REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 320-336 OF 2010
(Arising out of S.L.P. (Crl.) Nos. 445-461 of 2008)
National Small Industries Corp. Ltd. .... Appellant (s)
Versus
Harmeet Singh Paintal & Anr. .... Respondent(s)
WITH
CRIMINAL APPEAL NO. 337 OF 2010
(Arising out of S.L.P. (Crl.) No. 1079 of 2008)
JUDGMENT
P. Sathasivam, J.
1) Leave granted in all the above special leave petitions.
2) The appeals arising out of S.L.P. (Criminal) Nos. 445-
461 of 2008 have been filed by the appellant-National
Small Industries Corporation Limited against the common
judgment and order dated 24.10.2007 passed by the High
Court of Delhi at New Delhi in a batch of cases whereby
1
the High Court quashed the summoning orders passed by
the trial Court against respondent No.1 - Harmeet Singh
Paintal, under Section 138 read with Section 141 of the
Negotiable Instruments Act, 1881 (for short "the Act")
3) The connected criminal appeal arising out of S.L.P.
Crl. No. 1079 of 2008 is filed against the judgment and
order dated 24.05.2007 passed by the High Court of Delhi
in Criminal Revision Petition No. 163 of 2005, whereby the
High Court quashed the summoning order passed by the
trial Court against respondent No.1 - Dev Sarin under
Section 138 read with Section 141 of the Act.
4) Since all these appeals are identical and same legal
issues arise, they are being disposed of by this common
judgment.
5) The appellant - National Small Industries Corporation
Ltd. had filed 12 criminal complaints under Section 138
read with Sections 141 and 142 of the Act against M/s
Jay Rapid Roller Limited, a Company incorporated under
the Companies Act, its Managing Director - Shri Sukhbir
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Singh Paintal, and its Director - Shri Harmeet Singh
Paintal. It is the claim of the appellant that so as to make
the Managing Director and Director of the Company liable
to be prosecuted under the provisions of the Act, they had
specifically averred in the complaint that all the accused
persons approached it for financing of bill integrated
market support programme. It was also stated that the
accused persons had issued cheques which were
dishonoured on presentation against which the appellant
had filed criminal complaints under the provisions of the
Act against all the respondents herein. It is their further
case that all the accused persons accepted their liability
and delivered various cheques, which are the subject
matter of the present appeals.
6) In the connected appeal, the appellant - DCM Financial
Services Ltd., entered into a hire purchase agreement on
25.02.1996 with M/s International Agro Allied Products
Ltd. At the time of entering into contract, the Company
handed over post-dated cheques to the appellant towards
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payment of monthly hire/rental charges. Respondent
No.1 - Dev Sarin was one of the Directors of the said
Company. The cheque issued by International Agro and
Allied Products Ltd. in favour of the appellant was duly
presented for payment on 28.10.1998 and the same was
returned unpaid for the reason that the Company had
issued instructions to the bankers stopping payment of
the cheque. The appellant issued a legal notice on
05.12.1998 to the Company, Respondent No.1 and other
Directors under Section 138 of the Act informing them
about the dis-honouring of the cheque in question.
Despite the service of the notice, the Company did not
make the payment to the appellant. The appellant, on
11.01.1999, filed a complaint before the Metropolitan
Magistrate, New Delhi against respondent No.1 and others
under Section 138 read with Section 141 of the Act. By
order dated 04.02.1999, the Metropolitan Magistrate, New
Delhi, after recording evidence summoned the accused
persons including respondent No.1 herein. Respondent
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No.1 filed an application before the Additional Sessions
Judge, Delhi for dropping of proceedings against him. By
order dated 08.09.2004, the Metropolitan Magistrate
dismissed the said application. Aggrieved by the said
order, the respondent filed a petition under Section 482 of
the Criminal Procedure Code before the High Court for
quashing of the complaint. The High Court, after finding
that the averments against respondent No.1 are unspecific
and general and no particular role is assigned to the
appellant, quashed the summoning order insofar as it
concerned to him.
7) In this factual matrix, the issue which arises for
determination before this Court is whether the order of the
High Court quashing the summoning orders insofar as the
respondents are concerned is sustainable and what
should be the averments in the complaint under Section
138 read with Section 141 of the Act against the Director
of a Company before he can be subjected to criminal
proceedings.
