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2024 DIGILAW 991 (GUJ)

Girish Ghanshyambhai Golani v. State Of Gujarat

2024-04-23

DIVYESH A.JOSHI

body2024
JUDGMENT : 1. By way of preferring present application under Section 482 of the Criminal Procedure Code, 1972 (hereinafter referred to as “CrPC” for short), the applicant, who is original accused no.3, has invoked extra ordinary jurisdiction of this Court for quashing and setting aside the criminal complaint being Criminal Case No.241/2016 pending before the court of the learned Additional Chief Metropolitan Magistrate, Negotiable Instruments Act Court No.31, Ahmedabad for the offences under Section 138 read with Section 141 of the Negotiable Instrument Act, 1881 (hereinafter referred to as “NI Act” for short). 2. The brief facts leading to the filing of the present application are as under, 2.1 There was business transaction between Varun Fertilizer Pvt. Ltd. and Samruddhi Crop Science Pvt. Ltd. and due to business transaction, the Director of Samruddhi Crop Science Pvt. Ltd. had handed over one cheque to the Managing Director of Varun Fertilizer Pvt. Ltd., which was deposited, however on deposit of the same, it was returned unpaid with an endorsement “fund insufficient”, therefore, the Board of Directors of Varun Fertilizer Pvt. Ltd., in a meeting held on 17.08.2015, passed resolution authorizing one Narendra Sitaram Modi to register the complaint and, thereafter, notice as required under Section 138 of the NI Act was issued, which was duly served, however despite service of notice, payment was not made by the accused, which led to filing of the complaint against the accused persons. 2.2 On filing of the aforesaid complaint, verification of the complainant was recorded and, thereafter, process was issued upon the accused. 2.3 As soon as the said fact came to the notice of the present applicant, immediately applicant has filed present application for quashment of the proceeding against him and while issuing notice, interim relief has been granted in favour of the applicant by staying further proceedings qua the applicant. 3. Heard learned advocate, Mr. H.B. Champavat for the applicant and learned APP Mr. Dhawan Jayswal for the respondent – State of Gujarat. Though served, neither the respondent no.2 has remained present personally nor engaged advocate. 4. Learned advocate, Mr. Champavat submitted that impugned criminal complaint is filed against three accused persons, out of which, the applicant has approached this Court for quashment of the said proceeding, wherein while issuing notice, the proceeding qua the applicant were stayed and, hence, the proceedings qua other accused were going on. 4. Learned advocate, Mr. Champavat submitted that impugned criminal complaint is filed against three accused persons, out of which, the applicant has approached this Court for quashment of the said proceeding, wherein while issuing notice, the proceeding qua the applicant were stayed and, hence, the proceedings qua other accused were going on. Learned advocate, however, submitted that the institution of the proceeding against the applicant is nothing but an abuse of the process of law and, hence, it may be quashed and set aside. Learned advocate submitted that resolution to entrust the power to register the complaint against Samruddhi Crop Science Pvt. Ltd. and others was passed on 17.08.2015 but on perusal of the contents of the FIR, it is found out that the cheque was issued by the accused no.1 – Company on 02.02.2016 and thus in short, the resolution was passed before issuance of the cheque. Learned advocate submitted that the present applicant was working as Director in the Samruddhi Crop Science Pvt. Ltd. at earlier point of time, however on 07.11.2015, the applicant has already tendered his resignation, copy of resignation letter was produced at Page No.40 of the compilation, which was accepted by the members of the Board on the very same day, copy of board resolution is produced at Page No.39 of the compilation, which clearly goes on to show that on 11.12.2015, the present applicant has resigned from the said Company and in support of it, learned advocate has referred to the documents produced at Page No.41 of the compilation, more particularly, Form DIR- 12, which was filled in and submitted before the office of the Registrar of Companies, which shows that the resignation letter submitted by the Director, Mr. Girish Golani has been accepted and Resolution to that effect was also passed by the members of the Board, copy of resolution was also attached along with the said letter and, thereafter, the name of the present applicant has been removed from the record of the Companies. Girish Golani has been accepted and Resolution to that effect was also passed by the members of the Board, copy of resolution was also attached along with the said letter and, thereafter, the name of the present applicant has been removed from the record of the Companies. Learned advocate submitted that it is settled proposition of law as held by the Hon’ble Supreme Court as well as this Court in numerous cases that simply by making averments in the complaint that the applicant is well aware about the daily activity and indulge into the business of day-to- day affairs, is not sufficient to arraign the person as accused and on the contrary, by leading