IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 6TH DAY OF MARCH, 2019 BEFORE THE HON’BLE MR.JUSTICE ARAVIND KUMAR CRIMINAL PETITION NO.8031/2017 BETWEEN:
SHRI. RAMANATHAN RADHA KRISHNAN S/O SHRI. H. RAMANATHAN AGED 54 YEARS RESIDING AT NO.5 GODHAVARI APARTMENTS 167 LAKE VIEW ROAD, WEST MAMBALAM CHENNAI – 600 033.
... PETITIONER (BY SRI. SHASHIKIRAN SHETTY., SR. COUNSEL A/W MRS. PRINCY PONNON., ADVOCATE FOR SRI. MURALIDHARA C., ADVOCATE) AND:
GREEN FUEL SUPPLIES PVT. LTD., HAVING OFFICE AT COTTAGE #4 BANGALORE PALACE BENGALURU- 560 001 REPRESENTED BY ITS DIRECTOR AND AUTHORIZED REPRESENTATIVE SHRI. ABHIJITH P MARVE.
... RESPONDENT (BY SRI. CHANDRASHEKARA K., ADVOCATE) THIS CRIMINAL PETITION IS FILED UNDER SECTION 482 CR.P.C PRAYING TO QUASH THE ENTIRE PROCEEDINGS IN C.C.NO.26511/2016 (ANNEXURE B) PENDING ON THE FILE OF THE LEARNED XXVII ADDITIONAL CHIEF METROPOLITAN MAGISTRATE, BANGALORE FOR THE OFFENCE P/U/S 138 OF THE NEGOTIABLE INSTRUMENTS ACT.
THIS PETITION HAVING BEEN HEARD AND RESERVED, COMING ON FOR PRONOUNCEMENT OF ORDERS THIS DAY, ARAVIND KUMAR J., MADE THE FOLLOWING:
O R D E R Petitioner who is arraigned as accused No.3 in C.C.No.26511/2016, which proceedings has been initiated by respondent herein alleging that accused persons have committed an offence punishable under Section 138 of Negotiable Instruments Act, 1881 (hereinafter referred to as ‘NI Act’ for short), is before this Court for quashing of said proceedings.
BRIEF FACTS:
2. Respondent herein filed a complaint under Section 200 Cr.P.C. r/w Sections 138 and 141 of the NI Act alleging it is a company registered under the Companies Act and so also accused No.1 of which accused Nos.2 and 3 are the Directors and actively involved on day-to-day basis for the activities of the accused No.1-company. It was further alleged that accused No.4 as a Concern connected with and/or managed by accused Nos.1 to 3 had issued a cheque on behalf of accused No.1 and confirmed by the accused No.1-company, which is liable for being punished under Section 138 of the NI Act as the cheque having been issued by it on behalf of accused Nos.1 to 3.
3. At this juncture itself it would be apt and appropriate to notice that one more petition had been filed arraying the present petitioner (i.e., petitioner in Crl.P.No.8031/2017) as petitioner No.3 in Crl.P.No.2772/2017. By filing a memo on 28.02.2017 said petition has been withdrawn by accused Nos.1, 2 and 4. Since accused No.3 had not affixed his signature to the vakalathnama and an affidavit tendering unconditional apology came to be filed by accused No.2, who is the Director of accused No.1 and authorized signatory of accused No.4, same came to be accepted by this Court conditionally by mulcting him with exemplary costs and Crl.P.No.2772/2017 came to be dismissed as withdrawn.
4. I have heard the arguments of Sri.Shashikiran Shetty, learned Senior Counsel appearing along with Ms.Princy Ponnan on behalf of M/s.Murali & Co. for petitioner and Sri.K.Chandrashekara, learned counsel appearing on behalf of Sri.Kiran S. Javali for respondent. Perused the records.
