Judgment:
V.R. Kingaonkar, J.
1. These are applications filed by three (3) Directors of a Private Company for quashing of proceedings initiated by way of complaint filed by respondent No. 1 and registered as SCC No. 3396/2006 (Muley Construction Pvt. Ltd. v. Galaxi Laboratories Pvt. Ltd. and Ors.) for commission of offence under Section 138 of the Negotiable Instruments Act. They are challenging issuance of process and the proceedings initiated against them.
Respondent No. 1 filed a private complaint case in the Court of Chief Judicial Magistrate, Aurangabad which is registered as SCC No. 3396/2006. The applicants are said to be Directors of M/s Galaxi Laboratories Private Limited i.e. accused No. 1 Company. The averments in the complaint would show that the Managing Director who is accused No. 2 Shrikant, issued the cheque in question dated 31st March, 2006. The cheque bounced. The respondent No. 1 issued demand notices. The demand notices were served. Subsequently, since no payment was made within the prescribed period, the complaint for offence under Section 138 of the Negotiable Instruments Act was filed.
2. The contentions of the applicants herein stand on different footings. According to applicant Sham Wagh, he resigned as Director of the Company on 1st January, 2006 though subsequently, Form No. 32 was accepted belatedly on 28th June, 2006. He was unconcerned with the business of the Company since 2nd January, 2006 and, therefore, cannot be vicariously liable for the financial implications. He alleges that he was not signatory of the cheque nor was concerned with the payment in question and, therefore, is not vicariously liable.
According to applicant S. Mohan, he is only a nominee Director. He has been nominated by I.D.B.I. to work as Director of the Company i.e. accused No. 1. So, he is immune from the financial implications and has no concern with the financial transactions of the Company.
According to applicant S.S. Walimbe, he is only a Technical Director and, therefore, is not vicariously liable.
3. Heard learned Counsel for the parties.
The liability of the Directors stems from nature of charge with which they are entrusted the affairs of the Company. The nominee Director cannot be held vicariously liable in view of second Proviso appended to Section 141 of the Negotiable Instruments Act, 1881. There is no dispute about the fact that applicant S. Mohan is a nominee Director. He has been nominated by the I.D.B.I. to oversee the affairs of the Company. Though he is a Director, as such, yet, is not directly concerned with the financial affairs of the Company. Obviously, he cannot be held vicariously liable under Section 141 of the Negotiable Instruments Act and his application will have to be straightway allowed in view of the peculiar facts.
4. So far as the other two (2) applicants are concerned, it is contended by learned advocate for the respondent No. 1 that merely they are shown as Directors of the Company by itself is sufficient for the present to proceed against them. The learned advocate for the respondent No. 1 (complainant) referred to various authorities including N. Rangachari v. Bharat Sanchar Nigam Ltd. : 2007CriLJ2448 , S.B. and T. International Ltd. v. State of Maharashtra and Anr. , S.V. Muzumdar and Ors. v. Gujarat State Fertilizer Co. Ltd. and Anr. : 2005CriLJ2566 , Prafulla Maheshwari and Ors. v. State of Maharashtra and Anr. : 2008(1)MhLj844 and Sahakar Maharshi Shankarrao Mohite Patil Nagari Gramin Sahakari Pathsanstha and Anr. v. Subhash Bhimrao Gavsane and Anr. : 2008(1)BomCR97 . He also referred to Sarav Investment and Financial Consultants Pvt. Ltd. and Anr. v. Llyods Register of Shipping Indian Office Staff Provident Fund and Anr. : 2008CriLJ377 .
The Directors of a Company can be vicariously liable only when they are proved to be incharge of and responsible to the conduct of the business of the Company. In fact, unless the charge for offence under Section 138 of the Negotiable Instruments Act is proved against a Company, there is no question of criminal liability as against the Directors.
5. Their vicarious liability would crop up after the charge is established as against the Company. The provision of Section 141 of the Negotiable Instruments Act may be reproduced for ready reference to the extent it is necessary.
