Rangachari Vs. Bharat Sanchar Nigam Ltd  Insc 427 (19 April 2007)
TARUN CHATTERJEE & P.K. BALASUBRAMANYAN
CRIMINAL APPEAL NO 592 OF 2007 (Arising out of SLP (Cri.) No. 1844 of 2006)
P.K. BALASUBRAMANYAN, J.
1. Leave granted.
2. Heard both sides.
3. On behalf of the Data Access (India) Limited, two cheques were issued to
the respondent Bharat Sanchar Nigam Limited (hereinafter referred to as,
"B.S.N.L."). The cheques were dated 31.8.2004. The cheques were duly
presented by the B.S.N.L. but were dishonoured for insufficiency of funds.
B.S.N.L. thereupon issued requisite notices calling upon the Data Access (India)
Limited to pay the amounts due under the cheques. The payments not having been
made, B.S.N.L. filed a compliant under Section 138 of the Negotiable
4. In the complaint, B.S.N.L. alleged that the cheques were issued to it by
the Data Access (India) Limited in discharge of a pre-existing liability based
on the business transactions between the companies. The appellant herein and
respondent No. 2 in the complaint were the Directors of respondent No. 1
Company and they were in charge of and responsible for the conduct of the
business of Data Access (India) Limited. The relevant statement in the
"That accused No. 1 is a company incorporated under the Companies Act.
Accused Nos. 2 and 3 are its Directors. They are incharge of and responsible to
accused No.1 for conduct of business of accused No. 1 Company. They are jointly
and severally liable for the acts of accused No. 1."
The complaint also stated that in response to the notice issued by B.S.N.L.,
a reply had been sent claiming that the appellant was no longer the Chairman or
Director of Data Access (India) Limited and accused No. 2 was not aware of the
issuance of the cheques. These statements were false and by not keeping
sufficient funds in their account and failing to pay the cheque amount on the
service of the notice, all the accused committed an offence as contemplated in
Section 138 of the Negotiable Instruments Act and they were liable to be
The complaint also asserted that all the accused were guilty of the offence
in terms of Section 138 of the Negotiable Instruments Act and were liable to be
5. The appellant herein moved the High Court under Section 482 of the Code
of Criminal Procedure seeking the quashing of the complaint insofar as it
related to him. The appellant pleaded that he was nominated as Honorary
Chairman without any remuneration, sitting fee etc. by the investors and
promoters of the Company of Data Access (India) Limited on 24.7.2004 and he was
designated as Chairman of the Company. Being a nominated Chairman and holding
an Honorary post in the Company, he was never assigned with any of the Company's
financial or other business activities.
He was the Chairman for name sake and was never entrusted with any job or
business or constituted a signing authority.
He had resigned effectively on 26.8.2004 when problems between the promoters
and investors of Data Access (India) Limited started developing. The two
cheques that were the subject matter of the complaint, were dated 31.8.2004,
after the appellant had effectively resigned. He had not signed those cheques.
He was not liable. According to him, the Data Access (India) Limited had two
Managing Directors at the relevant time and they were the ones who were
invested with substantial powers of management of the Company and as such the
Managing directors were involved in the day to day affairs of the Company and
not himself, who had only acted for a short period as Honorary Chairman. The
complaint did not contain adequate averments to justify initiation of a
criminal proceeding against him and hence the complaint was liable to be
6. On behalf of B.S.N.L., it was contended that the Petition under Section
482 of the Code of Criminal Procedure was not maintainable and that the
questions sought to be raised by the appellant were questions that had to be
decided at the trial. The complaint disclosed sufficient materials justifying
the commencement of the proceedings against Data Access (India) Limited and the
other two accused including the appellant. The appellant who was the Chairman
of the Data Access (India) Limited was incharge of and responsible to the
Company for the conduct of its business, and no occasion had arisen for
quashing the complaint. The question whether a person is incharge of and
responsible for the conduct of the business of the Company, is to be adjudged
during the trial on the basis of the materials to be placed on record by the
parties. That could not be decided at the stage of a motion under Section 482
of the Code of Criminal Procedure.
7. The High Court, on going through the complaint in the context of Sections
138 and 141 of the Negotiable Instruments Act, came to the conclusion that the
court could not decide the pleas put forward by the appellant in dealing with a
petition filed under Section 482 of the Code of Criminal Procedure and that the
defences sought to be put forward by the accused had to be established at the
trial. Taking the view that the complaint disclosed adequate material for
proceeding against the appellant in terms of Section 138 read with Section 141
of the Negotiable Instruments Act, the High Court refused to accede to the
prayer of the appellant and dismissed the application filed under Section 482
of the Code of Criminal Procedure. Challenging the said order of the High
Court, this appeal is filed by the appellant.
