Liability of directors under sec.141 - there must be specific pleadings against the accused to fasten liability under sec.138 of Negotiable Instruments Act High court quashed the complaint- Apex court confirm the same =
Section 141 of the Act makes the Directors in charge and
responsible to Company “for the conduct of the business of the Company”
within the mischief of Section 138 of the Act and not particular business
for which the cheque was issued. We cannot read more than what has been
mandated in Section 141 of the Act.
however there are no specific allegations and
averments in the complaint against the applicant with respect to
transaction for which the cheques were issued by the accused no.
14 company. =
(i) The primary responsibility is on the complainant to make
specific averments as are required under the law in the
complaint so as to make the accused vicariously liable. For
fastening the criminal liability, there is no presumption that
every Director knows about the transaction.
(ii) Section 141 does not make all the Directors liable for
the offence. The criminal liability can be fastened only on
those who, at the time of the commission of the offence, were in
charge of and were responsible for the conduct of the business
of the company.
(iii) Vicarious liability can be inferred against a company
registered or incorporated under the Companies Act, 1956 only if
the requisite statements, which are required to be averred in
the complaint/petition, are made so as to make the accused
therein vicariously liable for offence committed by the company
along with averments in the petition containing that the accused
were in charge of and responsible for the business of the
company and by virtue of their position they are liable to be
proceeded with.
(iv) Vicarious liability on the part of a person must be
pleaded and proved and not inferred.
(v) If the accused is a Managing Director or a Joint Managing
Director then it is not necessary to make specific averment in
the complaint and by virtue of their position they are liable to
be proceeded with.
(vi) If the accused is a Director or an officer of a company
who signed the cheques on behalf of the company then also it is
not necessary to make specific averment in the complaint.
(vii) The person sought to be made liable should be in charge
of and responsible for the conduct of the business of the
company at the relevant time. This has to be averred as a fact
as there is no deemed liability of a Director in such cases.” =
We have found on fact that there is no averment that the two accused
herein were in charge of and responsible for the conduct of the business of
the company at the time the offence was committed. Hence, there is no
essential averment in the complaints.
In view of what we have observed
above, the prosecution of accused A.K. Singhania and accused Vikram Prakash
cannot be allowed to continue.
Accordingly, the order of the High Court
quashing the prosecution of the accused Vikram Prakash is not fit to be
interfered with. For the same reason the order passed by the High Court
declining the prayer of A.K. Singhania for quashing of the prosecution
cannot be sustained and the appeals preferred by him deserve to be allowed.
In the result, we dismiss the appeals preferred by the complainant
Gujarat State Fertilizers Company Ltd. and allow the appeals preferred by
A.K. Singhania and quash his prosecution in all these cases.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NOS.1692-1718 OF 2013
(@SPECIAL LEAVE PETITION (CRL.) NOS. 2970-2996 OF 2012)
A.K. SINGHANIA … APPELLANT
VERSUS
GUJARAT STATE FERTILIZER
CO. LTD. & ANR. …RESPONDENTS
WITH
CRIMINAL APPEAL NOS.1719-1725 OF 2013
(@SPECIAL LEAVE PETITION (CRL.) NOS. 3100-3106 OF 2012)
A.K. SINGHANIA … APPELLANT
VERSUS
GUJARAT STATE FERTILIZER
CO. LTD. & ANR. …RESPONDENTS
CRIMINAL APPEAL NOS.1726-1732 OF 2013
(@SPECIAL LEAVE PETITION (CRL.) NOS.984-990 OF 2013)
GUJARAT STATE FERTILIZER
CO. LTD. … APPELLANT
VERSUS
VIKRAM PRAKASH & ANR. …RESPONDENTS
CRIMINAL APPEAL NOS.1733-1759 OF 2013
(@SPECIAL LEAVE PETITION (CRL.) NOS. 1068-1094 OF 2013)
GUJARAT STATE FERTILIZER
CO. LTD. … APPELLANT
VERSUS
VIKRAM PRAKASH & ANR. …RESPONDENTS
J U D G M E N T
CHANDRAMAULI KR. PRASAD, J.
In all these special leave petitions common question of law and
facts arise and, therefore, they have been heard together and are being
disposed of by this common judgment.
Leave granted.
In all these cases we are concerned with accused A.K. Singhania and
Vikram Prakash.
Several complaints were filed by Gujarat State Fertilizer
Company against Esslon Synthetics Ltd., its Chairman, Managing Director and
other Directors including aforesaid A.K. Singhania and Vikram Prakash
alleging commission of an offence under Section 138 of the Negotiable
Instruments Act, hereinafter referred to as ‘the Act’.
In Complaint Case No. 331 of 1996 the allegations which are relevant
for the decision of these appeals read as follows:
“3. The accused No. 14 is a Limited Company registered
under the Companies Act, 1956 and are doing business of
chemicals, synthetics etc. The accused No. 1 is Managing
Director of accused company No. 14 and accused No. 2 is Deputy
Managing Director, accused No. 3 is Chairman, accused No. 4 is
Whole Time Director, accused No. 5 is Finance Director, accused
No. 6 to 12 are the Directors and the accused No. 13 was Senior
Manager (Finance) of the accused company No. 14 Esslon
Synthetics Ltd.
