(Petition u/S 482 of the Cr.P.C)
1. By this petition under Section 482 of the Code of Criminal Procedure, 1973 (hereinafter referred to as "the Code") the petitioners have called in question the legality, validity and maintainability of the criminal proceedings instituted upon complaint filed by respondent No.2, alleging commission of offence under Section 138 of the Negotiable Instruments Act, 1881 (hereinafter referred to as "the N.I. Act"). The petitioners have also prayed that the order dated 24th June, 2000, by which the cognizance has been taken against the petitioners and other Directors of the Company and process issued, launching prosecution, be quashed.
2. The factual matrix giving rise to this petition, as adumbrated in the petition and relevant for decision of the petition, are that respondent No.2 instituted a complaint under Section 200 of the Code against the petitioner's Company and its Directors in the Court of Additional Chief Judicial Magistrate, Raipur, alleging commission of offence under Section 138 read with Section 141 of the N.I. Act, read with Section 420/34 of the IPC. In the complaint, it was averred, inter alia, that a decree was passed in favour of respondent No.2 by the District and Sessions Judge, Raipur in Civil Suit No.46-B/99 on 4.11.1999 against the petitioner-Company for payment of amount due under the decree along with accrued interest due thereon to the complainant. Upon failure to satisfy the decree, execution petition was filed before the District Judge, Raipur. As the property of the petitioner- Company are situated outside the local limits of the executing Court, the decree was transferred for execution to the High Court of judicature at Bombay and order for execution of decree was passed, directing attachment of the property and for realization of the decretal amount. It was further averred that before the order of attachment could be given effect to, the Company acting through other non-applicants and other persons in charge of the affairs of the company issued a cheque in favour of the complainant bearing No.517963 dated 30.3.2000 for a sum of Rs.4,37,117.35/- after deducting T.D.S. as per the provisions of the Income Tax Act drawn on Bank of Maharashtra Industrial Finance Branch Mumbai in favour of the complainant. According to the complainant, the said cheque was given towards discharge of the legal liability. In the complaint, it was also averred that after obtaining cheque, no further steps were taken towards execution of the decree. The said cheque was presented for payment through their Banker, but, the cheque was firstly manipulated to be returned on the ground "Payment Stopped", but, later on, as an afterthought, the Banker of the petitioner- Company returned the cheque on the ground that signature of the second attorney was required. Even though notice was given for payment of the amount, but the amount due under the cheque was not paid within the stipulated period prescribed under the law, resulting in commission of offence. In support of complaint, the complainant -respondent No.2 examined himself. After his examination, vide order dated 24.6.2000, the learned Magistrate registered offence under Section 138 of the N.I. Act and directed issuance of summons, which is now under challenge before this Court.
3. Learned senior counsel appearing for the petitioners contended, in extenso, placing reliance upon several authorities, that the complaint taken on its face value and the averments/allegations made therein do not make out any case for taking cognizance by registering offence against the Directors of the Company. Learned senior counsel further submitted that the averments made in the complaint firstly, do not specifically allege that the Directors of the Company, who have been impleaded as accused in the compliant. were in- charge of and responsible to the Company for the conduct of the business of the Company, without which, registration of offence against the Directors of the Company and issuance of process is abuse of the process of law by setting criminal law in motion. It is then contended that in order to launch prosecution against the Directors of the Company, it is not sufficient to only allege that they are Directors and vaguely state that they are in-charge of the affairs of the company, but there must be specific allegation in the complaint as to the part played by them in the transaction and there should be clear and unambiguous allegation as to how the Directors are in- charge and responsible for the conduct of the business of the Company and mere use of statutory language incorporated in Section 141 of the N.I. Act, which too is vaguely worded, registration of offence and initiation of prosecution is impermissible in law. The next submission of learned senior counsel is that even according to the complainant, the Bank had returned the cheque without being honoured by stating that signature of the second attorney is required. It is also clear from the Bank's letter dated 13.4.2000 (Annexure B-1). Therefore, no case for proceeding against the petitioner- Company and its Directors is made out, because the offence under Section 138 of the N.I. Act can be said to be made out only when from the complaint itself, it is disclosed that cheque was