advocatemmmohan

My photo

ADVOCATEMMMOHAN -  Practicing both IN CIVIL, CRIMINAL AND FAMILY LAWS,Etc.,

WELCOME TO LEGAL WORLD

WELCOME TO MY LEGAL WORLD - FOR KNOWLEDGE IN LAW & FOR LEGAL OPINIONS - SHARE THIS

Monday, January 5, 2015

CRIMINAL APPEAL NO.2228 OF 2014 [Arising out of Special Leave Petition (Crl.) No.1724 of 2013] Gunmala Sales Private Ltd. ... Appellants Vs. Anu Mehta & Ors. … Respondents

                                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                       CRIMINAL APPELLATE JURISDICTION


                    CRIMINAL APPEAL NO.2228      OF 2014
       [Arising out of Special Leave Petition (Crl.) No.1724 of 2013]

Gunmala Sales Private Ltd.              ...      Appellants

            Vs.

Anu Mehta & Ors.                             …         Respondents

                                    WITH
                    CRIMINAL APPEAL Nos.2261-2265 OF 2014
    [Arising out of Special Leave Petition (Crl.) Nos.5500-5504 of 2013]

Gunmala Sales Private Ltd., etc.        ...      Appellants

            Vs.

Navkar Infra Projects Pvt. Ltd. & etc.       …         Respondents

                                    WITH
                   CRIMINAL APPEAL NOs. 2250-2260 OF 2014
    [Arising out of Special Leave Petition (Crl.) Nos.5460-5470 of 2013]

Gunmala Sales Private Ltd., etc.        …        Appellants

            Vs.

Navkar Buildhome Pvt. Ltd. & etc.       …        Respondents




                                    WITH
                   CRIMINAL APPEAL NOs. 2229-2241 OF 2014
    [Arising out of Special Leave Petition (Crl.) Nos.5377-5389 of 2013]

Gunmala Sales Private Ltd., etc.        ...      Appellants

            Vs.

Navkar Buildestates Pvt. Ltd. & etc.         …         Respondents

                                    WITH
                    CRIMINAL APPEAL Nos.2242-2249 OF 2014
    [Arising out of Special Leave Petition (Crl.) Nos.5437-5444 of 2013]

Gunmala Sales Private Ltd., etc.        ...      Appellants

            Vs.

        Navkar Promoters Pvt. Ltd. & Ors etc.   …        Respondents


                               J U D G M E N T

(SMT.) RANJANA PRAKASH DESAI, J.

1.    Leave granted.

2.    In these appeals, we are concerned with the  question  as  to  whether
the High Court was justified in quashing the proceedings  initiated  by  the
Magistrate on the ground that there was  merely  a  bald  assertion  in  the
complaint filed under Section 138 read with Section 141  of  the  Negotiable
Instruments Act, 1881 (“the NI Act”) that the Directors  were  at  the  time
when the offence was committed in charge of and responsible for the  conduct
and day-to-day business of the accused-company which bald assertion was  not
sufficient to maintain the said complaint.

3.    These appeals arise out of several complaints filed under Section  138
read with Section 141 of the NI Act.  The complaints were filed  by  Gunmala
Sales Private Limited or Rooprekha Sales Private Limited  or  by  both.   In
the complaints, the respondents herein and others were arrayed  as  accused.
After the process was issued, the  respondents  filed  various  applications
under Section 482 of the Code of Criminal Procedure, 1973  (“the  code”)  in
the High Court.  The High Court disposed of  one  application  being  C.R.R.
No.4099 of 2011 by a reasoned order.  As the same issue was involved in  all
the applications, the other  applications  were  disposed  of  in  terms  of
judgment in C.R.R. No.4099 of 2011.  Special Leave Petition  (Crl.)  No.1724
of 2013 was filed challenging the said judgment in C.R.R. No.4099  of  2011.
We may, therefore, for the disposal of these appeals, refer to the facts  in
civil appeal  arising  out  of  Special  Leave  Petition  No.1724  of  2013,
treating the same as the lead case.

4.    It is the case of the appellant that in or about February,  2008,  one
Navkar  Buildestates  Private  Limited  (“the  said  Company”)  through  its
Directors -  respondents  1  to  3  approached  the  appellant  for  certain
financial assistance to meet the working capital  requirement  of  the  said
Company.  Accordingly, at the request of respondents 1 to 3,  the  appellant
lent and advanced certain amount of money to the  said  Company.   The  said
amount carried interest at the rate of 6% per annum.   Respondents  1  to  3
along with the Managing Director of the said Company  agreed  and  undertook
to pay the said amount on or before 31/7/2011.  It  was  further  agreed  by
the respondents that on their  failure  to  pay  the  amount  on  or  before
31/7/2011, the appellant would be entitled to claim interest at the rate  of
18% per annum.   The respondents failed to repay the  entire  amount  on  or
before 31/7/2011.

5.    On  31/7/2011,  in  acknowledgment  of  their  liability  and  towards
repayment of the amount due, the said Company issued cheques  in  favour  of
the appellant.  On 2/8/2011, when the appellant presented the  said  cheques
to its banker – Canara Bank, the same were returned unpaid with  the  remark
“Insufficient Funds”.  On 20/8/2011, the appellant sent a  statutory  demand
notice to respondents 1 to 4 under Section 138 of the  NI  Act.    The  said
notice was received by respondents 1 to 4 on 27/8/2011.   As  respondents  1
to 4 failed to  repay  the  amount  as  demanded  in  the  said  notice,  on
26/9/2011, the appellant filed  a  complaint  in  the  Court  of  the  Chief
Metropolitan Magistrate at Calcutta.  Learned Magistrate accepted  the  said
complaint and passed the summoning order.

