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Friday, October 18, 2013

Liability of directors under sec.141 - there must be specific pleadings against the accused to fasten liability under sec.138 of Negotiable Instruments Act - A.K. SINGHANIA … APPELLANT VERSUS GUJARAT STATE FERTILIZER CO. LTD. & ANR. …RESPONDENTS judis.nic.in/supremecourt/filename=40882

Liability of directors under sec.141 - there must be specific pleadings against the accused to fasten liability under sec.138 of Negotiable Instruments Act  High court quashed the complaint- Apex court confirm the same   = 

 Section  141  of  the  Act  makes  the  Directors  in  charge  and
responsible to Company “for the conduct of  the  business  of  the  Company”
within the mischief of Section 138 of the Act and  not  particular  business
for which the cheque was issued.  We cannot read more  than  what  has  been
mandated in Section 141 of the Act.
however  there  are  no  specific  allegations  and
           averments in the complaint against the applicant with respect to
           transaction for which the cheques were issued by the accused no.
           14  company.  =


(i) The primary responsibility is on the complainant to  make
           specific  averments  as  are  required  under  the  law  in  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.” =


We have found on fact that there is no averment that the  two  accused
herein were in charge of and responsible for the conduct of the business  of
the company at the time the offence  was  committed.   Hence,  there  is  no
essential averment in the complaints.  
In view  of  what  we  have  observed
above, the prosecution of accused A.K. Singhania and accused Vikram  Prakash
cannot be allowed to continue.  
Accordingly, the order  of  the  High  Court
quashing the prosecution of the accused Vikram Prakash  is  not  fit  to  be
interfered with.  For the same reason the order passed  by  the  High  Court
declining the prayer of A.K.  Singhania  for  quashing  of  the  prosecution
cannot be sustained and the appeals preferred by him deserve to be  allowed.

  In the result, we dismiss the appeals  preferred  by  the  complainant
Gujarat State Fertilizers Company Ltd. and allow the  appeals  preferred  by
A.K. Singhania and quash his prosecution in all these cases.

                                                                REPORTABLE

                        IN THE SUPREME COURT OF INDIA
                       CRIMINAL APPELLATE JURISDICTION

                    CRIMINAL APPEAL NOS.1692-1718 OF 2013
(@SPECIAL LEAVE PETITION (CRL.) NOS. 2970-2996 OF 2012)

A.K. SINGHANIA                               … APPELLANT

                                   VERSUS

GUJARAT STATE FERTILIZER
CO. LTD. & ANR.                               …RESPONDENTS

                                    WITH

                    CRIMINAL APPEAL NOS.1719-1725 OF 2013
(@SPECIAL LEAVE PETITION (CRL.) NOS. 3100-3106 OF 2012)

A.K. SINGHANIA                               … APPELLANT

                                   VERSUS

GUJARAT STATE FERTILIZER
CO. LTD. & ANR.                               …RESPONDENTS


                    CRIMINAL APPEAL NOS.1726-1732 OF 2013
(@SPECIAL LEAVE PETITION (CRL.) NOS.984-990 OF 2013)

GUJARAT STATE FERTILIZER
CO. LTD.                                           … APPELLANT

                                   VERSUS

VIKRAM PRAKASH & ANR.                         …RESPONDENTS



                   CRIMINAL APPEAL NOS.1733-1759  OF 2013
(@SPECIAL LEAVE PETITION (CRL.) NOS. 1068-1094 OF 2013)

GUJARAT STATE FERTILIZER
CO. LTD.                                           … APPELLANT

                                   VERSUS

VIKRAM PRAKASH & ANR.                         …RESPONDENTS


                               J U D G M E N T


CHANDRAMAULI KR. PRASAD, J.


        In all these special leave petitions common  question  of  law  and
facts arise and, therefore, they have been  heard  together  and  are  being
disposed of by this common judgment.


        Leave granted.