4. All the business and financial affairs of the accused
company No. 14 are decided, organized, administered by accused
No. 1 being Managing Director and accused No. 2 being Deputy
Managing Director, accused No. 3 Chairman, accused No. 4 Whole
Time Director, accused No. 5 Finance Director with consultation
of other Directors from accused Nos. 6 to 12 and accused No. 13
was Sr. Manager (Finance) of accused company No. 14. So accused
Nos. 1 to 12 and accused No. 13 are also responsible for all the
transactions and business affairs done on behalf of accused
Company No. 14 and are responsible for all the financial affairs
and administration of accused Company No. 14.”
A.K. Singhania is the accused No. 7 and Vikram Prakash is accused No.
9 in this complaint.
In Complaint Case No. 1293 of 1996, the allegations with which we are
concerned in these appeals read as follows:
“4. All the business and financial affairs of the accused
company No. 1 are decided, organized, administered by the
accused No. 2 being Managing Director and accused No. 3 being
Managing Director, accused No. 4 Chairman, accused No. 5 Whole
Time Director, accused No. 6 Finance Director with consultation
of other Directors from accused Nos. 7 to 13 and accused No. 14
was Sr. Manager (Finance) of accused No. 1. At the time the
offence was committed, they were incharge of and were
responsible to the company for the conduct of the business of
the accused company. Therefore, they are responsible for day to
day affairs and all the transactions and business done on behalf
of the accused Company No. 1 and they are also responsible for
all the financial affairs and administration of accused company
No. 1.”
A.K. Singhania and Vikram Prakash have been arrayed as accused Nos. 8
and 10 in this complaint and in all other complaints, the allegations
against A.K. Singhania are identical to what have been alleged in the
Complaint Case No. 331 of 1996.
Taking into account the allegations made in the respective complaints,
the learned Magistrate took cognizance of the offence, issued process to
the accused aforesaid besides other accused to face trial for commission of
the offence under Section 138 of the Act.
Vikram Prakash, aggrieved by the order issuing summons to face trial
under Section 138 of the Act in different complaints, filed applications
under Section 482 of the Code of Criminal Procedure for quashing the order
taking cognizance and issuing process. The applications filed by said
Vikram Prakash were registered as Criminal Miscellaneous Application Nos.
13393-13399 of 2007. The High Court by its common order dated January 20,
2012 allowed all the applications and quashed his prosecution. While doing
so, the High Court held as follows:
“7.…………It is to be noted that as such there are general
allegations and averments against the applicant in the
complaints, however there are no specific allegations and
averments in the complaint against the applicant with respect to
transaction for which the cheques were issued by the accused no.
14 company. Under the circumstance, on the ground that
applicant was non Executive Director of the Company on the board
of the company, which is not disputed by the complainant, the
applicant cannot be prosecuted for the offence under Sections
138 r/w 141 of the Negotiable Instruments Act and cannot be held
vicariously liable for the offence alleged to have been
committed by the accused no. 14 company. Under the
circumstance, this Court is of opinion that this is a fit case
to exercise the powers under Section 482 of the Code of Criminal
Procedure and to quash and set aside the impugned
complaint/criminal case qua applicant-original accused no. 9……”
It is this common order which has been assailed by the Gujarat State
Fertilizer Company Ltd. in the special leave petitions filed by it.
A.K. Singhania also, aggrieved by the order issuing process under
Section 138 of the Act, filed separate applications for quashing the entire
prosecution including the aforesaid order under Section 482 of the Code of
Criminal Procedure. All the applications filed by A.K. Singhania were
taken together by the High Court for consideration and by the impugned
order the applications filed by him have been dismissed. While doing so,
the High Court observed as follows:
“9. As the paragraphs of the complaint reproduced in
earlier part of decision specifically para 4 and subsequent
paragraphs would reveal that the applicant in the capacity of
Director was responsible for business affairs and he was in-
charge of the Company. Not only that but nowhere it can be said
that the applicant was non-Executive Director and even if it is
so the said argument is in realm of defence to be decided by
Court trying the case under the Negotiable Instruments Act.
Since sufficient averments attracting of Section 138 of
Negotiable Instrument Act are the foundation of the complaint
and it is further averred that cheques were issued with
mischievous, dishonest intention, knowingly and willingly to
cheat the complainant company. Arguments canvassed by learned
advocate for the applicant do not require any further
deliberation in exercise of powers under Section 482 of the Code
since quashing the complaint would not secure end of justice but
would result into miscarriage of justice………..”
A.K. Singhania, aggrieved by the aforesaid common order, has preferred
these special leave petitions.
Leave granted.
