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1988 DIGILAW 237 (ORI)

AHALYA NAYAK v. STATE OF ORISSA

1988-08-19

L.RATH

body1988
JUDGMENT : L. Rath, J. - In this petition u/s 482, Code of Criminal Procedure the Petitioners who are members of the general body members of the board of directors and Secretary of M/s. Maa Charchika Cooperative Medical Stores Ltd. seek quashing of criminal' prosecution initiated against them on the complaints filed by the Drugs Inspector, Orissa for having committed offences under Sections 18A and 13 (a) (vi) of the Drugs and Cosmetics Act, 1940 (hereinafter referred to as "the . Act") in which charges were framed under Sections 28 and 27 (b) of the Act. The Petitioners agitated against the order in revision before the Additional Sessions Judge, Bhubaneswar but the same having been,rejected, have invoked the inherent powers of this Court for quashing of the prosecution. 2. The short sketch of facts leading to the prosecution as emerge out of the prosecution report submitted by the Drugs Inspector are that on 18-2-1961 he along with the Assistant Drugs Controller (Intelligence) visited the premises of M/s. Maa Charchika Co-operative Medical Stores Ltd. at Unit IV Bhubaneswar where the. Secretary of the said firm Petitioner No. 17, was found to be in charge of the premises but could not produce for inspection the purchase and sale records of certain drugs in respect of which an order in form No. 15 was issued to him directing riot to dispose of the said drugs and to produce the relevant documents within twenty days. A letter was also issued to the firm to produce the other documents which were not produced during the aforesaid visit. A further visit was made on 3-3-1981 along with police when Petitioner No. 17 was asked to produce the purchase arid sale records, but he informed that a reply had been sent to' the office of the complainant intimating that the firm did not possess any records or registers to produce. The stock of drugs was therefore seized in presence of witnesses. The firm was again asked in form No. 16 on 3-3-1981 to produce the records but it expressed its inability in its letter dated 11-4-1981. Besides the firm was also found stocking for sale certain date expired drugs mixed with regular stock and was also found to be stocking tetanus antitoxin without cold storage facility. For such violations of law the prosecution report was submitted. 3. Mr. Besides the firm was also found stocking for sale certain date expired drugs mixed with regular stock and was also found to be stocking tetanus antitoxin without cold storage facility. For such violations of law the prosecution report was submitted. 3. Mr. Basu, learned Counsel for the Petitioners, has urged that even taking the prosecution report as a whole no offence is made out against the Petitioners. It is his contention that the entire report does not allege any criminal liability or conduct of either the members of the general body or the members of the board of directors of the cooperative society and hence there being no mens rea in them, prosecution against them could not ensue. It is further, contended that since, Rule 37 of the Orissa Cooperative' Societies Rules, 1965 provides that the Secretary is the person to sue or to be sued on behalf of the society ~ prosecution against the society can only be made in the name of the Secretary and not anybody else. 4. Admittedly the Medical Store is a cooperative society of which, as explained by Mr. Basu, Petitioner No. 1 is the President Petitioner No. 2 is the Vice-President Petitioner No. 3 is the Treasurer and Petitioners 4,5 and 7 are the Directors of the Committee 'of Management; whereas other Petitioners except Petitioner No. 17 are the members of the general body and Petitioner No. 17 is the secretary of the Society. 5. The Act makes provision u/s 34 as to the, persons liable for prosecution when an offence is committed by a company and in the explanation thereto "company" has been explained to mean, a body corporate and includes a firm or other associates of individuals and thus undoubtedly a cooperative society would be included in the term 'Company' since Section 9 of the Orissa Cooperative Societies Act, 1962 specifically provides a society to be a body corporate having perpetual succession and a common seal. As provided in Section 34 of the Act when an 'offence has been committed' by 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. Hence, in the event of a prosecution it is necessary to find out who was the person in charge of and was responsible to the company at the time of commission of the offence. To fix the responsibility so far as a co-operative society is concerned, resort must be had to the Orissa Cooperative Societies Act, 1962 wherein Section 28 (3-b) (i) and (2) provide that for every society there shall be a Chief. Executive, by whatever designation called who shall be appointed on whole time basis by the committee subject to the approval of, the Registrar and subject to the over all control of the' committee, that such Chief Executive shall manage the day to day business of the society, operate the accounts of the society, be responsible for making arrangements for safe custody of cash, sign on the documents for and on behalf of the society make arrangements for the proper maintenance of various books and records of the society, be responsible for correct preparation, timely submission of periodical statements and returns in accordance with the provisions of this Act and the rules and bye-laws made thereunder, etc. It is thus pre-eminently conclusive that the Chief Executive of the society, who in this case is Petitioner No. 17. had the Statutory responsibility of day to day management of the business of the society as also the responsibility for maintenance of records stock and cash and hence he would be a person who would be squarely covered u/s 34 of the Act to be proceeded against for violation of the provisions of the Act. 6. But the question does not rest there and proceeds further to raise the issue as to whether the Committee of management would also be liable for prosecution. It can be safely ruled out that the members of the general body of the society would not be so liable since though the final authority of the society vests in them, yet they are in no way concerned with the conduct of business of the society from day to day and are not charged with such responsibility. It is merely a body which has to assemble on specified occasions either for election of the directors or amendment of the bye-laws or some such similar or allied matters. It is merely a body which has to assemble on specified occasions either for election of the directors or amendment of the bye-laws or some such similar or allied matters. But so far as the members of the committee of management are concerned the situation is different, Section 28 (3-b) (2) makes the Chief Executive of a society to function subject to the over all control of the committee and u/s 28 (1) the management of a society vests in the committee. Thus, the committee for all purposes is the supreme executive body of the society and remains directly responsible to the society. Section 32 of the said Act provides for holding the committee responsible