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TMI Blog1985 (10) TMI 249X X X X Extracts X X X X X X X X Extracts X X X X ..... wheat products. As per the complaint, accused persons Nos. 1 to 7 claim to deal in manufacturing and allied business as revealed by the memorandum and articles of the company. They established a flour mill with the name and style Rachana Flour Mills (Company) at Pattencheru. On October 2, 1984, the complainant received an order from A-9, a commission agent of A-1 to A-8, for the delivery of certain quantity of wheat and the said agent informed that A-1 to A-7 are leading businessmen of India. The commission agent (A-9) also represented that the amount shall be paid as per business convention. A-9 also introduced A-2 as the director of the company and as the person who will be responsible for payments. It is further stated that A-2 also represented that they have a wide network of activities throughout South India and the company has many manufacturing units in Andhra Pradesh. He also represented that the amounts, whatever due, shall be paid on delivery of the goods at the site of the company. A-2 also represented that he himself will be responsible for the business transaction and payments, and delivered a copy of the memorandum of the company. Believing in the representation which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd even assuming it is a criminal liability, the petitioners herein cannot be criminally prosecuted as they were not the persons who either made any explicit representation or the parties directly connected with the alleged transaction and, therefore, no vicarious liability can be established. Thirdly, the drawal of the cheques and the return of the same being dishonoured cannot be said to give rise to the criminal liability under the provisions of the Negotiable Instruments Act, 1881. The converse case of the respondent-complainant is that at the time when the transaction was entered into, A-2 has given a copy of the memorandum and articles of association of the company wherein the names of the accused have been mentioned as directors and, therefore, believing the same and also believing the representation made by A-2, the goods were supplied. Therefore, the misrepresentation, though made only by the second accused, also must be held to be by all the accused persons. Secondly, they are, as per the well-settled decisions, vicariously liable for the acts of the company and for the acts of their agent. Thirdly, the allegation of conspiracy also has been made to the effect that all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rally liable thereon, and to some one of several parties whom he seeks to make jointly liable thereon. Nothing in this section renders it necessary to give notice to the maker of the dishonoured promissory note or the drawee or acceptor of the dishonoured bill of exchange or cheque". "94. Notice of dishonour may be given to a duly authorised agent of the person to whom it is required to be given, or, where he has died, to his legal representative, or, where he has been declared an insolvent, to his assignee; may be oral or written; may, if written, be sent by post; and may be in any form; but it must inform the party to whom it is given, either in express terms or by reasonable intendment, that the instrument has been dishonoured, and in what way, and that he will be held liable thereon; and it must be given within a reasonable time after dishonour, at the place of business or (in case such party has no place of business) at the residence of the party for whom it is intended. If the notice is duly directed and sent by post and miscarries, such miscarriage does not render the notice invalid". On reading the above provisions in combination, what becomes apparent is that a che ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dents Nos. 1 to 5 committed any offence. The main clause of the complaint which was the subject-matter of the dispute contained (at page 70): "That accused No. 3 is the manager of accused No. 2 and accused Nos. 4 to 7 are the directors of accused No. 2 and, as such, they were in charge of and responsible for the conduct of business of accused No. 2 at the time of sampling". While dealing with the situation, the Supreme Court, after referring to the observations of the Supreme Court made in Dr. Sharda Prasad Sinha v. State of Bihar, AIR 1977 SC 1754: "It is now settled law that where the allegations set out in the complaint or the charge-sheet do not constitute any offence, it is competent to the High Court exercising its inherent jurisdiction under section 482 of the Code of Criminal Procedure to quash the order passed by the Magistrate taking cognizance of the offence " held (at page 70): "It is therefore, manifestly clear that proceedings against an accused in the initial stages can be quashed only if on the face of the complaint or on the papers accompanying the same, no offence is constituted. In other words, the test is that taking the allegations and the complai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -10 to A-13, who are directors of the company and residents of Calcutta, cannot be said to be in possession of the railway property in question at Visakhapatnam. Therefore, that section has no application... Admittedly, an individual director is not the owner or occupier of the land or building. It is the A. K. Corporation that is the owner or occupier of the land. It is not also the case of the prosecution that these non-resident directors are agents of the company in charge of the management of the land or building. It is not also. their case that they have willfully connived at the offence against the provisions of the Act. The only allegation in the complaint against them is that the company had received huge profits and they are sharing them. According to the complaint, it is A-7 who is the whole time director of the company, residing at Visakhapatnam and A-8 is the manager of the company, residing at Visakhapatnam. In these circumstances, I find it difficult to hold that A-10 to A-13, the non-resident directors of the company, are liable under sections 3 and 4 of the Act" In P. Eswara Reddy v. State of A. P. [1985] 3 APLJ 43, the facts in brief are that the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the absence of any evidence to show that the accused has made any representation that he had sufficient cash in the bank to cover the cheque at that point of time, or that he had definite knowledge that the amount to his credit would not be sufficient to cover the cheque from mere drawing of the cheque, the element of deception cannot be inferred". The converse position is, as stated by Lord Denning J. in a case, H. L. Bolton ( Engineering ) Co. Ltd. v. T. J. Graham and Sons Ltd. [1956] 3 All ER 624, 630 (CA): "A company may in many ways be likened to a human body. They have a brain and a nerve centre which controls what they do. They also have hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of the company, and control what they do. The state of mind of these managers is the state of mind of the company and is treated by the law as such. So you will find that in cases where the law requires personal faul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er lays down that every person in charge of the company at the relevant time will also be liable. Therefore, section 33(1) does not present any difficulty. The argument which is rather highly technical, is based on the contents of the sanction order. As a matter of fact in the sanction order it is clearly mentioned that the company represented by its managing director shall be prosecuted. Now, if we examine section 33(1) carefully, it becomes clear that when once it is proved that the company has committed the offence, then every person who was in charge of the company, as well as the company shall be deemed to be guilty of the offence committed by the company. Therefore, the conviction of A-3 and A-4 cannot be said to be in any manner incorrect. The learned Sessions Judge, however, relied much on section 33(2) which deals with a different situation. Section 33(2) lays down that where an offence under the Act has been committed by a company and it is proved further that the offence has been committed with the consent or connivance of or is attributable to any neglect on the part of any director or manager or secretary, etc ., then such a director, manager, secretary, etc ., shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not disclose the essential ingredients of an offence which is alleged against the accused; (2)where the allegations made in the complaint are palpably absurd and inherently improbable, so that no prudent person can ever reach a conclusion that there is sufficient ground for proceeding against the accused; (3)where the discretion exercised by the Magistrate in issuing process is capricious and arbitrary having been based either on no evidence or on materials which are wholly irrelevant or inadmissible; and (4)where the complaint suffers from fundamental legal defects, such as, want of sanction, or absence of a complaint by a legally competent authority and the like" held: "We now come to the question as to whether or not a clear allegation of entrustment and misappropriation of properties was made by the appellant in her complaint and, if so, was the High Court justified in quashing the complaint at that stage. It is well settled by a long course of decisions of this court that for the purpose of exercising its power under section 482, Criminal Procedure Code, to quash a FIR or a complaint, the High Court would have to proceed entirely on the basis of the allegations m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranting the fullest possible protection of criminal law to persons exposed to the action of the many powerful associations which surround them' ". And then further held (at page 200): "I do not mean or intend to suggest that in every case where an agent of a limited company acting in its business commits a crime, the company is automatically to be held criminally responsible. As adumbrated, a company cannot be indictable for offences like bigamy, perjury, rape, etc ., which can only be committed by a human individual or for offences punishable with imprisonment or corporal punishments. Barring these exceptions, a corporate body ought to be indictable for criminal acts or omissions of its directors, or authorised agents or servants, whether they involve mens rea or not, provided they have acted or have purported to act under authority of the corporate body or in pursuance of the aims or objects of the corporate body. The question whether a corporate body should or should not be liable for criminal action resulting from the acts of some individuals must depend on the nature of the offence disclosed by the allegations in the complaint or in the charge sheet, the relative position ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vis-a-vis the corporate body and other relevant facts and cir cumstances which could show that the corporate body, as such, meant or intended to commit that act. (6)A manager or even a director of a company, if it is shown that a particular act is committed by him or even if a reasonable inference can be drawn, could be held to be vicariously liable. (7)Under section 17 of the Prevention of Food Adulteration Act, 1954, a company has been made primarily liable but to make other per sons vicariously liable, it has to be shown that such persons were in charge of or were responsible to the company for the conduct of its day-to-day business. In the absence of any mention in the petition of complaint as to how the accused persons were concerned in the carrying on of the day- to-day business of the company, process could not be issued against them and the proceedings initiated are liable to be quashed under section 482 of the Code of Criminal Procedure. (8)The court will be justified in quashing the proceedings in exercise of its powers under section 482, Code of Criminal Procedure, if on the allegations and the complaint as they are without adding or subtracting anything, no offe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1985] 3 APLJ 43 and M. M. S. T. Chidambaram Chetiiar v. Shanmugham Pillai, AIR 1938 Mad 129), unless it is established that A-2 represented to the payee that he had adequate funds in the bank and also had an intention to cheat or fraud the payee. Since these ingredients have not been even prima facie made out in the complaint, it cannot be held that A-2 and much less the company who is the first petitioner herein could be held to be criminally liable. This apart, it has been specifically averred in the criminal miscellaneous petition that the original subscribing directors were the following: 1Balwant Roy 2Rajiv Roy 3Susil Kumar 4Eswar Agarwal 5Ravinder Agarwal (A-2) It has also been further stated in the petition that the second petitioner, who is A-3, is a director stationed at Madras, and not connected in any way with the day-to-day affairs of the company. The fifth petitioner (A-6) has resigned from the board of directors last month. The fourth petitioner (A-5) was a director till 1980 and, therefore, she had no connection whatsoever with the company. The third petitioner (A-4) ceased to be a director from the year 1982. The sixth petitioner (A-7) is an ini ..... X X X X Extracts X X X X X X X X Extracts X X X X
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