9911796707
TMI Blog2017 (12) TMI 1099X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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, or direction for quashing and set aside the process issued against the petitioner U/s.138 and 141 of the Negotiable Instrument Act, in Criminal Case registered as Criminal Complaint No.22500 of 2011 before Learned Chief Judicial Magistrate, Surat (AnnexureA) against the present petitioner in the interest of justice. (C) be pleased to stay the further proceeding in connection with Criminal Case registered as Criminal Complaint No.22500 of 2011 before Learned Chief Judicial Magistrate, Surat (AnnexureA) pending, admission, hearing and Final disposal of this petition. (D) be pleased to grant such other and further relief(s) as deem fit to grant in the interest of justice. 5. It appears from the materials on record that the respondent no.2 has filed various complaints against the M/s. Baroda Rayon Corporation Limited and its Directors for the dishonour of the cheques punishable under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and furnish to him such information/ material as he may call for the proper discharge of his functions/duties as Special Director. Sd (A.K.Goswami) Member sd/ (Ravindra Gupta) Chairman New Delhi - 110 001 Dated : 26th June, 2006. 7. The issue raised in this batch of writapplications is squarely covered by a decision of this Court in the case of 'Nikhil P. Gandhi Vs. State of Gujarat & Ors.' reported in (2016) 4 GLR 2838. I may quote relevant observations as under: 78 Before I proceed to consider the case of the other applicants, who have been arrayed as accused, by virtue of their vicarious liability, I propose to take note of the relevant portion of the complaint, which reads thus: 4) For and on behalf of accused No.1 Company, the accused No.2 had given cheque as security. In the year 2000 some cheques had arisen between the complainant firm and the accused No.2 and the accused No.1 Company did not pay legitimate amount of the complainant firm, therefore, the complainant has filed SPL. Civil Suit No.35 of 2000, 36/2000 and 37/2000 in the Civil Court at Amreli for recovery of dues, wherein the Court granted exparte interim injunction below Ex. 5 in SPL. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany for the conduct of the business of the company. (3) Any other person who is a director or a manager or a secretary or any officer of the company with whose connivance or with whose neglect the company has committed the offence. [Followed in M/s. B.S.I. Ltd v. Gift Holdings Pvt Ltd, 2000 Cr. LJ 1424 : AIR 2000 SC 926] The Apex Court in the said case of Anil Hada further explaining the law as to the liability of the company and its directors, for committing offence of dishonour of cheque, has held that normally an offence can be committed by human beings who are natural persons. Such offence can be tried according to the procedure established by law. But there are offences which could be attributed to the juristic persons also. If the drawer of a cheque happens to be a juristic person like a body corporate it can be prosecuted for the offence under Section 138 of the Act. Now there is no scope for doubt regarding that aspect in view of the clear language employed in Section 141 of the Act. In the expanded ambit of the word company even firms or any other associations of persons are included and as a necessary adjunct thereof a partner of the firm is treated as a director of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gal parlance means the liability of the master for the acts of the servant or agent done in the course of employment. Section 141 makes a natural person vicariously liable for the contravention committed by a company provided such person has some nexus with the crime either because of his connivance with it or due to by criminal negligence which had resulted in its commission. No doubt the law makes the principal liable for the acts of his agent, but unless there is some absolute duty cast upon the principal, he cannot be held responsible for the acts of his agent. [State of Shewprasad, AIR 1956 All. 610 : 1956 Cr.L.J. 1156] 80 In K.K. Ahuja (supra), the Supreme Court while explaining the vicarious liability of persons of the company observed as under: 16. Having regard to section 141, when a cheque issued by a company (incorporated under the Companies Act, 1956) is dishonoured, in addition to the company, the following persons are deemed to be guilty of the offence and shall be liable to be proceeded against and punished : (i) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of any legal fiction but on account of the specific part played consent and connivance or negligence. If a person is to be made liable under subsection (2) of section 141, then it is necessary to aver consent and connivance, or negligence on his part. 19 This takes us to the next question under subsection (1) of section 141, as to (i) who are the persons who are responsible to the company for the conduct of the business of the company, and (ii) who could be said to be in charge and was responsible to the company for the conduct of the business of the company. The words "every person who, at the time of the offence was committed, was in charge of, and was responsible for the conduct of the business of the company" occurs not only in section 141(1) of the Act but in several enactments dealing with offences by companies, to mention a few section 