2007 (4) TMI 621 - SC - Companies Law

Whether a person is incharge of and responsible for the conduct of the business of the Company, is to be adjudged during the trial on the basis of the materials to be placed on record by the parties? Held that - High Court has rightly come to the conclusion that it is not a fit case for exercise of jurisdiction under Section 482 of the Code of Criminal Procedure for quashing the complaint. In fact, an advertence to Sections 138 and 141 of the Negotiable Instruments Act shows that on the other elements of an offence under Section 138 being satisfied, the burden is on the Board of Directors or the Officers incharge of the affairs of the company to show that they are not liable to be convicted. Any restriction on their power or existence of any special circumstance that makes them not liable is something that is peculiarly within their knowledge and it is for them to establish at the trial such a restriction or to show that at the relevant time they were not incharge of the affairs of the company. Reading the complaint as a whole, we are satisfied that it is a case where the contentions sought to be raised by the appellant can only be dealt with after the conclusion of the trial. Appeal dismissed.

Issues Involved:
1. Whether the complaint under Section 138 of the Negotiable Instruments Act against the appellant contains sufficient averments to justify the initiation of prosecution.
2. Whether the High Court was justified in refusing to quash the complaint under Section 482 of the Code of Criminal Procedure.

Detailed Analysis:

Issue 1: Sufficiency of Averments in the Complaint
The primary issue was whether the complaint filed by B.S.N.L. against the appellant contained adequate averments to justify the initiation of prosecution under Section 138 of the Negotiable Instruments Act. The complaint alleged that the cheques issued by Data Access (India) Limited were dishonored due to insufficient funds. The appellant, along with another director, was accused of being in charge of and responsible for the conduct of the business of the company at the time the offence was committed. The appellant contended that he was merely an Honorary Chairman without any financial responsibilities and had resigned before the cheques were issued. The Supreme Court referred to the decision in S.M.S. Pharmaceuticals Ltd. Vs. Neeta Bhalla, which emphasized that for a person to be held vicariously liable under Section 141, it must be specifically averred in the complaint that the person was in charge of and responsible for the conduct of the business of the company at the relevant time.

The Court found that the complaint did contain such specific averments, stating that the appellant was a director and in charge of the company's affairs when the cheques were issued. The Court noted that the appellant's defense that he was not in charge due to his honorary position and resignation was a matter to be established at trial, not at the stage of quashing the complaint.

Issue 2: High Court's Refusal to Quash the Complaint
The appellant sought to quash the complaint under Section 482 of the Code of Criminal Procedure, arguing that the complaint did not disclose sufficient material for proceeding against him. The High Court had dismissed this application, stating that the sufficiency of the complaint's allegations was a matter to be decided at trial. The Supreme Court affirmed this view, stating that the complaint disclosed adequate material for initiating proceedings against the appellant. The Court highlighted that under Sections 138 and 141 of the Negotiable Instruments Act, once the basic ingredients of the offence are satisfied, the burden shifts to the accused to prove any special circumstances or restrictions on their liability.

The Court emphasized that the purpose of Sections 138 and 141 is to ensure the credibility of commercial transactions and prevent the dishonor of cheques. It was noted that the complaint clearly alleged that the appellant was in charge of and responsible for the conduct of the business of the company at the relevant time. The Court rejected the appellant's argument that the complaint was insufficient and reiterated that such defenses could only be considered after the trial.

Conclusion
The Supreme Court concluded that the High Court was correct in refusing to quash the complaint under Section 482 of the Code of Criminal Procedure. The complaint contained sufficient averments to justify the initiation of prosecution against the appellant under Section 138 of the Negotiable Instruments Act. The appeal was dismissed, and the case was to be tried and disposed of in accordance with the law based on the evidence presented.

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