TaxTMI 
TaxTMI 
2020 (11) TMI 462
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....rge of legal liability, Accused No. 1 issued a cheque bearing No. 731759 dated 28.10.2016 for an amount of Rs. 2 crores, duly signed by Accused No.2, with the consent and knowledge of the other Co-accused including the Petitioner and that the same was dishonoured on presentation. A legal notice of demand dated 02.11.2016 was sent on 04.11.2016 by the complainant but despite the receipt of the notice the Accused persons failed to remit the alleged outstanding amount. On the filing of the complaint, the Trial Court summoned the Accused including the Petitioner. The Petitioner herein has been arrayed as Accused No.5 in the capacity of CEO of Accused No.1 Company. 3. As per the Petitioner, she received the summons for the first time on 10.01.2019 and immediately thereafter preferred a Criminal Revision bearing CR No.114/2019 on 28.02.2019, challenging the summoning order. On 25.03.2019 the Sessions Court issued notice to the Respondent and the Petitioner took repeated steps to effect service on the Respondent through his counsel before the Trial Court. However, none appeared on behalf of the Respondent. Vide order dated 04.12.2019 the Sessions Court dismissed the Revision petition and....
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....ion 138 of NIA. The High Court allowed the petition filed under Section 482 Cr.P.C. and quashed the proceedings, but the order was ex-parte. The Appellant filed an application for recall of the order but the same was dismissed on the ground that it did not meet the test laid down in N.K. Wahi vs. Shekhar Singh & Ors. 2007 (9) SCC 481. The Supreme Court in an Appeal filed by the Appellant upheld the order of the High Court and dismissed the Appeal. 7. Similarly, in Crl. Petition Nos. 8510 & 8511/2015 titled Renuka Ramnath & Ors. vs. Hasham Investment and Trading Company Pvt. Ltd. decided on 01.02.2019, High Court of Karnataka while dealing with petitions under Section 482 Cr.PC for quashing the proceedings initiated against the Petitioners on a complaint under Section 138 NIA proceeded ex-parte against the complainant, when the complainant chose to be unrepresented, despite being duly served. 8. Following these judgements, it is clear that in case the complainant chooses not to appear and contest the petition, despite being served, Court can proceed ex-parte and hear the Accused in a petition filed under Section 482 Cr.P.C. for quashing. 9. Record indicates that Respondent has be....
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....d with or responsible for the affairs of the Company, at the relevant time. 12. The third contention of the learned counsel is that there are no specific/unambiguous/clear allegations qua the role of the Petitioner in the complaint and most significantly the complainant has not even made a whisper as to the transaction pursuant to which the cheque was issued, which is a mandatory requirement under Section 141 of NIA. A bare perusal of the complaint indicates that it does not mention anywhere that the Petitioner was responsible for managing the affairs of the Company at the relevant time and the complaint is completely vague. In this regard reliance is placed on the judgement of this Court in Shivom Minerals Limited & Ors. vs. State & Ors. 2019 SCC OnLine Del 9329. 13. To elaborate the argument, it is submitted that the Courts have repeatedly affirmed that mere fact of being a Director is not enough and there must be specific allegations to make out a case against the Accused under Sections 138 and 141 of NIA. This according to the counsel has been so observed in the judgements in S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla & Ors. (2005) 8 SCC 89 and Sudeep Jain vs. M/s. ECE Indu....
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....ufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for [a term which may extend 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 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, 69[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. Ex....
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....int 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 141 cannot be said to be satisfied. (b) The answer to the question posed in sub-para(b) has to be in the negative. Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for the conduct of its business. The requirement of Section 141 is that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a director in such cases. (c) The answer to Question (c) has to be 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 the conduct of its busi....
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....isite statements, which are required to be averred in the complaint/petition, are made so as to make accused therein vicariously liable for offence committed by company along with averments in the petition containing that accused were in-charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with. (iv) Vicarious liability on the part of a person must be pleaded and proved and not inferred. (v) If accused is Managing Director or Joint Managing Director then it is not necessary to make specific averment in the complaint and by virtue of their position, they are liable to be proceeded with. (vi) If accused is a Director or an Officer of a company who signed the cheques on behalf of the company then also it is not necessary to make specific averment in complaint. (vii) The person sought to be made liable should be incharge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a Director in such cases." 22. In this context relevant it would be to quote a few passages from the judgement of this Court in Sudeep Ja....