We have heard Mr.Ranjit Kumar, learned Senior Counsel on behalf of the
accused A.K. Singhania and Mr.Ashok Kr. Srivastava, learned Senior Counsel
on behalf of Vikram Prakash whereas the complainant, Gujarat State
Fertilizer Company Ltd. is represented by Mr. Jayant Bhushan, learned
Senior Counsel. Mr. Ranjit Kumar appearing on behalf of the accused
submits that necessary averments that at the time the offence was
committed, the accused were in-charge of and responsible for the conduct of
the business of the company have not been averred, which is sine qua non
for proceeding against the Directors of the company. He has drawn our
attention to the averments made in the complaints, which we have reproduced
in the preceding paragraphs of this judgment and submits that mere
assertion that these accused persons were the Directors of the company is
not sufficient to make them liable under Section 141 of the Act. Mr.
Jayant Bhushan however, submits that there is clear averment in the
complaint that these accused persons were the Directors of the company and,
in fact, in-charge of and responsible for the conduct of the business of
the company and, hence, they were rightly summoned to face the trial. He
points out that the judgment and order of the High Court quashing the
prosecution of accused Vikram Prakash is under challenge in this batch of
appeals and accused A.K. Singhania cannot take benefit of the said order
and the fate of both the accused shall depend upon the decision in all
these appeals. Mr. Ranjit Kumar submits that on same set of facts when the
prosecution of the accused Vikram Prakash has been quashed, there does not
seem any justification to decline the prayer of the accused A.K. Singhania.
In view of rival submissions, we proceed to consider the exact
allegations made against the accused A.K. Singhania and accused Vikram
Prakash. It is not in dispute that allegations against both the accused in
different complaints are one and the same. In Complaint Case No. 331 of
1996, the allegation is that “all business and financial affairs of the
accused company are decided, organized, administered by Accused Nos. 1 to
5”. It has further been alleged that Accused Nos. 1 to 5 do so with
consultation of other Directors namely, Accused Nos. 6 to 12. In view of
aforesaid, according to the complainant, accused Nos. 1 to 13 are also
responsible for all the transactions and business affairs, financial
affairs and administration done on behalf of the accused company. It is
relevant here to state that A.K. Singhania and Vikram Prakash are accused
Nos. 7 and 9 in this complaint. The averments made in the complaint
nowhere suggest that these two accused, at the time the offence was
committed, were in-charge of and responsible for the conduct of the
business of the company. According to the complainant itself, it was
accused Nos. 1 to 5 who were taking decisions and the allegation that in
taking the decisions they used to consult these accused also will not mean
that these two accused were at the time the offence was committed, were in-
charge of and responsible for the conduct of business of the company. In
complaint Case No. 1293 of 1996 and all other complaints with which we are
concerned in the present appeals the allegation is that “all business and
financial affairs of the accused company No.1, are decided, organized,
administered by accused Nos. 2 to 6 and in consultation of other directors
i.e. from accused Nos. 7 to 13”. It has further been averred that at the
time the offence was committed “they were in-charge and responsible to the
company for the conduct of the business” and, therefore, “they are
responsible for day to day affairs and transaction, business and all
financial affairs of the accused company.” Mr. Ranjit Kumar submits that
the aforesaid averments are not sufficient and from that it cannot be
inferred that accused A.K. Singhania and accused Vikram Prakash have been
alleged to be in-charge and responsible for the conduct of the
business of the company at the time the offence was committed. He points
out that A.K. Singhania is accused No. 8 whereas accused Vikram Prakash is
accused No. 10 in these complaints. Mr. Jayant Bhushan, however, joins
issue and submits that the substance of the accusation clearly indicates
that the two accused were in-charge and responsible for the conduct of the
business of the company at the time of the offence.
We have perused the complaints and, in fact, the relevant portions of
the allegations have been reproduced in the foregoing paragraphs of the
judgment. From that it is difficult to infer that there is any averment
that these two accused were in-charge of and responsible for the conduct
of the business of the company at the time the offence was committed. The
allegations in the complaints in sum and substance mean that business and
financial affairs of the company used to be decided, organized and
administered by accused Nos. 2 to 6 and while doing so, other Directors
including the two accused herein were consulted. The inference drawn by
the complainant on that basis that these two accused, therefore, are in-
charge and responsible to the company for the conduct of its business, is
absolutely misconceived. We are, therefore, of the opinion that essential
averment in the complaints is lacking.
In case of offence by company for dishonour of cheque, the culpability
of the Directors has to be decided with reference to Section 141 of the
Act, same reads as follows:
“141. Offences by companies.-
(1) If the person committing an
offence under section 138 is a company, every person who, at the
time the offence was committed, was in charge of, and was
responsible to the company for the conduct of the business of
the company, as well as the company, shall be deemed to be
guilty of the offence and shall be liable to be proceeded
against and punished accordingly:
Provided that nothing contained in this sub-section shall
render any person liable to punishment if he proves that the
offence was committed without his knowledge, or that he had
exercised all due diligence to prevent the commission of such
offence:
Provided further that where a person is nominated as a
Director of a company by virtue of his holding any office or
employment in the Central Government or State Government or a
financial corporation owned or controlled by the Central
Government or the State Government, as the case may be, he shall
not be liable for prosecution under this Chapter.
(2) Notwithstanding anything contained in sub-section (1), where
any offence under this Act has been committed by a company and
it is proved that the offence has been committed with the
consent or connivance of, or is attributable to, any neglect on
the part of, any director, manager, secretary or other officer
of the company, such director, manager, secretary or other
officer shall also be deemed to be guilty of that offence and
shall be liable to be proceeded against and punished
accordingly.
