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2010 DIGILAW 211 (ORI)

LAXMIDEVI RAM v. TIRUPATI ELECTRO MARKETING PVT. LTD.

2010-03-25

I.MAHANTY

body2010
JUDGMENT : Indrajit Mahanty, J. - In this application u/s 482 Code of Criminal Procedure the Petitioner-Smt. Laxmidevi Ram has prayed for quashing of the order of cognizance dated 17.3.2008 passed in I.C.C. No. 847 of 2008 by the learned SDJM, Bhubaneswar in respect of the present Petitioner. 2. Mr. Pal, learned Counsel for the Petitioner states that the Petitioner who was a Director of M/s L.P. Electronics (Orissa) Private Limited, has been implicated as an accused in a proceeding u/s 138 of the N.I. Act, inter alia, only for the reason of her having been named as Director of such company. He asserts that other similarly placed Directors had also filed application u/s 482 Code of Criminal Procedure for quashing of order of cognizance, namely, Sri Om Prakash Ram and Sri Deepak Kumar Ram in CRLMC Nos. 1051 and 1900 of 2008 which were disposed of on 19.5.2009, whereby Hon'ble Mr. Justice B.K. Patel came to a conclusion that here were no express averments made in the complaint petition that any of the Petitioners therein was either in-charge or and/or was responsible to the accused company for the conduct of the business of the company. Therefore relying on Section 141 of the N.I. Act, the learned Single Judge came to hold that the learned Counsel for the opposite party was constrained to admit that the complaint petition does not contain such averments as required u/s 141 of the N.I. Act for implicating the Directors who are Petitioners therein. Accordingly, the CRLM Cs were allowed and order of cognizance in so far as it concerned other Directors was directed to be quashed. 3. Mr. Pal further contends that the present Petitioner is similarly circumstanced as the Director, who had moved the CRLMC mentioned herein above and against whom order of cognizance has been quashed. 4. Mr. Das, learned Counsel for the complainant-opposite party relied upon the judgment of the Hon'ble Supreme Court in the case of Malwa Cotton and Spinning Mills Ltd. Vs. Mr. Pal further contends that the present Petitioner is similarly circumstanced as the Director, who had moved the CRLMC mentioned herein above and against whom order of cognizance has been quashed. 4. Mr. Das, learned Counsel for the complainant-opposite party relied upon the judgment of the Hon'ble Supreme Court in the case of Malwa Cotton and Spinning Mills Ltd. Vs. Virsa Singh Sidhu and Others, in which their Lordships came to a conclusion that the claim of the Petitioner therein that he has resigned from the Directorship of the defaulting Company prior to the date on which the cheque had been issued was a matter which should be proved in course of trial and therefore, came to a conclusion that the High Court was not justified in quashing the proceeding in the said case. He further placed reliance on a reference made therein to an earlier judgment in the case of N. Rangachari Vs. Bharat Sanchar Nigam Ltd., in which it is observed that in the commercial world having a transaction with a company is entitled to presume that the Directors of the company are in charge of the affairs of the company. If any restrictions on their powers are placed by the memorandum of articles of the company, it is for the Directors to establish it at the trial. 5. Sri Pal, learned Counsel for the Petitioner on the other hand placed reliance upon the recent judgment of the Hon'ble Supreme Court in the case of National Small Industries Corp. Ltd. Vs. Harmeet Singh Paintal and Another, which was disposed of on 15.2.2010. In the said judgment, the Hon'ble Supreme Court has referred to its earlier judgment in the case of N. Rangachari (supra), the relevant portion of which in paragraphs 9, 10 and 11 thereof are as follows: Section 138 of the Act refers about penalty in case of dishonour of cheque for insufficiency of funds in the account. We are more concerned about Section 141 dealing with offences by Companies which reads as under. 141. We are more concerned about Section 141 dealing with offences by Companies which reads as under. 141. Offences by companies-(1) If the person committing an offence u/s 138 is a company, every persons 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, of 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, and 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. It is very clear from the above provision that what is required is that the persons who are sought to be made vicariously liable for a criminal offence u/s 141 should be, 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. Every person connected with the company shall not fall within the ambit of the provision. Every person connected with the company shall not fall within the ambit of the provision. Only those persons who were in-charge of and responsible for the conduct of the business of the company at the time of commission of an offence will be liable for criminal action. It follows from the fact 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 for a criminal offence under the provisions. The liability arises from being in-charge of an responsible for the conduct of the 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. 