A.K.SINGHANIA vs. GUJARAT STATE FERTILIZER CO.LTD.

REPORTABLE IN THE SUPREME COURT OF INDIA CRIMINAL APPELLATE JURISDICTION

VERSUS GUJARAT STATE FERTILIZER CO. LTD. & ANR. …RESPONDENTS WITH CRIMINAL APPEAL NOS.1719-1725 OF 2013 (@SPECIAL LEAVE PETITION (CRL.) NOS. 3100-3106 OF 2012) A.K. SINGHANIA … APPELLANT VERSUS GUJARAT STATE FERTILIZER CO. LTD. & ANR. …RESPONDENTS CRIMINAL APPEAL NOS.1726-1732 OF 2013 (@SPECIAL LEAVE PETITION (CRL.) NOS.984-990 OF 2013) JUDGMENT GUJARAT STATE FERTILIZER CO. LTD. … APPELLANT VERSUS VIKRAM PRAKASH & ANR. …RESPONDENTS CRIMINAL APPEAL NOS.1733-1759 OF 2013 (@SPECIAL LEAVE PETITION (CRL.) NOS. 1068-1094 OF 2013) GUJARAT STATE FERTILIZER Page 1 2 CO. LTD. … APPELLANT VERSUS VIKRAM PRAKASH & ANR. …RESPONDENTS J U D G M E N T CHANDRAMAULI KR. PRASAD, J. In all these special leave petitions common question of law and facts arise and, therefore, they have been heard together and are being disposed of by this common judgment. Leave granted. In all these cases we are concerned with accused A.K. Singhania and Vikram Prakash. Several JUDGMENT complaints were filed by Gujarat State Fertilizer Company against Esslon Synthetics Ltd., its Chairman, Managing Director and other Directors including aforesaid A.K. Singhania and Vikram Prakash alleging commission of an offence under Section 138 of the Negotiable Instruments Act, hereinafter referred to as ‘the Act’. Page 2 3 In Complaint Case No. 331 of 1996 the allegations which are relevant for the decision of these appeals read as follows:

4. All the business and financial affairs of the accused company No. 14 are decided, organized, administered by accused No. 1 being Managing Director and accused No. 2 being Deputy Managing Director, accused No. 3 Chairman, accused No. 4 Whole Time Director, accused No. 5 Finance Director with consultation of other Directors from accused Nos. 6 to 12 and accused No. 13 was Sr. Manager (Finance) of accused company No. 14. So accused Nos. 1 to 12 and accused No. 13 are also responsible for all the transactions and business affairs done on behalf of accused Company No. 14 and are responsible for all the financial affairs and administration of accused Company No. 14.” JUDGMENT Page 3 4 A.K. Singhania is the accused No. 7 and Vikram Prakash is accused No. 9 in this complaint. In Complaint Case No. 1293 of 1996, the

appeals read as follows: “4. All the business and financial affairs of the accused company No. 1 are decided, organized, administered by the accused No. 2 being Managing Director and accused No. 3 being Managing Director, accused No. 4 Chairman, accused No. 5 Whole Time Director, accused No. 6 Finance Director with consultation of other Directors from accused Nos. 7 to 13 and accused No. 14 was Sr. Manager (Finance) of accused No. 1. At the time the offence was committed, they were incharge of and were responsible to the company for the conduct of the business of the accused company. Therefore, they are responsible for day to day affairs and all the transactions and business done on behalf of the accused Company No. 1 and they are also responsible for all the financial affairs and administration of accused company No. 1.” JUDGMENT A.K. Singhania and Vikram Prakash have been arrayed as accused Nos. 8 and 10 in this complaint and in all other complaints, the allegations against Page 4 5 A.K. Singhania are identical to what have been alleged in the Complaint Case No. 331 of 1996.

cognizance of the offence, issued process to the accused aforesaid besides other accused to face trial for commission of the offence under Section 138 of the Act. Vikram Prakash, aggrieved by the order issuing summons to face trial under Section 138 of the Act in different complaints, filed applications under Section 482 of the Code of Criminal Procedure for quashing the order taking cognizance and issuing JUDGMENT process. The applications filed by said Vikram Prakash were registered as Criminal Miscellaneous Application Nos. 13393-13399 of 2007. The High Court by its common order dated January 20, 2012 allowed all the applications and quashed his prosecution. While doing so, the High Court held as follows: Page 5 6

