that it is necessary for the complainant to specifically aver in the complaint u/s 141 of the N.I. Act 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. If the averment is lacking this requirement, conditions u/s 141 cannot be said to be satisfied. A Director of a company cannot be made liable u/s 141 of the N.I. Act unless he is deemed to be in charge and responsible to the company for the conduct of its business. It is to be seen that the said Director was in charge of and responsible for the conduct of the business of the company at the relevant time i.e. when the offence was allegedly committed. Generally, Managing Director or General Manager, Director of a company are admittedly in charge of the company and responsible to the company for the conduct of its business. These persons being holders of such positions of a company and therefore they become liable for the conduct of its business u/s 141 of the Act by virtue of the office they hold. Similarly, a signatory of a dishonored cheque is responsible for the incriminating act and is also covered under Sub Section 2 of Section 141 of the Act.
9. To appreciate the submissions made by the respective counsel for the parties and for analyzing the facts and circumstances of this case and the impugned order of the trial court whereby the Petitioners were summoned, I feel the necessity of discussing the law as laid down in catena of judgments by the Supreme Court as well as by this Court.
10. In S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla (supra-i) a complaint for dishonour of cheques was registered by the appellants against the respondent who resigned from being director of the company when the cheques were issued. A petition was filed by the respondent in the High Court of Delhi for quashing of proceedings arising out of the complaint, which was allowed and this order was challenged before the Supreme Court which upheld the decision of the High Court. When the said appeal came up for final decision, the following questions were framed:
(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 fulfils 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.
11. The appeal was accordingly referred to three judges bench for their decision on the abovesaid issues. After giving following observations on the above mentioned questions in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla (supra iv), the larger Bench referred the matter back to the division bench for deciding the appeal on merits.
10. While analysing Section 141 of the Act, it will be seen that it operates in cases where an offence u/s 138 is committed by a company. The key words which occur in the section are ''every person''. These are general words and take every person connected with a company within their sweep. Therefore, these words have been rightly qualified by use of the words:
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, etc.
What is required is that the persons who are sought to be made criminally liable u/s 141 should be, at the time the offence was committed, in charge of and responsible to the company for the conduct of the business of the company. Every person connected with the company shall not fall within the ambit of the provision. It is only those persons who were in charge of and responsible for the conduct of business of the company at the time of commission of an offence, who will be liable for criminal action. It follows from this that if a Director of a company, who was not in charge of and was not responsible for the conduct of the business of the company at the relevant time, will not be liable under the provision. The liability arises from being in charge of and responsible for the conduct of 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. Conversely, a person not holding any office or designation in a company may be liable if he satisfies the main requirement of being in charge of and responsible for the conduct of business of a company at the relevant time. Liability depends on the role one plays in the affairs of a company and not on designation or status. If being a director or manager or secretary was enough to cast criminal liability, the section would have said so. Instead of ''every person'' the section would have said ''every director, manager or secretary in a company is liable''..., etc. The legislature is aware that it is a case of criminal liability which means serious consequences so far as the person sought to be made liable is concerned. Therefore, only persons who can be said to be connected with the commission of a crime at the relevant time have been subjected to action.
11. A reference to Sub-section (2) of Section 141 fortifies the above reasoning because Sub-section (2) envisages direct involvement of any Director, Manager, Secretary or other officer of a company in the commission of an offence. This section operates when in a trial it is proved that the offence has been committed with the consent or connivance or is attributable to neglect on the part of any of the holders of these offices in a company. In such a case, such persons are to be held liable. Provision has been made for directors, managers, secretaries and other officers of a company to cover them in cases of their proved involvement.
It was further opined: (SCC pp. 102-03, para 18)
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 u/s 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 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.
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 u/s 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 u/s 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 u/s 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 u/s 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.
12. While considering the guidelines set out by the Larger Bench on reference, the Division Bench in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla (supra iv), while allowing the appeal interpreted Section 138 of the Act in para 19 of the judgment as below:
19. In terms of Section 138 of the Act, a complaint petition alleging an offence thereto must demonstrate that the following ingredients exist that:
(i) a cheque was issued;
(ii) the same was presented;
(iii) but, it was dishonoured;
(iv) a notice in terms of the said provision was served on the person sought to be made liable; and
(v) despite service of notice, neither any payment was made nor other obligations, if any, were complied with within fifteen days from the date of receipt of the notice.
13. This aspect of the matter had also been considered recently by this Court in Sabitha Ramamurthy v. R.B.S. Channabasavaradhya (supra-iii) and it was observed:
...Section 141 raises a legal fiction. By reason of the said provision, a person although is not personally liable for commission of such an offence would be vicariously liable therefore, such vicarious liability can be inferred so far as a company registered or incorporated under the Companies Act, 1956 is concerned 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 the offence committed by the company. Before a person can be made vicariously liable, strict compliance with the statutory requirements would be insisted.