6.    Respondents 1 to 4 filed an  application  before  the  High  Court  of
Calcutta under Section 482 of the Code for quashing the proceedings  pending
before the learned Magistrate.  The  High  Court  framed  two  questions  as
under:

“(i)  Whether the Directors can be prosecuted on the bald assertion made  in
the complaint, that “the Directors thereof and were at  the  time  when  the
offence committed in charge of and were responsible for the conduct and  day
to day business of the said accused No.1 company”.

(ii)  Whether the Director who has resigned  can  be  prosecuted  after  his
resignation has  been  accepted  by  the  Board  of  the  Directors  of  the
Company”.

So far as the first question is concerned, the High Court,  after  referring
to certain judgments of this Court, held that except the averment  that  the
Directors were in-charge of and responsible for the conduct and day  to  day
business of the Company, nothing has been stated  in  the  complaint  as  to
what part was played by them and how they were responsible for the  finances
of the company, issuance of cheques and whether they had  control  over  the
funds of the company.  The High Court observed  that  the  complaint  lacked
material averments.    The  High  Court  quashed  the  proceedings  on  this
ground.  So far as the second question is concerned,  the  High  Court  held
that it is not  necessary  to  answer  it  because  the  first  question  is
answered in favour of respondents  1  to  4.  The  High  Court  quashed  the
complaint.  Being aggrieved by the said order, the appellant has  approached
this Court by way of this appeal.

7.    We have heard Mr. Gurukrishna Kumar, learned senior counsel  appearing
for the appellant as well as  Dr.  Abhishek  Manu  Singhvi,  learned  senior
counsel  appearing  for  the  respondents.   We  have  perused  the  written
submissions filed by the parties.

8.    Gist of the written submissions of the appellants.

a)    It is settled law that a  specific  averment  in  the  complaint  that
he/she is in charge of and is responsible to the company for the conduct  of
the business of the company is sufficient to maintain  the  complaint  under
Section 138 of the NI Act.  It is not  incumbent  upon  the  complainant  to
elaborate in the complaint the role played by each of the Directors  in  the
transaction forming the subject matter of the complaint.  A Director is,  in
law, in charge of and is responsible to the company for the business of  the
company in view  of  the  various  provisions  of  the  Companies  Act  and,
therefore, his position is  different  from  that  of  other  officers  when
arrayed as a co-accused in a complaint under Section  138  of  the  NI  Act.
The vicarious liability of Director/secretary/manager/other  officers  of  a
company under Section 141 of the NI Act has to be understood  in  the  light
of the statutory language employed in Section 141(1) and Section  141(2)  of
the NI Act.  At any rate, the individual role of a Director  is  exclusively
in the realm of internal management of a company and at  the  initial  stage
of a complaint,  it  would  be  unreasonable  to  expect  a  complainant  to
elaborate the specific  role  played  by  a  Director  in  the  transactions
forming the subject matter of the  complaint.   In  the  present  case,  the
appellant has pleaded that “the accused 2, 3, 4 and 5 are the  directors  of
accused 1 and were at the time when the offence committed in charge  of  and
were responsible for the conduct  and  day  to  day  business  of  the  said
accused-company”.”  The High Court on a complete  misconstruction  of  legal
position  enunciated  by  this  Court  in  various  judgments,  quashed  the
complaint on the ground that “nothing has been stated as to  what  part  was
played by the Directors petitioners and how they were responsible  regarding
the finances of the company, issuance of cheques and control over the  funds
of the company.”  In this connection, it is necessary to turn to K.K.  Ahuja
v. V.K. Arora  and  anr.[1]  where  this  Court  has  referred  to  relevant
provisions of the Companies Act and observed that in  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  NI  Act  and  no
further  averment  would  be  necessary  in  the   complaint   though   some
particulars would be desirable.  In SMS Pharmaceuticals Limited   v.   Neeta
Bhalla and anr.[2] (“SMS Pharma-(1)”), this  Court  has  observed  that  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 the Director in such cases.   Reference  may
also be made to  Mannalal  Chamaria   v.   State  of  West  Bengal[3],  A.K.
Singhania  v.   Gujarat  State  Fertilizer  Company  Ltd.[4],  Rallis  India
Limited  v.  Poduru Vidya Bhushan and ors.[5], Paresh P. Rajda v.  State  of
Maharashtra and anr.[6], Malwa Cotton and Spinning  Mills  Ltd.   v.   Virsa
Singh Sidhu and ors.[7]  and  N.  Rangachari    v.    Bharat  Sanchar  Nigam
Ltd.[8]

b)    So far as the decisions cited by the respondents  are  concerned,  all
these decisions purported to follow the law laid  down  in  SMS  Pharma-(1),
which does not lay down any general proposition of  law  that  the  specific
role of a Director sought to be arrayed as an accused has to  be  elaborated
in the complaint itself.

c)    The doctrine of ‘Indoor Management’ would be a relevant factor  to  be
considered  while  assessing  the  averments  to  be  made  to  satisfy  the
requirements of Section 141 of the NI Act.  A complainant to whom  a  cheque
is issued by a company may not be aware of  the  functions  performed  by  a
particular Director in the company.   The  responsibility  of  each  of  the
Directors is exclusively the internal management of the company itself.   In
this connection, it would be useful to refer to Rangachari  and  Delhi  High
Court’s judgment in Shree Raj Travels and Tours Ltd.    v.   Destination  of
the World (subcontinent) Pvt. Ltd.[9] .

d)    Finally, it must be noted that vicarious liability is contemplated  in
the NI Act to ensure greater transparency in commercial transactions.   This
object has to be  kept  in  mind  while  considering  individual  cases  and
hardship arising out of a particular case cannot be the basis for  Directors
to try to wriggle out of prosecution.   Section  482  of  the  Code  can  be
invoked where it is clear from documents on record, such  as  Form-32,  that
the Director is wrongly arraigned and not  in  any  other  case.   The  High
Court clearly fell into an error in quashing  the  proceedings  and,  hence,
impugned order deserves to be set aside.

