Sham S/O Sadashiv Wagh Vs. Muley Constructions Pvt. Ltd. and ors. - Court Judgment

Excerpt:
criminal - criminal liability - section 138 and 141 of negotiable instrument act - petitioner issued cheque to respondent no 1 - cheque bounced - respondent issued demand notice - petitioner did not pay amount within 15th days after receipt of notice - complaint filed before court - petitioner convicted - hence, present petition - held, petitioner is the nominee director - he has not been entrusted the affairs of company - hence, cannot be held vicariously liable in view of second proviso appended to section 141 of act - petition allowed - section 34: [d.k. deshmukh, s.j. vazifdar & j.p. devadhar, jj] court fee on petition under section 34 of the act bombay court fees act (36 of 1959), schedule i, article 3, schedule ii, article 1(f)(iii) held, according to article 3 of schedule i, on any plaint, application or petition or memorandum of appeal for setting aside or modifying an award, same court fee is payable as is payable on a plaint or memorandum of appeal under article 1. thus, when an award is challenged by a plaint, application, petition or memorandum of appeal, court fee is payable on ad valorem basis. but from this requirement of payment of court fee on ad valorem basis, article 3 excludes an application or petition or memorandum of appeal filed in civil or revenue court challenging any award made under the arbitration act, 1940.thus, the provisions of article 3 of schedule 1 do not apply when an application is filed or appeal is filed challenging an award made under the arbitration act, 1940. thus the provisions of article 3 of schedule i do not apply when an application is filed challenging an award made under the arbitration act, 1940. the question, therefore, that arises for consideration is whether reference to the provisions of 1940 act found in article 3 of schedule i of the bombay court fees act can be said to include reference to the 1996 act. perusal of the provisions of section 8 of general clauses act shows that where by a central enactment any provision of a former enactment is repealed and re-enacted with or without modification then reference in any other enactment to the provisions so repealed shall, unless a different intention appears, be construed as references to the provisions so re-enacted. in the present case, it is common ground that the former enactment is the 1940 act, the new enactment is the 1996 act and any other enactment is the bombay court fees act, the only provision of the 1940 act referred to in article 3 of schedule 1 of the bombay court fees act is the provisions of section 33 of the 1940act and bare comparison of that provision with the provisions of sub-section (1) of section 34 of the 1996 act shows that the provision of section 33 of 1940 act is repealed and re-enacted in sub-section (1) of section 34 of the 1996 act with slight modification. therefore, reference to the provisions of section 33 of the 1940 act in article 3 of schedule-i of the bombay court fees act has to be construed, in view of the provisions of section 8 of the general clauses act, as reference to the provisions of section 34 of the 1996 act. so far as an appeal filed under section 37 of the 1996 act is concerned, perusal of section 37 shows that an appeal is provided to the appellate court against an order setting aside an arbitral award or refusing to set aside an arbitral award under section 34. thus, as the provisions of article 3 of schedule-i do not apply to an application or petition filed under section 34 of the 1996 act, they will also not apply to the memorandum of appeal filed to set aside or modify an award made by the arbitrator under the 1996 act. in other words nothing contained in article 3 of schedule-i of the bombay court fees act applies to an application, petition or memorandum of appeal to set aside or modify any award made under the 1996 act as it does not apply to an application or petition or memorandum of appeal to set aside or modify an award made under the arbitration act, 1940. perusal of the provisions of section 8 of the general clauses act shows that references in any other enactment to a provision in a former enactment is to be construed as reference to re-enacted provision in the new enactment unless a different intention appears. the different intention may appear either in the new enactment or in the other enactment. nothing was pointed out either in the 1996 act or in the bombay court fees act which can be construed as a different intention or which will show that it was not the intention of the maharashtra legislature to exclude an application or petition or memorandum of appeal filed in court to set aside or modify an award made under the 1996 act, from the provisions of article 3 of schedule-i of the bombay court fees act. it appears that the intention behind excluding an application made, challenging the award made under the 1940 act, from requirement of payment of ad valorem court fee which is required to be paid if the same litigant filed a suit on the same subject matter, was to encourage a litigant to go for arbitration instead of filing a suit. nothing has been pointed out to show that ther4e is any change in that legislative policy. on the contrary, from the preamble of the 1996 act it is clear that the policy of the legislature is to encourage people to adopt the mode of arbitration for resolving disputes. article 3 of schedule-i of the bombay court fees act does not apply to a petition, application or memorandum of appeal filed for challenging an award made under the 1996 act, and court fee on a petition filed under section 34 of the 1996 act challenging an award in high court is payable according to article 1(f)(iii) of schedule ii. section 37: [d.k. deshmukh, s.j. vazifdar & j.p. devadhar, jj] court fee on appeal under section 37 of the arbitration & conciliation act, 1996 - held, court fee is payable according to article 13 of schedule ii of the bombay court fees act. schedule i, article 3 & schedule ii, article 1(f)(iii): [d.k. deshmukh, s.j. vazifdar & j.p. devadhar, jj] court fee on petition under section 34 of the arbitration & conciliation act, 1996 - held, when a petition under section 34 is to be filed before a principal civil court of original jurisdiction which is not a high court, the question arises which article of either first schedule or second schedule would apply. in so far as the challenge to an award made under the 1940 act is concerned, an application under section 33 of that act could be made to a civil court and therefore, payment of court fee was governed by article 1(a) of schedule ii. this was so because the application was to be presented to the court of civil judge which was not a principal civil court of original jurisdiction. but now because of change of definition of term court in the 1996 act, a petition has to be presented, challenging an award made under the 1996 act in terms of the provisions of section 34 thereof, before the principal civil court of original jurisdiction. no entry either in the first schedule or in the second schedule was pointed out which applies to an application or petition to be made before the principal civil court of original jurisdiction, and therefore, when a litigant wants to file petition before a principal civil court having original jurisdiction which is not high court, challenging an award made under the 1996 act, no court fee under bombay court fees act is payable because of absence of a general or specific provision. therefore, it can be said that no court fee under the bombay court fees act is payable when a petition under section 34 challenging an award is filed before any principal civil court of original jurisdiction which is not high court. schedule ii, article 13: [d.k. deshmukh, s.j. vazifdar & j.p. devadhar, jj] court fee on appeal under section 37 of the arbitration & conciliation act, 1996 - held, court fee is payable according to article 13 of schedule ii of the bombay court fees act. - - (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. 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.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.