With a view to ensure that the Metropolitan Magistrates dealing with
the complaint cases filed under Section 138 r/w Section 141 of the
Negotiable Instruments Act have a clear and complete picture of the persons
arrayed by the complainant so as to hold them vicariously liable for the
commission of the offence by the accused company, I am inclined to direct
that the Magistrates must seek copies of Form-32 from the complainant to
prima facie satisfy the Court as to who were the directors of the accused
company at the time of commission of the alleged offence and on the date of
filing of the complaint case. In addition to the above, the Magistrates must
also seek information as given in the following table which is to be annexed
by the Complainant on a separate sheet accompanying the complaint:-
a. Name of the accused Company;
b. Particulars of the dishonoured cheque/cheques;
Person/Company in whose favour the cheque/cheques were issued
Drawer of the cheque/cheques
Date of issuance of cheque/cheques
Name of the drawer bank, its location
Name of the drawee bank, its location
Cheque No. /Nos.
Signatory of the cheque/cheques
c. Reasons due to which the cheque/cheques were dishonoured;
d. Name and Designation of the persons sought to be vicariously liable for the
commission of the offence by the accused Company and their exact role as
to how and in what manner they were responsible for the commission of the
alleged offence;
e. Particulars of the legal notice and status of its service;
f. Particulars of reply to the legal notice, if any.
IN THE HIGH COURT OF DELHI AT NEW DELHI
+ CRL.M.C. 1821/2013
SUDEEP JAIN
versus
M/S ECE INDUSTRIES LTD.
CORAM:
HON'BLE MR. JUSTICE KAILASH GAMBHIR
Dated ;6-5-2013
By these petitions filed under Section 482 of Cr. P.C., the petitioner –
Sudeep Jain is seeking quashing of summoning order dated 29.09.2012
passed by Shri Arul Verma, Metropolitan Magistrate, Patiala House, New
Delhi against him in two complaint cases being CC Nos. 422/1/12 and CC
Nos. 423/1/12 titled as M/s. ECE Industries Ltd. vs. GEI Industrial Systems
Ltd. and Ors.
2.
Grievance raised by Mr. Krishan Kumar, Advocate appearing for the
petitioner, is that the petitioner is a Company Secretary in the accused
company M/s. GEI Industrial Systems Ltd., Bhopal and his duty is restricted
to ensure the proper observance and compliances made by the said company
in terms of various statutory requirements laid down under the Companies
Act. He further submits that the petitioner is neither obliged nor is actually
instrumental in the day to day functioning of the said company and in fact
has no knowledge or any role in the issuance of any cheque on behalf of the
said company in favour of the complainant company. It is further the case of
the petitioner that no specific averments, as to how and in what manner the
petitioner was responsible for the day to day conduct of the business of M/s.
GEI Industrial Systems Ltd., have been made by the complainant company
in the complaint against the petitioner. Counsel for the petitioner also
apprises this court that 12 other persons have been issued summons in the
said case and some of them have already approached this court for quashing
of the said summoning order.
3.
In support of the above, learned counsel for the petitioner submits that
the legal position is now well settled that the liability for an offence
punishable under Section 138 r/w Section 141 of the Negotiable Instruments
Act, 1881 will not arise by merely stating that the accused person holds
some designation in the accused company or by merely reproducing the
language of Section 141 of the Act in the complaint. The complainant has to
make a specific averment in the complaint as to how and in what manner the
person accused of the offence under Section 138 of the Negotiable
Instruments Act, 1881 was responsible or had a role in the conduct of the
business of the accused company at the relevant time. A mere fact that the
accused person was a Director or was holding some other office in the
company cannot make a person vicariously liable to face the prosecution as
per the mandate of Section 141 of the Negotiable Instruments Act, 1881.
4. I have heard the learned counsel for the petitioner.
5. Chapter XVII was incorporated in the Negotiable Instruments Act,
1881 by the Banking Public Financial Institutions and Negotiable
Instruments Laws (Amendment) Act, 1998 with effect from 1.4.1989 for the
purpose of imposing penalties in case of dishonor of cheque due to
insufficiency of funds in the account of drawer of the cheque, in addition to
the remedy of filing a recovery suit already available to the aggrieved under
the civil law. Finding the punishment contained in this chapter inadequate
and the procedure to deal with such matters cumbersome, this chapter was
further amended by the Negotiable Instruments (Amendment and
Miscellaneous Provisions) Act, 2002 for the purpose of early disposal of the
cases related to dishonor of cheques as well as for enhancing punishment for
the offenders. It would not be inappropriate to say that while this chapter’s
introduction has, on the one hand, reduced the civil litigation to a great
extent, but, on the other hand, has led to the filing of countless complaints
before the criminal courts which are mostly against companies, whether
Private or Public Ltd., registered under the Companies Act.
6.