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8) Heard learned counsel for the appellants as well as the
learned ASG and senior counsel for the respondents.
9) Section 138 of the Act refers about penalty in case of
dishonour of cheque for insufficiency of funds in the
account. We are more concerned about Section 141
dealing with offences by Companies which reads as
under:-
"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,--
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(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."
It is very clear from the above provision that what is
required is that the persons who are sought to be made
vicariously liable for a criminal offence under Section
141 should be, 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. Every person
connected with the company shall not fall within the
ambit of the provision. Only those persons who were
in-charge of and responsible for the conduct of the
business of the company at the time of commission of an
offence will be liable for criminal action. It follows from
the fact that if a Director of a Company who was not in-
charge of and was not responsible for the conduct of the
business of the company at the relevant time, will not be
liable for a criminal offence under the provisions. The
liability arises from being in-charge of and responsible for
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the conduct of the business of the company at the relevant
time when the offence was committed and not on the basis
of merely holding a designation or office in a company.
10) Section 141 is a penal provision creating vicarious
liability, and which, as per settled law, must be strictly
construed. It is therefore, not sufficient to make a bald
cursory statement in a complaint that the Director
(arrayed as an accused) is in charge of and responsible to
the company for the conduct of the business of the
company without anything more as to the role of the
Director. But the complaint should spell out as to how
and in what manner Respondent No.1 was in-charge of or
was responsible to the accused company for the conduct
of its business. This is in consonance with strict
interpretation of penal statutes, especially, where such
statutes create vicarious liability. A company may have a
number of Directors and to make any or all the Directors
as accused in a complaint merely on the basis of a
statement that they are in-charge of and responsible for
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the conduct of the business of the company without
anything more is not a sufficient or adequate fulfillment of
the requirements under Section 141.
11) In a catena of decisions, this Court has held that for
making Directors liable for the offences committed by the
company under Section 141 of the Act, there must be
specific averments against the Directors, showing as to
how and in what manner the Directors were responsible
for the conduct of the business of the company.
12) In the light of the above provision and the language
used therein, let us, at the foremost, examine the
complainta filed by National Small Industries Corporation
Limited and the DCM Financial Services Ltd. In the case
of National Small Industries Corpn. Ltd., the High Court
has reproduced the entire complaint in the impugned
order and among other clauses, clause 8 is relevant for
our consideration which reads as under:
"8. That the accused No. 2 is the Managing Director and
accused No. 3 is the Director of the accused company. The
accused No. 2 and 3 are the in-charge and responsible for
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the conduct of the business of the company accused No. 1
and hence are liable for the offences."
13) In the case of DCM Financial Services Ltd., in complaint-
Annexure-P2 the relevant clause is 13 which reads as under:
"13. That the accused No. 1 is a Company/Firm and the
accused Nos. 2 to 9 were in charge and were responsible to
the accused No. 1 for the conduct of the business to the
accused No. 1 at the time when offence was committed.
Hence, the accused Nos. 2 to 9 in addition to the accused
No. 1, are liable to be prosecuted and punished in
accordance with law by this Hon'ble Court as provided by
section 141 of the N.I. Act, 1881. Further the offence has
been committed by the accused No. 1 with the consent and
connivance of the accused Nos. 2 to 9."
14) Now, let us consider whether the abovementioned
complaint in both cases has satisfied the necessary
ingredients to attract Section 141 insofar as the
respondents, namely, Directors of the company are
concerned. Section 141 of the Act has been interpreted by
this Court in various decisions. As to the scope of Section
141 of the Act, a three-Judge Bench of this Court
considered the following questions which had been
referred to it by a two-Judge Bench of this Court in SMS
Pharmaceuticals vs. Neeta Bhalla and Anr. (2005) 8
SCC 89:
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"(a) Whether for purposes of Section 141 of the Negotiable
Instruments Act, 1881, it is sufficient if the substance of the
allegation read as a whole fulfil the requirements of the said
section and it is not necessary to specifically state in the
complaint that the person accused was in charge of, or
responsible for, the conduct of the business of the company.
(b) Whether a director of a company would be deemed to be
in charge of, and responsible to, the company for conduct of
the business of the company and, therefore, deemed to be
guilty of the offence unless he proves to the contrary.
(c) Even if it is held that specific averments are necessary,
whether in the absence of such averments the signatory of
the cheque and or the managing directors or joint managing
director who admittedly would be in charge of the company
and responsible to the company for conduct of its business
could be proceeded against."
