K.Chinnusamy vs S.S.Dye Chem on 26 February, 2010

Madras High Court

       

  

  

 
 
 IN THE HIGH COURT OF JUDICATURE AT MADRAS

DATED:  26.02.2010

CORAM

THE HONOURABLE MR. JUSTICE C.T.SELVAM


Crl.O.P.Nos.18130 of 2005 and 20867 of 2007
and
M.P.Nos.5313 and 5314 of 2005 and 1 of 2007


1.K.Chinnusamy
2.P.Vetrivel
3.R.Shanmugaselvan
4.P.Shanthi					...Petitioner in Crl.O.P.No.18130/05

N.Janaki					...Petitioner in Crl.O.P.No.20867/07

-Vs-

S.S.Dye Chem				...Respondent in both Crl.O.Ps.

	
	Criminal Original Petitions filed under Section 482 of Criminal Procedure Code to call for the entire records in so far relates to C.C.No.567 of 2004 on the file of the learned Judicial Magistrate II, Erode and quash the same.

		For Petitioners		: Mr.C.Prakasam
		(Crl.O.P.No.18130/05)
		For Petitioner		: Mr.C.S.Saravanan
		(Crl.O.P.No.20867/07)
		For Respondent 		: Mr.C.Raghunatha Reddy
*****

C O M M O N O R D E R These petitions seek to quash the proceedings in C.C.No.567 of 2004 on the file of the learned Judicial Magistrate II, Erode in so far as the petitioners are concerned.

2.C.C.No.567 of 2004 is a case pending adjudication for alleged offences under Sections 138, 141 and 142 of the Negotiable Instruments Act r/w 420 IPC. The petitioners in Crl.O.P.No.18130 of 2005 are the accused 4,6,7 and 8, while the petitioner in Crl.O.P.No.20867 of 2007 is the 5th accused in the case. The complaint case has been filed on the averments that the 1st accused company by name M/s.Adhavan Processors Pvt. Ltd. used to purchase dyes and chemicals from the respondent/complainant on credit for its textile processing and moneys were owing to the company in the course of such business transactions. The accused had acknowledged and confirmed the liability to the respondent/complainant in a sum of Rs.27,61,963.25 based on their accounts in the proceedings before the BIFR in case No.273 of 2000. Towards discharging a part thereof, a cheque dated 17.05.2004 bearing No.862048 drawn on Bank of Rajasthan, Erode branch in favour of the respondent/complainant and in a sum of Rs.25,00,000/- was issued by the 3rd accused on behalf of the 1st accused company. The respondent/complainant had followed the procedure envisaged under Section 138 of the Negotiable Instruments Act and having had no payment despite the statutory notice, preferred a complaint before the lower Court. The further contention in the complaint is that the 1st accused company and its directors without having sufficient funds in the bank account, issued a cheque to the respondent/complainant with dishonest intention knowing fully well that it would not be duly honoured on its presentation and thereby cheated the complainant.

3.The learned counsels appearing for the petitioners submitted that a reading of the complaint would show that only a blanket allegation of the directors being incharge of and responsible for the day-to-day business activities of the 1st accused company was made therein. On such an averment, no complaint under Section 138 of the Act could be maintained and it is repeatedly has been so held by the Honourable Apex Court. Reliance was placed on the decision of the Honourable Apex Court in K.K.Ahuja v. V.K.Vora and another 2009-2-L.W.(Crl.) 1386, wherein it is held as follows:

"21.If a mere reproduction of the wording of section 141(1) in the complaint is sufficient to make a person liable to face prosecution, virtually every officer/employee of a company without exception could be impleaded as accused by merely making an averment that at the time when the offence was committed they were in charge of and were responsible to the company for the conduct and business of the company. This would mean that if a company had 100 branches and the cheque issued from one branch was dishonoured, the officers of all the 100 branches could be made accused by simply making an allegation that they were in charge of and were responsible to the company for the conduct of the business of the company. That would be absurd and not intended under the Act. As the trauma, harassment and hardship of a criminal proceedings in such cases, may be more serious than the ultimate punishment, it is not proper to subject all and sundry to be impleaded as accused in a complaint against a company, even when the requirements of section 138 read and section 141 of the Act are not fulfilled."

