K.K.
Ahuja Vs. V.K. Vora & ANR. [2009] INSC 1141 (6 July 2009)
Judgment
Reportable
IN THE SUPREME COURT OF INDIA CRIMINAL APPELLATE JURISDICTION CRIMINAL APPEAL
NOS.1130-31 OF 2003 K.K. Ahuja ... Appellant V.K. Vora & Anr. ...
Respondents
R. V.
RAVEENDRAN, J.
1.
The question as to who can be said to be persons "in-charge
of, and was responsible to the company for the business of the company"
referred to in section 141 of the Negotiable Instruments Act, 1881 (for short
'the Act') arises for consideration in this appeal by special leave by a
complainant.
2.
The appellant filed two complaints (Crl. Comp.No.58/2001 and
59/2001) in the Court of the Metropolitan Magistrate, Delhi, against M/s. Motorol
Speciality Oils Ltd. (`the Company' for short) and eight others under section
138 of the Act. The first complaint was in regard to dishonour 2 of five
cheques (each for Rs.5,00,000/-, all dated 28.2.2001). The second complaint was
in regard to dishonour of three cheques (for Rs.3 lakhs, 3 lakhs and 10 lakhs
dated 31.10.2000, 30.11.2000 and 20.12.2000 respectively). The cheques were
alleged to have been drawn in favour of the appellant's proprietary concern
(M/s Delhi Paints & Oil Traders) by the company represented by its
Chairman. In the said complaints, the appellant had impleaded nine persons as
accused, namely, the company (A-1), its Chairman (A-2), four Directors (A-3 to
A-6) as also its Vice-President (Finance), General Manager and Deputy General
Manager (A-7, A-8 and A- 9 respectively). In the complaint the complainant
averred that "at the time of the commission of offence, accused 2 to 9
were in-charge of and responsible for the conduct of day to day business of
accused No.1" and that therefore they were deemed to be guilty of offence
under section 138 read with section 141 of the Act and section 420 of the
Indian Penal Code. The appellant also alleged that respondents 2 to 9 were
directly and actively involved in the financial dealings of the company and
that the accused had failed to make payment of the cheques which were
dishonoured. In the pre- summoning evidence, the appellant reiterated that
accused 2 to 9 were responsible for the conduct of day to day business of first
accused company at the time of commission of offence. The learned Magistrate by
order dated 3.10.2001 directed issue of summons to all the accused.
3.
Accused no. 9 (first respondent herein) filed two petitions under
section 482 Cr.P.C. for quashing the proceedings against him on the ground that
as "Deputy General Manager", he was not "in-charge of and was
responsible to the company for the conduct of the business of the
company".
He also
contended that merely stating that he was directly and actively involved in the
financial dealings of the accused or was responsible for the conduct of day to
day business would not be sufficient to fasten criminal liability on him. He
submitted that neither the complaint nor the sworn statement gave any
particulars of the part played by him or part attributed to him in the alleged
offence. At the hearing before the High Court, the Learned counsel for the
appellant-complainant conceded that details as to how the first respondent
could be said to be "in charge of, and was responsible to the company for
the conduct of the business of the company"
were not
given in the complaint or the statement on oath. It was also conceded that the
averments necessary to make out an offence under section 420 IPC were not
contained in the complaint. The High Court by order dated 10.10.2002 allowed
the said petitions and quashed the orders summoning the first respondent on the
ground that he was not a signatory to the cheques nor was a party to the
decision to allow the cheques to be dishonoured. The said order is under
challenge.
4.
The appellant contends that having regard to the specific averment
in the complaint that the accused 2 to 9 were in charge of and responsible for
the conduct of day to day business of the company, the order summoning the
first respondent could not have been quashed under section 482 Cr.P.C. It is
also submitted that at the stage of summoning the accused, when evidence was
yet to be led by the parties, the High Court committed an error in quashing the
order summoning the first respondent, on the basis of an unwarranted assumption
that the first respondent was not responsible for or involved in the conduct of
the business of the company. Reliance is placed on the decision of this Court
in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla & Anr. [2005 (8) SCC 89 for
short `SMS Pharma (I)'].
5.
