Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 8
CASE NO.:
Appeal (crl.) 520 of 2007
PETITIONER:
Everest Advertising Pvt. Ltd
RESPONDENT:
State, Govt. of NCT of Delhi & Ors
DATE OF JUDGMENT: 10/04/2007
BENCH:
S.B. Sinha & Markandey Katju
JUDGMENT:
J U D G M E N T
CRIMINAL APPEAL NO. 520 OF 2007
[Arising out of SLP (Crl.) No. 6204-6205 of 2005]
S.B. SINHA, J :
Leave granted.
This appeal is directed against a judgment and order dated 13.07.2005
passed by a learned Single Judge of the Delhi High Court in Criminal M.C.
Nos. 3690 and 3691 of 2001.
Respondent Nos. 2 and 3 herein are Chairman and Managing Director
of a Company known as ’Dalmia Industries Ltd.’, (The Company) which is
registered and incorporated under the Companies Act, 1956. It was arrayed
as Accused No. 6 in the complaint petition.
The Company is engaged in the business of advertising and publicity.
By an agreement dated 17.07.1995, the Company as also Accused No. 6
entered into an agreement in terms whereof the Company was appointed as
advertising and publicity agents of Accused No. 6 in respect of their various
products on the terms and conditions contained therein. Allegedly, the
Company carried out various jobs and releases between the period July,
1997 and December, 1997. It raised bills to the extent of Rs. 2,59,21,053.37
for the work executed by it. On 14.11.1997, Accused No. 6 issued various
post dated cheques allegedly towards part payment of the said dues which on
presentation to the bank on 6.04.1998 admittedly were dishonoured. Notices
were served on the Respondents Nos. 2 and 3 on 18.04.1998.
Appellant \026 Company (Company) filed two complaint petitions
against the accused persons including Respondent Nos. 2 and 3 herein
alleging:
"4. That accused No. 1 to 5 are the Chairman, Vice
Chairman, Director (Technical), Executive Director, and
Senior General Manager (Finance) of the accused
Company respectively and are Incharge and responsible
to the accused company for the conduct of the business
of the Company and are thus liable for making the
payment.
*
9.That the complainant company presented these cheques
on 26.3.1998 for encashment through their bankers
Central Bank of India, Ram Tilak Nagar Branch, New
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 8
Delhi, which have been returned back to the complainant
company on 28.3.1998 by the Banker with the
endorsement dated 27.3.1998 of the State Bank of
Bikaner and Jaipur D 72 Connaught Circus, New Delhi
to the bank of the accused company "payment stopped by
the drawer". One of the cheque bearing No. 588184
dated 6.11.1997 drawn on the State Bank of Bikaner and
Jaipur, D-72 Connaught Circus, New Delhi returned with
the endorsement of the accused Bank "exceeds
arrangement". This Bank Memo along with the cheque
was sent by the Banker of the complainant company vide
Memo dated 28.3.1998. Subsequently, the accused gave
pay order in lieu of the cheque.
*
11. That these post dated cheques as per Annexure ’B’
were given after the accused No. 1 to 5 had various
meetings with the complainant company and it is only
after persuasion that the complainant company owes
money to various Media Concessionais and unless they
are being paid, the releases of the accused company shall
not be entertained by the Media Concessionais.
*
13. That accused No. 1 to 5 are Incharge and responsible
for the conduct of the business and the offence is
committed by the accused company with the active
connivance of the accused No. 1 to 5."
On the said complaint petitions and upon recording the initial
deposition of the complainant and its witnesses under Section 200 of the
Code of Criminal Procedure, by an order dated 24.07.1999, processes were
directed to be issued by the learned Magistrate against the accused persons
in terms of Section 204 of the Code of Criminal Procedure.
An application was filed by them for recalling the processes so issued.
By an order dated 11.07.2001, the learned Magistrate recalled the said order
dated 24.07.1999 issuing summons against Respondent Nos. 2 and 3.
Criminal Miscellaneous applications were filed by the Company
thereagainst before the High Court. By reason of the impugned judgment,
the said applications have been dismissed by the High Court holding:
"13. Coming back to the facts of the two cases before me,
I find that the allegations in the complaint are far from
sufficient to summon respondents 2 and 3 for the offence
of the company - accused No.6. Apart from making an
omnibus allegation that all the accused were responsible
for the conduct of the business of the company and that
all of them connived in the offence, there is no specific
averment as to how any of the accused 1 and 2
(respondents 2 and 3 herein) were actually involved in
the conduct of the business of the company relating to the
transaction in question or how and on what basis it can be
said that it was with the active connivance of these two
accused that the offence was committed by the company.