Explanation.- For the purposes of this section,-
(a) "company" means any body corporate and includes a firm
or other association of individuals; and
(b) "director", in relation to a firm, means a partner in
the firm.”
From a plain reading of the aforesaid provision it is evident that
every person who at the time the offence was committed is in charge of and
responsible to the Company shall be deemed to be guilty of the offence
under Section 138 of the Act.
In the face of it, will it be necessary to
specifically state in the complaint that the person accused was in charge
of and responsible for the conduct of the business of the Company? In our
opinion, in the case of offence by Company, to bring its Directors within
the mischief of Section 138 of the Act, it shall be necessary to allege
that they were in charge of and responsible to the conduct of the business
of the Company. It is necessary ingredient which would be sufficient to
proceed against such Directors. However, we may add that as no particular
form is prescribed, it may not be necessary to reproduce the words of the
section. If reading of the complaint shows and substance of accusation
discloses necessary averments, that would be sufficient to proceed against
such of the Directors and no particular form is necessary. However, it may
not be necessary to allege and prove that, in fact, such of the Directors
have any specific role in respect of the transaction leading to issuance of
cheque.
Section 141 of the Act makes the Directors in charge and
responsible to Company “for the conduct of the business of the Company”
within the mischief of Section 138 of the Act and not particular business
for which the cheque was issued. We cannot read more than what has been
mandated in Section 141 of the Act.
A large number of authorities of this Court have been cited by the
counsel representing the party to bring home their point. We deem it
inexpedient to refer to all of them. Suffice it to say that this question
has been answered eloquently by a three-Judge Bench decision of this Court
in the case of S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC
89, in the following words:
“19. In view of the above discussion, our answers to the
questions posed in the reference are as under:
(a) It is necessary to specifically aver in a complaint under
Section 141 that at the time the offence was committed, the
person accused was in-charge of, and responsible for the conduct
of business of the company. This averment is an essential
requirement of Section 141 and has to be made in a complaint.
Without this averment being made in a complaint, the
requirements of Section 141 cannot be said to be satisfied.”
This Court in the case of National Small Industries Corpn. Ltd. v.
Harmeet Singh Paintal, (2010) 3 SCC 330, after reviewing all its earlier
judgments summarized the legal position as follows:
“39. From the above discussion, the following principles emerge:
(i) The primary responsibility is on the complainant to make
specific averments as are required under the law in the
complaint so as to make the accused vicariously liable. For
fastening the criminal liability, there is no presumption that
every Director knows about the transaction.
(ii) Section 141 does not make all the Directors liable for
the offence. The criminal liability can be fastened only on
those who, at the time of the commission of the offence, were in
charge of and were responsible for the conduct of the business
of the company.
(iii) Vicarious liability can be inferred against a company
registered or incorporated under the Companies Act, 1956 only if
the requisite statements, which are required to be averred in
the complaint/petition, are made so as to make the accused
therein vicariously liable for offence committed by the company
along with averments in the petition containing that the accused
were in charge of and responsible for the business of the
company and by virtue of their position they are liable to be
proceeded with.
(iv) Vicarious liability on the part of a person must be
pleaded and proved and not inferred.
(v) If the accused is a Managing Director or a Joint Managing
Director then it is not necessary to make specific averment in
the complaint and by virtue of their position they are liable to
be proceeded with.
(vi) If the accused is a Director or an officer of a company
who signed the cheques on behalf of the company then also it is
not necessary to make specific averment in the complaint.
(vii) The person sought to be made liable should be in charge
of and responsible for the conduct of the business of the
company at the relevant time. This has to be averred as a fact
as there is no deemed liability of a Director in such cases.”
In Harshendra Kumar D. v. Rebatilata Koley, (2011) 3 SCC 351, after
referring to its earlier decisions in S.M.S. Pharmaceuticals Ltd.(supra),
National Small Industries Corpn. Ltd.(supra), N. Rangachari v. Bharat
Sanchar Nigam Ltd., (2007) 5 SCC 108 and K.K. Ahuja v. V.K. Vora, (2009) 10
SCC 48, this Court reiterated the same view.
We have found on fact that there is no averment that the two accused
herein were in charge of and responsible for the conduct of the business of
the company at the time the offence was committed. Hence, there is no
essential averment in the complaints.
In view of what we have observed
above, the prosecution of accused A.K. Singhania and accused Vikram Prakash
cannot be allowed to continue. Accordingly, the order of the High Court
quashing the prosecution of the accused Vikram Prakash is not fit to be
interfered with.
For the same reason the order passed by the High Court
declining the prayer of A.K. Singhania for quashing of the prosecution
cannot be sustained and the appeals preferred by him deserve to be allowed.
In the result, we dismiss the appeals preferred by the complainant
Gujarat State Fertilizers Company Ltd. and allow the appeals preferred by
A.K. Singhania and quash his prosecution in all these cases.
……………………..………………………………..J.
(CHANDRAMAULI KR. PRASAD)
…….….……….………………………………..J.
