Advertising Pvt. Ltd Vs. State, Govt. of Nct of Delhi & Ors  Insc 378 (10
S.B. Sinha & Markandey Katju
CRIMINAL APPEAL NO. 520 OF 2007 [Arising out of SLP (Crl.) No. 6204-6205 of
2005] S.B. SINHA, J :
This appeal is directed against a judgment and order dated 13.07.2005 passed
by a learned Single Judge of the Delhi High Court in Criminal M.C.
Nos. 3690 and 3691 of 2001.
Respondent Nos. 2 and 3 herein are Chairman and Managing Director of a
Company known as 'Dalmia Industries Ltd.', (The Company) which is registered
and incorporated under the Companies Act, 1956.
It was arrayed as Accused No. 6 in the complaint petition.
The Company is engaged in the business of advertising and publicity.
By an agreement dated 17.07.1995, the Company as also Accused No. 6 entered
into an agreement in terms whereof the Company was appointed as advertising and
publicity agents of Accused No. 6 in respect of their various products on the
terms and conditions contained therein. Allegedly, the Company carried out
various jobs and releases between the period July, 1997 and December, 1997. It
raised bills to the extent of Rs. 2,59,21,053.37 for the work executed by it. On
14.11.1997, Accused No. 6 issued various post dated cheques allegedly towards
part payment of the said dues which on presentation to the bank on 6.04.1998
admittedly were dishonoured. Notices were served on the Respondents Nos. 2 and
3 on 18.04.1998.
Appellant Company (Company) filed two complaint petitions against the
accused persons including Respondent Nos. 2 and 3 herein alleging:
"4. That accused No. 1 to 5 are the Chairman, Vice Chairman, Director
(Technical), Executive Director, and Senior General Manager (Finance) of the
accused Company respectively and are Incharge and responsible to the accused
company for the conduct of the business of the Company and are thus liable for
making the payment.
*** *** *** 9.That the complainant company presented these cheques on
26.3.1998 for encashment through their bankers Central Bank of India, Ram Tilak
Nagar Branch, New Delhi, which have been returned back to the complainant
company on 28.3.1998 by the Banker with the endorsement dated 27.3.1998 of the State
Bank of Bikaner and Jaipur D 72 Connaught Circus, New Delhi to the bank of the
accused company "payment stopped by the drawer". One of the cheque
bearing No. 588184 dated 6.11.1997 drawn on the State Bank of Bikaner and
Jaipur, D-72 Connaught Circus, New Delhi returned with the endorsement of the
accused Bank "exceeds arrangement". This Bank Memo along with the
cheque was sent by the Banker of the complainant company vide Memo dated
28.3.1998. Subsequently, the accused gave pay order in lieu of the cheque.
*** *** ***
11. That these post dated cheques as per Annexure 'B' were given after the
accused No. 1 to 5 had various meetings with the complainant company and it is
only after persuasion that the complainant company owes money to various Media
Concessionais and unless they are being paid, the releases of the accused
company shall not be entertained by the Media Concessionais.
*** *** ***
13. That accused No. 1 to 5 are Incharge and responsible for the conduct of
the business and the offence is committed by the accused company with the
active connivance of the accused No. 1 to 5."
On the said complaint petitions and upon recording the initial deposition of
the complainant and its witnesses under Section 200 of the Code of Criminal
Procedure, by an order dated 24.07.1999, processes were directed to be issued
by the learned Magistrate against the accused persons in terms of Section 204
of the Code of Criminal Procedure.
An application was filed by them for recalling the processes so issued.
By an order dated 11.07.2001, the learned Magistrate recalled the said order
dated 24.07.1999 issuing summons against Respondent Nos. 2 and 3.
Criminal Miscellaneous applications were filed by the Company thereagainst
before the High Court. By reason of the impugned judgment, the said
applications have been dismissed by the High Court holding:
"13. Coming back to the facts of the two cases before me, I find that
the allegations in the complaint are far from sufficient to summon respondents
2 and 3 for the offence of the company - accused No.6. Apart from making an
omnibus allegation that all the accused were responsible for the conduct of the
business of the company and that all of them connived in the offence, there is
no specific averment as to how any of the accused 1 and 2 (respondents 2 and 3
herein) were actually involved in the conduct of the business of the company
relating to the transaction in question or how and on what basis it can be said
that it was with the active connivance of these two accused that the offence
was committed by the company.
In my opinion, the petitioners could not have been summoned on the basis of
the allegations made by the complainant. The Metropolitan Magistrate has not
committed any mistake in declining to summon the two accused. The petitions
have no merit and, therefore, dismissed."
