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Mrs. Shanthi Papli, Director, M/s. Franch Herbs Technologies Ltd. Versus Mr. Bala Sing Samuel Proprietor, M/s. Vijaya Agency

2017 (10) TMI 457 - MADRAS HIGH COURT

Dishonour of cheque - Maintainability of complaint u/s 138 of NI Act - whether petitioner is not a signatory to the cheque and that she being a nominal director is in no way connected with the day today affairs of the company - Held that:- In the complaint other than the cause title depicting the petitioner as director and impleading her as the third accused no other averment has been made that she is a person who at the time of the commission of the offencce was incharge of and was responsible .....

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at the time of the arguments before this court that the petitioner is the wife of the second accused who is the Managing Director and that she is also involved in the day to day affairs of the business no other averment has been made against her in the complaint. In view of Section 141 when there is no averment against the petitioner the proceedings against the petitioner is an abuse of process of law and is liable to be quashed. - In the result, this Criminal Original Petition is allowed an .....

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nishable under Section 138 of Negotiable Instruments Act. 2. The main contention grounds raised by the petitioner is that the very complaint under Section 138 of the Negotiable Instruments Act is not maintainable against the petitioner as she is not a signatory to the cheque and that she being a nominal director is in no way connected with the day today affairs of the company and that the second accused had issued the cheque as Managing Director and Chairman of the first accused company and that .....

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irs of the company and that she being a Director is also liable for prosecution under the Act. 4. For the sake of convenience, the relevant paragraphs in the complaint are extracted hereunder. 1. The complainant states that the accused company had business dealings with the complainant in the past and during such business transactions with the complainant, the accused company owes to the complainant various amounts on various dates and towards the discharge of the same, the accused in the capaci .....

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199 dt. 26.8.2009 for ₹ 15,00,000/- both drawn on ICICI Bank Ltd., Purasawalkam Branch, Chennai-84 in favour of the complainant on the promise and assurance of the accused that the cheques would be honoured on presentation of the same in the Bank. But the said cheques were returned dishonoured from the Bank of Baroda, Vadapalani Branch where they were presented by the complainant on 3.9.2009 with the Bank Return Memo dt. 5.9.2009 with the remarks 'Insufficient Funds'. The complaina .....

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walkam Branch, Chennai-84 in his Bank i.e. Bank of Baroda, Vadapalani Branch, Chennai-26 for encashment, on 3-10-2009. But this time also the said cheques were returned dishonoured with the Bank Return Memo dt. 6.10.2009 with the Bank's remarks 'Refer to Drawyer'. 4.The complainant in this connection caused and sent a legal notice dt.19.10.2009 to the accused, calling upon them to pay the dishonoured cheques amounts to the complainant, within fifteen days on receipt of the notice. Th .....

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138 and 141 of Negotiable Instruments Act, which extracted hereunder:- 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 bank unpaid, either because of the amount of money standing to the credit of that account is insufficien .....

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sented 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 m .....

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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 .....

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vance of, or is attributable to, any neglect on the part of, any Director, Manager, Secretary or other officer of the company, such Director, Manager, Secretary 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 t .....

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y a two Judge Bench of this Court for determination of the following questions by a larger Bench : " (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 fulfill the requirements of the said section and it is not necessary to specifically state in the complaint that the persons accused was in charge of, or responsible for, the conduct of the business of the company. (b) whether a director of a co .....

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uld be proceeded against. " 2. The controversy has arisen in the context of prosecutions launched against officers of Companies under Sections 138 and 141 of the Negotiable Instruments Act of 1881 (hereinafter referred to as the "Act"). The relevant part of the provisions are quoted as under : "Section 138 : Dishonour of cheque for insufficiency, etc., of funds in the account Where any cheque drawn by a persons on an account maintained by him with a banker for payment of any .....

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Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the 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 us earlier. (b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the .....

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r liability" means a legally enforceable debt or other liability. 141. Offences by companies [1] If the person committing an offence under section 138 is a company, every person who, at 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 .....

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, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly." It will be seen from the above provisions that Section 138 casts criminal liability punishable with imprisonment or fine or with both on a person who issues a cheque towards discharge of a debt or liability as a whole or in part and the cheque is dishonoured by the Ban .....

