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TMI Blog2015 (6) TMI 1275X X X X Extracts X X X X X X X X Extracts X X X X ..... dence on record to prove that Sanjay Sharma visited the accused firm to assess the quality of the material supplied, or that he acknowledged that the quality of the goods supplied was defective or inferior, the entry of visit of Sanjay Sharma relied upon is of no avail. The presumption under Section 139 NI Act arose in the facts of the present case. For the said presumption to be rebutted, the defence had to meet the standard of being probable upon preponderance of probabilities - the accused has not managed to rebut the said presumption. The defence taken by the accused was that the materials supplied were of inferior quality. Thus, it is established that the accused has not managed to show, even as probable, its defence that the complainant company supplied materials of inferior quality. Thus, the presumption under Section 139 NI Act is also not rebutted. The Supreme Court in S.M.S. Pharmaceuticals [ 2005 (9) TMI 304 - SUPREME COURT ] observed that only the persons who are responsible for the conduct of the business of the firm at the time the offence was committed will be vicariously liable, and not all the persons in the firm. It is an admitted position that accused no. 3 place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod of September, 2007 to February, 2008 for supply of goods. The accused No.1 firm was supplied the goods/materials as per the purchase orders through one Sh. Parveen Aggarwal (accused no. 2) and Sh. GK Mishra (accused no. 3); the goods were lastly supplied on 25.02.2008; Form-C were issued by the accused on 26.02.2008; the partner of the accused signed the accounts statement; the accused made payment of Rs. 10,55,788/- only, leaving an outstanding balance of Rs. 7,18,432/. To discharge the remaining liability, the accused issued two cheques of Rs 2 Lakhs each. 6. The first cheque was cleared, but the second cheque bearing no. 013983 dated 25.06.2008 (hereinafter referred to as the cheque ) drawn on State Bank of India, SSI Branch, Baddi, Solan, Himachal Pradesh was dishonoured for reason of payment stopped by drawer . The cheque was issued by accused no. 2, disclosing himself to be a partner of the accused firm. The complainant sent a legal notice dated 05.07.2008 through registered post to the accused. The accused firm replied to the legal notice and raised a dispute with regard to the quality of the goods supplied. The accused firm failed to pay the amount of the cheque withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent funds in its bank account to discharge the said liability, and that the stop payment was for a valid reason. 11. While not disputing the above stated legal proposition, ld. Counsel for the appellant submits that the respondent s defence that the material supplied was of inferior quality is not substantiated, and was merely an afterthought. The complainant company supplied materials to the accused firm from September, 2007 to February, 2008 the last supply being made on 25.02.2008. The accused firm did not reject the materials on the ground that the quality is inferior, or the materials supplied are defective in nature. The cheque in question was issued much later, bearing the date 25.06.2008. The stand that the goods were defective/inferior was communicated, for the first time, in reply to the legal notice under Section 138 of the NI Act. He further submits that CW-1 Sh. Tapash Kumar Nandy in his cross- examination by the counsel for the accused dated 03.03.2012 deposed that the materials were not defective. He also deposed that the accused firm did not intimate or remind the complainant company about the alleged inferior quality of the materials supplied. 12. Ld. Counsel submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , nor has he ever been an employee of the accused firm. The accused no. 2 has never been involved in the working of the accused firm either. Ld. counsel submits that the accused no. 2 is not vicariously liable, as he was not a partner of the firm, nor was he the signatory of the cheque, and he was not responsible to the firm for the conduct of the business of the firm, or to the firm. 17. Ld. Counsel further submits with regard to accused no. 3, G.K. Mishra, that he was the purchase manager of the accused firm and he was not in-charge of the day to day affairs of the accused firm. Accused no. 3 was an employee in the purchase department and placed orders on behalf of the accused firm between the period September, 2007 to February, 2008. He never made payments on behalf of the accused firm, nor was he aware that the cheque (Ex. C-30) had been issued to the complainant company. The accused no. 3 received the legal notice dated 05.07.2008 (Ex. CW-31), which he forwarded to the Administration Department of the accused firm. He submits that since the accused no. 3 is only an employee in the Purchase Department of the firm, and not in the Accounts Department, nor is he a partner in the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the accused firm took the plea for the first time, in its reply to the legal notice, that the goods supplied were of inferior quality and therefore, the payment was stopped. 