Section 141 of the Act deals with offences by companies. Relevant
portions of the said section are extracted below :
"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 accordingly:
xxxxx (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 part of, any 5 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.
6.
A three-Judge Bench of this Court considered the scope of section
141 of the Act in SMS Pharma (I) and held that it is necessary to specifically
aver in a complaint under Sections 138 and 141 of the Act, that at the time
when the offence was committed, the person accused was in charge of, and
responsible for the conduct of business of the company and that in the absence
of such averment, section 141 cannot be invoked . This Court held:
"What
is required is that the persons who are sought to be made criminally liable
under Section 141 should be at the time the offence was committed, in charge of
and responsible to the company for the conduct of the business of the company.
Every person connected with the company shall not fall within the ambit of the
provision. It is only those persons who were in charge of and responsible for
conduct of business of the company at the time of commission of an offence, who
will be liable for criminal action. It follows from this that if a director of
a Company who was not in charge of and was not responsible for the conduct of
the business of the company at the relevant time, will not be liable under the
provision. The liability arises from being in charge of and responsible for
conduct of business of the company at the relevant time when the offence was committed
and not on the basis of merely holding a designation or office in a company.
Conversely,
a person not holding any office or designation in a Company may be liable if he
satisfies the main requirement of being in charge of and responsible for conduct
of business of a Company at the relevant time.
Liability
depends on the role one plays in the affairs of a Company and not on
designation or status. If being a Director or Manager or Secretary was enough
to cast criminal liability, the Section would have said so. Instead of
"every person" the section would have said "every Director,
Manager or Secretary in a Company is liable"....etc. The legislature is
aware that it is a 6 case of criminal liability which means serious consequences
so far as the person sought to be made liable is concerned. Therefore, only
persons who can be said to be connected with the commission of a crime at the
relevant time have been subjected to action."
"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."
(emphasis
supplied) This Court then proceeded identified the nature of allegations
required to be made against members of Board of Directors and person signing
the cheque as follows :
(i)
Managing Director/Joint Managing Director: By virtue of the office they hold,
these persons are in charge of and responsible for the conduct of business of
the company. Therefore, they would fall under Section 141(1), even though there
is no specific averment against them.
(ii)
Person signing the cheque: The signatory of a cheque which is dishonoured, is
clearly responsible for the act and will be covered under sub-section (2) of
Section 141. Therefore, no special averment would be necessary to make him
liable.
(iii)
Director: The fact that a person is a director of a company is not by itself
sufficient to make him 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
there is no deemed liability upon a director .
7.
In Sabitha Ramamurthy vs. RBS Channabasavaradhya - 2006 (10) SCC
581, this Court re-stated the requirements of section 141 of Act thus, in the
context of a petition for quashing the process under Sec.482 Cr PC:
"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........... In
a case where the court is required to issue summons which would put the accused
to some sort of harassment, the court should insist strict compliance with the
statutory requirements."
[emphasis
supplied] 8
8.
In Saroj Kumar Poddar v State (NCT of Delhi) - 2007 (3) SCC 693,
while dealing with an appeal against the refusal to quash the order taking
cognizance, by an Ex-Director who had resigned from the Board prior to the date
of issuance of the cheque, this Court held that making some bald averment was
not sufficient. In that case, the complaint contained the following averments:
"That
Accused 1 is a public limited company incorporated and registered under the Companies Act, 1956, and Accused 2 to 8 are/were its Directors at the relevant
time and the said Company is managed by the Board of Directors and they are
responsible for and in charge of the conduct and business of the Company,
Accused 1. However, cheques referred to in the complaint have been signed by
Accused 3 and 8 for and on behalf of Accused 1 Company."
In spite of
the averment that accused were Directors at the relevant time and were
responsible for and in charge of the conduct of the business of the company,
this Court held that allegations in the complaint, even if taken to be correct
in their entirety, did not disclose any offence by the appellant, on the
following reasoning :
"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."
[emphasis
supplied]
9.