cogent, convincing, reliable material and oral as well as documentary evidences, the complainant has to prove that the applicant is directly/actively involved in taking part to take decision in day- to-day affairs of the Company, however in the fact of the case on hand, except by making averments in the complaint, nothing has been placed on record by the complainant along with the complaint, which would show the involvement of the applicant in day-to-day affairs of the Company. Learned advocate further submitted that as stated above, in fact, the applicant has already resigned from the Company days before actual transactions took place i.e. many days before the cheque was handed over to the complainant. Learned advocate submitted that the documents produced by the applicant along with the petition clearly goes on to show that at the time of issuance of the cheque, the applicant was at all not Director of the Company, therefore by no stretch of imagination, active involvement of the applicant in day-to-day affairs of the Company can be said to have been found out. Learned advocate submitted that in view of the above facts, the applicant cannot be prosecuted for no fault on his part and, hence, continuation of the proceedings against him would be nothing but a gross abuse of the process of law and hence wastage of judicial time, hence, it may be quashed and set aside. 5. To buttress his submission, learned advocate has put reliance upon following decisions, (1) the judgment of the Hon’ble Supreme Court in case of Siby Thomas Vs. Somany Ceramics Ltd., reported in (2024) 1 SCC 348 ; (2) the judgment of the Hon’ble Supreme Court in case of Ashok Shewakramani Vs. 5. To buttress his submission, learned advocate has put reliance upon following decisions, (1) the judgment of the Hon’ble Supreme Court in case of Siby Thomas Vs. Somany Ceramics Ltd., reported in (2024) 1 SCC 348 ; (2) the judgment of the Hon’ble Supreme Court in case of Ashok Shewakramani Vs. State of Andhra Pradesh, reported in (2023) 8 SCC 473 ; (3) the judgment of this Court in case of Manishkumar Ramvilas Agarwal Vs. State of Gujarat, delivered in Criminal Misc. Application No.17940/2018 & allied matters by an order dated 06.07.2023; (4) the judgment of the Hon’ble Supreme Court in case of Sunita Palita Vs. Panchami Stone Quarry, reported in (2022) 10 SCC 152 ; 6. Relying upon the ratio enunciated by the Hon’ble Supreme Court as well as this Court in the aforesaid decisions, learned advocate has urged that the proceedings instituted against the present applicant is nothing but a gross abuse and misuse of the process of law and, hence, the same may be quashed and set aside by allowing the present petition. 7. On the other hand, learned APP has objected the present application with a vehemence and submitted that the applicant is equally liabile for the commission of crime because he was actively participating in the day-to-day affairs of the Company including financial decisions and merely because of the fact that he has resigned from the Company, he cannot be escaped from the liability as the transactions that had taken place between the companies were within the knowledge of the applicant. Learned APP submitted that the cause of action for filing the present application has ceased to exist as the amount which is the subject matter of the criminal complaint from which the present proceedings arise has been adjudicated against the accused no.1 – Company, which established the participation of the applicant for and on behalf of the accused no.1 – Company as one of the Directors. Learned APP submitted that the averments made in the impugned complaint meets with the basic ingredients of Section 141 of the NI Act are in consonance with the provisions of Section 141 of the NI Act and, therefore, the impugned proceeding may not be quashed and the present application may be rejected. 8. Learned APP submitted that the averments made in the impugned complaint meets with the basic ingredients of Section 141 of the NI Act are in consonance with the provisions of Section 141 of the NI Act and, therefore, the impugned proceeding may not be quashed and the present application may be rejected. 8. Having heard learned advocates appearing for the parties and having gone through the material placed on record, the basic bone of contention raised by learned advocate for the applicant is that at the time of issuance of cheque i.e. on 02.02.2016, the applicant has already resigned from the Company on 07.11.2015 and, hence, the applicant cannot be arraigned as accused by simply making averments in the complaint that the applicant was actively involved in day-to-day affairs or the activities of the Company. It is an admitted position of fact that the Board of Management of the Company of the complainant has passed a resolution to initiate proceedings against the accused under Section 138 of the NI Act on 17.08.2015, by assigning power to the complainant as a authorized person of the company to register the complaint against Samruddhi Crop Science Pvt. Ltd. and others and in pursuance thereto, complaint was filed on 05.04.2016 and on the very same day i.e. on 05.04.2016, verification of the complainant was recorded and after considering and appreciating the material available on record, the learned Judge ordered to issue process against the