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TMI Blog2023 (7) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... in and of itself, a money recovery proceedings, even though fine and compensation may be imposed upon conviction. The wanton arraignment of directors without reference to their role in relation to a transaction, or to the issuance or dishonour of a cheque by the company, requires to be deprecated and discouraged, since it amounts to abuse of the salutary process of criminal law. This court is clear that for one, there are no allegations in the criminal complaints in relation to the petitioners, much-less any specific allegations as to their role in the alleged offence. In these circumstances, it cannot be said that the petitioners would incur any vicarious liability along with the accused company merely because they were directors of the company. Two, absent any allegations against the petitioners in the criminal complaints, the issuance of the summoning orders was evidently not informed by any application of mind, but was the outcome of a purely mechanical process. The summoning orders cannot be sustained in law - Petition disposed off. X X X X Extracts X X X X X X X X Extracts X X X X ..... No. CRL.M.C. No. Cheque No. & Date Date of Dishonour of Cheque Reason for dishonour Date of Statutory Notice 1. 2480/2017 1518 04.04.2014 20.06.2014 Other Reasons 12.07.2014 2. 2481/2017 1516 31.03.2014 14.06.2014 Other Reasons 11.07.2014 3. 2487/2017 1514 27.03.2014 21.05.2014 Funds Insufficient 11.06.2014 4. 2489/2017 1519 07.04.2014 19.06.2014 Other Reasons 12.07.2014 5. 2490/2017 1513 25.03.2014 17.05.2014 Funds Insufficient 11.06.2014 6. 2491/2017 1515 29.03.2014 13.06.2014 Exceeds Arrangement 12.07.2014 7. 2492/2017 1517 02.04.2014 18.06.2014 Other Reasons 12.07.2014 2.4 Each of the cheques issued were for an amount of Rs.50,00,000/- and all cheques were drawn on City Union Bank Ltd., Sultanpet Circle, Bangalore and were dishonoured at Canara Bank, Okhla Industrial Estate, New Delhi. 2.5 Multiple statutory notices were issued in relation to the dishonoured cheques on different dates as aforementioned, demanding the payment of the amounts due. However, it is the petitioners' case that, contrary to what is claimed by respondent No. 1 company, no statutory notice was received by the petitioners. 2.6 Upon not receiving the cheque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioners stand summonsed in all 07 criminal complaints vide order dated 10.09.2014 passed by the learned ACMM, Bangalore and order dated 08.03.2017 passed by the learned MM, Delhi. In fact, a perusal of the record shows that there was also another order dated 19.02.2015 passed by the learned ACMM, Bangalore, which also appears to have been an order summoning the petitioners. Since the order is virtually unintelligible, a screenshot of that order is being reproduced below. 2.12 The impugned summoning orders dated 08.03.2017 made by the learned MM Delhi, which proceed on the basis of orders dated 19.02.2015 and 10.09.2014 made by the learned ACMM Bangalore, all of which are template orders in all the criminal complaints, are extracted herein-below for reference : Summoning orders dated 08.03.2017 passed by learned Magistrate, Saket, Delhi : " * * * * * It is submitted that matter has been transferred to this Court under the N.I. Amendment Act, 2015 and accused persons have already been summoned. File perused. All accused persons have already been summoned by the Transferor Court. Accordingly, issue fresh summons to the accused on filing of PF/RC/Speed post/Courier w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fences 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. Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this chapter. (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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) (2007) 3 SCC 693 and N.K. Wahi vs. Shekhar Singh & Ors. (2007) 9 SCC 481 7. Attention in this behalf is drawn to the following paragraphs the 05 criminal complaints filed in Bangalore, which read substantially the same, and which refer to the persons who the complainant holds liable for the dishonour of the cheques : "6. The Cheques had been signed by the Authorized Signatory and as such Authorized Representative is involved and concerned with the business transaction entered by the Accused Company with the Complainant Company besides others. "7. It is submitted that the Complainant deposited the said cheque within stipulated period with his Banker i.e., Canara Bank, Okhla Indl. Estate, New Delhi, having Current A/c therein, but the said cheque had not been encashed for reason "Other reasons". As per the statement given in preceding paragraph accused Company and its representatives are liable to pay the amount in respect of cheque issued which has not been encashed, which was informed to the Complainant vide bank return memo report dated 20/6/2014. * * * * * "10. The complainant submits that within 30 days of the receipt of the information from the Bank i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity have not been challenged by the petitioners. Moreover, it is contended that the ingredients of section 138 of the NI Act are satisfied in the complaints before the learned MM, Delhi. 