        In all these cases we are concerned with accused A.K. Singhania and
Vikram Prakash.
Several complaints were filed by Gujarat  State  Fertilizer
Company against Esslon Synthetics Ltd., its Chairman, Managing Director  and
other Directors  including  aforesaid  A.K.  Singhania  and  Vikram  Prakash
alleging commission of an  offence  under  Section  138  of  the  Negotiable
Instruments Act, hereinafter referred to as ‘the Act’.

      In Complaint Case No. 331 of 1996 the allegations which  are  relevant
for the decision of these appeals read as follows:


                 “3. The accused No. 14  is  a  Limited  Company  registered
           under  the  Companies  Act,  1956  and  are  doing  business  of
           chemicals, synthetics  etc.   The  accused  No.  1  is  Managing
           Director of accused company No. 14 and accused No. 2  is  Deputy
           Managing Director, accused No. 3 is Chairman, accused No.  4  is
           Whole Time Director, accused No. 5 is Finance Director,  accused
           No. 6 to 12 are the Directors and the accused No. 13 was  Senior
           Manager  (Finance)  of  the  accused  company  No.   14   Esslon
           Synthetics Ltd.


                 4. All the business and financial affairs  of  the  accused
           company No. 14 are decided, organized, administered  by  accused
           No. 1 being Managing Director and accused  No.  2  being  Deputy
           Managing Director, accused No. 3 Chairman, accused No.  4  Whole
           Time Director, accused No. 5 Finance Director with  consultation
           of other Directors from accused Nos. 6 to 12 and accused No.  13
           was Sr. Manager (Finance) of accused company No. 14.  So accused
           Nos. 1 to 12 and accused No. 13 are also responsible for all the
           transactions and business affairs  done  on  behalf  of  accused
           Company No. 14 and are responsible for all the financial affairs
           and administration of accused Company No. 14.”




      A.K. Singhania is the accused No. 7 and Vikram Prakash is accused  No.
9 in this complaint.


      In Complaint Case No. 1293 of 1996, the allegations with which we  are
concerned in these appeals read as follows:


                 “4. All the business and financial affairs of  the  accused
           company No.  1  are  decided,  organized,  administered  by  the
           accused No. 2 being Managing Director and accused  No.  3  being
           Managing Director, accused No. 4 Chairman, accused No.  5  Whole
           Time Director, accused No. 6 Finance Director with  consultation
           of other Directors from accused Nos. 7 to 13 and accused No.  14
           was Sr. Manager (Finance) of accused No. 1.   At  the  time  the
           offence  was  committed,  they  were  incharge   of   and   were
           responsible to the company for the conduct of  the  business  of
           the accused company.  Therefore, they are responsible for day to
           day affairs and all the transactions and business done on behalf
           of the accused Company No. 1 and they are also  responsible  for
           all the financial affairs and administration of accused  company
             No. 1.”




      A.K. Singhania and Vikram Prakash have been arrayed as accused Nos.  8
and 10 in this complaint  and  in  all  other  complaints,  the  allegations
against A.K. Singhania are identical  to  what  have  been  alleged  in  the
Complaint Case No. 331 of 1996.


      Taking into account the allegations made in the respective complaints,
the learned Magistrate took cognizance of the  offence,  issued  process  to
the accused aforesaid besides other accused to face trial for commission  of
the offence under Section 138 of the Act.


      Vikram Prakash, aggrieved by the order issuing summons to  face  trial
under Section 138 of the Act in  different  complaints,  filed  applications
under Section 482 of the Code of Criminal Procedure for quashing  the  order
taking cognizance and issuing process.   The  applications  filed  by   said
Vikram Prakash were registered as Criminal  Miscellaneous  Application  Nos.
13393-13399 of 2007.  The High Court by its common order dated  January  20,
2012 allowed all the applications and quashed his prosecution.  While  doing
so, the High Court held as follows:


