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2004 DIGILAW 790 (PAT)

K. K. Leekha v. State Of Bihar

2004-08-04

NAVIN SINHA

body2004
Judgment Navin Sinha, J. 1. This order shall dispose-off Cr. Misc. Nos. 8518 of 2003, 8554 of 2003, 8629 of 2003 and 8630 of 2003 applications. The issues involved being common, arising out of a single complaint case, all the aforesaid applications have been heard together and by consent of the parties are being disposed-off by this common order, at the stage of admission. 2. The Cr. Misc. Nos. 8518 and 8554 of 2003 is preferred by one K.K.Leekha. Likewise Cr. Misc. 8629 and 8630 of 2003 is preferred by one M.L. Chawala. Cr. Misc. Nos. 8518 and 8629 of 2003 challenge the order of cognizance dated 14.2.2001 and Cr. Misc Nos. 8554 and 8630 of 2003 challenge the rejection of the discharge application under Section 245 of the Code of Criminal Procedure by common order dated 15.1.2003. Both the impugned orders having been passed by the Judicial Magistrate, 1st Class, Patna in Complaint Case No. 145 (C) of 2001. 3. Both the petitioners are aggrieved by their prosecution in Complaint Case No. 145(C). of 2001 and the order of cognizance therein dated 14.2.2001 by Shri S.N. Tiwary, Judicial Magistrate, 1st class, Patna. Cognizance having been taken against the petitioners under Sections 406 and 120-B of the Penal Code, summons have been issued to them to face trial, the present application has been preferred under Section 482 of the CrPC for quashing the order of cognizance as also the entire proceedings against them in the complaint case. 4. The two petitioners likewise challenge the rejection of their applications for discharge preferred under Section 245 of the Cr PC by a common order dated 15.1.2003. 5. The Complaint Case No. 145 (C) of 2001 was filed by the opposite party No. 2 on 25.1.2001 against nine accused persons. The present two petitioners have been arrayed as accused Nos. 5 and 6 in the said complaint instituted on 25.1.2001 under Sections 420, 403 and 406 read with Section 120-B of the Penal Code. Cognizance as aforesaid was taken under Section 406 read with Section 120-B of the Penal Code only. The complaint alleged that accused No. 1 was a Non-Banking Finance Company accused Nos. 1 to 8 invited deposits from the public promising refund of the said deposits with interest on maturity. Believing the promise and assurance of accused Nos. Cognizance as aforesaid was taken under Section 406 read with Section 120-B of the Penal Code only. The complaint alleged that accused No. 1 was a Non-Banking Finance Company accused Nos. 1 to 8 invited deposits from the public promising refund of the said deposits with interest on maturity. Believing the promise and assurance of accused Nos. 1 to 8 the opposite party No. 2 and his wife made deposits in the month of August and September, 1997. The investment certificates were to mature on 15.4.1999 with the maturity value of Rs. 1,10.000/-. Shortly prior to maturity the complainant visited the local office and agent at Luv Kush Towers, Exhibition Road, Patna but found the same closed. The complainant then visited New Delhi but found the office of the Company also closed. With great difficulty he located the current office. when the company, accused No. 1, promised to repay the maturity amount. The complainant again visited the office of the Company, when again accused No. 9 promised that the maturity cheques would be sent by post. The complainant having waited till 14.11.2000, on the said date wrote to the Chairman of the Company that he was yet to receive the promised maturity cheques. 6. In May, 1997 the complainant and his wife had made some more investment deposits which were to mature on 31.10.2000 and 14.11.2000. Two advance cheques, one in the name of his wife and one in his name had been issued by the Company at the time of deposit in May, 1997 for encashment after maturity. The cheques on maturity having been deposited, were returned by the Bank of India for the reason of insufficient funds in the account of the Company, accused No. 1. In this background it was averred that the accused persons had dishonest intention from the beginning to cause wrongful loss to the complainant and wrongful gain to themselves. 7. The learned counsel for the petitioners submitted that both the petitioners, namely, K.K. Leekha and M.L. Chawala were appointed Honorary Directors and resigned as such on 21.1.1998 and 19.1.1998 respectively. It was further submitted that the resignation was accepted by the Board on 10.2.1998 and Form-32 under the Companies Act with regard to the Register of Directors was issued on 26.2.1998. On 24.3.1999 a paper publication was also made by the petitioner K.K. Leekha of his resignation in English Daily Pioneer. It was further submitted that the resignation was accepted by the Board on 10.2.1998 and Form-32 under the Companies Act with regard to the Register of Directors was issued on 26.2.1998. On 24.3.1999 a paper publication was also made by the petitioner K.K. Leekha of his resignation in English Daily Pioneer. The learned counsel for the petitioners submitted that prima facie on the face of the complaint it was admitted that the cause of action to the complainant arose on 15.4.1999. October, 2000 and November, 2000. The petitioners having, resigned from the Board of Directors much prior to the date of the accrual of the cause of action, no offence could be said to have been made out against the petitioners. It was further submitted that when the deposits were made as per the complaint, by the complainant, the petitioners was an Honorary Director. In support of the same reliance was placed upon the averments as made in the complaint. Based upon the same, it was contended that the complaint does not contain any allegations against the present petitioners. The allegations against the petitioners are of omnibus nature. There is no averment that the petitioners were incharge of the day-to-day management and running of the Company or that they were directly involved in the invitation to deposit and the inability to repay. 