Mr. Aloke Kumar Sengupta, learned Senior Counsel appearing on behalf of the
Company, would submit that having regard to the allegations made in the
complaint petition, the High Court committed a serious illegality in passing
the impugned judgment. The learned counsel submitted that the learned
Magistrate had no jurisdiction to recall its order whereby the accused persons
Mr. K.T.S. Tulsi, learned senior counsel appearing on behalf of Respondents
Nos. 2 and 3, on the other hand, would submit that complaint petition contained
mechanical reproduction of the wordings of a section and, thus, without making
any allegation that Respondent Nos. 2 and 3 had any role to play in the matter
of issuance of cheque or the dishonour thereof, no order issuing summons as
against the said Respondents could have been passed. A distinction, according
to the learned counsel, must be made between a Chairman of a Company and a
Managing Director or a Deputy Managing Director thereof inasmuch whereas a
Managing Director or a Deputy Managing Director is presumed to be involved in
the day to day affairs of the Company, the Chairman of a Company may not even
have any knowledge in relation thereto. Provisions of the Negotiable
Instruments Act, it was submitted, are being misused and this Court, therefore,
should strike a balance between the interest of a complainant and interest of
an accused who is alleged to be vicariously liable for the offences committed
by the Company.
Summons were issued by the learned Magistrate by reason of an order dated
24.07.1999. He recalled the said order. He did not have any jurisdiction in
that behalf. A Magistrate does not have and, thus, cannot exercise any inherent
In Adalat Prasad v. Rooplal Jindal and Others [(2004) 7 SCC 338], a 3-Judge
Bench of this Court while overruling an earlier decision of this Court in K.K.
Mathew v. State of Kerala and Anr. [(1992) 1 SCC 217] stated the law thus :
"14. But after taking cognizance of the complaint and examining the
complainant and the witnesses if he is satisfied that there is sufficient
ground to proceed with the complaint he can issue process by way of summons
under Section 204 of the Code. Therefore, what is necessary or a condition
precedent for issuing process under Section 204 is the satisfaction of the
Magistrate either by examination of the complainant and the witnesses or by the
inquiry contemplated under Section 202 that there is sufficient ground for
proceeding with the complaint hence issue the process under Section 204 of the
Code. In none of these stages the Code has provided for hearing the summoned
accused, for obvious reasons because this is only a preliminary stage and the
stage of hearing of the accused would only arise at a subsequent stage provided
for in the latter provision in the Code. It is true as held by this Court in
Mathew case1 that before issuance of summons the Magistrate should be satisfied
that there is sufficient ground for proceeding with the complaint but that
satisfaction is to be arrived at by the inquiry conducted by him as
contemplated under Sections 200 and 202, and the only stage of dismissal of the
complaint arises under Section 203 of the Code at which stage the accused has
no role to play, therefore, the question of the accused on receipt of summons
approaching the court and making an application for dismissal of the complaint
under Section 203 of the Code on a reconsideration of the material available on
record is impermissible because by then Section 203 is already over and the
Magistrate has proceeded further to Section 204 stage.
*** *** ***
16. Therefore, in our opinion the observation of this Court in the case of
Mathew1 that for recalling an erroneous order of issuance of process, no
specific provision of law is required, would run counter to the scheme of the
Code which has not provided for review and prohibits interference at
Therefore, we are of the opinion, that the view of this Court in Mathew
case1 that no specific provision is required for recalling an erroneous order,
amounting to one without jurisdiction, does not lay down the correct law."
The said ratio has been reiterated by another 3-Judge Bench of this Court in
Subramanium Sethuraman v. State of Maharashtra and Anr. [JT 2004 (8) SC 220 and
N.K. Sharma v. Abhimanyu (2005)13 SCC 213].
Unfortunately, this aspect of the matter was not considered by the High
Court despite the aforementioned binding precedents. The High Court, however,
for all intent and purport upheld the order passed by the learned Magistrate on
the premise that allegations made in the complaint petition do not satisfy the
requirements of Section 141 of the Negotiable Instruments Act.
The said provision 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 deemed to be
guilty of the offence and shall be liable to be proceeded against and punished
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 Sate 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 art 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.'' As the
contentions of the parties are covered by a few decisions of this Court, we may
at the outset notice the law operating in the field.
The applicability and/or extent of Section 141 of the Act was referred to
and considered by a 3-Judge Bench of this Court in S.M.S.