                 “7.…………It is to be noted that as  such  there  are  general
           allegations  and  averments  against  the   applicant   in   the
           complaints,  however  there  are  no  specific  allegations  and
           averments in the complaint against the applicant with respect to
           transaction for which the cheques were issued by the accused no.
           14  company.   Under  the  circumstance,  on  the  ground   that
           applicant was non Executive Director of the Company on the board
           of the company, which is not disputed by  the  complainant,  the
           applicant cannot be prosecuted for the  offence  under  Sections
           138 r/w 141 of the Negotiable Instruments Act and cannot be held
           vicariously  liable  for  the  offence  alleged  to  have   been
           committed  by  the  accused   no.   14   company.    Under   the
           circumstance, this Court is of opinion that this is a  fit  case
           to exercise the powers under Section 482 of the Code of Criminal
           Procedure  and   to   quash   and   set   aside   the   impugned
           complaint/criminal case qua applicant-original accused no. 9……”




      It is this common order which has been assailed by the  Gujarat  State
Fertilizer Company Ltd. in the special leave petitions filed by it.


      A.K. Singhania also, aggrieved by  the  order  issuing  process  under
Section 138 of the Act, filed separate applications for quashing the  entire
prosecution including the aforesaid order under Section 482 of the  Code  of
Criminal Procedure.  All the  applications  filed  by  A.K.  Singhania  were
taken together by the High Court  for  consideration  and  by  the  impugned
order the applications filed by him have been dismissed.   While  doing  so,
the High Court observed as follows:


                 “9. As  the  paragraphs  of  the  complaint  reproduced  in
           earlier part of decision  specifically  para  4  and  subsequent
           paragraphs would reveal that the applicant in  the  capacity  of
           Director was responsible for business affairs  and  he  was  in-
           charge of the Company.  Not only that but nowhere it can be said
           that the applicant was non-Executive Director and even if it  is
           so the said argument is in realm of defence  to  be  decided  by
           Court trying the case  under  the  Negotiable  Instruments  Act.
           Since  sufficient  averments  attracting  of  Section   138   of
           Negotiable Instrument Act are the foundation  of  the  complaint
           and  it  is  further  averred  that  cheques  were  issued  with
           mischievous, dishonest intention,  knowingly  and  willingly  to
           cheat the complainant company.  Arguments canvassed  by  learned
           advocate  for  the  applicant  do  not   require   any   further
           deliberation in exercise of powers under Section 482 of the Code
           since quashing the complaint would not secure end of justice but
           would result into miscarriage of justice………..”


      A.K. Singhania, aggrieved by the aforesaid common order, has preferred
these special leave petitions.


      Leave granted.


      We have heard Mr.Ranjit Kumar, learned Senior Counsel on behalf of the
accused A.K. Singhania and Mr.Ashok Kr. Srivastava, learned  Senior  Counsel
 on  behalf  of  Vikram  Prakash  whereas  the  complainant,  Gujarat  State
Fertilizer Company Ltd.  is  represented  by  Mr.  Jayant  Bhushan,  learned
Senior Counsel.  Mr.  Ranjit  Kumar  appearing  on  behalf  of  the  accused
submits  that  necessary  averments  that  at  the  time  the  offence   was
committed, the accused were in-charge of and responsible for the conduct  of
the business of the company have not been averred, which  is  sine  qua  non
for proceeding against the Directors of  the  company.   He  has  drawn  our
attention to the averments made in the complaints, which we have  reproduced
in  the  preceding  paragraphs  of  this  judgment  and  submits  that  mere
assertion that these accused persons were the Directors of  the  company  is
not sufficient to make them liable  under  Section  141  of  the  Act.   Mr.
Jayant Bhushan  however,  submits  that  there  is  clear  averment  in  the
complaint that these accused persons were the Directors of the company  and,
in fact, in-charge of and responsible for the conduct  of  the  business  of
the company and, hence, they were rightly summoned to face  the  trial.   He
points out that the judgment and  order  of  the  High  Court  quashing  the
prosecution of accused Vikram Prakash is under challenge in  this  batch  of
appeals and accused A.K. Singhania cannot take benefit  of  the  said  order
and the fate of both the accused shall  depend  upon  the  decision  in  all
these appeals.  Mr. Ranjit Kumar submits that on same set of facts when  the
prosecution of the accused Vikram Prakash has been quashed, there  does  not
seem any justification to decline the prayer of the accused A.K. Singhania.