278 B of the Income Tax Act, 1961, Section 22C of Minimum Wages Act, 1948, Section 86A of the Employees State Insurance Act, 1948, Section 14A of Employees Provident Fund and Miscellaneous Provisions Act, 1952, Section 29 of Payment of Bonus Act, 1965, Section 40 of The Air 13 (Prevention and Control of Pollution) Act, 1981 and Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (1) of Section 141 is a person who is responsible to the company for the conduct of the business of the company and in addition is also in charge of the business of the company. There may be many directors and secretaries who are not in charge of the business of the company at all. The meaning of the words "person in charge of the business of the company" was considered by this Court in Girdhari Lal Gupta v. D.N. Mehta [1971 (3) SCC 189] followed in State of Karnataka v. Pratap Chand [1981 (2) SCC 335] and Katta Sujatha vs. Fertiliser & Chemicals Travancore Ltd. [2002 (7) SCC 655]. This Court held that the words refer to a person who is in overall control of the day to day business of the company. This Court pointed out that a person may be a director and thus belongs to the group of persons making the policy followed by the company, but yet may not be in charge of the business of the company; that a person may be a Manager who is in charge of the business but may not be in overall charge of the business; and that a person may be an officer who may be in charge of only some part of the business. 23 Therefore, if a person does not meet the first requirement, that is being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a person who is not a director or officer, liable, as for example, a person falling under category (e) and (f) of section 5 of Companies Act, 1956. When in SMS Pharma (I), this Court observed that 'conversely, a person not holding any office or designation in a company may be liable if he satisfies the requirement of being in charge of and responsible for conduct of the business of the company', this Court obviously had in mind, persons described in clauses (e) and (f) of section 5 of Companies Act. Be that as it may. 27 The position under section 141 of the Act can be summarized thus : (i) If the accused is the Managing Director or a Joint Managing Director, it is not necessary to make an averment in the complaint that he is in charge of, and is responsible to the company, for the conduct of the business of the company. It is sufficient if an averment is made that the accused was the Managing Director or Joint Managing Director at the relevant time. This is because the prefix `Managing' to the word `Director' makes it clear that they were in charge of and are responsible to the company, for the conduct of the business of the company. (ii) In the case of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... punishment, it is not proper to subject all and sundry to be impleaded as accused in a complaint against a company, even when the requirements of section 138 read and section 141 of the Act are not fulfilled. 81 In view of the aforesaid dictum of law explained by the Supreme Court, the other accused who have been arrayed as accused by virtue of Section 141 of the N.I. Act could not be held liable. I take notice of the fact that some of the accused are Office Bearers, like the Chief Operating Officer, Chief Financial Officer, Financial Controller. Some of the Directors are nominated Directors and also NonExecutive. 82 I am also not impressed by the argument of Mr. Ponda that as the inherent powers of this Court under Section 482 of the Cr.P.C. are circumscribed, and should be exercised only in cases where the Court finds an abuse of the process of law, all the applications deserve to be outright rejected, leaving all the legal contentions open to be canvassed before the trial Court. 83 In Harshendra Kumar D. v. Rebatilata Koley etc [2011 Criminal Law Journal 1626], the Supreme Court held as under: 21 In our judgment, the above observations cannot be read to mean that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious matter which has to be deprecated. 85 Some of the applicants before me are indisputably nonexecutive Directors of the company. A nonexecutive Director is no doubt a custodian of the governance of the company, but does not involve in the daytoday affairs of the running of its business and only monitors the executive activity. [See: Pooja Ravinder Devidasani v. State of Maharastra, AIR 2015 SC 675] 86 In Pooja Ravinder Devidasani (supra), the Supreme Court made the following observations in para 30, which I deem fit to refer and rely upon : 30. Putting the criminal law into motion is not a matter of course. To settle the scores between the parties which are more in the nature of a civil dispute, the parties cannot be permitted to put the criminal law into motion and Courts cannot be a mere spectator to it. Before a Magistrate taking cognizance of an offence under Section 138/141 of the N.I. Act, making a person vicariously liable has to ensure strict compliance of the statutory requirements. The Superior Courts should maintain purity in the administration of justice and should not allow abuse of the process of the Court. The High Court ought to have quashed the complain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould have held office if he or she had not so vacated such office. 