Pharmaceuticals Ltd. v. Neeta Bhalla and Anr. [(2005) 8 SCC 89 : 2005 (7)
The questions so referred read as under :
"(a) whether for purposes of Section 141 of the Negotiable
Instruments Act, 1881, it is sufficient if the substance of the allegation
read as a whole fulfill the requirements of the said section and it is not
necessary to specifically state in the complaint that the persons accused was
in charge of, or responsible for, the conduct of the business of the company.
(b) whether a director of a company would be deemed to be in charge of, and
responsible to, the company for conduct of the business of the company and,
therefore, deemed to be guilty of the offence unless he proves to the contrary.
(c) even if it is held that specific averments are necessary, whether in the
absence of such averments the signatory of the cheque and or the Managing
Directors of Joint Managing Director who admittedly would be in charge of the
company and responsible to the company for conduct of its business could be
They were answered in the following terms :
"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.
(b) The answer to the question posed in sub-para (b) has to be in the
negative. Merely being a director of a company is not sufficient to make the
person liable under Section 141 of the Act. A director in a company cannot be
deemed to be in charge of and responsible to the company for the conduct of its
business. The requirement of Section 141 is that 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.
(c) The answer to Question (c) has to be in the affirmative. The question notes
that the managing director or joint managing director would be admittedly in
charge of the company and responsible to the company for the conduct of its
business. When that is so, holders of such positions in a company become liable
under Section 141 of the Act. By virtue of the office they hold as managing
director or joint managing director, these persons are in charge of and
responsible for the conduct of business of the company. Therefore, they get
covered under Section 141. So far as the signatory of a cheque which is
dishonoured is concerned, he is clearly responsible for the incriminating act
and will be covered under sub-section (2) of Section 141."
In Saroj Kumar Poddar v. State (NCT of Delhi) and Anr. [2007 (2) SCALE 36],
this Court held :
"Apart from the Company and the appellant, as noticed hereinbefore, the
Managing Director and all other Directors were also made accused. The appellant
did not issue any cheque. He, as noticed hereinbefore, had resigned from the
Directorship of the Company. It may be true that as to exactly on what date the
said resignation was accepted by the Company is not known, but, even otherwise,
there is no averment in the complaint petitions as to how and in what manner
the appellant was responsible for the conduct of the business of the Company or
otherwise responsible to it in regard to its functioning. He had not issued any
cheque. How he is responsible for dishonour of the cheque has not been stated.
The allegations made in paragraph 3, thus, in our opinion do not satisfy the
requirements of Section 141 of the Act."
Yet again in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Anr.
[2007 (3) SCALE 245], it was held:
"In terms of Section 138 of the Act, a complaint petition alleging an
offence thereto must demonstrate that the following ingredients exist that:
(i) a cheque was issued;
(ii) the same was presented;
(iii) but, it was dishonoured;
(iv) a notice in terms of the said provision was served on the person sought
to be made liable;
and (v) despite service of notice, neither any payment was made nor other
obligations, if any, were complied with within fifteen days from the date of
receipt of the notice.
The liability of a Director must be determined on the date on which the
offence is committed. Only because Respondent No. 1 herein was a party to a
purported resolution dated 15.02.1995 by itself does not lead to an inference
that she was actively associated with the management of the affairs of the
Company. This Court in this case has categorically held that there may be a
large number of Directors but some of them may not associate themselves in the
management of the day to day affairs of the Company and, thus, are not
responsible for conduct of the business of the Company. The averments must
state that the person who is vicariously liable for commission of the offence
of the Company both was incharge of and was responsible for the conduct of the
business of the Company. Requirements laid down therein must be read conjointly
and not disjunctively.
When a legal fiction is raised, the ingredients therefor must be satisfied.
If the complaint petition is read in its entirety, the same would show that
the only person who was actively associated in the matter of obtaining loan,
signing cheques and other affairs of the company which would lead to commission
of the alleged offence was the accused No. 2. By reason of the purported
resolution dated 15.02.1995, whereupon strong reliance has been placed by Mr.
Mishra, only the accused No. 2 was authorized to do certain acts on behalf of
The cheques were issued on 15.08.1996, i.e., after a period of 17 months
from the date of the said resolution.