returned by the Bank "unpaid" either because amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that Bank. The third submission advanced by of learned senior counsel is that in the present case, the debt or liability, towards discharge of which the cheque was issued, was towards execution of decree passed in favour of respondent No.2. He submits that the date on which the cheque was presented for being honoured i.e. 13.4.2000, an interim order, passed on 10.4.2000 in F.A. No.14/2000, was in operation, wherein, it was directed that the execution of the remaining part of the decree shall remain stayed until further order, which order was passed on the submission that an amount of Rs.1,61,580.25/- has already been deposited on 10.4.2000 in the trial Court. The interim order passed on 10.4.2000 in the in First Appeal No.14/2000 against judgment and decree of the trial Court, allowed respondent No.2 to withdraw only an amount of Rs.1,61,580.25 on his furnishing security to the satisfaction of the trial Court, but, due to judicial intervention, the liability to satisfy the decretal amount stood suspended and, therefore, return of the cheque unpaid would not attract the penal provision contained in Section 138 of the N.I. Act. It was further contended that in fact, the entire complaint was attended with malafide and dishonest intention on the part of respondent No.2, who, having full knowledge of the interim order passed by the Court on 10.4.2000 in First Appeal No.14/2000, sought to take undue advantage by presenting the cheque which relates to entire amount payable under the decree and, therefore, on that ground also the complaint and the connected criminal proceedings are sheer abuse and misuse of the process of law. Lastly, it was contended that the interim order passed on 10.4.2000 by the High Court First Appeal No.14/2000, entitled the petitioner-Company not to honour the cheque and even if it is assumed, though not admitted that the cheque was dishonoured due to "Payment Stopped", it was fully justified in the circumstances and on that basis, no criminal prosecution could be launched. In support of his submissions, learned counsel for the petitioners relied upon number of decisions, which are: Central Bank of India Vs. Asian Global Ltd. and Ors.1, Pepsico India Holdings Private Limited Vs. Food Inspector and another, Municipal Corporation of Delhi Vs. Ram Kishan Rohtagi and Ors., S.M.S. Fharmaceuticals Ltd. Vs. Neeta Bhalla and another4, Uma Shankar Gopalika Vs. State of Bihar and another5, P.J. Agro Tech. Ltd. and Ors. Vs. Water Base Ltd.6 and Goa Plast (P) Ltd. Vs. Chico Ursula D'souja.
4. Per contra, learned counsel appearing for respondent No.2 complainant strenuously argued to bring home his submission that the averments made in the complaint and the preliminary statement of the complainant clearly make out a case of registering offence against the petitioner- Company and its Directors in terms of the provision contained in Section 141 of the N.I. Act, as sufficient averment in this regard have been made that the Directors of the Company, impleaded as accused in the complaint case, were in-charge of and responsible to the Company for the conduct of the business of the Company and it has also been specifically averred as to how they were responsible and the role alleged to be played by them. In his submission, at the stage of registration of complaint, all that is required to see is whether complaint taken on its face value and accepted in its entirety, would make out a case for proceeding and it is not necessary at that stage to give hair-splitting description of the role played by the Directors of the Company. He further submits that in a Company, the Directors are those through whom the affairs of the Company is transacted and the averments which have been made in the complaint, prima facie involve the Directors as well in the commission of offence. Submission of the petitioner that the Directors of the Company are not involved is a matter of their defence available to them during the course of trial and at the nascent stage, when only cognizance has been taken, roaming inquiry at the instance of the petitioners is not permissible under the law to disbelieve the averments made in the complaint and the statement of the complainant himself who was examined on oath. The next submission of learned counsel for respondent No.2 is that as far as dishonour of cheque is concerned, a clear averment has been made in the complaint that the cheque was firstly manipulated to be returned on the ground "Payment Stopped" and, therefore, the complainant will get a opportunity to prove the fact by leading appropriate evidence as also to prove the other averments that as an afterthought, the Banker returned the cheque on the ground that signature of the second attorney is required. Therefore, on this ground, the criminal proceedings and the order taking cognizance cannot be interfered with by this Court in exercise of its powers under Section 482 of the Code and it can be thrashed out only during the course of trial and it is rather premature to conclude one way or the other in that regard. Answering the third submission, it has been submitted that once it has been averred in the complaint that the cheque was issued