      Mr. Gurukrishna  Kumar,  learned  senior  counsel  for  the  appellant
reiterated the above submissions.

9.     Gist of the written submissions of the respondents:

a)    The main accused Shantilal Mehta is facing trial in all matters.   The
present appeal is limited to other family members of  Shantilal  Mehta  i.e.
his father Kanhaiyalal Mehta and his mother Shobha Mehta, who  are  over  70
years of age, his wife who is 52 years of age and his son who  is  24  years
of age.  They are dragged in to harass them.

b)    Mere bald statement that the Director is in charge of  responsible  to
the company is not  sufficient  to  maintain  prosecution  [G.N.  Verma   v.
State of Jharkhand and anr.[10]].

c)    Reproduction of statutory language of Section 141 is  not  sufficient.
The necessary requirements of the complaint which need to  be  indicated  in
the complaint are “how”, “in what manner”,  “the  role”,  “description”  and
“specific allegation” as to the part played by a person before he  could  be
made an accused.  In this connection, reliance is placed on  National  Small
Industries Corporation Limited  v.   Harmeet  Singh  Paintal  and  anr.[11],
Anita Malhotra  v.  Apparel Export  Promotion  Council  and  anr.[12],  N.K.
Wahi  v.  Shekhar Singh and ors.[13].   These  conditions  are  intended  to
ensure that a person who is sought to be  made  vicariously  liable  for  an
offence of which the principle 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.

d)    The appellants’ plea of Indoor  Management  is  totally  misconceived.
This  doctrine  is  limited  to  protecting  outsiders  regarding   internal
infirmities of Memorandum of Articles.  Its real application  in  a  cheques
bouncing case would have been if a plea was taken  that  the  company  never
had a power to incur debt and hence  there  is  no  legal  liability.   This
doctrine cannot be invoked to give a carte blanche to an  outsider  to  list
all Directors for prosecution without even  giving  their  “role”  or  “part
played”.  In this connection, reliance is placed on  MRF  Limited  etc.   v.
Manohar Parrikar and ors. etc.[14].  The judgment of  Delhi  High  Court  in
Shree Raj Travels & Tours is in teeth of the law laid  down  by  this  Court
and, hence, does not appear to be correct.  Moreover, in  commercial  world,
whether a person deals with a company at  the  company’s  office  or  enters
into a commercial  transaction  by  e-mail,  in  both  cases,  there  is  an
awareness of the persons responsible  for  the  act  of  giving  a  cheques,
without the intention of honouring it.  There is, therefore,  complete  non-
applicability of the doctrine of Indoor Management in such cases.

e)    It  would  be  against  the  interest  of  justice  to  prosecute  all
Directors.  Such approach would delay trials and would be against  the  very
scheme of NI Act.  If all Directors are unnecessarily prosecuted,  it  would
hinder good persons to come forward and  become  Directors.  It  would  have
adverse effect on corporate well being.

Dr. A.M. Singhvi, learned senior counsel for the respondents reiterated  the
above submissions.

10.   It is necessary to first reproduce Section 141 of the NI  Act  because
the issue involved in this matter revolves around it. Section 141 of the  NI
Act reads thus:

“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.]”


11.   It  is  also  necessary  to  quote  the  relevant  paragraphs  of  the
complaint which relate to the Directors of the accused company.   They  read
as under:

“2.   The Accused No.1 is a company within  the  meaning  of  the  Companies
Act, 1956, having its registered office at 103-104, Shubh  Apartment,  99-L,
Bhopalpura, Udaipur, P.S. Bhupalpura, Rajasthan –  313001  and  the  Accused
Nos.2, 3, 4 and 5 are the Directors thereof and were at the  time  when  the
offence committed in charge of and were responsible for the conduct and  day
to day business of the said accused No.1 company.

3.    In discharge of  the  accused  persons’  existing  legal  debt  and/or
liability, the accused No.1  company  had,  issued  and  made  over  to  the
complainant an account  payee  cheque  signed  by  the  accused  No.2  being
No.008049 dated 31st July, 2011 for Rs.40,00,000/- drawn  on  The  Rajsamand
Urban Co-Op. Bank Limited, Udaipur Branch, Rajasthan – 313001.”

It must be noted here that the  complaint  is  quashed  by  the  High  Court
against all other accused except accused 2 who has signed the cheques.

12.   Several judgments have been cited  before  us.   It  is  necessary  to
refer to them in brief to get an idea as to how different  Benches  of  this
Court have dealt with this issue.  We must begin with SMS Pharma-(1),  which
is  a  decision  of  three-Judge  Bench  of  this  Court.    All  subsequent
decisions are of two-Judge Benches.  The three-Judge Bench was dealing  with
the reference made by a two-Judge Bench for determination of  the  following
questions:

“(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
fulfill 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 [pic]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.”

13.   After considering Sections 138 and 141 of the NI Act, Sections  203  &
204 of the Code and the relevant  provisions  of  the  Companies  Act,  this
Court answered the questions posed in the reference 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.

(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.”


14.   In Saroj Kumar Poddar  v.   State (NCT of  Delhi)  and  anr.[15],  the
appellant therein was the Director of a public  limited  company  which  had
issued three cheques in favour of respondent 2,  who  was  manufacturer  and
supplier of chemical compounds. The cheques  having  been  dishonoured,  the
complaint came to be filed.  Application for quashing of the  complaint  was
filed by the appellant in the High Court.   The  High  Court  dismissed  the
said application.  While setting aside the  High  Court’s  order  and  after
referring to SMS Pharma-(1), a two-Judge Bench of  this  Court  observed  as
under:

“14.  … … …  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 para 3, thus, in our opinion do not  satisfy
the requirements of Section 141 of the Act.”


      This Court further observed that with a view to making a  Director  of
a company vicariously liable for the acts of the company, it was  obligatory
on the part of the complainant to make specific allegations as are  required
in law.

