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2011 DIGILAW 662 (CAL)

N. K. Agarwal v. State

2011-05-12

KANCHAN CHAKRABORTY

body2011
JUDGMENT 1. THE petitioner, N.K. Agarwal (accused No. 3 in Complaint Case No. C-2249/96) has taken out this application praying for quashing of the proceeding in C-2249/96 pending in the Court of learned Judicial Magistrate, 8th Court, Alipore, 24-Parganas (South), on the ground that in view of Section 141(1) of the Negotiable Instruments Act, 1881 (as Amended by Act 55 of 2002), he is not vicariously liable for the act of the principal offender, i.e., the company for commission of an offence under Section 138 of the Negotiable Instruments Act (hereinafter referred to as "the said Act"). 2. THE opposite party, Biswanath Mukherjee, Secretary of Golden Securities Limited, lodged one petition of complaint in the year 1996 in the Court of learned Judicial Magistrate, 8th Court, Alipore, 24-Parganas (South), under Section 138 of the said Act alleging therein that Prakash Industries Limited, accused No.1, was under obligation to pay rental dues. The accused No. 2, V. P. Agarwal, being the Managing Director of the company, drawn a cheque on behalf of M/s. Prakash Industries Limited for Rs.3,91,585/- towards payment of third instalment. That cheque was presented for encashment in the United Bank of India, Calcutta Stock Exchange Branch, Calcutta by the complainant Biswanath Mukherjee. The said cheque was returned dishonoured due to insufficient fund. The complainant Biswanath Mukherjee issued demand notice dated 14.11.1996 through his Advocate for payment of the dishonoured cheque amount upon all the accused persons, which was received by all of them on 01.12.1996. As the accused No. 1, being the company, accused No. 2 being the drawer of the cheque and other accused persons were the persons in control, management and responsible for the conduct of the business of the accused No. 1 company, were sought to be prosecuted under Section 138 of the said Act. After recording initial deposition of the complainant Bikash Chatterjee and upon consideration of the petition of complaint, the learned Magistrate directed issuance of process upon all the accused person including the petitioner herein (accused No. 3). The petitioner has come up with this application praying for quashing of the proceeding on the sole ground that he is not vicariously liable for the act allegedly committed by the accused No. 1 company and the accused No. 2, the Managing Director of the accused No. 1 company. The petitioner has come up with this application praying for quashing of the proceeding on the sole ground that he is not vicariously liable for the act allegedly committed by the accused No. 1 company and the accused No. 2, the Managing Director of the accused No. 1 company. It is his claim that he was the Deputy General Manager (Finance) of the company, as shown in the petition of complaint, although there existed no such post in the accused No.1 company. The cheque in question was not issued in connivance with and in consultation with him by the accused No.2. A question crops up in this revisional application is whether the petitioner is vicariously liable for the act done by the accused Nos. 1 and 2 in view of the provisions of Section 141 of the said Act. 3. MR. Mitra, learned Counsel appearing on behalf of the petitioner, contends that in order to attract the provisions of Section 141 of the said Act, the complainant is to, prima facie, establish 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. Until and unless, MR. Mitra submits, a specific case is averred in the petition of complaint against any such director, manager, secretary and officers of the company other than the managing director of the company and the company itself, the provisions of Section 141 of the said Act will not operate. In support of his contention MR. Mitra refers to the decisions of the Apex Court in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Anr., reported in 2005 SCC (Cri) 1975; Saroj Kumar Poddar v. State (NCT of Delhi) and Anr., reported in 2007 (2) SCC (Cri) 135; K.K. Ahuja v. V.K. Vora and Anr., reported in JT 2009 (8) SC 691. 4. MR. R.P. Matilal, learned Advocate appearing on behalf of the opposite parties, contends that the petition of complaint filed by the opposite party in the Court of learned Magistrate contains clear averment which satisfied the requirement of Section 141 of the said Act. 4. MR. R.P. Matilal, learned Advocate appearing on behalf of the opposite parties, contends that the petition of complaint filed by the opposite party in the Court of learned Magistrate contains clear averment which satisfied the requirement of Section 141 of the said Act. It has been mentioned clearly therein that the accused No. 2 is the drawer of the cheque and the accused Nos.3, 4 and 5 are the persons in control, management and responsible for the conduct of the business of the accused company and that, they were served with demand notice which they received on 1.12.1996 but, failed to make payment. These averments altogether is sufficient enough to meet the requirements