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TMI Blog1999 (6) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... 1120 of 1996. The learned Chief Judicial Magistrate, after verification of the complaint, passed an order issuing process against the accused under section 138 of the Negotiable Instruments Act, 1881, by his order dated July 16, Thereafter, it appears that the accused failed to appear in response to the summons. On September 11,1996, non-bailable warrants came to be issued against accused Nos. 3 to 9 who were directors of the petitioner- company. This issuance of process came to be challenged before this court, vide Criminal Application No. 1227 of 1996. By the order dated January 14, this court recorded that the petitioners/accused having already moved an application before the learned magistrate to recall the process, it ordered that the learned magistrate would consider the said application and decide the same with reasonable expediency after hearing both the sides and also made certain observations and, therefore, the petitioners did not press for reliefs based on various contentions raised before this court, which came to be disposed of accordingly. The learned Ninth Joint Judicial Magistrate, First Class, Akola, heard counsel appearing for the petitioner-company, accused ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent-company. The next contention is that with a view to pressurize the petitioner-company and its directors, the respondent-company has deliberately joined all the non-working and sleeping directors as accused persons, though they had no control over the day-to-day administration of the petitioner-company or over the working of the company, and further the complaint fails to disclose any liability on the part of any of the accused persons by which the cheque came to be issued and, therefore, the learned Chief Judicial Magistrate, without any application of mind, mechanically issued process against all the accused persons on July 16, 1996. It is contended that though summonses were not served against accused Nos. 3 to 9, the learned Chief Judicial Magistrate issued non-bailable warrants against all the accused persons, including accused Nos. 3 to 9, who were not even served, and it is under these circumstances, that the petitioners are approaching this court by invoking its extraordinary writ jurisdiction to quash and set aside the process issued against the petitioners. It is submitted on behalf of the petitioners that the learned magistrate has erred in issuing process agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced before the learned magistrate, the learned magistrate gravely erred in law in not recalling the order of process against the sleeping and non-working directors. It is further contended that the only endorsement made by the bankers was "referred to drawer" and, therefore, it would not attract the provisions of section 138 of the Negotiable Instruments Act, 1881, which require that unless the cheque is rejected either for want of funds in the account or for the reason that it exceeds arrangement, no offence under section 138 of the Negotiable Instruments Act, 1881, is committed and the learned Chief Judicial Magistrate ought to have taken this into consideration before issuing the process. It is, therefore, submitted that the complaint filed by the respondent is false, frivolous and fabricated and is filed only with a motive to extract money from the petitioner-company which is neither due nor payable to the respondent, and that the complainant having received the entire amount on December 26, 1996, itself along with interest, clearly demonstrates that the complaint is an abuse of the process of the law and should be quashed. In the course of hearing, Mr. Sunil Manohar, learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is sufficient material to prima facie show the involvement of the accused persons, the magistrate has no option but to dismiss the complaint on the basis that there is no sufficient ground for proceeding. Mr. Manohar cited the case of Municipal Corporation of Delhi v. Ram Kishan Rohtagi, AIR 1983 SC 67, in which the Supreme Court held that the complaint was filed against the company, its directors and the manager. So far as the directors are concerned, there is not even a whisper nor a shred of evidence nor anything to show, apart from the presumption drawn by the complainant, that there is any act committed by the directors from which a reasonable inference can be drawn that they could also be vicariously liable. In these circumstances, therefore, it can be said that no case against the directors has been made out ex facie on the allegations made in the complaint and the proceedings against them were rightly quashed by the High Court. The Supreme Court further held that the manager of the company is directly in charge of its affairs, could not fall in the same category as the directors. It could not be reasonably argued that no case is made out against the manager ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness. In the said case, the Supreme Court found from the complaint in question that except a bald statement that the respondents were directors of the manufacturers, there is no other allegation to indicate, even prima facie, that they were in charge of the company and also responsible to the company for the conduct of its business and quashed the prosecution against the respondent directors on this ground. In