23. DW-2 in his examination-in-chief dated 06.04.2003 deposed as follows: That some of the lots of the material received by the complainant was not of good quality and was rejected for the reasons of problem of dry soldering in the said PCB models. That thereafter repeated reminders and request for made to the complainant regarding the same but to no avail. In his cross-examination dated 05.09.2013, he deposed to the effect: I do not remember the date when the fault in the PCB was detected by the accused firm. The same was detected when the components were used in the PCB s of other companies. I do not know the exact date when my firm informed the complainant company about the defective PCBs . Further, he deposed that: It is correct that no document has been placed on record showing that the good were of defective nature. 24. From the above extracted testimony, it is evident that the AR of the accused firm has claimed that the materials supplied were of inferior quality. He, upon being cross-examined, state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed firm has brought no evidence on record to prove that Sanjay Sharma visited the accused firm to assess the quality of the material supplied, or that he acknowledged that the quality of the goods supplied was defective or inferior, the entry of visit of Sanjay Sharma relied upon is of no avail. 28. Further, the accused firm has claimed that it sent repeated reminders to the complainant company regarding the inferior quality of the materials supplied. The accused contended that after the visit of Sanjay Sharma an e- mail dated 07.06.2008 was sent to the complainant company informing them of the defective nature of the materials supplied. DW-2, Rajat Aggarwal, in his examination-in-chief dated 06.04.2003 deposed That thereafter in the month of June, 2008, the complainant was informed by the way of e-mail dated 07. 06.2008 and also by a registered post informing thereby the faulty nature of the PCB s and raising a debit note amount to approximately Rs. 11 lacs and further directed them not to present the two cheques amount to Rs. 2 lacs each and also credit note amount to approximately Rs. 11 lacs to the accused firm . The accused produced a copy of the e-mail dated 07.06.2008 vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence and cannot be relied upon by the accused. Consequently, as the only evidence provided by the accused to prove that it intimated the complainant company regarding the inferior quality of the supplied materials is inadmissible; its defence is not substantiated. 30. There is no explanation as to why, in respect of goods supplied lastly on 25.02.2008, no recorded or acknowledged communication was issued, recording the factum of the goods being defective/ inferior in quality. There is no explanation as to why the cheque in question was issued, if the goods were allegedly defective/inferior in quality. The accused have not established on record that the cheque in question was issued even prior to the delivery of the allegedly defective goods. 31. The presumption under Section 139 NI Act arose in the facts of the present case. For the said presumption to be rebutted, the defence had to meet the standard of being probable upon preponderance of probabilities as observed by the Supreme Court in various judgments. In my view, the accused has not managed to rebut the said presumption. The defence taken by the accused was that the materials supplied were of inferior quality. From the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant has not established on record that accused no. 2 is the signatory to the cheque. Since the complainant company has also not produced any evidence to establish that accused No.2 was in charge of, or responsible to the accused firm for the conduct of the business of the firm, as well as to the firm, accused no. 2 stands acquitted. 34. The accused no. 3 was the purchase manager of the accused firm and, he had placed orders on behalf of the accused firm. His vicarious liability has to be tested on the touchstone of Section 141 NI Act. The said Section reads as follows: Section 141: Offences 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 preven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry Director, Manager or Secretary in a Company is liable ....etc. The legislature is aware that it is a case of criminal liability which means serious consequences so far as the person sought to be made liable 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. XXXXXXXXXXXXXXXXXX 10. 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 XXXXXXXXXXXXXXXXXX 16. 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, th ..... 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