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....ayed by the complainant so as to hold them vicariously liable for the commission of the offence by the accused company, I am inclined to direct that the Magistrates must seek copies of Form-32 from the complainant to prima facie satisfy the Court as to who were the directors of the accused company at the time of commission of the alleged offence and on the date of filing of the complaint case. In addition to the above, the Magistrates must also seek information as given in the following table which is to be annexed by the Complainant on a separate sheet accompanying the complaint:- a. Name of the accused Company; b. Particulars of the dishonoured cheque/cheques; * Person/Company in whose favour the cheque/cheques were issued * Drawer of the cheque/cheques * Date of issuance of cheque/cheques * Name of the drawer bank, its location * Name of the drawee bank, its location * Cheque No./Nos. * Signatory of the cheque/cheques c. Reasons due to which the cheque/cheques were dishonoured; d. Name and Designation of the persons sought to be vicariously liable for the commission of the offence by the accused Company and their exact role as to how and in what manner th....
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.... make any further elaboration as to how he was in charge of and responsible for the day-today conduct of the business. The question would be as to whether making this averment, namely, reproducing the language of Sub-section (1) of Section 141 would be sufficient or something more is required to be done, i.e. is it necessary to make averment in the complaint elaborating the role of such a Director in respect of his working in the company from which one could come to a prima facie conclusion that he was responsible for the conduct of the business of the company. xxx xxx xxx 24. Thus, what follows is that more bald allegation that a particular person (or a Director) was responsible for the conduct of the business of the company would not be sufficient. That would be reproduction of the language of Sub-section (1) of Section 141 and would be without any consequence and it is also necessary for the complainant to satisfy how the petitioner was so responsible and on what basis such an allegation is made in the complaint. xxx xxx xxx 32. It can, therefore, be safely concluded that the view, which is now accepted by the Supreme Court, is that more rep....
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....to 4 are the Directors and accused No. 5 is the General Manager Finance, who are responsible for the day-today affairs of accused No. 1 company and are jointly and severally liable for the acts and liabilities of the accused No. 1 company." 77. On the basis of these bald averments, I am afraid, proceedings could not have been maintained against the petitioner herein, as it is not specifically stated as to how the petitioner was in charge of and responsible for the affairs of the company. The summoning orders qua the petitioner are hereby quashed and the complaints qua him are dismissed. 24. Additionally, in the judgement of Kamal Goyal (supra) on which reliance has been placed, this Court has held as under: "12. In the case before the Hon'ble Supreme Court, the respondent No. 1 had resigned from the Directorship of the Company under intimation to the complainant and in these circumstances, the Hon'ble Supreme Court was of the view that a person who had resigned with the knowledge of the complainant in the year 1996, could not be a person in charge of the Company in the year 1999 when the cheque was dishonoured as he had no say in the matter that the cheque is honoured ....
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....principles of law before making a person vicariously liable. 13. The superior courts should maintain purity in the administration of justice and should not allow abuse of the process of court. Looking at the facts of the present case in the light of settled principles of law, we are of the view that this is a fit case for quashing the complaint. The High Court ought to have allowed the criminal miscellaneous application of the appellant because of the absence of clear particulars about the role of the appellant at the relevant time in the day-to-day affairs of the Company." 24. I may allude to the judgement of Co-ordinate Bench of this Court in Shivam Minerals (supra), the relevant portion of which is as follows:- "9. In the instant case, to assert the necessary ingredients of existing debt or liability, it is required to be averred in a complaint of Section 138 of NI Act, as to what is the factual basis to show existing debt or liability. All that has been said in the complaints in question and the pre-summoning evidence is as under:- "3. That complainant and accused were known to each other and both parties had substantial business transactions and in lieu of the business ....