towards discharge of liability arising out of a money decree passed in favour of respondent No.2 and the cheque was dishonoured, the averments are sufficient to initiate criminal proceedings by taking cognizance. The effect of the interim order passed in First Appeal No.14/2000 on 10.4.2000 would only be that no coercive steps could be taken in execution, but as the cheque was already issued, the same was liable to be honoured and interim order of the Court would not absolve nor would suspend the liability towards discharge of which the cheque was issued, which was presented for being honoured on 13.4.2000. It is then contended that the dishonour of cheque on account of "Payment Stopped" cannot arrest the liability for payment under the cheque and once the cheque is dishonoured, the offence would be clearly made out and no amount of justification for "Payment Stopped" would absolve the petitioner- Company and its Directors from commission of offence under Section 138 of the N.I. Act. In support of his submissions, learned counsel for respondent No.2 relied upon several authorities which are N. Rangachari Vs. Bharat Sanchar Nigam Ltd.8, K. K. Ahuja Vs. V.K. Vora and another9, State of NCT of Delhi through Prosecuting Officer, Insecticides, Government of NCT, Delhi Vs. Rajiv Khurana10, Southern Steel Ltd. and Others Vs. Jindal Vijayanagar Steel Ltd11, C.C. Alavi Haji Vs. Palapetty Muhammed and another12, Goa Plast (P) Ltd (supra), Modi Cements Ltd. Vs. Kuchil Kumar Nandi13, Electronics Trade and Technology Development Corpn. Ltd. Secunderabad Vs. Indian Technologists and Engineers (Electronics) (P) Ltd. And another, N. Rangachari Vs. Bharat Sanchar Nigam Ltd., Gurcharan Singh and another Vs. Allied Motors Ltd. And another, Saroj Kumar Poddar Vs. State (NCT of Delhi) and another
5. I have considered the rival submissions made by learned counsel for the respective parties and perused the records.
6. Before I advert to various submissions which have been made by the counsel for the respective parties with reference to the material available on record, the settled legal position with regard to scope of interference under Section 482 of the Code needs to be noted.
7. The scope and ambit of the power of High Court under Section 482 of the Code came up for consideration by the Supreme Court in the case of R.P. Kapur Vs. State of Punjab18, wherein categories of cases, where inherent power can and should be exercised to quash the proceedings, were summarized as below:
"(i) Where it manifestly appears that there is a legal bar against the institution or continuance of the criminal proceeding in respect of the offence alleged.
(ii) Where the allegations in the First Information Report or the complaint, even if they are taken at their face value and accepted in their entirety, do not constitute the offence alleged.
(iii) Where the allegations made against the accused person do constitute an offence alleged but there is either no legal evidence adduced in support of the case or the evidence adduced clearly or manifestly fails to prove the charge."
8. The aforesaid principles were again reiterated elaborately and comprehensively in well-known decision of the Supreme Court in the case of State of Haryana and Ors. Vs. Bhajan Lal and Ors., wherein the Supreme Court stated categories of cases by way of illustration wherein extraordinary power under Article 226 of the Constitution of India or the inherent powers under Section 482 of the Code could be exercised either to prevent abuse of the process of the Court or otherwise to secure the ends of justice, as below:
"102. ...
(1) Where the allegations made in the first information report or the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out a case against the accused.
(2) Where the allegations in the first information report and other materials, if any, accompanying the FIR do not disclose a cognizable offence, justifying an investigation by police officers under Section 156(1) of the Code except under an order of a Magistrate within the purview of Section 155(2) of the Code.
(3) Where the uncontroverted allegations made in the FIR or complaint and the evidence collected in support of the same do not disclose the commission of any offence and make out a case against the accused.
(4) Where, the allegations in the FIR do not constitute a cognizable offence but constitute only a non-cognizable offence, no investigation is permitted by a police officer without an order of a Magistrate as contemplated under Section 155(2) of the Code.
(5) Where the allegations made in the FIR or complaint are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion that there is sufficient ground for proceeding against the accused.
(6) Where there is an express legal bar engrafted in any of the provisions of the Code or the concerned Act (under which a criminal proceeding is instituted) to the institution and continuance of the proceedings and/or where there is a specific provision in the Code or the concerned Act, providing efficacious redress for the grievance of the aggrieved party.
(7) Where a criminal proceeding is manifestly attended with mala fide and/or where the proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accused and with a view to spite him due to private and personal grudge."
