Malwa Cotton &
Spinning Mills Ltd. Vs. Virsa Singh Sidhu & Ors.  INSC 1362 (13
IN THE SUPREME COURT
OF INDIA CRIMINAL APPELLATE JURISDICTION CRIMINAL APPEAL NO.1265 OF 2008
(Arising out of SLP (Crl.) No. 6049 of 2005) Malwa Cotton & Spinning Mills
Virsa Singh Sidhu and Ors. ..Respondents WITH Criminal Appeal No. 1266 of 2008
@ SLP (Crl.) No.408 of 2006 Criminal Appeal No. 1267 of 2008 @ SLP (Crl.)
No.409 of 2006 Criminal Appeal No. 1268 of 2008 @ SLP (Crl.) No.410 of 2006
Criminal Appeal No. 1269 of 2008 @ SLP (Crl.) No.411 of 2006 Criminal Appeal
No. 1270 of 2008 @ SLP (Crl.) No.412 of 2006 Criminal Appeal No. 1271 of 2008 @
SLP (Crl.) No.413 of 2006 Criminal Appeal No. 1272 of 2008 @ SLP (Crl.) No.414
Dr. ARIJIT PASAYAT,
SLP (Crl.) 6049/2005
in this appeal is to the order passed by a learned Single Judge of the Punjab
and Haryana High Court accepting the prayer of respondent No.1 for quashing the
proceedings pending before the Judicial Magistrate, First Class, Ludhiana. The
proceedings related to the complaint filed by the appellant alleging commission
of offence punishable under Section 138 of the Negotiable Instruments Act, 1881
(in short the `Act'). In all, 8 petitions were filed which were disposed of by
the common judgment.
present appeals relate to Criminal Miscellaneous No.52153 of 2002 and connected
cases. The High Court quashed the proceedings primarily on the ground that
respondent No.1-Virsa Singh Sidhu in the first case had resigned from the
Directorship before the cheques were issued. The other petitions were allowed
on the ground that there were some general allegations that all Directors were
counsel for the appellant submitted that the High Court's judgment is clearly
unsustainable. So far as respondent No.1 is concerned he claims to have
resigned on 2.4.1999 whereas cheques were issued on various dates vis in
December 2000 and February 2001. It is pointed out that the Form No.32 which
was required to be filed with the Registrar of Companies was filed on 5.7.2001
i.e. much after the cheques were issued. Whether in fact the respondent No.1's
claim to have resigned was factually correct would have been established in
trial and the High Court could not have passed the impugned judgment while
dealing with the application under Section 482 of the Code of Criminal
Procedure, 1973 (in short the `Code')? It is further pointed out that the High
Court was not justified in holding that there was no specific allegation
against other accused persons. With reference to the complaint it was pointed
out that specific allegation is to the effect that the accused persons were in
charge of day to day management work. In any event, this is not a question
which could have been gone into in a proceeding under Section 482 of Code. It
is a matter of trial.
counsel for respondent No.1 on the other hand submitted that the High Court was
justified in its view that respondent No.1 had intimated the company about his
desire to resign. If the company delayed in submitting the requisite form
before the Registrar of Companies, he cannot be made to suffer.
rightly contended by learned counsel for the appellant factual disputes are
involved. What was the effect of delayed presentation before the Registrar of
Companies is essentially a matter of trial. Whether respondent No.1 had
intimated the company and whether there was any resolution accepting his
resolution are matters in respect of which evidence has to be led. Therefore,
the High Court was not justified in its view.
far as allegations against the Directors are concerned about their position in
the company the complaint specifically contained the averments regarding the
position of the accused Directors in the company.
this juncture, it would be relevant to take note of certain observations made
by this Court in various cases.
S.V. Muzumdar v. Gujarat State Fertilizer Co. Ltd.
and Anr. (2005 (4)
SCC 173), it was inter-alia observed as follows:
"3. The facts as
projected by the respondents in the complaint were to the effect that the
respondent no.1 (hereinafter referred to as the `complainant') supplied goods
on credit to M/s Garware Nylons Ltd. (hereinafter referred to as the `Company')
(accused no.14). Cheques issued by the company were not honoured by the drawee
bank on the ground of insufficient funds. Payments were not made even after
legal notices. There were 14 accused persons including the company named in the
complaint. Some of the accused persons were Directors and while others were
Judicial Magistrate, Vadodara after recording statement of marketing manager
who had filed the complaint for himself and on behalf of the complainant-
company, issued summons to all the accused persons for facing trial for alleged
commission of offences punishable under Section 138 of the Act read with
Sections 420 and 114 of the Indian Penal Code, 1860 (in short the `IPC').