In two subsequent decisions - SMS Pharmaceuticals v. Neeta Bhalla
- 2007 (4) SCC 70 [for short 'SMS Pharma (II)'] and Everest Advertising (P)
Ltd. v. State, Govt. of NCT of Delhi - 2007 (5) SCC 54, relating to complaints
against Directors of a company, the very same two-Judge Bench which decided
Saroj Kumar Poddar, clarified that the observations therein that `the complaint
should contain averments as to how and in what manner the accused was
responsible for the conduct of the business of the company, or otherwise
responsible for its functioning' were with reference to the particular facts of
that case and should not be considered as a general proposition of law. But
latter decisions dealing with liability of directors - N. K. Wahi vs. Shekhar
Singh - 2007 (9) SCC 481, DCM Financial Services Ltd. vs. J. N. Sareen - 2008
(8) SCC 1, and Ramraj Singh vs. State of MP (a decision of a Bench of three
Judges) - 2009 (5) SCALE 670, have reiterated the principle laid down in Saroj
Kumar Poddar. The prevailing trend appears to require the complainant to state
how a Director who is sought to be made an accused, was in charge of the
business of the company, as every director need not be and is not in charge of
the business of the company. If that is the position in regard to a director,
it is needless to emphasise that in the case of non-director officers, there is
all the more the 10 need to state what his part is with regard to conduct of
business of the company and how and in what manner he is liable.
10.
Having regard to section 141, when a cheque issued by a company
(incorporated under the Companies
Act, 1956) is dishonoured, in addition to the
company, the following persons are deemed to be guilty of the offence and shall
be liable to be proceeded against and punished :
(i) 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;
(ii) any
Director, Manager, Secretary or other officer of the company with whose consent
and connivance, the offence under section 138 has been committed; and (iii) any
Director, Manager, Secretary or other officer of the company whose negligence
resulted in the offence under section 138 of the Act, being committed by the
company.
While
liability of persons in the first category arises under sub-section (1) of
Section 141, the liability of persons mentioned in categories (ii) and (iii)
arises under sub-section (2). The scheme of the Act, therefore is, that a
person who is responsible to the company for the conduct of the business of the
company and who is in charge of business of the company is vicariously liable
by reason only of his fulfilling the requirements of sub- section (1). But if
the person responsible to the company for the conduct of business of the
company, was not in charge of the conduct of the business of 11 the company,
then he can be made liable only if the offence was committed with his consent
or connivance or as a result of his negligence.
11.
The criminal liability for the offence by a company under section
138, is fastened vicariously on the persons referred to in sub-section (1) of
section 141 by virtue of a legal fiction. Penal statutes are to be construed
strictly.
Penal
statutes providing constructive vicarious liability should be construed much
more strictly. When conditions are prescribed for extending such constructive
criminal liability to others, courts will insist upon strict literal
compliance. There is no question of inferential or implied compliance.
Therefore,
a specific averment complying with the requirements of section 141 is
imperative. As pointed out in K. Srikanth Singh vs. North East Securities Ltd -
2007 (12) SCC 788, the mere fact that at some point of time, an officer of a
company had played some role in the financial affairs of the company, will not
be sufficient to attract the constructive liability under section 141 of the
Act.
12.
Sub-section (2) of section 141 provides that a Director, Manager,
Secretary or other officer, though not in charge of the conduct of the business
of the company will be liable if the offence had been committed with his
consent or connivance or if the offence was a result of any 12 negligence on
his part. The liability of persons mentioned in sub-section (2) is not on
account of any legal fiction but on account of the specific part played -
consent and connivance or negligence. If a person is to be made liable under
sub-section (2) of section 141, then it is necessary to aver consent and
connivance, or negligence on his part.
13.
This takes us to the next question under sub-section (1) of
section 141, as to (i) who are the persons who are responsible to the company
for the conduct of the business of the company, and (ii) who could be said to
be in charge and was responsible to the company for the conduct of the business
of the company.
14.