9. The amplitude of the power and the guiding principles for exercise of such power as laid down in the aforesaid decision have been subsequently reiterated in the plethora of decisions of the Supreme Court, some of them are- 2000 (2) SCC 636 (G. Sagar Suri and another Vs. State of U.P. and Ors.), 2000 (8) SCC 590 (Roy V.D. Vs. State of Kerala), 2005 (1) SCC 122 (M/s Zandu Pharmaceutical Works Ltd. and Ors.Vs. MD Sharaful Haque and Anr.), 2006 (6) SCC 736 : 2006 AIR SCW 3830 (M/s Indian Oil Corporation Vs. M/s NEPC India Ltd., and Ors. ) and so on.
10. The scope and power and limitation in the matter of quashing of criminal proceedings in exercise of power under Section 482 of the Code again came-up for consideration before a larger Bench of the Supreme Court in the case of Inder Mohan Goswami and Another Vs. State of Uttaranchal and Others, wherein the principles laid down in the aforesaid decision were again reiterated by the Supreme Court while dealing with a case relating to quashing of criminal proceeding in exercise of power under Section 482 of the Cr.P.C.
The Supreme Court again considered the scope and ambit of power under Section 482 of the Code in the case of Hira Lal and Ors. Vs. State of Uttar Pradesh and Ors.21 in following words:
"12. The parameters of interference with a criminal proceeding by the High Court in exercise of its jurisdiction under Section 482 of the Code are well known. One of the grounds on which such interference is permissible is that the allegations contained in the complaint petition even if given face value and taken to be correct in their entirety, commission of an offence is not disclosed. The High Court may also interfere where the action on the part of the complainant is mala fide."
Similar is the view taken in the case of Harmanpreet Singh Ahluwalia and Ors. Vs. State of Punjab and Ors.22.
11. The contentions made by learned counsel for the parties therefore are required to be examined in the light of principles which have been stated and re-stated in the aforesaid decisions, in order to find out whether a case for quashing criminal proceedings constituted upon complaint is made out so as to warrant interference by this Court, invoking power under Section 482 of the Code.
12. The order passed by the learned Magistrate on 24.6.2000 reveals that the cognizance of offence under Section 138 of the N.I. Act has been taken against the accused persons i.e. the petitioner and Directors of the Company on the basis of the complaint and examination of the complainant on oath. What is, therefore, averred in the complaint so as to implead the petitioner No.2 and other Directors of the Company requires to be examined. Paragraphs No. 2, 5 and 11 of the compliant read thus"
"(2.) The non applicant No.1 is a public limited company in which the non-applicant No. 2 to 14 are the Directors and/or officers in charge at all material times and also in day to day in charge of the affairs of the non-applicant No.1 Company.
(5.) That before the said order be given effect the non-applicant No.1 acting in the premises through other non-applicants and other persons in charge of the affairs of the company issued a cheque in favour of the complainant bearing No.517963 dated 30.3.2000 for Rs.4,37,117.35/- (Rs. Four lacs thirty seven thousand one hundred seventeen and thirty five paise) after deducting T.D.S. as per the provisions of Income Tax Act drawn on Bank of Maharashtra, Industrial Finance Branch Mumbai in favour of the complainant."...
(11.) ...Further all the no-applicants and other persons in charge of the non applicant No.1 company found to be in charge during the course of the trial are liable to be prosecuted and punished under Section 138 read with Section 141 of the Negotiable Instruments Act as amended up to date"
13. The complainant examined himself alone in support of the complaint and what was stated by him with regard to the Directors (non applicant No. 2 to 14 in the complaint petition) is reproduced as below :
"2. The non applicant No.1 is a public limited company in which the non-applicant No. 2 to 14 are the Directors and/or officers in charge at all material times and also in day to day in charge of the affairs of the non-applicant No.1 Company.
