Research › Search › Judgment

Andhra High Court · body

2005 DIGILAW 315 (AP)

Suresh Kumarji Sharma v. State Of A. P.

2005-04-01

V.V.S.RAO

body2005
( 1 ) THE petitioners are accused nos. l and 2 in C. C. No. 381 of 2003 on the file of the Court of the Additional Judicial magistrate of First Class, Khammam. By filing this criminal petition, they invoke the inherent power of this Court under Section 482 of Code of Criminal Procedure, 1973 (Cr. PC) praying this Court to quash all the proceedings in the said calendar case on the ground that if the criminal proceedings are allowed to be taken against them, the same would result in miscarriage of justice and amounts to abuse of process of law. ( 2 ) THE petitioners are directors of m/s. Shri Baidyanath Ayurved Bhavan private Limited, Nagpur which is accused no. 3 in C. C. No. 381 of 2003. The petitioners committed an offence under section 3 (d) read with schedule S. No. 43 of the Drugs and Magic Remedies (Objectionable Advertisements) Act, 1954 (Drugs and Magic Remedies Act, for brevity) punishable under Section 7 of the said Act. The complaint filed by the Drugs inspector disclosed the following. The Drugs inspector along with two others inspected the premises of M/s. Anand Ayurveda medical Stores, Khammam, and found a drug 1x50 tab, Baidyanath Rheumartho tab B. No. 81 Mfg. date 12/2001 Mfg. by: m/s. Shri Baidyanath Ayurved Bhavan Ltd. , great Nag Road, Nagpur (Accused Firm) in the above sales premises. On enquiry, the shop owner informed that the drug is manufactured by M/s. Shri Ayurved Bhavan private Limited. The drug in a plastic tin contains fifty tablets, which was given by the shop owner to the complainant for investigation. The plastic tin contains an indication that the tablets are intended for rheumatism for joint pains etc. As per section 3 (d) read with Serial No. 43 of the schedule of the Act. Any person taking any part in the publication of advertisement referring to a drug suggesting its use in any condition specified in the schedule would be contravening Section 3 (d) of the Drugs and Magic Remedies Act. As per the provisions of the Act, advertisement includes any notice, circular, label, wrapper or other documents and any announcement made orally or by any means of producing or transmitting light, sound or smoke. As per the provisions of the Act, advertisement includes any notice, circular, label, wrapper or other documents and any announcement made orally or by any means of producing or transmitting light, sound or smoke. ( 3 ) LEARNED Senior Counsel Sri C. Padmanabha Reddy submits that though rheumartho tablets are manufactured by shree Baidyanath Ayurved Bhawan, Nagpur, petitioners who are Directors of the said company cannot be said to have committed offence under Section 7 of the Drugs and magic Remedies Act. According to the learned Counsel unless the complaint filed by the Drugs Inspector discloses that director/directors are directly in-charge of day to day affairs of a company, the directors cannot be tried for the offences under the Act. He relied on the decisions of the Supreme Court in State of Karnataka v. Pratap Chand, (1981) 2 SCC 335 ; k. P. G. Nair v, M/s. Jindal Menthol India ltd. , 2000 (6) Scale 578 ; Katta Sujatha v. Fertilizers and Chemicals Travancore ltd. , (2002) 7 SCC-655, and Monaben ketanbhai Shah v. State of Gujarat, 2004 (6) Scale 507 . ( 4 ) STATE of Karnataka v. Pratap chand (supra) arose under Drugs and cosmetics Act, 1940 (for short, the Drugs act) whereas the other decisions arose out of proceedings under Sections 138 and 141 of the Negotiable Instruments Act, 1881 (for short, NI Act,) as amended by Bank s public Financial Institutions and Negotiable instruments Laws (Amendment) Act, 1988. As per the provisions of the Drugs and magic Remedies Act, any person who advertise the drug indicating particular ailment would be contravening the provisions of the Act attracting offence under section 7 of the Act. ( 5 ) THE learned Counsel submit that section 34 (2) of the Drugs Act, Section 141 of the NI Act, and Section 7 of the drugs and Magic Remedies Act, made it very clear that where an offence is committed by the company and it is proved that offence has been committed with the consent and connivance or is attributable to any neglect of any director, such officer shall be deemed to be guilty of the offence. As the petitioners herein, he would urge, were not directly in-charge of the day-today affairs of the company they are not liable for prosecution. As the petitioners herein, he would urge, were not directly in-charge of the day-today affairs of the company they are not liable for prosecution. To appreciate the contention, it is necessary to refer to section 34 of the Drugs Act, and other provisions in other Acts. 34. Offences by companies: (1) Where an offence under this Act 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 the proceeded against and punished accordingly: provided that nothing