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TMI Blog2008 (1) TMI 989X X X X Extracts X X X X X X X X Extracts X X X X ..... ent No. 1 is a cooperative society duly registered under the Multi State Co-operative Societies Act, 2002 and is engaged in the business of marketing of agricultural products and Nafed financial activities is the consonance of co- operative motto. 4. The accused company represented by Mr.Avdesh Kumar Singh, one of the Director, approached respondent No. 1 to avail credit facilities for import of various agricultural and non-agricultural commodities. In this regard, Memorandum of Understanding dated 16th October, 2003 was executed between the complainant society and the accused company represented by Sh.Avdesh Kumar Singh. By virtue of this Memorandum of Understanding, respondent No. 1 was provided with foreign and inland letter of credit facilities for importing various agricultural and non-agricultural commodities on their account. In addition, respondent No. 1 also associated Merchanting Trade Transaction with the accused company to facilitate the import of commodities from one country and its subsequent sale to other country without touching Indian territory/ports on account of the accused No. 1 as per guidelines issued by RBI. The accused company kept on promising to pay the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttedly was neither 'in charge' nor 'responsible', either directly or indirectly in the day-to-day affairs of the company. The petitioner has been arrayed as an accused only being a 'Director', and for no other reasons/purpose. In the absence of any offence either pleaded or made out in accordance with Section 138 of the Act, no process/summons could be issued against the petitioner. It is clear from the record that the learned Magistrate did not apply his mind to the material allegations in the complaint as required under the Code of Criminal Procedure. No offence whatsoever, has either been made out or alleged in the criminal complaint, warranting the issuance of the summons/process and as such the present complaint is an abuse of process of law. 9. Learned Counsel for the petitioner in support of his contentions has cited various decisions of this Court as well as Apex Court contending that since no offence is made out against the present petitioner, the complaint is an abuse of the process of law and is liable to be quashed. Learned Counsel for the petitioner has cited following judgments: 1. S.M.S.Pharmaceuticals Ltd. v. Neeta Bhalla 2005CriLJ4140 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny, 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.' 14. 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 the company for the conduct of the business of the company as well as the company. Merely being a Director of the company in the absence of above factors will not make him liable. 15. To launch a prosecution, Therefore, against the alleged Directors there must be a specific allegation in the complaint as to the part played by them in the transaction. There should be clear and unambiguous allegation as to how the Directors are in charge and responsible for the conduct of the business of the company. The descripti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sponsible to the company for the conduct of the business of the company and, Therefore, was liable for the offence committed by the company under the Act. 19. Before filing the present petitions, admittedly respondent No. 1 has given a legal notice. This notice has been dully received on behalf of the petitioner and the copy of the same has been placed on record. In its reply, it has been admitted by the petitioner that he is the whole time Director of M/s Earthtech Enterprises Ltd., the accused company, in this case. In para 4 of this reply, the petitioner has admitted his liability but according to him the cheque in question was only a collateral security. The relevant portion of the reply to the legal notice sent by the petitioner reads as under: That it is stated that during course of business transactions between our client company and your client, certain material were procured by our client company under High Sea Sale from your client, from time to time, for which due payments had been made on a regular basis. However recently, vide letter dated 19.5.2006, our client company offered to your client to transfer all available materials, at cost price, in adjustment of good an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examined by the Magistrate in the first instance on the basis of averments contained therein. If the Magistrate is satisfied that there are averments which bring the case within Section 141, he would issue the process. We have seen that merely being described as a director in a company is not sufficient to satisfy the requirement of Section 141. Even a non-director can be liable under Section 141 of the Act. The averments in the complaint would also serve the purpose that the person sought to be made liable would know what is the case which is alleged against him. This will enable him to meet the case at the trial. 