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2016 (4) TMI 532 - SUPREME COURT

2016 (4) TMI 532 - SUPREME COURT - TMI - Validity of issuance of summons under Section 138 of the Negotiable Instruments Act, 1881 - Held that:- Person who commits an offence under Section 138 of the Act is a company, the company as well as other person in charge of or responsible to the company for the conduct of the business of the company at the time of commission of the offence is deemed to be guilty of the offence. Thus, it creates a constructive liability on the persons responsible for the .....

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ntentionally issued the cheques in question.

Thus, considering the totality of assertions made in the complaint and also taking note of the averments put forth relating to the respondent Nos. 2 and 3 herein that they are whole-time Director and Executive Director and they were in charge of day to day affairs of the Company, we are of the considered opinion that the High Court has fallen into grave error by coming to the conclusion that there are no specific averments in the complaint .....

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Tyagi, AOR And Mr. Nishant Ramakantrao Katneshwarkar, AOR JUDGMENT DIPAK MISRA, J. Leave granted. 2. The present appeals, by special leave, are directed against the order dated 13th October, 2015, passed by the High Court of Judicature at Bombay in Criminal Writ Petition Nos. 1482-1484 of 2015 whereby the learned single Judge by the common impugned order has quashed the orders of issuance of summons against the respondent Nos. 2 and 3 herein (original accused Nos. 5 and 4) by the Metropolitan M .....

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a short term loan facility for a sum of ₹ 200 crores was granted by the appellant-bank to the company on 28.04.2012. As averred in the complaint, the company executed an indemnity in favour of the appellant-bank and agreed to repay the amount in three instalments; one on 15.12.2012, the second on 15.01.2013 and the last on 15.02.2013. The company issued three cheques, one dated 15.12.2012 for ₹ 66,67,00,000/-, and the two others dated 15.01.2013 and 15.02.2013 for ₹ 66,67,00,0 .....

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f the Act before the Metropolitan Magistrate, 23rd Court at Esplanade, Mumbai who took cognizance and issued summons against all the accused persons. 4. The respondent nos. 2 to 4 herein, being grieved by the orders issuing summons, preferred three revision petitions, that is, Revision Application Nos. 1123 to 1125 of 2014 before the City Civil & Sessions Court, Mumbai, and the revisional court after due deliberation did not perceive any merit in the said challenge and dismissed the revision .....

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rt dismissed the writ petition preferred by the respondent no.4. 6. On a perusal of the impugned order, it transpires that the learned Single Judge of the High Court has quashed the summons singularly on the ground that there are no allegations against the successful writ petitioners connecting them with the affairs of the Company. 7. Criticizing the aforesaid order passed by the High Court, it is submitted by Mr. Divan, learned senior counsel appearing for the appellant-bank that the High Court .....

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Director and the whole-time Director who are really the persons responsible and in charge of day to day affairs of the company. 8. Resisting the aforesaid submissions put forth by Mr. Divan, Ms. Indu Malhotra, learned senior counsel appearing for the respondents would contend that the learned Magistrate had taken cognizance in a mechanical manner without perusing the averments made in the complaint petition and, therefore, the exercise of jurisdiction by the High Court in setting aside the order .....

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r. (2013) 16 SCC 630. 9. To appreciate the controversy in proper perspective, it is appropriate to refer to Sections 138 and 141 of the Act. Section 138 reads as follows:-:- 138. Dishonour of cheque for insufficiency, etc., of funds in the account.-Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the b .....

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th both: Provided that nothing contained in this section shall apply unless- (a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier; (b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within thirty days of the receipt of information by him .....

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e criminal liability the complainant is required to show that a cheque was issued; that it was presented in the bank in question; that on due presentation, it was dishonoured; that, as enshrined in the provision, requisite notice was served on the person who was sought to be made liable for criminal liability; and that in spite of service of notice, the person who has been arraigned as an accused did not comply with the notice by making payment or fulfilling other obligations within the prescrib .....

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roceeded 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 o .....

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etary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation.-For the purposes of this section- (a) company means any body corporate and includes a firm or other association of individuals; and (b) director , in relation to a firm, means a partner in the firm. 12. On a perusal of the aforesaid provision, it is clear as crystal that if the person who commits an offence under Section 138 of the Act is a c .....

