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Karnataka High Court · body

2010 DIGILAW 833 (KAR)

Sujatha Rana v. Dilip Kumar

2010-07-23

SUBHASH B.ADI

body2010
Judgment : Petitioner accused No.5 in C.C.NO.1163/2010 has filed this petition seeking quashing of the proceedings on the file of 15th Additional Chief Metropolitan Magistrate, Bangalore City. 2. Respondent Complainant, filed a complaint under Section 200 of Cr.P.C. interalia alleging that, accused No.1 Company along with accused No.4 borrowed a sum of Rs.5,00,000/- from the petitioner for their business purpose on 31.10.2007, in this regard, on an demand promissory note and consideration receipt were executed and further issued a cheque towards part payment of the said amount. Accused Nos.2 and 3 as authorized signatories of accused No.1, issued a cheque bearing No.067812 dated 30.4.2009 for Rs.50,000/- drawn on Syndicate Bank, Dickinson Road Branch, Bangalore. Said cheque was presented to the banker of the complainant and the banker of the complainant returned the cheque with an endorsement dated 16.10.2009 stating ‘account closed’. In this regard, complainant issued legal notice on 14.11.2009 by RPAD. However, postal cover returned unreserved against accused Nos.2 and 5 as ‘not claimed’. As against accused Nos.1, 3 and 4, RPAD returned with an endorsement ‘no such person’, in view of the same, respondent filed a complaint after statutory waiting period for an offence punishable under Section 138 of the Negotiable Instruments Act. 3. Learned Magistrate considering the averments in the complaint, sworn statement of the complainant and the material produced, by his order dated 8.1.2010 ordered for registration of criminal case and issue of summons against the accused, As against the said proceedings, accused No.5 has filed this petition. 4. Sri Rohil Kumar B.G., learned Counsel appearing for the petitioner submitted that, accused No.1 being a Company, it is primary liable to the alleged offence, insofar as the Directors are concerned, they cannot be made vicariously liable, unless the complaint discloses the requirement of Section 141 of the Act. In this regard he referred to the complaint and submitted that, even according to the complainant at para 4 of the complaint it is alleged that, the accused No.1 is the company, accused Nos.2 and 5 authorised signatories and accused No.4 who approached the complainant Company for loan amount. However, as against accused No.5 is concerned, except mentioning that accused Nos.2 to 5 are the Directors of the accused No.1 Company, incharge of day to day affairs of accused No.1, nothing has been stated in the entire complaint. However, as against accused No.5 is concerned, except mentioning that accused Nos.2 to 5 are the Directors of the accused No.1 Company, incharge of day to day affairs of accused No.1, nothing has been stated in the entire complaint. He submitted that, to prosecute the case against the directors of the company, the complainant must state the person who is responsible and incharge of the business of the company. There must be specific averment as against such person who is sought to be prosecuted. Merely being director of the company, the offence punishable under Section 138 of the Negotiable Instruments Act does not automatically get attracted. 5. On the other hand, Sri. Ramesh Chandra, learned Counsel appearing for the complainant submitted that, whether the Directors are incharge and responsible for the day to day affairs of the Company or not, is not a matter, which could be gone into at this stage it requires to be considered at the trial state. It is for the accused to produce such material as they deem it fit at the stage of trial. He further submitted that, at para 4 of the complaint it is alleged that, accused Nos.2 to 5 are the Directors of accused No.1 and they are incharge of day to day affairs of the Company and in para 9 also, same thing is stated. This averment is sufficient to proceed against the accused. It does not warrant any further details in the complaint. He submitted that, at this stage, only prima facie case to be looked into and not other materials. 6. Question as to whether the specific averment is necessary, has been considered by the Apex Court right from the decision in S.M.S. Pharmaceuticals Limited Vs. Bhalla and Another, reported in AIR 2005 SC 3512 . 7. If an offence is alleged against the company, it is not automatically make all the persons who axe in the Company liable for such offence. Section 141 of the Act excludes the liability of the persons who are not incharge and responsible for the business of the Company. Legislature in order to make liable only persons incharge and responsible for business of the company, has not made reference either to the directors or any specific officer of the company. Section 141 of the Act holds only such persons who are responsible and incharge of the business of the company. Legislature in order to make liable only persons incharge and responsible for business of the company, has not made reference either to the directors or any specific officer of the company. Section 141 of the Act holds only such persons who are responsible and incharge of the business of the company. Hence, in case offence by company under the provision of the Act, the complainant must state, as to who is the person incharge and responsible for business of the company. 