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 11 WP-3050-09.sxw
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.
(v) If accused is Managing Director or Joint Managing Directer 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 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."
Bombay High Court
Mr. Rajesh M. Pamanai vs All Having Address At 2Nd Floor on 29 April, 2011
Bench: J. H. Bhatia
1 WP-3050-09.sxwIN THE HIGH COURT OF JUDICATURE AT BOMBAY
CRIMINAL APPELLATE JURISDICTION
Mhi
CRIMINAL WRIT PETITION NO. 3050 OF 2009
WITH
CRIMINAL WRIT PETITION NO. 692 OF 2011
Mr. Rajesh M. Pamanai ) Through his father and Constituted ) Attorney Mr. Menghraj Pamnani Aged 84 ) years Indian INhabitant having address ) at flat NO.6, 2nd floor, Crescent Co-op. ) Housing Society, Khar Mumbai 400 052. ).. Petitioner (Orig.complainant)
vs.
1. State of Maharashtra & Ors. )
2. Mr. Ronnie Netto Aged 49 years )
3. Mr. Devarajan Raman Aged 53 years )
All having address at 2nd floor, )
Hari Om Chamber, B-16, )
New Link Road, Andheri (W), )
Mumbai 400 053. ).. Respondents (Resp.Nos. 2 & 3 orig.accused)
WITH
WRIT PETITON NO. 692 OF 2011
1. Mr. Rahul Gupta, Adult, )
Indina INhabitant, Occupation: )
Business, havig his address Geleni )
ONGC Colony, Bandra Reclamation, )
Bandra (W), Mumbai 400 050. )
2. Mr. Mukesh Gupta, Adult, Indian ) Inhabitant, Occupation: Business, )
2 WP-3050-09.sxw
havig his address at F-22, Geetanji )
Enclave, New Delhi 110017. )
3. Mr. Sanjeev Shah, Adult, Indian ) Inhabitant, Occupation: Business, )
having his address at C-103, Saarthi )
Samrjya Flat, Near Fatehgunj P. O. )
Fatehgunj, Gujarat 390 002. ).. Petitoners Vedrsus
1. Mr. Rajesh M. Pamnani, )
through his father Menghraj Pamnani,)
Advocate, Adult, Indian Inhabitant, )
having address at Flat NO.6, 2nd )
Floor, Cresent CHS, Khar, )
Mumbai 400 052. )
2. The State of Maharashtra )..Respondents Mr.Kishor Bhatia, Advocate, for the petitioner. Mrs. V.R.Bhosale, APP, for the respondent No.1 - State. Mr. H.H.Nagi, Advocate for the respondent Nos. 2 & 3. CORAM: J.H.BHATIA,J.
DATE : 29th April, 2011.
JUDGMENT:
1. These petitions arise out of the two different orders passed in Criminal Case No.290/SS/2008 pending before the Metropolitan Magistrate, 58th Court at Bandra and, therefore, they may be disposed of by this common Judgment.
3 WP-3050-09.sxw
2. Rule. Rule made returnable forthwith in both the petitions. Heard the learned Counsel for the parties.
3. To state in brief, the complainant - Rajesh M. Pamnani filed the complaint under Section 138 of the Negotiable Instruments Act through his father Menghraj Pamnani against seven accused persons. Accused No.1 - Today's Writing Products Ltd. is a company. Accused Nos. 2, 3, 5, 6 and 7 are its directors and accused No.4 - Devrajan Raman is its Chief Financial Officer. As per the complaint, for the financial and managerial consultation provided by the complainant to the accused No.1, the accused No.2 had issued a cheque of Rs.10 lakh on 5.9.2007 drawn on Axis Bank Ltd., Andheri Branch, Mumbai, in favour of the complainant. The cheque was presented for encashmnt, but was dishonoured with the remark "payment stopped by the drawer". Inspite of service of the statutory notice to make payment, the accused persons failed to make payment. Therefore, the complainant filed complaint under Section 138 read with Sec. 141 of the Negotiable Instruments Act. The trial Court issued process against all the accused persons.