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....Act to encourage the wider use of a cheque and to enhance the credibility of the instrument. The intent of the Legislature in carrying out the Amendment was to encourage people to have faith in the efficacy of banking transactions and use of cheques as negotiable instruments. To balance, a penal provision was enacted to ensure that the drawer of a cheque does not misuse the provisions and honours his commitment. The issue herein concerns the criminal liability arising out of dishonour of a cheque. Normally the criminal liability is not vicarious i.e. one cannot be held criminally liable for the act of another. Section 141 of NIA is however an exception where the offence under Section 138 is committed by a Company but the liability extends to the officers of the Company, subject to fulfillment of the conditions under Section 141, as a caveat. Since it is a criminal liability, the conditions have been enacted to ensure that the person who is sought to be made vicariously liable for the alleged offence of the Company has a definite role to play in the incriminating act and as a corollary a person who has no role to play cannot be proceeded against, only on account of his being an offi....
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....ctor, by whatever name called;" There is a whole chapter in the Companies Act on directors, which is Chapter II. Sections 291 to 293 refer to the powers of the Board of Directors. A perusal of these provisions shows that what a Board of Directors is empowered to do in relation to a particular company depends upon the roles and functions assigned to directors as per the memorandum and articles of association of the company. There is nothing which suggests that simply by being a director in a company, one is supposed to discharge particular functions on behalf of a company. It happens that a person may be a director in a company but he may not know anything about the day-to-day functioning of the company. As a director he may be attending meetings of the Board of Directors of the company where usually they decide policy matters and guide the course of business of a company. It may be that a Board of Directors may appoint sub-committees consisting of one or two directors out of the Board of the company who may be made responsible for the day-to-day functions of the company. These are matters which form part of resolutions of the Board of Directors of a company. Nothing is oral. What....
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....g 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 person". These are general words and take every person connected with a company within their sweep. Therefore, these words have been rightly qualified by use of the words: "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, etc." What is 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 criminal action. It follows from this that if a director of a company who was not in charge of and was not responsible f....
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.... refer to paras 13, 14 and 17 from SMS Pharmaceuticals (supra) which are as follows:- "13. The question of what should be the averments in a criminal complaint has come up for consideration before various High Courts in the country as also before this Court Secunderabad Health Care Ltd. v. Secunderabad Hospitals (P) Ltd. [(1999) 96 Comp Cas 106 (AP)] was a case 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 director or directors 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 that the requirement of law is that: (Comp Cas p. 112) "There must be clear, unambiguous and specific allegations against the persons who are impleaded as accused that they were in charge of and responsible to the company in the conduct of its business at the material time when the offence was committed." 14. The same High Court in....
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....ilizers & Chemicals Travancore Ltd. [(2002) 7 SCC 655 : 2003 SCC (Cri) 151] This was a case of a partnership. It was found that no allegations were contained in the complaint regarding the fact that the accused was a partner in charge of and was responsible to the firm for the conduct of business of the firm nor was there any allegation that the offence was made with the consent and connivance or that it was attributable to any neglect on the part of the accused. It was held that no case was made out against the accused who was a partner and the complaint was quashed. The latest in the line is the judgment of this Court in Monaben Ketanbhai Shah v. State of Gujarat [(2004) 7 SCC 15 : 2004 SCC (Cri) 1857]. It was observed as under: (SCC p. 17, para 4) "4. It is not necessary to reproduce the language of Section 141 verbatim in the complaint since the complaint is required to be read as a whole. If the substance of the allegations made in the complaint fulfil the requirements of Section 141, the complaint has to proceed and is required to be tried with. It is also true that in construing a complaint a hyper-technical approach should not be adopted so as to quash the same. The lauda....
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....ffence was in charge of the conduct of the business, ascribe a specific role to him/her before any criminal liability can be fastened. In the background of these judgements I may now examine the complaint in the present case, which is the genesis of the present proceedings. 29. Perusal of the complaint shows that the allegation of issuing the cheque is against accused No.1 from the account maintained by accused No. 1 and allegations of signing are against accused No. 2, as authorized signatory of accused No.1. The allegation against accused No. 5, who is the Petitioner herein, is that an assurance was given to the complainant that the cheque shall be honoured on presentation. Petitioner is stated to be the CEO of accused No.1 Company and the wife of accused No.2. It is averred that the cheque was issued with her consent and knowledge and she attended meetings with the official of the complainant and responsible for the business of the Company. What is significant is that in the entire complaint there is not even a whisper of the alleged transaction, pursuant to which the cheque was allegedly issued in favour of the complainant. All that is mentioned is 'towards the discharge of pa....