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TMI Blog2014 (12) TMI 1116X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 141 of the NI Act. The complaints were filed by Gunmala Sales Private Limited or Rooprekha Sales Private Limited or by both. In the complaints, the respondents herein and others were arrayed as accused. After the process was issued, the respondents filed various applications under Section 482 of the Code of Criminal Procedure, 1973 ("the code") in the High Court. The High Court disposed of one application being C.R.R. No.4099 of 2011 by a reasoned order. As the same issue was involved in all the applications, the other applications were disposed of in terms of judgment in C.R.R. No.4099 of 2011. Special Leave Petition (Crl.) No.1724 of 2013 was filed challenging the said judgment in C.R.R. No.4099 of 2011. We may, therefore, for the disposal of these appeals, refer to the facts in civil appeal arising out of Special Leave Petition No.1724 of 2013, treating the same as the lead case. 4. It is the case of the appellant that in or about February, 2008, one Navkar Buildestates Private Limited ("the said Company") through its Directors - respondents 1 to 3 approached the appellant for certain financial assistance to meet the working capital requirement of the said Company. Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and whether they had control over the funds of the company. The High Court observed that the complaint lacked material averments. The High Court quashed the proceedings on this ground. So far as the second question is concerned, the High Court held that it is not necessary to answer it because the first question is answered in favour of respondents 1 to 4. The High Court quashed the complaint. Being aggrieved by the said order, the appellant has approached this Court by way of this appeal. 7. We have heard Mr. Gurukrishna Kumar, learned senior counsel appearing for the appellant as well as Dr. Abhishek Manu Singhvi, learned senior counsel appearing for the respondents. We have perused the written submissions filed by the parties. 8. Gist of the written submissions of the appellants. (a) It is settled law that a specific averment in the complaint that he/she is in charge of and is responsible to the company for the conduct of the business of the company is sufficient to maintain the complaint under Section 138 of the NI Act. It is not incumbent upon the complainant to elaborate in the complaint the role played by each of the Directors in the transaction forming the subject matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of the Director in such cases. Reference may also be made to Mannalal Chamaria v. State of West Bengal [2014] 4 SCALE 55, A.K. Singhania v. Gujarat State Fertilizer Company Ltd. 2013(12) SCALE 673, Rallis India Limited v. Poduru Vidya Bhushan and ors . [2011] 13 SCC 88, Paresh P. Rajda v. State of Maharashtra and anr. [2008] 7 SCC 442 , Malwa Cotton and Spinning Mills Ltd. v. Virsa Singh Sidhu and ors. [2008] 17 SCC 147 and N. Rangachari v. Bharat Sanchar Nigam Ltd.[2007] 5 SCC 108 (b) So far as the decisions cited by the respondents are concerned, all these decisions purported to follow the law laid down in SMS Pharma-(1), which does not lay down any general proposition of law that the specific role of a Director sought to be arrayed as an accused has to be elaborated in the complaint itself. (c) The doctrine of 'Indoor Management' would be a relevant factor to be considered while assessing the averments to be made to satisfy the requirements of Section 141 of the NI Act. A complainant to whom a cheque is issued by a compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or an offence of which the principle accused is the Company, had a role to play in relation to the incriminating act and further that such a person should know what is attributed to him to make him liable. (d) The appellants' plea of Indoor Management is totally misconceived. This doctrine is limited to protecting outsiders regarding internal infirmities of Memorandum of Articles. Its real application in a cheques bouncing case would have been if a plea was taken that the company never had a power to incur debt and hence there is no legal liability. This doctrine cannot be invoked to give a carte blanche to an outsider to list all Directors for prosecution without even giving their "role" or "part played". In this connection, reliance is placed on MRF Limited etc. v. Manohar Parrikar and ors. etc. [2010] 11 SCC 374. The judgment of Delhi High Court in Shree Raj Travels & Tours is in teeth of the law laid down by this Court and, hence, does not appear to be correct. Moreover, in commercial world, whether a person deals with a company at the company's office or enters into a commercial transaction by e-mail, in both cases, there is an awareness of the persons responsible for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viduals; and (b) "director", in relation to a firm, means a partner in the firm.]" 11. It is also necessary to quote the relevant paragraphs of the complaint which relate to the Directors of the accused company. They read as under: "2. The Accused No.1 is a company within the meaning of the Companies Act, 1956, having its registered office at 103-104, Shubh Apartment, 99-L, Bhopalpura, Udaipur, P.S. Bhupalpura, Rajasthan - 313001 and the Accused Nos.2, 3, 4 and 5 are the Directors thereof and were at the time when the offence committed in charge of and were responsible for the conduct and day to day business of the said accused No.1 company. 3. In discharge of the accused persons' existing legal debt and/or liability, the accused No.1 company had, issued and made over to the complainant an account payee cheque signed by the accused No.2 being No.008049 dated 31st July, 2011 for Rs. 40,00,000/- drawn on The Rajsamand Urban Co-Op. Bank Limited, Udaipur Branch, Rajasthan - 313001." It must be noted here that the complaint is quashed by the High Court against all other accused except accused 2 who has signed the cheques. 12. Several judgments have been cited before us. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a director in such cases. (c) The answer to Question (c) has to be in the affirmative. The question notes that the managing director or joint managing director would be admittedly in charge of the company and responsible to the company for the conduct of its business. When that is so, holders of such positions in a company become liable under Section 141 of the Act. By virtue of the office they hold as managing director or joint managing director, these persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 141. So far as the signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under sub-section (2) of Section 141." 14. In Saroj Kumar Poddar v. State (NCT of Delhi) and anr. [2007] 3 SCC 693, the appellant therein was the Director of a public limited company which had issued three cheques in favour of respondent 2, who was manufacturer and supplier of chemical compounds. The cheques having been dishonoured, the complaint came to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n regard to its functioning, this Court observed that a plain reading of the said judgment would show that no such general law was laid down therein and the observations were made in the context of the said case as it was dealing with the contention that although no direct averment was made as against the appellant therein fulfilling the requirements of Section 141 of the NI Act, but, there were other averments which would show that the appellant therein was liable therefor. 16. In N.K. Wahi it was pleaded by the appellants therein in the complaint that M/s. Western India Industries Limited is a limited company and the respondents therein and some others were the Directors/persons responsible for carrying on the business of the company and their liability shall be joint and several. The respondents therein filed an application invoking Section 482 of the Code. The High Court quashed the order issuing summons on the ground that the evidence does not establish that the respondents were either in charge of or were responsible to the company for the conduct of business. In the appeal, following SMS Pharma-(1), Sabitha Ramamurthy v. R.B.S. Channabaasavaradhya [2006] 10 SCC 581 and Saro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the appellant in a petition filed under Section 482 of the Code. Those please will have to be established in trial. This Court referred to the relevant extracts from Palmer's Company Law (20th edition), Guide to the Companies Act (16th edition), by A. Ramaiya and Principles of Modern Company Law by Gower and Davies (17th edition) and expressed that in the commercial world, a person having a transaction with a company is entitled to presume that the Directors of the company are in charge of the affairs of the company and it is for the Directors to prove to the contrary at the trial. This Court also observed that a person having business dealings with the company may not be aware of the arrangement within the company in regard to its management. Pertinently, this Court expressed that the decision of the three-Judge Bench in SMS Pharma-(1) was binding on it. The two-Judge Bench understood SMS Pharma-(1) as laying down the law that what is to be looked into is whether in the complaint, in addition to asserting that accused are the Directors of the company, it is further alleged that they are in charge of and responsible to the company for the conduct of the business of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent 1 for quashing the proceedings initiated against him under Section 138 of the NI Act on the ground that he had resigned from the Directorship before the cheques were issued. This Court was of the view that whether respondent 1 had resigned before the cheques were issued involves factual dispute. Referring to N. Rangachari, where it is observed that a person in the commercial world having a transaction with a company is entitled to presume that the Directors of the company are in charge of the affairs of the company and if any restriction on their powers is placed by the Memorandum of Articles of the Company, it is for the Directors to establish that in the trial this Court allowed the appeal filed by the complainant holding that the High Court was not justified in quashing the proceedings against respondent 1. 20. In K.K. Ahuja, where this Court was considering a similar question after referring to SMS Pharma-(1), SMS Pharma-(2), Saroj Kumar Poddar and N.K. Wahi and other relevant judgments and after referring to the relevant provisions of the Companies Act, this Court summarized the position under Section 141 of the NI Act as under: "27. The position under Section 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is Court laid down the following principles: "(i) The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every Director knows about the transaction. (ii) Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company. (iii) Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be averred in the complaint/petition, are made so as to make the accused therein vicariously liable for offence committed by the company along with averments in the petition containing that accused were in-charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with. (iv) Vicarious liability on the part of a person must be pleaded and proved and not inferred. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the year 2004. A two-Judge Bench of this Court held that though it is not proper for the High Court to make a roving enquiry and consider the defence of the accused at the stage of a petition filed for quashing the complaint, if any documents, which are beyond suspicion or doubt, are placed, it can take them into account. This Court looked into the certified copy of the annual return, which was a public document as per the Companies Act read with Section 74(2) of the Evidence Act and held that the appellant had resigned from the Directorship of the company much prior to the issuance of the cheques. While setting aside the High Court's order, this Court reiterated that in case of a Director, the complaint should specifically spell out how and in what manner the Director was in charge of or was responsible to the company for conduct of its business and mere bald statement that he or she was in charge of and was responsible to the company for conduct of its business is not sufficient. This Court observed that in the case before it except the mere bald and cursory statement with regard to the appellant, the complainant had not