Research › Search › Judgment

Gujarat High Court · body

2022 DIGILAW 759 (GUJ)

KANCHANBEN RASIKBHAI BAVARIA v. HDFC BANK LTD.

2022-06-10

NIRZAR S.DESAI

body2022
JUDGMENT : NIRZAR S. DESAI, J. 1. Rule. Learned advocate Mr. Darshan Kinariwala with learned advocate Mr. Nikunj D. Balar waive service of notice of Rule for and on behalf of respondent no. 1 and learned APP Ms. Maithili Mehta waives service of notice of Rule for and on behalf of respondent no. 2-State. 2. By way of three different applications, present applicants have challenged three different criminal complaints under the Negotiable Instruments Act, 1881 (hereinafter referred to as “the N.I. Act” for short) in respect of three different cheques issued by applicants, which are returned with an endorsement of “funds insufficient.” 3. Since all these three petitions are identical petitions in respect of three different cheques, facts are taken from Criminal Misc. Application No. 19661 of 2019. 4. Prayers in Criminal Misc. Application No. 19661 of 2019 read as under: “(A) YOUR LORDSHIPS may be pleased to admit and allow the present petition. (B) YOUR LORDSHIPS may be pleased to quash and set aside the Criminal Complaint No. 6769 of 2015 and impugned pleas at Exh.23, 24, 25 and 26 recorded of the Petitioners by Ld. 5th Additional Chief Judicial Magistrate Rajkot dated September 10, 2015 (10.09.2015) in Criminal Complaint No. 6769 of 2015 qua the Petitioners annexed as ANNEXURE-A. (C) Pending admission, hearing, and final disposal of the petition, YOUR LORDSHIPS be pleased to stay the proceedings of Criminal Case No. 6769 of 2015 pending before the Ld. 5th Additional Chief Judicial Magistrate Rajkot. (D) Special costs of this petition be awarded to the Petitioners from the Respondent No. 1. (E) Any other relief, order or direction which may be just, fit proper and equitable in the facts and circumstances of the petition.” 5. It is the case of applicants that applicants are Directors of Eagle Corporation Private Limited. Eagle Corporation Private Limited took loan from respondent no. 4-Bank. Affairs of Eagle Corporation Private Limited were looked after by one Shri Jayendra Rasikbhai Bavaria, who was the Director and Authorized Signatory of the said Corporation. A cheque for an amount of Rs. 19,20,975/- dated 11.06.2015 bearing Cheque No. 745794 drawn on the State Bank of India was given by present applicants towards the repayment of loan, which was dishonoured by the bank with an endorsement of “funds insufficient” vide bank memo dated 11.06.2015 and hence, respondent no. A cheque for an amount of Rs. 19,20,975/- dated 11.06.2015 bearing Cheque No. 745794 drawn on the State Bank of India was given by present applicants towards the repayment of loan, which was dishonoured by the bank with an endorsement of “funds insufficient” vide bank memo dated 11.06.2015 and hence, respondent no. 2 herein vide notice dated 01.07.2015 under Section 138 of the N.I. Act called upon the address to Eagle Corporation Private Limited, Jayendra Rasikbhai Bavaria and all other Directors of Eagle Corporation Private Limited paid the amount of the said cheques within a period of 15 days. The notice was duly received by the Eagle Corporation Private Limited and the same was not replied. Thereafter, respondent no. 2 initiated the proceedings before the Court of Chief Judicial Magistrate, Rajkot, which was registered as Criminal Case No. 6769 of 2015. Initially at the time when the complaint was registered, it was registered only against Eagle Corporation and Shri Devendra Bavaria. During the course of complaint, a pursis was given by respondent no. 2 to arraign other Directors of the company as accused in the said complaint. On the basis of the aforesaid pursis at Exh.67, pleas of present applicants were recorded on 18.09.2017. After pleas were recorded on the some occasions, even the warrant was issued against present applicants to secure their presence in the proceedings under Section 138 of the N.I. Act. 6. Thereafter, it seems that present applicants have preferred these three applications in respect of three different cheques before this Court, wherein vide order dated 27.11.2019, the Coordinate Bench of this Court issued notice and protected applicants by granting relief in terms of Paragraph-10(C) of the application, which reads as under: “10(C) Pending admission, hearing and final disposal of the petition, YOUR LORDSHIPS be pleased to stay the proceedings of Criminal Case No. 6769 of 2015 pending before the Ld. 5th Additional Chief Judicial Magistrate Rajkot.” 7. While granting the aforesaid relief, the Court made it clear that the Trial Court is at liberty to proceed against original accused of Criminal Case Nos. 6769 of 2015, 6119 of 2015 and 6770 of 2015. 8. Today, when the matter was called out, learned advocate Mr. 5th Additional Chief Judicial Magistrate Rajkot.” 