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versy has been put to rest by a three-Judge Bench decision in Aneeta Hada v. Godfather Travels and Tours Private Limited (2012) 5 SCC 661 wherein it has been held that when the company can be prosecuted, then only the persons mentioned in the other categories could be vicariously liable for the offence subject to the averments in the petition and proof thereof. It has been further held therein that there cannot be any vicarious liability unless there is a prosecution against the company. In the .....

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t 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. 15. The three-Judge Bench referred to Section 138 and 141 .....

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ith the words if in the opinion of the Magistrate taking cognizance of an offence there is sufficient ground for proceeding and that apart, the words sufficient ground for proceeding again suggest that ground should be made out in the complaint for proceeding against the respondent. The three-Judge Bench has ruled that it is settled law that at the time of issuing of the process, the Magistrate is required to see only the allegations in the complaint and where the allegations in the complaint or .....

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s required is that the persons who are sought to be made criminally liable under Section 141 should be, at the time the offence was committed, in charge of and responsible to the company for the conduct of the business of the company. Every person connected with the company shall not fall within the ambit of the provision. It is only those persons who were in charge of and responsible for the conduct of business of the company at the time of commission of an offence, who will be liable for crimi .....

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or designation in a company may be liable if he satisfies the main requirement of being in charge of and responsible for the conduct of business of a company at the relevant time. Liability depends on the role one plays in the affairs of a company 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 i .....

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involvement of any Director, Manager, Secretary or other officer of a company in the commission of an offence. The Court proceeded to observe that the said provision operates when in a trial it is proved that the offence has been committed with the consent or connivance or is attributable to neglect on the part of any of the holders of the offices in a company. It has also been observed that provision has been made for directors, managers, secretaries and other officers of a company to cover th .....

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r position in a company and, therefore, in order to bring a case within Section 141 of the Act, the complaint must disclose the necessary facts which makes a person liable. In the said case, the Court has referred to the decisions in Secunderabad Health Care Ltd. v. Secunderabad Hospitals (P) Ltd. (1999) 96 Comp Cas 106 (AP), V. Sudheer Reddy v. State of A.P. (2000) 107 Comp Cas 107 (AP), R. Kanan v. Kotak Mahindra Finance Ltd. (2003) 115 Comp Cas 321 (Mad), Lok Housing ad Constructions Ltd. v. .....

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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 the respondent falls within the parameters of Section 141 has to be spelled out. A complaint has to be examined by the Magistrate in the first instance on the basis of averments contained there .....

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m to meet the case at the trial . 18. On the basis of the aforesaid analysis, the Court in this regard concluded that:- It is necessary to specifically aver in a complaint under Section 141 that at the time the offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company. This averment is an essential requirement of Section 141 and has to be made in a complaint. Without this averment being made in a complaint, the requirements of Section .....

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ned in Section 141 of the Negotiable Instruments Act had not been complied with. It may be true that it is not necessary for the complainant to specifically reproduce the wordings of the section but what is required is a clear statement of fact so as to enable the 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 b .....

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t referred to the authority in Saroj Kumar Poddar v. State (NCT of Delhi) and another (2007) 3 SCC 693 and noted the observations which we think it apt to reproduce:- 14. Apart from the Company and the appellant, as noticed hereinbefore, the Managing Director and all other Directors were also made accused. The appellant did not issue any cheque. He, as noticed hereinbefore, had resigned from the directorship of the Company. It may be true that as to exactly on what date the said resignation was .....

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observations were clarified by stating that:- 26. A faint suggestion was made that this Court in Saroj Kumar Poddar (supra) has laid down the law that the complaint petition not only must contain averments satisfying the requirements of Section 141 of the Act but must also show as to how and in what manner the appellant was responsible for the conduct of the business of the company or otherwise responsible to it in regard to its functioning. A plain reading of the said judgment would show that n .....

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54. 23. In the said case, taking note of the assertions in the complaint which were really vague, the Court declined to interfere with the order passed by the High Court which had opined that the complainant did not disclose commission of offence against the accused persons. 24. Be it noted, the observations made in Saroj Kumar Poddar (supra) and clarification given in SMS Pharma II (supra) and Everest Advertising (P) Ltd. (supra) were taken note of in K.K. Ahuja v. V.K. Vora and Anr (2009) 10 .....

