TMI Blog2010 (2) TMI 590X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent. JUDGMENT P. Sathasivam, J. - Leave granted in all the above special leave petitions. 2. The appeals arising out of S.L.P. (Criminal) Nos. 445-461 of 2008 have been filed by the appellant-National Small Industries Corporation Limited against the common judgment and order dated 24-10-2007 passed by the High Court of Delhi at New Delhi in a batch of cases whereby the High Court quashed the summoning orders passed by the trial Court against respondent No. 1 - Harmeet Singh Paintal, under section 138 read with section 141 of the Negotiable Instruments Act, 1881 (for short "the Act"). 3. The connected criminal appeal arising out of S.L.P. Crl. No. 1079 of 2008 is filed against the judgment and order dated 24-5-2007 passed by the High Court of Delhi in Criminal Revision Petition No. 163 of 2005, whereby the High Court quashed the summoning order passed by the trial Court against respondent No. 1 - Dev Sarin under section 138 read with section 141 of the Act. 4. Since all these appeals are identical and same legal issues arise, they are being disposed of by this common judgment. 5. The appellant - National Small Industries Corporation Ltd. had filed 12 crim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -2004, the Metropolitan Magistrate dismissed the said application. Aggrieved by the said order, the respondent filed a petition under section 482 of the Criminal Procedure Code before the High Court for quashing of the complaint. The High Court, after finding that the averments against respondent No. 1 are unspecific and general and no particular role is assigned to the appellant, quashed the summoning order insofar as it concerned to him. 7. In this factual matrix, the issue which arises for determination before this Court is whether the order of the High Court quashing the summoning orders insofar as the respondents are concerned is sustainable and what should be the averments in the complaint under section 138 read with section 141 of the Act against the Director of a Company before he can be subjected to criminal proceedings. 8. Heard learned counsel for the appellants as well as the learned ASG and senior counsel for the respondents. 9. Section 138 of the Act refers about penalty in case of dishonour of cheque for insufficiency of funds in the account. We are more concerned about section 141 dealing with offences by companies which reads as under:- "141. Offence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not responsible for the conduct of the business of the company at the relevant time, will not be liable for a criminal offence under the provisions. The liability arises from being in-charge 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. 10. 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 the 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 Respondent No. 1 was in-charge of or was responsible to the accused company for the conduct of its business. This is in consonance with strict interpretation of penal statutes, especially, where such statutes create vicarious liability. A company may have a number of Directors and to make any or all the Directors as accused in a complaint merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla [2005] 8 SCC 89 1 : "( 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 fulfil 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." (p. 99) While considering the above questions, this Court held as under: "18. To sum up, there is almost unanimous judicial opinion that necessary averments ought to be contained in a compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 conduct of its business. When that is so, holders of such positions in a company become liable under section 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 under section 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." (p. 108) Therefore, this Court has distinguished the case of persons who are in-charge of and responsible for the conduct of the business of the company at the time of the offence and the persons who are merely holding the post in a company and are not in-charge of and responsible for the conduct of the business of the company. Further, in order to fasten the vicarious liability in accordance with section 141, the averment as to the role of the concerned Directors should be specific. The des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , while following S.M.S. Pharmaceuticals Ltd. s case ( supra ) and Sabitha Ramamurthy s case ( supra ), this Court held that with a view to make the Director of a company vicariously liable for the acts of the company, it was obligatory on the part of the complainant to make specific allegations as are required under the law and under section 141 of the Act and further held that in the absence of such specific averments in the complaint showing as to how and in what manner the Director is liable, the complaint should not be entertained. The relevant portion of the judgment is reproduced hereinbelow:- "11. A person would be vicariously liable for commission of an offence on the part of a company only in the event the conditions precedent laid down therefor in section 141 of the Act stand satisfied. For the aforementioned purpose, a strict construction would be necessary. 