of Section 141 of the said Act at least for the purpose of issuing process under Section 204 of the Code of Criminal Procedure. MR. Matilal contends further that whether the petitioner had knowledge or not in the matter of issuing the cheque in question or whether it was issued in connivance with him or not and that whether or not he was in control, management and responsible for the conduct of the business of the accused company is a question of fact supposed to be decided by the learned Trial Court at the time of trial. In support of his contention, MR. Matilal refers to the following decisions:- 1. N. Rangachari v. Bharat Sanchar Nigam Limited, reported in 2007 Cri. L.J. 2448; 2. Rajesh Bajaj v. State (NCT of Delhi) and Ors., reported in AIR 1999 SC 1216 ; 3. S.V. Mazumdar and Ors. v. Gujarat State Fertilizer Co. Ltd. and Ors., reported in 2005 (4) SCC 173 ; 4. Paresh P. Rajda v. State of Maharashtra and Anr., reported in 2008 (7) SCC 442 . To appreciate Section 141 of the said Act, it would be very pertinent to set out the same. Section 141 of the said Act runs as follows:- "141. v. Gujarat State Fertilizer Co. Ltd. and Ors., reported in 2005 (4) SCC 173 ; 4. Paresh P. Rajda v. State of Maharashtra and Anr., reported in 2008 (7) SCC 442 . To appreciate Section 141 of the said Act, it would be very pertinent to set out the same. Section 141 of the said Act runs as follows:- "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 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: 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." 5. 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." 5. A cursory perusal of the Section 141 of the said Act leaves no room of doubt that under Section 141 of the said Act if the main offender is a company or a firm, 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 liable to be prosecuted. 6. IN the instant case, the petition of complaint shows that while the main offender is the company (accused No. 1), accused Nos.2, being the signatory of the cheque in question and other accused persons are in the control, management and responsible for the conduct of the business of the accused No. 1 company and, thus, vicariously liable for the offence allegedly has been committed. Section 141 of the said Act does not say that a Director or a Deputy General Manager shall automatically be vicariously liable for commission of an offence on behalf of a company. What is necessary is that sufficient averments should be made to show that the person who is sought to be proceeded against on the premise of his being vicariously liable for commission of an offence by the company must be in charge and shall also be responsible to the company for the conduct of its business. 7. IN the instant case, no doubt, there are averments in the petition of complaint to the effect that the accused No. 1, being the company, is the main culprit together with the accused No. 2, who was the drawer of the cheque. This apart, the other accused persons are the persons in control, management and responsible for the conduct of the business of the company and were served with demand notice which were received on 1.12.1996 and failed to pay the cheque amount. 8. THE question precisely comes in is whether or not that averments can be said to be sufficient enough to meet the requirements of Section 141 of the said Act. 8. THE question precisely comes in is whether or not that averments can be said to be sufficient enough to meet the requirements of Section 141 of the said Act. In S.M.S. Pharmaceuticals Ltd. (supra) the Hon'ble Apex Court was pleased to hold that it is necessary to aver that at the time of offence was committed the person accused, was in charge of and responsible for the conduct of the business of the company. Without this averment being made in the complaint, the requirement of Section 141 cannot be said to be satisfied. The Hon'ble Court observed that in order to bring a case within the mischief of Section 141 of the Act, the complaint must disclose the necessary facts which make a person liable. It is necessary to specifically aver in a complaint that at the time the offence was committed, the person accused was in charge and responsible for the conduct of the business of the company. It is only those persons who are in charge and responsible for the conduct of the business of the company at the time of commission of the offence, will be liable for criminal action. The liability arises on account of conduct, act or omission on the part of a person not merely on account of holding of an office or a position in a company. The Hon'ble Court also observed that liability is cast on person who may have something to do with the transaction complained of. A person who is in charge of and responsible for conduct of business of a company would naturally know why the cheque in question was issued and why it got dishonoured. The Hon'ble Court viewed further that the position of a managing director or a joint managing director in a company may be different. These persons, as the designation of their office suggests, are in charge of a company and are responsible for the conduct of the business of that company. In order to escape liability such persons may have to bring their case within the proviso to Section 141(1) of the said Act, they will have to prove that when the offence was committed they had no knowledge of the offence or that they exercised all due diligence to prevent the commission of the offence. 