(KURIAN JOSEPH)
NEW DELHI,
OCTOBER 17, 2013
-----------------------
21
Section 141 of the Act makes the Directors in charge and
responsible to Company “for the conduct of the business of the Company”
within the mischief of Section 138 of the Act and not particular business
for which the cheque was issued. We cannot read more than what has been
mandated in Section 141 of the Act.
however there are no specific allegations and
averments in the complaint against the applicant with respect to
transaction for which the cheques were issued by the accused no.
14 company. =
(i) The primary responsibility is on the complainant to make
specific averments as are required under the law in the
complaint so as to make the accused vicariously liable. For
fastening the criminal liability, there is no presumption that
every Director knows about the transaction.
(ii) Section 141 does not make all the Directors liable for
the offence. The criminal liability can be fastened only on
those who, at the time of the commission of the offence, were in
charge of and were responsible for the conduct of the business
of the company.
(iii) Vicarious liability can be inferred against a company
registered or incorporated under the Companies Act, 1956 only if
the requisite statements, which are required to be averred in
the complaint/petition, are made so as to make the accused
therein vicariously liable for offence committed by the company
along with averments in the petition containing that the accused
were in charge of and responsible for the business of the
company and by virtue of their position they are liable to be
proceeded with.
(iv) Vicarious liability on the part of a person must be
pleaded and proved and not inferred.
(v) If the accused is a Managing Director or a Joint Managing
Director then it is not necessary to make specific averment in
the complaint and by virtue of their position they are liable to
be proceeded with.
(vi) If the accused is a Director or an officer of a company
who signed the cheques on behalf of the company then also it is
not necessary to make specific averment in the complaint.
(vii) The person sought to be made liable should be in charge
of and responsible for the conduct of the business of the
company at the relevant time. This has to be averred as a fact
as there is no deemed liability of a Director in such cases.” =
We have found on fact that there is no averment that the two accused
herein were in charge of and responsible for the conduct of the business of
the company at the time the offence was committed. Hence, there is no
essential averment in the complaints.
In view of what we have observed
above, the prosecution of accused A.K. Singhania and accused Vikram Prakash
cannot be allowed to continue.
Accordingly, the order of the High Court
quashing the prosecution of the accused Vikram Prakash is not fit to be
interfered with. For the same reason the order passed by the High Court
declining the prayer of A.K. Singhania for quashing of the prosecution
cannot be sustained and the appeals preferred by him deserve to be allowed.
In the result, we dismiss the appeals preferred by the complainant
Gujarat State Fertilizers Company Ltd. and allow the appeals preferred by
A.K. Singhania and quash his prosecution in all these cases.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NOS.1692-1718 OF 2013
(@SPECIAL LEAVE PETITION (CRL.) NOS. 2970-2996 OF 2012)
A.K. SINGHANIA … APPELLANT
VERSUS
GUJARAT STATE FERTILIZER
CO. LTD. & ANR. …RESPONDENTS
WITH
CRIMINAL APPEAL NOS.1719-1725 OF 2013
(@SPECIAL LEAVE PETITION (CRL.) NOS. 3100-3106 OF 2012)
A.K. SINGHANIA … APPELLANT
VERSUS
GUJARAT STATE FERTILIZER
CO. LTD. & ANR. …RESPONDENTS
CRIMINAL APPEAL NOS.1726-1732 OF 2013
(@SPECIAL LEAVE PETITION (CRL.) NOS.984-990 OF 2013)
GUJARAT STATE FERTILIZER
CO. LTD. … APPELLANT
VERSUS
VIKRAM PRAKASH & ANR. …RESPONDENTS
CRIMINAL APPEAL NOS.1733-1759 OF 2013
(@SPECIAL LEAVE PETITION (CRL.) NOS. 1068-1094 OF 2013)
GUJARAT STATE FERTILIZER
CO. LTD. … APPELLANT
VERSUS
VIKRAM PRAKASH & ANR. …RESPONDENTS
J U D G M E N T
CHANDRAMAULI KR. PRASAD, J.
In all these special leave petitions common question of law and
facts arise and, therefore, they have been heard together and are being
disposed of by this common judgment.
Leave granted.
In all these cases we are concerned with accused A.K. Singhania and
Vikram Prakash.
Several complaints were filed by Gujarat State Fertilizer
Company against Esslon Synthetics Ltd., its Chairman, Managing Director and
other Directors including aforesaid A.K. Singhania and Vikram Prakash
alleging commission of an offence under Section 138 of the Negotiable
Instruments Act, hereinafter referred to as ‘the Act’.
In Complaint Case No. 331 of 1996 the allegations which are relevant
for the decision of these appeals read as follows:
“3. The accused No. 14 is a Limited Company registered
under the Companies Act, 1956 and are doing business of
chemicals, synthetics etc. The accused No. 1 is Managing
Director of accused company No. 14 and accused No. 2 is Deputy
Managing Director, accused No. 3 is Chairman, accused No. 4 is
Whole Time Director, accused No. 5 is Finance Director, accused
No. 6 to 12 are the Directors and the accused No. 13 was Senior
Manager (Finance) of the accused company No. 14 Esslon
Synthetics Ltd.