8. Learned Senior Counsel for the appellant brought to our notice a number
of decisions of this Court on what should constitute sufficient allegations in
a complaint under Section 138 of the Negotiable Instrument Act when a
prosecution is sought against a Company and its officers, in terms of Section
141 of the said Act. Learned counsel placed considerable reliance on the
decision of this Court in S.M.S.
S.C.C. 89]. Therein, this Court observed:
"In the present case, we are concerned with criminal, liability on
account of dishonour of cheque. It primarily falls on the drawer company and is
extended to officers of the Company. The normal rule in the cases involving
criminal liability is against vicarious liability, that is, no one is to be
held criminally liable for an act of another. This normal rule is, however,
subject to exception on account of specific provision being made in statutes
extending liability to others. Section 141 of the Act is an instance of
specific provision which in case an offence under Section 138 is committed by a
Company, extends criminal liability for dishonour of cheque to officers of the
Company. Section 141 contains conditions which have to be satisfied before the
liability can be extended to officers of a company.
Since the provision creates criminal liability, the conditions have to be
strictly complied with. The conditions are intended to ensure that a person who
is sought to be made vicariously liable for an offence of which the principal
accused is the Company, had a role to play in relation to the incriminating act
and further that such a person should know what is attributed to him to make
him liable. In other words, persons who had nothing to do with the matter need
not be roped in. A company being a juristic person, all its deeds and functions
are result of acts of others.
Therefore, officers of a Company who are responsible for acts done in the
name of the Company are sought to be made personally liable for acts which
result in criminal action being taken against the Company. It makes every
person who at the time the offence was committed, was incharge of and was
responsible to the Company for the conduct of business of the Company, as well
as the Company, liable for the offence. The proviso to the sub-section contains
an escape route for persons who are able to prove that the offence was
committed without their knowledge or that they had exercised all due diligence
to prevent commission of the offence."
After referring to a number of earlier decisions, this Court summed up the
legal position and laid down:
"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."
Dealing with the question whether a Director of a Company would be deemed to
be in charge of, or 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, this Court held:
"The answer to question posed in sub- para (b) has to be in 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 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."
Answering the question whether even in the absence of averments the
signatory of the cheque or the managing directors could be taken to be in
charge of the Company and responsible to the Company for the conduct of its
business and could be proceeded against, the answer was as follows:
"The answer to question (c) has to be in 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 conduct of its
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 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
9. It was submitted by learned Senior Counsel for the appellant that the
allegations in the complaint against the appellant did not contain sufficient
averments to justify the issue of process to the appellant and therefore the
complaint ought to be quashed. Learned counsel also relied heavily on &
Anr. [2007 (2) SCALE 36], wherein two learned judges of this Court held that
the complaint in that case did not satisfy the requirements of Section 138 read
with Section 141 of the Negotiable Instruments Act. Learned counsel referred us
to paragraphs 13 to 18 of that decision with particular reference to the
allegations in the complaint in that case and submitted that in the case on
hand also, the complaint was along the same lines and read in the context of
that decision, it must be held that no adequate material was disclosed for
proceeding against the appellant on the complaint.
10. Learned counsel for B.S.N.L., on the other hand, submitted that the
complaint contained adequate averments justifying the initiation of prosecution
against the appellant for the offence under Section 138 of the Negotiable
Instruments Act and the High Court was right in refusing to quash the complaint
under Section 482 of the Code of Criminal Procedure leaving it to the appellant
to establish his defence at the trial. Learned counsel relied on S.V. Muzumdar
173] in support. In his reply, learned Senior Counsel for the Judicial
Magistrate & Ors. [(1998) 5 S.C.C. 749] and submitted that an application
of mind was needed before the issuance of process and on the averments in the
complaint in this case no process could have been issued against the appellant.
He therefore reiterated that the complaint was liable to be quashed.