The
words "every person who, at the time of the offence was committed, was in
charge of, and was responsible for the conduct of the business of the
company" occurs not only in section 141(1) of the Act but in several
enactments dealing with offences by companies, to mention a few - Section 278 B
of the Income Tax Act, 1961, Section 22C of Minimum Wages Act, 1948, Section
86A of the Employees State Insurance Act, 1948, Section 14A of Employees
Provident Fund and Miscellaneous Provisions Act, 1952, Section 29 of Payment of
Bonus Act, 1965, Section 40 of The Air 13 (Prevention and Control of Pollution)
Act, 1981 and section 47 of Water (Prevention and Control of Pollution) Act,
1974. But neither section 141(1) of the Act, nor do the pari materia provisions
in other enactments give any indication as to who are the persons responsible
to the company, for the conduct of the business of the company. Therefore, we
will have to fall back upon the provisions of Companies Act, 1956 which is the
law relating to and regulating companies. Section 291 of the said Act 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 authorised to exercise and do. A company though a
legal entity can act only through its Board of Directors. The settled position
is that a Managing Director is prima facie in charge of and responsible for the
company's business and affairs and can be prosecuted for offences by the
company. But insofar as other directors are concerned, they can be prosecuted
only if they were in charge of and responsible for the conduct of the company's
business. A combined reading of Sections 5 and 291 of Companies Act, 1956 with
the definitions in clauses (24), (26), (30), (31), (45) of section 2 of that
Act would show that the following persons are considered to be the persons who
are responsible to the company for the conduct of the business of the company :
-- (a) the managing director/s;
(b) the
whole-time director/s;
(c) the
manager;
(d) the
secretary;
(e) any
person in accordance with whose directions or instructions the Board of
directors of the company is accustomed to act;
(f) any
person charged by the Board with the responsibility of complying with that
provision (and who has given his consent in that behalf to the Board); and (g)
where any company does not have any of the officers specified in clauses (a) to
(c), any director or directors who may be specified by the Board in this behalf
or where no director is so specified, all the directors.
It
follows that other employees of the company, cannot be said to be persons who
are responsible to the company, for the conduct of the business of the company.
15.
Section 141 uses the words "was in charge of, and was
responsible to the company for the conduct of the business of the
company". It is evident that a person who can be made vicariously liable
under sub-section (1) of Section 141 is a person who is responsible to the
company for the conduct of the business of the company and in addition is also
in charge of the business of the company. There may be many directors and
secretaries who are not in charge of the business of the company at all. The
meaning of the words "person in charge of the business of the
company" was considered by this Court in Girdhari Lal Gupta v. D.N. Mehta
[1971 (3) SCC 189] followed in State of Karnataka v. Pratap Chand [1981 (2) SCC
335] and Katta Sujatha 15 vs. Fertiliser & Chemicals Travancore Ltd. [2002
(7) SCC 655]. This Court held that the words refer to a person who is in
overall control of the day to day business of the company. This Court pointed
out that a person may be a director and thus belongs to the group of persons
making the policy followed by the company, but yet may not be in charge of the
business of the company; that a person may be a Manager who is in charge of the
business but may not be in overall charge of the business; and that a person
may be an officer who may be in charge of only some part of the business.
16.
Therefore, if a person does not meet the first requirement, that
is being a person who is responsible to the company for the conduct of the
business of the company, neither the question of his meeting the second
requirement (being a person in charge of the business of the company), nor the
question of such person being liable under sub-section (1) of section 141 does
not arise. To put it differently, to be vicariously liable under sub- section
(1) of Section 141, a person should fulfill the 'legal requirement' of being a
person in law (under the statute governing companies) responsible to the
company for the conduct of the business of the company and also fulfill the
'factual requirement' of being a person in charge of the business of the
company.
17.
Therefore, the averment in a complaint that an accused is a
director and that he is in charge of and is responsible to the company for the
conduct of the business of the company, duly affirmed in the sworn statement,
may be sufficient for the purpose of issuing summons to him. But if the accused
is not one of the persons who falls under the category of 'persons who are
responsible to the company for the conduct of the business of the company'
(listed in para 14 above), then merely by stating that 'he was in charge of the
business of the company' or by stating that 'he was in charge of the day to day
management of the company' or by stating that he was in charge of, and was
responsible to the company for the conduct of the business of the company', he
cannot be made vicariously liable under section 141(1) of the Act.
18.
It should, however, be kept in view that even an officer who was
not in charge of and was responsible to the company for the conduct of the
business of the company can be made liable under sub-section (2) of Section
141. For making a person liable under Section 141(2), the mechanical repetition
of the requirements under Section 141(1) will be of no assistance, but there
should be necessary averments in the complaint as to how and in 17 what manner
the accused was guilty of consent and connivance or negligence and therefore,
responsible under sub-section (2) of section 141 of the Act.