4.It is the contention on behalf of the petitioners that they are not signatories to the cheque nor they held the capacity of a Managing Director or Manager of the 1st accused company. Placing reliance on the decision above mentioned learned counsel submitted that they do not fall within the category of persons who would necessarily be held to be incharge of and responsible to the company. In this regard, reliance is placed on paragraphs 14 to 16 of the said judgement.

"14.The words "every person who, at the time of the offence was committed, was in charge of, and was responsible for the conduct of the business of the company" occurs not only in section 141(1) of the Act but in several enactments dealing with offences by companies, to mention a few Section 278 B of the Income Tax act, 1961, Section 22C of Minimum Wages Act, 1948, Section 86A of the Employees State Insurance Act, 1948, Section 14A of Employees Provident Fund and Miscellaneous Provisions Act, 1952, Section 29 of Payment of Bonus Act, 1965, Section 40 of The Air (Prevention and Control of Pollution) Act, 1981 and section 47 of Water (Prevention and Control of Pollution) Act, 1974. But neither section 141(1) of the Act, nor the pari materia provisions in other enactments give any indication as to who are the persons responsible to the company, for the conduct of the business of the company. Therefore, we will have to fall back upon the provisions of Companies Act, 1956 which is the law relating to and regulating companies. Section 291 of the said 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 authorised 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 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 company's business. A combined reading of Sections 5 and 291 of Companies Act, 1956 with the definitions in clauses (24), (26), (30), (31), (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;

(f)any person charged by the Board with the responsibility of complying with that provision (and who has given his consent in that behalf to the Board); and

(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.

It follows that other employees of the company, cannot be said to be persons who are responsible to the company, for the conduct of the business of the company.

15.Section 141 uses the words "was incharge of, and was responsible to the company for the conduct of the business of the company". It is evident that a person who can be made vicariously liable under sub-section (1) of Section 141 is a person who is responsible to the company for the conduct of the business of the company and in addition is also in charge of the business of the company. There may be many directors and secretaries who are not in charge of the business of the company at all. The meaning of the words "person in charge of the business of the company" was considered by this Court in Girdhari Lal Gupta v. D.N.Mehta [1971 (3) SCC 189 = 1971 L.W. (Crl.) 14 S.N.] followed in State of Karnataka vs. Pratap Chand [1981 (2) SCC 335 = 1981 L.W. (Crl.) 37 S.N.] and Katta Sujatha vs. Fertiliser & Chemicals Travancore Ltd. [2002 (7) SCC 655]. This Court held that the words refer to a person who is in overall control of the day to day business of the company. This Court pointed out that a person may be a director and thus belongs to the group of persons making the policy followed by the company, but yet may not be in charge of the business of the company; that a person may be a Manager who is in charge of the business but may not be in overall charge of the business; and that a person may be an officer who may be in charge of only some part of the business.

16.Therefore, if a person does not meet the first requirement, that is being a person who is responsible to the company for the conduct of the business of the company, neither the question of his meeting the second requirement (being a person in charge of the business of the company), nor the question of such person being liable under sub-section (1) of section 141 does not arise. To put it differently, to be vicariously liable under sub-section (1) of Section 141, a person should fulfill the 'legal requirement' of being a person in law (under the statute governing companies) responsible to the company for the conduct of the business of the company and also fulfill the 'factual requirement' of being a person in charge of the business of the company."

5.Reliance also is placed on the decision of the Honourable Apex Court in SMS Pharmaceuticals v. Neeta Bhalla and another, 2005 (5) CTC 65: 2005(4) Crimes 34, to submit that the Honourable Apex Court had found the allegation of directors being incharge of and responsible to the company in the conduct of its affairs at the time of commission of offence, a necessary and requisite pleading in the complaint. It is contended that the complaint case would fail also on this score.

6.The learned counsel for the respondent would draw the attention of this Court to certain allegations in the complaint which reads as follows:

'1.All are incharge and responsible for day to day business activities of Accused No.1 Company.

