Pharmaceuticals Ltd Vs. Neeta Bhalla & Anr  Insc 174 (20 February 2007)
S.B. Sinha & Markandey Katju
S.B. Sinha, J.
Appellant herein is a company registered and incorporated under the
Companies Act. Respondent No. 1 was a Director of a company known as M/s.
Direct Finance and Investment Ltd., New Delhi. She allegedly submitted her
resignation on 15.04.1994.
Against the said company, the Managing Director thereof, Respondent No. 1
herein as also another director, a complaint petition was filed by the
appellant alleging that the Company represented by its Managing Director had
called for inter-corporate deposit for a short period of 15 days to the extent
of rupees two crores and to such a proposal it agreed. The rate of interest for
such deposit was stipulated at 25% per annum therefor payable within 15 days. A
promissory note was executed by the accused No. 2 on behalf of the Company. The
date of maturity of the said deposit was fixed on 15.03.1995. Upon expiry of
the period of deposit, the accused Company represented by its Managing
Director allegedly issued a cheque for a sum of rupees two crores as also a
cheque for a sum of Rs. 1,58,219.00 and another cheque for a sum of Rs.
8,33,334.00 drawn on Canara Bank, Janpath, New Delhi. All the cheques were
dated 15.08.1996. The cheques for Rs. 8,33,334.00 and Rs. 1,58,219.00
represented the interest part on the deposit of rupees two crores for 15 days.
The said cheques upon presentation were dishonoured on the ground of
insufficient funds. It stands accepted that a notice dated 21.09.1996 was
issued by the appellant asking the accused No. 1 Company to pay the said sum.
The said notice was served upon the accused Nos. 2 and 3, viz., the Managing
Director and another Director of the Company. Respondent No. 1 who was arrayed
as the accused No. 4 in the complaint petition was however not served with any
notice. The address of Respondent No. 1 herein accused No. 4 was shown as the
Director of the Company being resident of 353, Bhera Enclave, Outer Ring Road,
Delhi 110 041. We may, however, notice that in the complaint petition her
address had been shown to be Outer Ring Road, Paschin Vihar, Delhi 110 041.
In the complaint petition the allegations made inter alia are as under:
"The Accused No. 1 is a duly incorporated Company, having its
registered office at the address mentioned above, represented by the Director,
Accused no. 2. The accused No. 3 and 4 are also the Directors of the Accused
No. 1 company and the accused 2 to 4 are actively involved in the management of
the affairs of the Accused No. 1 Company."
Appellant along with the said complaint petition annexed a purported
resolution dated 15.02.1995 authorizing the Managing Director of the Company to
execute the promissory note which reads as under:
"RESOVED THAT the Company to avail an Inter Corporate Deposit of Rs. 2
Crores (Rupees Two Crores Only) for 15 days @ 25% p.a. from Reddy Nagar,
Hyderabad and that Mr. Rajiv Anand, Director be and is hereby authorized to
sign and execute Demand Promissory Note, Post Dated Cheques and other documents
as may be required by M/s. SMS Pharmaceuticals Ltd. on behalf of the Company
and deliver the same to M/s. SMS Pharmaceuticals Ltd.
RESOVED FURTHER THAT Mr. Rajiv Anand, Director of the Company be and is
hereby authorized to affix common seal of the Company on such documents and
papers as may be required in this connection pursuant to the Articles of
Association of the Company."
In the said proceedings, a petition for discharge was filed by Respondent No.
1 which was rejected by the learned Trial Judge. A revision petition filed
thereagainst was also dismissed by the learned Sessions Judge.
An application under Section 482 of the Code of Criminal Procedure was filed
questioning the said orders which, however, was permitted to be withdrawn by
the High Court stating:
"The learned counsel for the petitioner seeks leave of the Court to
withdraw this application. The same shall accordingly stand dismissed as
Leave granted to the petitioner to avail the remedies if any available to
him in law.
