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TMI Blog2017 (12) TMI 1099X X X X Extracts X X X X X X X X Extracts X X X X ..... CATION NO. 8353 of 2017, SPECIAL CRIMINAL APPLICATION NO. 8354 of 2017 - - - Dated:- 1-12-2017 - MR. J.B.PARDIWALA, J. SPECIAL CRIMINAL APPLICATION NO. 8355 of 2017, SPECIAL CRIMINAL APPLICATION NO. 8356 of 2017 With SPECIAL CRIMINAL APPLICATION NO. 8357 of 2017 For The Applicant : Mr Vijay H Nangesh, Advocate And Ms Jagtap Meena Anil, Advocate For The Respondent : MS MOXA THAKKAR, APP COMMON ORAL ORDER 1. Since the issues raised in all the captioned applications are the same, those were heard analogously and are being disposed of by this common judgment and order. 2. The respondent no.2 original complainant although served with the notice of rule issued by this Court, yet has chosen not to remain present before this Court either in person or through an advocate and oppose these applications. 3. For the sake of convenience, the Special Criminal Application No.8347 of 2017 is treated as the lead matter. 4. By this writapplication under Article 226 of the Constitution of India, the writapplicant original accused no.4 has prayed for the following reliefs: 6 (A) be pleased to admit this petition. ( B) be pleased to issue appropriate writ, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 452 017. 67/2004 The Chairman MD M/s Baroda Rayon Corporation Ltd., Fatehnagar, P.O. Baroda Rayon, Surat 392 220. Gujarat The appointment of the above mentioned individual as Special Director made hereby shall come into force with immediate effect and the procedure and other conditions laid down under the Companies Act, 1956 would not apply to his appointment. 2. The Special Director shall inform the Registrar of the Company concerned immediately or on subsequent discharge as Special Director on the Board of the respective company. 3. The Special Director shall act in accordance with the guidelines already sent to him at the time of empanelment. 4. The company is directed to invite the Special Director for attending all the Board and other committee meetings of the Board with proper prior notice. The sitting fees for attending the meeting and the travelling expenses in connection with attendance of such meetings shall be paid by the company. The company shall fully cooperate with the Special Director and furnish to him such information/ material as he may call for the proper discharge of his functions/duties as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.1. 79 Two classes of persons are liable to be prosecuted under Section 138. First, those persons who are in charge of and responsible to the company for the conduct of its business. They are per se responsible. In the second category comes those persons with whose consent or connivance the offence can be attributed. When the offence under Section 138 of the Negotiable Instruments Act has been committed by a company every person who, at the time the offence was committed, was incharge 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. (vide Section 141 of the Negotiable Instruments Act). In Anil Hada v. Indian Acrylic Ltd [2000 Cri. LJ 373 (SC) : (2001) 1 SCC 1, it has been pointed out that three categories of persons can be discerned as brought within the purview of the penal liability, through the legal fiction envisaged in Section 141 of the Negotiable Instruments Act. They are: (1) The company which committed the offence. (2) Every person who was incharge of and responsible to the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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. Section 141(2) provides, where any offence 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. So, the joint reading of the subsections (i)a(2) of Section 141 would make it clear that both the company as well as other persons who are connected and responsible for the conduct of the business of the company are liable to be proceeded. Where offence under Section 138 of Negotiable Instruments Act is committed by a company, the complaint must prima facie disclose the act committed by the Directors from which a reasonable inference of their vicarious liability cane be drawn. [ Ashok Muthanna v. Exports Finance Ltd (2001) 2 Crimes 602 (Mad)] Vicar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y under Section 138, is fastened vicariously on the persons referred to in subsection (1) of Section 141 by virtue of a legal fiction. Penal statutes are to be construed strictly. Penal statutes providing constructive vicarious liability should be construed much more strictly. When conditions are prescribed for extending such constructive criminal liability to others, courts will insist upon strict literal compliance. There is no question of inferential or implied compliance. Therefore, a specific averment complying with the requirements of Section 141 is imperative. As pointed out in K. Srikanth Singh vs. North East Securities Ltd 2007 (12) SCC 788, the mere fact that at some point of time, an officer of a company had played some role in the financial affairs of the company, will not be sufficient to attract the constructive liability under Section 141 of the Act. 18 Subsection (2) of section 141 provides that a Director, Manager, Secretary or other officer, though not in charge of the conduct of the business of the company will be liable if the offence had been committed with his consent or connivance or if the offence was a result of any 12 negligence on his part. The liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 291 of Companies Act, 1956 with the definitions in clauses (24), (26), (30), (31), (45) of section 2 of that Act would show that the following persons are considered to be the persons who are responsible to the company for the conduct of the business of the company : ( a) the managing director(s); ( b) the wholetime director(s); ( c) the manager; ( d) the secretary; ( e) any person in accordance with whose directions or instructions the Board of directors of the company is accustomed to act; ( f) any person charged by the Board with the responsibility of complying with that provision (and who has given his consent in that behalf to the Board); and ( g) where any company does not have any of the officers specified in clauses ( a) to (c), any director or directors who may be specified by the Board in this behalf or where no director is so specified, all the directors. It follows that other employees of the company, cannot be said to be persons who are responsible to the company, for the conduct of the business of the company. 