2004 (1) TMI 724 - HC - Companies Law

Summary

Issues Involved:
1. Quashing of process issued to directors and officers under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) and Sections 420 and 114 of the Indian Penal Code (IPC).
2. Territorial jurisdiction of the trial court.
3. Allegations of mala fide intent and fraudulent inducement.
4. Distinction between whole-time directors and non-executive directors.
5. Legal sufficiency of allegations in the complaint.
6. Repetitive and dilatory proceedings by the petitioners.

Detailed Analysis:

1. Quashing of Process Issued to Directors and Officers:
The petitioners, including directors and officers of the accused company, sought quashing of the process issued under Section 138 of the NI Act and Sections 420 and 114 of the IPC. The court noted that the complaints contained necessary averments to make out a prima facie case for the alleged offenses. The court emphasized that the law under Section 138 of the NI Act was enacted to impose strict liability for dishonored cheques, and the directors and officers could be implicated irrespective of their direct involvement in issuing or delivering the cheques. The court rejected the argument that non-executive directors could not be held liable merely for being directors, citing the statutory scheme of Section 141 of the NI Act, which covers a broader spectrum of persons involved in the company.

2. Territorial Jurisdiction of the Trial Court:
The petitioners challenged the territorial jurisdiction of the trial court, arguing that the cheques were drawn on a bank in Mumbai and were dishonored there. The court, referring to the Supreme Court's judgment in K. Bhaskaran v. Sankaran Vidhyan Balan, held that the complainant could choose any court within whose jurisdiction any of the five acts constituting the offense occurred. Since the goods were supplied at Vadodara and the payment was due there, the court at Vadodara had jurisdiction.

3. Allegations of Mala Fide Intent and Fraudulent Inducement:
The court found clear allegations in the complaint suggesting knowledge and consent of the petitioners as directors in purchasing large stocks of raw materials and issuing cheques without arranging for their payment. The court noted that prima facie, it would be difficult to assume that cheques exceeding Rs. 5 crores could have been issued without the knowledge or connivance of the board of directors. The allegations indicated larger offenses of cheating, which would be examined based on evidence at trial.

4. Distinction Between Whole-Time Directors and Non-Executive Directors:
The petitioners argued that non-executive directors who were not involved in the day-to-day affairs of the company could not be implicated. The court rejected this argument, stating that at the stage of investigation or initiation of trial, a strict and hyper-technical approach was not warranted. The court emphasized that the statutory scheme under Section 141 of the NI Act implicates persons in charge of and responsible for the conduct of the company's business, irrespective of their direct involvement in the acts constituting the offense.

5. Legal Sufficiency of Allegations in the Complaint:
The court held that the complaints contained sufficient factual foundation to make out the alleged offenses. It was not necessary for the complainant to reproduce all the ingredients of the offense verbatim in the complaint. The court emphasized that at the stage of issuing process, the magistrate is primarily concerned with the allegations made in the complaint and the evidence led in support of the same.

6. Repetitive and Dilatory Proceedings by the Petitioners:
The court noted that the petitioners had engaged in repetitive and dilatory proceedings, causing inordinate delay and unnecessary expenses for the complainant. The court rejected the petitions and applications, ordering each petitioner to pay Rs. 5000/- as costs to the original complainant. The court directed the trial court to proceed with the original criminal cases expeditiously.

Conclusion:
The court rejected the petitions and applications seeking quashing of the process issued under Section 138 of the NI Act and Sections 420 and 114 of the IPC. The court upheld the territorial jurisdiction of the trial court at Vadodara and emphasized the legal sufficiency of the allegations in the complaint. The court also highlighted the broader statutory scheme under Section 141 of the NI Act, implicating directors and officers irrespective of their direct involvement in the acts constituting the offense. The court imposed costs on the petitioners for engaging in repetitive and dilatory proceedings.