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ingredients are : (i) Issuance of a cheque. (ii) Presentation of the cheque (iii) Dishonour of the cheque (iv) Service of statutory notice on the person sought to be made liable, and (v) Non-compliance or non-payment in pursuance of the notice within 15 days of the receipt of the notice. 10. While analysing Section 141 of the Act, it will be seen that it operates in cases where an offence under Section 138 is committed by a company. The key words which occur in the Section are "every perso .....

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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 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 .....

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and responsible for 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 is liable".etc. The legislature is aware that it is a case of criminal liability wh .....

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s 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 these offices in a company. In such a case, such persons are to be held liable. Provision has been made for Directors, Managers, Secretaries and other officers of a company to cover them in cases of their proved involvement. 12. The conclusion is inevitable that the liability arises on account of conduct , act or omission on the part of a person and not m .....

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under the Negotiable Instruments Act specifically dealing with Sections 138 and 141 thereof. The Andhra Pradesh High Court held that every Director of a company is not automatically vicariously liable for the offence committed by the company. Only such Directors or Director who were in charge of or responsible to the company for the conduct of business of the company at the material time when the offence was committed alone shall be deemed to be guilty of the offence. Further it was observed tha .....

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a person who appears to be merely a director of the Company cannot be fastened with criminal liability for an offence under Section 138 of the Negotiable Instruments Act unless it is shown that he was involved in the day-today affairs of the company and was responsible to the company." Further, it was held that allegations in this behalf have to be made in a complaint before process can be issued against a person in a complaint. To same effect is the judgment of the Madras High Court in R. .....

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raiah and another [2002 (108) CC (AP) 687, the Andhra Pradesh High Court noted that there was a consensus of judicial opinion that: " a director of a company cannot be prosecuted for an offence under Section 138 of the Act in the absence of a specific allegation in the complaint that he was in charge of and responsible to the company in the conduct of its business at the relevant time or that the offence was committed with his consent or connivance." The Court has quoted several judgme .....

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to the company for conduct of its business liable for offence committed by a company. It was held that a person liable for criminal action under that provision should be a person in overall control of day-to-day affairs of the company or a firm. This was a case of a partner in a firm and it was held that a partner who was not in such overall control of the firm could not be held liable. In Municipal Corporation of Delhi v. Ram Kishan Rohtagi and others [1983 (1) SCC 1], the case was under the Pr .....

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d at against accused. This emphasises the need for proper averments in a complaint before a person can be tried for the offence alleged in the complaint. 18. To sum up, there is almost unanimous judicial opinion that necessary averments ought to be contained in a complaint before a persons can be subjected to criminal process. 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 .....

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here 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 serve the purpose that the person sought to be made liable would know what is the case which is alleged against him. This will enable him to meet the case at the trial. 8. In the .....

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the dishonor of Cheques is concerned, admittedly the cheques were not signed by the appellant. There is also no dispute that the appellant was not the Managing Director but only a non-executive Director of the Company. Non-executive Director is no doubt a custodian of the governance of the Company but does not involve in the day-to-day affairs of the running of its business and only monitors the executive activity. To fasten vicarious liability under Section 141 of the Act on a person, at the m .....

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ponsible 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. In National Small Industries Corporation (supra) this Court observed: "Section 141 is a penal provision creating vicarious liability, and which, as per settled law, .....

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t 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 conduct of the business of the company without anything more is not a sufficient or adequate fulfillment of the requirements under Section 141. 18 In Girdhari Lal Gupta Vs. D.H. Mehta & Anr. (1971) 3 SCC 189, t .....

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oncerned [See: State of Karnataka Vs. Pratap Chand & Ors. (1981) 2 SCC 335]. 20 In other words, the law laid down by this Court is that for making a Director of a Company liable for the offences committed by the Company under Section 141 of the N.I. Act, there must be specific averments against the Director showing as to how and in what manner the Director was responsible for the conduct of the business of the Company. 21 In Sabitha Ramamurthy & Anr. Vs. R.B.S. Channbasavaradhya (2006) 1 .....

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can be inferred so far as a company registered or incorporated under the Companies Act, 1956 is concerned only if the requisite statements, which are required to be averred in the complaint petition, are made so as to make the accused therein vicariously liable for the offence committed by the company. By verbatim reproducing the wording of the Section without a clear statement of fact supported by proper evidence, so as to make the accused vicariously liable, is a ground for quashing proceedin .....

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