23. In view of the above discussion, our answers to the questions posed in the reference are as under: (a) It is necessary to specifically aver in a complaint under Section 141 that at the time the offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company. This averment is an essential requirement of Section 141 and has to be made in a complaint. Without this averment being made in a complaint, the requirements of Section 141 cannot be said to be satisfied. (b) The answer to the question posed in sub-para ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een made by the complainant in the cases in hand and the Apex Court had the occasion to deal with the provisions of Section 138 and 141 of the Act very recently in N. Rangachari v. Bharat Sanchar Nigam Limited 2007CriLJ2448 . 27. In this case, the decision of S.M.S. Pharmaceutical (Supra) has also been referred to. The Apex Court held: By the fall in moral standards, even these negotiable instruments like cheques issued, started losing their creditability by not being honoured on presentment. It was found that an action in the civil court for collection of the proceeds of a negotiable instrument like a cheque tarried, thus defeating the very purpose of recognizing a negotiable instrument as a speedy vehicle of commerce. It was in that context that Chapter VII was inserted in the Negotiable Instruments Act by the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 (Act 66 of 1988) with effect from 1.4.1989. The said Act inserted Sections 138 and 142 in the Negotiable Instruments Act. The objects and reasons for inserting the Chapter was: to enhance the acceptability of cheques in settlement of liabilities by making the drawer liable for pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch acts and things as the Company is authorized to exercise and do. Palmer described the position thus, a company can only act by agents, and usually the persons by whom it acts and by whom the business of the company is carried on or superintended are termed directors.... It is further stated in Palmer that: Directors are, in the eye of the law, agents of the company for which they act, and the general principles of the law of principal and agent regulate in most respects the relationship of the company and its directors. The above two passages were quoted with approval in R.K. Dalmia and ors. v. The Delhi Administration [1963]1SCR253 . In Guide to the Companies Act by A. Ramaiya (Sixteenth Edition) this position is summed up thus: All the powers of management of the affairs of the company are vested in the Board of Directors. The Board thus becomes the working organ of the company. In their domain of power, there can be no interference, not even by shareholders. The directors as a board are exclusively empowered to manage and are exclusively responsible for that management. Therefore, a person in the commercial world having a transaction with a company is entitled to presume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... moters and Board of Directors and the nature and extent of its business and its Memorandum or Articles of Association. Other than that, he may not be aware of the arrangements within the company in regard to its management, daily routine, etc. Therefore, when a cheque issued to him by the company is dishonoured, he is expected only to be aware generally of who are in charge of the affairs of the company. It is not reasonable to expect him to know whether the person who signed the cheque was instructed to do so or whether he has been deprived of his authority to do so when he actually signed the cheque. Those are matters peculiarly within the knowledge of the company and those in charge of it. So, all that a payee of a cheque that is dishonoured can be expected to allege is that the persons named in the complaint are in charge of its affairs. The Directors are prima facie in that position. In fact, in an earlier decision in Monaben Ketanbhai Shah and Anr. v. State of Gujarat and Ors. 2004CriLJ4249 , two learned judges of this Court noticed that: The laudable object of preventing bouncing of cheques and sustaining the credibility of commercial transactions resulting in enactment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the allegations as a whole are not sufficient to show that at the relevant point of time the appellant and the other are not alleged to be persons in charge of the affairs of the company. Obviously, the complaint refers to the point of time when the two cheques were issued, their presentment, dishonour and failure to pay in spite of notice of dishonour. We have no hesitation in overruling the argument in that behalf by the learned Senior Counsel for the appellant. We think that, in the circumstances, the High Court has rightly come to the conclusion that it is not a fit case for exercise of jurisdiction under Section 482 of the Code of Criminal procedure for quashing the complaint. In fact, an advertence to Sections 138 and 141 of the Negotiable Instruments Act shows that on the other elements of an offence under Section 138 being satisfied, the burden is on the Board of Directors or the Officers in charge of the affairs of the company to show that they are not liable to be convicted. Any restriction on their power or existence of any special circumstance that makes them not liable is something that is peculiarly within their knowledge and it is for them to establish at the tria ..... X X X X Extracts X X X X X X X X Extracts X X X X
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