While considering the above questions, this Court held as
under:
"18. To sum up, there is almost unanimous judicial opinion
that necessary averments ought to be contained in a complaint
before a person can be subjected to criminal process. A liability
under Section 141 of the Act is sought to be fastened
vicariously on a person connected with a company, the
principal accused being the company itself. It is a departure
from the rule in criminal law against vicarious liability. A clear
case should be spelled out in the complaint against the person
sought to be made liable. Section 141 of the Act contains the
requirements for making a person liable under the said
provision. That the respondent falls within the parameters of
Section 141 has to be spelled out. A complaint has to be
examined by the Magistrate in the first instance on the basis of
averments contained therein. If the Magistrate is satisfied that
there are averments which bring the case within Section 141,
he would issue the process. We have seen that merely being
described as a director in a company is not sufficient to satisfy
the requirement of Section 141. Even a non-director can be
liable under Section 141 of the Act. The averments in the
complaint would also serve the purpose that the person sought
to be made liable would know what is the case which is alleged
against him. This will enable him to meet the case at the trial.
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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.
(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."
Therefore, this Court has distinguished the case of
persons who are in-charge of and responsible for the
conduct of the business of the company at the time of the
offence and the persons who are merely holding the post
in a company and are not in-charge of and responsible for
the conduct of the business of the company. Further, in
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order to fasten the vicarious liability in accordance with
Section 141, the averment as to the role of the concerned
Directors should be specific. The description should be
clear and there should be some unambiguous allegations
as to how the concerned Directors were alleged to be in-
charge of and was responsible for the conduct and affairs
of the company.
15) In Sabitha Ramamurthy vs. R.B.S.
Channabasavaradhya, (2006) 10 SCC 581, this Court
while dealing with the same issue observed as under:
"......It may be true that it is not necessary for the
complainant to specifically reproduce the wordings of the
section but what is required is a clear statement of fact so as
to enable the court to arrive at a prima facie opinion that the
accused are vicariously liable. Section 141 raises a legal
fiction. By reason of the said provision, a person although is
not personally liable for commission of such an offence
would be vicariously liable therefor. Such vicarious liability
can be inferred so far as a company registered or
incorporated under the Companies Act, 1956 is concerned
only if the requisite statements, which are required to be
averred in the complaint petition, are made so as to make
the accused therein vicariously liable for the offence
committed by the company. Before a person can be made
vicariously liable, strict compliance with the statutory
requirements would be insisted. Not only the averments
made in para 7 of the complaint petitions do not meet the
said statutory requirements, the sworn statement of the
witness made by the son of the respondent herein, does not
contain any statement that the appellants were in charge of
the business of the Company. In a case where the court is
required to issue summons which would put the accused to
some sort of harassment, the court should insist strict
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compliance with the statutory requirements. In terms of
Section 200 of the Code of Criminal Procedure, the
complainant is bound to make statements on oath as to how
the offence has been committed and how the accused
persons are responsible therefor. In the event, ultimately, the
prosecution is found to be frivolous or otherwise mala fide,
the court may direct registration of case against the
complainant for mala fide prosecution of the accused. The
accused would also be entitled to file a suit for damages. The
relevant provisions of the Code of Criminal Procedure are
required to be construed from the aforementioned point of
view."
16) In Saroj Kumar Poddar vs. State (NCT of Delhi)
(2007) 3 SCC 693, while following SMS Pharmaceuticals
case (supra) and Sabhita Ramamurthy case (supra),
this Court held that with a view to make the 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 under the law and
under Section 141 of the Act and further held that in the
absence of such specific averments in the complaint
showing as to how and in what manner the Director is
liable, the complaint should not be entertained. The
relevant portion of the judgment is reproduced
hereinbelow:-
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"12. A person would be vicariously liable for commission of an
offence on the part of a company only in the event the
conditions precedent laid down therefor in Section 141 of the
Act stand satisfied. For the aforementioned purpose, a strict
construction would be necessary.
13. The purported averments which have been made in the
complaint petitions so as to make the appellant vicariously
liable for the offence committed by the Company read as under:
"That Accused 1 is a public limited company incorporated
and registered under the Companies Act, 1956, and Accused 2
to 8 are/were its Directors at the relevant time and the said
Company is managed by the Board of Directors and they are
responsible for and in charge of the conduct and business of
the Company, Accused 1. However, cheques referred to in the
complaint have been signed by Accused 3 and 8 i.e. Shri K.K.
