Harshendra Kumar D Vs
Rebatilata Koley Etc.
JUDGMENT
R.M. Lodha, J.
1.
Leave
granted.
2.
These
18 appeals, by special leave, are directed against the common judgment and
order dated September 6, 2007 passed by Calcutta High Court whereby 18 criminal
revision applications filed by the appellant for quashing the proceedings
initiated by the complainants in 18 complaint cases under Section 138 read with
Section 141 of Negotiable Instruments Act, 1881 ( for short, `NI Act') against
him have been dismissed.
3.
The
brief facts are these. The complainants were interested in business
relationship with Rifa Healthcare (India) Pvt. Ltd. (for short, `the Company')
for the sale of bio-ceramic products. The complainants, for the orders they had
placed, issued demand drafts in favour of the Company. It appears that the
Company had not delivered the products ordered by the complainants and
accordingly they asked the Company for return of their money. On April 30,
2004, the Company issued 18 cheques bearing Nos.
i.
000843
for Rs. 30,000/-;
ii.
00870
for Rs. 40,000/-;
iii.
000845
for Rs. 30,000/-;
iv.
000852
for Rs. 3,00,000/-;
v.
00842
for Rs. 60,000/-;
vi.
000862
for Rs. 40,000/-;
vii.
000834
for Rs. 60,000/-;
viii.
000572
for Rs. 40,000/-;
ix.
000827
for Rs. 30,350/-;
x.
000854
for Rs. 3,00,000/-;
xi.
000826
for Rs. 60,000/-;
xii.
000855
for Rs. 3,00,000/-;
xiii.
000857
for Rs. 3,00,000/-;
xiv.
000858
for Rs. 3,00,000/-;
xv.
000841
for Rs. 60,000/-;
xvi.
000871
for Rs. 40,000/-;
xvii.
000568
for Rs. 40,000/- and
xviii.
for
Rs. 60,130/- drawn on UTI Bank Ltd.,
Jayanagar, Bangalore in
favour of the complainants. These 18 cheques were dishonoured by the Bank/s on
presentation.
4.
In
the month of December, 2004, the complainants filed 18 complaints under Section
138 read with Section 141 of the NI Act. For the sake of brevity and
convenience, we shall refer to the complaint no. 14512 of 2004. In the
complaint, besides the Company, the appellant was arraigned as accused No. 3.
It was alleged in the complaint that the Managing Director and the two
Directors (including the appellant) were responsible for day-to-day affairs of
the Company and that it was on their assurance that the complainant issued
demand draft in favour of the Company and when the products of the Company were
not received by the complainant, she contacted the accused persons and told them
that she could not continue business with them and asked for return of her
money. Accordingly, for and on behalf of the Company, in discharge of the
existing liability, an account payee cheque was issued but the cheque was
returned by the complainant's banker on presentation with the endorsement
`insufficient fund'. The complainant then sent legal notice asking the accused
persons to pay the amount of cheque within 15 days from 3the date of the
receipt of the notice but despite service of notice, no payment has been made.
5.
The
concerned Metropolitan Magistrate issued summons to all the accused persons
including the appellant.
6.
The
appellant challenged the proceedings initiated by the complainants against him
by filing 18 revision applications under Section 397 read with Section 401 of
the Criminal Procedure Code, 1973 (for short, `Code') before the Calcutta High
Court. In these revision applications, notices were issued to the complainants.
On behalf of the appellant, the principal contention canvassed was that the
appellant was appointed as Director of the Company on August 27, 2003. He
resigned from the directorship on March 2, 2004 which was accepted by the Board
of Directors on that day itself with immediate effect. The factum of his
resignation is also recorded in Form No. 32 filed by the Company with the
Registrar of Companies on March 4, 2004. The 18 cheques which were issued on
behalf of the Company to the complainants were issued after his resignation.
The dishonour of these cheques through the complainants' bankers' was also
subsequent to his resignation. In other words, it was submitted by the counsel
for the appellant before High Court that at 4the time when the cheques were
issued or when the cheques were dishonoured, the appellant had no concern or connection
with the Company.
7.
The
High Court, however, relying upon a decision of Single Judge of that Court in
Fateh Chand Bhansali v. M/s. Hindustan Development Corporation Ltd.1, held that
resignation by the petitioner as Director of the Company is a defence of the
accused and the defence is a matter for consideration at the trial on the basis
of evidence which cannot be decided by the Court in revisional jurisdiction.
The High Court considered the matter thus:
"The question
of the learned Advocate for the petitioner is that the petitioner was not
director of a company at the material point of time because there is form 32
which shows the date when the petitioner was appointed a director and when
there came to be a change of directorship of the company. According to Mr.