11. The Law Merchant treated negotiable instruments as instruments that
oiled the wheels of commerce and facilitated quick and prompt deals and
transactions. This continues to be the position as now recognized by
legislation, though possibly a change is taking place with the advent of credit
cards, debit cards and so on. It was said that negotiable instruments are
merely instruments of credit, readily convertible into money and easily
passable from one hand to another. With expanding commerce, growing demand for
money could not be met by mere supply of coins and the instrument of credit
took the function of money which they represented and thus became by degrees,
articles of traffic. A man dared not dishonour his own acceptance of a bill of
exchange, lest his credit be shaken in the commercial world.
Instruments Act, 1881 is understood to be an enactment codifying the law on
the subject. A cheque is an acknowledged bill of exchange that is readily
accepted in lieu of payment of money and it is negotiable.
12. By the fall in moral standards, even these negotiable instruments like
cheques issued, started losing their creditability by not being honoured on
presentment. It was found that an action in the civil court for collection of
the proceeds of a negotiable instrument like a cheque tarried, thus defeating
the very purpose of recognizing a negotiable instrument as a speedy vehicle of
commerce. It was in that context that Chapter VII was inserted in the Negotiable Instruments Act
by the Banking, Public Financial Institutions and Negotiable Instruments Laws
(Amendment) Act, 1988 (Act 66 of 1988) with effect from 1.4.1989. The said Act
inserted Sections 138 and 142 in the Negotiable
Instruments Act. The objects and reasons for inserting the Chapter was:
"to enhance the acceptability of cheques in settlement of liabilities
by making the drawer liable for penalties in case of bouncing of cheques due to
insufficiency of funds in the accounts or for the reason that it exceeds the
arrangements made by the drawer, with adequate safeguards to prevent harassment
of honest drawers"
While Section 138 made a person criminally liable on dishonour of a cheque
for insufficiency of funds or the circumstances referred to in the Section and
on the conditions mentioned therein, Section 141 laid down a special provision
in respect of issuance of cheques by companies and commission of offences by
companies under Section 138 of the Negotiable
Instruments Act. Therein, it was provided that if the person committing an
offence under Section 138 of the Act was 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 accordingly. The scope of Section 141 has been
authoritatively discussed in the decision in S.M.S.
Pharmaceuticals Ltd. (supra) binding on us and there is no scope for
redefining it in this case. Suffice it to say, that a prosecution could be
launched not only against the company on behalf of which the cheque issued has
been dishonoured, but it could also be initiated against every person who at
the time the offence was committed, was in charge of and was responsible for
the conduct of the business of the company.
In fact, Section 141 deems such persons to be guilty of such offence, liable
to be proceeded against and punished for the offence, leaving it to the person
concerned, to prove that the offence was committed by the company without his
knowledge or that he has exercised due diligence to prevent the commission of
the offence. Sub-section (2) of Section 141 also roped in Directors, Managers,
Secretaries or other officers of the company, if it was proved that the offence
was committed with their consent or connivance.
13. A Company, though a legal entity, cannot act by itself but can only act
through its directors. Normally, the Board of Directors act for and on behalf
of the company. This is clear from Section 291 of the Companies Act which
provides that subject to the provisions of that Act, the Board of Directors of
a Company shall be entitled to exercise all such powers and to do all such acts
and things as the Company is authorized to exercise and do. Palmer described
the position thus:
"A company can only act by agents, and usually the persons by whom it
acts and by whom the business of the company is carried on or superintended are
termed directors .
It is further stated in Palmer that:
"Directors are, in the eye of the law, agents of the company for which
they act, and the general principles of the law of principal and agent regulate
in most respects the relationship of the company and its directors."
The above two passages were quoted with approval in R.K.
253 at page 300]. In Guide to the Companies Act by A.
Ramaiya (Sixteenth Edition) this position is summed up thus:
"All the powers of management of the affairs of the company are vested in
the Board of Directors. The Board thus becomes the working organ of the
company. In their domain of power, there can be no interference, not even by
shareholders. The directors as a board are exclusively empowered to manage and
are exclusively responsible for that management."
Therefore, a person in the commercial world having a transaction with a
company is entitled to presume that the directors of the company are incharge
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 incharge 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 incharge of the company. In
Gower and Davies' Principles of Modern Company Law (Seventh Edition), the
theory behind the idea of identification is traced as follows:
"It is possible to find in the cases varying formulations of the
under-lying 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 the Lennard's Carrying
Company case 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 the Meridian
Global case 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."
But as has already been noticed, the decision in S.M.S.