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int Managing Director at the relevant time. This is because the prefix Managing to the word Director makes it clear that they were in charge of and are responsible to the company, for the conduct of the business of the company. (ii) In the case of a Director or an officer of the company who signed the cheque on behalf of the company, there is no need to make a specific averment that he was in charge of and was responsible to the company, for the conduct of the business of the company or make any .....

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r the conduct of the business of the company is necessary to bring the case under Section 141(1) of the Act. 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 .....

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the appeal filed by the appellant-Corporation therein. The Court in paragraphs 17 and 18 of the judgment reproduced the part of the complaint. We have carefully perused the said averments in the claim petition and we are of the opinion that there cannot be any shadow of doubt that the assertions made therein did not meet the requirements of Section 141 of the Act. 26. In A.K. Singhania (supra), after referring to the previous judgments, the Court found that it was difficult to infer that there w .....

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authority, as we notice, has to be appositely understood. The two-Judge Bench referred to SMS Pharma I and other earlier decisions, and came to hold that:- 30. When a petition is filed for quashing the process, in a given case, on an overall reading of the complaint, the High Court may find that the basic averment is sufficient, that it makes out a case against the Director; that there is nothing to suggest that the substratum of the allegation against the Director is destroyed rendering the bas .....

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trial would be an abuse of process of court as no offence is made out against him. 31. When in view of the basic averment process is issued the complaint must proceed against the Directors. But, if any Director wants the process to be quashed by filing a petition under Section 482 of the Code on the ground that only a bald averment is made in the complaint and that he is really not concerned with the issuance of the cheque, he must in order to persuade the High Court to quash the process either .....

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the trial. Quashing of a complaint is a serious matter. Complaint cannot be quashed for the asking. For quashing of a complaint it must be shown that no offence is made out at all against the Director. [Emphasis supplied] 28. After so stating, the Court proceeded to summarise its conclusions, appreciated the averments made in the complaint petition and opined thus:- … Pertinently, in the application filed by the respondents, no clear case was made out that at the material time, the Direc .....

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e had, in fact, resigned long before the cheques in question were issued. Similar is the case with Kanhaiya Lal Mehta and Anu Mehta. Nothing was produced to substantiate the contention that they were not in charge of and not responsible for the conduct of the business of the Company at the relevant time. In the circumstances, we are of the opinion that the matter deserves to be remitted to the High Court for fresh hearing. However, we are inclined to confirm the order passed by the High Court qu .....

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referred to the aforesaid decision in extenso, as we are of the convinced opinion that the analysis made therein would squarely apply to the case at hand and it shall be clear when we reproduce certain passages from the complaint. 30. Prior to that, we may profitably refer to a two-Judge Bench decision in Tamil Nadu News Print & Papers Ltd. v. D. Karunakar and Others (2015) 8 SCALE 733. In the said case, the Court has referred to the decision rendered in S.M.S. Pharma I (supra) and, thereaf .....

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e decisions as they explicitly state the development of law and also lay down the duty of the High Court while exercising the power of quashing regard being had to the averments made in the complaint petition to attract the vicarious liability of the persons responsible under Section 141 of the Act. 32. Now, is the time to scan the complaint. Mr. Divan, learned senior counsel appearing for the appellant-bank, has drawn our attention to paragraphs 2, 4 and 10 of the complaint petition. They read .....

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rge of day to day business of the accused No.1 viz. When the offence was committed. The accused Nos.6 and 7 being signatories of the cheque are aware of the transaction and therefore the accused Nos.2 to 7 are liable to be prosecuted jointly or severally for having consented and/or connived in the commission of present office in their capacity as the Chairman, Managing Director, Executive Director, Whole Time Director and authorized signatories of accused No.1, further the offence is attributabl .....

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Complainant Bank at its Branch situated at Mumbai for a Short Term Loan facility for a sum of ₹ 200 Crore to meet the expenditure of Four ORV vessels being built at ABG Shipyard. After verifying the documents submitted the Complainant Bank vide its sanction letter dated 28th April 2012 sanctioned the said Facility for the purpose mentioned therein. The said terms and conditions mentioned in the sanction letter dated 28th April 2012 were duly accepted by the Accused No. 1 by signing the sa .....

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