14. The averments which have been made in the complaint show that it has been alleged that non-applicants No. 2 to 14 (in the complaint petition) are the Directors and/or officers in charge of the affairs of the Company and that all the non-applicants and other persons in charge of the Company found to be in charge during the course of trial, are liable to be prosecuted and punished under Section 138/141 of the N.I. Act. In his examination on oath, all that has been stated is that non-applicants No. 2 to 14 (in the complaint) have remained Directors at the relevant time which information was gathered after necessary inquiry from the office of Registrar of the Company. Except this, no other averment or statement has been made with regard to the Directors of the Company, who are impleaded as respondents No. 2 to 14 in the complaint petition. The petitioner No. 2 has also been mentioned in the complaint as one of the Directors and there is no averment that he was either Managing Director or Dy. Managing Director of the Company at the relevant time.
15. The legal position with regard to the vicarious liability of the Directors of the Company in case of allegation of offence under Section 138 of the N.I. Act by a Company came up for consideration before the Supreme Court in large number of decisions. In the matter of S.M.S. Fharmaceuticals Ltd. (supra), a larger Bench (three Judges Bench) of the Supreme Court examined provision contained in Section 138 and 141 of the N.I. Act in the matter of vicarious liability of the Directors of the Company, while answering a reference made by a smaller Bench and it was finally concluded as under:
"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 Section 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 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 the 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."
In a subsequent decision in the case N.K. Wahi Vs. Shekhar Singh and Ors.23, the aspect with regard to vicarious liability of the Directors, again came up for consideration. Relying upon the judgment in the case of S.M.S. Fharmaceuticals Ltd (supra) as also judgment in the case of Sabitha Ramamurthy Vs. R.B.S. Channabasavaradhya, it was held :
"(7.) This provision clearly shows that so far as the companies are concerned if any offence is committed by it then every person who is a Director or employee of the company is not liable. Only such person would be held liable if at the time when offence is committed he was in charge and was responsible to the company for the conduct of the business of the company as well as the company. Merely being a Director of the company in the absence of above factors will not make him liable.
(8.) To launch a prosecution, therefore, against the alleged Directors there must be a specific allegation in the complaint as to the part played by them in the transaction. There should be clear and unambiguous allegation as to how the Directors are in-charge and responsible for the conduct of the business of the company. The description should be clear. It is true that precise words from the provisions of the Act need not be reproduced and the court can always come to a conclusion in facts of each case. But still, in the absence of any averment or specific evidence the net result would be that complaint would not be entertainable."
Again a larger Bench of the Supreme Court (three Judges Bench) in the case of Ramrajsingh Vs. State of Madhya Pradesh and another25 considered similar aspect with regard to liability of the Directors, relying upon the decision in the case of S.M.S. Fharmaceuticals Ltd (supra), Sabitha Ramamurthy (supra) and N.K. Wahi (supra). The Supreme Court also noted its earlier decision in the case of Saroj Kumar Poddar (supra). The aforesaid legal position was again affirmed by the Supreme Court in the case of National Small Industries Corporation Ltd. Vs. Harmeet Singh Paintal and another. The ratio of law laid down in the case of S.M.S. Fharmaceuticals Ltd (supra), Sabitha Ramamurthy (supra), N.K. Wahi (supra) and Saroj Kumar Poddar (supra) was reiterated and affirmed by observing thus:
"(27.) The said issue again came up for consideration before a three-Judge Bench of this Court recently in Ramrajsingh v. State of M.P. In this case, the earlier decisions were also considered in detail. Following the decisions of S.M.S. Pharmaceuticals Ltd. (1) case, Sabitha Ramamurthy case, Saroj Kumar Poddar case and N.K. Wahi case this Court held that it is necessary to specifically aver in a complaint under Section 141 that at the time when the offence was committed, the person accused was in charge of, and responsible for the conduct of the business of the company. Furthermore, it held that vicarious liability can be attributed only if the requisite statements, which are required to be averred in the complaint petition, are made so as to make the accused/Director therein vicariously liable for the offence committed by the company. It was further held that before a person can be made vicariously liable, strict compliance of the statutory requirements would be insisted. Thus, the issue in the present case is no more res integra and has been squarely covered by the decisions of this Court referred above. It is submitted that the aforesaid decisions of this Court have become binding precedents."
The judgment in the case of N. Rangachari (supra) was also discussed and it was also held that the said decision does not and could not have overruled the decision in the case of S.M.S. Fharmaceuticals Ltd (supra), Ramrajsingh (supra) Saroj Kumar Poddar (supra), and N.K. Wahi (supra), in following words:
"31... Furthermore, this decision does not and could not case (a three-Judge Bench), Ramrajsingh case (a three-Judge Bench), Saroj Kumar Poddar case and N.K. Wahi case wherein it is clearly held that specific averments have to be made against the accused Director."
