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TMI Blog2023 (12) TMI 163X X X X Extracts X X X X X X X X Extracts X X X X ..... an Securities& Credits Pvt. Ltd. V Blue Coast Hotels& Resorts Ltd.& others. 2. M/S Morgan Securities and Credits Pvt. Ltd. (herein referred to as "the respondent/the complainant") through its Authorized Representative Mahender Gautam filed a complaint under sections 138/141/142 of Negotiable Instruments Act, 1881 (hereinafter referred as "NI Act") and 420 IPC titled as M/S Morgan Securities & Credits Pvt. Ltd. V Blue Coast Hotels & Resorts Ltd.& others bearing no. 15858/2017 on the allegations that the accused no. 2 namely Arun Suri with the consent of the accused no. 3 to 6 namely Mamta Suri, Basant Kumar Goswami, K. S. Mehta (the petitioner) and the Sushil Suri on behalf of the accused no. 1 known as Blue Coast Hotels & Resorts Ltd. had approached the respondent/the complainant for the financial assistance for business purposes by way of Inter Corporate Deposit (ICD) facility with a promise to repay back the amount of the ICD as per the terms mutually agreed and reduced in writing by way of an Inter Corporate Deposit Agreement dated 09.09.2002. The respondent/complainant paid Rs. 5,00,00,000/- (Rs. five crores only) under the ICD facility to the accused(s) vide cheque bearing no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplainant sent legal notice dated 13.09.205 which was served upon the accused(s). The accused no. 2 is the Managing Director and authorized signatory and the accused no. 3 to 6 are the directors of the accused no. 1 and are in charge of and responsible for the conduct of business and day to day affairs and management of the accused no. 1. The respondent being aggrieved filed the present complaint. 3. The concerned court of Metropolitan Magistrate vide order dated 26.10.2005 opined that there are sufficient grounds to proceed against the accused (s) for offences punishable under section 138 read with section 141 of the NI Act and accordingly summoned the accused(s). The court of Sh. Dharmender Singh, Metropolitan Magistrate-05, Patiala House Courts, New Delhi (hereinafter referred to as "the trial court") vide order dated 11.10.2018 opined that prima facie case under section 138 of NI Act is made out against accused company (the accused no. 1) and remaining accused (the accused no. 2 to 6 including the petitioner. 4. The petitioner being aggrieved by the order dated 11.10.2018 filed Criminal Revision bearing no. 539/2018 titled as K. S. Mehta VM/s. Morgan Securities & Credit Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad never received any remuneration from the accused no. 1 / Company except normal meeting fee from 2001 to 2012 during the period of his directorship. M/S Morepen Laboratories Ltd. had issued cheques in terms of consent award passed on the basis of Memorandum of Settlement dated 27.5.2003 executed between the respondent/the complainant and M/S Morepen Laboratories Ltd, M/s Blue Coast Hotels & Resorts Ltd., Arun Suri and Sushil Suri in arbitration proceedings initiated by the respondent/ the complainant. The respondent/the complainant filed an execution petition no. 13/04 before this Court. The accused no. 1 M/s Blue Coast Hotel & Resort through letter dated 05.04.2004 had also issued post-dated cheques to back up the cheque issued by the associate company M/s Morepen Laboratories Ltd. on a specific assurance that these cheques would be presented only if the associate company M/s Morepen Laboratories Ltd did not pay its dues. The respondent/the complainant and its directors assured that they will hold the cheques issued by the accused no. 1 and entrusted to the respondent/the complainant and promised not to initiate legal proceedings and withdraw any legal proceedings already initia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The courts below failed to appreciate that the cheque in question was not signed by the petitioner and was not part of the transaction resulting in either the cheque in question being issued or leading to its dishonour. The cheque in question was signed by the accused no. 2 in pursuance to a Memorandum of Settlement dated 27.05.2003 and a consent award dated 21.07.2003/28.06.2003. 5.2.1 The revisional court has failed to appreciate that there is no averment in the complaint as to how the petitioner was in any manner involved in the affairs and conduct of business of the accused no. 1 nor there is any specific or material evidence determining the conduct as to the part played by the petitioner as a Director of the accused no 1. The revisional court passed the impugned order merely on the basis of false, baseless, bald and cursory allegations. The revisional court has failed to appreciate that the allegations made in the complaint are vague and bald and does not make any prima facie case against the petitioner. The impugned order is based on conjectures and surmises. It was prayed that impugned order be set aside. 