TMI Blog2014 (7) TMI 1377X X X X Extracts X X X X X X X X Extracts X X X X ..... n such Officers. Since the provision creates criminal liability, the conditions have to be very strictly and meticulously complied with. With this background, now let me go through the decisions in this regard. In fact, this Court also had an occasion to deal with similar matters under the EC Act between Smt. Vidya Murkumbi and Others vs. India Sugars and Refineries Ltd., in Crl.P. No. 7563/2009 dated 4.11.2009, wherein, learned brother Judge Justice Jawad Rahim, evaluated the provisions under the EC Act as well as the NI Act - In the said decision, the learned Judge has observed the wordings used in sub-Section (2) of Sec. 10 of the EC Act - that if proved pre-supposes sufficient material that such person by his consent or connivance or attributable negligence indulged in the crime. If such prima facie proof is not available in the complaint, then such person cannot be fastened with liability. However, the learned Judge has observed that the liability of the Chairman and the Director stand on a different footing and come in the category of sub-Section (1) of Section 10 of the EC Act. Therefore, they could be termed as personnel being in charge of/or responsible to the Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany, he is not liable for all the offences committed by the Company. The Chairman also stands on the same footing as that of a Director. If any liability has to be fastened on the Chairman, in law, a specific role has to be given to him and what is the overt act committed by him to share the criminal liability of the Company. Therefore, in the absence of such allegations and specific averments in the complaint, even Chairman also, ipso-facto by virtue of his position, cannot be made as an accused in a criminal case for the offence committed by the Company. It is a well settled law that at the time of issuing of the process, the Magistrate is required to see the allegations in the complaint in order to ascertain whether the allegations made in the complaint constitute an offence against a person, then only the Magistrate can call upon the persons cited as accused to answer the charges. Otherwise, the complaint has to be dismissed by exercising powers u/s. 203 of the Code of Crl. Procedure - the cognizance taken by the Magistrate and the process issued against the petitioner who is a Director and Chairman of the respective companies is bad in law and the same is liable to be q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the complainant (respondent herein) is a registered Company under the provisions of the Companies Act, established a Sugar Factory at Hospet in the year 1933 which has a crushing capacity of 2500 TCD and it has been crushing the sugar cane of the reserved area unabatedly. The sugar cane and sugar have been declared by the Government of Karnataka as Essential Commodities under the provisions of the Essential Commodities Act, 1955 (hereinafter referred to as 'EC Act' for short), in exercise of the power conferred on it u/s. 3 of the EC Act and also under Sugarcane (Control) Order, 1966. Clause (6) of the Sugarcane (Control) Order 1966, provides for regulation, distribution and movement of the sugarcane. The Government of Karnataka being empowered under the said Sugar (Control) Order, 1966, issued a notification called The Karnataka Sugarcane (Regulation and Distribution) (Hospet) Order, 1974, vide order dated 28.8.2006 thereby the Government has reserved certain areas in favour of the complainant Sugar factory and the accused Sugar Factory respectively. Once an area is reserved, no grower of sugarcane can transport or export sugarcane from the reserved area to any other Suga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a Director or a Chairman of a Company are not ipso-facto liable for any criminal act of the Company unless any special role is given to them in the day to day affairs and management of the Company. In this regard, the learned Counsel cited several rulings which I am going to discuss little later. 11. The learned Counsel for the respondent Company equally countenanced the arguments of the learned Counsel for the petitioner. It is contended that both M/s. Davangere Sugar Co. Ltd. and M/s. Shamanur Sugars Company are sister concerns. M/s. Davangere Sugars is managed by one of the sons of the petitioner by name Shamanur Shivshankarappa Ganesh (M.D.) and another Company M/s. Shamanur Sugars is managed by another son of the petitioner by name Shivashankarappa Bakkesh (M.D.). When both the companies are managed by the sons of the petitioner as Managing Directors and petitioner being one of the Directors and Chairman of the said companies, every act of the Company would be within the knowledge of the petitioner. In view of their relationship, it cannot be said the petitioner has no knowledge of the activities of the company. Therefore, the petitioner as a Director and Chairman of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Chairman, Managing Director and Directors of the Company are liable for the offence by the Company. Nevertheless, the provisions under the EC Act are juxtapose similar to that of the provisions under the Negotiable Instruments Act, 1881. Therefore, the provisions under the NI Act can be taken as in pari-materia to appreciate the provisions of the EC Act. Whenever an offence is committed under the EC Act by a Company, the liability is governed u/s. 10 of the said Act, which reads as follows: 10. Offences by companies - (1) If the person contravening an order made under Section 3 is a company, every person who, at the time the contravention 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 contravention and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to any punishment if he proves that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention. (2) Notwithstanding anythi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on.