5. It is the contention of Sri.Shashikiran Shetty, learned Senior Counsel appearing for petitioner that averments made in the complaint did not prima facie establish the role and complicity of petitioner and as such there has been no judicious application of mind by the learned Magistrate for issuing process. He would further submit that even according to complainant accused No.4 had issued cheque which is a proprietary Concern, of which petitioner does not have any nexus and petitioner not being authorized signatory nor concerned with the affairs of accused No.4, proceedings ought not to have initiated against him. It is also further contended that petitioner never participated in the affairs of accused No.1-company and he was only a non executive Director on record and as such, complaint ought to have been rejected against the petitioner at the threshold without issuing process by the learned Magistrate, inasmuch as, being incharge of affairs of the accused No.1-company is sine qua non to make the Directors vicariously liable under Section 141 of NI Act. He would also further contend that even otherwise as on the date of cause of action arose for filing the complaint, petitioner was not the Director and has resigned from the Board of Directors of the company with effect from 02.03.2016, which is also intimated to the jurisdictional Registrar of Companies as accepted by them indicating that petitioner has seized to be the Director with effect from 02.03.2016 and non consideration of these aspects has resulted in great prejudice to the petitioner. In support of his submission he has relied upon the following judgments:
(i) AIR 2008 SC 2255: DCM FINANCIAL SERVICES LTD. v. SAREEN AND ANR.
(ii) (2010) 12 SCC 146: P.J.AGRO TECH LIMITED AND OTHERS v. WATER BASE LIMITED 6. Per contra, Sri.K.Chandrashekara, learned counsel appearing on behalf of Sri.Kiran S. Javali for respondent would submit that at the threshold complaint cannot be quashed, inasmuch as, complainant has specifically alleged that petitioner was the Director of accused No.1-company. He would submit that cheques in question had been issued on 10.02.2016 and 15.02.2016, which on presentation came to be returned unpaid for want of sufficient funds on 14.02.2016 and 16.02.2016 respectively and on re- presentation at the request of accused persons, it was returned for the second time unpaid for the same reason aforesaid on 09.03.2016 and 18.03.2016 respectively and as such, legal notice came to be issued on 19.03.2016 calling upon the accused persons to repay the amounts, which was not repaid within 15 days and thereby accused persons having committed an offence punishable under Section 138 of NI Act, complaint in question came to be filed on 26.04.2016 and there is no infirmity in that regard and it is open to the petitioner (accused No.4) to establish that either he was not incharge of the affairs of accused No.1- company or had resigned from the said company before the cheques in question came to be returned.
7. He would further submit that these are the matters which will have to be thrashed out during the trial and as such by relying upon the averments made in the complaint as well as communication dated 27.01.2016-Ex.P-6 and communication dated 27.01.2015-Ex.P-7 whereunder accused No.1-company has admitted the amount due to complainant on which date petitioner-accused had not resigned from the Directorship of accused No.1–company and as such petitioner-accused No.3 would also be vicariously liable by virtue of a deeming fiction provided under Section 141 of the NI Act. Hence, by relying upon the following judgments he prays for rejection of the petition:
(i) (2016) 2 SCC 75: BRIDGESTONE INDIA PRIVATE LIMITED v. INDERPAL SINGH (ii) (2008) 7 SCC 442: PARESH P. RAJDA v. STATE OF MAHARASHTRA AND ANOTHER (iii) (2016) 6 SCC 62: STANDARD CHARTERED BANK v. STATE OF MAHARASHTRA AND OTHERS (iv) ILR 2006 KAR. 537: CHAIRMAN M.S.ZAHED, M/S HMT WATCHES LTD AND ANOTHER v. THE COSMOS CO- OPERATIVE BANK LIMITED, PUNE (v) (2016) 10 SCC 458: SAMPELLY SATYANARAYAN RAO v. INDIAN RENEWABLE ENERGY DEVELOPMENT AGENCY LIMITED (vi) (2017) 5 SCC 737: N.PARAMESWARAN UNNI v. G.KANNAN AND ANOTHER 8. Having heard the learned Advocates appearing for parties and on perusal of records it would clearly disclose that complainant has specifically contended that accused No.1-company consists of two Directors namely, accused Nos.2 and 3 (petitioner herein). It is further alleged in the complaint that based on the representation made by accused Nos.1 to 3 complainant had placed two purchase orders for supply of Solar P.V.Module Poly Crystalline and had paid advance amount of `35,97,417/- through RTGS to the account of accused No.1, which was never disputed by the said accused. It is further alleged that complainant in-turn had affected the commitments made to their clients and on one or the other excuses accused did not supply the goods on the purchase order placed by the complainant and as such amount of `35,97,417/- was sought for refunded in addition to seeking `5,00,000/- as loss caused to them for delay and loss of interest. A sum of `5 lakhs agreed to has been paid by accused Nos.1 to 3 and for the balance amount of `35,97,417/- due and payable by accused Nos.1 to 3, by letter dated 27.01.2015 (Ex.P-7) they had accepted the cancellation as well as debt/liability and had forwarded two cheques for discharge of debt and said cheques were issued by accused No.4 on behalf of accused Nos.1 to 3. It is further alleged that on its presentation the same had been returned unpaid and as such accused persons had committed an offence punishable under Section 138 of NI Act.