15.   The reference having been answered in SMS Pharma-(1) individual  cases
were directed  to  be  listed  before  an  appropriate  Bench  for  disposal
according to law.  Pursuant to this order the appeal  was  placed  before  a
two-Judge Bench of this Court.  The two-Judge Bench of  this  Court  in  SMS
Pharmaceuticals Ltd. (2)   v.  Neeta  Bhalla[16]  (“SMS  Pharma-(2)”)  noted
that the High Court had quashed the complaint against respondent  1  holding
that the allegations contained in the complaint as  against  respondent  are
vague and indefinite.  The two-Judge Bench observed that on a plain  reading
of the averments made in the complaint it was satisfied that  the  statutory
requirements as contemplated under Section  141  of  the  NI  Act  were  not
satisfied, and, therefore, the High Court judgment cannot  be  faulted.   It
must  be  noted  that  when  the  attention  of  this  Court  was  drawn  to
observations made in Saroj Kumar Poddar that the  complaint  must  not  only
contain averments justifying the requirements of Section 141 of the  NI  Act
but must also show as to how and in what manner the  appellant  therein  was
responsible for the conduct of the business  of  the  company  or  otherwise
responsible to it in regard to its functioning, this Court observed  that  a
plain reading of the said judgment would show that no such general  law  was
laid down therein and the observations were made in the context of the  said
case as it was dealing with the contention that although no direct  averment
was made as against the appellant therein  fulfilling  the  requirements  of
Section 141 of the NI Act, but, there were other averments which would  show
that the appellant therein was liable therefor.

16.   In N.K. Wahi   it  was  pleaded  by  the  appellants  therein  in  the
complaint that M/s. Western India Industries Limited is  a  limited  company
and the respondents therein  and  some  others  were  the  Directors/persons
responsible for carrying on the business of the company and their  liability
shall be joint and several.  The respondents therein  filed  an  application
invoking Section 482 of the Code.  The High Court quashed the order  issuing
summons on the  ground  that  the  evidence  does  not  establish  that  the
respondents were either in charge of or were responsible to the company  for
the conduct of business.  In the appeal, following SMS  Pharma-(1),  Sabitha
Ramamurthy   v. R.B.S. Channabaasavaradhya[17] and Saroj  Kumar  Poddar,   a
two-Judge Bench of  this  Court  reiterated  what  is  stated  in  the  said
judgments that Section 141 raises a legal  fiction  by  reason  of  which  a
person, although  is  not  personally  liable  for  commission  of  such  an
offence, would be vicariously liable  therefor.   Such  vicarious  liability
can be inferred against the company only if the requisite statement is  made
in the complaint.  It was further observed that before a person can be  made
vicariously liable, strict compliance with the statutory requirements  would
be insisted.  It is clear that this is a case where the basic  averments  in
terms of Section 141 were  absent  and  the  two-Judge  Bench  followed  SMS
Pharma-(1) and confirmed  the  quashing  of  the  complaint.   The  relevant
paragraph of this judgment needs to be quoted.

“8. To launch a prosecution, therefore, against the alleged Directors  there
must be a specific allegation in the complaint as  to  the  part  played  by
them in the transaction. There should be clear  and  unambiguous  allegation
as to how the Directors are in-charge and responsible  for  the  conduct  of
the business of the company. The description should be  clear.  It  is  true
that precise words from the provisions of the Act  need  not  be  reproduced
and the court can always come to a conclusion in facts  of  each  case.  But
still, in the absence of any averment or specific evidence  the  net  result
would be that complaint would not be entertainable.”


17.   In N. Rangachari  a two-Judge Bench of this Court  was  again  dealing
with the same question.  Averments made in the  complaint  before  the  two-
Judge Bench were similar in nature as the averments made  in  the  complaint
in the present case.  The  complainant  therein  was  Bharat  Sanchar  Nigam
Limited (BSNL).  Its case was that the cheques issued  by  the  Data  Access
(India)  Limited  in  discharge  of  their  pre-existing  liabilities   were
dishonoured for insufficiency of funds.  A petition was filed  for  quashing
the complaint by the appellant-Data Access (India) Limited stating  that  he
was  nominated  as  a  honorary  chairman  of  the   company   without   any
remuneration and was holding an honorary post in the company.  He was  never
assigned with the financial and business activities.  The complaint did  not
contain adequate averments to justify  initiation  of  criminal  proceedings
against him.  The High Court dismissed the petition on the ground  that  the
court cannot decide the pleas raised by the appellant in  a  petition  filed
under Section 482 of the Code.  Those please will have to be established  in
trial.  This Court referred to the relevant extracts from  Palmer’s  Company
Law[18],  Guide to the Companies Act by A. Ramaiya[19]   and  Principles  of
Modern Company Law by Gower  and  Davies[20]   and  expressed  that  in  the
commercial world, a person having a transaction with a company  is  entitled
to presume that the Directors of the company are in charge  of  the  affairs
of the company and it is for the Directors to prove to the contrary  at  the
trial.  This Court also observed that  a  person  having  business  dealings
with the company may not be aware of the arrangement within the  company  in
regard to its  management.   Pertinently,  this  Court  expressed  that  the
decision of the three-Judge Bench in SMS Pharma-(1) was binding on  it.  The
two-Judge Bench understood SMS Pharma-(1) as laying down the law  that  what
is to be looked into is whether in the complaint, in addition  to  asserting
that accused are the Directors of the company, it is  further  alleged  that
they are in charge of and responsible to the company for the conduct of  the
business of the company.  This Court observed that  reading  the  complaint,
as a whole, it was clear that the allegations in the complaint were that  at
the time when two dishonoured  cheques  were  issued  by  the  company,  the
appellants therein were the Directors of the company and were in  charge  of
the affairs of the company, and,  therefore,  the  High  Court  had  rightly
dismissed the petition.