For the reasons aforementioned, we have no other option but to hold that the allegations made in the complaint petitions even if are taken to be correct in their entirety do not disclose any offence as against the appellant herein. The proceedings against him, thus, should have been quashed by the High Court."
14. In Monaben Ketanbhai Shah v. State of Gujarat (supra-v) it was observed as follows:
4. It is not necessary to reproduce the language of Section 141 verbatim in the complaint since the complaint is required to be read as a whole. If the substance of the allegations made in the complaint fulfil the requirements of Section 141, the complaint has to proceed and is required to be tried with. It is also true that in construing a complaint a hypertechnical approach should not be adopted so as to quash the same. The laudable object of preventing bouncing of cheques and sustaining the credibility of commercial transactions resulting in enactment of Sections 138 and 141 has to be borne in mind. These provisions create a statutory presumption of dishonesty, exposing a person to criminal liability if payment is not made within the statutory period even after issue of notice. It is also true that the power of quashing is required to be exercised very sparingly and where, read as a whole, factual foundation for the offence has been laid in the complaint, it should not be quashed. All the same, it is also to be remembered that it is the duty of the court to discharge the accused if taking everything stated in the complaint as correct and construing the allegations made therein liberally in favour of the complainant, the ingredients of the offence are altogether lacking. The present case falls in this category as would be evident from the facts noticed hereinafter.
6. ...The criminal liability has been fastened on those who, at the time of the commission of the offence, were in charge of and were responsible to the firm for the conduct of the business of the firm. These may be sleeping partners who are not required to take any part in the business of the firm; they may be ladies and others who may not know anything about the business of the firm. The primary responsibility is on the complainant to make necessary averments in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every partner knows about the transaction. The obligation of the appellants to prove that at the time the offence was committed they were not in charge of and were not responsible to the firm for the conduct of the business of the firm, would arise only when first the complainant makes necessary averments in the complaint and establishes that fact. The present case is of total absence of requisite averments in the complaint.
15. In K.P.G. Nair v. State and Ors. (supra-vii) it was held that:
4. Suffice would it be to note that where the main accused is a corporate entity, viz. living human beings impleaded as accused, there have to be positive averments that they were incharge of and were responsible to the company for the conduct of the business of the company or that the offence has been committed with the consent or connivance of or attributable to any neglect on part of the said living human being.
5. The reason is obvious. u/s 141 of the N.I. Ac t, 1881 vicarious liability of a company is extended on the shoulders of such person.
16. ''S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla (supra) and Sabitha Ramamurthy v. R.B.S. Channabasavaradhya (supra-iii), were relied upon, discussed and followed by the Supreme Court in ''Saroj Kumar Poddar''s case (supra ii).
17. The respondent has placed reliance on
That Accused 1 is a company incorporated under the Companies Act. Accused 2 and 3 are its Directors. They are in charge of and responsible to Accused 1 for conduct of business of Accused 1 Company. They are jointly and severally liable for the acts of Accused 1.
18. The appellant in the said case moved the High Court u/s 482 of the Code of Criminal Procedure seeking the quashing of the complaint insofar as it related to him. The appellant pleaded that he was nominated as honorary Chairman without any remuneration, sitting fee, etc. by the investors and promoters of the company Data Access (India) Limited on 24-7-2004 and he was designated as Chairman of the Company. He was the Chairman for namesake and was never entrusted with any job or business or constituted a signing authority. He had resigned effectively on 26-8-2004. The two cheques that were the subject-matter of the complaint, were dated 31-8-2004, after the appellant had effectively resigned. He had not signed those cheques. The complaint did not contain adequate averments to justify initiation of a criminal proceeding against him and hence the complaint was liable to be quashed.
19. The Supreme Court upheld the decision of the High Court and took into consideration all the averments of the parties in the said case and held:
26. In the case on hand, reading the complaint as a whole, it is clear that the allegations in the complaint are that at the time at which the two dishonoured cheques were issued by the Company, the appellant and another were the Directors of the Company and were in charge of the affairs of the Company. It is not proper to split hairs in reading the complaint so as to come to a conclusion that the allegations as a whole are not sufficient to show that at the relevant point of time the appellant and the other are not alleged to be persons in charge of the affairs of the Company. Obviously, the complaint refers to the point of time when the two cheques were issued, their presentment, dishonour and failure to pay in spite of notice of dishonour. We have no hesitation in overruling the argument in that behalf by the learned Senior Counsel for the appellant.