In my opinion, the petitioners could not have been
summoned on the basis of the allegations made by the
complainant. The Metropolitan Magistrate has not
committed any mistake in declining to summon the two
accused. The petitions have no merit and, therefore,
dismissed."
Mr. Aloke Kumar Sengupta, learned Senior Counsel appearing on
behalf of the Company, would submit that having regard to the allegations
made in the complaint petition, the High Court committed a serious illegality
in passing the impugned judgment. The learned counsel submitted that the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 8
learned Magistrate had no jurisdiction to recall its order whereby the accused
persons were summoned.
Mr. K.T.S. Tulsi, learned senior counsel appearing on behalf of
Respondents Nos. 2 and 3, on the other hand, would submit that complaint
petition contained mechanical reproduction of the wordings of a section and,
thus, without making any allegation that Respondent Nos. 2 and 3 had any
role to play in the matter of issuance of cheque or the dishonour thereof, no
order issuing summons as against the said Respondents could have been
passed. A distinction, according to the learned counsel, must be made
between a Chairman of a Company and a Managing Director or a Deputy
Managing Director thereof inasmuch whereas a Managing Director or a
Deputy Managing Director is presumed to be involved in the day to day
affairs of the Company, the Chairman of a Company may not even have any
knowledge in relation thereto. Provisions of the Negotiable Instruments Act,
it was submitted, are being misused and this Court, therefore, should strike a
balance between the interest of a complainant and interest of an accused who
is alleged to be vicariously liable for the offences committed by the
Company.
Summons were issued by the learned Magistrate by reason of an order
dated 24.07.1999. He recalled the said order. He did not have any
jurisdiction in that behalf. A Magistrate does not have and, thus, cannot
exercise any inherent jurisdiction.
In Adalat Prasad v. Rooplal Jindal and Others [(2004) 7 SCC 338], a
3-Judge Bench of this Court while overruling an earlier decision of this
Court in K.K. Mathew v. State of Kerala and Anr. [(1992) 1 SCC 217] stated
the law thus :
"14. But after taking cognizance of the complaint and
examining the complainant and the witnesses if he is
satisfied that there is sufficient ground to proceed with
the complaint he can issue process by way of summons
under Section 204 of the Code. Therefore, what is
necessary or a condition precedent for issuing process
under Section 204 is the satisfaction of the Magistrate
either by examination of the complainant and the
witnesses or by the inquiry contemplated under Section
202 that there is sufficient ground for proceeding with the
complaint hence issue the process under Section 204 of
the Code. In none of these stages the Code has provided
for hearing the summoned accused, for obvious reasons
because this is only a preliminary stage and the stage of
hearing of the accused would only arise at a subsequent
stage provided for in the latter provision in the Code. It is
true as held by this Court in Mathew case1 that before
issuance of summons the Magistrate should be satisfied
that there is sufficient ground for proceeding with the
complaint but that satisfaction is to be arrived at by the
inquiry conducted by him as contemplated under
Sections 200 and 202, and the only stage of dismissal of
the complaint arises under Section 203 of the Code at
which stage the accused has no role to play, therefore, the
question of the accused on receipt of summons
approaching the court and making an application for
dismissal of the complaint under Section 203 of the Code
on a reconsideration of the material available on record is
impermissible because by then Section 203 is already
over and the Magistrate has proceeded further to Section
204 stage.
*
16. Therefore, in our opinion the observation of this
Court in the case of Mathew1 that for recalling an
erroneous order of issuance of process, no specific
provision of law is required, would run counter to the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 8
scheme of the Code which has not provided for review
and prohibits interference at interlocutory stages.
Therefore, we are of the opinion, that the view of this
Court in Mathew case1 that no specific provision is
required for recalling an erroneous order, amounting to
one without jurisdiction, does not lay down the correct
law."
The said ratio has been reiterated by another 3-Judge Bench of this
Court in Subramanium Sethuraman v. State of Maharashtra and Anr. [JT
2004 (8) SC 220 and N.K. Sharma v. Abhimanyu (2005)13 SCC 213].
Unfortunately, this aspect of the matter was not considered by the
High Court despite the aforementioned binding precedents. The High Court,
however, for all intent and purport upheld the order passed by the learned
Magistrate on the premise that allegations made in the complaint petition do
not satisfy the requirements of Section 141 of the Negotiable Instruments
Act.
The said provision reads thus :
’’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 Sate
Government, as the case may be, he shall not be liable for
prosecution under this Chapter.