Trivedi learned Advocate for the petitioner, a Hon'ble Judge of this Court in
Saroj Kumar Jhunjhunwala Vs. State of West Bengal and Anr. (2007) 1 C Cr.LR
(Cal) 793 was pleased to hold that if before the issuance of cheques, the
accused-petitioner had resigned from the directorship, then he cannot be held
liable for the offence. This decision which favours the petitioner has been
pitted against the decision in Fateh Chand Bhansali Vs. M/s. Hindustan
Development Corporation Ltd., (2005) 1 C Cr. LR (Cal) 581 wherein another
Hon'ble Single Judge of this court with reference to a good number of decisions
including the decision in State of M.P. Vs. Awadh Kishore Gupta & Ors.,
2004 1 (2005) 1 C Cr.LR (Cal) 581 5 SCC (Cr.) 352 held that the High Court
while considering the revisional application cannot look into the papers and
documents annexed to such application as those were neither verified nor
tested.
In that decision also
the point was raised with reference to form 32 and His Lordship held that the
decision of State of M.P. Vs. Awadh Kishore Gupta and Ors. (Supra) is an
authority regarding permissibility of the High Court to look into the papers
and documents annexed to the revisional application and the story of the
petitioner that they resigned from the company by submitting Form 32 and are,
in no way, responsible for the alleged offence is a defence of the accused
person and the defence is a matter for consideration at the trial on the basis
of evidence which cannot be decided by the court. It is worth mentioning that
this decision in Fateh Chand Bhansali was rendered on 23.3.2005 while the
decision in Saroj Kumar Jhunjhunwala was rendered on 05.04.2007 and in this
decision Fateh Chand Bhansali was not placed before his Lordship for consideration
and judicial discipline demands that I should go by the earlier decision,
namely, Fateh Chand Bhansali (Supra)."
8.
Section
138 and Section 141 were brought in the NI Act by the Banking, Public Financial
Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 (Act 66 of
1988) with effect from April 1, 1989. These provisions as amended from time to
time read as under : "S.138. Dishonour of cheque for insufficiency, etc.,
of funds in the accounts.--Where any cheque drawn by a person on an account maintained
by him with a banker for payment of any amount of money to another person 6from
out of that account for the discharge, in whole or in part, of any debt or
other liability, is returned by the bank unpaid, either because of the amount
of money standing to the credit of that account is insufficient to honour the
cheque or that it exceeds the amount arranged to be paid from that account by
an agreement made with that bank, such person shall be deemed to have committed
an offence and shall without prejudice to any other provisions of this Act, be
punished with imprisonment for a term which may extend to two years, or with
fine which may extend to twice the amount of the cheque, or with both:
Provided that nothing
contained in this section shall apply unless--(a) The cheque has been presented
to the bank within a period of six months from the date on which it is drawn or
within the period of its validity, whichever is earlier;(b) The payee or the
holder in due course of the cheque, as the case may be, makes a demand for the
payment of the said amount of money by giving a notice in writing, to the
drawer of the cheque, within thirty days of the receipt of information by him
from the bank regarding the return of the cheque as unpaid; and(c) The drawer
of such cheque fails to make the payment of the said amount of money to the
payee or, as the case may be, to the holder in due course of the cheque, within
fifteen days of the receipt of the said notice. Explanation.--For the purposes
of this section, "debt or other liability" means a legally
enforceable debt or other liability.S. 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 7 be guilty of the offence and shall be liable to be
proceeded against and punished accordingly: Provided that nothing contained in
this sub-section shall render any person liable to punishment if he proves that
the offence was committed without his knowledge, or that he had exercised all
due diligence to prevent the commission of such offence: Provided further that
where a person is nominated as a Director of a company by virtue of his holding
any office or employment in the Central Government or State Government or a
financial corporation owned or controlled by the Central Government or the
State Government, as the case may be, he shall not be liable for prosecution
under this Chapter.
(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 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.]
9.
The
legal position concerning the vicarious liability of a director in a company
which is being prosecuted for the offence under Section 138, NI Act has come up
for consideration before this Court 8on more than one occasion. In the case of
S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Another2, the following
questions were referred to a 3-Judge Bench for determination : "(a)
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. b) 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. (c) 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 proceeded against."
10.
The
Judge Bench of this Court answered the aforesaid questions thus: "(a) 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 2 2005 (8) SCC 89 9 averment being made in a complaint, the requirements
of Section 141 cannot be said to be satisfied. (b) 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. (c) 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."
11.
In
N. Rangachari v. Bharat Sanchar Nigam Ltd.3, a 2-Judge Bench of this Court
discussed and considered S.M.S. Pharmaceuticals Ltd.2 and observed as follows :
".......The scope of Section 141 has been authoritatively discussed in the
decision in S.M.S. 3 2007 (5) SCC 108 10 Pharmaceuticals Ltd. [2005 (8) SCC 89]
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.