27. We think that, in the circumstances, the High Court has rightly come to the conclusion that it is not a fit case for exercise of jurisdiction u/s 482 of the Code of Criminal Procedure for quashing the complaint. In fact, an advertence to Sections 138 and 141 of the Negotiable Instruments Act shows that on the other elements of an offence u/s 138 being satisfied, the burden is on the Board of Directors or the officers in charge of the affairs of the company to show that they are not liable to be convicted. Any restriction on their power or existence of any special circumstance that makes them not liable is something that is peculiarly within their knowledge and it is for them to establish at the trial such a restriction or to show that at the relevant time they were not in charge of the affairs of the Company. Reading the complaint as a whole, we are satisfied that it is a case where the contentions sought to be raised by the appellant can only be dealt with after the conclusion (sic commencement) of the trial.
20. In the present case the relevant paragraphs of the complaint read as follows:
2. That as per name and fame of the complainant and her firm, the respondent No. 1 through its representative approached the complainant for purchase of various kinds of Aluminum goods which were supplied accordingly by the complainant. The respondent No. 2 to 4 to discharge the liability of respondent No. 1, under the signature of respondent No. 2 tendered a cheque bearing its No. 964109 dated 24.12.2004 for Rs. 9,54,344.40 drawn on State Bank of India, Faridabad Haryana on behalf of the respondent No. 1 under the entire knowledge of the Respondent No. 2 to 4 as they are also actively involved in the day to day affairs of the Respondent No. 1 including the financial matters.
5. That the respondents are having knowledge of the notice for demand by all means and thereafter even have failed to make the payment of the dishonoured cheque therefore, the Respondent No. 1 has committed an offence u/s 138 of the N.I. Act for which Respondent No. 2 to 4 are liable jointly and severally for the same thus, they may be prosecuted in accordance with law because the cheque in question has been signed by the Respondent No. 2 and thereafter tendered by the Respondent No. 2 to 4 on behalf of the Respondent No. 1 within the entire knowledge of each other, hence the Respondents No. 2 to 4 are liable to be prosecuted for an offence u/s 138 of the N.I. Act in accordance with law.
21. From bare reading of these two paragraphs in the complaint, it is clear that allegations qua the Petitioners are vague. There are no specific allegations of any participation of the Petitioners in the day to day business of the company. Since Petitioners had already resigned before the issuance of the impugned cheque dated 24.12.2004 and were no longer the Directors of the company responsible for day to day working and business of the company on the date of issuance of the cheque, they could not be made to face trial of the complaint on the basis of material available on the record. Under the facts and circumstances of the case, the observations of the Supreme Court in ''N. Rangachari v. Bharat Sanchar Nigam Ltd.''s case are non-est and are of no help to the respondents as at the time of commission of the offence, the Petitioners arrayed as accused were not the Directors and In-charge of the company and responsible for its conduct and business.
22. The Petitioners have alleged that no legal notice as mentioned in para 4 of the complaint was ever served upon the Petitioners and therefore the ingredients of a complaint for proceedings against the Petitioners as mentioned in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla (supra 1) are not fulfilled in the present case. A notice was duly served upon the company which fact is not in dispute. It is not necessary that notice should be served individually on every Director of the company before they can be accused of having committed an offence u/s 138 of the N.I. Act. Notice served upon the company may not be deemed to have been served upon its Directors. Hence, there is no force in these submissions.
23. Upon perusal of the contents of the complaint it is clear that no material or averment has been put up by the complainant, which would show and prove that the petitioners were responsible in their capacity and conduct for the dishonour of cheque. The cheque was not signed by any of the petitioners and it has been specifically averred in the complaint that the impugned cheque was signed by respondent No. 2.
24. The liability of a Director must be determined on the date on which the offence is committed. The petitioners had resigned from the Board of Directors on 22.12.2004 whereas; the cheque was issued on 24.12.2004. Thus, it cannot be said that the petitioners were responsible for the transactions done by M/s Khemka Ispat after their resignation. The plea of the respondents that the petitioners are related to each other and are not strangers prima facie does not in any manner indicate that they were responsible for the day to day functioning of the company after their resignation.
25. In the light of facts and circumstances of the case and the observations as above, it is concluded that the trial court did not appreciate contents of the complaint in the proper perspective and the order of summoning therefore is not sustainable.
26. Hence, the present petition is allowed, the criminal complaint bearing No. 194/1 of 2005 and consequent summoning order dated 15.3.2005 as against the Petitioners is hereby quashed. The trial court shall proceed with the complaint as against respondent Nos. 1 and 2 only in accordance with law.