      In view of  rival  submissions,  we  proceed  to  consider  the  exact
allegations made against the  accused  A.K.  Singhania  and  accused  Vikram
Prakash.  It is not in dispute that allegations against both the accused  in
different complaints are one and the same.  In Complaint  Case  No.  331  of
1996, the allegation is that “all business  and  financial  affairs  of  the
accused company are decided, organized, administered by Accused  Nos.  1  to
5”.  It has further been alleged that  Accused  Nos.  1  to  5  do  so  with
consultation of other Directors namely, Accused Nos. 6 to 12.   In  view  of
aforesaid, according to the complainant, accused  Nos.  1  to  13  are  also
responsible  for  all  the  transactions  and  business  affairs,  financial
affairs and administration done on behalf of the  accused  company.   It  is
relevant here to state that A.K. Singhania and Vikram Prakash   are  accused
Nos. 7 and 9 in  this  complaint.   The  averments  made  in  the  complaint
nowhere suggest that  these  two  accused,  at  the  time  the  offence  was
committed, were  in-charge  of  and  responsible  for  the  conduct  of  the
business of the company.   According  to  the  complainant  itself,  it  was
accused Nos. 1 to 5 who were taking decisions and  the  allegation  that  in
taking the decisions they used to consult these accused also will  not  mean
that these two accused were at the time the offence was committed, were  in-
charge of and responsible for the conduct of business of  the  company.   In
complaint Case No. 1293 of 1996 and all other complaints with which  we  are
concerned in the present appeals the allegation is that  “all  business  and
financial affairs of the  accused  company  No.1,  are  decided,  organized,
administered by accused Nos. 2 to 6 and in consultation of  other  directors
i.e. from accused Nos. 7 to 13”.  It has further been averred  that  at  the
time the offence was committed “they were in-charge and responsible  to  the
company  for  the  conduct  of  the  business”  and,  therefore,  “they  are
responsible for day  to  day  affairs  and  transaction,  business  and  all
financial affairs of the accused company.”  Mr. Ranjit  Kumar  submits  that
the aforesaid averments are not  sufficient  and  from  that  it  cannot  be
inferred that accused A.K. Singhania and accused Vikram  Prakash  have  been
alleged to  be       in-charge  and  responsible  for  the  conduct  of  the
business of the company at the time the offence was  committed.   He  points
out that A.K. Singhania is accused No. 8 whereas accused Vikram  Prakash  is
accused No. 10 in these complaints.   Mr.  Jayant  Bhushan,  however,  joins
issue and submits that the substance of  the  accusation  clearly  indicates
that the two accused were in-charge and responsible for the conduct  of  the
business of the company at the time of the offence.


      We have perused the complaints and, in fact, the relevant portions  of
the allegations have been reproduced in  the  foregoing  paragraphs  of  the
judgment.  From that it is difficult to infer that  there  is  any  averment
that these two accused were   in-charge of and responsible for  the  conduct
of the business of the company at the time the offence was  committed.   The
allegations in the complaints in sum and substance mean  that  business  and
financial  affairs  of  the  company  used  to  be  decided,  organized  and
administered by accused Nos. 2 to 6 and  while  doing  so,  other  Directors
including the two accused herein were consulted.   The  inference  drawn  by
the complainant on that basis that these two  accused,  therefore,  are  in-
charge and responsible to the company for the conduct of  its  business,  is
absolutely misconceived.  We are, therefore, of the opinion  that  essential
averment in the complaints is lacking.


      In case of offence by company for dishonour of cheque, the culpability
of the Directors has to be decided with reference  to  Section  141  of  the
Act, same reads as follows:


           “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:


                 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.”