4. All the business and financial affairs of the accused
company No. 14 are decided, organized, administered by accused
No. 1 being Managing Director and accused No. 2 being Deputy
Managing Director, accused No. 3 Chairman, accused No. 4 Whole
Time Director, accused No. 5 Finance Director with consultation
of other Directors from accused Nos. 6 to 12 and accused No. 13
was Sr. Manager (Finance) of accused company No. 14. So accused
Nos. 1 to 12 and accused No. 13 are also responsible for all the
transactions and business affairs done on behalf of accused
Company No. 14 and are responsible for all the financial affairs
and administration of accused Company No. 14.”
A.K. Singhania is the accused No. 7 and Vikram Prakash is accused No.
9 in this complaint.
In Complaint Case No. 1293 of 1996, the allegations with which we are
concerned in these appeals read as follows:
“4. All the business and financial affairs of the accused
company No. 1 are decided, organized, administered by the
accused No. 2 being Managing Director and accused No. 3 being
Managing Director, accused No. 4 Chairman, accused No. 5 Whole
Time Director, accused No. 6 Finance Director with consultation
of other Directors from accused Nos. 7 to 13 and accused No. 14
was Sr. Manager (Finance) of accused No. 1. At the time the
offence was committed, they were incharge of and were
responsible to the company for the conduct of the business of
the accused company. Therefore, they are responsible for day to
day affairs and all the transactions and business done on behalf
of the accused Company No. 1 and they are also responsible for
all the financial affairs and administration of accused company
No. 1.”
A.K. Singhania and Vikram Prakash have been arrayed as accused Nos. 8
and 10 in this complaint and in all other complaints, the allegations
against A.K. Singhania are identical to what have been alleged in the
Complaint Case No. 331 of 1996.
Taking into account the allegations made in the respective complaints,
the learned Magistrate took cognizance of the offence, issued process to
the accused aforesaid besides other accused to face trial for commission of
the offence under Section 138 of the Act.
Vikram Prakash, aggrieved by the order issuing summons to face trial
under Section 138 of the Act in different complaints, filed applications
under Section 482 of the Code of Criminal Procedure for quashing the order
taking cognizance and issuing process. The applications filed by said
Vikram Prakash were registered as Criminal Miscellaneous Application Nos.
13393-13399 of 2007. The High Court by its common order dated January 20,
2012 allowed all the applications and quashed his prosecution. While doing
so, the High Court held as follows:
“7.…………It is to be noted that as such there are general
allegations and averments against the applicant in the
complaints, however there are no specific allegations and
averments in the complaint against the applicant with respect to
transaction for which the cheques were issued by the accused no.
14 company. Under the circumstance, on the ground that
applicant was non Executive Director of the Company on the board
of the company, which is not disputed by the complainant, the
applicant cannot be prosecuted for the offence under Sections
138 r/w 141 of the Negotiable Instruments Act and cannot be held
vicariously liable for the offence alleged to have been
committed by the accused no. 14 company. Under the
circumstance, this Court is of opinion that this is a fit case
to exercise the powers under Section 482 of the Code of Criminal
Procedure and to quash and set aside the impugned
complaint/criminal case qua applicant-original accused no. 9……”
It is this common order which has been assailed by the Gujarat State
Fertilizer Company Ltd. in the special leave petitions filed by it.
A.K. Singhania also, aggrieved by the order issuing process under
Section 138 of the Act, filed separate applications for quashing the entire
prosecution including the aforesaid order under Section 482 of the Code of
Criminal Procedure. All the applications filed by A.K. Singhania were
taken together by the High Court for consideration and by the impugned
order the applications filed by him have been dismissed. While doing so,
the High Court observed as follows:
“9. As the paragraphs of the complaint reproduced in
earlier part of decision specifically para 4 and subsequent
paragraphs would reveal that the applicant in the capacity of
Director was responsible for business affairs and he was in-
charge of the Company. Not only that but nowhere it can be said
that the applicant was non-Executive Director and even if it is
so the said argument is in realm of defence to be decided by
Court trying the case under the Negotiable Instruments Act.
Since sufficient averments attracting of Section 138 of
Negotiable Instrument Act are the foundation of the complaint
and it is further averred that cheques were issued with
mischievous, dishonest intention, knowingly and willingly to
cheat the complainant company. Arguments canvassed by learned
advocate for the applicant do not require any further
deliberation in exercise of powers under Section 482 of the Code
since quashing the complaint would not secure end of justice but
would result into miscarriage of justice………..”
A.K. Singhania, aggrieved by the aforesaid common order, has preferred
these special leave petitions.
Leave granted.
We have heard Mr.Ranjit Kumar, learned Senior Counsel on behalf of the
accused A.K. Singhania and Mr.Ashok Kr. Srivastava, learned Senior Counsel
on behalf of Vikram Prakash whereas the complainant, Gujarat State
Fertilizer Company Ltd. is represented by Mr. Jayant Bhushan, learned
Senior Counsel. Mr. Ranjit Kumar appearing on behalf of the accused
submits that necessary averments that at the time the offence was
committed, the accused were in-charge of and responsible for the conduct of
the business of the company have not been averred, which is sine qua non
for proceeding against the Directors of the company. He has drawn our
attention to the averments made in the complaints, which we have reproduced
in the preceding paragraphs of this judgment and submits that mere
assertion that these accused persons were the Directors of the company is
not sufficient to make them liable under Section 141 of the Act. Mr.
