TMI Blog2014 (12) TMI 1070X X X X Extracts X X X X X X X X Extracts X X X X ..... , at the material time that person shall have been at the helm of affairs of the Company, one who actively looks after the day-to-day activities of the Company and particularly responsible for the conduct of its business - Simply because a person is a Director of a Company, does not make him liable under the N.I. Act - Every person connected with the Company will not fall into the ambit of the provision - only those persons who were in charge of and responsible for the conduct of the business of the Company at the time of commission of an offence will be liable for criminal action - a Director, 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 for an offence under Section 141 of the N.I. Act – the same has been held in National Small Industries Corpn. Ltd. Versus Harmeet Singh Paintal [2010 (2) TMI 590 - SUPREME COURT OF INDIA] – Continuation of the criminal proceedings against the appellant under Section 138 read with Section 141 of the N.I. Act is a pure abuse of process of law and it has to be interdicted at the threshold. Validity of dismissal of Writ petition by HC - Held that:- The High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SS/2008 claiming ₹ 1,64,69,801-14 (2) Complaint No. 3641/SS/2008 claiming ₹ 1,06,55,289-91 (3) Complaint No. 3368/SS/2008 claiming ₹ 1,41,95,806-40 (4) 3640/SS/2008 claiming ₹ 85,21,294/- (5) 3369/SS/2008 claiming ₹ 1,88,12,292/- (6) 3642/SS/2008 claiming ₹ 1,69,95,353-50 and (7) Complaint No. 4086/SS/2009 for a claim of ₹ 8,08,973-25. In all the complaints the allegation was that the Respondent No. 2 Company had extended trade finance facility to M/S Elite International Pvt. Ltd. to which the appellant was a Director at the relevant time and several Cheques (119 in number) issued by M/S Elite International Pvt. Ltd. aggregating to ₹ 8,64,58,810-16, in discharge of its liability towards part payment, stood dishonoured with the banker s remarks insufficient funds . According to the complainant, at the material time, the accused (appellant) was in charge and at the helm of affairs of M/S Elite International Pvt. Ltd. and therefore she is vicariously liable for the default of the Company as she is responsible for the conduct of its business. Metropolitan Magistrate, 12th Court, Bandra, Mumbai took cognizance of the complaints and issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pursuant to Section 303(2), was filed by M/S Elite International Pvt. Ltd. on 20th December, 2005 with the Registrar of Companies indicating the appointments and changes among Directors. In the said Form 32, the names of two Directors who were newly appointed were shown with remarks appointed as a Director-Operations and against the name of the appellant the remarks resigned as a Director were shown. Taking note of this Form 32, Respondent No. 2 arrayed the newly appointed Directors as accused Nos. 4 5 in the complaints. It is thus clear that the Respondent No. 2 is well aware of the fact that the appellant was no longer a part of M/S Elite International Pvt. Ltd, yet initiated criminal proceedings fastening vicarious liability on the appellant. 7. Learned counsel submitted that to fasten vicarious liability it is necessary under Section 141 of the N.I. Act that the complainant must aver and prove how and in what manner the appellant was responsible in the conduct of the business of the Company. The complainant shall also state in the light of proviso to Section 141(1), in what capacity the appellant was in charge of day to day affairs of the default Company at the relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and wrongfully dismissed the Criminal Writ Petitions filed by the appellant under Section 482, Cr.P.C. 9. In support of his contention that the appellant was no more a Director of the Company and responsible for the conduct of its business at the relevant time, learned counsel relied upon the following: (i) Agenda item 4 of the Minutes of the Board meeting dated 17th December, 2005 which reads as under: 4. RESIGNATION OF DIRECTOR Chairman placed before the Members of the Board a letter received from Ms. Pooja Devidasani tendering her resignation as a Director of the Company. Members of the Board noted the same and then they unanimously resolved as under: RESOLVED THAT resignation tendered by Ms. Pooja Devidasani be and is hereby accepted from the conclusion of this Board Meeting . (ii) Form 32 submitted to the Registrar of Companies in pursuance of requirements of provisions of the Companies Act, 1956 in which against the name of appellant, it was shown as resigned as a Director . Whereas against the names of Mr. Hitesh Haria and Mr. Parag Tejani, the words appointed as a Director-Operations were shown. Against the column Date of appointment or change the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Form 32 is produced by the appellant to contend that at the time of issuance of cheques, she had already resigned, when such Form 32 is disputed by the complainant, it shall be the bounden duty of the appellant to prove such Form 32 by leading evidence in the trial. Only supplying a copy of Form 32, without proving its contents, would not be sufficient to quash a complaint under Section 138 read with Section 141 of the N.I. Act. 12. In support of his contention that when the Form 32 furnished by the appellant was disputed by the Respondent No. 2 the High Court cannot draw an inference on the basis of such disputed document, learned counsel relied on decisions of this Court in Chand Dhawan Vs. Jawahar Lal (1992) 3 SCC 317, Malwa Cotton and Spinning Mills Ltd. Vs. Virsa Singh Sidhu (2008) 17 SCC 147. Therefore, the High Court was right in dismissing the writ petitions preferred by the appellant. Hence the appellant cannot take the plea of her resignation to escape from legal liability that too when the resignation itself is a disputed fact. Unless and until trial takes place, it cannot be held that the appellant is no more a Director and not liable. At the material time relating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vanced by the counsel on either side at length. The questions that arise for determination are (i) whether the appellant is liable for prosecution under Section 138 read with Section 141 of the N.I. Act for the alleged offence of dishonor of cheques committed by the default Company?; (ii) whether the High Court was right in dismissing the writ petitions filed by the appellant seeking quashing of the criminal proceedings initiated against her by the Respondent No. 2? 