6. The learned senior counsel for the petitioner advanced oral ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the NI Act, the petitioner was not a party to arbitration and as such proceeding qua the petitioner for the offence of section 138 of NI Act is not maintainable. It is argued that the accused no. 1 issued cheque in question with the consent and knowledge of the petitioner to discharge its liability towards the respondent/ the complainant. The legal notice was also issued to the petitioner after dishonour of the cheque in question which was not replied by the petitioner. The petitioner has not challenged the summoning order dated 26.10.2005. There is no provision under which the petitioner can be discharged for offence under section 138 of NI Act. The present petition being second revision in nature is not maintainable. The Corporate governance Report and Form 32 relied upon by the petitioner are not admissible as per section 76 of Indian Evidence Act, 1872. It is further argued that specific allegations qua the petitioner have been made in the complaint meeting basic ingredients of section 141 of the NI Act. The arbitration proceedings and proceedings under section 138 of the NI Act are different and distinct and arbitration proceedings do not have any bearing on trial under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 and shall be liable to be proceeded against and punished accordingly. Explanation.- For the purposes of this section,- (a) "company" means anybody corporate and includes a firm or other association of individuals; and b) "director", in relation t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who is sought to be made vicariously liable for an offence of which the principal 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. In other words, persons who had nothing to do with the matter need not be roped in. A company being a juristic person, all its deeds and functions are result of acts of others. Therefore, officers of a Company who are responsible for acts done in the name of the Company are sought to be made personally liable for acts which result in criminal action being taken against the Company. It makes every person who, at the time the offence was committed, was incharge of, and was responsible to the Company for the conduct of business of the Company, as well as the Company, liable for the offence. The proviso to the sub-section contains an escape route for persons who are able to prove that the offence was committed without their knowledge or that they had exercised all due diligence to prevent commission of the offence. While analysing Section 141 of the Act, it will be seen that it operates in cases where an offence under Section 138 is comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any Director, Manager, Secretary or other officer of a company in commission of an offence. This section operates when in a trial it is proved that the offence has been committed with 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. 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. 9.2.1 The Supreme Court in Siby Thomas V M/s Somany Ceramics Ltd., Criminal Appeal No.... of 2023 (arising out of Special Leave Petition (Crl.) No. 12 of 2020) decided on 10th October, 2023 referred decision in S.P. Mani and Mohan Dairy V Dr. Snehalatha Elangovan, 2022 SCC OnLine SC 1238 and observed that it is the primary responsibility of the complain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly liable. 9.2.3 The Supreme Court in Siby Thomas V M/s Somany Ceramics Ltd. also referred Anita Malhotra V Apparel Export Promotion Council & another, (2012) 1 SCC 520 wherein it was observed as under:- 22. This Court has repeatedly held 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 accused 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. (Vide National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal). In the case on hand, particularly, in Para 4 of the complaint, except the mere bald and cursory statement with regard to the appellant, the complainant has not specified her role in the day-to-day affairs of the Company. We have verified the averments as regards to the same and we agree with the contention of Mr. Akhil Sibal that except reproduction of the statutory requirements the complainant has not specified or elaborated the role of the appellant in the day-to-day affairs of the Company. On this ground also, the appellant is entitled to succee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellants were also responsible to the company for the conduct of the business. Only by saying that a person was in charge of the company at the time when the offence was committed is not sufficient to attract sub-section 1 of Section 141 of the NI Act. 9.2.4 The Supreme Court in Siby Thomas V M/s Somany Ceramics Ltd. after referring above mentioned decisions observed as under:- 16. Thus, in the light of the dictum laid down in Ashok Shewakramani's case (supra), it is evident that a vicarious liability would be attracted only when the ingredients of Section 141(1) of the NI Act, are satisfied. It would also reveal that merely because somebody is managing the affairs of the company, per se, he would not become in charge of the conduct of the business of the company or the person responsible to the company for the conduct of the business of the company. A bare perusal of Section 141(1) of the NI Act, would reveal that only that 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 alone shall be deemed to be guilty of the offence and shall be liable to be proceeded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r for offences punishable under section 138 read with section 141 of the NI Act. The trial court vide order dated 11.10.2018 opined that prima facie case under section 138 of NI Act is made out against accused company (the accused no. 1) and remaining accused (the accused no 2 to 6 including the petitioner). The revisional court vide impugned order dismissed revision petition bearing no 539/2018 which was filed to challenge the order dated 11.10.2018. 