Parthasarathy and K. Chockalingam Vs. Lachman - Court Judgment

Excerpt:
- suspension; [a.p. shah, cj, d. murugesan & r. sudhakar, jj] order of suspension passed pending enquiry held, it is not invalid on the ground that the period of suspension is not prescribed in the suspension orderorders. ashok kumar, j.1. this revision has been filed against the order of the learned judicial magistrate no. 1, salem, dismissing the application filed by the petitioners herein.2.the brief facts of the case are as follows:the respondents filed a private complaint against the petitioner and eight others for the offence under section 138 of negotiable instruments act on the ground that when the cheques issued by a2, the managing director of the company were presented, they got bounced and therefore, the company as well as the directors are liable for punishment under section 138 of negotiable instruments act. the petitioners are a4 and a5. in the said case, the petitioners filed crl.m.p. no. 5157 of 2003 to discharge them from the case on the ground that both of them had resigned from.....

Judgment:
ORDER

S. Ashok Kumar, J.

1. This revision has been filed against the order of the learned Judicial Magistrate No. 1, Salem, dismissing the application filed by the petitioners herein.

2.The brief facts of the case are as follows:

The respondents filed a private complaint against the petitioner and eight others for the offence under Section 138 of Negotiable Instruments Act on the ground that when the cheques issued by A2, the Managing Director of the Company were presented, they got bounced and therefore, the Company as well as the Directors are liable for punishment under Section 138 of Negotiable Instruments Act. The petitioners are A4 and A5. In the said case, the petitioners filed Crl.M.P. No. 5157 of 2003 to discharge them from the case on the ground that both of them had resigned from the Company two years earlier before the transaction and therefore, there is no liability on the part of these petitioners. Learned Magistrate dismissed the application on the ground that in the complaint, there is an averment that these two partners along with A3 went to the complainant and borrowed money and therefore they are also liable to be prosecuted and whether they committed the offence or not can be confirmed by further letting in evidence and hence he dismissed the application filed for discharge. Aggrieved over the same, the revision is filed.

3. Mr. Shanmugasundaram, learned senior counsel appearing for the revision petitioners would contend that the money transaction was between April and July 2001 and the subject matter of the cheque was dated 23.9.2002, whereas the first petitioner resigned from the Company on 20.5.2000 and the second petitioner resigned from the Company on 03.10.2000, as evidenced from Form 32 filed before this Court. Therefore, according to the learned Counsel, the accused were not Directors of the Company during the course of transaction i.e., at the time of borrowal of the money or at the time of issuing of the cheques.

4. Per contra, learned Counsel appearing for the respondent would contend that there is no specific averment in the complaint itself that these petitioners went along with A3 at the time of borrowal of the money and therefore, they are also liable for repayment and liability can be fixed only by letting in evidence.

5. I gave my anxious consideration to the rival contentions of both sides. The fact is that amounts were borrowed for A1 Company during April to July 2002 on five occasions for a debtor amount of Rs. 10,00,000/-. To discharge a liability including the interest of 1,00,000/- ,the cheque dated 23.9.2000 was drawn for Rs. 11,00,000/- by A2 and when the cheque was presented, it bounced. These are undisputed facts. The only point is whether the offence can be fastened as against these petitioners, who are A4 and A5 in the said case.

6. According to the learned Counsel for the petitioners, petitioners (A4 and A5) have resigned from the Company's Directorship on 20.5.2000 and 03.10.2000 respectively, nearly two years earlier to the transaction. Therefore, it is clear that these petitioners were not the Directors of the Company either at the time of borrowal of the money or at the time of issuing of the cheques by A2.

7. The learned Counsel for the appellants cited the Judgment of the Supreme Court in 2005 SCC (Crl) 1983 (S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla) wherein it has been held thus;

8. The officers responsible for conducting the affairs of companies are generally referred to as directors, managers, secretaries, managing directors, etc. What is required to be considered is : Is it sufficient to simply state in a complaint that a particular person was a director of the company at the time the offence was committed and nothing more is required to be said : For this, it may be worthwhile to notice the role of a director in a company. The word 'director' is defined in Section 2(13) of the Companies Act, 1956 as under:

2.(13) 'director' includes any person occupying the position of director, by whatever name called. There is a whole chapter in the Companies Act on directors, which is Chapter II. Sections 291 to 293 refer to the powers of the Board of Directors. A perusal of these provisions shows that what a Board of Directors is empowered to do in relation to a particular company depends upon the roles and functions assigned to directors as per the memorandum and articles of association of the company. There is nothing which suggests that simply by being a director in a company, one is supposed to discharge particular functions on behalf of a company. It happens that a person may be a director in a company but he may not know anything about the day-to-day functioning of the company. As a director he may be attending meetings of the Board of Directors of the company where usually they decide policy matters and guide the course of business of a company. It may be that a Board of Directors may appoint sub-committees consisting of one or two directors out of the Board of the company who may be made responsible for the day-to-day functions of the company. These are matters which form part of resolutions of the Board of Directors of a company. Nothing is oral. What emerges from this is that the role of a director in a company is a question of fact depending on the peculiar facts in each case. There is no universal rule that a director of a company is in charge of its everyday affairs. We have discussed about the position of a director in a company in order to illustrate the point that there is no magic as such in a particular word, be it director, manager or secretary. It all depends upon the respective roles assigned to the officers in a company. A company may have managers or secretaries for different departments, which means, it may have more than one manager or secretary. These officers may also be authorised to issue cheques under their signatures with respect to affairs of their respective departments. Will it be possible to prosecute a secretary of Department B regarding a cheque issued by the secretary of Department A which is dishonoured? The secretary of Department B may not be knowing anything about issuance of the cheque in question. Therefore, mere use of a particular designation of an officer without more, may not be enough by way of an averment in a complaint. When the requirement in Section 141, which extends the liability to officers of a company, is that such a person should be in charge of and responsible to the company for conduct of business of the company, how can a person be subjected to liability of criminal prosecution without it being averred in the complaint that he satisfies those requirements. Not every person connected with a company is made liable under Section 141. Liability is cast on persons who may have something to do with the transaction complained of. A person who is in charge of and responsible for conduct of business of a company would naturally know why the cheque in question was issued and why it got dishonoured.

10. While analysing Section 141 of the Act, it will be seen that it operates in cases where an offence under Section 138 is committed by a company. The key words which occur in the section are 'every person'. These are general words and take every person connected with a company within their sweep. Therefore, these words have been rightly qualified by use of the words:

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, etc. What is required is that the persons who are sought to be made criminally liable under Section 141 should be, at the time the offence was committed, in charge of and responsible to the company for the conduct of the business of the company. 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 the conduct of business of the company at the time of commission of an offence, who will be liable for criminal action. It follows from this that if a director of a company who was not in charge of and was not responsible for the conduct of the business of the company at the relevant time, will not be liable under the provision. The liability arises from being in charge of and responsible for the conduct of business of the company at the relevant time when the offence was committed and not on the basis of merely holding a designation or office in a company. Conversely, a person not holding any office or designation in a company may be liable if he satisfies the main requirement of being in charge of and responsible for the conduct of business of a company at the relevant time. Liability depends on the role one plays in the affairs of a company and not on designation or status. If being a director or manager or secretary was enough to cast criminal liability, the section would have said so. Instead of 'every person' the section would have said 'every director, manager or secretary in a company is liable'...etc. The legislature is aware that it is a case of criminal liability which means serious consequences so far as the person sought to be made liable is concerned. Therefore, only persons who can be said to be connected with the commission of a crime at the relevant time have been subjected to action.']

12. The learned Counsel also cited the Judgment of this Court in (2001) 1 L.W. 603 (Ashok Muthanna, etc. and Ors. v. Wipro Finance Limited, etc.) wherein it has been held thus;

In regard to the first point in relation to the second petitioners V.G. Subbaraman (A3). I find merit in the contention of the learned Counsel for the petitioner, inasmuch as Form No. 32 issued by the Registrar of Companies, which has been produced before this Court and the same has not been disputed by the counsel for the respondent/complainant, would reveal that the said second petitioner retired on 28.3.1998 itself and as such, he did not function as a Director either on the date when the cheques were issued (i.e.) on 23.1.1999 or when the cause of action arose for non-payment of the cheque amount on receipt of the statutory notice on 10.7.1999.

5. Though the said document is not form part of the complaint and other records accompanied with the complaint, this can be taken into consideration by this Court, since the contents of the said document, which is a public document, is not disputed by the learned Counsel for the respondent.

6. As held by the Supreme Court in Satish Mehra v. Delhi Administration and Anr. (1996 93) Cri 85 the Court is within its power to consider even materials which the accused may produce even before the commencement of trial for the purpose of deciding whether the accused could be discharged, when those documents are not in dispute.

7. In the present case, as noted above, the document Form 32 would reveal that the second petitioner was not the director who was in-charge of and responsible for the affairs of the company during the relevant period and as such, the proceedings as against the second petitioner are liable to be quashed and accordingly quashed.

Law is well settled that persons who were not Directors of the Company or who were not in charge of the day to day affairs of the Company cannot be charged for a criminal offence. Under the said principle, prosecution of the petitioners is not sustainable in law and the petitioners are liable to be discharged.

8. Learned Counsel for respondents submits that the case was taken on file in 2003 and there is no progress at all because of the pendency of these petitions. Considering the fact that there is no progress for the last three years and the amount involved is Rs. 11,00,000/-, it is just and necessary that the Trial Court, namely Learned Judicial Magistrate No. I Salem should expedite to dispose of the case within a period of six months.

The Revision is allowed and the accused are discharged from the case filed against them under Section 138 of Negotiable Instruments Act.