18.   In Paresh P. Rajda v.  State  of  Maharashtra  and  anr.[21],  similar
question arose before a two-Judge Bench of this Court.  The High  Court  had
refused to quash the complaint on the ground that an overall reading of  the
complaint showed that specific allegations had  been  levelled  against  the
appellant that he being a responsible officer of  the  company  was  equally
liable and that if it is ultimately found that he had, in fact, no  role  to
play, he would be entitled to an  acquittal.   It  appears  that  thereafter
accused 2 and 4, the Chairman and a Director  respectively  of  the  company
approached this  Court.  This  Court  referred  to  SMS  Pharma-(1)  and  N.
Rangachari and noted a slight departure in N. Rangachari in  favour  of  the
complainant from the view taken in SMS Pharma-(1)  and  further  noted  that
ultimately the entire matter would  boil  down  to  an  examination  of  the
nature of averments made in the complaint.  The two-Judge Bench  quoted  the
relevant paragraphs of the complaint in which it was stated that  accused  2
was the Chairman of the company  and  was  responsible  for  the  day-to-day
affairs of the company and was, therefore, liable to repay  the  amounts  of
dishonoured cheques.  It was further stated in the complaint that accused  3
being Joint Managing Director and accused 4, 5 and 6 being Directors of  the
company are responsible officers of the company  and,  therefore,  they  are
liable to repay  the  amounts  of  the  dishonoured  cheques.    This  Court
observed that from the High Court judgment, it appears that the question  as
to whether accused 2 was responsible for the business  of  the  company  had
not been seriously challenged.  This Court observed that  there  were  clear
allegations against both the appellants-accused; that they were officers  of
the company and were responsible for the affairs of the company and that  at
a stage where the trial had not yet started, it is  inappropriate  to  quash
the proceedings against them.

19.   In Malwa Cotton & Spinning Mills Ltd., the  High  Court  had  accepted
the prayer of respondent 1 for quashing the  proceedings  initiated  against
him under Section 138 of the NI Act on the ground that he had resigned  from
the Directorship before the cheques were issued.   This  Court  was  of  the
view that whether respondent 1 had resigned before the cheques  were  issued
involves factual dispute.  Referring to N. Rangachari, where it is  observed
that a person in the commercial world having a transaction  with  a  company
is entitled to presume that the Directors of the company are  in  charge  of
the affairs of the company and if any restriction on their powers is  placed
by the Memorandum of Articles of the Company, it is  for  the  Directors  to
establish that in the trial  this Court allowed  the  appeal  filed  by  the
complainant holding that the High Court was not justified  in  quashing  the
proceedings against respondent 1.

20.   In K.K. Ahuja, where this Court was  considering  a  similar  question
after referring to SMS Pharma-(1), SMS Pharma-(2), Saroj Kumar  Poddar   and
N.K. Wahi and other relevant judgments and after referring to  the  relevant
provisions of the Companies Act, this Court summarized  the  position  under
Section 141 of the NI Act as under:

“27. The position under Section 141 of the Act can be summarised 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 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 [pic]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, 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.”

21.   In National Small  Industries  Corporation  Limited,  this  Court  was
dealing with the same question.  After  referring  to  SMS  Pharma-(1),  SMS
Pharma-(2), Saroj Kumar Poddar, N.K. Wahi, N. Rangachari, Paresh  P.  Rajda,
K.K. Ahuja and other relevant judgments, this Court laid down the  following
principles:

“(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 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 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 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.”


22.   In Rallis India Limited, this Court was dealing with a similar  issue.
 The High Court had allowed application filed under Section 482 of the  Code
and discharged  the  applicants  therein.   While  setting  aside  the  High
Court’s order, this Court found that there were averments in  the  complaint
that the respondents were partners of the firm  at  the  relevant  point  of
time and were looking after the day-to-day affairs of the partnership  firm.
 This averment had been specifically  mentioned  by  the  appellant  in  the
complaint even though denied by the respondents  but  the  burden  of  proof
that at the relevant point of time, the respondents were not  the  partners,
lies specifically on them and this onus is  required  to  be  discharged  by
them by leading evidence.  This Court observed that where there are  several
disputed facts involved for instance when the partnership  came  into  being
and when the respondents had actually retired  from  the  partnership,  etc.
the ratio of SMS Pharma-(1) can be followed only, after the factum that  the
accused were the Directors or partners of a company or a  firm  respectively
at the relevant point of time stands fully  established.   In  cases,  where
there are allegations and counter-allegations between the parties  regarding
the very composition of the firm, the rule of ‘specific averment’ laid  down
in SMS Pharma-(1) must be broadly construed.

23.   In Anita Malhotra, the High Court had  dismissed  the  petition  filed
praying for quashing  of  the  criminal  complaint  instituted  against  the
appellant under Section 138 of the NI Act.  The appellant claimed  to  be  a
non-executive Director of the company which had  issued  the  cheques.   The
appellant claimed that she had  resigned  from  the  company  on  20/11/1998
while the cheques were issued in the year 2004.  A two-Judge Bench  of  this
Court held that though it is not proper for the High Court to make a  roving
enquiry and consider the defence of the accused at the stage of  a  petition
filed for quashing the  complaint,   if  any  documents,  which  are  beyond
suspicion or doubt, are placed, it can take them into account.   This  Court
looked into the certified copy of the annual  return,  which  was  a  public
document as per the Companies Act read with Section 74(2)  of  the  Evidence
Act and held that the appellant had resigned from the  Directorship  of  the
company much prior to the issuance of the cheques.  While setting aside  the
High Court’s order, this Court reiterated that in case of  a  Director,  the
complaint should specifically spell out how and in what manner the  Director
was in charge of or was responsible  to  the  company  for  conduct  of  its
business and mere bald statement that he or she was in  charge  of  and  was
responsible to the company for conduct of its business  is  not  sufficient.
This Court observed that in the case before it  except  the  mere  bald  and
cursory statement with regard to the  appellant,  the  complainant  had  not
specified her role in the day-to-day affairs of  the  company  and  on  this
ground alone, the appellant was entitled to succeed.