the case of one of the accused, namely, B.N. Antia, it was submitted that he is senior solicitor and advocate of Bombay and is a partner/solicitor in Mulla and Mulla and Craigie, Blunt and Caroe Limited, a very leading solicitor firm in Bombay and is appointed director by virtue of being legal advisor and has no concern with the day-to-day administration of the activities of the company nor has he exercised any control over the company and, therefore, the court ought to have recalled the process against him. Mr. Manohar submitted that the Delhi High Court in the case of Om Parkash Khaitan v . Shree Keshariya Investment Ltd. [1978] 48 Comp Cas 85 considering the case of the petitioner who was the solicitor granted him relief under section 633 of the Companies Act. By ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no allegation made against them, proceedings against them may be quashed and they be discharged. Mr. Manohar submitted that in the case of N.A. Palkhivala v. Madhya Pradesh Pradushan Niwaran Mandal [1990] Crl. LJ 1856 (MP), the court was considering a similar provision under section 10 of the Air (Prevention and Control of Pollution) Act, 1981, and held that the complaint did not contain any allegations from which it could be reasonably inferred that the chairman and deputy chairman were directly in charge of and responsible for the conduct of the business of the company and quashed the proceedings pending before the magistrate against the petitioner. Similar was the view taken by the Delhi High Court in Mahendra Pratap Singh Ratra v. N.K. Metals [1998] Crl. LJ 1383; [1999] 97 Comp Cas 152 (Delhi). Another case cited by Mr. Manohar is of R. Banerjee v. H.D. Dubey [1992] 75 Comp Cas 722; [1992] Crl. LJ 1523 (SC), wherein the court held that unless a case is made out, prosecution of directors is unjustified which was in reference to section 17 of the Prevention of Food Adulteration Act (37 of 1954). Therefore, Mr. Manohar submitted that considering the legal position ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nduct of its business, as well as the company, and non-payment of the said amount is attributable to and by negligence on the part of accused Nos. 2 to 10 and, hence, all the accused are liable to be prosecuted for having committed an offence under section 138 of the Negotiable Instruments Act. It is submitted that even in the verification statement recorded by the learned magistrate, this fact has been mentioned and, therefore, in the circumstances, issuance of process against the petitioner-company and its directors is justified. Mr. Dharmadhikari submitted that the learned magistrate has considered the applications filed by the petitioners for recalling of process and rightly rejected the same. It is submitted that the scope of enquiry under section 202 of the Code of Criminal Procedure is extremely limited-limited only to the ascertainment of the truth or falsehood of the allegations made in the complaint ( i ) on the material placed by the complainant before the court ; ( ii ) for the limited purpose of finding whether a prima facie case for issue of process has been made out; and ( iii ) for deciding the question purely from the point of view of the complainant, without a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns in charge and responsible to the company for the conduct of its business are liable to be prosecuted and they can escape from their liability only if they prove that the offence was committed without their knowledge or that they had exercised all due diligence to prevent the commission of such an offence. It is submitted that in the said case, the court held that it is sufficient if the persons in charge of and responsible to the company for the conduct of its business, or the persons, with whose consent or connivance or due to any neglect on their part, the offence had been committed, that prosecution proceedings are maintainable against them, irrespective of whether the company is prosecuted or not. Further, it is also not necessary that there should be specific averment in the complaint as to the persons responsible to and in charge of the company, as the same is not material for the prosecution of such persons as described in section 141 of the Negotiable Instruments Act. On the other hand, in the instant case filed by the respondent-company, there is specific averment to that effect. Mr. Dharmadhikari submitted that once a process is issued on the basis of the allegations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aging director, managing director, nominee director and director of petitioner No. 1-company, were the persons in charge of and responsible for the conduct of the business of the petitioner-company and by virtue of section 141 of the Negotiable Instruments Act shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. Mr. Dharmadhikari submitted that in the case of vicarious liability of the directors of the company and their prosecution for having committed the offence under section 138 of the Negotiable Instruments Act, our High Court as well as various other High Courts have held the company and its directors are liable for being prosecuted and the question as to whether they were actually in charge of and responsible to the company for the conduct of its business, will have to be decided during the trial. Further, it is open to such persons to take up a plea that the offence was committed without their knowledge or that they had exercised