2013 (10) TMI 895 - SC - Companies Law

Dishonour of cheque - prosecution of two directors - offence under Section 138 of the Negotiable Instruments Act - High Court quashed applications for quashing the entire prosecution including the order under Section 482 of the Code of Criminal Procedure - Held that - it is difficult to infer that there is any averment that these two accused were in-charge of and responsible for the conduct of the business of the company at the time the offence was committed. The allegations in the complaints in sum and substance mean that business and financial affairs of the company used to be decided, organized and administered by accused Nos. 2 to 6 and while doing so, other Directors including the two accused herein were consulted. The inference drawn by the complainant on that basis that these two accused, therefore, are in- charge and responsible to the company for the conduct of its business, is absolutely misconceived. We are, therefore, of the opinion that essential averment in the complaints is lacking - every person who at the time the offence was committed is in charge of and responsible to the Company shall be deemed to be guilty of the offence under Section 138 of the Act. In the case of offence by Company, to bring its Directors within the mischief of Section 138 of the Act, it shall be necessary to allege that they were in charge of and responsible to the conduct of the business of the Company. It is necessary ingredient which would be sufficient to proceed against such Directors. However, we may add that as no particular form is prescribed, it may not be necessary to reproduce the words of the section. If reading of the complaint shows and substance of accusation discloses necessary averments, that would be sufficient to proceed against such of the Directors and no particular form is necessary. However, it may not be necessary to allege and prove that, in fact, such of the Directors have any specific role in respect of the transaction leading to issuance of cheque. Section 141 of the Act makes the Directors in charge and responsible to Company for the conduct of the business of the Company within the mischief of Section 138 of the Act and not particular business for which the cheque was issued. There is no averment that the two accused herein were in charge of and responsible for the conduct of the business of the company at the time the offence was committed. Hence, there is no essential averment in the complaints. In view of what we have observed above, the prosecution of accused A.K. Singhania and accused Vikram Prakash cannot be allowed to continue. Accordingly, the order of the High Court quashing the prosecution of the accused Vikram Prakash is not fit to be interfered with. For the same reason the order passed by the High Court declining the prayer of A.K. Singhania for quashing of the prosecution cannot be sustained and the appeals preferred by him deserve to be allowed - Decided in favour of appellant.

Summary

Issues Involved:
1. Whether the allegations against A.K. Singhania and Vikram Prakash are sufficient to hold them vicariously liable under Section 138 of the Negotiable Instruments Act.
2. Whether the High Court's decision to quash the prosecution of Vikram Prakash was justified.
3. Whether the High Court erred in declining the prayer of A.K. Singhania for quashing the prosecution.

Issue-wise Detailed Analysis:

1. Sufficiency of Allegations Against A.K. Singhania and Vikram Prakash:
The primary issue is whether the complaints contain necessary averments to hold A.K. Singhania and Vikram Prakash liable under Section 138 of the Negotiable Instruments Act. The complaints alleged that all business and financial affairs of the accused company were decided, organized, and administered by certain directors, including A.K. Singhania and Vikram Prakash. However, the Supreme Court found that the complaints did not specifically state that these two accused were in charge of and responsible for the conduct of the business of the company at the time the offence was committed. The Court emphasized that such an averment is essential under Section 141 of the Act to proceed against the directors.

2. Justification of High Court's Decision to Quash Vikram Prakash's Prosecution:
The High Court quashed the prosecution of Vikram Prakash, noting that there were only general allegations against him without specific averments regarding his responsibility for the transaction leading to the issuance of the cheques. The Supreme Court upheld this decision, agreeing that the complaints lacked the necessary averments to hold Vikram Prakash vicariously liable. The Court reiterated that for fastening criminal liability, it is essential to allege that the accused was in charge of and responsible for the conduct of the business at the time of the offence.

3. High Court's Decision on A.K. Singhania's Prayer for Quashing the Prosecution:
The High Court dismissed A.K. Singhania's applications for quashing the prosecution, stating that the complaints sufficiently averred his responsibility in the company's business affairs. However, the Supreme Court found this reasoning flawed, as the complaints did not specifically state that A.K. Singhania was in charge of and responsible for the conduct of the business at the time the offence was committed. The Court concluded that the essential averment was lacking, and thus, the prosecution against A.K. Singhania could not be sustained.

Conclusion:
The Supreme Court dismissed the appeals filed by Gujarat State Fertilizer Company Ltd. and allowed the appeals preferred by A.K. Singhania, quashing his prosecution in all related cases. The Court emphasized the necessity of specific averments in complaints to hold directors vicariously liable under Section 138 of the Negotiable Instruments Act.