The order issuing
summons was challenged by filing criminal revision applications which were
dismissed by order dated 21.3.1996. Said common judgment and order was
challenged before the High Court by filing special criminal applications and
these applications were permitted to be withdrawn to enable the appellants to
move applications before the learned Chief Judicial Magistrate as stated by the
petitioners. Application was filed with prayer to drop proceedings. That
application was rejected by order dated 21.8.1997. Same was questioned before
the High Court. The challenge before the High Court was primarily on the ground
that there was no material to show that the accused persons at the time of
offence as allegedly committed were in charge and/or responsible to the company
for the conduct of the business as required under Section 141(1) of the Act. It
was also submitted that the deeming provision under sub-section (2) of Section
141 which covers persons with whose consent or connivance or any attributable
negligence for commission of the offence by the company was also not
applicable. The High Court did not accept the pleas and held that the
controversy was to be adjudicated at the trial. It considered the petition to
be unacceptable attempt to stall the criminal proceedings at the threshold.
xx xx xx
8. We find that the
prayers before the courts below essentially were to drop the proceedings on the
ground that the allegations would not constitute a foundation for action in
terms of Section 141 of the Act. These questions have to be adjudicated at the trial.
Whether a person is in charge of or is responsible to the company for conduct
of business is to be adjudicated on the basis of materials to be placed by the
parties. Sub-section (2) of Section 141 is a deeming provision which as noted
supra operates in certain specified circumstances. Whether the requirements for
the application of the deeming provision exist or not is again a matter for
adjudication during trial. Similarly, whether the allegations contained are
sufficient to attract culpability is a matter for adjudication at the trial.
9. Under Scheme of
the Act, if the person committing an offence under Section 138 of the Act is a
company, by application of Section 141 it is deemed that every person who is in
charge of and responsible to the company for conduct of the business of the
company as well as the company are guilty of the offence. A person who proves
that the offence was committed without his knowledge or that he had exercised
all due diligence is exempted from becoming liable by operation of the proviso
to sub-section (1). The burden in this regard has to be discharged by the
10. The three
categories of persons covered by Section 141 are as follows:
(1) The company who
committed the offence.
(2) Everyone who was
in charge of and was responsible for the business of the company.
7 (3) Any other
person who is a director or a manager or a secretary or officer of the company
with whose connivance or due to whose neglect the company has committed the
11. Whether or not
the evidence to be led would establish the accusations is a matter for trial.
It needs no reiteration that proviso to sub-section (1) of Section 141 enables
the accused to prove his innocence by discharging the burden which lies on
N. Rangachari v. Bharat Sanchar Nigam Ltd. (2007 (5) SCC 108), it was observed
a person in the commercial world having a transaction with a company is
entitled to presume that the Directors of the company are in charge of the
affairs of the company. If any restrictions on their powers are placed by the
memorandum or articles of the company, it is for the Directors to establish it
at the trial. It is in that context that Section 141 of the Negotiable Instruments
Act provides that when the offender is a company, every person, who at the time
when the offence was committed was in charge of and was responsible to the
company for the conduct of the business of the company, shall also be deemed to
be guilty of the offence along with the company. It appears to us that an
allegation in the complaint that the named accused are Directors of the company
itself would usher in the element of their acting for and on behalf of the
company and of their being in charge of the company. In Gower and Davies'
Principles of Modern Company Law (17th Edn.), the theory behind the idea of
identification is traced as follows:
"It is possible
to find in the cases varying formulations of the underlying principle, and the
most recent definitions suggest that the courts are prepared today to give the
rule of attribution based on identification a somewhat broader scope.
In the original
formulation in Lennard's Carrying Company case (1915 AC 705 (HL) Lord Haldane
based identification on a person `who is really the directing mind and will of
the corporation, the very ego and centre of the personality of the
corporation'. Recently, however, such an approach has been castigated by the
Privy Council through Lord Hoffmann in Meridian Global case (1995 (2) AC 500
(PC) as a misleading `general metaphysic of companies'. The true question in
each case was who as a matter of construction of the statute in question, or
presumably other rule of law, is to be regarded as the controller of the
company for the purpose of the identification rule."
the High Court was not justified in quashing the proceedings so far as
respondent No.1 in the first case is concerned. The appeal is allowed.
view of the order passed in Criminal Appeal arising out of SLP (Crl.)
No.6049/2005, where details have been indicated, other appeals are deserved to
be allowed. The impugned order of the High Court in each case is set aside.