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2006 DIGILAW 220 (JK)

Shekhar Suman v. Shiv Shanker Associates

2006-10-10

Y.P.NARGOTRA

body2006
1. By this common order this batch of petitions based on common question of law and facts are being disposed of. 2. Through these petitions petitioner-accused No.5 Shekhar Suman seeks to invoke Section 561-A of the Code of Criminal Procedure for quashing the complaints pending in the Court of Spl. Excise Mobile Magistrate, Jammu by which cognizance has been taken and process has been issued against him. The accused/Company Growell Multi Trade India Ltd. issued cheques in favour of the complainant. On complainants producing the cheques in the Bank concerned through its banker, the same were dishonored and returned with the memo indicating that funds were insufficient in the account. Undoubtedly, cheques have been issued and signed on behalf of the company by the accused No.3/Director and Promoter of Growell Multi Company and not by the accused/petitioner, yet the complainants have filed the complaints for prosecuting the accused/petitioner for commission of the offence under Section 138 read with Section 141 of Negotiable Instruments Act, (here-in-after called the Act). 3. The case of the accused/petitioner is that he has unnecessarily been arrayed as an accused, whereas he has nothing to do with the affairs of the company. He is neither shareholder nor the Director, Managing Director or Chairman of the Company. He states that he has allowed the company to use his name as its Brand Ambassador and acted as a Brand Ambassador of the company at some selected occasions. The Brand Ambassador is totally alien to the business of the company and has nothing to do with its financial or operational aspects. In this view of the matter, the process issued by the trial court qua the petitioner cannot be sustained in law. 4. Mr. Salathia, learned counsel for the petitioner contends that since the petitioner has no concern whatsoever with the running of the business of the company at the relevant time and simply on the vague allegation which are not supported by any material in the complaint that he is Director/Co-ordinator or promoter of the company, he cannot prima facie be held to be vicariously liable for the alleged offence committed by the Company-accused. 5. On the other hand contention of Mr. 5. On the other hand contention of Mr. Johal learned counsel for the Complainant/respondents is that though it is a fact that accused/petitioner is not a shareholder, Director, Managing director or Chairman of the company, yet he can be made liable because from the allegations made in the complaint, it is very well made out that he was connected with the running of the business of the company. He is in charge of the business. He was extending assurances on behalf of the company and only relying upon his assurances the complainants had invested a huge amount in the company. He further submits that at this stage of the case under Section 561-A Cr.P.C the petitioner/accused cannot be permitted to take a defence that he was not personally responsible for the conduct of the business of the company. The question whether he was or was not personally responsible for the business can be decided only during trial of the accused. According to Mr. Johal simply on his defence of denial, the complaints against him under law cannot be quashed at the threshold. In support of his contention he relies upon a case reported as S.V. Muzumdar and others Vs. Gujarat State Fertilizer Co. Ltd, (2005) 4 SCC 173, in which the Supreme Court observed as follows:-- "Under the scheme of the Act, if the person committing an offence under section 138of the Act is a company, by application of Section 141 it is deemed that every person who is in charge of and responsible to the company for conduct of the business of the company as well as the company are guilty of the offence. A person who proves that the offence was committed without his knowledge or that he had exercised all due diligence is exempted from becoming liable by operation of the proviso to Section 141(1). Whether or not the evidence led would establish the accusations, is a matter for trial. The proviso to subsection (1) of Section 141 enables the accused to prove his innocence by discharging the burden which lies on him." 6. Mr. Johal also relies upon Raj Lakshmi Mills Vs. Whether or not the evidence led would establish the accusations, is a matter for trial. The proviso to subsection (1) of Section 141 enables the accused to prove his innocence by discharging the burden which lies on him." 6. Mr. Johal also relies upon Raj Lakshmi Mills Vs. Shakti Bhakoo, (2002) 8 SCC 236, in that case the appellant had filed a criminal complaint against the respondent as well as her brother-in-law Anoop Bhakoo under Section 138 of the Negotiable Instruments Act, because of dishonour of a cheque which had been issued by M/s Sutlez Knitwears of which Anoop Bhakoo and the respondent were partners. Against the summoning order passed by the Magistrate, the respondent filed a petition under Section 482 Cr.P.C. The High Court invoked the provisions of Section 141 of the Negotiable Instruments Act, and came to the conclusion that as the respondent was not in charge or responsible for the conduct of the business, therefore, the order of summoning her was bad in law. On these facts, Their Lordships of the Supreme Court in appeal held as follows: - "We are of the opinion that at the stage of summoning when evidence was yet to be led by the parties, the High Court could not on an assumption of facts come to a finding of fact that the respondent was not responsible for the conduct; of the business. On this ground alone, these appeals are allowed and the impugned decision of the High Court is set aside." 7. Mr. Johal also places reliance on Central Bureau of Investigation Vs. Ravi Shankar Srivastava, 2006 AIR SCW 3990, wherein Supreme Court has held:-- "The powers possessed by the High Court under Section 482 of the Code are very wide and very plenitude of the power requires great caution in its exercise. Court must be careful to see that its decision in exercise of this power is based on sound principles. The inherent power should not be exercised to stifle a legitimate prosecution. The High Court being the highest Court of a State should normally refrain from giving a prima facie decision in a case where the entire facts are incomplete and hazy, more so when the evidence has not been collected and produced before the Court and the issues involved, whether factual or legal, are of magnitude and cannot be seen in their true perspective without sufficient material. Of course, no hard and fast rule can be laid down in regard to cases in which the High Court will exercise its extraordinary jurisdiction of quashing the proceeding at any stage." 