24.   In A.K. Singhania, while dealing  with  the  same  issue  a  two-Judge
Bench of this Court observed that it  is  necessary  for  a  complainant  to
state  in the complaint that  the  person  accused  was  in  charge  of  and
responsible for the conduct of the business of  the  company.  Although,  no
particular form for making such an allegation is prescribed, and it may  not
be necessary to reproduce the language of Section 138 of the NI Act,  but  a
reading of the complaint should show that the substance  of  the  accusation
discloses that the accused person was in charge of and responsible  for  the
conduct of the business of the company at the relevant time.

25.   In Mannalal Chamaria, this Court  reiterated  the  above  observations
and observed that  in the averments made before it there was no specific  or
even  a  general  allegation  made  against  the  appellants.   This  Court,
therefore, dismissed  the  complaint  filed  against  the  appellants  under
Section 138 of the NI Act.

26.   It is clear from a perusal of the above  decisions  that  SMS  Pharma-
(1), which is a three-Judge Bench decision, still holds the field.   In  all
subsequent decisions, two-Judge Benches of  this  Court  have  followed  SMS
Pharma-(1).  No doubt that there is a slight deviation in N. Rangachari   in
favour of the complainant, but, even in that decision, the  two-Judge  Bench
accepts that SMS Pharma-(1) has a binding  force.   In  SMS  Pharma-(1),  KK
Ahuja  and  National  Small  Industries  Ltd.  this  Court  summarized   its
conclusions.  We are concerned in this  case  with  Directors  who  are  not
signatories to the cheques.  So far as Directors who are not signatories  to
the cheques or who are not Managing Directors or  Joint  Managing  Directors
are concerned, it  is  clear  from  the  conclusions  drawn  in  the  above-
mentioned cases that it is necessary to aver in the  complaint  filed  under
Section 138 read with Section 141 of the NI Act that at  the  relevant  time
when the offence was committed, the Directors were in  charge  of  and  were
responsible for the conduct of the business  of  the  company.   This  is  a
basic requirement.  There is no deemed liability of such Directors.

27.    This  averment  assumes  importance  because  it  is  the  basic  and
essential averment which persuades the Magistrate to issue  process  against
the Director. That is why this Court in SMS  Pharma-(1)  observed  that  the
question of requirement of averments in a complaint has to be considered  on
the basis of provisions contained in Sections 138 and  141  of  the  NI  Act
read in the light of the powers of a Magistrate referred to in Sections  200
to 204 of the Code which recognize the  Magistrate’s  discretion  to  reject
the complaint at the threshold if he  finds  that  there  is  no  sufficient
ground for  proceeding.   Thus,  if  this  basic  averment  is  missing  the
Magistrate is legally justified in not issuing  process.  But  here  we  are
concerned with the question as to what should be  the  approach  of  a  High
Court when it is dealing with a petition filed  under  Section  482  of  the
Code for quashing such a complaint against a Director.  If this averment  is
there, must the High Court dismiss the petition as  a  rule  observing  that
the trial must go on? Is the High Court precluded from  looking  into  other
circumstances if any?  Inherent power under Section 482 of the  Code  is  to
be invoked to prevent abuse of the process of  any  court  or  otherwise  to
secure ends of justice.  Can  such  fetters  be  put  on  the  High  Court’s
inherent powers? We do not think so.

28.    SMS  Pharma-(1),  undoubtedly,  says  that   it   is   necessary   to
specifically aver in the complaint that the Director was in  charge  of  and
responsible for the conduct of the company’s business at the  relevant  time
when the offence was committed.  It says that this is a  basic  requirement.
 And as we  have  already  noted,  this  averment  is  for  the  purpose  of
persuading the Magistrate to issue process. If we  revisit  SMS  Pharma-(1),
we find that after referring to the various provisions of the Companies  Act
it is observed that those provisions show that what a Board of Directors  is
empowered to do in relation to a particular company depends upon  the  roles
and functions assigned to Directors as per the memorandum  and  articles  of
association of the company.  There is nothing which suggests that simply  by
being a Director in a company,  one  is  supposed  to  discharge  particular
functions on behalf of  a  company.  As  a  Director  he  may  be  attending
meetings of the Board of Directors of the company where usually they  decide
policy matters and guide the course of business of a  company.   It  may  be
that a Board of Directors may appoint sub-committees consisting  of  one  or
two Directors out of the Board of the company who may  be  made  responsible
for the day-to-day functions of the company.  This  Court  further  observed
that what emerges from this is that the role of a Director in a  company  is
a question of fact depending on the peculiar facts in  each  case  and  that
there is no universal rule that a Director of a company is in charge of  its
everyday affairs.   What follows from this is that it  cannot  be  concluded
from  SMS  Pharma-(1)  that  the  basic  requirement  stated    therein   is
sufficient in all cases and whenever such an averment  is  there,  the  High
Court must dismiss the petition filed  praying  for  quashing  the  process.
It must be remembered that the core of a criminal case are its facts and  in
factual matters there are no fixed formulae required to be  followed   by  a
court unless it is dealing with an entirely procedural matter.   We  do  not
want to discuss ‘the doctrine of Indoor  Management’  on  which  submissions
have been advanced.  Suffice it to say, that  just  as  the  complainant  is
entitled to presume  in view of provisions  of  the   Companies   Act   that
the  Director  was concerned with the issuance of the cheque,  the  Director
is entitled to contend that he  was  not  concerned  with  the  issuance  of
cheque  for  a  variety  of   reasons.   It  is  for  the  High   Court   to
consider  these  submissions.   The High Court may in a  given  case  on  an
overall reading of a complaint and having  come  across  some  unimpeachable
evidence  or  glaring  circumstances  come  to   a   conclusion   that   the
petition  deserves  to  be  allowed  despite  the  presence   of  the  basic
averment.  That is the reason why in some  cases,  after  referring  to  SMS
Pharma-(1), but considering overall circumstances of the  case,  this  Court
has found that the basic averment was insufficient, that something more  was
needed and has quashed the complaint.