7. While granting the aforesaid relief, the Court made it clear that the Trial Court is at liberty to proceed against original accused of Criminal Case Nos. 6769 of 2015, 6119 of 2015 and 6770 of 2015. 8. Today, when the matter was called out, learned advocate Mr. Gogia for applicants submitted that in view of the catena of decisions of the Hon’ble Supreme Court, it is mandatory that when a notice under Section 138 of the N.I. Act is given against a company, it is specifically submitted that the complaint must contain allegations that accused Directors were in-charge and are responsible for the conduct of the business of the company at the time when offence was committed. Mr. Gogia drew attention of this Court to the complaint filed by respondent no. 2 under Section 138 read with Section 142 of the N.I. Act before the Court of Judicial Magistrate First Class, Rajkot and pointed out from the complaint that the complainant has not made any averments stating the fact that present applicants were in-charge of the company and were responsible for the conduct of the business of the company at the time when offence was committed. 9. In support of his contentions, Mr. Gogia relied upon the judgment in the case of A.K. Singhania vs. Gujarat State Fertilizer Company Limited and Another, (2013) 16 SCC 630 . Mr. Gogia also relied upon the latest judgment of the Hon’ble Supreme Court in the case of Dilip Hariramani vs. Bank of Baroda, AIR 2022 SC 2258 and relied upon Paragraph-10 of the aforesaid judgment. By relying upon the aforesaid judgments and by making the submissions, that it is the primary responsibility of the complainant to make specific averments to state in the complaint to make the accused vicariously liable and for fastening the criminal liability, that every Director has knowledge about the transaction and that criminal liability can be fastened only on those Directors, who at the time of the commission of the offence, were in-charge of and were responsible for the conduct of the business of the company. 10. Per contra, learned advocate Mr. Darshan Kinariwala for learned advocate Mr. Nikunj Balar for respondent no. 10. Per contra, learned advocate Mr. Darshan Kinariwala for learned advocate Mr. Nikunj Balar for respondent no. 1 submitted that the complaint was filed against Eagle Corporation and its Authorized Signatory along with all the Directors and thereafter, at the time when by way of pursis at Exh.67, names of Directors were given to the concerned Court for arraigning them as accused in the complaint at no point of time, they objected to the same and without any objection, pleas were recorded. It is submitted that since there was no objection at this juncture, they cannon question the proceedings against them. 11. No other submissions were made by advocate for either party. 12. As far as the submissions of Mr. Gogia that the complaint must contain specific averments to proceed with the Directors to the effect that the accused Directors were in-charge and responsible for the conduct of the business of the company at the time when offence was committed is concerned, this Court has looked at the complaint filed by respondent no. 2. On perusal of the complaint, this Court has not found that there were any averments made against present applicants in the complaint. Keeping these facts in mind, if the judgment cited by Mr. Gogia is considered in the case of A.K. Singhania (supra), the Hon’ble Supreme Court, in Paragraphs-13 to 19, observed as under: “13. In case of offence by company for dishonour of cheque, the culpability of the Directors has to be decided with reference to Section 141 of the Act, same reads as follows: “141. Gogia is considered in the case of A.K. Singhania (supra), the Hon’ble Supreme Court, in Paragraphs-13 to 19, observed as under: “13. In case of offence by company for dishonour of cheque, the culpability of the Directors has to be decided with reference to Section 141 of the Act, same reads 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. (b) “director” in relation to a firm, means a partner in the firm.” 14. From a plain reading of the aforesaid provision it is evident that every person who at the time the offence was committed is in charge of and responsible to the Company shall be deemed to be guilty of the offence under Section 138 of the Act. (b) “director” in relation to a firm, means a partner in the firm.” 14. From a plain reading of the aforesaid provision it is evident that every person who at the time the offence was committed is in charge of and responsible to the Company shall be deemed to be guilty of the offence under Section 138 of the Act. In the face of it, will it be necessary to specifically state in the complaint that the person accused was in charge of and responsible for the conduct of the business of the Company? In our opinion, in the