Section 141 of the Negotiable Instruments Act, 1881 deals with the
offences by the companies and says that if an offence has been committed by
a company under section 138 Negotiable Instruments Act, 1881 then every
person, who at the time the offence was committed was in charge of, and
was responsible to the company in the conduct of the business of the
company, as well as to the company is liable to be proceeded against and
punished accordingly. What necessary averments are required to be made in
the complaint to hold any Director or other post holder in the company as
vicariously liable for an offence committed under Section 138 of the
Negotiable Instruments Act, 1881 by the company has been a subject matter
of discussion in a number of cases. Despite the legal position now being well
settled with the catena of pronouncements of the Apex Court on this subject,
the trend set up by the complainants to implead all the Directors, company
secretaries, etc., of the accused company, irrespective of whether they were
actually involved in the commission of alleged offence or not, has not yet
ended. One of the earliest case, S.M.S. Pharmaceuticals Ltd. v. Neeta
Bhalla and Anr., 2005 (7) SCALE 397, which threw light on the averments
required to be made in the complaint under Section 138 r/w 141 of
Negotiable Instruments Act, observed as follows in paragraph 16:-
(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)...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 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.
7.
Reiterating the same view, the Apex Court in National Small
Industries Corp. Ltd. v. Harmeet Singh Paintal and Anr., 2010(2) SCALE
372, further observed that:-
24. ...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
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.
Summarizing the legal position, The Apex court further laid down
the following principles:-
(i) The primary responsibility is on the complainant to
make specific averments as are required under the law in
the complaint so as to make the accused vicariously liable.
For fastening the criminal liability, there is no
presumption that every Director knows about the
transaction.
(ii) Section 141 does not make all the Directors liable for
the offence. The criminal liability can be fastened only on
those who, at the time of the commission of the offence,
were in charge of and were responsible for the conduct of
the business of the company.
(iii) Vicarious liability can be inferred against a company
registered or incorporated under the Companies Act, 1956
only if the requisite statements, which are required to be
averred in the complaint/petition, are made so as to make
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
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.
8.
The recent judgments of the Apex Court namely, Anita Malhotra v.
Apparel export Promotion Council and Anr., (2011) 1 SCC 520 and Laxmi
Dyechem v. State of Gujrat and Ors., 2012 (11) SCALE 365, have again
reiterated the said legal position.
9.
The prime objective of this Court is to remind all the Metropolitan
Magistrates in Delhi to carefully scrutinize all the complaint cases being
filed under Section 138 r/w 141 of the Negotiable Instruments Act, 1881
against the accused companies at the pre-summoning stage and make sure
that notice be directed only to those directors or employees of the company
who satisfy the principles laid down in the aforesaid judgments. Summons
must be issued only after giving due consideration to the allegations and the
materials placed on record by the complainant. Undeniably, as per the
aforesaid legal pronouncements, Managing Director and the Joint Managing
Director are deemed to be vicariously liable for the offence committed by
the company because of the position they hold in the company. Problem
arises in cases where all the persons holding office in the company are
sought to be prosecuted by the complainant, irrespective of whether they
played any specific role in the incriminating act. It is surprising to see that in
plethora of cases, the complaint contains allegations even against those
persons who might have been Directors at any point in time in the accused
company, but had resigned from such company much prior to the period
when the alleged offence was committed. Issuing summons to all persons
named in the complaint mechanically, without ascertaining whether they
played any actual role in the transaction, not only pesters the innocent
directors/employees named in the complaint, but also upsurges the load on
the High Courts as the Magistrates once issuing the summoning orders
against the accused, are precluded from reviewing their summoning orders
in view of the decision of the Apex Court in Adalat Prasad v. Rooplal
Jindal and Ors., (2004) 7 SCC 338. One can also not lose sight of the fact
that once such innocent persons are summoned, they have no choice but to
seek bail and face the ordeal of trial. Many of such persons also approach the
High Court under Section 482 Cr.P.C. to seek quashing of the summoning
order and the complaint filed against them and this further increases the
burden on the already overburdened Courts.
10.
With a view to ensure that the Metropolitan Magistrates dealing with
the complaint cases filed under Section 138 r/w Section 141 of the
Negotiable Instruments Act have a clear and complete picture of the persons
arrayed by the complainant so as to hold them vicariously liable for the
commission of the offence by the accused company, I am inclined to direct
that the Magistrates must seek copies of Form-32 from the complainant to
prima facie satisfy the Court as to who were the directors of the accused
company at the time of commission of the alleged offence and on the date of
filing of the complaint case. In addition to the above, the Magistrates must
also seek information as given in the following table which is to be annexed
by the Complainant on a separate sheet accompanying the complaint:-
a. Name of the accused Company;
b. Particulars of the dishonoured cheque/cheques;
Person/Company in whose favour the cheque/cheques were issued
Drawer of the cheque/cheques
Date of issuance of cheque/cheques
Name of the drawer bank, its location
Name of the drawee bank, its location
Cheque No. /Nos.
Signatory of the cheque/cheques
c. Reasons due to which the cheque/cheques were dishonoured;
d. Name and Designation of the persons sought to be vicariously liable for the
commission of the offence by the accused Company and their exact role as
to how and in what manner they were responsible for the commission of the
alleged offence;
e. Particulars of the legal notice and status of its service;
f. Particulars of reply to the legal notice, if any.
11.
The Registry is directed to send a copy of this order to all the
Metropolitan Magistrates posted in various district courts of Delhi for
necessary compliance. Registry is further directed to send a copy of this
order to all the Bar Associations of various district courts of Delhi, so that
they can apprise the members of the Bar about the aforesaid directions.
12.
The aforesaid directions in terms of Para 10 shall come into effect
from 1St July 2013.
13.
Issue notice to the respondent, returnable on 21st August, 2013.
KAILASH GAMBHIR, J
MAY
06, 2013
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