The trial Court shall expeditiously dispose of the matter in accordance with
law. The Trial Court is directed not to grant any unreasonable adjournments to
any of the parties to the proceedings."
Another discharge application was filed which was dismissed on 03.08.2000.
The application for quashing of the proceeding was filed thereafter.
The High Court by reason of the impugned judgment opining that the
allegations contained in the complaint petition as against Respondent No. 1 are
vague and indefinite and do not satisfy the requirements of law as contained in
Section 141 of the Negotiable Instruments Act (for short "the Act"),
held that no case had been made out for issuance of any summons against her. As
regards the contention raised by the appellant herein that the involvement of
Respondent No. 1 in the affairs of the Company is evident from the resolution
dated 15.02.1995, the High Court opined that the same by itself did not
disclose commission of any offence on the day of commission of the offence.
Appellant has filed the appeal aggrieved by the said judgment.
Requirements of law for proceeding against the Directors of the Company for
their purported constructive liability came up for consideration in this case
before a Division Bench of this Court, wherein the following questions were
"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 fulfil the requirements of the said section and it is not
necessary to specifically state in the complaint that the person accused was in
charge of, or responsible for, the conduct of the business of the company.
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.
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 or joint managing director who admittedly would be in charge of the
company and responsible to the company for conduct of its business could be
Having regard to the importance of the questions, the matter was referred to
a 3-Judge Bench of this Court. Upon noticing the rival contentions of the
parties as also the precedents operating in the field, the questions were
answered by the larger bench in the following terms:
"In view of the above discussion, our answers to the questions
posed in the reference are as under:
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.
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.
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."
The Bench, however, referred the matter back to the Division Bench for
determination on merit. The matter is, thus, before us.
Mr. P.S. Mishra, learned senior counsel appearing on behalf of the
appellant, would submit that the averments made in paragraph 2 of the complaint
petition are sufficient to attract the provisions of Section 141 of the Act inasmuch
as the involvement of Respondent No. 1 insofar as the management of the affairs
of the Company is concerned is evident from the documents appended to the
The learned counsel brought to our notice that the well-settled principle of
law that for the purpose of attracting the provisions of Section 141 of the
Act, it is not necessary to reproduce the exact wordings of the statute and
submitted that the involvement of an accused as a Director of a Company being
incharge of or responsible to the conduct of the Company must be gathered from
the other averments made in the complaint petition as also the documents
It was submitted that for the said purpose, the term "management"
should be given its ordinary or dictionary meaning which would include the
act or manner of managing, controlling or conducting.
Mr. Ranjit Kumar, learned senior counsel appearing on behalf of Respondent
No. 1, on the other hand submitted that no allegation has been made as against
Respondent No. 1 herein in the complaint petition which satisfies the
requirements of Section 141 of the Act but as would appear from the facts of
the case that she had no role to play in commission of the offence at all.
Section 141 of the Act does not say that a Director of a Company shall
automatically be vicariously liable for commission of an offence on behalf of
the 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 incharge and shall also be responsible to the Company for the conduct of its
By reason of the said provision, a legal fiction has been created. The
larger Bench in this case [since reported in (2005) 8 SCC 89] categorically
"A reference to sub-section (2) of Section 141 fortifies the above
reasoning because sub-section (2) envisages direct involvement of any director,
manager, secretary or other officer of a company in the commission of an
offence. This section operates when in a trial it is proved that the offence
has been committed with the consent or connivance or is attributable to neglect
on the part of any of the holders of these offices in a company.
In such a case, such persons are to be held liable.
Provision has been made for directors, managers, secretaries and other
officers of a company to cover them in cases of their proved involvement.
The conclusion is inevitable that the
liability arises on account of conduct, act or omission on the part of a person
and not merely on account of holding an office or a position in a company.
Therefore, in order to bring a case within Section 141 of the Act the
complaint must disclose the necessary facts which make a person liable."