The aforesaid settled legal position was noted in yet another decision of larger Bench (three Judges Bench) in the case Pepsico India Holdings Pvt. Ltd. (supra), wherein the law laid down in the case of S.M.S. Fharmaceuticals Ltd was restated, distingusing judgment in the case of N. Rangachari (supra).
16. The legal position therefore which emerges from the above well settled legal position is in the case of commission of offence alleged to be committed by a Company, the Directors cannot be proceeded against by impleading as accused merely because of they being the Directors of the Company unless there are specific averments made in the complaint to satisfy the requirement of Section 141 of the N.I. Act as examined in the aforesaid decisions. The averments made in the complaint hardly fulfill the primary requirement and prerequisite of a complaint before the Directors of the Company in the present case could be proceeded against by registering offence against them. Moreover, the statement of the complainant himself only states that respondent No. 2 to 14 (non-applicants No. 2 to 14 in the complaint petition), including petitioner No.2 herein were Directors of the Company at the relevant time and nothing more. The averment in para-2 of the complaint are only to the extent that non-applicant No. 2 to 14 of the complaint case are the Directors and /or officer in charge at all material times and also in day to day in-charge of the affairs of the Company. At first place, there is not even an averment that they are responsible to the Company for the conduct of the business of the Company. In case of offences by Company what section 141 (1) of the N.I. Act provides is that every person who, at the time of 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. Therefore, the deeming fiction, so as to make a Director of the Company liable for prosecution in case of commission of offence by Company, would be attracted prima facie when there are averments made not only to the effect that the person was in charge of the Company but was also responsible to the Company for the conduct of the business of the Company. Mere statement in the complaint (which is not even in the preliminary statement of the complainant on oath) that all the respondent/Directors were in charge of the Company would not attract the deeming fiction and satisfy the legal requirement and an averment to that effect is required to be made in the complaint before registration of case and issuance of summons. The statutory language adumbrated in Section 141 (1) is required to be strictly construed for the reason that it is a penal statute. In the case of Sabitha Ramamurthy (supra) while restating the requirement of Section 141 of the N.I. Act in the context of a petition for quashing the process under Section 482 of the Code, it was held
"7. A bare perusal of the complaint petitions demonstrates that the statutory requirements contained in Section 141 of the Negotiable Instruments Act had not been complied with. It may be true that it is not necessary for the complainant to specifically reproduce the wordings of the section but what is required is a clear statement of fact so as to enable the court to arrive at a prima facie opinion that the accused are vicariously liable. Section 141 raises a legal fiction. By reason of the said provision, a person although is not personally liable for commission of such an offence would be vicariously liable therefor. Such vicarious liability can be inferred so far as a company registered or incorporated under the Companies Act, 1956 is concerned 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 the offence committed by the company. Before a person can be made vicariously liable, strict compliance with the statutory requirements would be insisted. Not only the averments made in para 7 of the complaint petitions do not meet the said statutory requirements, the sworn statement of the witness made by the son of the respondent herein, does not contain any statement that the appellants were in charge of the business of the Company. In a case where the court is required to issue summons which would put the accused to some sort of harassment, the court should insist strict compliance with the statutory requirements. In terms of Section 200 of the Code of Criminal Procedure, the complainant is bound to make statements on oath as to how the offence has been committed and how the accused persons are responsible therefor. In the event, ultimately, the prosecution is found to be frivolous or otherwise mala fide, the court may direct registration of case against the complainant for mala fide prosecution of the accused. The accused would also be entitled to file a suit for damages. The relevant provisions of the Code of Criminal Procedure are required to be construed from the aforementioned point of view".
Therefore, before the Directors of the Company are made liable to be proceeded against by subjecting them to a criminal trial, the complaint must necessarily aver that each of the Directors impleaded was not only in charge but was also responsible for the conduct of the Company. This statutory requirement of Section 141 of the N.I. Act was noted by the Supreme Court in its decision in the case of K. K. Ahuja (supra) by observing as below:
"17. The criminal liability for the offence by a company under Section 138, is fastened vicariously on the persons referred to in sub-section (1) of Section 141 by virtue of a legal fiction. Penal statutes are to be construed strictly. Penal statutes providing constructive vicarious liability should be construed much more strictly. When conditions are prescribed for extending such constructive criminal liability to others, the 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. As pointed out in K. Srikanth Singh v. North East Securities Ltd. the mere fact that at some point of time, an officer of a company had played some role in the financial affairs of the company, will not be sufficient to attract the constructive liability under Section 141 of the Act."
