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2008 DIGILAW 1116 (BOM)

Ved Prakash Malhotra v. State of Maharashtra

2008-08-06

V.R.KINGAONKAR

body2008
JUDGEMENT : 1. This is an application filed under section 482 of the Criminal Procedure Code. The applicants seek quashing of order rendered by learned Judicial Magistrate (F.C.), Aurangabad, taking cognizance of offences in a complaint case filed by the respondent No. 2, bearing R.C.C. No. 535/2008. The learned Magistrate, by the impugned order, issued process against present applicants for offences punishable under section 405, 406, 417, 420 read with section 34 of I.P. Code. 2. At this stage, it is not necessary to elaborately set out the averments made in the complaint. Suffice it to say that the complainant claims to be Chairman of Centron Employees Cooperative Credit Society. The employees of Centron Company are members of the Credit Society. The Centron Company gave an undertaking to deduct amounts of instalments of loans granted to the members by the Credit Society from their monthly Pay Bills and to forward such amounts to the Credit Society. The Cooperative Credit Society is duly registered under the provisions of the Maharashtra Cooperative Societies Act. The members of the Credit Society were eligible to seek loans on (3) giving of undertaking that the instalments could be recovered directly from the employer i.e. Centron Company. The Company allegedly deducted such amounts of loan instalments from the monthly Pay Bills of the employees. The deducted amounts were not, however, credited to the account of the Cooperative Credit Society run. The complainant, therefore, alleges that the amounts were misappropriated because they were recovered for payment to be made to the Credit Society, but were not, in fact, so deposited with the Credit Society. The complainant alleges that the Cooperative Credit Society was thus duped by the Centron Company. 3. According to the applicants, the Centron Company was facing financial crisis and was unable to pay the wages to the employees. It was under the control of B.I.F.R. It is contended that there was no malafide intention, least mens rea. 4. The applicants would further submit that all the applicants are roped in the private complaint case without some of them being concerned with the deductions of the amounts from the Pay Bills of the employees of the Centron Company. They would submit that the criminal liability cannot be fastened against all of them or atleast some of them in view of absence of their concern with the financial affairs of the (4) Company. They would submit that the criminal liability cannot be fastened against all of them or atleast some of them in view of absence of their concern with the financial affairs of the (4) Company. They would further submit that issuance of process by the learned Magistrate against all the applicants is improper, illegal and liable to be quashed. 5. Heard learned advocates for the parties and learned A.P.P. 6. Mr. Patil, would submit that issuance of process could not be ordered when the material on record reveals that the amounts were not deducted because the payments were withheld due to financial difficulties of the Centron Company. He would submit that the amount has been deposited as per the directions of this Court in Writ Petition No. 2710/2008. He would point out that the complainant did not state the fact about such payment as per the order of this Court, in the complaint, it is contended that when this Court has granted interim relief to the effect that no coercive action shall be taken against the applicants, the issuance of process is bad in law. It is argued that the applicant Nos. 1 to 3 are not even the share-holders of the Company and are unconcerned with its business. It is further argued that the applicant Nos. 8 and 9 are Lawyer and Consultant, respectively, of the Centron Company and are not at all concerned with its affairs, including the financial liabilities and, hence, could not be (5) roped in as accused. Mr. Patil would further submit that applicant Nos. 6 and 7 are non-Executive Directors. They are not incharge of business of the Company. They only attend the meetings and are not concerned with the conduct of the business of the Company. He would point out that the applicant Nos. 10 and 11 are the employees of the Company. Per contra, Mr. Ghanekar, would submit that prima facie, the liability is of all the applicants excluding the applicant Nos. 8 and 9. He concedes that process could not be issued against applicant Nos. 8 and 9 because they are the legal professional and consultant of the Company and have no nexus with financial affairs of the Company. 7. The issuance of process depends upon existence of prima facie case appearing from the averments in the complaint. 8 and 9. He concedes that process could not be issued against applicant Nos. 8 and 9 because they are the legal professional and consultant of the Company and have no nexus with financial affairs of the Company. 