Referring to this Court's earlier decisions in K.P.G. Nair v. Jindal Menthol
India Ltd. [(2001) 10 SCC 218] and Monaben Ketanbhai Shah and Another v. State
of Gujarat and Others [(2004) 7 SCC 15], it was stated:
"To sum up, there is almost unanimous judicial opinion that
necessary averments ought to be contained in a complaint before a person can be
subjected to criminal process. A liability under Section 141 of the Act is
sought to be fastened vicariously on a person connected with a company, the
principal accused being the company itself. It is a departure from the rule in
criminal law against vicarious liability. A clear case should be spelled out in
the complaint against the person sought to be made liable. Section 141 of the
Act contains the requirements for making a person liable under the said
provision. That the respondent falls within the parameters of Section 141 has
to be spelled out. A complaint has to be examined by the Magistrate in the
first instance on the basis of averments contained therein. If the Magistrate
is satisfied that there are averments which bring the case within Section 141,
he would issue the process. We have seen that merely being described as a
director in a company is not sufficient to satisfy the requirement of Section
141. Even a non-director can be liable under Section 141 of the Act. The
averments in the complaint would also serve the purpose that the person sought
to be made liable would know what is the case which is alleged against him.
This will enable him to meet the case at the trial."
In terms of Section 138 of the Act, a complaint petition alleging an offence
thereto must demonstrate that the following ingredients exist that:
a cheque was issued;
the same was presented;
but, it was dishonoured;
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 Company. 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 two crores.
The High Court has gone into the matter at some length. The High Court found
that the resolution by itself did not constitute an offence even assuming that
the same bore the signature of Respondent No. 1 (although the genuineness
thereof was disputed).
On a plain reading of the averments made in the complaint petition, we are
satisfied that the statutory requirements as contemplated under Section 141 of
the Act were not satisfied.
This aspect of the matter has recently been considered by this Court in
Sabitha Ramamurthy & Anr. v. R.B.S. Channabasavaradhya [2006 (9) SCALE
212], wherein it was held:
"A bare perusal of the complaint petitions demonstrates that the
statutory requirements contained in Section 141 of the Negotiable Instruments Act
had not been complied with. It may be true that it is not necessary for the
complainant to specifically reproduce the wordings of the section but what is
required is a clear statement of fact so as to enable the court to arrive at a
prima facie opinion that the accused are vicariously liable. Section 141 raises
a legal fiction. By reason of the said provision, a person although is not
personally liable for commission of such an offence would be vicariously liable
therefor. Such vicarious liability can be inferred so far as a company
registered or incorporated under the Companies Act, 1956
is concerned 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 the offence committed by the company. Before a person
can be made vicariously liable, strict compliance of the statutory requirements
would be insisted..."
Yet again in Saroj Kumar Poddar v. State (NCT of Delhi) and Anr.
[2007 (2) SCALE 36], the said legal principle was reiterated stating:
"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."
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.
We, therefore, are of the opinion that the judgment of the High Court cannot
Another submission of Mr. Mishra was that the second application was not
maintainable. Such a question had not been raised before the High Court. Even
otherwise, the High Court was not denuded from exercising its inherent
jurisdiction in a matter of this nature. The principles of res judicata are not
attracted. Reliance placed by Mr. Mishra on Simrikhia v. Dolley Mukherjee and
Chhabi Mukherjee and Another [(1990) 2 SCC 437] is misplaced. The question
which arose for consideration therein was as to whether despite dismissal of an
earlier application a second application would be maintainable which would
virtually amount to review of the earlier order which would be contrary to the
spirit of Section 362 of the Code of Criminal Procedure. It was held:
"The inherent jurisdiction of the High Court cannot be invoked to
override bar of review under Section 362. It is clearly stated in Sooraj Devi
v. Pyare Lal, that the inherent power of the court cannot be exercised for
doing that which is specifically prohibited by the Code. The law is therefore
clear that the inherent power cannot be exercised for doing that which cannot
be done on account of the bar under other provisions of the Code. The court is
not empowered to review its own decision under the purported exercise of
inherent power. We find that the impugned order in this case is in effect one
reviewing the earlier order on a reconsideration of the same materials.