This aspect was further clarified by observing as below
"22. Section 141 uses the words "was in charge of, and was responsible to the company for the conduct of the business of the company". (emphasis supplied) 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.H. Mehta followed in State of Karnataka v. Pratap Chand and Katta Sujatha v. Fertilizers and Chemicals Travancore Ltd.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."
Relying upon the decision in the case of S.M.S. Fharmaceuticals Ltd (supra) and N.K. Wahi (supra) in yet another decision rendered by the Supreme Court in the case of Central Bank of India (supra), it was held :
"14. The law as laid down in S.M.S. Pharmaceuticals Ltd. case has been consistently followed and as late as in 2007, this Court in N.K. Wahi case, while considering the question of vicarious liability of a Director of a company, reiterated the sentiments expressed in S.M.S. Pharmaceuticals Ltd. case that merely being a Director would not make a person liable for an offence that may have been committed by the company. For launching a prosecution against the Directors of a company under Section 138 read with Section 141 of the 1881 Act, there had to be a specific allegation in the complaint in regard to the part played by them in the transaction in question. It was also laid down that the allegations had to be clear and unambiguous showing that the Directors were in charge of and responsible for the business of the company. This was done to discourage frivolous litigation and to prevent abuse of the process of court and from embarking on a fishing expedition to try and unearth material against the Director concerned"
The Supreme Court further observed that in that case- save and except for the statement that the accused persons were Directors of the Company and were responsible and liable for the act of the Company no specific allegation was made against any of them and therefore the question of proving a fact which had not been mentioned in the complaint did not, therefore, arise in the facts of the case. In that case, quashing of the complaint by the High Court in exercise of powers under Section 482 of the Code was upheld. In yet another decision in the case of Rajiv Khurana (supra), relying upon the decision in the case of M.S. Fharmaceuticals Ltd (supra) and other decisions in on that line in the case of Sabitha Ramamurhty (supra) as also in the case of K.K. Ahuja (supra), it was held as under
"17. The ratio of all these cases is that the complainant is required to state in the complaint how a Director who is sought to be made an accused, was in charge of the business of the company or responsible for the conduct of the company's business. Every Director need not be and is not in charge of the business of the company. If that is the position with regard to a Director, it is needless to emphasise that in the case of non-Director officers, it is all the more necessary to state what were his duties and responsibilities in the conduct of business of the company and how and in what manner he is responsible or liable".
17. Though an attempt has been made by learned counsel for respondent No.2 to convince this Court that an averment that the Directors were in charge at all material time as also in day to day in charge of the affairs of the Company is sufficient without any specific details as to how they are responsible and what is the role alleged to be played by them in the alleged commission of offence, relying upon the conclusion drawn by the Supreme Court in the para -27 of its decision in the case of K.K. Ahuja (supra), in view of larger Bench judgment in the case of M.S. Fharmaceuticals Ltd (supra) and that the view taken in the case of Sabitha Ramamurthy (supra) and N.K. Wahi (supra) and Saroj Kumar Poddar (supra) was affirmed in a larger bench judgment (three Judges Bench) in the case of Ramraj Sigh (supra) the law laid down therein is binding on this Court.
18. The inevitable conclusion, therefore, is that the complaint on its face value, even if taken in its entirety, read along with the statement of the complainant, does not make out a case for initiating criminal proceedings against the petitioner No.2 and for that reason, against any of the Directors of the Company.