(2) Notwithstanding anything contained in sub-section
(1), where any offence under this Act has been
committed by a company and it is proved that the offence
has been committed with the consent or connivance of, or
is attributable to, any neglect on the art of, any director,
manager, secretary or other officer of the company, such
director, manager, secretary or other officer shall also be
deemed to be guilty of that offence and shall be liable to
be proceeded against and punished accordingly.
Explanation.- For the purposes of this section,-
(a) ’’company’’ means any body corporate and includes a
firm or other association of individuals; and
(b) ’’director’’, in relation to a firm, means a partner in the
firm.’’
As the contentions of the parties are covered by a few decisions of this
Court, we may at the outset notice the law operating in the field.
The applicability and/or extent of Section 141 of the Act was referred
to and considered by a 3-Judge Bench of this Court in S.M.S.
Pharmaceuticals Ltd. v. Neeta Bhalla and Anr. [(2005) 8 SCC 89 : 2005 (7)
SCALE 397].
The questions so referred read as under :
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 8
"(a) whether for purposes of Section 141 of the
Negotiable Instruments Act, 1881, it is sufficient if the
substance of the allegation read as a whole fulfill the
requirements of the said section and it is not necessary to
specifically state in the complaint that the persons
accused was in charge of, or responsible for, the conduct
of the business of the company.
(b) whether a director of a company would be deemed to
be in charge of, and responsible to, the company for
conduct of the business of the company and, therefore,
deemed to be guilty of the offence unless he proves to the
contrary.
(c) even if it is held that specific averments are necessary,
whether in the absence of such averments the signatory
of the cheque and or the Managing Directors of Joint
Managing Director who admittedly would be in charge of
the company and responsible to the company for conduct
of its business could be proceeded against."
They were answered in the following terms :
"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 Saroj Kumar Poddar v. State (NCT of Delhi) and Anr. [2007 (2)
SCALE 36], this Court held :
"Apart from the Company and the appellant, as
noticed hereinbefore, the Managing Director and all other
Directors were also made accused. The appellant did not
issue any cheque. He, as noticed hereinbefore, had
resigned from the Directorship of the Company. It may
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 8
be true that as to exactly on what date the said resignation
was accepted by the Company is not known, but, even
otherwise, there is no averment in the complaint petitions
as to how and in what manner the appellant was
responsible for the conduct of the business of the
Company or otherwise responsible to it in regard to its
functioning. He had not issued any cheque. How he is
responsible for dishonour of the cheque has not been
stated. The allegations made in paragraph 3, thus, in our
opinion do not satisfy the requirements of Section 141 of
the Act."
Yet again in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Anr.
[2007 (3) SCALE 245], it was held:
"In terms of Section 138 of the Act, a complaint petition
alleging an offence thereto must demonstrate that the
following ingredients exist that:
(i) a cheque was issued;
(ii) the same was presented;
(iii) but, it was dishonoured;
(iv) a notice in terms of the said provision was
served on the person sought to be made liable;
and
(v) despite service of notice, neither any payment
was made nor other obligations, if any, were
complied with within fifteen days from the date
of receipt of the notice.
The liability of a Director must be determined on
the date on which the offence is committed. Only
because Respondent No. 1 herein was a party to a
purported resolution dated 15.02.1995 by itself does not
lead to an inference that she was actively associated with
the management of the affairs of the Company. This
Court in this case has categorically held that there may be
a large number of Directors but some of them may not
associate themselves in the management of the day to day
affairs of the Company and, thus, are not responsible for
conduct of the business of the Company. The averments
must state that the person who is vicariously liable for
commission of the offence of the Company both was
incharge of and was responsible for the conduct of the
business of the Company. Requirements laid down
therein must be read conjointly and not disjunctively.
When a legal fiction is raised, the ingredients therefor
must be satisfied.
If the complaint petition is read in its entirety, the
same would show that the only person who was actively
associated in the matter of obtaining loan, signing
cheques and other affairs of the company which would
lead to commission of the alleged offence was the
accused No. 2. By reason of the purported resolution
dated 15.02.1995, whereupon strong reliance has been
placed by Mr. Mishra, only the accused No. 2 was
authorized to do certain acts on behalf of the Company.
The cheques were issued on 15.08.1996, i.e., after a
period of 17 months from the date of the said resolution.
As is evident from the averments made in the complaint
petition, the cheques represented the amount of interest
payable for a total period of 15 days only calculated at
the rate of 25% per annum on the amount of deposit, viz.,
rupees two crores."