9. Insofar as allegations against petitioner (accused No.4) is concerned, it can be traced in paragraphs 5 and 8 whereunder the complainant alleges that based on the representation made by accused Nos.2 and 3 on behalf of accused No.1 and they being the persons concerned with day to day activities and matters of the business of accused No.1 had caused the complainant to believe those representations, acting upon which the purchase orders came to be placed by paying advance amount of `35,97,417/-.
10. A bare reading of Section 141 of NI Act creates a constructive liability on the persons responsible for the conduct of the business of the company. It is clear that if person who commits the offence under Section 138 of NI Act is a company, the company as well as other person/s incharge of/or responsible to the company for the conduct of the business of the company at the time of commission of the offence, is deemed to be guilty of the offence. Thus, key words found in Section 141 of NI Act i.e., “every person” connected with the affairs of the company and being incharge of and was responsible to the company for the conduct of its business, would be covered within the sweep of Section 141 of NI Act.
11. Thus, the mandate of Section 141 of NI Act would be that persons who are sought to be made criminally liable, should be, at the time the offence committed, in-charge of, and responsible to the company for the conduct of business of the company. Thus, it would emerge that only those persons who are in-charge of and are responsible for the conduct of business of the company at the time of commission of offence, will be liable for criminal action under Section 138 of NI Act. In other words, if a Director of a company who was in-charge and was not responsible for the conduct of business of the company at the relevant point of time, will not be liable under this provision. The liability arises from being in-charge of and responsible for the conduct of business of company at the relevant time when the offence was committed and not on the basis of mere holding a designation or office in a company. Likewise, a person who might not be a Director, Secretary or not designated by any name, may also be liable, if it is satisfied that such person “being in-charge of” and “responsible for the conduct of business of the company” at the time offence was committed. Thus, it boils down that liability depends on the role one plays, in the affairs of the company and not on designation or status.
12. Hon’ble Apex Court in the matter of S.M.S PHARMACEUTICALS LTD. vs. NEETA BHALLA II reported in (2007) 4 SCC 70 has held:
“24. ....... 7. A bare perusal of the complaint petitions demonstrate that the 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 facts 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 with the statutory requirements would be insisted.”
13. Hon’ble Apex Court in S.M.S PHARMACEUTICALS LTD. vs. NEETA BHALLA & ANR.
reported in (2005) 8 SCC 89 has concluded as under:
“10. … What is required is that the persons who are sought to be made criminally liable under Section 141 should be at the time the offence was committed, in charge of and responsible to the company for the conduct of the business of the company. Every person connected with the company shall not fall within the ambit of the provision. It is only those persons who were in charge of and responsible for the conduct of business of the company at the time of commission of an offence, who will be liable for criminal action. It follows from this that if a Director of a company who was not in charge of and was not responsible for the conduct of the business of the company at the relevant time, will not be liable under the provision. The liability arises from being in charge of and responsible for the conduct of business of the company at the relevant time when the offence was committed and not on the basis of merely holding a designation or office in a company. Conversely, a person not holding any office or designation in a company may be liable if he satisfies the main requirement of being in charge of and responsible for the conduct of business of a company at the relevant time. Liability depends on the role one plays in the affairs of a company and not on designation or status. If being a Director or manager or secretary was enough to cast criminal liability, the section would have said so. Instead of ‘every person’ the section would have said ‘every 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.