for the commission of any act prejudicial to the interest of the society or its members and stipulates that the committee for such reason can be superseded and on supersession the Registrar of Cooperative Societies may, inter alia appoint one or more administrators to manage the affairs of the society and such administrator/administrators shall have the power to exercise all or any of the functions of the committee and is/are deemed for the purpose of the Act, the Rules and the Bye-laws to be the committee of the society. Now could it be said in the event of a society is under supersession and managed by an Administrator under whom the Secretary functions, it is only the Secretary and not the administrator who is liable in the event of a prosecution? The administrator would by the person who is charged with the responsibility of looking into and controlling the management, if necessary even day to day, and be is the person vested with such functions in lieu of the committee, Thus the committee would, also be covered by the words "in charge of, and responsible to the company for conduct of business of the company" of Section 34 of the Act. 7. The conclusion so reached is also supported by authorities of the Supreme Court. An, exact case arose in State of Karnataka Vs. Pratap Chand and Others under the very same Act where the State of Karnataka went up in appeal against an acquittal of a partner of a firm prosecuted under the Act. 7. The conclusion so reached is also supported by authorities of the Supreme Court. An, exact case arose in State of Karnataka Vs. Pratap Chand and Others under the very same Act where the State of Karnataka went up in appeal against an acquittal of a partner of a firm prosecuted under the Act. The partner had been acquitted by the 'Chief Metropolitan Magistrate which was challenged in appeal by the State but the appeal having failed before the High Court, the matter was taken before the Supreme Court by way of special leave. The partner bad been acquitted because of the finding by both the Courts that be 'was not the person in charge of management of the firm and Anr. person who was found to be in charge of the firm as also' the firm had been convicted. Negativing the contention that Section 54 of the Act also attaches criminal liability to the other partner who had no direct participation in the management, the following observation of Chief Justice Sikri in Girdhari Lal Gupta Vs. D.H. Mehta and Another made on review petition of the original judgment in that case was quoted with approval: What then does the expression "a person in charge and responsibility for the conduct of the affairs of a company mean"? It will be noticed that the word 'company' includes a firm or other association and the same test must apply to a director in-charge a partner of a firm in charge of a business. It seems to us that in the context a person "in charge" must mean that the person should be in over all control of the day to day business of the company or firm. This inference follows from the wording of S. 236 (2). It mentions director, who may be a party to the policy being followed by a company and yet not be in-charge of the business of the company. Further it mentions manager, who usually is in charge of the business but not in over-an charge. Similarly the other officers may be in charge of only some part of business. The above observations were made in connection with Section 23C of the Foreign Exchange Regulations Act. 1947 which is identically worded as Section 34 of the present Act. Following the view it was held in State of Karnataka v. Pratap Chand and Ors. Similarly the other officers may be in charge of only some part of business. The above observations were made in connection with Section 23C of the Foreign Exchange Regulations Act. 1947 which is identically worded as Section 34 of the present Act. Following the view it was held in State of Karnataka v. Pratap Chand and Ors. (supra) that it was the other partner and not the acquitted one who was in over-all control of the day to day business of the firm and liable to be prosecuted and that the acquittal was perfectly justified. It is thus indisputably clear as was brought out by the earlier decision of the Supreme Court, that the person in charge must mean the person who is in overall control of the day to day business. The Secretary being the Executive officer of the society is only to execute the decisions and directions of the Committee of management and hence a large part of his volition must necessarily be controlled by the directions issued by the committee. Hence, it cannot but be said that the committee was in direct control of the day to day management of the society. Since Section 28 (3-b) (2) vests the over-all control and management in the committee of management, the members thereof cannot escape their' liability but have to face the prosecution along with the Secretary, Petitioner No. 17. 8. It was next contended by Mr. Basu on the authority of Municipal Corporation of Delhi Vs. Ram Kishan Rohtagi and Others that unless the prosecution report discloses clear allegations against the Secretary and the directors that they were responsible for conduct of business so far as the violations are concerned the proceedings ought to be quashed. On facts, I do not think the argument is sustainable, since the prosecution report refers to the fact of the Drugs Inspector having been informed on 3-3-1981 by the Secretary that a reply had already been sent to the letter issued to the firm directing production of all the documents. The letter is under the signature of the Secretary and has been marked Ext. 3 and purported to inform that while because of sudden illness of his mother he sought for leave', he had been directed by the authorities of the society to produce all the available documents before the Drugs Inspector prior to his departure. The letter is under the signature of the Secretary and has been marked Ext. 3 and purported to inform that while because of sudden illness of his mother he sought for leave', he had been directed by the authorities of the society to produce all the available documents before the Drugs Inspector prior to his departure. Thus, it can be said that the matter had been reported to the members of the committee of management and hence it cannot be held that the violations of the statute communicated in the letter of the Drugs Inspector were not to the knowledge of the directors. At any rate since liability is attached on the directors in terms of Section 34 itself their being exposed to prosecution cannot be avoided. The only other authority cited by Mr. Basu Jagdish Prasad Gupta v. State of Orissa 52 (1981) C.L.T. 568 has no relevance being a case which only decided that a prosecution of a partner of the firm for violation of the provisions of the Act cannot fail because the firm itself had not been prosecuted. . 9. In that view of the matter, I hold that there is no illegality in the cognisance taken against Petitioner No. 17 and Petitioner Nos. 1. 2.3, 4.5 and 7 who are members of the committee of management, but so far as cognizance against Petitioner Nos. 6 & 8 to 16 is concerned, it must be held to be bad in law and hence is quashed.. 10. The revision is partly allowed.