Pharmaceuticals Ltd. (supra) binding on us, has postulated that a director
in a company cannot be deemed to be incharge of and responsible to the company
for the conduct of his business in the context of Section 141 of the Act. Bound
as we are by that decision, no further discussion on this aspect appears to be
14. A person normally having business or commercial dealings with a company,
would satisfy himself about its creditworthiness and reliability by looking at
its promoters and Board of Directors and the nature and extent of its business
and its Memorandum or Articles of Association. Other than that, he may not be
aware of the arrangements within the company in regard to its management, daily
Therefore, when a cheque issued to him by the company is dishonoured, he is
expected only to be aware generally of who are incharge of the affairs of the
company. It is not reasonable to expect him to know whether the person who
signed the cheque was instructed to do so or whether he has been deprived of
his authority to do so when he actually signed the cheque. Those are matters
peculiarly within the knowledge of the company and those in charge of it. So,
all that a payee of a cheque that is dishonoured can be expected to allege is
that the persons named in the complaint are in charge of its affairs.
The Directors are prima facie in that position.
15. In fact, in an earlier decision in Monaben S.C.C. 15], two learned
judges of this Court noticed that:
"The laudable object of preventing bouncing of cheques and sustaining
the credibility of commercial transactions resulting in enactment of Sections
138 and 141 has to be borne in mind."
16. In the light of the ratio in S.M.S. Pharmaceuticals Ltd. (supra) what is
to be looked into is whether in the complaint, in addition to asserting that
the appellant and another are the directors of the company, it is further
alleged that they are incharge of and responsible to the company for the
conduct of the business of the company. We find that such an allegation is
clearly made in the complaint which we have quoted above. Learned Senior
Counsel for the appellant argued that in Saroj Kumar Poddar case (supra), this
Court had found the complaint unsustainable only for the reason that there was
no specific averment that at the time of issuance of the cheque that was
dishonoured, the persons named in the complaint were incharge of the affairs of
the company. With great respect, we see no warrant for assuming such a position
in the context of the binding ratio in S.M.S.
Pharmaceuticals Ltd. (supra) and in view of the position of the Directors in
a company as explained above.
[A.I.R. 1999 S.C. 1216], two learned judges of this Court stated:
"For quashing an FIR (a step which is permitted only in extremely rare
cases) the information in the complaint must be so bereft of even the basic
facts which are absolutely necessary for making out the offence."
[A.I.R. 1999 S.C. 2182], this Court held that a complaint under Section 138
of the Act was not liable to be quashed on the ground that the notice as
contemplated by Section 138 of the Act was addressed to the Director of the
Company at its office address and not to the Company itself. The view was 2001
S.C. 518]. These decisions indicate that too technical an approach on the
sufficiency of notice and the contents of the complaint is not warranted in the
context of the purpose sought to be achieved by the introduction of Sections
138 and 141 of the Act.
18. In the case on hand, reading the complaint as a whole, it is clear that
the allegations in the complaint are that at the time at which the two
dishonoured cheques were issued by the company, the appellant and another were
the Directors of the company and were incharge of the affairs of the company.
It is not proper to split hairs in reading the complaint so as to come to a
conclusion that the allegations as a whole are not sufficient to show that at
the relevant point of time the appellant and the other are not alleged to be
persons incharge of the affairs of the company. Obviously, the complaint refers
to the point of time when the two cheques were issued, their presentment,
dishonour and failure to pay in spite of notice of dishonour. We have no
hesitation in overruling the argument in that behalf by the learned Senior
Counsel for the appellant.
19. We think that, in the circumstances, the High Court has rightly come to
the conclusion that it is not a fit case for exercise of jurisdiction under
Section 482 of the Code of Criminal Procedure for quashing the complaint. In
fact, an advertence to Sections 138 and 141 of the Negotiable Instruments Act
shows that on the other elements of an offence under Section 138 being
satisfied, the burden is on the Board of Directors or the Officers incharge of
the affairs of the company to show that they are not liable to be convicted.
Any restriction on their power or existence of any special circumstance that
makes them not liable is something that is peculiarly within their knowledge
and it is for them to establish at the trial such a restriction or to show that
at the relevant time they were not incharge of the affairs of the company.
Reading the complaint as a whole, we are satisfied that it is a case where the
contentions sought to be raised by the appellant can only be dealt with after
the conclusion of the trial.
20. We therefore affirm the decision of the High Court and dismiss this
appeal. We make it clear that the case will have to be tried and disposed of in
accordance with law on the basis of the evidence that may be adduced.