accused and as soon as the applicant has come to know about the issuance of the process against him, he has approached this Court by filing present application and obtained stay in his favour and at that point of time, the applicant has put reliance upon certain documents, which were produced by the complainant along with the complaint and it is found out from those documents that the applicant has already tendered his resignation letter on 07.11.2015, which was accepted 11.12.2015 and thus admittedly at the time of issuance of cheque, the applicant was no more Director of the Company. It is required to be noted at this stage that the complainant has filed aforesaid proceedings against 3 accused persons, however the applicant has approached this Court for quashment of the impugned proceeding against him, wherein while issuing notice, proceedings qua the applicant were stayed and qua other accused, the proceedings were going on. 9. It is required to be noted at this stage that the complainant has filed aforesaid proceedings against 3 accused persons, however the applicant has approached this Court for quashment of the impugned proceeding against him, wherein while issuing notice, proceedings qua the applicant were stayed and qua other accused, the proceedings were going on. 9. At this stage, this Court would like to refer to the decisions upon which reliance has been placed by learned advocate for the applicant. 9.1 In the judgment of the Hon’ble Supreme Court in case of Ashok Shewakramani (supra), the Hon’ble Supreme Court has observed in Paragraph Nos.18, 19 and 20 as under, “18. After having considered the submissions, we are of the view that there is non- compliance on the part of the second respondent with the requirements of sub- section 1 of Section 141 of the NI Act. We may note here that we are dealing with the appellants who have been alleged to be the Directors of the accused No.1 company. We are not dealing with the cases of a Managing Director or a whole time Director. The appellants Have not signed the cheques. In the facts of these three cases, the cheques have been signed by the Managing Director and not by any of the appellants. 19. Section 141 is an exception to the normal rule that there cannot be any vicarious liability when it comes to a penal provision. The vicarious liability is attracted when the ingredients of sub- section 1 of Section 141 are satisfied. The Section provides that every person who at the time the offence was committed was in charge of, and was responsible to the Company for the conduct of business of the company, as well as the company shall be deemed to be guilty of the offence under Section 138 of the NI Act. In the light of sub-section 1 of Section 141, we have perused the averments made in the complaints subject matter of these three appeals. The allegation in paragraph 1 of the complaints is that the appellants are managing the company and are busy with day to day affairs of the company. It is further averred that they are also in charge of the company and are jointly and severally liable for the acts of the accused No.1 company. The allegation in paragraph 1 of the complaints is that the appellants are managing the company and are busy with day to day affairs of the company. It is further averred that they are also in charge of the company and are jointly and severally liable for the acts of the accused No.1 company. The requirement of sub-section 1 of Section 141 of the NI Act is something different and higher. Every person who is sought to be roped in by virtue of sub-section 1 of Section 141 NI Act must be a 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. Merely because somebody is managing the affairs of the company, per se, he does not become in charge of the conduct of the business of the company or the person responsible for the company for the conduct of the business of the company. For example, in a given case, a manager of a company may be managing the business of the company. Only on the ground that he is managing the business of the company, he cannot be roped in based on sub-section 1 of Section 141 of the NI Act. The second allegation in the complaint is that the appellants are busy with the day-to-day affairs of the company. This is hardly relevant in the context of subsection 1 of Section 141 of the NI Act. The allegation that they are in charge of the company is neither here nor there and by no stretch of the imagination, on the basis of such averment, one cannot conclude that the allegation of the second respondent is that the appellants were also responsible to the company for the conduct of the business. Only by saying that a person was in charge of the company at the time when the offence was committed is not sufficient to attract sub-section 1 of Section 141 of the NI Act. Only by saying that a person was in charge of the company at the time when the offence was committed is not sufficient to attract sub-section 1 of Section 141 of the NI Act. Sub-section 1 of Section 141 reads thus: "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 deeded 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.]" 20. On a plain reading, it is apparent that the words "was in charge of" and "was responsible to the company for the conduct of the business of the company" cannot be read disjunctively and the same ought be read conjunctively in view of use of the word "and" in between.” 