TMI Blog2017 (4) TMI 192X X X X Extracts X X X X X X X X Extracts X X X X ..... r, it may not be necessary to allege and prove that, in fact, such of the Directors have any specific role in respect of the transaction leading to the issuance of cheque. Section 141 of the Act makes the Directors incharge and responsible to Company "for the conduct of the business of the Company" within the mischief of Section 138 of the Act and not particular business for which the cheque was issued. Thus, although in the complaint in question, there is no specific averment in so many words that the accused herein at the time of the commission of the offence, was incharge of and responsible for the conduct of the business of the company, yet reading the other averments, it can safely be said that the accused had played some role indicating his involvement in the daytoday affairs and management of the company. The substance of the accusations discloses prima facie that the applicant herein was incharge of and responsible for the conduct of the business of the company at the relevant point of time. - CRIMINAL MISC.APPLICATION (FOR QUASHING & SET ASIDE FIR/ORDER) NO. 17681 of 2015 - - - Dated:- 29-3-2017 - MR. J.B.PARDIWALA, J. FOR THE APPELLANT : MR KRUNAL R SAKSENA, AD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween 1st March 2011 and 29th February 2012. The bill was sent to the company after proper verification and clarification at the end of the officers of the accused No.1 company. On 4th May 2011, on the instructions and recommendations of the accused Nos.2 and 3, an initial payment of ₹ 19,60,000=00 was made to the complainant and the balance amount of ₹ 1,68,95,781=00 was agreed to be paid within a short period by the accused persons. The accused persons had also filled up Form 16 of the Income Tax and deducted the T.D.S. from the said amount. Even then, the accused persons did not deem fit to repay the amount, which was due and payable by them. The complainant was constrained to approach the accused No.1 company for his outstanding dues. The Director of the accused No.1 company had issued one cheque duly signed by him bearing No.054047 dated 22nd January 2013 drawn on the State Bank of India, Gujarat Vidhyapith Ahmedabad for the amount of ₹ 25,00,000=00 with respect to the outstanding dues of the aforesaid bill amount to the complainant. The complainant was assured that the cheque, on being presented to the Bank, would be honoured. On 23rd Janua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicant No.2 is concerned, he cannot be held vicariously liable for the offence punishable under Section 138 of the N.I. Act in the absence of any specific averment in the complaint that he was incharge of and responsible to the conduct of the business of the company at the time of the commission of the offence. Mr. Shah would submit that his client, indisputably, is the Director of the company, but, that by itself is not sufficient to fasten the vicarious liability under Section 141 of the N.I. Act. The complainant is obliged to show something as regards his role in the daytoday affairs and management of the company. Mr. Shah, in support of his submissions, has placed strong reliance on the decision of the Supreme Court in the case of Gunmala Sales Private Limited vs. Anu Mehta and others [2015 Cri. L.J. 285] . 7 In such circumstances referred to above, Mr. Shah, the learned counsel appearing for the applicant No.2 submits that there being merit in this application, the proceedings of the complaint may be quashed so far as the applicant No.2 is concerned. 8 On the other hand, this application has been vehemently opposed by Mr. Zabuawala, the learned counsel appearing for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the learned counsel appearing for the complainant noted above is based on the observations of the Supreme Court in the case of Gunmala Sales Private Ltd. (supra) as contained in paras 29 and 30. I may quote the observations made in paras 29 and 30 as under: 29. 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 basic averment insufficient and that since offence is made out against him, his further role can be brought out in the trial. In another case, the High Court may quash the complaint despite the basic averment. It may come across some unimpeachable evidence or acceptable circumstances which may in its opinion lead to a conclusion that the Director could never have been in charge of and responsible for the conduct of the business of the company at the relevant time and, therefore, making him stand the trial would be abuse of the process of court as no offence is made out against him. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of the cheque, or with 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 from the bank regarding the return of the cheque as unpaid; and (c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice. Explanation.-For the purposes of this section, debt or other liability means a legally enforceable debt or other liability. 10 On a studied scrutiny of the aforesaid provision, it is quite limpid that to constitute the 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 prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any, 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 conduct of the business of the company. 13 At one point of time, an issue had arisen before this Court, whether a complaint could be held to be maintainable without making the company a party. The said controversy has been put to rest by a three-Judge Bench decision in Aneeta Hada v. Godfather Travels and Tours Private Limited6 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 case at hand, the company has been arrayed as the accused No. 1 along with the Chairman and other Directors. 