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 8
The observations made in Saroj Kumar Poddar (supra) were,
however, explained therein, stating:
"A faint suggestion was made that this Court in Saroj
Kumar Poddar (supra) has laid down the law that the
complaint petition not only must contain averments
satisfying the requirements of Section 141 of the Act but
must also show as to how and in what manner the
appellant was responsible for the conduct of the business
of the company or otherwise responsible to it in regard to
its functioning. A plain reading of the said judgment
would show that no such general law was laid down
therein. The observations were made in the context of
the said case as it was dealing with a contention that
although no direct averment was made as against the
appellant of the said case fulfilling the requirements of
Section 141 of the Act but there were other averments
which would show that the appellant therein was liable
therefor."
[See also N.K. Wahi v. Shekhar Singh & Others \026 2007 (4) SCALE 188]
The law operating in this behalf is, therefore, no longer res integra.
What is, therefore, necessary is the application of law. Necessary
ingredients of Section 141 have been stated in the complaint petition at more
than one place. Whether the same satisfies the requirements of law or not is
the question.
A Chairman of a large Company may or may not be aware of the
actual transaction. If in a given situation, cheques are issued in ordinary
course of business. The Managing Director or a Deputy Managing Director,
in view of S.M.S. Pharmaceuticals Ltd (supra) would be deemed to be aware
thereof. A Chairman or a Director of a Company need not be. But, without
going into the finer question raised by Mr. Tulsi, we may notice that
allegations have not only been made in terms of the wordings of section but
also at more than one place, it has categorically been averred that the
payments were made after the meetings held by and between the
representative of the Company and Accused Nos. 1 to 5 which would
include Respondent Nos. 2 and 3.
It is, therefore, not a case where having regard to the position held by
the said respondents in the Company, they could plead ignorance of the
entire transaction.
Not only cheques were issued having regard to the huge amount
payable by Accused No. 6 to the Company but also as a result of fall out of
non-payment thereof, negotiations were held between the parties wherein
Respondent Nos. 2 and 3 took part, and, thus, in our opinion, there cannot
be any doubt that the ingredients of the provisions of Section 141 of the Act
stand satisfied.
Reliance placed by Mr. Tulsi on a decision of a Division Bench of this
Court in Pepsi Foods Ltd. and Another v. Special Judicial Magistrate and
Others [(1998) 5 SCC 749], in our opinion, is not apposite.
One of the questions which fell for consideration therein was as to
whether the order of the Magistrate summoning the accused reflected that he
had applied the mind to the fact of the case and the law applicable thereto.
In that case, the Company was proceeded against under Section 7/16 of the
Prevention of Food Adulteration Act, 1954. The Managing Director was
also made an accused along with the Company. This Court examined the
allegations made in the complaint petition and noticed there were as many as
12 accused named in the complaint. The Court pointed out the duties of the
public authorities specified therein including the public analyst. This Court
also took into consideration the nature of the complaint as also the
circumstances in which the complaint petition came to be filed. In that case,
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 8
bottle containing the soft drink was said to have been purchased from a shop
known as "The Flavours Fast Food and Cool Corner" and not directly from
the manufacturer. In the complaint petition, it was alleged that only upon
inquiry, the complainant came to learn that the manufacturer of the bottle of
sample was Appellant No. 1 therein and the other accused were their
Managing Directors, Directors and Executive Director and Others Officers.
It was, in the aforementioned situation, observed:
"28. Summoning of an accused in a criminal case is a
serious matter. Criminal law cannot be set into motion as
a matter of course. It is not that the complainant has to
bring only two witnesses to support his allegations in the
complaint to have the criminal law set into motion. The
order of the Magistrate summoning the accused must
reflect that he has applied his mind to the facts of the
case and the law applicable thereto. He has to examine
the nature of allegations made in the complaint and the
evidence both oral and documentary in support thereof
and would that be sufficient for the complainant to
succeed in bringing charge home to the accused. It is not
that the Magistrate is a silent spectator at the time of
recording of preliminary evidence before summoning of
the accused. The Magistrate has to carefully scrutinise
the evidence brought on record and may even himself put
questions to the complainant and his witnesses to elicit
answers to find out the truthfulness of the allegations or
otherwise and then examine if any offence is prima facie
committed by all or any of the accused."
The said decision, therefore, does not lay down any general
proposition in regard to the allegations required to be made in a complaint
petition so as to fasten vicarious liability upon the holders of the office of the
Company. On the other hand, the three-Judge bench decision of this Court
in S.M.S. Pharmaceuticals Ltd. (supra) is binding on us.
For the reasons aforementioned, the impugned judgment cannot be
sustained and is set aside accordingly. The appeal is allowed.