8. Continuing the submission it was stated that notwithstanding the fact that the petitioners had resigned from the Directorship, the fact was that the Company having gone sick, was the subject matter of proceeding before the Company Law Board. The company has not disputed its liabilities to pay. The Company Law Board by its order dated 23.10.1998 had rescheduled the payments to depositors so that the funds were equitably distributed. Reliance was placed upon Annexure 8 the order of the Company Law Board in this regard. It was further contended that the Company has subsequently gone into liquidation in a proceeding before the Delhi High Court and an Official Liquidator had also been appointed as would be apparent from Annexure-9 to the present application. In pursuance of the order of the Company Law Board certain payments were admittedly sent to the complainant as would be apparent from Annexure-11 to the present application, by which the payments offered in accordance with the order of the Company Law Board, were refused acceptance by the complainant and were returned. 9. In pursuance of the order of the Company Law Board certain payments were admittedly sent to the complainant as would be apparent from Annexure-11 to the present application, by which the payments offered in accordance with the order of the Company Law Board, were refused acceptance by the complainant and were returned. 9. Summing-up the arguments, the learned counsel contended that there were no allegations in the complaint which shows prima facie accusation against the petitioners. The petitioners had resigned from the Board of Directors before accrual of the cause of action and that the interest of the opposite party No. 2 in any event were adequately protected by the Company Law Board and the proceedings for Liquidation in the Delhi High Court. 10. Learned counsel appearing for the opposite party No. 2 opposing the petition contended that the application deserves to be rejected. All that was being submit- ted on behalf of the petitioners before this Courts was essentially the defence. The petitioners being the Directors of the Company, which defaulted in fact for payment upon maturity, was clearly liable. The advance cheques payable at the time of maturity having been returned for reasons of insufficient funds after maturity clearly discloses an offence. The petitioners were one of the Directors of the Company and were therefore clearly liable. Reliance for the proposition was placed upon a judgment reported in AIR 1983 SC 158 , and a Full Bench decision of this Court in 1986 East Cr C 650 (Pat) (FB) : 1986 PLJR 537 (Madan Mohan Upadhya V/s. State of Bihar). The last submission being that this Court in exercise of the power under Section 482, Cr PC would not look into the documents sought to be produced by the petitioner in the present proceeding, by way of annexures. 11. From the aforesaid facts and circumstances of the case as also the submissions made by the learned counsel for the parties it is apparent that the complaint does not contend any specific accusation against the petitioners. The accusations are primarily against accused No. 1 and accused No. 9. There is no suggestion in the complaint that the present petitioners were incharge and responsible for the day-to-day management of the Company, no averment with regard to the role, if any, played by the petitioners in the inducement for investment made by the opposite party No. 2. The accusations are primarily against accused No. 1 and accused No. 9. There is no suggestion in the complaint that the present petitioners were incharge and responsible for the day-to-day management of the Company, no averment with regard to the role, if any, played by the petitioners in the inducement for investment made by the opposite party No. 2. In absence of such allegations it becomes difficult to hold that prima facie on the basis of the averments in the complaint that the present petitioners would, in fact, become liable as Directors of the Company simpliciter. This also finds support from the statement on S.A of the complainant where the place of occurrence is stated to be at Patna. Even this statement does not contain any suggestion with regard to the petitioners so as to prima facie constitute any offence as against them. Counsel for the complainant did not dispute the correctness of Annexure-11 by which certain payments had been tendered to his client by accused No. 1 acceptance of which was refused. The submission was that the, tender not being full, acceptance was refused. Likewise that fact that the petitioners resigned much before the cause of action accrued was also not in dispute. This Court considers the resignation of the petitioners before accrual of the cause of action as a essential part to hold that no prima facie case could be said to have been made out against the present petitioners. Moreover the orders of the Company Law Board and the liquidation proceeding in the High Court, protected the interest of the complainant. The payments to all depositors were only to be rescheduled so as to protect the interest of all the certificate holders. 