14 Now, we must go back in time to appreciate what has been stated in S.M.S. Pharma I (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 criminal action. It follows from this that if a director of a company 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 under the provision. The liability arises from being in charge of and responsible for the conduct of 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. Conversely, a person not holding any office 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 bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3], K.P.G. Nair v. Jindal Menthol India Ltd. [2001 (10) SCC 218], Katta Sujatha v. Fertilizers Chemicals Travancore Ltd. [2002 (7) SCC 655] and eventually expressed thus: 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 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 therein. If the Magistrate is satisfied that there are averments which bring the case within Section 141, he would issue the process. We have seen that merely being described as a director in a company is not sufficient to satisfy the requirement of Section 141. Even a non-director can be liable under Section 141 of the Act. The averments in the complaint would also se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 accepted by the Company is not known, but, even otherwise, there is no averment in the complaint petitions 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. He had not issued any cheque. How he is responsible for dishonour of the cheque has not been stated. The allegations made in para 3, thus, in our opinion do not satisfy the requirements of Section 141 of the Act. 21. The said 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 other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 in charge 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) 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 subsection. (iv) Other officers of a company cannot be made liable under subsection (1) of Section 141. Other officers of a company can be made liable only under subsection (2) of Section 141, by 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. 25 In Harmeet Singh Paintal (supra), a twoJudge Bench did not agree with the stand of the appellant, emphasized on the averments and found that in the complaint petition there were no spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 furnish some sterling incontrovertible material or acceptable circumstances to substantiate his contention. He must make out a case that making him stand the trial would be an abuse of process of court. He cannot get the complaint quashed merely on the ground that apart from the basic averment no particulars are given in the complaint about his role, because ordinarily the basic averment would be sufficient to send him to trial and it could be argued that his further role could be brought out in 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 Directors were not in charge of and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incharge of the daytoday business of Accused No.1company. 31 We have referred to these 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 appellantbank, has drawn our attention to paragraphs 2, 4 and 10 of the complaint petition. They read as follows: 2. I further say that I know the accused above named. The accused No.1 is a Company incorporated under the Companies Act, 1956 having its registered address as mentioned in the cause title. The accused Nos.2 to 7 are the Chairman, Managing Director, Executive Director and whole time Director and authorized signatories of accused No.1 respectively. As such being the Chairman, Managing Director, Executive Director and Whole Time Director were and are the persons responsible and in charge of day to day business of the accused No.1 viz. When the offence was committed. The acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive connivance, mischievously and intentionally issued the cheques in question. 34 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 wholetime 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 for issuance of summons against the said accused persons. We unhesitatingly hold so as the asseverations made in the complaint meet the test laid down in Gunmala Sales Pvt. Ltd. (supra). 14 In complaint, there are specific averments as regards the role played by the applicant herein so far as the work contract which was assigned to the complainant is concerned. It is not as if the applicant herein is a complete alien to the company. Indisputably, he is one of the Directors of the company and also happens to be the son of the Chairman. On three places in the complaint, I find reference of the applicant in one way or the other. 15 In case of offence b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectors within the mischief of Section 138 of the Act, it shall be necessary to allege that they were incharge of and responsible to the conduct of the business of the Company. It is necessary ingredient which would be sufficient to proceed against such Directors. However, I may add that as no particular form is prescribed, it may not be necessary to reproduce exact the words of the section. If reading of the complaint shows and substance of accusation discloses the necessary averments, that would be sufficient to proceed against such of the Directors and no particular form is necessary. However, it may not be necessary to allege and prove that, in fact, such of the Directors have any specific role in respect of the transaction leading to the issuance of cheque. Section 141 of the Act makes the Directors incharge and responsible to Company for the conduct of the business of the Company within the mischief of Section 138 of the Act and not particular business for which the cheque was issued. One should not read more than what has been mandated in Section 141 of the Act. [See: A.K. Singhani vs. GSFC , 2014 Cri. L.J. 340]. 17 In Mannalal Chmaria and another vs. State of Wes ..... X X X X Extracts X X X X X X X X Extracts X X X X
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