7. The issuance of process depends upon existence of prima facie case appearing from the averments in the complaint. The complaint filed by the respondent No. 2 reveals that the amounts were paid to the employees after showing deductions of the loan instalments. At this juncture, there is no warrant to assume that deductions were not made from the monthly Pay Bills of the employees of the Company. The defence of the applicants cannot be regarded as a ground to quash the order of issuance of process. It is well settled that probability of the correctness of the defence is insufficient reason to quash the order of process. Mr. Patil referred to various (6) authorities, in support of his contention. The Apex Court in "Pepsi Foods Ltd. v. Special Judicial Magistrate", 749 (1998) 5 SCC 749 , observed in para 28 as follows : "Summoning of an accused in a criminal case is a serious matter. Criminal law cannot be set into motion as a matter of course. It is not that the complainant has to bring only two witnesses to support his allegations in the complaint to have the criminal law set into motion. The order of the Magistrate summoning the accused must reflect that he has applied his mind to the facts of the case and the law applicable thereto. He has to examine the nature of allegations made in the complaint and the evidence both oral and documentary in support thereof and would that be sufficient for the complainant to succeed in bringing charge home to the accused. it is not that the Magistrate is a silent spectator at the time of recording of preliminary evidence before summoning of the accused. The Magistrate has to carefully scrutinise the evidence brought on record and may even himself put questions to the complainant and his witnesses to elicit answers to find out the truthfulness of the allegations or (7) otherwise and then examine if any offence is prima facie committed by all or any of the accused." 8. There are cases and cases. For the purpose of issuance of process, only existence of prima facie case needs to be examined. There are cases and cases. For the purpose of issuance of process, only existence of prima facie case needs to be examined. Where there is material to show that an accused can be called upon to answer criminal charge, process may be issued without difficulty. No indepth scrutiny of material is required to be done at such stage. 9. So far as the present case is concerned, it is essential to examine whether all the applicants are incharge of the affairs of the Company and are responsible for conduct of its business. Unless it is pin-pointed that each of them is responsible for conduct of the business of the Company, summons cannot be issued against all of them or either of them. The applicants have filed on record a copy of the sanctioned Scheme which purports to show that the Company is being managed by Board of Directors. The applicant No. 4 is Chairman of the Board of Directors, applicant No. 5 is Managing Director of the Company and there are other Directors. It appears that applicant No. 6 is an Industrialist and non-Executive Director. So also, applicant No. 7 is non-Executive Director. Obviously, the applicant Nos. (8) 6 and 7 have no direct control over day-today affairs of the Company and, in particular, the financial matters. They are involved in only policy decision making for the Company. The Scheme further shows that H.L. Malhotra Group though holds more than 75 per cent of the share holding of the Company, yet, they have not appointed any nominee on the Board. In other words, the group of H.L. Malhotra, notwithstanding the fact that they are the stake holders, have not appointed anyone to represent the Group as Member of the Board of Directors. The applicant Nos. 10 and 11 are in the employment of the Company. It is vaguely alleged in the complaint that they are responsible for the deductions which were contemplated. The relevant averments in the complaint are found in para No. 2 which reads as follows. "That accused No. 1 to 3 are the promoters/owners of the said Company. The applicant Nos. 10 and 11 are in the employment of the Company. It is vaguely alleged in the complaint that they are responsible for the deductions which were contemplated. The relevant averments in the complaint are found in para No. 2 which reads as follows. "That accused No. 1 to 3 are the promoters/owners of the said Company. Accused No. 4 to 7 are the Board of Directors, accused No. 8 and 9 are the Corporate Advisers, Accused No. 10 is Chief Factory Manager and accused No. 11 is Factory Manager, who are all responsible for the working of the said company and in respect of taking decision about payment to said Society after deducting the same from the salary/wages, etc. of the members." (9) 10. The above referred averments in the complaint are too vague. The employees like applicant No. 10, who is Chief Factory Manager, and applicant No. 11 who is Factory Manager, cannot be equated with the position of masters. It cannot be said that they are incharge of and responsible for conduct of the business of the Company. The vague averment that the applicant Nos. 1 to 3 are promoters/owners of the said Company is also of no much avail. For, it does not imply that they are responsible for the conduct of the business of the Company. They may be the promoters and may the stake holders, but for the purpose of fastening criminal liability, there must exist responsibility in relation to conduct of the business of the Company. The law in this context is well settled by a catena of judgements. 