TMI Blog2009 (7) TMI 758X X X X Extracts X X X X X X X X Extracts X X X X ..... pany referred to in section 141 of the Negotiable Instruments Act, 1881 (for short the Act ) arises for consideration in this appeal by special leave by a complainant. 2. The appellant filed two complaints (Crl. Comp. Nos. 58/2001 and 59/2001) in the Court of the Metropolitan Magistrate, Delhi, against M/s. Motorol Speciality Oils Ltd. ( the Company for short) and eight others under section 138 of the Act. The first complaint was in regard to dishonour of five cheques (each for Rs. 5,00,000, all dated 28-2-2001). The second complaint was in regard to dishonour of three cheques (for Rs. 3 lakhs, 3 lakhs and 10 lakhs dated 31-10-2000, 30-11-2000 and 20-12-2000 respectively). The cheques were alleged to have been drawn in favour of the appellant s proprietary concern (M/s. Delhi Paints Oil Traders) by the company represented by its Chairman. In the said complaints, the appellant had impleaded nine persons as accused, namely, the company (A-1), its Chairman (A-2), four Directors (A-3 to A-6) as also its Vice-President (Finance), General Manager and Deputy General Manager (A-7, A-8 and A-9 respectively). In the complaint, the complainant averred that at the time of the commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of the company, the order summoning the first respondent could not have been quashed under section 482 Cr. P.C. It is also submitted that at the stage of summoning the accused, when evidence was yet to be led by the parties, the High Court committed an error in quashing the order summoning the first respondent, on the basis of an unwarranted assumption that the first respondent was not responsible for or involved in the conduct of the business of the company. Reliance is placed on the decision of this Court in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla [2005] 63 SCL 93 [for short S.M.S. Pharma (I) ]. 5. Section 141 of the Act deals with offences by companies. Relevant portions of the said section are extracted below : 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 : ****** (2) Notwithstanding anything contained in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany 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. 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 under section 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court to arrive at a prima facie opinion that the accused are vicariously liable. 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 therefor. 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 of the statutory requirements would be insisted. . . . In a case where the Court is required to issue summons which would put the accused to some sort of harassment, the Court should insist strict compliance with the statutory requirements. [Emphasis supplied] 8. In Saroj Kumar Poddar v. State (NCT of Delhi) [2007] 73 SCL 308 (SC) while dealing with an appeal against the refusal to quash the order taking cognizance, by an Ex-Director who had resigned from the Board prior to the date of issuance of the cheque, this Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts of that case and should not be considered as a general proposition of law. But latter decisions dealing with liability of directors - N.K. Wahi v. Shekhar Singh [2007] 9 SCC 481, DCM Financial Services Ltd. v. N. Sareen [2008] 8 SCC 1, and Ramraj Singh v. State of MP (a decision of a Bench of three-Judges) - 2009 (5) SCALE 670, have reiterated the principle laid down in Saroj Kumar Poddar s case ( supra ). The prevailing trend appears to require the complainant to state how a Director who is sought to be made an accused, was in charge of the business of the company, as every director need not be and is not in charge of the business of the company. If that is the position in regard to a director, it is needless to emphasise that in the case of non-director officers, there is all the more the need to state what his part is with regard to conduct of business of the company and how and in what manner he is liable. 10. Having regard to section 141, when a cheque issued by a company (incorporated under the Companies Act, 1956) is dishonoured, in addition to the company, the following persons are deemed to be guilty of the offence and shall be liable to be proceede ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be liable if the offence had been committed with his consent or connivance or if the offence was a result of any negligence on his part. The liability of persons mentioned in sub-section (2) is not on account of any legal fiction but on account of the specific part played - consent and connivance or negligence. If a person is to be made liable under sub-section (2) of section 141, then it is necessary to aver consent and connivance, or negligence on his part. 13. This takes us to the next question under sub-section (1) of section 141, as to ( i ) who are the persons who are responsible to the company for the conduct of the business of the company, and ( ii ) who could be said to be in charge and was responsible to the company for the conduct of the business of the company. 14. The words every person who, at the time of the offence was committed, was in charge of, and was responsible for the conduct of the business of the company occurs not only in section 141(1) of the Act but in several enactments dealing with offences by companies, to mention a few - section 278B of the Income-tax Act, 1961, section 22C of Minimum Wages Act, 1948, section 86A of the Employees State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business of the company. 15. Section 141 uses the words was in charge of, and was responsible to the company for the conduct of the business of the company . It is evident that a person who can be made vicariously liable under sub-section (1) of section 141 is a person who is responsible to the company for the conduct of the business of the company and in addition is also in charge of the business of the company. There may be many directors and secretaries who are not in charge of the business of the company at all. The meaning of the words person in charge of the business of the company was considered by this Court in Girdhari Lal Gupta v. D.N. Mehta [1971] 3 SCC 189 followed in State of Karnataka v. Pratap Chand [1981] 2 SCC 335 and Katta Sujatha v. Fertiliser Chemicals Travancore Ltd. [2002] 7 SCC 655. This Court held that the words refer to a person who is in overall control of the day-to-day business of the company. This Court pointed out that a person may be a director and, thus, belongs to the group of persons making the policy followed by the company, but yet may not be in charge of the business of the company; that a person may be a Manager who is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to be noticed is that only a Director, Manager, Secretary or other officer can be made liable under sub-section (2) of section 141. But under sub-section (1) of section 141, it is theoretically possible to make even a person who is not a director or officer, liable, as for example, a person falling under categories ( e ) and ( f ) of section 5 of Companies Act, 1956. When in S.M.S. Pharma (I) s case ( supra ), this Court observed that conversely, a person not holding any office or designation in a company may be liable if he satisfies the requirement of being in charge of and responsible for conduct of the business of the company , this Court obviously had in mind, persons described in clauses ( e ) and ( f ), of section 5 of Companies Act. Be that as it may. 20. The position under section 141 of the Act can be summarized 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 Dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and were responsible to the company for the conduct of the business of the company. That would be absurd and not intended under the Act. As the trauma, harassment and hardship of a criminal proceedings in such cases, may be more serious than the ultimate punishment, it is not proper to subject all and sundry to be impleaded as accused in a complaint against a company, even when the requirements of section 138 read and section 141 of the Act are not fulfilled. 22. 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 (extracted in para 14 above). Therefore, the question whether he was in charge of the business of the company or not, is irrelevant. He cannot be made vicariously liable under section 141(1) of the Act. If he has to be made liable under section 141(2), the necessary averments relating to consent/connivance/negligence should have been made. In this case, no such averment is made. Hence, the first respondent, who was the Deputy General Manager, could not be prosecuted either under sub-section (1) or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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