2017 (4) TMI 192 - HC - Indian Laws

Offence u/s 138 of the Negotiable Instruments Act - will it be necessary to specifically state in the complaint that the person accused was in-charge of and responsible for the conduct of the business of the Company? - Held that - It is evident that 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 our opinion, 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, I may add that as no particular form is prescribed, it may not be necessary to reproduce exact the words of the section. If reading of the complaint shows and substance of accusation discloses the 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 the issuance of cheque. Section 141 of the Act makes the Directors incharge 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. Thus, although in the complaint in question, there is no specific averment in so many words that the accused herein at the time of the commission of the offence, was incharge of and responsible for the conduct of the business of the company, yet reading the other averments, it can safely be said that the accused had played some role indicating his involvement in the daytoday affairs and management of the company. The substance of the accusations discloses prima facie that the applicant herein was incharge of and responsible for the conduct of the business of the company at the relevant point of time.

Summary

Issues Involved:
1. Invocation of inherent powers under Section 482 of the Code of Criminal Procedure, 1973.
2. Quashing of proceedings under Section 138 of the Negotiable Instruments Act.
3. Vicarious liability of Directors under Section 141 of the Negotiable Instruments Act.

Issue-wise Detailed Analysis:

1. Invocation of inherent powers under Section 482 of the Code of Criminal Procedure, 1973:
The applicants sought to invoke the inherent powers of the High Court under Section 482 of the Code of Criminal Procedure, 1973, to quash the proceedings of Criminal Case No.5311 of 2013 pending in the Court of the learned Judicial Magistrate First Class, Vadodara. The complaint was lodged under Section 138 of the Negotiable Instruments Act for dishonour of a cheque due to "insufficient funds."

2. Quashing of proceedings under Section 138 of the Negotiable Instruments Act:
The complainant, a proprietor of 'Vaibhav Engineering Works,' alleged that the accused company and its officials failed to pay the outstanding dues despite issuing a cheque for ?25,00,000, which was dishonoured. The applicants argued that the complaint lacked specific averments indicating that the Director (applicant No.2) was in charge of and responsible for the conduct of the business of the company at the time of the offence. They relied on the Supreme Court's decision in Gunmala Sales Private Limited vs. Anu Mehta and others [2015 Cri. L.J. 285], which necessitates specific averments to fasten vicarious liability under Section 141 of the N.I. Act.

3. Vicarious liability of Directors under Section 141 of the Negotiable Instruments Act:
The complainant contended that the complaint had sufficient averments to show the involvement of the applicant in the business and affairs of the company. The learned counsel for the complainant argued that a Director could not get the complaint quashed merely on the ground of lack of specific particulars in the complaint about his role, as the basic averments would be sufficient to send him to trial. The court referred to various Supreme Court judgments, including Standard Chartered Bank vs. State of Maharashtra and others [(2016) 6 SCC 62], which emphasized that the complaint must disclose the necessary facts to make a person liable under Section 141.

The court noted that the complaint contained specific averments regarding the role of the applicant in the work contract assigned to the complainant. The applicant, being a Director and the son of the Chairman, was not a complete alien to the company. The court concluded that the substance of the accusations disclosed prima facie that the applicant was in charge of and responsible for the conduct of the business of the company at the relevant time.

Conclusion:
The application to quash the proceedings was rejected, and the rule was discharged. The court held that the complaint disclosed sufficient material to proceed against the applicant under Section 141 of the N.I. Act, and the observations of the Supreme Court in Gunmala Sales Private Ltd. (supra) would come into play. The ad-interim order granted earlier was vacated.