8. On the strength of the above quoted authorities, Mr. Johal submits that at this stage this Court should not go into the question as to whether the petitioner/accused was in charge or responsible for the business of the company, and should leave it for determination for the trial court. 9. As a general rule of criminal law, the criminal liability is always of the person who commits the offence unless statute creates an exception. Section 141 of the Act, is such an exception to the general rule and makes a specific provision which, in case of the offence under Section 138 of the Negotiable Instruments Act, is committed by a company, extends criminal liability for dishonouing of the cheque to other persons who may not have issued the cheque. Section 141 reads as follows:-- "Offence 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 prevent the commission of such offence. 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 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." 10. 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." 10. From the bare reading of Section 141, it is manifest that by deeming provision incorporated in the Section criminal liability in case of a company is extended to every person who at the time of offence was in charge of and was responsible for the conduct of the business of the company. Such a person who though may not actually have issued the cheque can also be held guilty for the offence under Section 138 and punished accordingly, if he was in charge of and was responsible for conduct of the business of the Company at the time of the offence. Explaining the criminal liability arising out of Section 141, Their Lordships of the Supreme Court in a case reported as S.M.S Pharmaceuticals Ltd. Vs. Neeta Bhalla and another, (2005) 8 SCC 89 observed:-- "Section 141 contains conditions which have to be satisfied before the liability can be extended to officers of a company. Since the provision creates criminal liability, the conditions have to be strictly complied with. The conditions are intended to ensure that a person who is sought to be made vicariously liable for an offence of which the principal accused is the company, had a role to play in relation to the incriminating act and further that such a person should know what is attributed to him to make him liable. In other words, persons who had nothing to do with the matter need not be roped in. A company being a juristic person, all its deeds and functions are the result of acts of others. Therefore, officers of a company who are responsible for acts done in the name of the company are sought to be made personally liable for acts which result in criminal action being taken against the company. It makes every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of business of the company, as well as the company, liable for the offence. It makes every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of business of the company, as well as the company, liable for the offence. The proviso to the subsection contains an escape route for persons who are able to prove that the offence was committed without their knowledge or that they had exercised all due diligence to prevent commission of the offence." 11. Now the question arising for consideration is as to what should be the averments in a complaint filed against a person under Section 138 read with Section 141 of the Negotiable Instruments Act. So far as the making a case for issuing the process by a Magistrate under Section 204 of Cr.P.C, in Neeta Bhallas case (supra) a three-Judge Bench of the Supreme Court on a reference took up for determination the following questions:-- "(a) Whether for purposes of Section 141 of the Negotiable Instruments Act, 1881, it is sufficient if the substance of the allegation read as a whole fulfil the requirements of the said section and it is not necessary to specifically state in the complaint that the person accused was in charge of, or responsible for, the conduct of the business of the company. (b) Whether a director of a company would be deemed to be in charge of, and responsible to, the company for conduct of the business of the company and, therefore, deemed to be guilty of the offence unless he proves to the contrary. (c) Even if it is held that specific averments are necessary, whether in the absence of such averments the signatory of the cheque and or the managing directors or joint managing director who admittedly would be in charge of the company and responsible to the company for conduct of its business could be proceeded against." Their Lordships observed:-- "While analysing Section 141 of the Act, it will be seen that it operates in cases where an offence under Section 138 is committed by a company. The key words which occur in the section are "every person". These are general words and take every person connected with a company within their sweep. The key words which occur in the section are "every person". These are general words and take every person connected with a company within their sweep. Therefore, these words have been rightly qualified by use of the words: "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, etc." 12. 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 the1 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 he 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 case 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 for as the person sought to be made liable is concerned. 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 for 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. 13. A reference to sub-section (2) of Section 141 fortifies the above reasoning because sub-section (2) envisages direct involvement of any director, manager, secretary or other officer of a company in the commission of an offence. This section 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 these offices in a company. In such a case, such persons are to be held liable. Provision has been made for them in cases of their proved involvement. 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." 14. Their Lordships after noticing case law on the subject held:-- "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 Viable -- Section 141 of the Ad contains the requirement 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. 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." 