19. There is yet another glaring aspect which needs to be noticed and which renders the criminal proceedings instituted upon complaint impermissible under the law. Bare reading of Section 138 of the N.I. Act would reveal that the offence is made out only when the cheque is returned by the Bank unpaid on account of two contingencies which are exhaustively enumerated in the provision itself, one of them is - the amount of money standing to the credit of that account is insufficient to honour the cheque and secondly- it exceeds the amount arranged to be paid from that account by an agreement made with that Bank. There is no other circumstance resulting in dishonour of the cheque which has been mentioned or could be necessarily implied from the prevision contained in Section 138 of the N.I. Act to make out a case of commission of offence. Section 138 of the N.I. Act being penal statute, as has been discussed above, has to be strictly construed and the criminal liability could not be fastened if the dishonour of cheque is for any reason other than those which are exhaustively enumerated in the provision itself. In the complaint itself, though attempt has been made to allege vaguely that the cheque was firstly manipulated to be returned on the ground "stopped Payment", but then, it has been stated, though alleged to be an afterthought, that the banker of the Company returned the cheque on the ground that signature of the second attorney was required. This is clearly an averment of fact made in the complaint. The averment regarding manipulation or afterthought would have been relevant if this Court was called upon to examine the validity of registration of offence under Section 420 of the IPC, which is not the case here, because the Magistrate has taken cognizance of offence under Section 138 of the N.I. Act only and not under Section 420 of the IPC against any of the Directors of the Company. The memo dated 13.4.2000 of the Bank has also been placed on record by the petitioners which goes unrebutted either in the reply or even during the course of arguments. No dispute with regard to the memo dated 13.4.2000 of the Bank has been raised. The said memo refers to dishonour of cheque on the ground that the joint signature is required. The Memo does not show that the cheque was dishonoured and the amount remained unpaid for any of the reasons as enumerated in Section 138 of the N.I. Act. Therefore, from the complaint itself, it is revealed that the cheque remained unpaid and was returned on account of an objection relating to signature, which cannot be said to be a case of insufficiency of funds or exceeding arrangement with the Bank. Though, ordinarily, the Court at the stage of considering a case of quashing would not look into the defence documents, yet in appropriate cases, admitted documents which are beyond pale of any doubt and supported by the averments in the complaint, cannot be altogether ignored, while examining as to whether the process of law has been abused and misused by setting criminal law in motion against the persons who are accused in the complaint.
20. Learned senior counsel appearing for the petitioners vehemently contended that the criminal proceedings are liable to be quashed because they are manifestly attended with malafide which is one of the ground on which power under Section 482 of the Code could be exercised in view of the judgment in the case of State of Haryana and Ors. Vs. Bhajan Lal and Ors.27. The Submission has considerable force. True it is that a cheque was given by the petitioner Company even before the interim order was passed in the first appeal on 10.4.2000, however, from the averments made in the complaint it is abundantly clear and is in fact the case of the complainant that the cheque was issued in discharge of liability and towards execution of decree passed in favor of the complainant in a civil suit. No dispute could be raised before the Court with regard to the fact that on 10.4.2000, the appellate Court passed an interim order to the effect that the execution of the remaining part of the decree shall remain stayed until further orders. A perusal of order dated 10.4.2000 clearly shows that the submission was made before the Court by the appellant Company that an amount of Rs1,61,580.25/- was already deposited on that date in the trial Court. The execution of the decree was therefore, in the teeth of the interim order passed by the High Court in first appeal on 10.4.2000. Except an amount of Rs.1,61,580.25/- no other amount was liable to be paid by the petitioner Company as long as the interim order remained effective and operative, much less the amount under the cheque. It is relevant to note that that principal amount was already stated to be deposited with liberty to respondent No.2 to withdraw the same. The liability for payment of the balance amount of the decree stood suspended upon passing of interim order on 10.4.2000 and remained in operation until further order. Admittedly, even according to the complaint, the cheque was presented before the drawer's bank on 13.4.2000. The interim order was a bi- party order. Having been benefited an order of withdrawing an amount of Rs.1,61,580.25/- which was obviously included in the total amount payable under the decree and in respect of which the cheque was issued, submitting the cheque in the bank for being honoured, knowing fully well that the rest of the amount under the decree could not be recovered, clearly reflects upon a dishonest play of respondent No.2. The criminal proceedings are therefore manifestly attended with malafide and if allowed to proceed would result in serious miscarriage of justice and would be an abuse of the process of law.
21. In the result, the complaint and criminal proceedings instituted upon complaint lodged by respondent No.2 as also the order passed by the Magistrate taking cognizance on 24th June, 2000 and issuing summons are declared illegal and hereby set aside.
22. The petition is accordingly allowed.