contained in this sub-section shall render any such person liable to any punishment provided in this act if he proves that the offences was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence. (2) Notwithstanding anything contained in sub-section (1), where an 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 proceeded against and punished accordingly. Explanation:for the purposes of this section (a) "company" means a body corporate, and includes a firm or other association of individuals; and (b) "director" in relation to a firm means a partner in the firm, (emphasis supplied) section 141 of the NI Act reads as under. Explanation:for the purposes of this section (a) "company" means a body corporate, and includes a firm or other association of individuals; and (b) "director" in relation to a firm means a partner in the firm, (emphasis supplied) section 141 of the NI Act reads as under. 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 subsection 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 proceeded against and punished accordingly. Explanation:for the purposes of this section. (a) "company" means any body corporate and includes a firm or other association of individuals; and (b) "director" in relation to a firm means a partner in the firm (emphasis supplied) section 9 of the Drugs and Magic Remedies act reads as under. 9. Explanation:for the purposes of this section. (a) "company" means any body corporate and includes a firm or other association of individuals; and (b) "director" in relation to a firm means a partner in the firm (emphasis supplied) section 9 of the Drugs and Magic Remedies act reads as under. 9. Offences by companies: (1) If the person contravening any of the provisions of this act 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 contravention and shall be liable to be proceeded against and punished accordingly: provided that nothing contained in this subsection shall render any such person liable to any punishment provided in this Act if he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence. (2) Notwithstanding anything contained in sub-section (1) where an offence under this Act has been committed by a company and it is proved that the offence was committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, or manager, secretary or the officer of the company, such director, manager, secretary or other officer of the company shall also be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. Explanation:for the purposes of this section,- (a) "company" means any body corporate and includes a firm or other association of individuals; and (b) "director" in relation to a firm means a partner in the firm (emphasis supplied) ( 6 ) AS can be seen from the above, all the above three provisions in three different Acts are ipsissima verba. When a provision in one Act is interpreted by courts, that too by a superior Court of record whose declaration of law is binding on all other Courts including inferior court of record, the interpretation of one provision in one Act - such provision being ipsissima verba in another Act; while interpreting the provisions of another Act the same principles of interpretation would have to be applied. Therefore, it is necessary to analyse Section 9 of the Drugs and Magic remedies Act (other two provisions in two different other Acts are also similar ). ( 7 ) A plain reading of sub-section (1) and sub-section (2) of Section 9 of the Drugs and Magic Remedies Act together would show that every person who was in charge and responsible for the conduct of the business of the company shall be deemed to be guilty of contravention of the provisions of the Act. The proviso to subsection (1) is an exception to Section 9 (1) and exempts such an officer from prosecution if he proves that offence was committed without his knowledge and that he exercises due diligence to prevent commission of offence. Sub-section (2) of Section 9 again explains the position of director/officer of the company who does not fall within the ambit of proviso to Section 9 (1 ). In plain terms sub-section (2) of Section 9 is to the effect that if the prosecution proves that offence was committed with the consent and connivance of the director or is attributable to neglect of any director such director shall be deemed to be guilty of that offence. This provision contains fundamental principle of corporate law that an incorporated company being a juristic person is represented by a Director or Board of directors and therefore for the Acts of malfeasance and misfeasance or for contravention of law, it is the director directors who are liable for prosecution. Sub-section (2) of Section 9 also contains a fiction which springs into action if the prosecution proves that the accused Director had knowledge of the commission of offence. So as to say, the proof of such consent, connivance or knowledge or negligence is sine qua non or condition precedent to attract fiction in