Full Judgment Text
* IN THE HIGH COURT OF DELHI AT NEW DELHI
th
Date of decision: 12 February, 2013
+ CRL. M.C. 3749/2012
CHINTAN ARVIND KAPADIA & ANR. ..... Petitioners
Through: Mr. Tanmaya Mehta, Advocate
versus
STATE & ANR. ..... Respondents
Through: Ms. Rajdipa Behura, APP for the State
/Respondent No.1.
Mr. Harshvardhan Singh, Advocate for
the Respondent No.2.
CORAM:
HON'BLE MR. JUSTICE G.P.MITTAL
J U D G M E N T
G. P. MITTAL, J. (ORAL)
1. The Petitioners invoke inherent powers of this Court under Section 482 of
the Code of Criminal Procedure, 1973(Cr.P.C.) for quashing of the order
dated 26.05.2012 passed by the learned Metropolitan Magistrate (“MM),
Rohini, summoning the Petitioners and other accused in a complaint case
No.596/2012 titled “M/s. Rama Krishna Electro Components Pvt. Ltd. v.
Sandeep Ramkrishan Arora @ Karan Arora & Ors.”
2. In the complaint, it was alleged that M/s. High Ground Enterprises Pvt.
Ltd. (Accused No.3 before the Court of MM) had issued certain cheques
in favour of the Respondent No.2 in discharge of its liability. The
Crl.M.C.3749/2012 Page 1 of 8
cheques when presented were dishonoured with the remarks “payment
stopped by the drawer”. A statutory notice under Section 138 of the
Negotiable Instruments Act, 1881(the Act) was served upon the drawer
company. Accused No.4 was alleged to be the authorized signatory of
accused No.3 company and accused Nos.1 and 4 to 6 were alleged to be
directors of the company and responsible for day to day affairs of the
accused company.
3. The only ground of challenge raised by the learned counsel for the
Petitioner is that the Complaint filed by Respondent No.2 did not reveal
as to how the Petitioner was in charge of and responsible for the conduct
of business of the accused company and mere averments in the complaint
that the Petitioner being a Director was in charge of and responsible for
conduct of the business of the company was not enough to issue process
against the Petitioner.
4. Referring to National Small Industries Corporation Ltd. v. Harmeet
Singh Paintal & Anr. (2010) 3 SCC 330; Central Bank of India v. Asian
Global Limited & Ors. (2010) 11 SCC 203; and Anita Malhotra v.
Apparel Export Promotion Council & Anr. (2012) 1SCC 520, the learned
counsel for the Petitioner urges that unless it was specifically averred in
the complaint as to how and in what manner the Petitioner was in charge
of and responsible for the conduct of the business of the company, he
cannot be made vicariously liable.
5. On the other hand, learned counsel for Respondent No.2 argues that it
will be enough to aver in the Complaint that the Director or the officer
Crl.M.C.3749/2012 Page 2 of 8
concerned was in charge of and responsible for the conduct of the
business of the Company, it would be only matter of trial as to how the
person sought to be prosecuted was in charge of and responsible for the
conduct of the business. Learned counsel for the Respondent presses into
service Paresh P. Rajda v. State of Maharashtra & Anr. (2008) 7 SCC
442 and Rallis India Limited v. Poduru Vidya Bhusan & Ors., (2011) 13
SCC 88.
6. To appreciate the contention raised, it would be appropriate to extract
Para 2 of the Complaint whereby vicarious liability is sought to be fixed
on the Petitioner. The same reads as under:
“2. That the accused No.1 is the director of the accused No.3
company and is responsible and liable for day to day affairs of
accused No.3 company. Further, accused No.2 is the authorized
signatory of the accused No.3 company and has been duly
authorized for the same. Apart, the accused No.4 to 6 are also the
directors of the company and are responsible for day to day affairs
of the accused No.3 company.”