--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.] 16. On a plain reading of the above said two provisions, putting just oppose to each other, it clears out the doubt that except the words contravening in Section 10 of EC Act and committing in Section 141 of the NI Act, there is absolutely no difference in the above said two provisions. In this background, now let me consider the important aspects considered by the Apex Court with regard to the liability of the Chairman, Directors and Managing Director of a Company. The plain reading of Section 10 of the EC Act gives a picture that every person of a Company, whether he is a Chairman, Director or Managing Director, irrespective of his position, who at the time of the contravention of the EC Act was committed, if he was in-charge and responsible to the Company for the conduct and business of the Company, he shall be deemed to be guilty of the contravention and shall liable to be proceeded against and punished accordingly. The proviso says that if it is shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted under the said provision are satisfied before the liability is fastened on such Officers. Since the provision creates criminal liability, the conditions have to be very strictly and meticulously complied with. With this background, now let me go through the decisions in this regard. 18. In SMS Pharmaceuticals Ltd., Vs. Neeta Bhalla and Another reported in (2007) 4 SCC 70, the Apex Court referring to Section 141 of the NI Act, held that- Sec. 141 of the NI Act does not say that a Director of the Company shall automatically vicariously liable for commission of an offence on behalf of the Company what is necessary is that sufficient averments should be made to show that the person who is sought to be proceeded against on the premise of being vicariously liable for commission of an offence by the Company must be in charge of and shall also be responsible to the Company for the conduct of the business. Thus, the averments must say that the said person was both in-charge and responsible for the conduct of the Company business, requirements laid down u/s. 141 must be read conjointly and not the liability of the Director must be determined on the date on which the offence is co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt against a Company, even when the requirements of sec. 138 r/w Section 141 of the Act are not fulfilled. The words person in charge of the business of the company refer to a person who is in over all control of the day today business of the Company. A person may be a Director and thus belongs to the group of persons making the policy followed by the Company, but yet may not be in charge of the business of the Company; that a person may be a manager who is in charge of the business but may not be in over all in charge of overall charge of the business; and that a person may be an officer who may be in charge of only some part of the business. Then, merely stating that he was in charge of the business of the Company or he was in charge of the day today management of the Company or he was in charge and was responsible to the Company for the conduct of the business of the Company , he cannot be made vicariously liable u/s. 141(1) of the Act. 20. The above said ruling is further fortified in a subsequent ruling between National Small Industries Corporation Ltd., vs. Harmeet Singh Paintal and Another reported in 2010 (3) SCC 330 wherein the Supreme Court has held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst them. As regards petitioners 1 and 2 are concerned, first petitioner claims to be the Chairman and Director, while, second petitioner is described as a Managing Director, they stand on a different footing and would come in the category of persons referred to in sub-section (1) of section 10 of the E.C. Act. It is also noticed that by virtue of their office, they could be termed as persons being in charge or responsible to the Company for its business. An element of presumption being available against them, generally they would also be proceeded against along with the Company till they rebut the presumption of guilt raised statutorily against them. However, in the instant case, there appears to be no dispute as far as petitioners 1 and 2 are concerned, who have themselves described their designations. As far as petitioner No. 1 is concerned, she claims to be the Chairman and Director while the second petitioner claims to be the Managing Director. 26. For the reasons discussed in the paras supra, petitioners shall succeed in their legal pursuit. The proceedings initiated against petitioners 3 to 11 in PCR No. 4/2009 now converted into CC No. 309/2009 on the file of Princip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other authorised person. Therefore, even considering the powers under the Companies Act, there is no universal principle or presumption that a Chairman or Director of the Company is in charge of its day to day affairs. It all depends upon the respective duties or roles assigned to the Officers of the Company. 