As is evident from the averments made in the complaint petition, the cheques
represented the amount of interest payable for a total period of 15 days only
calculated at the rate of 25% per annum on the amount of deposit, viz., rupees
The observations made in Saroj Kumar Poddar (supra) were, however, explained
"A faint suggestion was made that this Court in Saroj Kumar Poddar
(supra) has laid down the law that the complaint petition not only must contain
averments satisfying the requirements of Section 141 of the Act but must also
show as to how and in what manner the appellant was responsible for the conduct
of the business of the company or otherwise responsible to it in regard to its
functioning. A plain reading of the said judgment would show that no such
general law was laid down therein. The observations were made in the context of
the said case as it was dealing with a contention that although no direct
averment was made as against the appellant of the said case fulfilling the
requirements of Section 141 of the Act but there were other averments which
would show that the appellant therein was liable therefor."
[See also N.K. Wahi v. Shekhar Singh & Others 2007 (4) SCALE 188] The
law operating in this behalf is, therefore, no longer res integra.
What is, therefore, necessary is the application of law. Necessary
ingredients of Section 141 have been stated in the complaint petition at more
than one place. Whether the same satisfies the requirements of law or not is
A Chairman of a large Company may or may not be aware of the actual
transaction. If in a given situation, cheques are issued in ordinary course of
business. The Managing Director or a Deputy Managing Director, in view of
S.M.S. Pharmaceuticals Ltd (supra) would be deemed to be aware thereof. A
Chairman or a Director of a Company need not be. But, without going into the
finer question raised by Mr. Tulsi, we may notice that allegations have not
only been made in terms of the wordings of section but also at more than one
place, it has categorically been averred that the payments were made after the
meetings held by and between the representative of the Company and Accused Nos.
1 to 5 which would include Respondent Nos. 2 and 3.
It is, therefore, not a case where having regard to the position held by the
said respondents in the Company, they could plead ignorance of the entire
Not only cheques were issued having regard to the huge amount payable by
Accused No. 6 to the Company but also as a result of fall out of non-payment
thereof, negotiations were held between the parties wherein Respondent Nos. 2
and 3 took part, and, thus, in our opinion, there cannot be any doubt that the
ingredients of the provisions of Section 141 of the Act stand satisfied.
Reliance placed by Mr. Tulsi on a decision of a Division Bench of this Court
in Pepsi Foods Ltd. and Another v. Special Judicial Magistrate and Others
[(1998) 5 SCC 749], in our opinion, is not apposite.
One of the questions which fell for consideration therein was as to whether
the order of the Magistrate summoning the accused reflected that he had applied
the mind to the fact of the case and the law applicable thereto.
In that case, the Company was proceeded against under Section 7/16 of the Prevention of
Food Adulteration Act, 1954. The Managing Director was also made an accused
along with the Company. This Court examined the allegations made in the
complaint petition and noticed there were as many as 12 accused named in the
complaint. The Court pointed out the duties of the public authorities specified
therein including the public analyst. This Court also took into consideration
the nature of the complaint as also the circumstances in which the complaint
petition came to be filed. In that case, bottle containing the soft drink was
said to have been purchased from a shop known as "The Flavours Fast Food
and Cool Corner" and not directly from the manufacturer. In the complaint
petition, it was alleged that only upon inquiry, the complainant came to learn
that the manufacturer of the bottle of sample was Appellant No. 1 therein and
the other accused were their Managing Directors, Directors and Executive
Director and Others Officers.
It was, in the aforementioned situation, observed:
"28. Summoning of an accused in a criminal case is a serious matter.
Criminal law cannot be set into motion as a matter of course. It is not that
the complainant has to bring only two witnesses to support his allegations in
the complaint to have the criminal law set into motion. The order of the
Magistrate summoning the accused must reflect that he has applied his mind to
the facts of the case and the law applicable thereto. He has to examine the
nature of allegations made in the complaint and the evidence both oral and
documentary in support thereof and would that be sufficient for the complainant
to succeed in bringing charge home to the accused. It is not that the
Magistrate is a silent spectator at the time of recording of preliminary
evidence before summoning of the accused. The Magistrate has to carefully
scrutinise the evidence brought on record and may even himself put questions to
the complainant and his witnesses to elicit answers to find out the
truthfulness of the allegations or otherwise and then examine if any offence is
prima facie committed by all or any of the accused."
The said decision, therefore, does not lay down any general proposition in
regard to the allegations required to be made in a complaint petition so as to
fasten vicarious liability upon the holders of the office of the Company. On
the other hand, the three-Judge bench decision of this Court in S.M.S.
Pharmaceuticals Ltd. (supra) is binding on us.
For the reasons aforementioned, the impugned judgment cannot be sustained
and is set aside accordingly. The appeal is allowed.