Section 9 (2 ). This Court is therefore of considered opinion that when a director of company is accused of - along with company, committing offence under penal law at the stage of petition under Section 482 of Cr. PC for quashing the criminal complaint, the factum of "proved" or the factum of "disproved" as defined in Section 3 of the indian Evidence Act, 1872 would be mere conjecture. PC for quashing the criminal complaint, the factum of "proved" or the factum of "disproved" as defined in Section 3 of the indian Evidence Act, 1872 would be mere conjecture. The High Court having regard to well-settled principles in the branch of law of quashing criminal investigations and criminal prosecutions (See State of haryana v. Bhajan Lal, AIR 1992 SC 604 , state of Tamil Nadu v, Thirukkural Perumal, (1995) 2 SCC 449 , State of H. P. v. Pirthi chand, 1996 (1) ALD (Crl.) 772 (SC) (1996) 2 SCC 37 = 1996 SCC (Crl.) 210, state of U. P. v, O. P. Sharma, 1996 (1) ald (Crl.) 823 (SC) = AIR 1996 SC 2983 = (1996) 7 SCC 705 = 1996 SCC (Crl.) 497, Rashmi Kumar v. Mahesh Kumar bhada, (1997) 2 SCC 397 , Rajesh Bajaj v. State (NCT of Delhi), 1999 (1) ALD (Crl.) 760 (SC) = AIR 1999 SC 1216 , Satvinder kaur v. State (Govt. of NCT of Delhi), (1999) 8 SCC 728 , and Mahavir Prashad gupta v. State of National Capital territory of Delhi, (2000) 8 SCC 115 ; State of A. P. v. Golconda Linga Swamy, (2004) 6 SCC 522 and State of Orissa v. Ganesh chandra Jew, (2004) 8 SCC 40 ), cannot venture - at the preliminary stage; into other aspects of the directors liability or ignorance having regard to the provisions of Section 9 of the Drugs and Magic remedies Act. ( 8 ) AFTER perusing the authorities cited by the learned Counsel, this Court is convinced that all the decisions cited by the learned Counsel would lend support to above view. In State of Karnataka v. Pratap Chandra (supra), State was in appeal against order of summary dismissal by the high Court confirming the order of the acquittal for a charge under Section 18a of the Drugs and Cosmetics Act. It is not a case which arose out of proceedings under Section 482 of Cr. PC for quashing criminal case. In State of Karnataka v. Pratap Chandra (supra), State was in appeal against order of summary dismissal by the high Court confirming the order of the acquittal for a charge under Section 18a of the Drugs and Cosmetics Act. It is not a case which arose out of proceedings under Section 482 of Cr. PC for quashing criminal case. Be that as it is, the Supreme court after referring to Section 34 of the Drugs and Cosmetics Act as well as decision in G. L. Gupta v. D. H. Mehta, (1971) 3 SCC 189 = 1971 SCC (Crl.) 279 = (1971) 3 SCR 748 , arising under section 23-C of the Foreign Exchange regulation Act, 1947, ruled as under: it is seen that the partner of a firm is also liable to be convicted for an offence committed by the firm if he was in charge of, and was responsible to, the firm for the conduct of the business of the firm or if it is proved that the offence was committed with the consent or connivance of, or was attributable to any neglect on the part of the partner concerned. In the present case the second respondent was sought to be made liable on the ground that he along with the first respondent was in charge of the conduct of the business of the firm. Section 23-C of the Foreign Exchange regulation Act, 1947 which was identically the same as Section 34 of the Drugs and cosmetics Act came up for interpretation in g. L. Gupta v. D. H. Mehta (supra), where it was observed as follows: (SCC p. 190 : SCC (Crl) p. 280, Para 6 ). What then does the expression "a person incharge and responsible for the conduct of the affairs of the company" means? 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 and a partner of a firm in-charge of a business. It seems to us that in the context a person incharge must mean that the person should be in overall control of the day to day business of the company or firm. This inference follows from the wording of section 23-C (2 ). It seems to us that in the context a person incharge must mean that the person should be in overall control of the day to day business of the company or firm. This inference follows from the wording of section 23-C (2 ). It mentions director, who may be a party to the policy being followed by a company and yet not be incharge of the business of the company. Further it mentions manager, who usually is in charge of the business but not in overall charge. Similarly, the other officers maybe in charge of only some part of business. (emphasis supplied) ( 9 ) IN K. P. G. Nair v. M/s. Jindal menthol India Ltd. , (supra) dealing with section 141 of the Negotiable Instruments act observed as under: from a perusal of Section 141 it is evidence that in a case where a company committed offence under Section 138, then not only the company but also every person who at the time when the offence was committed was incharge of and was responsible