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 of the Act contains the requirements for making a person liable under the said provision. That the respondent falls within the parameters of Section 141 has to be spelled out. A complaint has to be 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.”
(emphasis supplied) 14. There cannot be any dispute to the proposition that Section 138 of NI Act being penal one and under Section 141 of NI Act providing for a constructive vicarious liability by legal fiction has to receive strict construction. In other words, there should be strict compliance of provision.
15. Hon’ble Apex Court in the case of N.K.WAHI v. SHEKHAR SINGH AND OTHERS reported in (2007) 9 SCC 481 has observed:
“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.”
16. Averment in the complaint regarding responsibility of accused person for conduct of business of the company at the time of commission of the offence would be required and if such averment or allegation is found in the complaint, it would suffice to reject the prayer for quashing of proceedings, in the absence thereof or on account of a vague or bald averment/allegation in the complaint demands to meet the criteria prescribed under Section 141 of NI Act and in such circumstances in the facts obtained exercise of jurisdiction under Section 482 Cr.P.C. would be called for, if such allegations against the accused/Director is not found. Hon’ble Apex Court in the case of STANDARD CHARTERED BANK v. STATE OF MAHARASHTRA AND OTHERS reported in (2016) 6 SCC 62 has held:
“11. On a perusal of the aforesaid provision, it is clear as crystal that if the person who commits an offence under Section 138 of the Act is a company, the company as well as other person in charge of or responsible to the company for the conduct of the business of the company at the time of commission of the offence is deemed to be guilty of the offence. Thus, it creates a constructive liability on the persons responsible for the conduct of the business of the company.
16. After so stating, the Court in S.M.S. Pharma I case [S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89 : 2005 SCC (Cri) 1975] placed reliance on sub-section (2) of Section 141 of the Act for getting support of the aforesaid reasoning as the said sub-section envisages direct involvement of any Director, Manager, Secretary or other officer of a company in the commission of an offence. The Court proceeded to observe that the said provision 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 the offices in a company. It has also been observed that provision has been made for Directors, Managers, Secretaries and other officers of a company to cover them in cases of their proved involvement. It is because a person who is in charge of and responsible for conduct of business of a company would naturally know why a cheque in question was issued and why it got dishonoured and simultaneously it means no other person connected with a company is made liable under Section 141 of the Act. The liability arises, as the three-Judge Bench opined, on account of conduct, act or omission on the part of an officer and not merely on account of holding office or position in a company and, therefore, in order to bring a case within Section 141 of the Act, the complaint must disclose the necessary facts which makes a person liable.
22. The said clarification was reiterated in Everest Advertising (P) Ltd. v. State (Govt. of NCT of Delhi) [Everest Advertising (P) Ltd. v. State (Govt. of NCT of Delhi), (2007) 5 SCC 54 : (2007) 2 SCC (Cri) 444] .
In the said case, taking note of the assertions in the complaint which were really vague, the Court declined to interfere with the order [Neeta Bhalla v. S.M.S. Pharmaceuticals Ltd., 2001 SCC OnLine AP 1404 : (2002) 111 Comp Cas 793] passed by the High Court which had opined that the complaint did not disclose commission of offence against the accused persons.”
Thus, for proceedings being initiated against a Director of the company, such person at the time of offence committed should have been in-charge of and responsible of the company for the conduct of business of the company as well as company and in such circumstances he would be deemed to be guilty of offence and liable to be proceeded. Being in-charge of and responsible to the company for conduct of its business, is sine qua non for Section 141 of NI Act being invoked against such person.
17. Keeping these principles in mind when the facts obtained in the present case are perused it would clearly indicate that averment or allegation made in the complaint insofar as accused No.3 is concerned, is to the effect that “accused Nos.2 and 3 are the persons concerned with day to day activities and matters of the business of accused No.1”. In fact, statutory notice as required under Clause (b) to proviso to Section 138 of NI Act issued is addressed to the petitioner, which has been served to the address mentioned thereunder. Though a plea has been raised by Sri.Shashikiran Shetty, learned Senior Counsel appearing for petitioner/accused that it is not duly served on accused No.3, this Court would not embark upon conducting any roving enquiry in that regard, inasmuch as, it is deemed service.