The High Court has grievously erred in doing so.
Even on merits, we do not find any compelling reasons to quash the
proceedings at that stage."
We have noticed the previous order passed by the High Court. The High Court
gave liberty to Respondent No. 1 to agitate the matter once again. Respondent
No. 1 merely took recourse thereto. Equally misplaced is the judgment of this
Court in Rajinder Prasad v. Bashir and Others [(2001) 8 SCC 522]. Although
therein it was held that when an earlier revision application under Section 397
of the Code of Criminal Procedure has been dismissed, as not pressed, a second
application under Section 482 thereof for grant of same relief should not have
been entertained, this Court opined:
"8. We are of the opinion that no special circumstances were spelt out
in the subsequent application for invoking the jurisdiction of the High Court
under Section 482 of the Code and the impugned order is liable to be set aside
on this ground alone."
It is, therefore, an authority for the proposition that the High Court is
not completely denuded of its power to exercise inherent jurisdiction for the
Furthermore, this court therein also went into the merit of the matter.
In this case, not only the merit of the matter had been gone into by the
High Court as also by this Court, the questions raised in the petition had been
referred to a larger Bench for obtaining an authoritative pronouncement. It is,
therefore, too late in the day for the appellant to contend that the
application under Section 482 of the Code of Criminal Procedure was not
We may, however, notice that this Court in Superintendent and Remembrancer
of Legal Affairs, West Bengal v. Mohan Singh and Others [(1975) 3 SCC 706] held
that when there is a changed set of circumstances, a second application under
Section 561A of the Code of Criminal Procedure would be maintainable stating:
"The main question debated before us was whether the High Court had
jurisdiction to make the order dated April 7, 1970 quashing the proceeding
against Respondents 1, 2 and 3 when on an earlier application made by the first
respondent, the High Court had by its order dated December 12, 1968 refused to
quash the proceeding. Mr Chatterjee on behalf of the State strenuously
contended that the High Court was not competent to entertain the subsequent
application of Respondents 1 and 2 and make the order dated April 7, 1970
quashing the proceeding, because that was tantamount to a review of its earlier
order by the High Court, which was outside the jurisdiction of the High Court
to do. He relied on two decisions of the Punjab and Orissa High Courts in
support of his contention, namely, Hoshiar Singh v. State and Namdeo Sindhi v.
State. But we fail to see how these decisions can be of any help to him in
his contention. They deal with a situation where an attempt was made to
persuade the High Court in exercise of its revisional jurisdiction to reopen an
earlier order passed by it in appeal or in revision finally disposing of a
criminal proceeding and it was held that the High Court had no jurisdiction to
revise its earlier order, because the power of revision could be exercised only
against an order of a subordinate court. Mr Chatterjee also relied on a
decision of this Court in U.J.S. Chopra v. State of Bombay where N.H. Bhagwati,
J., speaking on behalf of himself and Imam, J., observed that once a judgment
has been pronounced by the High Court either in exercise of its appellate or
its revisional jurisdiction, no review or revision can be entertained against
that judgment and there is no provision in the Criminal Procedure Code which
would enable the High Court to review the same or to exercise revisional
jurisdiction over the same.
These observations were sought to be explained by Mr Mukherjee on behalf of
the first respondent by saying that they should not be read as laying down any
general proposition excluding the applicability of Section 561-A in respect of
an order made by the High Court in exercise of its appellate or revisional
jurisdiction even if the conditions attracting the applicability of that
section were satisfied in respect of such order, because that was not the
question before the Court in that case and the Court was not concerned to
inquire whether the High Court can in exercise of its inherent power under
Section 5 61 A review an earlier order made by it in exercise of its appellate
or revisional jurisdiction..."
For the reasons aforementioned, we do not find any error whatsoever in the
impugned judgment. The appeal is dismissed with costs. Counsel's fee assessed
at Rs. 10,000/-.