       From a plain reading of the aforesaid provision it  is  evident  that
every person who at the time the offence was committed is in charge  of  and
responsible to the Company shall be deemed  to  be  guilty  of  the  offence
under Section 138 of the Act.
 In the face of it, will it  be  necessary  to
specifically state in the complaint that the person accused  was  in  charge
of and responsible for the conduct of the business of the Company?   In  our
opinion, in the case of offence by Company, to bring  its  Directors  within
the mischief of Section 138 of the Act, it  shall  be  necessary  to  allege
that they were in charge of and responsible to the conduct of  the  business
of the Company.  It is necessary ingredient which  would  be  sufficient  to
proceed against such Directors.  However, we may add that as  no  particular
form is prescribed, it may not be necessary to reproduce the  words  of  the
section.  If reading of the complaint  shows  and  substance  of  accusation
discloses necessary averments, that would be sufficient to  proceed  against
such of the Directors and no particular form is necessary.  However, it  may
not be necessary to allege and prove that, in fact, such  of  the  Directors
have any specific role in respect of the transaction leading to issuance  of
cheque.  
Section  141  of  the  Act  makes  the  Directors  in  charge  and
responsible to Company “for the conduct of  the  business  of  the  Company”
within the mischief of Section 138 of the Act and  not  particular  business
for which the cheque was issued.  We cannot read more  than  what  has  been
mandated in Section 141 of the Act.


      A large number of authorities of this Court have  been  cited  by  the
counsel representing the party to  bring  home  their  point.   We  deem  it
inexpedient to refer to all of them.  Suffice it to say that  this  question
has been answered eloquently by a three-Judge Bench decision of  this  Court
in the case of S.M.S. Pharmaceuticals Ltd. v. Neeta  Bhalla,  (2005)  8  SCC
89, in the following words:


           “19. In view  of  the  above  discussion,  our  answers  to  the
           questions posed in the reference are as under:


           (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  averment  being  made   in   a   complaint,   the
           requirements of Section 141 cannot be said to be satisfied.”




      This Court in the case of National Small  Industries  Corpn.  Ltd.  v.
Harmeet Singh Paintal, (2010) 3 SCC 330, after  reviewing  all  its  earlier
judgments summarized the legal position as follows:


           “39. From the above discussion, the following principles emerge:


              (i) The primary responsibility is on the complainant to  make
           specific  averments  as  are  required  under  the  law  in  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.”




      In Harshendra Kumar D. v. Rebatilata Koley, (2011) 3  SCC  351,  after
referring to its earlier decisions in  S.M.S.  Pharmaceuticals  Ltd.(supra),
National Small  Industries  Corpn.  Ltd.(supra),  N.  Rangachari  v.  Bharat
Sanchar Nigam Ltd., (2007) 5 SCC 108 and K.K. Ahuja v. V.K. Vora, (2009)  10
SCC 48, this Court reiterated the same view.


      We have found on fact that there is no averment that the  two  accused
herein were in charge of and responsible for the conduct of the business  of
the company at the time the offence  was  committed.   Hence,  there  is  no
essential averment in the complaints.  
In view  of  what  we  have  observed
above, the prosecution of accused A.K. Singhania and accused Vikram  Prakash
cannot be allowed to continue.  Accordingly, the order  of  the  High  Court
quashing the prosecution of the accused Vikram Prakash  is  not  fit  to  be
interfered with.  
For the same reason the order passed  by  the  High  Court
declining the prayer of A.K.  Singhania  for  quashing  of  the  prosecution
cannot be sustained and the appeals preferred by him deserve to be  allowed.



      In the result, we dismiss the appeals  preferred  by  the  complainant
Gujarat State Fertilizers Company Ltd. and allow the  appeals  preferred  by
A.K. Singhania and quash his prosecution in all these cases.






                                                 ……………………..………………………………..J.


                          (CHANDRAMAULI KR. PRASAD)






                                    …….….……….………………………………..J.
                                        (KURIAN JOSEPH)


NEW DELHI,
OCTOBER 17, 2013



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