9.2 In the judgment of the Hon’ble Supreme Court in case of Siby Thomas (supra), the Hon’ble Supreme Court has also considered the observations made by the Hon’ble Supreme Court in a judgment in case of Ashok Shewakramani (supra) and made observation in Paragraph Nos.15 and 16 as under, “15. Paragraph 19 of the Ashok Shewakramanis case (supra) is also relevant for the purpose of the case and it, in so far as relevant, reads thus: "19. Section 141 is an exception to the normal rule that there cannot be any vicarious liability when it comes to a penal provision. The vicarious liability is attracted when the ingredients of subsection 1 of Section 141 are satisfied. Section 141 is an exception to the normal rule that there cannot be any vicarious liability when it comes to a penal provision. The vicarious liability is attracted when the ingredients of subsection 1 of Section 141 are satisfied. The Section provides that every person who at the time the offence was committed was in charge of, and was responsible to the Company for the conduct of business of the company, as well as the company shall be deemed to be guilty of the offence under Section 138 of the NI Act. In the light of sub-section 1 of Section 141, we have perused the averments made in the complaints subject matter of these three appeals. The allegation in paragraph 1 of the complaints is that the appellants are managing the company and are busy with day to day affairs of the company. It is further averred that they are also in charge of the company and are jointly and severally liable for the acts of the accused No.1 company. The requirement of sub-section 1 of Section 141 of the NI Act is something different and higher. Every person who is sought to be roped in by virtue of sub-section 1 of Section 141 NI Act must be a 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. Merely because somebody is managing the affairs of the company, per se, he does not become in charge of the conduct of the business of the company or the person responsible for the company for the conduct of the business of the company. For example, in a given case, a manager of a company may be managing the business of the company. Only on the ground that he is managing the business of the company, he cannot be roped in based on sub-section 1 of Section 141 of the NI Act. The second allegation in the complaint is that the appellants are busy with the day-to- day affairs of the company. This is hardly relevant in the context of subsection 1 of Section 141 of the NI Act. The second allegation in the complaint is that the appellants are busy with the day-to- day affairs of the company. This is hardly relevant in the context of subsection 1 of Section 141 of the NI Act. The allegation that they are in charge of the company is neither here nor there and by no stretch of the imagination, on the basis of such averment, one cannot conclude that the allegation of the second respondent is that the appellants were also responsible to the company for the conduct of the business. Only by saying that a person was in charge of the company at the time when the offence was committed is not sufficient to attract sub-section 1 of Section 141 of the NI Act." 16. Thus, in the light of the dictum laid down in Ashok Shewakramanis case (supra), it is evident that a vicarious liability would be attracted only when the ingredients of Section 141(1) of the NI Act, are satisfied. It would also reveal that merely because somebody is managing the affairs of the company, per se, he would not become in charge of the conduct of the business of the company or the person responsible to the company for the conduct of the business of the company. A bare perusal of Section 141(1) of the NI Act, would reveal that only that 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 alone shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished. In such circumstances, paragraph 20 in Ashok Shewakramanis case (supra) is also relevant. After referring to the Section 141(1) of NI Act, in paragraph 20 it was further held thus: "20 On a plain reading, it is apparent that the words "was in charge of" and "was responsible to the company for the conduct of the business of the company" cannot be read disjunctively and the same ought be read conjunctively in view of use of the word "and" in between." 9.3 In the judgment judgment of the Hon’ble Supreme Court in case of Sunita Palita (supra), the Hon’ble Supreme Court has observed in Paragraph Nos.42, 43, 44 and 45 as under, “42. A Director of a company who was not in charge or responsible for the conduct of the business of the company at the relevant time, will not be liable under those provisions. As held by this Court in, inter alia, S.M.S. Pharmaceuticals Ltd. (supra), the liability under Section 138/141 of the NI Act arises from being in charge of and 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. It would be a travesty of justice to drag Directors, who may not even be connected with the issuance of a cheque or dishonour thereof, such as Director (Personnel), Director (Human Resources Development) etc. into criminal proceedings under the NI Act, only because of their designation. 