Jayant Bhushan however, submits that there is clear averment in the
complaint that these accused persons were the Directors of the company and,
in fact, in-charge of and responsible for the conduct of the business of
the company and, hence, they were rightly summoned to face the trial. He
points out that the judgment and order of the High Court quashing the
prosecution of accused Vikram Prakash is under challenge in this batch of
appeals and accused A.K. Singhania cannot take benefit of the said order
and the fate of both the accused shall depend upon the decision in all
these appeals. Mr. Ranjit Kumar submits that on same set of facts when the
prosecution of the accused Vikram Prakash has been quashed, there does not
seem any justification to decline the prayer of the accused A.K. Singhania.
In view of rival submissions, we proceed to consider the exact
allegations made against the accused A.K. Singhania and accused Vikram
Prakash. It is not in dispute that allegations against both the accused in
different complaints are one and the same. In Complaint Case No. 331 of
1996, the allegation is that “all business and financial affairs of the
accused company are decided, organized, administered by Accused Nos. 1 to
5”. It has further been alleged that Accused Nos. 1 to 5 do so with
consultation of other Directors namely, Accused Nos. 6 to 12. In view of
aforesaid, according to the complainant, accused Nos. 1 to 13 are also
responsible for all the transactions and business affairs, financial
affairs and administration done on behalf of the accused company. It is
relevant here to state that A.K. Singhania and Vikram Prakash are accused
Nos. 7 and 9 in this complaint. The averments made in the complaint
nowhere suggest that these two accused, at the time the offence was
committed, were in-charge of and responsible for the conduct of the
business of the company. According to the complainant itself, it was
accused Nos. 1 to 5 who were taking decisions and the allegation that in
taking the decisions they used to consult these accused also will not mean
that these two accused were at the time the offence was committed, were in-
charge of and responsible for the conduct of business of the company. In
complaint Case No. 1293 of 1996 and all other complaints with which we are
concerned in the present appeals the allegation is that “all business and
financial affairs of the accused company No.1, are decided, organized,
administered by accused Nos. 2 to 6 and in consultation of other directors
i.e. from accused Nos. 7 to 13”. It has further been averred that at the
time the offence was committed “they were in-charge and responsible to the
company for the conduct of the business” and, therefore, “they are
responsible for day to day affairs and transaction, business and all
financial affairs of the accused company.” Mr. Ranjit Kumar submits that
the aforesaid averments are not sufficient and from that it cannot be
inferred that accused A.K. Singhania and accused Vikram Prakash have been
alleged to be in-charge and responsible for the conduct of the
business of the company at the time the offence was committed. He points
out that A.K. Singhania is accused No. 8 whereas accused Vikram Prakash is
accused No. 10 in these complaints. Mr. Jayant Bhushan, however, joins
issue and submits that the substance of the accusation clearly indicates
that the two accused were in-charge and responsible for the conduct of the
business of the company at the time of the offence.
We have perused the complaints and, in fact, the relevant portions of
the allegations have been reproduced in the foregoing paragraphs of the
judgment. From that it is difficult to infer that there is any averment
that these two accused were in-charge of and responsible for the conduct
of the business of the company at the time the offence was committed. The
allegations in the complaints in sum and substance mean that business and
financial affairs of the company used to be decided, organized and
administered by accused Nos. 2 to 6 and while doing so, other Directors
including the two accused herein were consulted. The inference drawn by
the complainant on that basis that these two accused, therefore, are in-
charge and responsible to the company for the conduct of its business, is
absolutely misconceived. We are, therefore, of the opinion that essential
averment in the complaints is lacking.
In case of offence by company for dishonour of cheque, the culpability
of the Directors has to be decided with reference to Section 141 of the
Act, same reads as follows:
“141. Offences by companies.-
(1) If the person committing an
offence under section 138 is a company, every person who, at the
time the offence was committed, was in charge of, and was
responsible to the company for the conduct of the business of
the company, as well as the company, shall be deemed to be
guilty of the offence and shall be liable to be proceeded
against and punished accordingly:
Provided that nothing contained in this sub-section shall
render any person liable to punishment if he proves that the
offence was committed without his knowledge, or that he had
exercised all due diligence to prevent the commission of such
offence:
Provided further that where a person is nominated as a
Director of a company by virtue of his holding any office or
employment in the Central Government or State Government or a
financial corporation owned or controlled by the Central
Government or the State Government, as the case may be, he shall
not be liable for prosecution under this Chapter.
(2) Notwithstanding anything contained in sub-section (1), where
any offence under this Act has been committed by a company and
it is proved that the offence has been committed with the
consent or connivance of, or is attributable to, any neglect on
the part of, any director, manager, secretary or other officer
of the company, such director, manager, secretary or other
officer shall also be deemed to be guilty of that offence and
shall be liable to be proceeded against and punished
accordingly.
