TMI Blog2023 (7) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... aged, since it amounts to abuse of the salutary process of criminal law. This court is clear that for one, there are no allegations in the criminal complaints in relation to the petitioners, much-less any specific allegations as to their role in the alleged offence. In these circumstances, it cannot be said that the petitioners would incur any vicarious liability along with the accused company merely because they were directors of the company. Two, absent any allegations against the petitioners in the criminal complaints, the issuance of the summoning orders was evidently not informed by any application of mind, but was the outcome of a purely mechanical process. The summoning orders cannot be sustained in law - Petition disposed off. - CRL.M.C. 2480/2017 & CRL.M.A.10318/2017, CRL.M.C. 2481/2017 & CRL.M.A. 10320/2017, CRL.M.C. 2487/2017 & CRL.M.A. 10347/2017, CRL.M.C. 2489/2017 & CRL.M.A. 10356/2017, CRL.M.A. 10357/2017, CRL.M.C. 2490/2017 & CRL.M.A. 10358/2017, - - - Dated:- 28-6-2023 - HON BLE MR. JUSTICE ANUP JAIRAM BHAMBHANI CRL.M.C. 2480/2017 CRL.M.A.10318/2017, CRL.M.C. 2481/2017 CRL.M.A. 10320/2017, CRL.M.C. 2487/2017 CRL.M.A. 10347/2017, CRL.M.C. 2489/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S. No. CRL.M.C. No. Cheque No. Date Date of Dishonour of Cheque Reason for dishonour Date of Statutory Notice 1. 2480/2017 1518 04.04.2014 20.06.2014 Other Reasons 12.07.2014 2. 2481/2017 1516 31.03.2014 14.06.2014 Other Reasons 11.07.2014 3. 2487/2017 1514 27.03.2014 21.05.2014 Funds Insufficient 11.06.2014 4. 2489/2017 1519 07.04.2014 19.06.2014 Other Reasons 12.07.2014 5. 2490/2017 1513 25.03.2014 17.05.2014 Funds Insufficient 11.06.2014 6. 2491/2017 1515 29.03.2014 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany was situate within the local jurisdiction of the Saket court and thereupon came to be marked to a learned Metropolitan Magistrate, Saket Courts, Delhi ( MM, Delhi ). 2.10 Observing that since a summoning order had already been passed by the Transferor Court in respect of all accused persons, vide order dated 08.03.2017, the learned MM, Delhi issued fresh summons, which are subject matter of challenge before this court. 2.11 It may be stated here that though by reason of 05 complaints having been initiated in Bangalore and 02 in Delhi; and the 02 complaints having subsequently been transferred from Delhi to Bangalore and thereafter having been returned to Delhi by reason of the amendment in the law, there is some lack of clarity as to the first orders by which the petitioners were summonsed. The position however is, that in effect and substance, the petitioners stand summonsed in all 07 criminal complaints vide order dated 10.09.2014 passed by the learned ACMM, Bangalore and order dated 08.03.2017 passed by the learned MM, Delhi. In fact, a perusal of the record shows that there was also another order dated 19.02.2015 passed by the learned ACMM, Bangalore, which also app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 insufficient 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) * * * * * (b) * * * * * (c) * * * * * Explanation. * * * * * 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 comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a director of the company does not affix liability on a person by virtue of their position in the company. To buttress this submission, reliance is primarily placed on the seminal decision of the Supreme Court in S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla. (2005) 8 SCC 89 at paras 10, 12, 18 19(a). 6. Furthermore, it is submitted that there is no specific averment whatsoever in the complaints ascribing any role to the petitioners or to show that the petitioners were in-charge of the day-to-day affairs of the accused company. Learned senior counsel submits that to initiate prosecution against a director of a company, there must be a specific allegation in a criminal complaint with regard to the role played by that individual in the alleged offence; and that in absence of any specific allegation in the complaint, no prosecution can lie against a director. To support this assertion, reliance is placed on Sabitha Ramamurthy vs. R.B.S. Channabasavaradhya (2006) 10 SCC 581, Saroj Kumar Poddar vs. State (NCT of Delhi) (2007) 3 SCC 693 and N.K. Wahi vs. Shekhar Singh Ors. (2007) 9 SCC 481 7. Attention in this behalf is drawn to the following paragraphs the 05 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt at Delhi office of the complainant had been signed by Authorized Signatory of Accused. As such all the noticees / had participated in finalization of purchase order relating to sale of Coal. Authorised Signatory who issued impugned Cheques and all other directors are involved and concerned with the business transaction entered by accused with complainant and as such are liable u/s 138 of N.I. Act. (emphasis supplied) 8. Lastly, placing reliance on two decisions of the Supreme Court in Pepsi Foods Ltd. vs. Special Judicial Magistrate (1998) 5 SCC 749 and Mehmood Ul Rehman vs. Khazir Mohammad Tunda (2015) 12 SCC 420, it is argued that summons cannot be issued against the accused in a mechanical manner; and the summoning order passed by a Magistrate must reflect application of mind to the facts of the