3. Additional Directors: If the Articles specifically so provide or enable, the Board has the discretion, where it feels it necessary and expedient, to appoint Additional Directors who will hold office until the next AGM. However, the number of Directors and Additional Directors together shall not exceed the maximum strength fixed in the Articles for the Board. 4. Alternate Director: If so authorized by the Articles or by a resolution passed by the company in general meeting, the Board may appoint an Alternate Director to act for a Director ("Original Director"), who is absent for whatever reason for a minimum period of three months from the State in which the meetings of the Board are ordinarily held. Such Alternate Director will hold office until such period that the Original Director would have held his or her office. However, any provision for automatic reappointment of retiring Directors applies to the Original Director and not to the Alternate Director. 5. 'Shadow' Director: A person, who is not appointed to the Board, but on whose directions the Board is accustomed to act, is liable as a Dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Securities Contracts (Regulation) Act, 1956, read with the rules and regulations made thereunder, requires every company desirous of listing its shares on a recognized Indian stock exchange, to execute a listing agreement ("Agreement") with such Indian stock exchange. This Agreement is in a standard format (prescribed by the Securities Exchange Board of India ("SEBI")), as amended by SEBI from time to time. The Agreement provides for the following further categories of Directors: Categories under Listing Agreement 1. Executive Director; 2. Nonexecutive Director; and 3. Independent Director. Executive and nonexecutive Directors An Executive Director can be either a Wholetime Director of the company (i.e., one who devotes his whole time of working hours to the company and has a significant personal interest in the company as his source of income), or a Managing Director (i.e., one who is employed by the company as such and has substantial powers of management over the affairs of the company subject to the superintendence, direction and control of the Board). In contrast, a nonexecutive Director is a Director who is neither a Wholetime Director nor a Managing Directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... summon a director or partner of a company or firm to face trial under Section 138 of the Negotiable Instruments Act. Summoning of an accused in a criminal case is a serious matter. Criminal law cannot be set into motion as a matter of course. It is not that the complainant has to bring only two witnesses to support his allegations in the complaint to have the criminal law set into motion. The order of the Magistrate summoning the accused must reflect that he has applied his mind to the facts of the case and the law applicable thereto. He has to examine the nature of allegations made in the complaint and the evidence both oral and documentary in support thereof and would that be sufficient for the complainant to succeed in bringing charge home to the accused. It is not that the Magistrate is a silent spectator at the time of recording of preliminary evidence before summoning of the accused. Magistrate has to carefully scrutinise the evidence brought on record and may even himself put questions to the complainant and his witnesses to elicit answers to find out the truthfulness of the allegations or otherwise and then examine if any offence is prima facie committed by all or any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction. There should be clear and unambiguous allegation as to how the Directors are incharge and responsible for the conduct of the business of the company. The description should be clear. It is true that precise words from the provisions of the Act need not be reproduced and the Court can always come to a conclusion in facts of each case. But still in the absence of any averment or specific evidence the net result would be that complaint would not be entertainable. 90 In Gunmala Sales Private Limited (supra), the Supreme Court, after an exhaustive review of all its earlier decisions on Section 141 of the N.I. Act, summarized its conclusion as under: 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o are NonExecutive Directors including the Office Bearers concerned with the Accounts Department of the company. 92 The plain reading of Section 138 of the N.I. Act would clearly go to show that by reason thereof, a legal fiction had been created. A legal fiction, as is wellknown, although is required to be given full effect, yet has its own limitations. It cannot be taken recourse to for any purpose other than the one mentioned in the statute itself. Section 138 of the Act moreover provides for a penal provision. A penal provision created by reason of a legal fiction must receive strict construction. Such a penal provision, enacted in terms of the legal fiction drawn, would be attracted when a cheque is returned by the bank unpaid. Before a proceeding thereunder is initiated, all the legal requirements therefor must be complied with. The Court must be satisfied that all the ingredients of commission of an offence under the said provision have been complied with. [See: Raj Kumar Khurana v. State of (NCT of Delhi) and another, (2009) 6 SCC 72]. 8. In view of the settled position of law, I have no hesitation in coming to the conclusion that no vicarious liability can be fastened ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