all due diligence to prevent commission of such offence. (See (1) Rajan Kinnerkar v. Eric Cor-deiro [1994] 80 Comp Cas 487; [1994] Mah. LJ 677 (Bom); (2) Mrs. Manju Podar v. Ashwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Offences by companies. (1) If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence. (2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly." Therefore, it can be seen that there are two cat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or in part of any debt or other liability. As regards fulfilment of these ingredients, there is not much dispute between the parties before the court. The question is, who all are liable to be proceeded against and punished for having committed the said offence. On issuance of process, the petitioner-company as well as the other accused applied to the trial court for recalling of the order of issuance of process. It was the case of the petitioner-company in the application filed by accused No. 10, G.L. Lath, managing director, that the present complaint is filed with intention to harass and pressurise the accused company and its directors and to make illegal gain. It was submitted that accused Nos. 3 to 9 are unnecessarily joined as parties to the complaint. As per the provisions of section 141 of the Negotiable Instruments Act, only the persons in charge of the business of the company can be made party, in case of prosecution. It was submitted that accused Nos. 3 to 9 are not in charge of the business of the petitioner-company, nor any fact is brought on record which attracts any negligence towards all these accused persons. Accused Nos. 3 to 7 and 9, through their counsel, mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted under the Act by a company arises if at the material time he was in charge of and was also responsible to the company for the conduct of its business. Simply because a person is a director of the company it does not necessarily mean that he fulfils both the above requirements so as to make him liable. Conversely, without being a director a person can be in charge of and responsible to the company for the conduct of its business. From the complaint in question we, however, find that except a bald statement that the respondents were directors of the manufacturers, there is no other allegation to indicate, even prima facie , that they were in charge of the company and also responsible to the company for the conduct of its business. In Delhi Municipality v. Ram Kishan Rohtagi [1983] 1 SCC 1; AIR 1983 SC 67, 70, while dealing with the applicability of section 17(1) of the Prevention of the Food Adulteration Act, 1954, which is in pari materia with section 34(1) of the Act, on similar facts, this court observed as under: 'So far as the manager is concerned, we are satisfied that from the very nature of his duties it can be safely inferred that he would undoubtedly be vicar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner-company to have brought on record as to who are the persons who were in charge of and responsible to the company for the conduct of its business, in reference to the said dishonour of the cheque. It is submitted by the petitioners, that the petitioners/directors who are the accused before the trial court, are neither in charge of the day-to-day activities of the petitioner-company nor they are the working directors of the petitioner-company, by specifying as to how they are concerned with the company which was not their case before the trial court when the petitioner company moved an application for recalling of process and, therefore, such material, even if it is to be considered, was not before the magistrate at the time of issuance of process or at the time of considering whether the process is required to be recalled in respect of these particular petitioners. Mr. Manohar, learned counsel for the petitioners, tried to demonstrate before this court that the learned magistrate even failed to take notice that one of the accused directors, S.K. Keer had expired somewhere in July, 1996, and still process has been issued against him. But when, it is not brought to the notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter) annexed to their reply. Immediately, it was pointed out by Mr. Manohar, learned counsel for the petitioners, that the said resolution and the letter are not in respect of the respondent-company, but in favour of Ramanand Ramprasad, which is the sister concern of the complainant/company. Even though these two documents at their face value may not implead the petitioner-company, but these documents form part of the material relied upon by the complainant (respondent-company herein). Therefore, by virtue of the fact that the petitioner-company and its directors could avail of financial assistance from the respondent-company and their power to borrow monies otherwise than on debentures, solely rests with the board of directors of the company as provided under section 292 of the Companies Act, 1956, there can be no hesitation to hold that the accused before the trial court are prima facie liable to be proceeded against and punished for having committed offence under section 138 of the Negotiable Instruments Act. To put it in the words of the apex court, while dealing with the case of U.P. Pollution Control Board v. Modi Distillery [1988] 63 Comp Cas 77; AIR 1988 SC 1128 (pag ..... X X X X Extracts X X X X X X X X Extracts X X X X
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