case and the law governing the issue. Submissions on behalf of respondent No. 1 9. Per contra, on behalf of respondent No. 1/complainant Mr. Jindal submits that the issuance of the cheques that are subject matter in the present proceedings and the liability have not been challenged by the petitioners. Moreover, it is contended that the ingredients of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision in section 141 NI Act. 13. For whatever it is worth, in the context of the statutory notice issued to the petitioners, as directors of respondent No. 2 company, counsel has also cited the doctrine of indoor management and doctrine of constructive notice , to argue that people in the business world would be shy to enter into transactions with a company if they were to be required to check in-depth into the internal workings of the company. The decision in Morris vs. Kanssen (1946) 1 All ER 586 at 592 has also been relied-upon for this purpose. It would appear that the essential point sought to be made by citing the said doctrines, is to say that since no reply was sent by the petitioners to the statutory notice, denying their role as directors, it can safely be presumed that the petitioners were also responsible for the dishonour of the cheques. 14. Lastly, on the strength of the decision of the Supreme Court in Kanti Bhadra Shah vs. State of West Bengal (2000) 1 SCC 722 at para 12, it is submitted that the learned Magistrate is not required to write detailed orders at the stage of issuing summons to an accused person. 15. Counsel for respondent No. 1 al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 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 which means serious consequences so far as the person sought to be made liable is concerned. Therefore, only persons who can be said to be connected with the commission of a crime at the relevant time have been subjected to action. 11. A reference to sub-section (2) of Section 141 fortifies the above reasoning because sub-section (2) envisages direct involvement of any director, manager, secretary or other officer of a company in the commission of an offence. This section operates when in a trial it is proved that the offence has been committed with the consent or connivance or is att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41 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) * * * * * (emphasis supplied) 17. Again, in Sabitha Ramamurthy vs. R.B.S. Channabasavaradhya (supra) the Supreme Court reiterated that to fasten vicarious liability upon a director for an offence committed by a company, requisite statements have to be made in the complaint and in the complainant s evidence, before the criminal process can be initiated against a director : 7. A bare perusal of the complaint pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue. 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. 15. Our attention, however, has been drawn to the averments made in paras 7 and 10 of the complaint petition, but on a perusal thereof, it would appear that therein merely allegations have been made that the cheques in question were presented before the bank and they have been dishonoured. Allegations to satisfy the requirements of Section 138 of the Act might have been made in the complaint petition but the same principally relate to the purported offence made by the company. With a view to make a Director of a company vicariously liable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t no offence is made out at all against the Director. * * * * * 34.1. Once in a complaint filed under Section 138 read with Section 141 of the NI Act the basic averment is made that the Director was in charge of and responsible for the conduct of the business of the company at the relevant time when the offence was committed , the Magistrate can issue process against such Director. 34.2. If a petition is filed under Section 482 of the Code for quashing of such a complaint by the Director, the High Court may, in the facts of a particular case, on an overall reading of the complaint, refuse to quash the complaint because the complaint contains the basic averment which is sufficient to make out a case against the Director. 34.3. In the facts of a given case, on an overall reading of the complaint, the High Court may, despite the presence of the basic averment, quash the complaint because of the absence of more particulars about the role of the Director in the complaint. It may do so having come across some unimpeachable, incontrovertible evidence which is beyond suspicion or doubt or totally acceptable circumstances which may clearly indicate that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of and responsible for the conduct of the 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. It would be a travesty of justice to drag Directors, who may not even be connected with the issuance of a cheque or dishonour thereof, such as Director (Personnel), Director (Human Resources Development) etc. into criminal proceedings under the NI Act, only because of their designation. 