JUDGMENT It is this common order which has been assailed by the Gujarat State Fertilizer Company Ltd. in the special leave petitions filed by it. A.K. Singhania also, aggrieved by the order issuing process under Section 138 of the Act, filed separate applications for quashing the entire prosecution including the aforesaid order under Page 6 7 Section 482 of the Code of Criminal Procedure. All the applications filed by A.K. Singhania were taken together by the High Court for consideration and by

observed as follows: “ 9. As the paragraphs of the complaint reproduced in earlier part of decision specifically para 4 and subsequent paragraphs would reveal that the applicant in the capacity of Director was responsible for business affairs and he was in-charge of the Company. Not only that but nowhere it can be said that the applicant was non-Executive Director and even if it is so the said argument is in realm of defence to be decided by Court trying the case under the Negotiable Instruments Act. Since sufficient averments attracting of Section 138 of Negotiable Instrument Act are the foundation of the complaint and it is further averred that cheques were issued with mischievous, dishonest intention, knowingly and willingly to cheat the complainant company. Arguments canvassed by learned advocate for the applicant do not require any further deliberation in exercise of powers under Section 482 of the Code since quashing the complaint would not secure end of justice but would result into miscarriage of justice………..” JUDGMENT Page 7 8 A.K. Singhania, aggrieved by the aforesaid common order, has preferred these special leave petitions. Leave granted.

Counsel on behalf of the accused A.K. Singhania and Mr.Ashok Kr. Srivastava, learned Senior Counsel on behalf of Vikram Prakash whereas the complainant, Gujarat State Fertilizer Company Ltd. is represented by Mr. Jayant Bhushan, learned Senior Counsel. Mr. Ranjit Kumar appearing on behalf of the accused submits that necessary averments that at the time the offence was committed, the accused were in-charge of and responsible for the conduct of the business of the company have not been averred, which is sine qua JUDGMENT non for proceeding against the Directors of the company. He has drawn our attention to the averments made in the complaints, which we have reproduced in the preceding paragraphs of this judgment and submits that mere assertion that these accused persons were the Directors of the company is not sufficient to make them liable under Section 141 of the Act. Mr. Page 8 9 Jayant Bhushan however, submits that there is clear averment in the complaint that these accused persons were the Directors of the company and, in fact, in-

summoned to face the trial. He points out that the judgment and order of the High Court quashing the prosecution of accused Vikram Prakash is under challenge in this batch of appeals and accused A.K. Singhania cannot take benefit of the said order and the fate of both the accused shall depend upon the decision in all these appeals. Mr. Ranjit Kumar submits that on same set of facts when the prosecution of the accused Vikram Prakash has been quashed, there does not seem any justification to JUDGMENT decline the prayer of the accused A.K. Singhania. In view of rival submissions, we proceed to consider the exact allegations made against the accused A.K. Singhania and accused Vikram Prakash. It is not in dispute that allegations against both the accused in different complaints are one and the Page 9 10 same. In Complaint Case No. 331 of 1996, the allegation is that “all business and financial affairs of the accused company are decided,

so with consultation of other Directors namely, Accused Nos. 6 to 12. In view of aforesaid, according to the complainant, accused Nos. 1 to 13 are also responsible for all the transactions and business affairs, financial affairs and administration done on behalf of the accused company. It is relevant here to state that A.K. Singhania and Vikram Prakash are accused Nos. 7 and 9 in this complaint. The averments made in the complaint nowhere suggest that these two accused, at the time JUDGMENT the offence was committed, were in-charge of and responsible for the conduct of the business of the company. According to the complainant itself, it was accused Nos. 1 to 5 who were taking decisions and the allegation that in taking the decisions they used to consult these accused also will not mean that these two accused were at the time the offence was Page 10 11 committed, were in-charge of and responsible for the conduct of business of the company. In complaint Case No. 1293 of 1996 and all other complaints with

affairs of the accused company No.1, are decided, organized, administered by accused Nos. 2 to 6 and in consultation of other directors i.e. from accused Nos. 7 to 13”. It has further been averred that at the time the offence was committed “they were in- charge and responsible to the company for the conduct of the business” and, therefore, “they are responsible for day to day affairs and transaction, business and all financial affairs of the accused company.” Mr. Ranjit Kumar submits that the JUDGMENT aforesaid averments are not sufficient and from that it cannot be inferred that accused A.K. Singhania and accused Vikram Prakash have been alleged to be in-charge and responsible for the conduct of the business of the company at the time the offence was committed. He points out that A.K. Singhania is accused No. 8 whereas accused Vikram Prakash is Page 11 12 accused No. 10 in these complaints. Mr. Jayant Bhushan, however, joins issue and submits that the substance of the accusation clearly indicates that