22 Section 141 uses the words was in charge of, and was responsible to the company for the condu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sible to the company for the conduct of the business of the company' (listed in para 14 above), then merely by stating that 'he was in charge of the business of the company' or by stating that 'he was in charge of the day to day management of the company' or by stating that he was in charge of, and was responsible to the company for the conduct of the business of the company', he cannot be made vicariously liable under section 141(1) of the Act. 25 It should, however, be kept in view that even an officer who was not in charge of and was responsible to the company for the conduct of the business of the company can be made liable under subsection (2) of Section 141. For making a person liable under Section 141(2), the mechanical repetition of the requirements under Section 141(1) will be of no assistance, but there should be necessary averments in the complaint as to how and in what manner the accused was guilty of consent and connivance or negligence and therefore, responsible under subsection (2) of Section 141 of the Act. 26 Another aspect that requires to be noticed is that only a Director, Manager, Secretary or other officer can be made liable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... negligence, in the complaint, to bring the matter under that subsection. ( iv) Other Officers of a company can not be made liable under subsection (1) of section 141. Other officers of a company can be made liable only under subsection (2) of Section 141, be averring in the complaint their position and duties in the company and their role in regard to the issue and dishonour of the cheque, disclosing consent, connivance or negligence. 28 If a mere reproduction of the wording of section 141(1) in the complaint is sufficient to make a person liable to face prosecution, virtually every officer/employee of a company without exception could be impleaded as accused by merely making an averment that at the time when the offence was committed they were in charge of and were responsible to the company for the conduct and business of the company. This would mean that if a company had 100 branches and the cheque issued from one branch was dishonoured, the officers of all the 100 branches could be made accused by simply making an allegation that they were in charge of and were responsible to the company for the conduct of the business of the company. That would be absurd and not i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to prove his defence before the trial court. In such a matter, for promotion of justice or to prevent injustice or abuse of process, the High Court may look into the materials which have significant bearing on the matter at prima facie stage. 22. Criminal prosecution is a serious matter; it affects the liberty of a person. No greater damage can be done to the reputation of a person than dragging him in a criminal case. 84 I take notice of the fact that in complaints filed for the offence under Section 138 of the N.I. Act, all the Directors of the company and even the Office Bearers are routinely being proceeded against by invoking the provisions under Section 141 of the N.I. Act by glibly repeating the words in the section that certain Director was incharge of and responsible to the company for the conduct of business of the company. It is necessary to emphasis that Section 141 of the N.I. Act where an offence under Section 138 of the N.I. Act has been committed by a company, the complainant is required to give a serious thought and make enquiries and ascertain the fact as to whether a particular Director was incharge of and responsible to the affairs and conduct of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wers of management of the affairs of the company subject to the superintendence, control and direction of the Board in question. A Wholetime Director includes a Director who is in the wholetime employment of the company, devotes his wholetime of working hours to the company in question and has a significant personal interest in the company as his source of income. Every public company and private company, which is a subsidiary of a public company, having a share capital of more than Five Crore rupees (Rs. 5,00,00,000/) must have a Managing or Wholetime Director or a Manager. Further classification of Directors: Based on the circumstances surrounding their appointment, the Companies Act recognizes the following further types of Directors: 1. First Directors: Subject to any regulations in the Articles of a company, the subscribers to the Memorandum of Association, or the company's charter or constitution ( Memorandum ), shall be deemed to be the Directors of the company, until such time when Directors are duly appointed in the annual general meeting ( AGM ). 