15. On the above reasons, the Supreme Court answered the three questions in the following manner. "(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, the requirement of Section 141 cannot be said to be satisfied. (b) The answer to the question posed in sub-para (b) has to be in the negative. Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for the conduct of its business. The requirement of Section 141 is that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a director in such cases. (c) The answer to Question (c) has to be in the affirmative. The question notes that the managing director or joint managing director would be admittedly in charge of the company and responsible to the company for the conduct of its" business. When that is so, holders of such position in a company become liable Under Section 141 of the Act. The question notes that the managing director or joint managing director would be admittedly in charge of the company and responsible to the company for the conduct of its" business. When that is so, holders of such position in a company become liable Under Section 141 of the Act. By virtue of the office they hold as managing director or joint managing director, these persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 141. So far as the signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under sub-section (2) of Section 141." 16. Now it will be appropriate to refer to the complaints of the complainants to find out as to whether necessary averments which are required to be made in terms of law laid down by the Supreme Court in Neeta Bhallas case (supra) have been made. In the complaints, following averments pertaining to the accused/petitioner have been made. "(2)....As per the pamphlet issued by accused No. 1, the Company presents a unique business opportunity which would enable to get a steady flow of income to make the future bright and secure. As per the said pamphlet the company is heading towards its aim of making prosper India hand in hand with Mr. Shekhar Suman accused No.5, a famous File and TV personality known for unforgettable contribution towards entertainment industry. (3) That keeping in view the incorporation of the company under Companies Act, and high profile personalities i.e. accused No.2 to 5 who are Managing Director, Directors, Promoters/Co-ordinater. Complainants were also allured to invest the money in the company. (8)..........Complainant No.3 Mr. Raman Suri also contacted accused No.5 on Mobile No 09820039596 where accused No.5 assured him that he would persuade accused No. 2 to 4 and assured the issuance of all the kits. Thereafter, some conversation took place between accused No. 5 and 3." Thereafter accused No.5 told to complainant No.3 that company could not afford the payment of taxes for delivery of the kits at Jammu. Accused No.5 told the complainant No. 3 that they would be given refund of the entire amount. He also told that he had instructed accused No. 3 to at least part payment to the complainants. Accused No.5 told the complainant No. 3 that they would be given refund of the entire amount. He also told that he had instructed accused No. 3 to at least part payment to the complainants. (11)..............As submitted herein above, the accused No.5 is Director, Co-ordinator/promoter of accused No. 1. As per the pamphlet of the company, itself, it has been represented that the accused No.l was heading towards ; its aim of making prosper India hand in hand with Mr. Shekhar Suman, accused No.5,a famous film and TV personality. As submitted herein above that the complainants No. 2 to 4 went to Mumbai. Accused No. 2 to 4 were present in the office of accused No.l. Entire mater was discussed with them. Not only this even the-matter was taken upon on telephone with the accused No.5. On the instruction of accused No.5 few cheques including the cheque which is the subject matter of the present complaint was issued by the company. Apart from this accused No.5 has also conducted a number of seminars for promoting the business of accused No.l. Copies of photographs taken on different seminars/occasions in which accused No.5 have been shown are annexed herewith and collectively marked as Annexure-F." 17. It be seen that nowhere in the complaint it is specially alleged by the complainants that accused /petitioner was in charge of and was responsible to the company for conducting its business. The petitioner/accused has been described in the complaint only as a director, Co-ordinaor/promoter of the company, which according to the learned counsel for the complainants/respondents is not in fact, yet assuming that accused/petitioner holds the said position, that by itself does not make him liable for commission of the offence under Section 138 read with Section 141 of the Act. 18. The contention of Mr. Johal that the question whether petitioner /accused is in charge and was responsible for the business of the company at the relevant time of the commission of the offences should be left to be determined by the trial court is without any merit. 18. The contention of Mr. Johal that the question whether petitioner /accused is in charge and was responsible for the business of the company at the relevant time of the commission of the offences should be left to be determined by the trial court is without any merit. Such a situation would arise only where in a complaint accused is alleged to be in charge of and responsible to the company for conducting its business and the accused takes up a defence that he is not in charge and responsible to the conduct of the business of the company, in that case the question would be determinable being a question of fact during trial. In the present case as the necessary averments in the complaint are lacking, the process against the accused could not have been legally issued against the petitioner. 19. Mr. Johal, lastly submits that the complainants can demonstrate by a CD in their possession in which the accused/ petitioner has claimed that he is responsible for the business of the company. He infact seeks this Court to view itself the said CD. As the said CD has not been produced in the evidence before the trial Court, the same cannot under law be allowed to be introduced as evidence in the proceedings in hand. The prayer made is therefore, declined. 20. For the reasons stated above, the complaints filed by the complainant/ respondents against the accused/ petitioner cannot proceed. Consequently, the orders by which cognizance has been taken by the Court below against the accused/ petitioner and the complaints qua the petitioner are quashed. 21. These petitions are accordingly allowed. Registry to place on record a copy of this order on each file. Record of the Court below be returned.