2.The accused has also acknowledged and confirmed their liability to the complainant to a sum of Rs.27,61,963.25 based on their acounts in the proceedings before the Board for Industrial and Financial Reconstructions (BIFR) in Case No.273/2000. By confirming their liability referred to above and to discharge the same, on 14.05.2004 the 3rd accused on behalf of other accused had issued a cheque post dated 17.05.2004 bearing No.862048 for Rs.25,00,000/- (Rupees twenty five lakhs only) drawn on Bank of Rajasthan, Erode branch to the favour of the complainant. Upon issuing the Cheque, the 3rd Accused had promised that the above said cheque would be duly honoured on its presentation.

3.The complainant submits that the accused No.3 on behalf of accused No.1 company and its directors without having sufficient funds in the bank account issued the above cheque to the complainant with dishonest intention knowing fully well that it would not be duly honoured on its presentation and thereby cheated the complainant. Hence, the accused No's.1 to 10 have committed the offences under Sections 138, 141 & 142 of Negotiable Instruments Act and also the offence under Section 420 of Indian Penal Code."

7.It is the contention of the learned counsel for the respondent that the allegations above reproduced would fully satisfy legal requirements and be sufficient and sure compliance with the requisites put forth in the decisions of the Honourable Apex Court. The learned counsel would refer to the decision of the Honourable Apex Court in S.M.S Pharmaceuticals Ltd., v. Neeta Bhalla and another 2008-1-L.W.(Crl.) 50, wherein at paragraph 19 it had been observed as follows:

"The averments must state that the person who is vicariously liable for commission of the offence of the Company both was incharge of and was responsible for the conduct of the business of the Company. Requirements laid down therein must be read conjointly and not disjunctively."

8.The learned counsel for the respondent would submit that the complaint ought to be read conjointly and not disjunctively and when the allegations of the complaint reproduced are so read, it would be clear that sufficient averments are made in the complaint towards arraying the petitioners herein, who are the directors of the 1st accused company, as accused. A conjoint reading of the complaint would show that all directors had knowledge of issue of the cheque, and liability thereunder to payment. According to the learned counsel for the respondent, the fact that these petitioners as directors, were incharge of and responsible to the 1st accused company at the time of commission of offence, was self-evident. The lower Court has taken cognizance on the strength of complaint also against these accused and on the strength of necessary averments contained therein. This Court would not interfere and exercise its power under Section 482 of the Criminal Procedure Code.

10.I have considered the rival submissions.

11.Repeatedly, it has been held by the Honourable Apex Court that mere averment of persons being incharge of and responsible to company in the conduct of its affairs i.e., averments in the nature of verbatim reproduction of Section 141 of the Negotiable Instruments Act, would not suffice. The averments should be such, as would clearly indicate that the persons arrayed as accused in fact were so. In the instant case, the complaint would have to be found falling short on this score. The reliance placed by the learned counsel for the respondent in S.M.S Pharmaceuticals Ltd., v. Neeta Bhalla and another 2008-1-L.W. (Crl.) 50 is misplaced. It is in discussing the facts of the particular case that the Honourable Apex Court states that not all directors may be associated with the management of the day-to-day affairs of the company and accordingly, that a person was a party to a purported resolution would not necessarily lead to the inference that she was actively associated with the management of the affairs of the company. It is in such context that the Honourable Apex Court has observes as follows:

12.Clearly, the observations cannot be taken out of context and relied upon on behalf of the respondents. Again the requirements put forth by the Honourable Apex Court in SMS Pharmaceuticals v. Neeta Bhalla and another, 2005 (5) CTC 65: 2005(4) Crimes 34, have not been met. The Honourable Supreme Court has held in Paragraph 20 as follows:

(a)"It is necessary to specifically aver in a complaint under Section 141, that at the time offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company. This averments 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 question posed in sub-para (b) has to be in 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 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 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 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 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."

	13.For the reasons above said, Criminal Original Petitions shall stand allowed.  The proceedings in C.C.No.567 of 2004 on the file of the learned Judicial Magistrate II, Erode shall stand quashed in so far these petitioners are concerned.    Consequently, the connected miscellaneous petitions are closed.













gm

To
1.The Judicial Magistrate II, Erode.
2.The Public Prosecutor, High Court, 
  Madras