12. The purported averments which have been made in the complaint petitions so as to make the appellant vicariously liable for the offence committed by the company read as under : That the accused No. 1 is a public limited company incorporated and registered under the Companies Act, 1956, and, accused No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be clear and unambiguous allegation as to how the Directors are in-charge and responsible for the conduct of the business of the company. The description should be clear. It is true that precise words from the provisions of the Act need not be reproduced and the court can always come to a conclusion in facts of each case. But still, in the absence of any averment or specific evidence the net result would be that complaint would not be entertainable." 18. The said issue again came up for consideration before a three-Judge Bench of this Court recently in Ramraj Singh v. State of M.P. [2009] 6 SCC 729. In this case, the earlier decisions were also considered in detail. Following the decisions of S.M.S. Pharmaceuticals Ltd. s case ( supra ), Sabitha Ramamurthy s case ( supra ), Saroj Kumar Poddar s case ( supra ) and N.K. Wahi s case ( supra ) this Court held that it is necessary to specifically aver in a complaint under section 141 that at the time when the offence was committed, the person accused was in-charge of, and responsible for the conduct of the business of the company. Furthermore, it held that vicarious liability can be attributed only if the requisite stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the judgment would reveal that in the complaint "allegations have not only been made in terms of the wordings of section but also at more than one place, it has categorically been averred that the payments were made after the meetings held by and between the representative of the Company and accused Nos. 1 to 5 which would include respondent Nos. 2 and 3." In para 23, this Court concluded that "it is therefore, not a case where having regard to the position held by the said respondents in the Company, they could plead ignorance of the entire transaction". Furthermore, this Court has relied upon S.M.S. Pharmaceutical Ltd. s case ( supra ), Saroj Kumar Poddar s case ( supra ) and N.K. Wahi s case ( supra ). 21. Relying on the judgment of this Court in N. Rangachari v. Bharat Sanchar Nigam Ltd. [2007] 5 SCC 108, learned counsel for the appellants further contended 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 and the Directors are prima facie in that position. However, it is pertinent to note that in this case it was specifically mentioned in the complaint that ( i ) accus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad been made in the complaint. 23. Though, the learned counsel for the appellants relying on a recent decision in K.K. Ahuja v. V.K. Vora [2009] 10 SCC 48 2 , it is clearly recorded that in the complaint it was alleged that the accused were in-charge of and was responsible for the conduct of the day-to-day business of the accused Company and further all the accused were directly and actively involved in the financial dealings of the Company and the same was also reiterated in the pre-summoning evidence. Furthermore, this decision also notes that it is necessary to specifically aver in a complaint that the person accused was in-charge of and responsible for the conduct of the business of the Company. After noting Saroj Kumar Poddar s case ( supra ) and N.K. Wahi s case ( supra ), this Court further noted in para 9 that : ". . . the prevailing trend appear 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. . . ." In para 11, this Court has further recorded that : ". . . When conditions are prescribed fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectors : Provided that where the Board exercises any power under clause ( f ) or clause ( g ), it shall, within thirty days of the exercise of such powers, file with the Registrar a return in the prescribed form. 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 under section 141(1) of the Act. To put it clear that for making a person liable under section 141(2), the mechanical repetition of the requirements under section 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. 25. From the above discussion, the following principles emerge : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt No. 1 as an additional document. In view of these particulars and in addition to the interpretation relating to section 141 which we arrived at, no liability could be fastened on respondent No. 1. Further, it was pointed out that though he was an authorized signatory in the earlier transactions, after settlement and in respect of the present cause of action, admittedly fresh cheques were not signed by the first respondent. In the same way, in the appeal of the DCM Financial Services, the respondent therein, namely, Dev Sarin also filed additional documents to show that on the relevant date, namely the date of issuance of cheque he had no connection with the affairs of the company. 27. 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 company, we reject all the contentions raised by learned counsel for the appellants. Consequently, all the appeals fail and are accordingly dismissed. - - TaxTMI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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