7. In National Small Industries Corporation Ltd. v. Harmeet Singh Paintal
& Anr., (2010) 3 SCC 330 , the Supreme Court analysed the provisions of
Section 141 of the Act and observed that mere repetition of the words as
given in Section 141(2) of the Act will not be enough to make a director
or an officer vicariously liable for the act of the company. Para 38 of the
report is extracted hereunder:
| “3 | 8. But if the accused is not one of the persons who falls under |
|---|---|
| the category of “persons who are responsible to the company for | |
| the conduct of the business of the company” then merely by stating | |
| that “he was in charge of the business of the company” or by |
Crl.M.C.3749/2012 Page 3 of 8
| stating that “he was in charge of the day-to-day management of | |
|---|---|
| the company” or by stating that “he was in charge of, and was | |
| responsible to the company for the conduct of the business of the | |
| company”, he cannot be made vicariously liable under Section | |
| 141(1) of the Act. To put it clear that for making a person liable | |
| under Section 141(2), the mechanical repetition of the | |
| requirements under Section 141(1) will be of no assistance, but | |
| there should be necessary averments in the complaint as to how | |
| and in what manner the accused was guilty of consent and | |
| connivance or negligence and therefore, responsible under sub- | |
| section (2) of Section 141 of the Act.” |
8. To the same effect are the observations of the Supreme Court in Central
Bank of India v. Asian Global Limited & Ors., (2010) 11 SCC 203. The
Supreme Court held that although the managing director or a joint
managing director of the company would be admittedly in charge of the
company and responsible for the conduct of its business, the same
yardstick would not apply to a director. It was stated that for making a
director vicariously liable for the act of the company, there has to be clear
and unambiguous averments as to the part played by the director in the
transaction in question and how they were in charge of and responsible to
the company for the conduct of its business. Paras 17 to 19 of the report
are extracted hereunder:
“17. The law as laid down in S.M.S. Pharmaceuticals Ltd.
case (2005) 8 SCC 89 has been consistently followed and as late as
in 2007, this Court in N.K. Wahi case (2007) 9 SCC 481 while
considering the question of vicarious liability of a Director of a
company, reiterated the sentiments expressed in S.M.S.