11. In "Keki Bomi Dadiseth and others v. The State of Maharashtra WITH M.K. Sharma and others v. The 294 State of Maharashtra", 2002 (1) FAC 294, it is held that person incharge and responsible for conduct of the business of the Company can only be proceeded with. It is observed : "The person in-charge of and responsible for conduct of business of the Company can be anybody including Directors of the Company. (10) However, it mus be alleged in the complaint in this regard in order to show at the threshold as to who are persons in-charge of and responsible for conduct of business of the Company. It is observed : "The person in-charge of and responsible for conduct of business of the Company can be anybody including Directors of the Company. (10) However, it mus be alleged in the complaint in this regard in order to show at the threshold as to who are persons in-charge of and responsible for conduct of business of the Company. In the absence of any allegation in the complaint, in a given set of circumstances, it will not be possible to connect the accused with the crime in question and if the allegations in this regard are missing in the complaint itself, then proving of those facts by adducing evidence does not arise. In such circumstances, it boils down to a situation where even if the allegations in the complaint are accepted as they are, without adding or subtracting anything from it, it would not either connect the accused with crime in question nor would make out even a prima facie case against the accused and in such situation, it will not be expedient to allow such prosecution to go on, which would amount to abuse of process of the Court apart from the fact that accused will have to undergo tremendous agony and pain for such proceedings." Similar view is expressed in "United Phospherus Ltd. & others v. The State of Rajasthan, 2002 (2) FAC 168" AND "Iqbal Abdul Khaliq Ahmed and others v. State of (11) Maharashtra, 321 2002 (1) FAC 321". In "Iqbal Abdul Khaliq others Ahmed and others" (supra), it is observed that when the Magistrate failed to take into consideration the fact that no averments have been made against the Directors alleging that the offence was committed with their consent and connivance and they were, therefore, liable to be tried alongwith the others, the proceedings need to be quashed. 12. In "G. Atherton and Co. (Pvt.) Ltd. and others 86 v. Corporation of Calcutta, 1979 CRI.L.J. 86, a Division Bench of Calcutta High Court reiterated the same view. It is observed : ".....Therefore, under the said section a Company has been made primarily liable, but to make other persons vicariously liable, it has to be shown that such persons were in charge of or were responsible to the Company for the conduct of its day to day business." "In the absence of any mention in the petition of complaint as to how the petitioners Nos. 2 to 7 were concerned in the carrying on the day to day business of the petitioner company, process could not have been issued against them. The learned Magistrate obviously overlooked the provisions of S. 17 of the Act (12) or issued process without bothering to go through the petition of complaint." 13. In the context, observations in "R. Banerjee and others v. H.D. Dubey and others", 1992 CRI.L.J. 1523 1523, may be usefully referred. It was a case under the Prevention of Food Adulteration Act. The Apex Court held that the prosecution of Directors is permissible under Scheme of Section 17 only when it is averred that they are in-charge of and responsible to the Company for the conduct of its business. The Apex Court clarified Scheme of Section 17 of the Prevention of Food Adulteration Act and held that the inclusion of co-accused other than the Company and the nominated person as the persons liable to be proceeded against and punished, cannot be justified. The Apex Court in "Saroj Kumar Poddar v. State (NCT of Delhi) and another" 912 AIR 2007 S.C. 912 , held that 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 conduct of business of the Company at the time of commission of an offence, will be liable for criminal action. 14. For the reasons aforestated, I am of the opinion that issuance of process against the applicant Nos. 1 to 3 and Nos. 6 to 11 is improper and illegal. The learned Magistrate ought to have (13) examined whether the said applicants are, in fact, incharge of and responsible for conduct of the business of the Company. The applicant Nos. 4 and 5, however, on their own showing are having control over the affairs of the Company. Though it is stated that the applicant No. 4 has resigned, yet, the said resignation was tendered on 31st July, 2007. The resignation does not amount to termination of the criminal liability in respect of the deeds which pertained to the period between 1995 till 31st July, 2007. In this view of the matter, the issuance of process against the applicant Nos. 4 and 5 need not be interfered with. 15. In the result, the application is partly allowed. The resignation does not amount to termination of the criminal liability in respect of the deeds which pertained to the period between 1995 till 31st July, 2007. In this view of the matter, the issuance of process against the applicant Nos. 4 and 5 need not be interfered with. 15. In the result, the application is partly allowed. The impugned order is quashed to the extent of issuance of process against the applicant Nos. 1 to 3 and 6 to 11. Application partly allowed.