.................................................................................
But as has already been noticed, the decision in S.M.S. Pharmaceuticals Ltd.
[2005 (8) SCC 89] binding on us, has postulated that a Director in a company
cannot be deemed to be in charge 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
warranted."
12.
In
the case of K.K. Ahuja v. V.K. Vora & Another.4, a 2-Judge Bench of this
Court had an occasion to consider the earlier decisions of this Court including
the decision in the case of S.M.S. Pharmaceuticals Ltd.2 It was held that mere
fact that at some point of time an officer of a company had played some role in
the financial 4 (2009) 10 SCC 48 11affairs of the company, that will not be
sufficient to attract the constructive liability under Section 141 of the NI
Act. The Court summarized the legal position as follows: "
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 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 Section 2(24) of the
Companies Act or a person referred to in clauses (e) and (f) of Section 5 of
the 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) of the Act. 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 12 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, by 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."
13.
In
K.K. Ahuja4, this Court observed that if a mere reproduction of the wording of
Section 141(1) in the complaint was 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 for the conduct and business of the company.
14.
In
a recent decision in the case of National Small Industries Corporation Limited
v. Harmeet Singh Paintal and Another5, after survey of earlier decisions
wherein legal position concerning Section 138 and Section 141 of the NI Act was
considered, this Court culled out the following principles: "
i.
The
primary responsibility is on the complainant to make specific averments as are
required under the law 5 2010 (3) SCC 330 13in the complaint so as to make the
accused vicariously liable. For fastening the criminal liability, there is no
presumption that every Director knows about the transaction.
ii.
Section
141 does not make all the Directors liable for the offence. The criminal
liability can be fastened only on those who, at the time of the commission of
the offence, were in charge of and were responsible for the conduct of the
business of the company.
iii.
Vicarious
liability can be inferred against a company registered or incorporated under
the Companies Act, 1956 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 offence committed by the company along with
averments in the petition containing that the accused were in charge of and
responsible for the business of the company and by virtue of their position
they are liable to be proceeded with.
iv.
Vicarious
liability on the part of a person must be pleaded and proved and not inferred.
v.
If
the accused is a Managing Director or a Joint Managing Director then it is not
necessary to make specific averment in the complaint and by virtue of their
position they are liable to be proceeded with.
vi.
If
the accused is a Director or an officer of a company who signed the cheques on
behalf of the company then also it is not necessary to make specific averment
in the complaint.(vii) 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."
15.
Every
company is required to keep at its registered office a register of its
directors, managing director, manager and secretary containing the particulars
with respect to each of them as set out in clauses (a) to (e) of sub-section
(1) of Section 303 of the Companies Act, 1956. Sub-section (2) of Section 303
mandates every company to send to the Registrar a return in duplicate
containing the particulars specified in the register. Any change among its
directors, managing directors, managers or secretaries specifying the date of
change is also required to be furnished to the Registrar of Companies in the
prescribed form within 30 days of such change. There is, thus, statutory
requirement of informing the Registrar of Companies about change among directors
of the company. In this view of the matter, in our opinion, it must be held
that a director - whose resignation has been accepted by the company and that
has been duly notified to the Registrar of Companies - cannot be made
accountable and fastened with liability for anything done by the company after
the acceptance of his resignation. The words `every person who, at the time the
offence was committed', occurring in Section 141 (1) of the NI Act are not
without significance and these words indicate that criminal liability of 15a
director must be determined on the date the offence is alleged to have been
committed.
16.
On
March 2, 2004, the appellant sent a letter of resignation to the Managing
Director of the Company, the relevant part of that reads as follows:
"Subject : Resignation to the Post of Director With reference to the above
subject I hereby resign to the post of Director in your company (sic.)
immediate effect as I am pre-occupied with my other business activities and
unable to concentrate, participate in the affairs of the company. Therefore it
is kind request with you to accept my resignation and intimate the R.O.C. by
filing necessary applications to comply the legal formality."
17.
The
Board of Directors held the meeting on March 2, 2004 and accepted the
appellant's resignation on that day itself. The extract of resolution to that
effect reads as follows : "Mr. Harshendra Kumar D S/o Rathnavarma Hegde
residing at No. -55, Vittal Mallya Road, Bangalore. Due to his personal in
conivenceses (sic.) he requested to accept his resignation for the Director,
and the Board accepted the resignation and it will be effected immediately on
the date of resignation."
18.
On
March 4, 2004, the Company informed the Registrar of Companies in the
prescribed form (Form no. 32) about the 16resignation of the appellant from the
post of Director of the Company and, thus, change among directors.
19.