19.
Another aspect that requires to be noticed is that only a
Director, Manager, Secretary or other officer can be made liable under
sub-section (2) of section 141. But under sub-section (1) of section 141, it is
theoretically possible to make even a person who is not a director or officer,
liable, as for example, a person falling under category (e) and (f) of section
5 of Companies
Act, 1956. When in SMS Pharma (I), this Court observed that 'conversely, a
person not holding any office or designation in a company may be liable if he
satisfies the requirement of being in charge of and responsible for conduct of
the business of the company', this Court obviously had in mind, persons
described in clauses (e) and (f) of section 5 of Companies Act. Be that as it may.
20.
The position under section 141 of the Act can be summarized thus :
(i) If
the accused is the Managing Director or a Joint Managing Director, it is not
necessary to make an averment in the complaint that he is in charge of, and is
responsible to the company, for the conduct of the business of the company. It
is sufficient if an averment is made that the accused was the Managing Director
or Joint Managing Director at the relevant time. This is because the prefix
`Managing' to the word `Director' makes it clear that 18 they were in charge of
and are responsible to the company, for the conduct of the business of the
company.
(ii)In
the case of a director or an officer of the company who signed the cheque on
behalf of the company, there is no need to make a specific averment that he was
in charge of and was responsible to the company, for the conduct of the
business of the company or make any specific allegation about consent,
connivance or negligence. The very fact that the dishonoured cheque was signed
by him on behalf of the company, would give rise to responsibility under
sub-section (2) of Section 141.
(iii) In the case of a
Director, Secretary or Manager (as defined in Sec. 2(24) of the Companies Act)
or a person referred to in clauses (e) and (f) of section 5 of Companies Act,
an averment in the complaint that he was in charge of, and was responsible to
the company, for the conduct of the business of the company is necessary to
bring the case under section 141(1).
No
further averment would be necessary in the complaint, though some particulars
will be desirable. They can also be made liable under section 141(2) by making
necessary averments relating to consent and connivance or negligence, in the
complaint, to bring the matter under that sub-section.
(iv)Other
Officers of a company cannot be made liable under sub-section (1) of section
141. Other officers of a company can be made liable only under sub-section (2)
of Section 141, be averring in the complaint their position and duties in the
company and their role in regard to the issue and dishonour of the cheque,
disclosing consent, connivance or negligence.
21.
If a mere reproduction of the wording of section 141(1) in the
complaint is sufficient to make a person liable to face prosecution, virtually
every officer/employee of a company without exception could be impleaded as
accused by merely making an averment that at the time when the offence was
committed they were in charge of and were responsible to the company 19 for the
conduct and business of the company. This would mean that if a company had 100
branches and the cheque issued from one branch was dishonoured, the officers of
all the 100 branches could be made accused by simply making an allegation that
they were in charge of and were responsible to the company for the conduct of
the business of the company.
That
would be absurd and not intended under the Act. As the trauma, harassment and
hardship of a criminal proceedings in such cases, may be more serious than the
ultimate punishment, it is not proper to subject all and sundry to be impleaded
as accused in a complaint against a company, even when the requirements of
section 138 read and section 141 of the Act are not fulfilled.
22.
A Deputy General Manger is not a person who is responsible to the
company for the conduct of the business of the company. He does not fall under
any of the categories (a) to (g) listed in section 5 of the Companies Act
(extracted in para 14 above). Therefore the question whether he was in charge
of the business of the company or not, is irrelevant. He cannot be made
vicariously liable under Section 141(1) of the Act. If he has to be made liable
under Section 141(2), the necessary averments relating to
consent/connivance/negligence should have been made. In this case, no such
averment is made. Hence the first respondent, who was the Deputy General 20
Manger, could not be prosecuted either under sub-section (1) or under sub-
section (2) of Section 141 of the Act.
23.
Thus, we find no error/infirmity in the order quashing the summons
as against the first respondent who was the Deputy General Manager of the
company which issued the dishonoured cheque. The appeals are therefore
dismissed.
............................J. (R V Raveendran)
.............................J.
New Delhi;
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