case of offence by Company, to bring its Directors within the mischief of Section 138 of the Act, it shall be necessary to allege that they were in charge of and responsible to the conduct of the business of the Company. It is necessary ingredient which would be sufficient to proceed against such Directors. However, we may add that as no particular form is prescribed, it may not be necessary to reproduce the words of the section. If reading of the complaint shows and substance of accusation discloses necessary averments, that would be sufficient to proceed against such of the Directors and no particular form is necessary. However, it may not be necessary to allege and prove that, in fact, such of the Directors have any specific role in respect of the transaction leading to issuance of cheque. Section 141 of the Act makes the Directors in charge and responsible to Company “for the conduct of the business of the Company” within the mischief of Section 138 of the Act and not particular business for which the cheque was issued. We cannot read more than what has been mandated in Section 141 of the Act. 15. A large number of authorities of this Court have been cited by the counsel representing the party to bring home their point. We deem it inexpedient to refer to all of them. Suffice it to say that this question has been answered eloquently by a three-Judge Bench decision of this Court in the case of S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla, (2005) 8 SCC 89 , in the following words: “19. We deem it inexpedient to refer to all of them. Suffice it to say that this question has been answered eloquently by a three-Judge Bench decision of this Court in the case of S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla, (2005) 8 SCC 89 , in the following words: “19. In view of the above discussion, our answers to the questions posed in the reference are as under: (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 requirements of Section 141 cannot be said to be satisfied.” 16. This Court in the case of National Small Industries Corporation Ltd. vs. Harmeet Singh Paintal, after reviewing all its earlier judgments summarized the legal position as follows: “39. From the above discussion, the following principles emerge: (i) The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every Director knows about the transaction. (ii) Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company. (iii) Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be averred in the complaint/petition, are made so as to make the accused therein vicariously liable for offence committed by the company along with averments in the petition containing that the accused were in charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with. (iv) Vicarious liability on the part of a person must be pleaded and proved and not inferred. (iv) Vicarious liability on the part of a person must be pleaded and proved and not inferred. (v) If the accused is a Managing Director or a Joint Managing Director then it is not necessary to make specific averment in the complaint and by virtue of their position they are liable to be proceeded with. (vi) If the accused is a Director or an officer of a company who signed the cheques on behalf of the company then also it is not necessary to make specific averment in the complaint. (vii) 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.” 17. In Harshendra Kumar D. vs. Rebatilata Koley, after referring to its earlier decisions in S.M.S. Pharmaceuticals Limited, National Small Industries Corporation Limited, N. Rangachari vs. BSNL and K.K. Ahuja vs. V.K. Vora, this Court reiterated the same view. 18. We have found on fact that there is no averment that the two accused herein were in charge of and responsible for the conduct of the business of the company at the time the offence was committed. Hence, there is no essential averment in the complaints. In view of what we have observed above, the prosecution of accused A.K. Singhania and accused Vikram Prakash cannot be allowed to continue. Accordingly, the order of the High Court quashing the prosecution of the accused Vikram Prakash is not fit to be interfered with. For the same reason the order passed by the High Court declining the prayer of A.K. Singhania for quashing of the prosecution cannot be sustained and the appeals preferred by him deserve to be allowed. 19. In the result, we dismiss the appeals preferred by the complainant Gujarat State Fertilizers Company Ltd. and allow the appeals preferred by A.K. Singhania and quash his prosecution in all these cases.” 