Pilania and Shri N.K. Munjal for and on behalf of Accused 1
Company.
14. Apart from the Company and the appellant, as noticed
hereinbefore, the Managing Director and all other Directors
were also made accused. The appellant did not issue any
cheque. He, as noticed hereinbefore, had resigned from the
directorship of the Company. It may be true that as to exactly
on what date the said resignation was accepted by the Company
is not known, but, even otherwise, there is no averment in the
complaint petitions as to how and in what manner the appellant
was responsible for the conduct of the business of the Company
or otherwise responsible to it in regard to its functioning. He
had not issued any cheque. How he is responsible for dishonour
of the cheque has not been stated. The allegations made in para
3, thus, in our opinion do not satisfy the requirements of
Section 141 of the Act."
17) In a subsequent decision in N.K. Wahi vs. Shekhar
Singh & Ors., (2007) 9 SCC 481 while following the
precedents of SMS Pharmaceuticals's case (supra),
Sabhita Ramamurthy's case (supra) and Saroj Kumar
Poddar's case (supra), this Court reiterated that for
launching a prosecution against the alleged Directors,
15
there must be a specific allegation in the complaint as to
the part played by them in the transaction. The relevant
portion of the judgment is as under:
"7. This provision clearly shows that so far as the companies
are concerned if any offence is committed by it then every
person who is a Director or employee of the company is not
liable. Only such person would be held liable if at the time
when offence is committed he was in charge and was
responsible to the company for the conduct of the business
of the company as well as the company. Merely being a
Director of the company in the absence of above factors will
not make him liable.
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."
18) The said issue again came up for consideration before
a three-Judge Bench of this Court recently in Ramraj
Singh vs. State of M.P. & Anr. (2009) 6 SCC 729. In
this case, the earlier decisions were also considered in
detail. Following the decisions of SMS Pharmaceuticals'
case (supra), Sabhita Ramamurthy's case (supra), Saroj
Kumar Poddar's case (supra) and N.K. Wahi's case
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(supra) this Court held that it is necessary to specifically
aver in a complaint under Section 141 that at the time
when the offence was committed, the person accused was
in-charge of, and responsible for the conduct of the
business of the company. Furthermore, it held that
vicarious liability can be attributed only if the requisite
statements, which are required to be averred in the
complaint petition, are made so as to make the
accused/Director therein vicariously liable for the offence
committed by the company. It was further held that
before a person can be made vicariously liable, strict
compliance of the statutory requirements would be
insisted. Thus, the issue in the present case is no more
res integra and has been squarely covered by the decisions
of this Court referred above. It is submitted that the
aforesaid decisions of this Court have become binding
precedents.
19) In the case of second SMS Pharmaceuticals vs.
Neeta Bhalla, (2007) 4 SCC 70, this Court has
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categorically held that there may be a large number of
Directors but some of them may not assign themselves in
the management of the day-to-day affairs of the company
and thus are not responsible for the conduct of the
business of the company.
Para 20 of the said judgment is relevant which is
reproduced hereunder:-
"20. The liability of a Director must be determined on the
date on `which the offence is committed. Only because
Respondent 1 herein was a party to a purported resolution
dated 15-2-1995 by itself does not lead to an inference that
she was actively associated with the management of the
affairs of the Company. This Court in this case has
categorically held that there may be a large number of
Directors but some of them may not associate themselves in
the management of the day-to-day affairs of the Company
and, thus, are not responsible for the conduct of the
business of the Company. The averments must state that the
person who is vicariously liable for commission of the offence
of the Company both was in charge of and was responsible
for the conduct of the business of the Company.
Requirements laid down therein must be read conjointly and
not disjunctively. When a legal fiction is raised, the
ingredients therefor must be satisfied."
20) Relying on the judgment of this Court in Everest
Advertising Pvt. Ltd. vs. State Govt. of NCT of Delhi &
Ors., (2007) 5 SCC 54, learned counsel for the appellants
argued that this Court has not allowed the recalling of
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summons in a criminal complaint filed under sections 138
and 141. However, a perusal of the judgment would
reveal that this case was of recalling of summons by the
Magistrate for which the Magistrate had no jurisdiction.