4. Accused Nos. 2, 3 and 4 challenged the issuance of process by filing 4 WP-3050-09.sxw
Criminal Revision Application No.621/2008. The Revision was partly allowed by order dated 20.7.2009 and the process issued against accused Nos. 3 and 4 was set aside, while the issuance of process against accused No.2 was maintained. That order is challenged by the complainant in W.P. No.3050/2009.
5. The accused Nos. 5, 6 and 7 filed Revision Application No. 1031/2010 challenging the issuance of process against them. However, that application was rejected by the Additional Sessions Judge as per the order dated 14.12.2010. That order is challenged by the original accused Nos. 5, 6 and 7 in W.P. No.692/2011.
6. It appears that the earlier order allowing the revision application to the extent of accused Nos. 3 and 4 was based on certain Judgments of the Supreme Court, including S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla & Anr. 2005(8) SCC 89. The second order rejecting the revision application filed by the accused Nos. 5, 6 and 7 was based on the Judgment of the learned Single Judge of this Court in P.S.Srinivasan vs. State of Maharashtra & Anr. 2010 ALL MR (Cri) 459, in which reliance was placed on certain observations in K.K.Ahuja vs. V.K. Vora 2009 (2) Bom.C.R. (Cri.) 749 (S.C.). 5 WP-3050-09.sxw
7. It appears that the observations in K.K.Ahuja also came for consideration before the Supreme Court in National Small Industries Corp.Ltd. vs. Harmeet Singh Paintal & Anr. 2010 ALL MR (Cri) 921 (S.C.) wherein besides K.K.Ahuja, all other relevant previous authorities were also considered by the Supreme Court. In S.M.S. Pharmaceuticals Vs. Neeta Bhalla & Anr. (supra), a three-Judge Bench of the Supreme Court considered the following three questions :-
"(a) Whether for purposes of Section 141 of the Negotiable Instruments Act, 1881, it is sufficient if the substance of the allegation read as a whole fulfill the requirements of the said section and it is not necessary to specifically state in the complaint that the person accused was in charge of, or responsible for, the conduct of the business of the company.
(b) Whether a director of a company would be deemed to be in-charge of, and responsible to, the company for conduct of the business of 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 6 WP-3050-09.sxw
company and responsible to the company for conduct of its business could be proceeded against."
Having considered, the Supreme Court observed thus :- "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 Sec. 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 7 WP-3050-09.sxw
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 he 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."
8. In K.K.Ahuja, following observations were made in sub-para (iii) of para 20 :-
"(iii) In the case of a Director, Secretary or Manager (as defined in Sec. 2(24) of the Companies Act) or a person referred to in clauses (e) and (f) of section 5 of Companies Act, an averment in the complaint that he was in charge of, and was responsible to the company, for the conduct of the business of the company is necessary to bring the case under section 141(1). No further averment would be necessary in the 8 WP-3050-09.sxw
complaint, though some particulars will be desirable. They can also be made liable under section 141(2) by making necessary averments relating t consent and connivance or negligence, in the complaint, to bring the matter under that sub-section." It was argued before the Supreme Court in National Small Industries Corp. Ltd. (supra) that two-Judge Bench in K.K. Ahuja (supra) could not have overruled the three-Judge Bench of the Supreme Court in S.M.S. Pharmaceuticals. However, the Supreme Court observed thus in respect of K.K.Ahuja :- "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, [2009 ALL SCR 1524], it is clearly recorded that in the complaint it was alleged that the accused were in- charge 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, [2007 ALL MR (Cri) 560 (S.C.)] (supra) and N.K. Wahi's case, [2007 ALL MR (Cri) 1445 (S.C.)] (supra), this Court further noted in para 9 that ".... the prevailing trend 9 WP-3050-09.sxw
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 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."
From this, it appears that in K.K.Ahuja, factual aspects were slightly different and not only it was alleged in the complaint that the accused were in-charge of and were responsible for the conduct of the day-to-day business of the accused company, but it further stated that all the accused were directly and actively involved in the financial dealings of the company and the same was also reiterated 10 WP-3050-09.sxw
in the pre-summoning evidence.
9. After having considered the several judgments of the Supreme Court, including S.M.S.Pharmaceuicals, K.K.Ahuja, the Supreme Court in National Small Industries Corpn. Ltd. (supra), summed up the position thus in para 25 :- "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 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 11 WP-3050-09.sxw
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.