13. Similarly in case of Dilip Hariramani (supra), the Hon’ble Supreme Court has observed in Paragraphs-10 to 14 as under: “10. We would also refer to the summarisation of law on Section 141 by this Court in National Small Industries Corporation Limited vs. Harmeet Singh Paintal and Another, (2010) 3 SCC 330 to the following effect: “39. Similarly in case of Dilip Hariramani (supra), the Hon’ble Supreme Court has observed in Paragraphs-10 to 14 as under: “10. We would also refer to the summarisation of law on Section 141 by this Court in National Small Industries Corporation Limited vs. Harmeet Singh Paintal and Another, (2010) 3 SCC 330 to the following effect: “39. From the above discussion, the following principles emerge: (i) The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every Director knows about the transaction. (ii) Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company. (iii) Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be averred in the complaint/petition, are made so as to make the accused therein vicariously liable for offence committed by the company along with averments in the petition containing that the accused were in charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with. (iv) Vicarious liability on the part of a person must be pleaded and proved and not inferred. xxx xxx xxx (vii) 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.” 11. In the present case, we have reproduced the contents of the complaint and the deposition of PW-1. It is an admitted case of the respondent Bank that the appellant had not issued any of the three cheques, which had been dishonoured, in his personal capacity or otherwise as a partner. In the present case, we have reproduced the contents of the complaint and the deposition of PW-1. It is an admitted case of the respondent Bank that the appellant had not issued any of the three cheques, which had been dishonoured, in his personal capacity or otherwise as a partner. In the absence of any evidence led by the prosecution to show and establish that the appellant was in charge of and responsible for the conduct of the affairs of the firm, an expression interpreted by this Court in Girdhari Lal Gupta vs. D.H. Mehta and Another, (1971) 3 SCC 189 to mean ‘a person in overall control of the day-to-day business of the company or the firm’ the conviction of the appellant has to be set aside. State of Karnataka vs. Pratap Chand and Others, (1981) 2 SCC 335 . The appellant cannot be convicted merely because he was a partner of the firm which had taken the loan or that he stood as a guarantor for such a loan. The Partnership Act, 1932 creates civil liability. Further, the guarantor's liability under the Indian Contract Act, 1872 is a civil liability. The appellant may have civil liability and may also be liable under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. However, vicarious liability in the criminal law in terms of Section 141 of the NI Act cannot be fastened because of the civil liability. Vicarious liability under sub-section (1) to Section 141 of the NI Act can be pinned when the person is in overall control of the day-to-day business of the company or firm. Vicarious liability under sub-section (2) to Section 141 of the NI Act can arise because of the director, manager, secretary, or other officer's personal conduct, functional or transactional role, notwithstanding that the person was not in overall control of the day-to-day business of the company when the offence was committed. Vicarious liability under sub-section (2) is attracted when the offence is committed with the consent, connivance, or is attributable to the neglect on the part of a director, manager, secretary, or other officer of the company. 12. The demand notice issued on 04th November 2015 by the Bank, through its Branch Manager, was served solely to Simaiya Hariramani, the authorised signatory of the Firm. 12. The demand notice issued on 04th November 2015 by the Bank, through its Branch Manager, was served solely to Simaiya Hariramani, the authorised signatory of the Firm. The complaint dated 07th December 2015 under Section 138 of the NI Act before the Court of Judicial Magistrate, Balodabazar, Chhattisgarh, was made against Simaiya Hariramani and the appellant. Thus, in the present case, the Firm has not been made an accused or even summoned to be tried for the offence. 13. The judgment in Dayle De Souza vs. Government of India through Deputy Chief Labour Commissioner and Another, 2021 SCC Online SC 1012 answered the question of whether a director or a partner can be prosecuted without the company being prosecuted. Reference in this regard was made to the views expressed by this Court in State of Madras vs. C.V. Parekh and Another, (1970) 3 SCC 491 on the one hand and the divergent view expressed in Sheoratan Agarwal and Another vs. State of Madhya Pradesh, (1984) 4 SCC 352 and Anil Hada vs. Indian Acrylic Ltd. (2000) 1 SCC 1 . This controversy was settled by a three Judge Bench of this Court in Aneeta Hada (supra), in which, interpreting and expounding the difference between the primary/substantial liability and vicarious liability