16. Before delving into the merits of the case, it would be apt to take note of relevant portions of the complaints filed by Respondent No. 2 which read thus: I say that the accused No. 2 to 5 on behalf of accused No. 1 have approached us with request for trade finance facility and accordingly the said facility has been granted by us to the accused as per their request and requirement. I say that accused No. 1 is private limited Company of which accused No. 2, 3 5 are Directors and accused No. 4 is the Director authorized signatory of accused No. 1 M/S Elite International Pvt. Ltd. Imprest. At all material time relevant and relating to the complaint, accused No. 2 to 5 were and are in charge of and respons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce will be liable for criminal action. A Director, 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 for an offence under Section 141 of the N.I. Act. In National Small Industries Corporation (supra) this Court observed: 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 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 on the basis of a statement that they are in charge of and responsible for the condu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used in a criminal case is a serious matter. Criminal law cannot be set into motion as a matter of course. The order of the Magistrate summoning the accused must reflect that he has applied his mind to the facts of the case and the law applicable thereto. He has to examine the nature of allegations made in the complaint and the evidence both oral and documentary in support thereof and would that be sufficient for the complainant to succeed in bringing charge home to the accused. It is not that the Magistrate is a silent spectator at the time of recording of preliminary evidence before summoning of the accused. The Magistrate has to carefully scrutinise the evidence brought on record and may even himself put questions to the complainant and his witnesses to elicit answers to find out the truthfulness of the allegations or otherwise and then examine if any offence is prima facie committed by all or any of the accused. 23. In Gunmala Sales Private Ltd. (supra) on which learned counsel for the respondents has heavily relied, this Court at Para 33(c) held : In the facts of a given case, on an overall reading of the complaint, the High Court may, despite the presence of the basic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... phatically in the proceedings before the High Court. We have gone though the reply affidavit filed by Respondent No. 2 before the High Court of Bombay. 25. A bare reading of the averment of Respondent No. 2 before the High Court, suggests that his case appears to be that the appellant has not proved her resignation in unequivocal terms and it is a disputed question of fact. It is noteworthy that the respondent No. 2 except making a bald statement and throwing the burden on the appellant to prove authenticity of documents, has not pleaded anywhere that the public documents Form 32 and Annual Return are forged and fabricated documents. Curiously, respondent No. 2 on the one hand raises a doubt about the genuineness of Form 32, a public document, through which the default Company had communicated the change of Directors to the Registrar of the Companies with the effect of resignation of the appellant and induction of two Directors-Operations and on the other hand, he has arrayed the two newly appointed Directors-Operations as accused whose names were communicated to the Registrar of Companies by the very same Form 32. The respondent/complainant cannot be permitted to blow hot and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the Board of Directors. Hence, we have no hesitation to hold that continuation of the criminal proceedings against the appellant under Section 138 read with Section 141 of the N.I. Act is a pure abuse of process of law and it has to be interdicted at the threshold. 29. So far as the Letter of Guarantee is concerned, it gives way for a civil liability which the respondent No. 2 complainant can always pursue the remedy before the appropriate Court. So, the contention that the cheques in question were issued by virtue of such Letter of Guarantee and hence the appellant is liable under Section 138 read with Section 141 of the N.I. Act, cannot also be accepted in these proceedings. 30. Putting the criminal law into motion is not a matter of course. To settle the scores between the parties which are more in the nature of a civil dispute, the parties cannot be permitted to put the criminal law into motion and Courts cannot be a mere spectator to it. Before a Magistrate taking cognizance of an offence under Section 138/141 of the N.I. Act, making a person vicariously liable has to ensure strict compliance of the statutory requirements. The Superior Courts should maintain purity ..... X X X X Extracts X X X X X X X X Extracts X X X X
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