Further, para 22 of the judgment would reveal that in the
complaint "allegations have not only been made in terms
of the wordings of section but also at more than one place,
it has categorically been averred that the payments were
made after the meetings held by and between the
representative of the Company and accused nos. 1 to 5
which would include Respondent Nos. 2 and 3." In para
23, this Court concluded that "it is therefore, not a case
where having regard to the position held by the said
respondents in the Company, they could plead ignorance
of the entire transaction". Furthermore, this Court has
relied upon S.M.S. Pharamaceutical's case (three-Judge
Bench) (supra), Saroj Kumar Poddar's case (supra) and
N.K. Wahi's case (supra).
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21) Relying on the judgment of this Court in N.
Rangachari vs. Bharat Sanchar Nigam Ltd., (2007) 5
SCC 108, learned counsel for the appellants further
contended that a payee of cheque that is dishonoured can
be expected to allege is that the persons named in the
complaint are in-charge of its affairs and the Directors are
prima facie in that position. However, it is pertinent to
note that in this case it was specifically mentioned in the
complaint that (i) accused no. 2 was a director and in
charge of and responsible to the accused Company for the
conduct of its business; and (ii) the response of accused
no. 2 to the notice issued by BSNL that the said accused
is no longer the Chairman or Director of the accused
Company was false and by not keeping sufficient funds in
their account and failing to pay the cheque amount on
service of the notice, all the accused committed an offence.
Therefore, this decision is clearly distinguishable on facts
as in the said case necessary averments were made out in
the complaint itself. Furthermore, this decision does not
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and could not have overruled the decisions in S.M.S.
Pharmaceutical's case (three-Judge Bench)(supra),
Ramraj Singh's case (three-Judge Bench)(supra), Saroj
Kumar Poddar's case (supra) and N.K. Wahi's case
(supra) wherein it is clearly held that specific averments
have to be made against the accused Director.
22) Learned counsel for the appellants after elaborately
arguing the matter, by inviting our attention to Paresh P.
Rajda vs. State of Maharashtra & Anr., (2008) 7 SCC
442 contended that a departure/digression has been
made by the Court in the case of N. Rangachari vs.
BSNL (supra). However, in this case also the Court has
observed in para 4 that the High Court had noted that an
overall reading of the complaint showed that specific
allegations had been leveled against the accused as being
a responsible officer of the accused Company and
therefore, equally liable. In fact, the Court recorded the
allegations in the complaint that the Complainant knew
all the accused and that accused no. 1 was the Chairman
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of the accused Company and was responsible for day to
day affairs of the Company. This Court though has only
noted the decision in N. Rangachari's case (supra) and
observed that an observation therein showed a slight
departure vis-`-vis the other judgments (i.e. S.M.S.
Pharmaceuticals first case and S.M.S.
Pharmaceutical's second case), but then Court went on
to record that in N.K. Wahi's case (supra) this Court had
reiterated the view in S.M.S. Pharmaceutical's case
(supra). The Court then concluded in para 11 that it was
clear from the aforequoted judgments that the entire
matter would boiled down to an examination of the nature
of averments made in the complaint. On facts, the Court
found necessary averments had been made in the
complaint.
23) Though, the learned counsel for the appellants relying
on a recent decision in K.K. Ahuja vs. V.K. Vora & Anr.,
(2009) 10 SCC 48, it is clearly recorded that in the
complaint it was alleged that the accused were in-charge
22
of and was responsible for the conduct of the day-to-day
business of the accused Company and further all the
accused were directly and actively involved in the financial
dealings of the Company and the same was also reiterated
in the pre-summoning evidence. Furthermore, this
decision also notes that it is necessary to specifically aver
in a complaint that the person accused was in-charge of
and responsible for the conduct of the business of the
Company. After noting Saroj Kumar Poddar's case
(supra) and N.K. Wahi's case (supra), this Court further
noted in para 9 that "......the prevailing trend appear to
require the Complainant to state how a Director who is
sought to be made an accused, was in-charge of the
business of the Company, as every Director need not be
and is not in-charge of the business of the Company.....".