under Section 141 of the NI Act, it has held: “51. We have already opined that the decision in Sheoratan Agarwal runs counter to the ratio laid in C.V. Parekh which is by a larger Bench and hence, is a binding precedent. On the aforesaid ratiocination, the decision in Anil Hada has to be treated as not laying down the correct law as far as it states that the Director or any other officer can be prosecuted without impleadment of the company. Needless to emphasise, the matter would stand on a different footing where there is some legal impediment and the doctrine of lex non cogit ad impossibilia gets attracted. xxx xxx xxx 59. In view of our aforesaid analysis, we arrive at the irresistible conclusion that for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the drag-net on the touchstone of vicarious liability as the same has been stipulated in the provision itself. In view of our aforesaid analysis, we arrive at the irresistible conclusion that for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the drag-net on the touchstone of vicarious liability as the same has been stipulated in the provision itself. We say so on the basis of the ratio laid down in C.V. Parekh which is a three-Judge Bench decision. Thus, the view expressed in Sheoratan Agarwal does not correctly lay down the law and, accordingly, is hereby overruled. The decision in Anil Hada is overruled with the qualifier as stated in Para 51. The decision in Modi Distillery has to be treated to be restricted to its own facts as has been explained by us hereinabove.” 14. The provisions of Section 141 impose vicarious liability by deeming fiction which presupposes and requires the commission of the offence by the company or firm. Therefore, unless the company or firm has committed the offence as a principal accused, the persons mentioned in sub-section (1) or (2) would not be liable and convicted as vicariously liable. Section 141 of the NI Act extends vicarious criminal liability to officers associated with the company or firm when one of the twin requirements of Section 141 has been satisfied, which persons then, by deeming fiction, is made vicariously liable and punished. However, such vicarious liability arises only when the company or firm commits the offence as the primary offender. This view has been subsequently followed in Sharad Kumar Sanghi vs. Sangita Rane, (2015) 12 SCC 781 , Himanshu vs. B. Shivamurthy and Another, (2019) 3 SCC 797 and Hindustan Unilever Limited vs. State of Madhya Pradesh, (2020) 10 SCC 751 . The exception carved out in Aneeta Hada (supra), which applies when there is a legal bar for prosecuting a company or a firm, is not felicitous for the present case. No such plea or assertion is made by the respondent.” 14. Both the aforesaid judgments cited by Mr. The exception carved out in Aneeta Hada (supra), which applies when there is a legal bar for prosecuting a company or a firm, is not felicitous for the present case. No such plea or assertion is made by the respondent.” 14. Both the aforesaid judgments cited by Mr. Gogia, in no uncertain terms indicate that while filing a complaint under Section 138 of the N.I. Act against Directors of the company, there should be specific averments against those Directors against whom the complaint is filed to the effect that they were in-charge of the company and are responsible for the conduct of the business of the company at the time when the offence was committed. 15. In the instant case, in absence of such averments against present applicants, proceedings under Section 138 of the N.I. Act against present applicants are absolutely misconceived and illegal and hence, entire proceedings against present applicants are required to be quashed and set aside. 16. As far as contentions of Mr. Kinariwala that present applicants did not object the recording of pleas at the time when pursis was given, is concerned, once the complainant himself in the complaint has not made any averments against present applicants by stating that they were in-charge of the affairs of the company and were responsible for the business of the company at the time when offence was committed, merely because pleas are recorded, those persons, who otherwise are not concerned with day-to-day affairs of the company, as per the complainant, as no averments were made in the complaint, cannot be held liable and can be forced to face the trial under Section 138 of the N.I. Act. 17. In view of the above discussions, present applications require to be allowed and the same are allowed by quashing and set aside the proceedings of Criminal Complaint Nos. 6769 of 2015, 6119 of 2015 and 6770 of 2015, however, with a clarification that the trial shall continue in respect of the Eagle Corporation as well as other accused persons, whose names were in the complaint originally. Rule is made absolute to the aforesaid extent.