(v) If accused is Managing Director or Joint Managing Directer 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 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."
10. The Judgment in National Small Industries Corp. Ltd. (supra) 12 WP-3050-09.sxw
was rendered by the Supreme Court on 15.2.2010 and therefore the learned Single Judge of this Court while deciding the case in P.S.Srinivasan vs. State of Maharashtra & Anr. on 27.11.2009 did not have benefit of the said observations. The correct legal position has been reiterated by the Supreme Court in National Small Industries Corpn. Ltd. Facts of the present case will have to be considered in the light of the legal position. In para 1 of the complaint, it is stated that accused Nos. 2 to 7 are directors of accused No.1 company and were duly responsible for the acts and work of the accused No.1 company. Besides, in para 2 it was stated that the complainant had various E-mail correspondence with other accused showing that they were aware of the issuance of the said cheques. The learned Counsel for the complainant has taken me through the number of E-mail correspondence. It appears that on 15.9.2007, the complainant had sent E-mail to accused No.4 - Devrajan Raman, who is the Chief financial Officer of accused No.1 company informing that he was planning to redeposit the said cheque and he wanted to confirm from accused No.4 Devrajan whether funds were available. On 15.9.2007, accused No.4 Devrajan sent the E-mail to the complainant and told him that as discussed, the cheque may be deposited on 21st after reconfirmation with him. It also appears from E-mail dated 19.9.2010 from accused No.4 Devrajan to accused No.3 Ronnie, that as per the instructions given by Rajesh Pamnani to accused No.4 Devrajan, he had issued stop payment instructions to the 13 WP-3050-09.sxw
Bank and he wanted to know what should be done further. It is important to note that in the complaint itself, accused No.4 - Devrajan was shown as Chief Financial Officer and from the above E-mail correspondence, it is clear that he was very much involved in connection with issuance, presentation of the cheque and he had himself issued the stop payment instructions to the Bank. As far as accused Nos. 3, 5, 6 and 7 are concerned, there is no E-mail correspondence or other document to show that they were actually involved in the conduct of the business or in commission of the offence under Sec. 138. The bare statement in the complaint that accused Nos. 3, 5, 6 and 7 were the directors and responsible for the conduct of business would not be sufficient to hold them guilty for the offence under Sec. 138 read with Sec. 141 of Negotiable Instruments Act. It requires something more which is missing.
11. Taking into consideration the material noted above, it appears that the learned Addl. Sessions Judge, while allowing Revision Application of accused No.4 by order dated 20.7.2009, had not taken into consideration the allegations about the E-mail correspondence noted above and thereby committed error in quashing process issued against accused No.4. The learned Addl. Sessions Judge, rejected the revision application of accused Nos. 5, 6 and 7 by order dated 14.12.2010, relying upon the observations made by the learned 14 WP-3050-09.sxw
Single Judge of this Court in P.S.Srinivasan vs. state of Maharashtra (supra) based on K.K.Ahuja (supra). In view of the above circumstances, the learned Addl. Sessions Judge had committed error in rejecting the revision application of accused Nos. 5, 6 and 7. Taking into consideration the legal position and the facts and pleadings in the complaint, I find that the accused No.1 company is responsible. Accused No.2 is not only director, but also signatory of the cheque. Accused No.4 Devrajan was the Chief Financial Officer and responsible for the conduct of the business and therefore they are liable to be prosecuted for the offence under Sec. 138 read with Sec. 141. However, there is no allegation in the complaint to show that accused No.3 Ronnie and accused Nos. 5, 6 and 7 were also responsible for the conduct of the business of the accused No.1 company. Therefore, the process issued against the accused Nos. 3, 5, 6 and 7 was liable to be quashed.
12. For the aforesaid reasons, the Writ Petition No.3050/2009 is hereby partly allowed. The impugned order quashing process against accused No.4 - Devrajan is hereby set aside, while the said order in respect of accused No.3 Ronnie Netto is maintained.
13. Writ Petition No.692 of 2011 is allowed and the impugned order 15 WP-3050-09.sxw
passed by the Sessions Court in Revision Application No.1031/2010 is hereby set aside. Rule made absolute accordingly.
(J.H.BHATIA,J.)
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