2006 (12) TMI 239 - HC - Companies Law

Challenging summoning orders by certain directors/partners - Dishonour of cheque - complaints u/s 138 and 142 of the Negotiable Instruments Act 1881 ( NI Act ) - Liability cast on persons who may have something to do with the transaction complained of u/s 141 - HELD THAT - In view of the judgment of the Supreme Court in Adalat Prasad s case 2004 (8) TMI 647 - SUPREME COURT after summoning orders are passed by the trial court it has no power to recall the same and in that case the remedy available to the aggrieved party is to approach the High Court alone by filing petition u/s 482 of the CrPC. Because of this position in law the responsibility of the Magistrates to carefully examine the complaint and the pre-summoning evidence before issuing the summons becomes paramount. It is observed that not only the summons are issued against all those who are impleaded as directors where the prime accused is the company even when there are no averments thereagainst sometimes even without taking care as to whether other ingredients under sections 138 142 of the NI Act are prima facie satisfied or not. Summoning an accused in a criminal case is not an empty formality. The court issuing process u/s 204 of the Cr.PC has to be satisfied on the basis of complaint document and other material on record that there are sufficient grounds for proceeding against him (See Charanjit Singh v. D. B. Merchang Banking Services Ltd. 2001 (3) TMI 1061 - DELHI HIGH COURT . In a criminal case it is for the complainant to allege and make out all the ingredients of the offence before calling upon the court to proceed against an accused. Only those presumptions which are permissible under the law are permitted to be raised against an accused. All other facts are required to be established by the complainant/prosecution. Summoning of an accused in a criminal case is a serious matter. Criminal law cannot be set into motion as a matter of course. It is not that the complainant has to bring only two witnesses to support his allegations in the complaint to have the criminal law set in motion. The Magistrate has to carefully scrutinize the evidence brought on record and may even himself put questions to the complainant and his witnesses to elicit answers in order to find out the truthfulness of the allegations or otherwise and then examine if any offence is prima facie committed by all or any of the accused. See Pepsi Foods Ltd. v. S. J. Magistrate 1997 (11) TMI 518 - SUPREME COURT . No doubt the Magistrate can discharge the accused at any stage of the trial if he considers the charge to be groundless but the accused is entitled to approach the High Court u/s 482 of the CrPC or article 227 of the Constitution to have the proceeding quashed against him when the complaint does not make out any case against him instead of having to undergo the agony of a criminal trial. After discussing the legal position and analysing the principles which have evolved let me now deal with each case at hand. In this petition specific averment is made by the petitioner that he was neither a director of the company nor at all incharge of the company nor involved in day-to-day running of the company at the time of commission of the alleged offence in February and March 1999 when the cheques were dishonoured. What is stated is that the petitioner had resigned from the company on 4-2-1998 and copy of Form 32 was also submitted with the Registrar of Companies. Certified copy of Form 32 issued by the office of the Registrar of Companies is enclosed as per which the petitioner resigned with effect from 4-2-1998. Cheques in question are dated 31-12-1998 which were issued much after the resignation of the petitioner as the director and were dishonoured subsequently and notice of demand is also dated 8-2-1999 on which date the petitioner was not the director as certified copy of Form 32 obtained from the Registrar of Companies is filed indicating that the resignation was also intimated on 26-2-1998 which can be acted upon in view of judgment of this Court in Saria Kumar (Dr.) s case (supra). The summoning order qua the petitioner is liable to be quashed. It is accordingly quashed and the complaint qua him is dismissed. Petitions are disposed of.

Issues Involved:
1. Quashing of summoning orders against directors/partners under Sections 138 and 142 of the Negotiable Instruments Act, 1881.
2. Legal implications of resignation from directorship before the dishonour of cheques.
3. Requirements for specific allegations in complaints under Section 141 of the NI Act.
4. Legal standards for vicarious liability of directors/partners.
5. Examination of material and allegations by the trial court before issuing summoning orders.

Issue-wise Detailed Analysis:

1. Quashing of Summoning Orders Against Directors/Partners:
The judgment addresses multiple petitions filed under Section 482 of the Cr.PC seeking quashing of summoning orders issued against directors/partners of companies/firms for offences under Sections 138 and 142 of the NI Act due to cheque dishonour. The common plea is that the petitioners either ceased to be directors/partners before the cheque dishonour or were not responsible for the business conduct.

2. Legal Implications of Resignation from Directorship:
Petitioners argued they resigned before the cheque dishonour, thus should not be held liable. The court noted that the date of resignation and the submission of Form 32 to the Registrar of Companies (RoC) are crucial. If Form 32 is submitted after cheque dishonour, it becomes a disputed fact to be resolved during the trial. For instance, in Crl. MC No. 3514-15/2005, the petitioners claimed resignation on 20-9-2000, but Form 32 was submitted on 14-11-2000, post-dishonour. The court held that such disputes require trial evidence.

3. Requirements for Specific Allegations in Complaints Under Section 141 of the NI Act:
The court emphasized that mere bald allegations that directors/partners were responsible for the company's business conduct are insufficient. Specific roles and responsibilities must be detailed in the complaint. This principle was reiterated in several cases, including SMS Pharmaceuticals Ltd. v. Neeta Bhalla, where the Supreme Court mandated clear averments to establish vicarious liability. For example, in Crl. MC No. 3514-15/2005, the court quashed the complaint against petitioners due to lack of specific allegations.

4. Legal Standards for Vicarious Liability of Directors/Partners:
Section 141 of the NI Act extends liability to every person in charge of and responsible for the company's business at the time of the offence. The court clarified that directors, managers, and officers can be held liable if the offence was committed with their consent, connivance, or due to their neglect. The judgment in SMS Pharmaceuticals Ltd. v. Neeta Bhalla was pivotal in setting this standard. The court also noted that the initial burden is on the complainant to show the accused's responsibility.

5. Examination of Material and Allegations by the Trial Court Before Issuing Summoning Orders:
The court stressed the trial court's duty to scrutinize the complaint and supporting material cautiously before issuing summoning orders. Summoning an accused is not an empty formality and requires the court to be satisfied that there are sufficient grounds for proceeding. The judgment referred to several cases where summoning orders were quashed due to the trial court's failure to apply this standard, such as in Crl. MC No. 4257/2000.

Conclusion:
The judgment meticulously analyzed the legal principles governing the vicarious liability of directors/partners under the NI Act. It underscored the necessity for specific allegations in complaints and the trial court's responsibility to scrutinize such complaints before issuing summoning orders. The court quashed summoning orders in several cases where these legal standards were not met, thereby providing a clear framework for future cases involving similar issues.

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