The
above documents placed on record by the appellant have not been disputed nor
controverted by the complainants. As a matter of fact, it was not even the case
of the complainants before the High Court that the change among Directors of
the Company, on resignation of the appellant with effect from March 2, 2004,
has not taken place. The argument on behalf of the complainants before the High
Court was that it was not permissible for the High Court to look into the
papers and documents relating to the appellant's resignation since these are
the matters of defence of the accused person and defence is a matter for
consideration at the trial on the basis of evidence which cannot be decided by
the High Court.
The complainants in
this regard relied upon a decision of Single Judge of that Court in the case of
Fateh Chand Bhansali . The counsel for the present appellant (revision
petitioner therein) on the other hand referred to a later decision of a Single
Judge of the Calcutta High Court in the case of Saroj Kumar Jhunjhunwala v.
State of West Bengal and Anr.6 wherein it was held that if before the issuance
of cheques, the accused had resigned from the directorship, then he 6 (2007) 1
C Cr. LR (Cal) 793 17cannot be held liable for the offence. Confronted with two
Single Bench decisions of that Court in Fateh Chand Bhansali1 and Saroj Kumar
Jhunjhunwala6, the Single Judge held that the judicial discipline demanded that
he should go by the earlier decision, namely, Fateh Chand Bhansali1 and,
accordingly, refused to take into consideration the documents relating to the
appellant's resignation as Director from the Company with effect from March 2,
2004. While relying upon Fateh Chand Bhansali1, the Single Judge referred to a
decision of this Court in State of Madhya Pradesh v. Awadh Kishore Gupta and
Others7 which was referred in Fateh Chand Bhansali.
20.
In
Awadh Kishore Gupta7, this Court while dealing with the scope of power under
Section 482 of the Code observed : "13. It is to be noted that the
investigation was not complete and at that stage it was impermissible for the
High Court to look into materials, the acceptability of which is essentially a
matter for trial. While exercising jurisdiction under Section 482 of the Code,
it is not permissible for the Court to act as if it was a trial
Judge.........."
21.
In
our judgment, the above observations cannot be read to mean that in a criminal
case where trial is yet to take place and the matter is at the stage of
issuance of summons or taking cognizance, 7 (2004) 1 SCC 691 18materials relied
upon by the accused which are in the nature of public documents or the
materials which are beyond suspicion or doubt, in no circumstance, can be
looked into by the High Court in exercise of its jurisdiction under Section 482
or for that matter in exercise of revisional jurisdiction under Section 397 of
the Code. It is fairly settled now that while exercising inherent jurisdiction
under Section 482 or revisional jurisdiction under Section 397 of the Code in a
case where complaint is sought to be quashed, it is not proper for the High
Court to consider the defence of the accused or embark upon an enquiry in
respect of merits of the accusations. However, in an appropriate case, if on
the face of the documents - which are beyond suspicion or doubt - placed by
accused, the accusations against him cannot stand, it would be travesty of
justice if accused is relegated to trial and he is asked to prove his defence
before the trial court. In such a matter, for promotion of justice or to
prevent injustice or abuse of process, the High Court may look into the
materials which have significant bearing on the matter at prima facie stage.
22.
Criminal
prosecution is a serious matter; it affects the liberty of a person. No greater
damage can be done to the reputation of a person than dragging him in a
criminal case. In our opinion, the 19High Court fell into grave error in not
taking into consideration the uncontroverted documents relating to appellant's
resignation from the post of Director of the Company. Had these documents been
considered by the High Court, it would have been apparent that the appellant
has resigned much before the cheques were issued by the Company. As noticed
above, the appellant resigned from the post of Director on March 2, 2004. The
dishonoured cheques were issued by the Company on April 30, 2004, i.e., much
after the appellant had resigned from the post of Director of the Company. The
acceptance of appellant's resignation is duly reflected in the resolution dated
March 2, 2004. Then in the prescribed form (Form No. 32), the Company informed
to the Registrar of Companies on March 4, 2004 about appellant's resignation.
It is not even the case of the complainants that the dishonoured cheques were
issued by the appellant. These facts leave no manner of doubt that on the date
the offence was committed by the Company, the appellant was not the Director;
he had nothing to do with the affairs of the Company. In this view of the
matter, if the criminal complaints are allowed to proceed against the
appellant, it would result in gross injustice to the appellant and tantamount
to an abuse of process of the court.
23.
These
appeals are, accordingly, allowed. The judgment of the Calcutta High Court
dated September 6, 2007 and the summons issued by the Metropolitan Magistrate,
Calcutta to the appellant are set aside. The complaints as against the
appellant stand quashed.
.........................J.
(Aftab Alam)
........................
J. (R.M. Lodha)
NEW
DELHI,
FEBRUARY
8, 2011.
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