Pharmaceuticals Ltd. 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,
Crl.M.C.3749/2012 Page 4 of 8
| 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. |
| 18. In this case, save and except for the statement that the | |
| respondents, Mr Rajiv Jain and Sarla Jain and some of the other | |
| accused, were Directors of the accused Companies and were | |
| responsible and liable for the acts of the said Companies, no | |
| specific allegation has been made against any of them. The | |
| question of proving a fact which had not been mentioned in the | |
| complaint did not, therefore, arise in the facts of this case. This has | |
| prompted the High Court to observe that the Bank had relied on | |
| the mistaken presumption that as Directors, Rajiv Jain, Sarla Jain | |
| and the other Directors were vicariously liable for the acts of the | |
| Company. |
| 19. Admittedly, except for the aforesaid statement, no other | |
| material has been disclosed in the complaint to make out a case | |
| against the respondents that they had been in charge of the affairs | |
| of the Company and were responsible for its action. The High | |
| Court, therefore, rightly held that in the absence of any specific | |
| charge against the respondents, the complaint was liable to be | |
| quashed and the respondents were liable to be discharged.” |
9. There is a latest report of the Supreme Court in Anita Malhotra v.
Apparel Export Promotion Council & Anr. (2012) 1 SCC 520 , wherein it
was laid down that reproduction of the statutory requirement (as laid
down in Section 141(2) of the Act) by itself would not be sufficient to
make director of a company liable. The complainant should specifically
spell out as to how and in what manner the director was in charge and
responsible to the accused company for conduct of its business. Relying
Crl.M.C.3749/2012 Page 5 of 8
on National Small Industries Corporation Ltd. , the Supreme Court held
as under:
| “22. | This Court has repeatedly held that in case of a Director, the | ||||
|---|---|---|---|---|---|
| complaint should specifically spell out how and in what manner | |||||
| the Director was in charge of or was responsible to the accused | |||||
| company for conduct of its business and mere bald statement that | |||||
| he or she was in charge of and was responsible to the company for | |||||
| conduct of its business is not sufficient. (Vide | National Small | ||||
| Industries Corpn. Ltd. | v. Harmeet Singh Paintal | (2010) 3 SCC 330. | |||
| In the case on hand, particularly, in Para 4 of the complaint, | |||||
| except the mere bald and cursory statement with regard to the | |||||
| appellant, the complainant has not specified her role in the day-to- | |||||
| day affairs of the Company. We have verified the averments as | |||||
| regards to the same and we agree with the contention of Mr Akhil | |||||
| Sibal that except reproduction of the statutory requirements the | |||||
| complainant has not specified or elaborated the role of the | |||||
| appellant in the day-to-day affairs of the Company. On this ground | |||||
| also, the appellant is entitled to succeed.” |
10. The judgment in Paresh P. Rajda v. State of Maharashtra & Anr. (2008)
7 SCC 442 was distinguished by the Supreme Court in National Small
Industries Corporation Ltd and it was held that necessary averments had
been made in the Complaint in Paresh P. Rajda. Para 32 of the report is
extracted hereunder:-
| “32. Learned counsel for the appellants after elaborately arguing | ||
|---|---|---|
| the matter, by inviting our attention to Paresh P. Rajda v. State of | ||
| Maharashtra (2008) 7 SCC 442 contended that a | ||
| departure/digression has been made by the Court in N. | ||
| Rangachari v. BSNL (2007) 5 SCC 108. However, in this case also | ||
| the Court has observed in para 4 that the High Court had noted | ||
| that: (Paresh P. Rajda case) | ||
| “4. … an overall reading of the complaint showed that | ||
| specific allegations had been levelled against [the accused] |
Crl.M.C.3749/2012 Page 6 of 8
as being a responsible officer of the accused Company and
therefore equally liable….”
In fact, the Court recorded the allegations in the complaint that the
complainant knew all the accused and that Accused 1 was the
Chairman of the accused Company and was responsible for day-
to-day affairs of the Company. This Court though has only noted
the decision in N. Rangachari case and observed that an
observation therein showed a slight departure vis-à-vis the other
judgments (i.e. S.M.S. Pharmaceuticals Ltd. case (2005) 8 SCC 89
and S.M.S. Pharmaceuticals Ltd. case (2007) 4 SCC 70, but then
the Court went on to record that in N.K. Wahi case (2007) 9 SCC
481 this Court had reiterated the view in S.M.S. Pharmaceuticals
Ltd.. The Court then concluded in para 11 that:
“11. It was clear from the aforequoted judgments that the
entire matter would boil down to an examination of the
nature of averments made in the complaint….”
On facts, the Court found necessary averments had been made in
the complaint.”
11. Similarly in Rallis India Limited relied upon by the learned counsel for
the Respondent, the accused persons were the working partners in the
firm. There were disputed questions as to when the earlier partnership
was dissolved and since which date the Respondents (in that case) ceased
to be the partners of the firm. It was in that context that the Supreme
Court ruled that the High Court should not have discharged the
respondents who were being prosecuted under Section 141 of the Act
being working partners of the firm.
12. I have also extracted above para 2 of the complaint. There are simply
bald allegations that the Petitioner (accused No.6) and other directors
were responsible for day to day affairs of the accused company.
Following the law laid down in National Small Industries Corporation
Crl.M.C.3749/2012 Page 7 of 8
Ltd. , Central Bank of India and Anita Malhotra, these averments were not
sufficient to issue process against the Petitioner. The Petitioner’s
summoning is, therefore, quashed.
13. The Petition, therefore, has to be allowed. I accordingly quash the
complaint No.596/2012 so far as it concerned the Petitioners.
14. Pending Applications stand disposed of.
(G.P. MITTAL)
JUDGE
FEBRUARY 12, 2013
pst/vk
Crl.M.C.3749/2012 Page 8 of 8