10.1 The petitioner was arrayed as the accused no. 5 in the complaint and has been summoned for offence punishable under section 138 of NI Act. The petitioner is a Chartered Accountant. The petitioner was not a party to the Inter Corporate Deposit Agreement dated 09.09.2002, Memorandum of Settlement dated 27.05.2003 and the Consent Award dated 21.07.2003 pursuant to which the cheque in question was issued leading to the present complaint. The cheque in question was not signed by the petitioner which was signed by the accused no. 2. The petitioner as per Form 32 was appointed as Additional Director with effect from 29.06.2001 and resigned as Director on 10.11.2012. The petitioner is not shown as Non-Executive Director in Farm 32. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... monies/amount of the ICD as per the terms mutually agreed and reduced in writing by way of an Inter Corporate Deposit Agreement dated 09.09.2002. 4. That complainant company has extended the financial assistance to Accused No. 1 company to the tune of Rs. 5,00,00,000/- (Rupees Five Crores Only) according to the usual prevailing corporate convention and, believing and acting upon promises of the accused persons. Accused No. 2 is the managing Director and Authorized Signatory, Accused No. 3 to 5 are the Directors, and Accused No. 6 is the Authorized Signatory of company, who are incharge of day to day affairs and are responsible for the conduct of the business of the Accused No. 1 company and for all acts and deeds committed by or on behalf of Accused No. 1 company. 5. That complainant also filed / initiated arbitration proceedings against Accused No. 1, 2 and accused no. 6 and M/s Morepan Laboratories Ltd. jointed as parties during the Arbitration proceedings. The Arbitration proceedings were conducted by Hon'ble Mr. Justice H.L. Aggarwal (Retd.) and during the proceedings, a compromise took place between Accused No. 1, 2 & 6 and M/s Morepan Laboratories Ltd. and the compla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the directors of the accused no. 1 was in charge of day to day affairs and are responsible for the conduct of the business of the accused no 1 and for all acts and deeds committed by or on behalf of the accused no. 1. The respondent/the complainant also pleaded that the accused no. 2 on behalf of the accused no 1 with the consent and knowledge of the accused no. 3 to 6 including petitioner have signed and issued several cheques and further cheque in question was issued by the accused no. 2 on behalf of the accused no 1 with the consent of the accused no. 3 to 6 in the part payment of the outstanding amount. The respondent/the complainant also got issued notice dated 13.09.05 which was also served on the petitioner. The respondent/the complainant as such made sufficient, adequate and ample averments against/qua the petitioner in the complaint necessary to constitute vicarious liability of the petitioner. The argument advanced on behalf of the petitioner that the complaint is without sufficient averments to make petitioner vicariously liable for acts done on behalf of the accused no. 1 is without any basis. 12. It is also argued on behalf of the petitioner that the cheque in questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relation to a company means a director other than a managing director or a wholetime director or a nominee director. Independent Director may be a person of integrity and may possess relevant expertise and experience. Independent Director is or was not a promoter of the company or its holding, subsidiary or associate company. Independent Director has or had no pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors during the relevant period. The petitioner does not fall within the definition of independent director or non-executive director being Director of the accused no. 1 as reflected from Form 32. 12.3 The petitioner in Corporate Governance Report and other documents relied on by the petitioner is shown as Independent Non-Executive Director. However Governance Report also reflects that the petitioner had attended 10 Board meetings and also attended last AGM. Mere fact that the petitioner in few documents which are required to be proved during trial, was mentioned as independent non-executive director does not mean that the petitioner was not directly or indirectly related with the affairs of the accused no 1. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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