9. In order to escape liability such persons may have to bring their case within the proviso to Section 141(1) of the said Act, they will have to prove that when the offence was committed they had no knowledge of the offence or that they exercised all due diligence to prevent the commission of the offence. 9. IN Saroi Kumar Poddar (supra) the Hon'ble Supreme Court taken into consideration of the decision the decision of the Three-Judge Bench in S.M.S. Pharmaceuticals Ltd. (supra) and opined that what is required is that the persons who are sought to be made criminally liable under Section 141 should be, at the time of offence was committed, in charge of and responsible to the company for the conduct of the business of the company. The Hon'ble Court also opined that every person connected with the company shall not fall within the ambit of the provision. The Hon'ble Court held that 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. The Hon'ble Court observed 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 the provision. The liability depends on the role one plays in the affairs of a company and not on designation or status. IN that case before the Hon'ble Apex Court, a petition of complaint was filed containing the averments read as under:- "That Accused No. 1 is a public limited company incorporated and registered under the Companies Act, 1956 and Accused Nos. 2 to 8 are/were its Directors at the relevant time and the said Company is managed by the Board of Directors and they are responsible for and in charge of the conduct and business of the Company, Accused No. 1. However, cheques referred to in the complaint have been signed by Accused Nos. 3 and 8 i.e. Shri K.K. Pilania and Shri N.K. Munjal for and on behalf of Accused No. 1 Company." 10. However, cheques referred to in the complaint have been signed by Accused Nos. 3 and 8 i.e. Shri K.K. Pilania and Shri N.K. Munjal for and on behalf of Accused No. 1 Company." 10. THE Hon'ble Apex Court came to a conclusion that allegations so made in the petitions of complaint even if are taken to be correct in their entirety, do not disclose any offence as against the appellant therein. In K.K. Ahuja (supra) the Hon'ble Apex Court also taken into consideration the decision of S.M.S. Pharmaceuticals Ltd. (supra) and observed that if a mere reproduction of the wordings of Section 141(1) in the complaint is not sufficient to make a person liable to face prosecution. Virtually every officer/employee of a company without exception could be impleaded as accused by merely making an averment that at the time when the offence was committed they were in charge of and were responsible to the company for the conduct and business of the company. That would be absurd and not intended under the Act. The Hon'ble Court held further that a Deputy General Manager is not a person who is responsible to the company for the conduct of the business of the company. He does not fall under any of the categories (a) to (g) listed in Section 5 of the Companies Act. Therefore, the question whether he was in charge of the business of the company or not, is irrelevant. He cannot be made vicariously liable under Section 141(1) of the Act. If he has to be made liable under Section 141(2), the necessary averments relating to consent/connivance/negligence should have been made. When no such averment is made, the Deputy General Manager could not be prosecuted either under sub-section (1) or under sub-section (2) of Section 141 of the Act. 11. IN the instant case, the petitioner is the Deputy General Manager (Finance) of the accused No. 1 company. It is submitted by Mr. Mitra that no such office was actually existing at the time the petition was filed. Be that as it may, the averments in the petition of complaint, which has been mentioned earlier, against the petitioner (accused No. 3) is general and stereotype in nature and, mere reproduction of the wordings of Section 141(1) of the Act. Mitra that no such office was actually existing at the time the petition was filed. Be that as it may, the averments in the petition of complaint, which has been mentioned earlier, against the petitioner (accused No. 3) is general and stereotype in nature and, mere reproduction of the wordings of Section 141(1) of the Act. To make him liable under Section 141(2) of the said Act, necessary averments showing his consent/ connivance/negligence has not been averred specifically. 