42. Liability depends on the role one plays in the affairs of a company and not on designation or status alone as held by this Court in S.M.S. Pharmaceuticals Ltd. (supra). The materials on record clearly show that these Appellants were independent, non-executive Directors of the company. As held by this Court in Pooja Ravinder Devidasani v. State of Maharashtra and Anr. (supra) a non-Executive Director is not involved in the day-to-day affairs of the company or in the running of its business. Such Director is in no way responsible for the day-to-day running of the Accused Company. Moreover, when a complaint is filed against a Director of the company, who is not the signatory of the dishonoured c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the enquiry while determining whether there is a prima facie sufficient ground for proceeding. In Mehmood UI Rehman v. Khazir Mohammad Tunda , this Court followed the dictum in Pepsi Foods Ltd. v. Special Judicial Magistrate, and observed that setting the criminal law in motion against a person is a serious matter. Hence, there must be an application of mind by the Magistrate to whether the allegations in the complaint together with the statements recorded or the enquiry conducted constitute a violation of law. The Court observed: 20. The extensive reference to the case law would clearly show that cognizance of an offence on complaint is taken for the purpose of issuing process to the accused. Since it is a process of taking judicial notice of certain facts which constitute an offence, there has to be application of mind as to whether the allegations in the complaint, when considered along with the statements recorded or the inquiry conducted thereon, would constitute violation of law so as to call a person to appear before the criminal court. It is not a mechanical process or matter of course. As held by this Court in Pepsi Foods Ltd. v. Judicial Magistrate [Pepsi F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e conditions in Section 141 of the NI Act have been fulfilled i.e., whether the individual was in-charge of and responsible for the affairs of the company during the commission of the offence. However, the determination of whether the conditions stipulated in Section 141 of the MMDR Act (sic, NI Act) have been fulfilled is a matter of trial. There are sufficient averments in the complaint to raise a prima facie case against them. It is only at the trial that they could take recourse to the proviso to Section 141 and not at the stage of issuance of process. (emphasis supplied) 25. For completeness, it may be recorded that counsel for the respondent No. 1 has also placed reliance upon the decision of Supreme Court in Col. B.S. Sarao (supra) to substantiate his contention that the stage for a director of a company to show that he was not associated with the company at all or that he had ceased to be a director at the time of commission of offence, would be available at the stage of leading his defence (cf. paras 15 and 16 of that judgment). But to be sure, in the same decision the Supreme Court has also observed that the stage for a director to lead his defence would arise (only) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these orders dated 08.03.2017 passed by the learned MM, Delhi that have been impugned by way of the present petitions before this court, which petitions were filed on 03.07.2017. Considering the manner in which the criminal complaints filed in the matter have been transferred to-and-from the court in Bangalore, the petitioners cannot be blamed for any undue delay in invoking the remedy under section 482 Cr.P.C. To address the other facet of the submission, viz. the existence of a statutory remedy by way of a criminal revision petition, though the complainant/respondent No. 1 is not wrong in arguing that ordinarily where there is a statutory remedy, the inherent powers of the High Court ought not to be lightly invoked or exercised, it is also the settled position of law that the existence of a statutory remedy does not legally bar the invocation of the inherent powers of the High Court under section 482 Cr.P.C. in an appropriate case. [Dhariwal Tobacco Products Ltd. vs. State of Maharashtra, (2009) 2 SCC 370 at paras 6 7]. The existence of a statutory remedy most certainly does not detract from the invocation and exercise of the inherent powers of the High Court under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g orders made by the Delhi court contain any reference, leave alone any discussion, as to any allegations against the petitioners or any of them. This is so evidently because there are no specific allegations spelt-out against the petitioners in the criminal complaints; 28.6 Since no allegations have been spelt-out against the petitioners in relation to the commission of the alleged offence, there is no question of the learned Magistrates having applied their mind, or having satisfied themselves that the petitioners had committed the offence even on a prima-facie basis; 28.7 In fact, as seen from the table set-out above, though some of the cheques were dishonoured for insufficiency of funds or for exceeding arrangement , some other cheques have been dishonoured for other reasons . The record does not reflect as to what these other reasons may have been. Even a cursory reading of section 138 of the NI Act would show that for an offence to be made-out under that provision a cheque must be returned unpaid by a bank either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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