8. Though averment need not be elaborate or it need not be in the nature of evidence, but what is required is, a specific averment constituting offence against the Director or a person showing that, he is incharge and responsible for the business of the company at the time of the commission of the offence. The Magistrate who is conferred to take cognizance in case of private complaint, is required to notice as to whether the fact stated in the complaint do constitute an offence for the purpose of taking cognizance. It is not necessary that, taking cognizance means the Magistrate should write an order or to give a reasons, but complaint must disclose the offence, as such the complaint is required to be considered. 9. Apex Court considering the earlier judgment in a recent judgment reported in 2010 AIR SCW 1508 in the matter of National Small Industries Corporation Limited Vs. 9. Apex Court considering the earlier judgment in a recent judgment reported in 2010 AIR SCW 1508 in the matter of National Small Industries Corporation Limited Vs. Harmeet Singh Paintal and Another considering the scope of the provision of Section 141 of the Act and also the provisions of the Company Act particularly in relation to the offence punishable under Section 138 of the Act alleged against the Company, on interpretation of provisions of Sections 5 and 291 of the Company’s Act and definition clauses of Sections 24, 26, 30, 31, 45 and Section 2 has held that, persons who are considered to be responsible to the Company for conduct of the business of the Company are; the Managing Director, the whole-time Director, Manager, Secretary, any other person in accordance with whose directions or instructions the Board of Directors of the Company is accustomed to act or any person charged by the Board of Directors with the responsibility of complying with that provision, provided that, the person so charged has given his consent in this behalf to the Board, where any Company does not have any of the Officers specified, any director or directors who may be specified by the Board in this behalf or where no director is so specified, all the directors, further where the Board exercises any power authorizing any person, it requires to file appropriate report before the Registrar of Companies. 10. On consideration of the provisions of the Companies Act and the provisions of Sections 138 and 141 of the Negotiable Instruments Act, the Apex Court has observed that; “But if the accused is not one of the persons who falls under the category of “persons who are responsible to the company for the conduct of the business of the company’ then merely by stating that ‘he was in-charge of the business of the company’ or by stating that “he was in-charge of the day-to-day management of the company’ or by stating that “he was in-charge of and was responsible to the company for the conduct of the business of the company’, he cannot be made vicariously liable under Section 141(1) of the Act. To put it clear that for making a person liable under Section 141(2), the mechanical repetition of the requirement under Section 141(1) will be of no assistance, but there should be necessary averments in the complaint as to how and in what manner the accused was guilty of consent and connivance or negligence and therefore, responsible under subsection (2) of Section 141 of the Act’. 11. The above decision amply clarify that, to make a person liable under Sections 141(1) and 142(2) of the Act, mere repetition of requirement under Section 141(1) will be of no assistance, but there should be necessary averments in the complaint as to how and in what manner the accused was guilty of consent and connivance or negligence and therefore, responsible under sub-section (2) of Section 141 of the Act. 12. In case of the Director by virtue of his offence, if he is to be made liable, then there must be necessary averment as to his involvement in day to day affairs. Just re-producing the provision by itself will not amount to compliance of Section 141 of the Act, unless there is averment stating as to involvement in the day to day business of the company to make him vicariously liable. 13. In this case, the complaint discloses that, accused No.4 approached the complainant for financial assistance. It also discloses that, accused Nos.2 and 3 are the authorized signatories and accused No.1 is a Company. Insofar as accused No.5 is concerned, except reference, there is no specific averment, as to how she is incharge and responsible for the affairs of the company. It can be said that, the Managing Director by virtue of his office, becomes responsible, if the other directors who have signed the instrument, may also become liable, but other directors, they will not automatically become liable. Only because they are directors, Section 141 of the Act does not refer to the direction, but refers to the person, person may be director or not, but he must be incharge and responsible of the business of the company on the date of the commission of the offence. Complainant prima facie requires to mention in the complaint. 14. Considering the same, I find that, the proceedings insofar as this petitioner is concerned, is required to be quashed. Accordingly, this petition is allowed. Proceedings in C.C.No.1163/2010 stand quashed.