In Para 11, this Court has further recorded that ".....When
conditions are prescribed for extending such constructive
criminal liability to others, courts will insist upon strict
literal compliance. There is no question of inferential or
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implied compliance. Therefore, a specific averment
complying with the requirements of Section 141 is
imperative..." Though the Court then said that an
averment in the complaint that the accused is a Director
and in-charge of and responsible for the conduct of the
business may be sufficient but this would not take away
from the requirement that an overall reading of the
complaint has to be made to see whether the requirements
of Section 141 have been made out against the accused
Director or not. Furthermore, this decision cannot be said
to have overruled the various decisions of this Court.
24) Section 291 of the Companies Act provides that
subject to the provisions of that Act, the Board of
Directors of a company shall be entitled to exercise all
such powers, and to do all such acts and things, as the
company is authorized to exercise and do. A company,
though a legal entity, can act only through its Board of
Directors. The settled position is that a Managing Director
is prima facie in-charge of and responsible for the
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company's business and affairs and can be prosecuted for
offences by the company. But insofar as other Directors
are concerned, they can be prosecuted only if they were
in-charge of and responsible for the conduct of the
business of the company. A combined reading of Sections
5 and 291 of Companies Act, 1956 with the definitions in
clauses 24, 26, 30, 31 and 45 of Section 2 of that Act
would show that the following persons are considered to
be the persons who are responsible to the company for the
conduct of the business of the company:
(a) the Managing Director/s;
(b) the whole-time Director/s;
(c) the Manager;
(d) the Secretary;
(e) any person in accordance with whose directions or
instructions the Board of Directors of the company is
accustomed to act;
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(f) any person charged by the Board of Directors with the
responsibility of complying with that provision;
Provided that the person so charged has given his
consent in this behalf to the Board;
(g) where any company does not have any of the officers
specified in clauses (a) to (c), any director or directors who
may be specified by the Board in this behalf or where no
director is so specified, all the directors:
Provided that where the Board exercises any power
under clause (f) or clause (g), it shall, within thirty days of
the exercise of such powers, file with the Registrar a
return in the prescribed form.
But if the accused is not one of the persons who falls
under the category of "persons who are responsible to the
company for the conduct of the business of the company"
then merely by stating that "he was in-charge of the
business of the company" or by stating that "he was in-
charge of the day-to-day management of the company" or
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by stating that "he was in-charge of, and was responsible
to the company for the conduct of the business of the
company", he cannot be made vicariously liable under
Section 141(1) of the Act. To put it clear that for making a
person liable under Section 141(2), the mechanical
repetition of the requirements under Section 141(1) will be
of no assistance, but there should be necessary averments
in the complaint as to how and in what manner the
accused was guilty of consent and connivance or
negligence and therefore, responsible under sub-section
(2) of Section 141 of the Act.
25) 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
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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
accused therein vicariously liable for offence committed by
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.
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(v) If accused is Managing Director or 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 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.
26) Apart from the legal position with regard to
compliance of Section 141 of the Act, in the appeals of
National Small Industries Corporation, respondent No.1-
Harmeet Singh Paintal was no more a Director of the
company when the cheques alleged in the complaint were
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signed and the same is evidenced from the Sixth Annual
Report for the year 1996-97 of the accused company. The
said report is of dated 30.08.1997 and the same was
submitted with the Registrar of Companies on 05.12.1997
and assigned as document No. 42 dated 09.03.1998 by
the Department. Those documents have been placed
before this Court by respondent No.1 as an additional
document. In view of these particulars and in addition to
the interpretation relating to Section 141 which we arrived
at, no liability could be fastened on respondent No.1.
Further, it was pointed out that though he was an
authorized signatory in the earlier transactions, after
settlement and in respect of the present cause of action,
admittedly fresh cheques were not signed by the first
respondent. In the same way, in the appeal of the DCM
Financial Services, the respondent therein, namely, Dev
Sarin also filed additional documents to show that on the
relevant date, namely the date of issuance of cheque he
had no connection with the affairs of the company.
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27) In the light of the above discussion and legal
principles, we are in agreement with the conclusion
arrived at by the High Court and in the absence of specific
averment as to the role of the respondents and
particularly in view of the acceptable materials that at the
relevant time they were in no way connected with the
affairs of the company, we reject all the contentions raised
by learned counsel for the appellants. Consequently, all
the appeals fail and are accordingly dismissed.
..........................................J.
(P. SATHASIVAM)
..........................................J.
(H.L. DATTU)
NEW DELHI;
FEBRUARY 15, 2010.
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