29.   When a petition is filed for quashing the process, in  a  given  case,
on an overall reading of the complaint, the High Court  may  find  that  the
basic averment  is  sufficient,  that  it  makes  out  a  case  against  the
Director; that there is nothing  to  suggest  that  the  substratum  of  the
allegation against the Director is destroyed rendering  the  basic  averment
insufficient and that since offence is made out  against  him,  his  further
role can be brought out in the trial.  In another case, the High  Court  may
quash the complaint despite the basic averment.  It  may  come  across  some
unimpeachable evidence or acceptable circumstances which may in its  opinion
lead to a conclusion that the Director could never have been  in  charge  of
and responsible for the conduct of  the  business  of  the  company  at  the
relevant time and therefore making him stand the trial  would  be  abuse  of
the process of court as no offence is made out against him.

30.   When in view of the basic averment process  is  issued  the  complaint
must proceed against the Directors.  But, if any Director wants the  process
to be quashed by filing a petition under Section 482  of  the  Code  on  the
ground that only a bald averment is made in the complaint  and  that  he  is
really not concerned with the issuance of the cheque, he must  in  order  to
persuade the High Court to quash the process either  furnish  some  sterling
uncontrovertible material or acceptable circumstances  to  substantiate  his
contention.  He must make out a case that making him stand the  trial  would
be abuse of the process of court.   He  cannot  get  the  complaint  quashed
merely on the ground that apart from the basic averment no  particulars  are
given in  the  complaint  about  his  role,  because  ordinarily  the  basic
averment would be sufficient to send him to trial and  it  could  be  argued
that his further role could be brought out in  the  trial.   Quashing  of  a
complaint is a serious matter. Complaint cannot be quashed for  the  asking.
For quashing of a complaint it must be shown that no offence is made out  at
all against the Director.

31.   In this connection, it would be advantageous to  refer  to  Harshendra
Kumar D   v.  Rebatilata Koley & Ors.,[22]  where process was issued by  the
Magistrate on a complaint filed under Section 138 read with Section  141  of
the NI Act.  The appellant  therein  challenged  the  proceeding  by  filing
revision application under Section 397 read with Section 401  of  the  Code.
The  case  of  the  appellant-Director  was  that  he  had   resigned   from
Directorship.  His resignation was accepted and notified  to  the  Registrar
of Companies.  It was averred  in  the  complaint  that  the  appellant  was
responsible for the day-to-day affairs of the company and it was on his  and
other Directors assurance those demand drafts  were  issued.   Despite  this
averment, this Court quashed the complaint taking  into  account  resolution
passed by the company, wherein it  was  reflected  that  the  appellant  had
resigned from the post of Director much prior to the issuance of cheque  and
the fact that the company had submitted Form-32. It was argued  before  this
Court that the documents furnished by the accused could not have been  taken
into account.  Repelling this submission this Court observed as under:

“24. In Awadh Kishore Gupta3 this Court while  dealing  with  the  scope  of
power under Section 482 of the Code observed: (SCC p. 701, para 13)

“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.”

25. 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, materials relied upon  by
the accused which are in the nature of public  documents  or  the  materials
which [pic]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 the  accused,  the  accusations  against  him
cannot stand, it would be travesty of justice if the  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.

26. 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 High  Court  fell  into
grave error in not taking into consideration  the  uncontroverted  documents
relating to the 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.”


32.   As already noted in Anita Malhotra, relying on Harshendra Kumar,  this
Court quashed the complaint filed under Section 138 read  with  Section  141
of the NI Act relying on the certified copy of the annual return  which  was
a public document as per the Companies Act read with Section  74(2)  of  the
Evidence Act, which established  that  the  appellant/Director  therein  had
resigned from the Directorship much prior to the issuance of cheques.   This
was done despite  the  fact  that  the  complaint  contained  the  necessary
averments.  In our opinion, therefore, there could be a case where the  High
Court may feel that filing of the complaint against all Directors  is  abuse
of the process of court.  The High Court would be justified  in  such  cases
in quashing the complaint after looking into the material furnished  by  the
accused.  At that stage there cannot be a mini trial or  a  roving  inquiry.
The material on the face of it must be convincing or uncontrovered or  there
must  be  some  totally  acceptable  circumstances  requiring  no  trial  to
establish the innocence of the Directors.

33.   We may summarize our conclusions as follows:

a)    Once in a complaint filed under Section 138 read with Section  141  of
the NI Act the basic averment is made that the Director  was  in  charge  of
and responsible for the conduct of  the  business  of  the  company  at  the
relevant time when the offence  was  committed,  the  Magistrate  can  issue
process against such Director;

b)    If a petition is filed under Section 482 of the Code for  quashing  of
such a complaint by the Director, the High Court may,  in  the  facts  of  a
particular case, on an overall reading of the  complaint,  refuse  to  quash
the complaint because the complaint contains the  basic  averment  which  is
sufficient to make out a case against the Director.