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.]
6. A plain reading of Section 141 would make it manifestly clear that the complainant must prima facie indicate that the person accused of offence under Section 138, in his capacity as a Director, is incharge of the conduct of the business of the Company and was responsible to conduct such business. The expression 'was incharge of and was responsible to the company for the conduct of the business of the Company' does imply that such a person not only must be incharge of as a Director, but also must be shown to be responsible in respect of the conduct of the business of the company. The Apex Court in Saroj Kumar Poddar v. State (NCT of Delhi) and Anr. : 2007CriLJ1419 held that every person connected with the company shall not fall within the ambit of the provision. It is only those persons who were in charge of and responsible for conduct of business of the company at the time of commission of an offence, who will be liable for criminal action. In the given case, the averments in the complaint have been reproduced in paragraph 13 of the judgment, which are as follows:
That the accused No. 1 is a public limited company incorporated and registered under the Companies Act, 1956, and the accused 2 to 8 are/were its Directors at the relevant time and the said company is managed by the Board of Directors and they are responsible for the incharge of the conduct and business of the company-Accused No. 1. However, cheques referred to in the complaint have been signed by the accused Nos. 3 and 8 i.e. Shri K.K. Pilania and Shri N.K. Munjal for and on behalf of the accused Company No. 1.
7. The averments in the complaint filed by the respondent No. 1 in the present case are as follows:
That Accused No. 2 is managing director and signatory of the cheque in question whereas accused Nos. 3, 4 and 5 are the directors. The accused Nos. 2 to 5 were incharge of and were responsible to the company for the conduct of the business of the company at all material times and particularly at the time when the offence was committed.
Considering the nature of averments in the complaint filed by the respondent No. 1, it will have to be said that the fact situation is much akin to the case of Saroj Kumar Poddar v. State (NCT of Delhi) and Anr. (supra). There are no specific averments made in the complaint against the present applicants Sham Wagh and S.S. Walimbe.
8. The complainant has not made it clear as to how and in what manner, they are responsible for conduct of business of the company. Hence, the application of these two (2) applicants will have to be considered on the touchstone of the criterion which is laid down in Saroj Kumar Poddar's case. It is pertinent to note that in N. Rangachari v. Bharat Sanchar Nigam Ltd. (supra), the case of Saroj Kumar Poddar (supra) is considered and appears to have been distinguished. Still, however, it has not been overruled. It is well settled that a distinguished case does not lose its force as precedent. Therefore, the dictum in Saroj Kumar Poddar is still good law. It is true that a Single Bench of this Court in Prafulla Maheshwari and Ors. v. State of Maharashtra and Anr. (supra) again referred to a catena of authorities including that of N. Rangachari v. Bharat Sanchar Nigam Ltd. (supra) and also the case of Saroj Kumar Poddar (supra). The case of Saroj Kumar Poddar (supra), however, is not discussed threadbare in the said matter. Therefore, the case of Prafulla Maheshwari and Ors. (supra) is inapplicable to the fact situation of the present case.
9. The learned advocate for the respondent No. 1/complainant, would submit that the internal affairs of the accused No. 1 company could not be gathered by the Managing Director Sudhakarrao Mule who resigned prior to issuance of the cheque as Chairman of the Company. That is a matter of evidence. It cannot be overlooked that if evidence is adduced to implicate the present applicants-Sham Wagh and S.S. Walimbe, then the complainant is always at liberty to apply for addition of these persons as accused under Section 319 of the Criminal Procedure Code. However, in the absence of specific averments against them in the complaint itself, they cannot be called upon to face the trial. The trial may proceed against the accused Nos. 1 and 2 without difficulty.
10. For the aforestated reasons, the applications are allowed and the proceedings against the three (3) applicants are quashed. The question of vicarious liability of the applicants Sham Wagh and S.S. Walimbe is, however, kept open subject to the further evidence that may be adduced during course of trial. No costs.