to the company for the conduct of the business of the company shall be deemed to be guilty of the offence and liable to be proceeded against and punished accordingly. It follows that a person other than the company can be proceeded against under those provisions only if that person was incharge of and was responsible to the company for the conduct of its business. It is true as submitted by Mr. Arora that the words of Section 141 (1) need not be incorporated in a complaint as magic words, but it cannot also be disputed that substance of the allegations reads as a whole should answer and fulfil the requirements of the ingredients of the said provision (for being proceeded against for an offence which he is alleged to have committed ). On the above premise, it is clear that the allegations made in the complaint do not either in express worlds or with reference to the allegations contained therein make out a case that at the time of commission of the offence the appellant was incharge of and was responsible to the company for the conduct of its business. On the above premise, it is clear that the allegations made in the complaint do not either in express worlds or with reference to the allegations contained therein make out a case that at the time of commission of the offence the appellant was incharge of and was responsible to the company for the conduct of its business. (emphasis supplied) ( 10 ) IN Katta Sujatha v. Fertilizers and chemicals Travancore Ltd. (supra), the supreme Court dealing with Section 141 of the Negotiable Instruments Act observed as under: the Trial Court having proceeded with the matter, a petition was filed under section 482 Cr PC for quashing the complaint. The said petition having been dismissed this appeal is filed by special leave. It is necessary to state that the special leave petition filed by others has been dismissed by our order dated 15-2-2002. The contention urged before the High Court was that all of them are not responsible for the conduct of the business of the firm and only T, Satyanarayana 3rd accused was in charge of the firm, first accused. Whether it is so or not, is not for us to examine at this stage of the matter. However, one thing is clear that the appellant was in no way involved in any of the transactions referred to in the complaint and it was not stated that she was in charge of the business and was responsible for the conduct of the business of the firm in terms of Section 141 of the Act nor was there any other allegation made against the appellant that she had connived with any other partner in the matter of issue of cheque. In these circumstances the High court ought to have examined the matter from this angle but on the other hand, the high Court merely stated that all the accused are not only in charge but are responsible for the conduct of the business of the firm. In these circumstances the High court ought to have examined the matter from this angle but on the other hand, the high Court merely stated that all the accused are not only in charge but are responsible for the conduct of the business of the firm. Indeed the same question has come up before mis Court for examination in State of Karnataka v. Pratap Chand (supra) wherein the question as who is a "person in charge" of the business of a firm in the context of Section 18-A, Drugs and Cosmetics Act, 1940 was considered by this Court, This Court explained the meaning by observing that the term "person in charge" must mean that the person should be in overall control of the day-to-day business of the company or firm. The person should (sic may) be a party to the policy being followed by a company and yet not be in charge of the business of the company or may be in charge of but not in overall charge or may be in charge of only some part of the business. (emphasis supplied) ( 11 ) IN Monaben Ketanbhai Shah v. State of Gujarat (supra), which is also case concerning Section 141 of the NI Act, the Supreme Court after referring to k. P. G. Nair v, M/s. Jindal Menthol India ltd. (supra) and Katta Sujatha v. Fertilizers and Chemicals Travancore Ltd. (supra), laid down as under: section 138 of the Act makes dishonour of the cheque an offence punishable with imprisonment or fine or both. Section 141 relates to offences by the company. It provides that 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. Thus, vicarious liability has been fastened on those who are in-charge of and responsible to the company for the conduct of its business. For the purpose of section 141, a firm comes within the ambit of a company. It is not necessary to reproduce the language of Section 141 verbatim in the complaint since the complaint is required to be read as a whole. For the purpose of section 141, a firm comes within the ambit of a company. It is not necessary to reproduce the language of Section 141 verbatim in the complaint since the complaint is required to be read as a whole. If the substance of the allegations