12. The submission of the learned counsel for the complainant-opposite party No. 2 placing reliance upon two judgments as aforesaid also appears to be misconceived. The question of liability of the Directors in the judgment reported in 1986 East Cr C 650 (Pat) (FB) : 1986 PLJR 537 (FB) (Madan Mohan Upadhya V/s. State of Bihar), arose by virtue of the deeming the provision in Section 10(1) of the Essential Commodities Act. This would be apparent from paragraphs 11 to 13 of this judgment. The liability was thus said to be fastened on the Directors of the Company by virtue of the deeming provisions engrafted by the legislature under the statute. This would be apparent from paragraphs 11 to 13 of this judgment. The liability was thus said to be fastened on the Directors of the Company by virtue of the deeming provisions engrafted by the legislature under the statute. Likewise in the judgment reported in AIR 1983 SC 158 , the complainant itself made specific averment (sic) Director and the extent of their liability. In this background it was held that the accusation could not said to be incorrect in implicating the Director. This would find consideration in paragraph-5 of the said judgment. Both the judgments relied upon by the counsel for opposite party No. 2 in the present case being on different footings have no application to the facts of the present case. 13. The learned counsel for the petitioner rightly relied upon (2002) 110 Comp Cas 1750. A single Judge of the Madras High Court while considering the effect of a proceeding under Section 138 of N.I. Act in respect of the cheques issued by the Company after the resignation of a Director held mat Form 32 issued by the Registrars of the Company was a public document which assured that the concerned person has resigned as Director and ceased to be on the Board of the Company when the cheques were drawn. The concerned person was not the Chairman and Director of the Company and was not in- charge and responsible for the aforesaid company when the cause of action arose. The criminal proceedings were therefore quashed in exercise of power under Section 482 of the Cr PC. 14. Reliance may be placed on a judgment reported in AIR 2002 Bom 194 . A Division Bench of the Bombay High Court while considering the effect of a resignation of a Director and liability for actions of the company after resignation has held that act of resignation is unilateral and without filing of Form 32 and without sending notice to the Registrars of Companies. The filing of the Form and intimation to the Registrars of Companies is the duty of the Company Secretary and not of an individual Director. The communication of the information to resign to the Company of the Secretary or Chairman has to be made by the Director intending to resign. As far as the Director intending to resign is concerned the act of resignation by him is unilateral. The communication of the information to resign to the Company of the Secretary or Chairman has to be made by the Director intending to resign. As far as the Director intending to resign is concerned the act of resignation by him is unilateral. Moreover, when such Director has tendered his resignation and Board had accepted and acted upon it such Director cannot be held liable for liability incurred by the Company after the date of acceptance of his resignation. 15. Having considered the rival submissions, this Court holds that the prosecution of the petitioners and the order of cognizance cannot be sustained. The petitioners not being Directors of the Company on the date the cause of action arose, there being no specific allegation in the complaint against them to constitute prima facie case and the allegation being omnibus in nature, and that the matter is pending in the liquidation proceedings in the Delhi High Court, no offence can be said to have been made out against the petitioners. No useful purpose would be served by subjecting them to harassment of protracted litigation at a far-off place at Patna when the interest of the complainant appears to be adequately protected by orders of the Company Law Board and the pendency of the liquidation proceeding in Delhi High Court. 16. It would be essential for this Court to take into consideration the fact that in view of the pendency of the liquidation proceeding before the High Court at Delhi, a subsequent development, it could not be contended now that the complainant had been wrongfully deprived. To hold otherwise at this stage can only be at the risk of contravention or disobedience of the orders of the Company Law Board and the liquidation proceeding before the Delhi High Court, this Court would not countenance such action by holding despite the aforesaid developments, that the criminal prosecution against the present petitioners would continue to be maintainable notwithstanding the aforesaid orders. 17. Since the order of cognizance and the entire proceedings are found to be not sustainable, there is no need to pass separate orders on those applications of the petitioners preferred against the rejection of their applications under Section 245, Cr PC. 18. In the result all these applications are allowed. The entire proceeding against the petitioners in Complaint Case No. 145(C) of 2001 stands quashed.