12. IN N. Rangachari (supra) the Hon'ble Apex Court opined that when there is clear allegation in the petition of complaint against the appellants and others who were the Directors of the Company, the question whether they were in charge of affairs of the company at the relevant point of time or not can be adjudged during trial and a complaint cannot be quashed on that ground. The Hon'ble Court also observed that it is not proper to split hairs in reading the complaint so as to come to a conclusion that the allegations as a whole are not sufficient to show that at the relevant point of time the appellant and the other are not alleged to be persons in charge of the affairs of the company. In S.V. Mazumdar and Anr. (supra) the Hon'ble Apex Court observed that under the scheme of the Act, if the person committing an offence under Section 138 of the Act is a company, by application of Section 141 of the Act 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). The burden in this regard has to be discharged by the accused. 13. IN Paresh P. Rajda (supra) the Hon'ble Apex Court was pleased to hold that when the contents of the complaint showed that there was specific averment against the appellant that he, as accused No. 2, is responsible in the affairs of the accused No. 1 company and, therefore, is liable to repay the amount of dishonoured cheque, requirement of Section 141 of the Act is said to have been fulfilled. When the trial was not commenced, it would be inappropriate to quash the proceeding. 14. I reiterate that in the petition of complaint there are averments to the effect that the accused No. 2 is the drawer of the cheque in question. It has also been averred that other accused persons including this petitioner are persons in control, management and responsible for the conduct of the business of the accused No. 1 company and they committed offence under Section 138 of the said Act, as amended. In view of the decision in K.K. Ahuja (supra), a Deputy General Manager is not a person who is responsible to the company for the conduct of the business of the company because he does not fall within any of the category (a) to (g) listed in Section 5 of the Companies Act. In the instant case, the petitioner is a Deputy General Manager of the accused No. 1 company. He is not coming within the categories of (a) to (g) listed in Section 5 of the Companies Act. Therefore, the question whether he was in charge of the business of the company or not, appears to be irrelevant. He cannot be made vicariously liable under Section 141(1) of the said Act. Again, there is no specific averment against the petitioner in the petition of complaint, suggesting that he had consent/connivance/negligence in the matter of issuing the cheque in question. To be stated precisely, there is no specific allegation against him or role played by him in the matter of issuance of the cheque in question. The mere reproduction of wording in Section 141(1) of the Act does not appear to be sufficient to make him liable to face prosecution vicariously together with the accused No. 1 company and accused No.2, the drawer of the cheque. I think that the decision of the Hon'ble Apex Court in K. K. Ahuja (supra) squarely applies in this case. 15. IT is not the case of the petitioner that he had no knowledge about the issuance of the cheque in question or that he had exercised all due diligence to prevent issuance of such cheque. I think that the decision of the Hon'ble Apex Court in K. K. Ahuja (supra) squarely applies in this case. 15. IT is not the case of the petitioner that he had no knowledge about the issuance of the cheque in question or that he had exercised all due diligence to prevent issuance of such cheque. IT is the case of the petitioner that he cannot be held vicariously liable, being a Deputy General Manager of Company, which does not fall under any of the categories (a) to (g) listed in Section 5 of the Companies Act and in absence of specific and clear averment relating to his consent/ connivance/negligence the matter of issuing the cheque in question, in the petition of complaint, he cannot be prosecuted. Therefore, the factual aspects in N. Rangachari (supra), S. V. Mazumdar (supra) and Paresh P. Rajda (supra) and that of this case do not appear to be similar. 16. IN view of the discussion above and in view of the decisions referred to above, I find that there is substance in the proposition of Mr. Mitra. IN absence of any specific averment against the petitioner suggesting his consent/connivance/negligence in the matter of issuing the cheque in question and he, being a Deputy General Manager of the accused No. 1 company, cannot be held vicariously liable under subsections (1) and (2) of Section 141 of the said Act. Therefore, I allow the revisional application. The proceeding against the petitioner stands quashed. 17. IT appears that the matter is pending for quite a long period and the trial has not proceeded with and progressed. The learned Magistrate is directed to fix a specific date for hearing and recording of evidence and dispose of the matter without further delay within a period of six months from date. 18. WITH the directions above, this revisional application is disposed of. Interim order, if any, stands vacated. There will, however, be no order as to costs. Let urgent photo-stat certified copy of this order, if applied for, be given to the learned Advocates for the parties upon compliance of necessary formalities.