time of the offence. We have perused the complaints and, in fact, the relevant portions of the allegations have been reproduced in the foregoing paragraphs of the judgment. From that it is difficult to infer that there is any averment that these two accused were in-charge of and responsible for the conduct of the business of the company at the time the offence was committed. The allegations in the complaints in sum JUDGMENT and substance mean that business and financial affairs of the company used to be decided, organized and administered by accused Nos. 2 to 6 and while doing so, other Directors including the two accused herein were consulted. The inference drawn by the complainant on that basis that these two accused, therefore, are in-charge and responsible to the company for the conduct of its business, is Page 12 13 absolutely misconceived. We are, therefore, of the opinion that essential averment in the complaints is lacking.

cheque, the culpability of the Directors has to be decided with reference to Section 141 of the Act, same reads as follows: -(1) If “141. Offences by companies. 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: JUDGMENT 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 Page 13 14

From a plain reading of the aforesaid provision it is evident that every person who at the time the offence was committed is in charge of and responsible to the Company shall be deemed to be guilty of the offence under Section 138 of the Act. In the face of it, will it be necessary to specifically state in the complaint that the person accused was in charge of Page 14 15 and responsible for the conduct of the business of the Company? In our opinion, in the case of offence by Company, to bring its Directors within the

responsible to the conduct of the business of the Company. It is necessary ingredient which would be sufficient to proceed against such Directors. However, we may add that as no particular form is prescribed, it may not be necessary to reproduce the words of the section. If reading of the complaint shows and substance of accusation discloses necessary averments, that would be sufficient to proceed against such of the Directors and no particular form is necessary. However, it may not be necessary to JUDGMENT allege and prove that, in fact, such of the Directors have any specific role in respect of the transaction leading to issuance of cheque. Section 141 of the Act makes the Directors in charge and responsible to Company “for the conduct of the business of the Company” within the mischief of Section 138 of the Act and not particular business for which the cheque Page 15 16 was issued. We cannot read more than what has been mandated in Section 141 of the Act. A large number of authorities of this Court have

bring home their point. We deem it inexpedient to refer to all of them. Suffice it to say that this question has been answered eloquently by a three- Judge Bench decision of this Court in the case of S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89, in the following words: “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.” JUDGMENT Page 16 17 This Court in the case of National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal, after reviewing all its earlier (2010) 3 SCC 330,

“ 39 . From the above discussion, the following principles emerge: (i) The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every Director knows about the transaction. (ii) Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company. JUDGMENT (iii) Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 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 offence committed by the company along with averments in the petition containing that the accused were in charge of and responsible for the business of the company and by virtue of their Page 17 18 position they are liable to be proceeded with.

(vi) If the accused is a Director or an officer of a company who signed the cheques on behalf of the company then also it is not necessary to make specific averment in the complaint. (vii) 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.” JUDGMENT In Harshendra Kumar D. v. Rebatilata Koley, after referring to its earlier (2011) 3 SCC 351, S.M.S. Pharmaceuticals Ltd.(supra) , decisions in National Small Industries Corpn. Ltd.(supra), N. Rangachari v. Bharat Sanchar Nigam Ltd., (2007) 5 SCC Page 18 19 108 and K.K. Ahuja v. V.K. Vora, (2009) 10 SCC 48, this Court reiterated the same view.

responsible for the conduct of the business of the company at the time the offence was committed. Hence, there is no essential averment in the complaints. In view of what we have observed above, the prosecution of accused A.K. Singhania and accused Vikram Prakash cannot be allowed to continue. Accordingly, the order of the High Court quashing the prosecution of the accused Vikram Prakash is not fit to be interfered with. For the same reason the order passed by the High Court declining the prayer of A.K. JUDGMENT Singhania for quashing of the prosecution cannot be sustained and the appeals preferred by him deserve to be allowed. In the result, we dismiss the appeals preferred by the complainant Gujarat State Fertilizers Company Ltd. and allow the appeals preferred by A.K. Page 19 20 Singhania and quash his prosecution in all these cases. ……………………..………………………………..J. (CHANDRAMAULI KR. PRASAD) …….….……….………………………………..J. (KURIAN JOSEPH) NEW DELHI, OCTOBER 17, 2013 JUDGMENT Page 20