2007 (2) TMI 311 - SC - Companies Law

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 fulfil the requirement of the said section and it is not necessary to specifically state in the complaint that the person accused was incharge of or responsible for the conduct of the business of the company? 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? 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 incharge of the company and responsible to the company for conduct of its business could be proceeded against? Held that - Appeal dismissed. The High Court has gone into the matter at some length. The High Court found that the resolution by itself did not constitute an offence even assuming that the same bore the signature of Respondent No. 1 (although the genuineness thereof was disputed). Thus on a plain reading of the averments made in the complaint petition we are satisfied that the statutory requirements as contemplated under section 141 of the Act were not satisfied.

Summary

Issues Involved:
1. Applicability of Section 141 of the Negotiable Instruments Act, 1881.
2. Vicarious liability of directors under Section 141.
3. Specific averments required in a complaint under Section 141.
4. Maintainability of a second application under Section 482 of the Code of Criminal Procedure.

Issue-wise Detailed Analysis:

1. Applicability of Section 141 of the Negotiable Instruments Act, 1881:
The case revolves around the applicability of Section 141 of the Negotiable Instruments Act, which deals with offences by companies. The appellant company filed a complaint alleging that the respondent company issued cheques that were dishonored due to insufficient funds. The complaint petition included allegations against the directors, including Respondent No. 1, stating that they were actively involved in the management of the company.

2. Vicarious Liability of Directors under Section 141:
The court examined whether the directors, including Respondent No. 1, could be held vicariously liable for the dishonor of cheques issued by the company. The court referred to the precedent set in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla [2005] 8 SCC 891, which clarified that merely being a director is not sufficient to make a person liable under Section 141. The person must be in charge of and responsible for the conduct of the business of the company at the relevant time.

3. Specific Averments Required in a Complaint under Section 141:
The court emphasized that for a complaint to attract the provisions of Section 141, it must specifically aver that the accused was in charge of and responsible for the conduct of the business of the company at the time the offence was committed. The complaint must disclose necessary facts to make a person liable. In this case, the court found that the allegations against Respondent No. 1 were vague and did not satisfy the requirements of Section 141. The complaint did not provide sufficient details to establish that Respondent No. 1 was responsible for the conduct of the company's business at the relevant time.

4. Maintainability of a Second Application under Section 482 of the Code of Criminal Procedure:
The court addressed the issue of whether a second application under Section 482 of the Code of Criminal Procedure was maintainable. The appellant argued that the second application was not maintainable as it would amount to a review of the earlier order, which is barred under Section 362 of the Code. However, the court noted that the High Court had given liberty to Respondent No. 1 to agitate the matter again. The court also referred to the precedent in Suptd. Remembrancer of Legal Affairs v. Mohan Singh [1975] SCC 706, which held that a second application under Section 561A of the Code of Criminal Procedure would be maintainable when there is a changed set of circumstances.

Conclusion:
The Supreme Court upheld the High Court's judgment, concluding that the statutory requirements under Section 141 of the Negotiable Instruments Act were not satisfied in the complaint against Respondent No. 1. The court found no error in the High Court's decision and dismissed the appeal with costs. The court emphasized the necessity of specific averments in a complaint to establish vicarious liability and clarified the maintainability of a second application under Section 482 of the Code of Criminal Procedure.