specified her role in the day-to-day affairs of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of requirement of averments in a complaint has to be considered on the basis of provisions contained in Sections 138 and 141 of the NI Act read in the light of the powers of a Magistrate referred to in Sections 200 to 204 of the Code which recognize the Magistrate's discretion to reject the complaint at the threshold if he finds that there is no sufficient ground for proceeding. Thus, if this basic averment is missing the Magistrate is legally justified in not issuing process. But here we are concerned with the question as to what should be the approach of a High Court when it is dealing with a petition filed under Section 482 of the Code for quashing such a complaint against a Director. If this averment is there, must the High Court dismiss the petition as a rule observing that the trial must go on? Is the High Court precluded from looking into other circumstances if any? Inherent power under Section 482 of the Code is to be invoked to prevent abuse of the process of any court or otherwise to secure ends of justice. Can such fetters be put on the High Court's inherent powers? We do not think so. 28. SMS Pharma-(1), undoubtedly, says that it is necessary to specifically a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese submissions. The High Court may in a given case on an overall reading of a complaint and having come across some unimpeachable evidence or glaring circumstances come to a conclusion that the petition deserves to be allowed despite the presence of the basic averment. That is the reason why in some cases, after referring to SMS Pharma-(1), but considering overall circumstances of the case, this Court has found that the basic averment was insufficient, that something more was needed and has quashed the complaint. 29. When a petition is filed for quashing the process, in a given case, on an overall reading of the complaint, the High Court may find that the basic averment is sufficient, that it makes out a case against the Director; that there is nothing to suggest that the substratum of the allegation against the Director is destroyed rendering the basic averment insufficient and that since offence is made out against him, his further role can be brought out in the trial. In another case, the High Court may quash the complaint despite the basic averment. It may come across some unimpeachable evidence or acceptable circumstances which may in its opinion lead to a conclusion that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt that the documents furnished by the accused could not have been taken into account. Repelling this submission this Court observed as under: "24. In Awadh Kishore Gupta3 this Court while dealing with the scope of power under Section 482 of the Code observed: (SCC p. 701, para 13) "13. It is to be noted that the investigation was not complete and at that stage it was impermissible for the High Court to look into materials, the acceptability of which is essentially a matter for trial While exercising jurisdiction under Section 482 of the Code, it is not permissible for the court to act as if it was a trial Judge." 25. In our judgment, the above observations cannot be read to mean that in a criminal case where trial is yet to take place and the matter is at the stage of issuance of summons or taking cognizance, materials relied upon by the accused which are in the nature of public documents or the materials which .are beyond suspicion or doubt, in no circumstance, can be looked into by the High Court in exercise of its jurisdiction under Section 482 or for that matter in exercise of revisional jurisdiction under Section 397 of the Code. It is fairly settled now that while exerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Directors. 33. We may summarize our conclusions as follows: (a) Once in a complaint filed under Section 138 read with Section 141 of the NI Act the basic averment is made that the Director was in charge of and responsible for the conduct of the business of the company at the relevant time when the offence was committed, the Magistrate can issue process against such Director; (b) If a petition is filed under Section 482 of the Code for quashing of such a complaint by the Director, the High Court may, in the facts of a particular case, on an overall reading of the complaint, refuse to quash the complaint because the complaint contains the basic averment which is sufficient to make out a case against the Director. (c) In the facts of a given case, on an overall reading of the complaint, the High Court may, despite the presence of the basic averment, quash the complaint because of the absence of more particulars about role of the Director in the complaint. It may do so having come across some unimpeachable, uncontrovertible evidence which is beyond suspicion or doubt or totally acceptable circumstances which may clearly indicate that the Director could not have been concerned w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has resigned can be prosecuted after his resignation has been accepted by the Board of Directors of the company. Pertinently, in the application filed by the respondents, no clear case was made out that at the material time, the Directors were not in charge of and were not responsible for the conduct of the business of the company by referring to or producing any uncontrovertible or unimpeachable evidence which is beyond suspicion or doubt or any totally acceptable circumstances. It is merely stated that Sidharth Mehta had resigned from the Directorship of the company on 30/9/2010 but no uncontrovertible or unimpeachable evidence was produced before the High Court as was done in Anita Malhotra to show that he had, in fact, resigned long before the cheques in question were issued. Similar is the case with Kanhaiya Lal Mehta and Anu Mehta. Nothing was produced to substantiate the contention that they were not in charge of and not responsible for the conduct of the business of the company at the relevant time. In the circumstances, we are of the opinion that the matter deserves to be remitted to the High Court for fresh hearing. However, we are inclined to confirm the order passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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