24. However, the position of a Managing Director, or a Joint Managing Director, are different, the word Managing suffix to the Director itself pre-supposes that in the absence of any explanation, he is the person managing the affairs of the Company by virtue of his designation. Therefore, invariably where there is no specific averments made, but the Company which is represented by a Managing Director or the Joint Managing Director and in the absence of assigning any roles to the other Directors the Managing Director is ipso facto by virtue of his position as a Managing Director, responsible to answer all the queries, with regard to the conduct and business of the Company. 25. Now let me bestow my attention regarding the role of the Chairman in a Company and it has to be considered, to ascertain whether by virtue of his position as a Chairman, ipso-facto liable for all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors. Section 292A of the Companies Act refers to the Audit committee wherein u/s. 292A(10) of the Act says that the Chairman of the Audit committee shall attend the general meetings to provide any clarification on matters relating to audit. 27. Looking to the above said provisions as a matter of convention, the Chairman of a Company presides over the meetings of the board and as a member on all the board committees and he presides over all the committee meetings. Therefore, the Chairman has the powers under the common law, such as (1) the power to preside over the meetings, (2) bring the discussion on any question and (3) the power to adjourn the meeting if necessary under the circumstances. 28. Looking to the above said powers and duties of the Chairman, it goes without saying that the Chairman is as good as a Director, but as he is higher in position, he presides over the meetings of the Company. Therefore, unless a specific role is given to a Chairman by virtue of articles of the Company to represent the management and participate in the day to day business, conduct and affairs of the Company, he is not liable for all the offences committed by the Company. 29. As I hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en Chairman also, ipso-facto by virtue of his position, cannot be made as an accused in a criminal case for the offence committed by the Company. 32. The second limb of these cases is that, there are no averments in the complaint in order to attract any of the provisions particularly under the provisions of EC Act to fasten liability on the petitioner herein. The learned Counsel for the petitioner contended that only a sweeping allegations are made in the complaint i.e. not sufficient to fasten the liability on the petitioner. 33. The learned Counsel for the respondent strenuously contends that the petitioner being the father of the Managing Directors of the above said two companies i.e. Davangere and Shamanur Sugars, the Managing Directors directly works under the nose of the Chairman, therefore, it cannot be said that the offence committed by the Company was not at all within the knowledge of the petitioner. The court can draw an inference on the basis of the relationship between the parties and also on the allegations made in the complaint that the petitioner is also contributed his overt acts in the commission of the alleged offence by the Company. 34. Before adverting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Now, it will take me to the contents of the complaint to ascertain whether there are sufficient specific averments, made in the complaint to call upon the petitioner to appear before the trial Court to answer the charges levelled against the Company. In all the above said three complaints, the allegations so far it relates to the petitioner is concerned is as follows: It is submitted that all the Directors of the accused Company are liable for proceedings in the present complaint since they are managing the affairs of the first respondent Company and as such, they are directly involved in the sugar manufacturing of the first accused Company. Hence, all the accused is liable to be prosecuted in the company. 37. Except the above said averments, no other averments are available, showing what exactly the overt act or role played by the petitioner in the day-to-day affairs of the business and conduct of the above said companies. No where in the Companies Act says that Managing Director or the Joint/Managing Director has to report to the Chairman regarding each and every act of the Company in order to impute the knowledge on the part of the Chairman. Therefore, I am of the opin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a well settled law that at the time of issuing of the process, the Magistrate is required to see the allegations in the complaint in order to ascertain whether the allegations made in the complaint constitute an offence against a person, then only the Magistrate can call upon the persons cited as accused to answer the charges. Otherwise, the complaint has to be dismissed by exercising powers u/s. 203 of the Code of Crl. Procedure. The said provision uses the words 'after considering' and 'the Magistrate is of the opinion that there is no sufficient ground for proceeding', these words suggests that the Magistrate has to apply his mind to a complaint at the initial stages itself to see whether a case is made out against the accused persons before issuing process to them. This in other words means that the complaint must contain materials to enable the Magistrate to make up his mind for issuing process. In this particular case, the Magistrate has in one sentence stated all the persons of the Company are liable for prosecution as they are participating in the day today affairs of the business and conduct of the Company. The said observation of the learned Magistrate ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