Explanation.- For the purposes of this section,-
(a) "company" means any body corporate and includes a firm
or other association of individuals; and
(b) "director", in relation to a firm, means a partner in
the firm.”
From a plain reading of the aforesaid provision it is evident that
every person who at the time the offence was committed is in charge of and
responsible to the Company shall be deemed to be guilty of the offence
under Section 138 of the Act.
In the face of it, will it be necessary to
specifically state in the complaint that the person accused was in charge
of and responsible for the conduct of the business of the Company? In our
opinion, in the case of offence by Company, to bring its Directors within
the mischief of Section 138 of the Act, it shall be necessary to allege
that they were in charge of and responsible to the conduct of the business
of the Company. It is necessary ingredient which would be sufficient to
proceed against such Directors. However, we may add that as no particular
form is prescribed, it may not be necessary to reproduce the words of the
section. If reading of the complaint shows and substance of accusation
discloses necessary averments, that would be sufficient to proceed against
such of the Directors and no particular form is necessary. However, it may
not be necessary to allege and prove that, in fact, such of the Directors
have any specific role in respect of the transaction leading to issuance of
cheque.
Section 141 of the Act makes the Directors in charge and
responsible to Company “for the conduct of the business of the Company”
within the mischief of Section 138 of the Act and not particular business
for which the cheque was issued. We cannot read more than what has been
mandated in Section 141 of the Act.
A large number of authorities of this Court have been cited by the
counsel representing the party to bring home their point. We deem it
inexpedient to refer to all of them. Suffice it to say that this question
has been answered eloquently by a three-Judge Bench decision of this Court
in the case of S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC
89, in the following words:
“19. In view of the above discussion, our answers to the
questions posed in the reference are as under:
(a) It is necessary to specifically aver in a complaint under
Section 141 that at the time the offence was committed, the
person accused was in-charge of, and responsible for the conduct
of business of the company. This averment is an essential
requirement of Section 141 and has to be made in a complaint.
Without this averment being made in a complaint, the
requirements of Section 141 cannot be said to be satisfied.”
This Court in the case of National Small Industries Corpn. Ltd. v.
Harmeet Singh Paintal, (2010) 3 SCC 330, after reviewing all its earlier
judgments summarized the legal position as follows:
“39. From the above discussion, the following principles emerge:
(i) The primary responsibility is on the complainant to make
specific averments as are required under the law in the
complaint so as to make the accused vicariously liable. For
fastening the criminal liability, there is no presumption that
every Director knows about the transaction.
(ii) Section 141 does not make all the Directors liable for
the offence. The criminal liability can be fastened only on
those who, at the time of the commission of the offence, were in
charge of and were responsible for the conduct of the business
of the company.
(iii) Vicarious liability can be inferred against a company
registered or incorporated under the Companies Act, 1956 only if
the requisite statements, which are required to be averred in
the complaint/petition, are made so as to make the accused
therein vicariously liable for offence committed by the company
along with averments in the petition containing that the accused
were in charge of and responsible for the business of the
company and by virtue of their position they are liable to be
proceeded with.
(iv) Vicarious liability on the part of a person must be
pleaded and proved and not inferred.
(v) If the accused is a Managing Director or a Joint Managing
Director then it is not necessary to make specific averment in
the complaint and by virtue of their position they are liable to
be proceeded with.
(vi) If the accused is a Director or an officer of a company
who signed the cheques on behalf of the company then also it is
not necessary to make specific averment in the complaint.
(vii) The person sought to be made liable should be in charge
of and responsible for the conduct of the business of the
company at the relevant time. This has to be averred as a fact
as there is no deemed liability of a Director in such cases.”
In Harshendra Kumar D. v. Rebatilata Koley, (2011) 3 SCC 351, after
referring to its earlier decisions in S.M.S. Pharmaceuticals Ltd.(supra),
National Small Industries Corpn. Ltd.(supra), N. Rangachari v. Bharat
Sanchar Nigam Ltd., (2007) 5 SCC 108 and K.K. Ahuja v. V.K. Vora, (2009) 10
SCC 48, this Court reiterated the same view.
We have found on fact that there is no averment that the two accused
herein were in charge of and responsible for the conduct of the business of
the company at the time the offence was committed. Hence, there is no
essential averment in the complaints.
In view of what we have observed
above, the prosecution of accused A.K. Singhania and accused Vikram Prakash
cannot be allowed to continue. Accordingly, the order of the High Court
quashing the prosecution of the accused Vikram Prakash is not fit to be
interfered with.
For the same reason the order passed by the High Court
declining the prayer of A.K. Singhania for quashing of the prosecution
cannot be sustained and the appeals preferred by him deserve to be allowed.
In the result, we dismiss the appeals preferred by the complainant
Gujarat State Fertilizers Company Ltd. and allow the appeals preferred by
A.K. Singhania and quash his prosecution in all these cases.
……………………..………………………………..J.
(CHANDRAMAULI KR. PRASAD)
…….….……….………………………………..J.
(KURIAN JOSEPH)
NEW DELHI,
OCTOBER 17, 2013
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