10. Sections 141 is a penal provision creating vicarious liability, and which, as per settled law, must be strictly construed. It is therefore, not sufficient to make a bald cursory statement in a complaint that the Director (arrayed as an accused) is in charge of and responsible to the company for the conduct of the business of the company without anything more as to the role of the Director. But the complaint should spell out as to how and in what manner Respondent No. 1 was in-charge of or was responsible to the accused company for the conduct of its business. This is in consonance with strict interpretation of penal statutes, especially, where such statutes create vicarious liability. A company may have a number of Directors and to make any or all the directors as accused in a complaint merely on the basis of a statement that they are in-charge of and responsible for the conduct of the business of the company without anything more is not a sufficient or adequate fulfillment of the requirements u/s 141. 11. In a catena of decisions, this Court has held that for making Directors liable for the offences committed by the company u/s 141 of the Act, there must be specific averments against the Directors, showing as to how and in what manner the Directors were responsible for the conduct of the business of the company. 6. 11. In a catena of decisions, this Court has held that for making Directors liable for the offences committed by the company u/s 141 of the Act, there must be specific averments against the Directors, showing as to how and in what manner the Directors were responsible for the conduct of the business of the company. 6. In consideration of the above, in paragraph-10 of the judgment referred to by the Hon'ble Supreme Court in the case of Malwa Cotton (supra), the Hon'ble Supreme Court has laid down three categories of persons covered by Section 141 which are as follows: (1) The company who committed the offence. (2) Everyone who was in charge of and was responsible for the business of the company. (3) Any other person who is a director or a manager or a secretary or officer of the company with whose connivance or due to whose neglect the company has committed the offence. 7. In the present case the complaint petition it-self has been annexed as Annexure-1 and in paragraph-7(i) the complainant has made the following complaint, which reads as follows: 7(i) Since Mr. Rajendra Prasad Ram is Managing Director of the company and Mrs. Lakshmi Devi Ram, Mr. Ashok Kumar Ram, Mr. Niranjan Prasad Ram and Mr. Deepak Kumar Ram are the Directors of the company and are committed and looking after the day to day business of the company in their respective individual capacity and jointly as Directors of the company, for which all of them are responsible in one way and other for the conduct of the business of the company as well as company and the accused company has issued the cheque in consultation with all Directors in order to liquidate their liability but subsequently with a view to defraud the claim of complainant knowing fully well their liability purposefully have defaulted to pay to the complainant. The complainant company officials have time to time contacted all the Directors of the accused company before and after issue of cheque but to defraud the claim of complainant has stopped payment of the cheque when they did not have sufficient balance to cover the cheque amount.... 8. The complainant company officials have time to time contacted all the Directors of the accused company before and after issue of cheque but to defraud the claim of complainant has stopped payment of the cheque when they did not have sufficient balance to cover the cheque amount.... 8. On a reading of Section 141 of the N.I. Act vis-a-vis the complaint made in this application it would be clear that necessary averments to implicate a Director such as the present Petitioner for having connived or neglected in committing the offence, has not been clearly made. Admittedly the Managing Director Sri Rajendra Prasad Ram had been impleded as accused No. 2 in the complaint petition and it is the said Managing Director who had issued the cheque in question and the dishonour of such cheque is the subject matter of the complaint. Further I find that in CRLMC Nos. 1051 & 1900 of 2008 Hon'ble Mr. Justice B.K. Patel of this Court had also come to a conclusion that Section 141 of the Act was required to be strictly complied with and by making ambiguous statement regarding involvement of other Directors other than the Managing Director, the requirement of Section 141 of the N.I. Act was not complied with and therefore, in the absence of any such statement as required u/s 141 of N.I. Act vis-?-vis the present Petitioner, there is no scope for her prosecution and therefore, the cognizance order passed against the present Petitioner is quashed. The learned Counsel for the O.P. states that the case has remained pending before the learned SDJM, Bhubaneswar since 2008 and thus, more than two years have lapsed in the meantime prays for a direction for early disposal. Therefore, the learned SDJM is directed to take up the matter and dispose of the same expeditiously in accordance with law preferably within a period of four months from the date of communication of this order. Interim orders, if any, stand vacated.