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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 ..... cted with the company may not fall within the ambit of section 141 of the NI Act. The Supreme Court in Siby Thomas V M/s Somany Ceramics Ltd., [ 2023 (10) TMI 487 - SUPREME COURT ] observed that it is the primary responsibility of the complainant to make specific averments in the complaint, so as to make the accused vicariously liable. It is the primary responsibility of the complainant to make specific averments in the complaint so as to make the accused vicariously liable. If the basic averment is made in the complaint under section 138 of NI Act 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 then Magistrate can issue process against such 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. Section 141 of the NI Act provides for a constructive liability which is created by a legal fiction - The petitioner as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Singh, Metropolitan Magistrate - 05, Patiala House Courts, New Delhi in Complaint Case bearing no. 15858/2017 titled as M/S Morgan 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... memo dated 16.08.2005 and this fact was intimated to the respondent/the complainant by its banker on 16.08.2005. The respondent/the complainant 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 aggriev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e accused no 5 in the complaint) is an independent practicing Chartered Accountant and was independent Director of the accused no. 1. The petitioner had 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as appointed as an independent director without any executive role ceased to continue as a director with effect from 10.11.2012 as reflected in Form No. 32. 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 or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pendent Non-Executive Director, there is no specific averment attributed to the petitioner in the complaint to bring the petitioner within the ambit of Section 141 of 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 arbit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany, 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 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany. Section 141 contains conditions which have to be satisfied before the liability can be extended to officers of a company. Since the provision creates criminal liability, the conditions have to be strictly complied with. The conditions are intended to ensure that a person 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 ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able is concerned. Therefore, only persons who can be said to be connected with the commission of a crime at the relevant time have been subjected to action. A reference to sub-section (2) of Section 141 fortifies the above reasoning because subsection (2) envisages direct involvement 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 Ceramic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nduct of the business of the company at the relevant time when the offence was committed. It is thereafter that in the decision in S.P. Mani s case (supra) in paragraph 47 (a) it was held that the primary responsibility of the complainant is to make specific averments in the complaint so as to make the accused vicariously 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the day-to-day affairs of the company. This is hardly relevant in the context of subsection 1 of Section 141 of the NI Act. The allegation that they are in charge of the company is neither here nor there and by no stretch of the imagination, on the basis of such averment, one cannot conclude that the allegation of the second respondent is that the appellants 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting to Rs. 50,00,000/- drawn on ICICI Bank Ltd., Connaught Place, New Delhi which on presentation got dishonoured due to funds insufficient vide cheque returned memo dated 16.08.05. The cheque amount was not paid despite legal notice dated 13.09.05. The concerned court of Metropolitan Magistrate vide order dated 26.10.05 summoned the accused(s) including the petitioner 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations in the complaint qua the petitioner, some of which are also discussed by the revisional court in impugned judgment:- 2. That Accused No. 2 with the consent of Accused Nos. 3 to 6 on behalf of Accused No. 1 had approached complainant company for the financial assistance for business purposes by way of Inter Corporate Deposit (ICD) facility with a promise to repay back the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove paras of the complaint reflects that the respondent/the complainant pleaded that the accused no 1 through the accused no. 2 with the consent of the accused no. 3 to 6 including the petitioner had approached the respondent/the complainant for the financial assistance for business purposes by way of Inter Corporate Deposit (ICD) facility. The respondent/the complainant also pleaded that the petitioner being one of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 2013 defines as Board of Directors in relation to a company means the collective body of the directors of the company. Chapter XI of the Companies Act, 2013 deals with appointment and qualifications of the directors. Section 149 of the Companies Act, 2013 provides that a company is required to have a Board of Directors. Section 149(6) of the Companies Act, 2013 defines as Independent Director. Independent director in 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 petition ..... X X X X Extracts X X X X X X X X Extracts X X X X
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