18. Be that as it may. In the instant case, the complainant has pleaded the cause of action for filing the complaint at paragraph 24 of the complaint. It reads:
“24. The Complainant submits that all the ingredients of Section 138, 139 and 141 of the N.I. Act are attracted in the instant case. The cause of action arose on 9.3.2016 and 18.3.2016 when the bankers returned the cheques with an endorsement “Funds Insufficient”. The cause of action also arose on 19.3.2016 when the demand notice was issued and dispatched on 22.3.2016 and on 24.3.2016 when the demand notice were served on the Accused No.1 to 4, and when the Accused No.1 to 4 persons failed to make payment of amount of the cheques pursuance to the demand notice within 15 days of the statutory period as contemplated under law i.e., 6.4.2016.”
19. A plain reading of cause of action pleaded by the complainant would disclose that it is specifically contended that on 09.03.2016 and 18.03.2016 when the banker of complainant returned cheques in question for want of sufficient funds, the cause of action commenced and continued on 19.03.2016, the date on which notice of payment was dispatched to accused persons and on 22.03.2016 and 24.03.2016 when it was served on accused Nos.1 to 4. Thus, initial cause of action has arisen on 09.03.2016 and 18.03.2016 even according to the complainant which are the dates on which the cheques came to be returned unpaid for want of sufficient funds. In fact, said cheques were presented earlier by the complainant, which came to be returned unpaid on 14.02.2016 and 16.02.2016. However, no steps were taken by the complainant. It is stated that on such return of cheques on 14.02.2016 and 15.02.2016 it was re- presented. No dates are forthcoming on the date of which it was re-presented. However, complainant states that on account of instructions issued by accused Nos.1 to 4, same had been re-presented. There is no material in this regard. The fact remains that on 02.03.2016 petitioner/accused No.3 had tendered his resignation as the Director from the Board of Directors of the accused No.1-company and it was duly filed with the jurisdictional Registrar of Companies and also accepted by the accused No.1-company as per the requisite prescribed form issued by Registrar of Companies. In other words, accused No.4 had seized to be a Director of accused No.1-company with effect from 02.03.2016, which is much prior to the cause of action for filing of complaint. Thus, question of petitioner being made vicariously liable under Section 141 of NI Act did not arise.
20. That apart, one another intriguing factor which came to be conspicuously found in the instant case is, cheques in question which have been issued are by accused No.4. A different entity or a company or a firm, the authorized signatory of which company is none other than accused No.2. Much reliance has been placed by the learned counsel for the complainant on the communication dated 27.01.2015 contending that it is an acceptance of liability by accused No.1-company and as such accused No.3 as the Director of said company would also be vicariously liable, is an argument which at first blush looks attractive but yet cannot be accepted for the simple reason and said communication is neither signed by the accused No.4 nor any material is placed to establish that accused No.4 was know-how of the said fact.
21. The liability under the cheques in question being attributable to accused No.1-company of which accused No.3 had been seized to be the Director with effect from 02.03.2016 i.e., much prior to the cause of action having arisen continuation of proceedings against petitioner would be an abuse of process of law and it would not sub-serve the ends of justice but on the other hand continuation of it would be a waste of precious judicial time. Criminal liability under Section 138 r/w 141 of NI Act at the most can be against accused No.1-company and accused Nos.2 and 4.
22. For the reasons aforestated, I proceed to pass the following:
ORDER (i) Criminal petition is allowed.
(ii) Proceedings against petitioner pending in C.C.No.26511/2016 registered for the offences punishable under Section 138 of Negotiable Instruments Act, 1881, on the file of XXVII Addl. Chief Metropolitan Magistrate, Bengaluru, insofar as petitioner/accused No.3 is concerned, stands quashed. However, it is made clear that said proceedings would go on against other accused persons i.e., accused Nos.1, 2 and 4.
(iii) Petitioner is acquitted of the said offence.
SD/- JUDGE DR