of India Vs. M/S. Asian Global Ltd. & Ors.  INSC 481 (6 July 2010)
IN THE SUPREME COURT OF INDIA CRIMINAL APPELLATE JURISDICTION SPECIAL LEAVE
PETITION (CRL.) NO.5093 OF 2008 Central Bank of India .. Petitioner M/s Asian
Global Ltd. & Ors. .. Respondents WITH SPECIAL LEAVE PETITION(CRL.) NOS.
5094, 5095 and 5096 of 2008
Special Leave Petition (Crl.) No.5093 of 2008, has been filed by
the Central Bank of India against the judgment and order dated 22.8.2007 passed
by the Delhi High Court in Crl. M.C. No.5167 of 2003 allowing the said petition
under Section 482 Cr.P.C. filed by the Respondents and discharging them and
quashing the complaint filed by the 2 Petitioner Bank and the process issued thereupon.
said judgment, three other petitions, being Crl. M.C. No.5161 of 2003, Crl.
M.C. No.5162 of 2003 and Crl. M.C. No.2166 of 2003, were also disposed of in
favour of the Respondent Nos.1 and 2, M/s Asian Global Ltd. and its Director,
Mr. Rajiv Jain. Several other petitions filed by Sarla Jain, a Director of the
Respondent No.1 Company, also challenging the complaint filed by the Petitioner
Bank and praying for discharge therefrom and quashing thereof, were allowed by
the aforesaid judgment. Consequently, the Bank has also filed SLP (Crl.)
Nos.5094, 5095 and 5096 of 2008, which are also being heard along with
SLP(Crl.)No.5093 of 2008.
The facts as disclosed indicate that in 1993 the Respondent No.1
had availed of various credit facilities from the Petitioner Bank, including
packing credit facility and overdraft facility.
whatever reason, the account of the Respondent No.1 is alleged to have become
irregular compelling 3 the Bank to call upon the Respondent No.1 Company to
regularize its packing credit account. It appears that corporate guarantee for
due repayment of the outstanding dues of the Respondent No.1 Company was given
by the Respondent No.3 Company which was allegedly a sister concern of the
Respondent No.1 and the Respondent No.2 while being a Director of Respondent
No.1 Company was a Joint Managing Director of the Respondent No.3 Company.
In order to discharge its liability to the Petitioner Bank, the
Respondent No.3 Company issued Cheque No.255242 dated 16.5.1996, along with
three other cheques, each for a sum of Rs.5 lakhs in favour of the Respondent
No.1 Company which was deposited by the Respondent No.1 Company with the
Petitioner Bank towards the outstanding dues of the Respondent No.1 Company. On
being presented for encashment on 16.5.1996, the said cheques were returned to
the Petitioner Bank with the remarks "funds insufficient". On the
request made by the Respondents, the cheque was again presented for 4 payment
on 31.7.1996, but was again returned by the New Delhi Gulmohar Park Branch of
the Petitioner Bank with the remark "since account closed". It is
only thereafter that the Petitioner Bank filed a complaint against the
Respondents under Sections 138 and 139 of the Negotiable Instruments Act, 1881,
read with Section 120-B and 420 I.P.C., upon which cognizance was taken by the
Additional Chief Metropolitan Magistrate, Patiala House, New Delhi, on
Aggrieved by the order issuing summons, the Respondent Nos.1 to 3
and other accused persons, being the Directors of the Respondent Nos.1 to 3
Companies, moved an application under Section 245(2) Cr.P.C. praying for recall
of the order issuing summons and consequent discharge from the criminal
proceedings initiated on the complaint filed by the Petitioner Bank on the
ground that there was no privity of contract between the Petitioner Bank and
the Respondent No.3, Asian Consolidated Industries Ltd. (ACIL). On the other 5
hand, the Petitioner Bank took the stand that being a "holder in due
course", the Bank was entitled to maintain its complaint.
By its order dated 28.7.2003 the Trial Court rejected the
application filed by the Respondents for discharge upon holding that under
Section 118(E) of the Negotiable
Instruments Act, 1881, hereinafter referred to as "the 1881 Act", a
"holder" of a cheque is presumed to be a "holder in due
course" unless and until the contrary is proved by the accused.
Being aggrieved by the said order dated 28.7.2003, the Respondent
Nos.1 and 2 moved the Delhi High Court under Section 482 Cr.P.C. in Crl. M.C.
No.5167 of 2003. As indicated hereinbefore, separate petitions were filed,
being Crl. M.C. No.5161 of 2003, Crl. M.C. No.5162 of 2003 and Crl. M.C.
No.2166 of 2003, which were heard and disposed of in favour of the Respondent
Nos.1 and 2 by the learned Single Judge of the Delhi High Court by 6
discharging the respondents and quashing the complaint and the orders issuing
It is against the said order of the High Court that the present
Special Leave Petitions have been filed by the Central Bank of India.