c)    In the facts of a given case, on an overall reading of the  complaint,
the High Court may, despite the presence of the basic  averment,  quash  the
complaint because of the absence of  more  particulars  about  role  of  the
Director  in  the  complaint.   It  may  do  so  having  come  across   some
unimpeachable, uncontrovertible evidence which is beyond suspicion or  doubt
or totally acceptable circumstances which  may  clearly  indicate  that  the
Director could not have been concerned with  the  issuance  of  cheques  and
asking him to stand the trial would be abuse of the process  of  the  court.
Despite the presence of basic averment, it may come to a conclusion that  no
case is made out against the Director.   Take  for  instance  a  case  of  a
Director suffering  from  a  terminal  illness  who  was  bedridden  at  the
relevant time or a  Director  who  had  resigned  long  before  issuance  of
cheques.  In such cases, if the High Court  is  convinced  that  prosecuting
such a Director is merely an arm-twisting tactics, the High Court may  quash
the proceedings.  It bears repetition to state that to establish  such  case
unimpeachable, uncontrovertible evidence which is beyond suspicion or  doubt
or some totally acceptable circumstances will have  to  be  brought  to  the
notice of the High Court.  Such cases may be few and  far  between  but  the
possibility of such a case being there cannot be ruled out.  In the  absence
of such evidence or circumstances, complaint cannot be quashed;

d)    No restriction can be placed on the High Court’s powers under  Section
482 of the Code.  The High  Court  always  uses  and  must  use  this  power
sparingly and with great circumspection to prevent inter alia the  abuse  of
the process of the Court.   There are no fixed formulae to  be  followed  by
the High Court in this regard and the exercise of this  power  depends  upon
the facts and circumstances of each case.  The  High  Court  at  that  stage
does not conduct a mini trial or roving inquiry, but,  nothing  prevents  it
from taking unimpeachable evidence or totally acceptable circumstances  into
account which may lead it to conclude that  no  trial  is  necessary  qua  a
particular Director.

34.   We will examine the facts of the present case in light  of  the  above
discussion.  In this case,  the  High  Court  answered  the  first  question
raised before it in favour of the respondents.  The  High  Court  held  that
“in the complaint except the averments that the Directors were in charge  of
and responsible to the company  at  the  relevant  time,  nothing  has  been
stated as to what part was played by them  and  how  they  were  responsible
regarding the finances of the company, issuance of cheque and  control  over
the funds of the company”.  After so observing, the High Court  quashed  the
proceedings as against the respondents.  In view  of  this  conclusion,  the
High Court did not go into the  second  question  raised  before  it  as  to
whether  the  Director,  who  has  resigned  can  be  prosecuted  after  his
resignation has been accepted by the Board  of  Directors  of  the  company.
Pertinently, in the application filed by the respondents, no clear case  was
made out that at the material time, the Directors were not in charge of  and
were not responsible for the conduct of  the  business  of  the  company  by
referring to or producing any  uncontrovertible  or  unimpeachable  evidence
which is beyond suspicion or doubt or any totally acceptable  circumstances.
 It is merely stated that Sidharth Mehta had resigned from the  Directorship
of the  company  on  30/9/2010  but  no  uncontrovertible  or  unimpeachable
evidence was produced before the High Court as was done  in  Anita  Malhotra
to show that he had, in fact, resigned long before the cheques  in  question
were issued.  Similar is the case with Kanhaiya Lal  Mehta  and  Anu  Mehta.
Nothing was produced to substantiate the contention that they  were  not  in
charge of and not responsible  for  the  conduct  of  the  business  of  the
company at the relevant time. In the circumstances, we are  of  the  opinion
that the matter deserves  to  be  remitted  to  the  High  Court  for  fresh
hearing.  However, we are inclined to confirm the order passed by  the  High
Court quashing the process as against Shobha Mehta.  Shobha Mehta is  stated
to be an old lady who is over 70 years of age.  Considering  this  fact  and
on  an  overall  reading  of  the  complaint  in  the  peculiar  facts   and
circumstances of the case, we feel that making her stand the trial would  be
an abuse of process of the court.  It is however,  necessary  for  the  High
Court to consider the cases of other Directors in  light  of  the  decisions
considered by us and the conclusions drawn by us in this judgment.   In  the
circumstances, we confirm the impugned order to the extent  it  quashes  the
process issued against Shobha Mehta, an accused in C.C.  No.24035  of  2011.
We set aside the impugned order to the extent it quashes the process  issued
against other Directors viz. Kanhaiya Lal Mehta,  Anu  Mehta  and  Siddharth
Mehta.  We remit the matter to the High Court.  We request  the  High  Court
to hear the parties and consider the matter afresh.  We are making it  clear
that we have not expressed any  opinion  on  the  merits  of  the  case  and
nothing said by us in this order should be interpreted as our expression  of
opinion on the merits of the case.  The High Court is requested to  consider
the matter independently.  Considering the fact that the complaints  are  of
2011, we request the High Court to dispose of the  matter  as  expeditiously
as possible and preferably within six months.
35.   The criminal appeals are disposed of in the afore-stated terms.
                                                            ...………………………….J.
                                                     [Ranjana Prakash Desai]


                                                              …………………………….J.
                                                               [N.V. Ramana]
New Delhi
October 17, 2014.

-----------------------
[1]    (2009) 10 SCC 48
[2]    (2005) 8 SCC 89
[3]    (2014) 4 SCALE 55
[4]    2013(12) SCALE 673
[5]    (2011) 13 SCC 88
[6]    (2008) 7 SCC 442
[7]    (2008) 17 SCC 147
[8]    (2007) 5 SCC 108
[9]    66 Comp Cas 26 (Delhi)
[10]   (2014) 4 SCC 282
[11]   (2010) 3 SCC 330
[12]   (2012) 1 SCC 520
[13]   (2007) 9 SCC 481
[14]   (2010) 11 SCC 374
[15]   (2007) 3 SCC 693
[16]   (2007) 4 SCC 70
[17]   (2006) 10 SCC 581
[18]   20th Edition
[19]   16th Edition
[20]   17th Edition
[21]   (2008) 7 SCC 442
[22]   (2011) 3 SCC 351

-----------------------
53


No comments:

Post a Comment

Note: Only a member of this blog may post a comment.