made in the complaint fulfill the requirements of Section 141, the complaint has to proceed and is required to be tried with. It is also true that in construing a complaint a hyper-technical approach should not be adopted so as to quash the same. The laudable object of preventing bouncing of cheques and sustaining the credibility of commercial transactions resulting in enactment of Sections 138 and 141 has to be borne in mine. These provisions create a statutory presumption of dishonesty exposing a person to criminal liability if payment is not made within statutory period even after issue of notice. It is also true that the power of quashing is required to be exercised very sparingly and where, read as a whole, factual foundation for the offence has been laid in the complaint, it should not be quashed. All the same, it is also to be remembered that it is the duty of the Court to discharge the accused if taking everything stated in the complaint as correct and construing the allegations made therein liberally in favour of the complaint, the ingredients of the offence are altogether lacking. The present case falls in this category as would be evident from the facts noticed hereinafter. ( 12 ) THE dicta of the above case law is this. A company and any of its officers including directors are liable on complaint made against company or its directors and they should necessarily reveal that co- accused director, a person in-charge is in over all control of the day to day business of the company and such person should be a party to the policy being followed by a company and need not necessarily be in- charge of the business of the company. However it is not necessary to reproduce section 141 of the NI Act in verbatim since complaint has to be read as a whole and if substance of the allegations made in the complaint fulfil requirements of relevant provision (be it Section 34 of the Drugs act, Section 141 of the NI Act or Section 9 of the Drugs and Magic Remedies Act), the complaint has to proceed and is required to be tried with by construing the complaint not with hyper technical approach (See monaben Ketanbhai Shah v. State of gujarat (supra) ). ( 13 ) IN every case where the Director of the company seeks quashing of criminal complaint on the grounds that though he is part and parcel of policy making body is not in over all control of the factory or that he is only in charge of the day to day running of the business of the company, the same should not sway the Court to lean in favour of such accused having regard to proviso to sub-section (1) of Section 9 as well as sub-section (2) of Section 9 of the drugs and Magic Remedies Act. These are the matters which are subject to proof by either the prosecution or the defence depending on how the burden shifts in the trial. If a liberal approach is adopted in dealing with the complaints against the companies having been alleged of offence under various enactments which are predominantly aimed at social welfare though made in exercise of police power of the State, there would not be any director of the company to face the prosecution and as a necessary corollary there would not be any prosecution against company. If in a given case if the directors seeks exclusion from the prosecution they can always move the Trial Court by filing appropriate application for discharge and producing proof having regard to proviso to sub-section (1) or sub-section (2) of Section 9 of the Drugs and Magic Remedies Act. ( 14 ) IN paragraph 10 of the petition filed before this Court, the petitioners who are accused Nos. 1 and 2 in C. C. No. 381 of 2003 categorically stated that they are not day to day in charges of the company, but as directors they frame policy decisions of the company. It is not denied that there are no other directors of accused No. 3. 1 and 2 in C. C. No. 381 of 2003 categorically stated that they are not day to day in charges of the company, but as directors they frame policy decisions of the company. It is not denied that there are no other directors of accused No. 3. It is also not denied before this Court that on over all reading of the complaint filed by drugs Inspector, it becomes clear that being the Directors of the company in question they are also liable for prosecution under the provisions of the Drugs and Magic remedies Act. Applying the standards of the concepts of the "proved" and "disproved" as explained in Section 3 of the Evidence Act, this Court cannot ignore averments made in the petition in paragraph 10 for the purpose of present petition where they accept that they are Directors in charge of framing policy. That would be sufficient for the trial Court to proceed with the matter and all other must await regular trial. It is open to the petitioners to raise all their defences when the trial is conducted having regard to Section 9 (1) and (2) of the Drugs and Magic Remedies act. This petition is devoid of merit and is accordingly dismissed.