TaxTMI 
TaxTMI 
2009 (11) TMI 513
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....chnologies Ltd., were carrying on the management and day-to-day affairs of the company and were responsible for everything related to finances of the company. It has been further alleged that accused No. 1 which had availed of credit facilities from the complainant-bank issued cheques towards part payment of its liability. The cheques, according to the complainant were issued by accused No. 3 acting for all other accused. The aforesaid cheques when presented to the bank were returned unpaid with remarks "funds insufficient". A notice demanding amount of the cheque in question was sent to the accused persons. They having failed to make payment, these complaints were filed. 3. Vide order dated 12-9-2008, the learned Metropolitan Magistrate summoned all the accused only under section 138 of the Negotiable Instruments Act. 4. The case of the petitioner is that since he had resigned as a director of accused No. 1-Padmini Technologies Ltd., prior to issue of cheques in question, he is not vicariously liable for the offence committed by the company. A certified copy of Form No. 32 has been filed by the petitioner which shows that he had resigned as a director of Padmini Technologies Ltd....
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....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." 7. In support of his claim that he had resigned as a director of Padmini Technologies Ltd., with effect from 30-4-2003, the petitioner has placed on record a certified copy of Form No. 32 issued by the Registrar of Companies. This document shows that the petitioner resigned as a director of Padmini Technologies Ltd., w....
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....e person concerned to a long drawn trial without rendering any fruitful result. 9. Learned counsel for the respondent has referred to the decision of this Court in O.P. Aggarwal v. State [2009] 108 DRJ 494, where despite the petitioner having produced certified copy of Form No. 32, the petition filed by him for quashing the proceedings was dismissed. A perusal of the judgment would show that in that case, one of the co-accused Inder Verma had written a letter dated 3-8-2006, to the complainant-bank stating that the petitioner Shri O.P. Aggarwal was, in fact, the functional head of the company and that he had issued cheque in question under the instruction and order of the petitioner Shri O.P. Aggarwal. There was a reference to this letter in the complaint itself. Also, in his reply to the legal notice, accused No. 7 has stated that he had signed the letters, etc., on the orders and instructions of accused No. 2 who was the owner/functional head of accused No. 1. It was, under these circumstances, that this Court after noticing that to incur criminal liability under section 141 of the Negotiable Instruments Act, one need not necessarily be a director of the company and could be any....
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....ground that he was not a signatory to the cheque nor was a party to the decision to allow the cheques to be dishonoured, the appellant approached the Hon'ble Supreme Court and contended that having regard to the specific averment in the complaint that accused Nos. 2 to 9 were incharge of and responsible for the conduct of the day-to-day business of the company, the order summoning the first respondent could not have been quashed under section 482 of the Code of Criminal Procedure. 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 was placed on the decision of S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla [2005] 127 Comp. Cas. 5631 (SC). 13. The Hon'ble Supreme Court, after considering its earlier judgment in the case of S.M.S. Pharmaceuticals Ltd. (supra) and noticing that in that case, the Court had observed that only the persons who can be said to be connected with the commis....
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....ctive vicarious liability should be construed much more strictly. When conditions are prescribed for extending such constructive criminal liability to others, Courts 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. As pointed out in K. Srikanth Singh v. North East Securities Ltd. [2007] 140 Comp. Cas. 444; [2007] 12 SCC 788, the mere fact that at some point of time, an officer of a company had played some role in the financial affairs of the company, will not be sufficient to attract the constructive liability under section 141 of the Act." (p. 532) 16. On the question as to who would be persons responsible to the company for conduct of its business, the Hon'ble Court, inter alia, held as under :- "A company though a legal entity can act only through its board of directors. The settled position is that a managing director is prima facie incharge of and responsible for the company's business and affairs and can be prosecuted for offences by the company. But insofar as other directors are concerned, they can be prosecuted only if they w....
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....rge of the business; and that a person may be an officer who may be incharge of only some part of the business. 20. Therefore, if a person does not meet the first requirement, that is being a person who is responsible to the company for the conduct of the business of the company, neither the question of his meeting the second requirement (being a person incharge of the business of the company), nor the question of such person being liable under sub-section (1) of section 141 does not arise. To put it differently, to be vicariously liable under sub-section (1) of section 141, a person should fulfil the 'legal requirement' of being a person in law (under the statute governing companies) responsible to the company for the conduct of the business of the company and also fulfil the 'factual requirement' of being a person in charge of the business of the company. 21. Therefore, the averment in a complaint that an accused is a director and that he is in charge of and is responsible to the company for the conduct of the business of the company, duly affirmed in the sworn statement, may be sufficient for the purpose of issuing summons to him. But if the accused is not one of the persons w....
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....y 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 the Companies Act, an averment in the complaint that he was incharge of, and was responsible to the company, for the conduct of the business of the company is necessary to bring the case under section 141(1). No further averment would be necessary in the complaint, though some particulars will be desirable. They can also be made liable under section 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 cannot be made liable under sub-section (1) of section 141. Other officers of a company can be made liable only under sub-section (2) of section 141, be 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." (p. 535) 19. In respect of employees of the company, the Hon'ble Court further noted as under :- "If a mere reproduction of the wording of section 141(1) in the complaint is sufficient to make a person l....
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....ubsequent compromise pursuant to which cheques in question were given to the complainant-bank, nowhere does the complaint disclose as to, if the petitioner was not a director of the company, what was the status he enjoyed in the company at the time of issue of cheques in question. In fact, the whole case of the complainant against the petitioner is based on the averment that he was a director of the company, and, therefore, he was carrying on management and day-to-day affairs of the company and was also responsible for its finances. This is not the case of the complainant anywhere in the complaint that the petitioner, by virtue of a position other than a director in the company, was instrumental behind issue of cheques in question to the complainant-bank. During the arguments, it was submitted by learned counsel for the respondent that the petitioner was a consultant with the company. Though there is no such allegation in the complaint, assuming the statement made by learned counsel for the respondent to be correct, a consultant cannot be said to be a person incharge of and responsible to the company for conduct of the business of the company. There is no averment in the complaint ....