2. Casual vacancies: Where a Director appointed at the AGM vacates office before his or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or her tenure. 8. Nominee Directors: They can be appointed by certain shareholders, third parties through contracts, lending public financial institutions or banks, or by the Central Government in case of oppression or mismanagement. The extent of a nominee Director's rights and the scope of supervision by the shareholders, is contained in the contract that enables such appointments, or (as appropriate) the relevant statutes applicable to such public financial institution or bank. However, nominee Directors must be particularly careful not to act only in the interests of their nominators, but must act in the best interests of the company and its shareholders as a whole. The fixing of liabilities on nominee Directors in India does not turn on the circumstances of their appointment or, indeed, who nominated them as Directors. Chapter 4 and Chapter 5 that follow set out certain duties and liabilities that apply to, or can be affixed on, Directors in general. Whether nominee Directors are required by law to discharge such duties or bear such liabilities will depend on the application of the legal provisions in question, the fiduciary duties involved and whether such nomin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not have material pecuniary relationships or transactions with the company, its promoters, its Directors, its senior management, or its holding company, its subsidiaries, and associates which may affect independence of the Director; b. is not related to promoters or persons occupying management positions at the board level or at one level below the board; c. has not been an executive of the company in the immediately preceding three (3) financial years; d. is not a partner or an executive or was not a partner or an executive during the preceding three (3) years, of any of the following: i. the statutory audit firm or the internal audit firm that is associated with the company, and ii. the legal firms and consulting firms that have a material association with the company; e. is not a material supplier, service provider or customer or a lessor or lessee of the company, which may affect the independence of the Director; or f. he is not a substantial shareholder of the company, i.e., owning two percent (2%) or more of the block of voting shares; and g. he is not less than twentyone (21) years of age. Nominee directors appointed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be ignored. Considering this, it appears necessary that at any rate even if on the basis of formal allegations in the complaint such Directors have been summoned to face the trial, they must be afforded an opportunity at least at the earliest stage to show with reference to the material which may be placed before the Court that they are not incharge of and are not responsible to the business of the company and on that basis seek their discharge from the array of the accused. In such cases, I think it will be a great injustice if they are asked to go through the ordeal of the trial and plead their defence only during the trial. [Om Prakash Agrawal v. State of A.P., 2001 Cri. L.J. 253 (para 13) A.P.] 89 In N.K. Wahi v. Shekhar Singh and others [2007 (9) SCC 481] , the Supreme Court, after considering its earlier judgment on the point in question, held as under: 7. This provision clearly shows that so far as the companies are concerned if any offence is committed by it then every person who is a Director or employee of the company is not liable. Only such person would be held liable if at the time when offence is committed he was in charge and was responsible to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance a case of a Director suffering from a terminal illness who was bedridden at the relevant time or a Director who had resigned long before issuance of cheques. In such cases, if the High Court is convinced that prosecuting such a Director is merely an armtwisting tactics, the High Court may quash the proceedings. It bears repetition to state that to establish such case unimpeachable, uncontrovertible evidence which is beyond suspicion or doubt or some totally acceptable circumstances will have to be brought to the notice of the High Court. Such cases may be few and far between but the possibility of such a case being there cannot be ruled out. In the absence of such evidence or circumstances, complaint cannot be quashed; d) No restriction can be placed on the High Court's powers under Section 482 of the Code. The High Court always uses and must use this power sparingly and with great circumspection to prevent inter alia the abuse of the process of the Court. There are no fixed formulae to be followed by the High Court in this regard and the exercise of this power depends upon the facts and circumstances of each case. The High Court at that stage does not conduct a mini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Magistrate, Surat. 3 SCR No.8350/2017 Criminal Complaint No.22504 of 2011 Learned Chief Judicial Magistrate, Surat. 4 SCR No.8351/2017 Criminal Complaint No.22503 of 2011 Learned Chief Judicial Magistrate, Surat. 5 SCR No.8352/2017 Criminal Complaint No.22505 of 2011 Learned Chief Judicial Magistrate, Surat. 6 SCR No.8353/2017 Criminal Complaint No.22506 of 2011 Learned Chief Judicial Magistrate, Surat. 7 SCR No.8354/2017 Criminal Complaint No.22507 of 2011 Learned Chief Judicial Magistrate, Surat. 8 SCR No.8355/2017 Criminal Complaint No.22509 of 2011 Learned Chief Judicial Magistrate, Surat. 9 SCR No.8356/2017 Criminal Complaint No.22508 of 2011 Learned Chief Judicial Magistrate, Surat. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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