43. Liability depends on the role one plays in the affairs of a company and not on designation or status alone as held by this Court in S.M.S. Pharmaceuticals Ltd. (supra). The materials on record clearly show that these Appellants were independent, non-executive Directors of the company. As held by this Court in Pooja Ravinder Devidasani v. State of Maharashtra and Anr. (supra) a non-Executive Director is not involved in the day-to-day affairs of the company or in the running of its business. Such Director is in no way responsible for the day-to-day running of the Accused Company. Moreover, when a complaint is filed against a Director of the company, who is not the signatory of the dishonoured cheque, specific averments have to be made in the pleadings to substantiate the contention in the complaint, that such Director was in charge of and responsible for conduct of the business of the Company or the Company, unless such Director is the designated Managing Director or Joint Managing Director who would obviously be responsible for the company and/or its business and affairs. 44. The High Court correctly observed that three categories of persons were covered by Section 141 of the NI Act - the company who committed the offence as alleged; everyone who was in-charge of or was responsible for the business of the company and any other person who was a Director or a Manager or a Secretary or Officer of the Company with whose connivance or due to whose neglect the company had committed the offence. 45. 45. Even though the High Court deprecated the adoption of a hyper technical approach in construing pleadings, to quash criminal proceedings, the High Court adopted a hyper technical approach in rejecting the application under Section 482 of the Cr.P.C., on a cursory reading of the formalistic pleadings in the complaint, endorsing the contents of Section 141 of the NI Act, without any particulars. What the High Court overlooked was, the contention of these Appellants that they were non-Executive Independent Directors of the Accused Company, based on unimpeachable materials on record. The High Court observed that in the petition it had specifically been averred that all the accused persons were responsible and liable for the whole business management of the Accused Company, and took the view that the averments in the complaint were sufficient to meet the requirements of Section 141 of the NI Act.” 10. In view of the ratio enunciated by the Hon’ble Supreme Court in the aforesaid decisions, if the facts of the present case are examined, it is admitted position of fact that though the applicant was the Director of the accused no.1 – Company at the relevant point of time, the mandatory averments, which are required to the made in terms of Section 141(1) of the NI Act have not been made in the impugned complaint. Further as can be seen from the averments made in the complaint, it is apparent that the words “was one of the Director” and “was responsible to the company for the conduct of the business of the company” cannot be read disjunctively and the same ought to be read conjuctively in view of the use of the words “and” in between. Further, Section 141 is a penal provision creating vicarious liability and which as per the 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. However the complaint should spell out as to how and in what manner the person concerned was in charge of or was responsible to the accused company for the conduct of its business. However the complaint should spell out as to how and in what manner the person concerned 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. It is required to be noted at this stage that a Company may have a number of Directors and to make any or all the Directors as accused in the complaint merely on the basis of the 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 under Section 141 of the NI Act. Over and above, on perusal of the cheque in question produced on record at Page No.36 of the compilation, it is evident that the signatory of the cheque in question is original accused no.2 and not by the applicant herein. Not only that, the cheque in question is dated 02.02.2016 and even prior thereto, the applicant has already resigned from the accused no.1 – Company. Therefore merely by making adverments made in the air and not in the complaint, which is the basic requirement as stated above, person concerned cannot be held vicariously liable. 11. Therefore the upshot of the aforesaid discussion is that the averments made in the complaint filed by the responded no.2 are not sufficient to satisfy the mandatory requirements under Section 141(1) of the NI Act and as the averments made in the complaint are insufficient to attract the provision under Section 141(1) of the NI Act to create vicarious liability upon the applicant, the present application deserves to be allowed. Over and above that, it is found out from the record that despite service of notice, the responded no.2 has chosen not to remain present before this Court. 12. In the result, the present application is allowed. The proceedings of Criminal Case No.241/2016 pending before the court of the learned Additional Chief Metropolitan Magistrate, Negotiable Instruments Act Court No.31, Ahmedabad are hereby quashed and set aside qua the applicant. All consequential proceedings pursuant thereto stand terminated qua the applicant. Rule is made absolute. Direct service is permitted.