10. Counsel for the complainant submits that the present petition has been filed after 03 years of issuance of the summoning order in 2014. Furthermore, it is argued that the petitioners had an alternative efficacious remedy of filing a revision petition under section 397 Cr.P.C., for which the limitation period was 90 days but the petitioners chose not to avail that remedy, and instead filed the present petitions, which ought not to be entertained. Reliance is placed on the decisions of this court in A.K. Dixit vs. Manoj Kumar and Ors 1999 (1) JCC (Delhi) 181 and of the Bombay High Court in V.K. Jain and Ors. vs. Pratap V. Padode and Anr. (2005) 3 Mah LJ 778, to argue that the inherent powers of the High Court under section 482 Cr.P.C. should only be exercised at the initial stages of a proceedings and should not be exercised especially when there is a specific remedy available under the Cr.P.C. 11. Counsel further submits that on a bare perusal of section 141 of the NI Act it can be concluded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssuing summons to an accused person. 15. Counsel for respondent No. 1 also relies on the following judgments in support of their contentions: Col. B.S. Sarao vs. Securities and Exchange Board of India 2008 SCC OnLine Del 158 at para 15 and 16, Gunmala Sales (P) Ltd. vs. Anu Mehta (2015) 1 SCC 103 at paras 34.1 to 34.3, Standard Chartered Bank vs. State of Maharashtra (2016) 6 SCC 62 at paras 26 and 33, Ambica Plastopack Pvt. Ltd. vs. State 2013 SCC OnLine Del 4416 at para 8, Kusum Ingots & Alloys Ltd. vs. Pennar Peterson Securities Ltd. (2000) 2 SCC 745 at paras 10, 12, 13 and 14. Brief re-cap of legal landscape 16. Expatiating on section 141 of the NI Act, in one of its earlier decisions in S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla (supra), the Supreme Court had this to say in answer to a reference made to a 3-Judge Bench : "10. While analysing Section 141 of the Act, it will be seen that it operates in cases where an offence under Section 138 is committed by a company. The key words which occur in the section are "every person". These are general words and take every person connected with a company within their sweep. Therefore, these words have been rightly qualified by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the consent or connivance or is attributable to neglect on the part of any of the holders of these offices in a company. In such a case, such persons are to be held liable. Provision has been made for directors, managers, secretaries and other officers of a company to cover them in cases of their proved involvement. "12. The conclusion is inevitable that the liability arises on account of conduct, act or omission on the part of a person and not merely on account of holding an office or a position in a company. Therefore, in order to bring a case within Section 141 of the Act the complaint must disclose the necessary facts which make a person liable. * * * * * "18. To sum up, there is almost unanimous judicial opinion that necessary averments ought to be contained in a complaint before a person can be subjected to criminal process. A liability under Section 141 of the Act is sought to be fastened vicariously on a person connected with a company, the principal accused being the company itself. It is a departure from the rule in criminal law against vicarious liability. A clear case should be spelled out in the complaint against the person sought to be made liable. Section 141 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e statutory requirements contained in Section 141 of the Negotiable Instruments Act had not been complied with. It may be true that it is not necessary for the complainant to specifically reproduce the wordings of the section but what is required is a clear statement of fact so as to enable the court to arrive at a prima facie opinion that the accused are vicariously liable. Section 141 raises a legal fiction. By reason of the said provision, a person although is not personally liable for commission of such an offence would be vicariously liable therefore. Such vicarious liability can be inferred so far as a company registered or incorporated under the Companies Act, 1956 is concerned 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 the offence committed by the company. Before a person can be made vicariously liable, strict compliance of the statutory requirements would be insisted. Not only the averments made in paragraph 7 of the complaint petitions does not meet the said statutory requirements, the sworn statement of the witness made by the son of Respondent herein, doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the complainant to make specific allegations as are required in law." (emphasis supplied) 19. The same principle has been reiterated by the Supreme Court in N.K. Wahi (supra) : "8. 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 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." (emphasis supplied) 20. The observations of the Supreme Court in Gunmala Sales (P) Ltd. vs. Anu Mehta (supra), also address the circumstance where process has been issued based on foundational averments contained in the complaint against a director, explaining the satisfaction required for quashing a complaint at the instance of such director. The following parag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abuse of process of court. Despite the presence of basic averment, it may come to a conclusion that no case is made out against the Director. Take for instance 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 arm-twisting tactics, the High Court may quash the proceedings. It bears repetition to state that to establish such case unimpeachable, incontrovertible 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. "34.4. 