On behalf of the Petitioner Bank it was submitted that the High
Court had misconstrued the provisions of Sub-Section (1) of Section 141 of the
1881 Act, which merely provide that if a person committing an offence under
Section 138 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, as well as the Company, shall be deemed guilty
of the offence. It was urged that the High Court had wrongly interpreted the
provisions of Sub-section (1) of Section 141 of the aforesaid Act in their
application to the statements made in paragraphs 12 and 21 of the complaint in
arriving at a finding that the 7 complaint had merely presumed that the
Directors would be guilty because of holding a particular office since law
would assume so. It was submitted that while correctly holding that to fasten
liability on a Director it has to be proved that such Director was responsible
to the Company and was in charge of its affairs and that such fact would have
to be pleaded and proved, the High Court had erred in holding that the
pleadings in paragraphs 12 and 21 of the complaint fell short of sufficient
averments required to be made in a complaint under Section 138 read with
Section 141 of the 1881 Act.
It was submitted that the decision of this Court in S.M.S.
Pharmaceuticals Ltd. vs. Neeta Bhalla & Anr. [(2005) 8 SCC 89], did not
affect the Bank's case, since it had been stated in the complaint in clear and
unambiguous terms that the respondents as Directors of the Company were liable
for its acts and that such an allegation could be 8 proved by leading evidence,
which stage was yet to arrive when the High Court quashed the complaint and
discharged the accused. It was submitted that the impugned order of the High
Court was liable to be set aside and the matter was liable to be remanded to
the Trial Court for being proceeded with from the stage when the complaint was
Apart from the above submissions, a further submission was made on
behalf of the Bank to the effect that since the cheques which were issued in
favour of the Bank had been handed over by the Respondent No.1 for collection
and had been dishonoured, the Bank had become the holder of the cheques in due
course and were, therefore, entitled to proceed against the Respondent No.1.
The submissions made on behalf of the Petitioner Bank were
strongly opposed on behalf of the respondents and it was submitted that having
regard to the decision of this Court in S.M.S. Pharmaceuticals Ltd.'s case
(supra) which was later 9 followed in N.K. Wahi vs. Shekhar Singh & Ors. [(2007)
9 SCC 481], there was no scope to urge that the ingredients of a complaint
against the respondents had been satisfied by the averments made in paragraphs
12 and 21 of the complaint.
As far as the second limb of the submissions made on behalf of the
Bank was concerned, it was submitted that the same was an argument of
desperation as the cheques in question had been drawn by the Respondent No.3 on
its own Bank which had dishonoured the cheques. Except for presenting the
cheques to the Bank for collection, the Respondent No.1 had no other role to
play in the dishonour thereof.
We have carefully considered the submissions made on behalf of the
respective parties and we are unable to persuade ourselves to differ with the
judgment and order of the High Court. The judgment in S.M.S. Pharmaceuticals
Ltd.'s case (supra), which was relied upon by the High Court, while 10
interpreting the provisions of sub-section (1) of Section 141 of the 1881 Act,
made it very clear that unless a specific averment was made in the complaint
that at the time when the offence was committed, the person accused was in
charge of and responsible for the conduct of the business of the Company, the
requirements of Section 141 would not be satisfied. It was further held that
while a Managing Director or a Joint Director of the Company would be
admittedly in charge of the Company and responsible to the Company for the
conduct of its business, the same yardstick would not apply to a Director. The
position of a signatory to a cheque would be different in terms of Sub-section
(2) of Section 141 of the 1881 Act.
course, is not the fact in this case.
The law as laid down in S.M.S. Pharmaceuticals Ltd. 's case
(supra) has been consistently followed and as late as in 2007, this Court in
the case of N.K. Wahi's case (supra), while considering the 11 question of
vicarious liability of a Director of a Company, reiterated the sentiments
expressed in S.M.S. Pharmaceuticals Ltd.'s case (supra) that merely being a
Director would not make a person liable for an offence that may have been
committed by the Company. For launching a prosecution against the Directors of
a Company under Section 138 read with Section 141 of the 1881 Act, there had to
be a specific allegation in the complaint in regard to the part played by them
in the transaction in question. It was also laid down that the allegations had
to be clear and unambiguous showing that the Directors were in charge of and
responsible for the business of the Company. This was done to discourage
frivolous litigation and to prevent abuse of the process of Court and from
embarking on a fishing expedition to try and unearth material against the
In this case, save and except for the statement that the
Respondents, Mr. Rajiv Jain and Sarla Jain 12 and some of the other accused,
were Directors of the accused Companies and were responsible and liable for the
acts of the said Companies, no specific allegation has been made against any of
them. The question of proving a fact which had not been mentioned in the
complaint did not, therefore, arise in the facts of this case. This has
prompted the High Court to observe that the Bank had relied on the mistaken
presumption that as Directors, Rajiv Jain, Sarla Jain and the other Directors
were vicariously liable for the acts of the Company.
except for the aforesaid statement, no other material has been disclosed in the
complaint to make out a case against the respondents that they had been in
charge of the affairs of the Company and were responsible for its action. The
High Court, therefore, rightly held that in the absence of any specific charge
against the Respondents, the complaint was liable to be quashed and the
respondents were liable to be discharged.
As to the submission made on behalf of the Bank that they were
holders in due course of the four cheques issued by the Respondent No.3 Company
and that by presenting them to the Petitioner Bank for encashment, the
Respondent No.1 Company had become liable for dishonour thereof, has been
adequately dealt with and negated by the High Court and does not require any
The Special Leave Petitions filed by the Central Bank of India,
therefore, fail and are dismissed.
________________J. (ALTAMAS KABIR)
________________J. (CYRIAC JOSEPH)
July 06, 2010.