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 Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and responsible for conduct of the business of the Company or the Company, unless such Director is the designated Managing Director or Joint Managing Director who would obviously be responsible for the company and/or its business and affairs." (emphasis supplied) 22. Clearly, therefore, for summons to be sustained and for trial to continue, it is absolutely essential that the basic or foundational averments must be contained in a criminal complaint against a director in relation to his alleged role in the offence. 23. As to the need for application of mind by the courts, and for not passing summoning orders in criminal complaints mechanically, one of the leading decisions of the Supreme Court in Pepsi Foods Ltd. vs. Special Judicial Magistrate (supra), may be cited for reference: "28. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s taken by the Magistrate under Section 190(1) (a) CrPC followed by Section 204 CrPC should reflect that the Magistrate has applied his mind to the facts and the statements and he is satisfied that there is ground for proceeding further in the matter by asking the person against whom the violation of law is alleged, to appear before the court. The satisfaction on the ground for proceeding would mean that the facts alleged in the complaint would constitute an offence, and when considered along with the statements recorded, would, prima facie, make the accused answerable before the court. No doubt, no formal order or a speaking order is required to be passed at that stage. The Code of Criminal Procedure requires speaking order to be passed under Section 203 CrPC when the complaint is dismissed and that too the reasons need to be stated only briefly. In other words, the Magistrate is not to act as a post office in taking cognizance of each and every complaint filed before him and issue process as a matter of course. There must be sufficient indication in the order passed by the Magistrate that he is satisfied that the allegations in the complaint constitute an offence and when conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the complaint that the person who has been arraigned in his capacity as director of such company was in-charge of the affairs of the company and was responsible to it for the conduct of its business at the time of the commission of offence (cf. para 11). In the opinion of this court therefore, respondent No. 1 is selectively reading the decision of the Supreme Court in Col. B.S. Sarao (supra), which judgment does not support respondent No.1's submission. 26. Furthermore, counsel for respondent No.1 has also cited the decision of Supreme Court in Kanti Bhadra Shah (supra), to submit that it is not necessary for a Magistrate to write detailed orders at the stage of issuing summons (cf. para 12 of the judgment). A meaningful reading of the said judgment would show that the Supreme Court has expressed that it is quite unnecessary to write "detailed orders" at stages such as when issuing process, which is not to say that the need for at least briefly stating the reasons for issuing summons sufficient to disclose that the Magistrate has applied his mind, is to be dispensed with completely. It is not the purport of the Supreme Court observation in Kanti Bhadra Shah (supra) that summonin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the present case, this court is persuaded to exercise its inherent powers under section 482 Cr.P.C. Discussion & Conclusions 28. In the backdrop of the submissions made by counsel on both sides; being guided by the legal position on relevant aspects as laid-down by the Supreme Court in the judgements cited above; and, most importantly, on a bare reading of the allegations contained in the criminal complaints (or the lack of them), based on which the impugned summoning orders have been passed, the following inferences plainly arise : 28.1 It is not the complainant's case that any of the petitioners was signatory to the cheques that were dishonoured; 28.2 In fact, in the body of the criminal complaints the complainant does not even aver that the petitioners, or any of them, were directors of the accused company; and if so, whether they were directors at the relevant time. Only the memorandum of parties to the criminal complaints set-out the names of the petitioners with the designation 'Director' alongside each name; 28.3 In all the criminal complaints there is no allegation that the petitioners were involved in issuance of the cheques; nor any allegation that they wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vamen of the offence contained in section 138 of the NI Act. However, when a cheque is returned with a noting that it has been dishonoured for "other reasons", it certainly begs the question as to what the specific reason for dishonour was. This question ought to have been raised in the course of proceedings before summons were issued, failing which it is not even clear if the basic ingredients of the offence under section 138 are made-out in relation to a given cheque. 29. Before parting with the matter, this court is constrained to observe that it appears to have become commonplace for complainants to arraign all and sundry directors of a company as accused in a criminal complaint in relation to dishonour of cheques, with the evident intention of pressurising and arm-twisting a company into paying-up a claimed debt. It is necessary to articulate that a criminal complaint under section 138 of the NI Act is not, in and of itself, a money recovery proceedings, even though fine and compensation may be imposed upon conviction. The wanton arraignment of directors without reference to their role in relation to a transaction, or to the issuance or dishonour of a cheque by the company, r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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