Full Judgment Text
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ CRL.M.C. 1895/2011
th
% Judgment reserved on: 06 March, 2012
th
Judgment delivered on: 30 May, 2012.
DEEPIKA MALHOTRA & ORS ..... Petitioner
Through : Mr.Praveen Mahajan, Adv.
versus
KANTI LAL JAIN ..... Respondent
Through : Through : Mr. D. Hasija and
Ms. Sandhavi B. Saikia, Advs.
CORAM:
HON'BLE MR. JUSTICE SURESH KAIT
SURESH KAIT, J .
1. The instant petition is being filed to quash the summoning order dated
31.10.2009 and consequent criminal proceedings initiated under Section 200
Cr. P.C. 1973 read with Section 138 read with Section 141/142 of NI Act
against the petitioner in the complaint pending in the Saket Court titled as
„Kanti Lal Jain vs. Nitisree Infrastructure Limited and Ors.‟
2. The cheque in question bearing no. 414842 dated 27.7.2009 for a sum
of Rs.3,48,206/- drawn on Punjab and Sindh Bank, Connaught Circus, New
Delhi, which was alleged to be issued by accused no. 1 Company i.e. M/s.
Nitishree Infrastructure Limited and the said cheque was alleged to be
signed solely by Mr. Anil Jain, Director of accuse no. 1 / company.
Crl.M.C. 1895/2011
Page 1 of 23
3. The said cheque was presented by the complainant on 27.07.2009
with his Banker at the Axis Bank, Cittaranjan Park, New Delhi and same
was dishonoured by the Banker of the accused with remarks “Exceeds
arrangement” on 29.07.2009.
4. Another cheque bearing no. 288713 dated 26.08.2009 for Rs.3,48,206
drawn on Noble Cooperative Bank Limited, NOIDA, UP was alleged to be
issued in lieu of cheque no. 414842. The said cheque was deposited with the
Banker of the Complainant at the Axis Bank, Chittaranjan Park, New Delhi
and the same was dishonoured by the Banker of accused with the remarks
“Exceeds arrangement” on 28.08.2009 .
5. On 17.09.2009, respondent issued legal notice against the accused
persons demanding the amount of cheque no. 288713. The said legal notice
was alleged to be sent through Speed Post and Courier Service on
23.09.2009.
6. The cause of action arose in favour of the respondent to file the
complaint on 10.10.2009, since there was no payment against the
dishonoured cheque as alleged by the respondent.
7. The respondent has filed 2 separate criminal complaint arising out of
same alleged transaction i.e. alleged refund for booking of one plot, one such
complaint for cheque bearing no. 414843 dated 22.08.2009 for Rs.3,50,000/-
and another complaint was filed in respect of dishonoured cheque bearing
no. 288713 dated 26.08.2009 for Rs.3,48,206.
8. Ld. Counsel for the petitioner has submitted that in the complaint
Crl.M.C. 1895/2011
Page 2 of 23
under Section 200 of the Cr. P.C. the allegation of the complainants are that:
“That the accused no. 1 is a company which engaged in the
business of real estate and is having its registered office at 78-B,
SectorD-2, DDA Flats, Group-II, Kondli Gharoli, Mayur Vihar
Phase-III, Delhi – 110096; and offices at B-111, Sector-5, NOIDA-
201301 (UP), at D-44, Sector-6, NOIDA-201301 (UP) and at C-68,
Sector 30, NOIDA-201301 (UP). The accused no. 2 to 4 are the
Directors of the accuse no. 1, company and are actively involved in
the day to day working of the accused no.1, company. The accused
no. 5 to 11 are the managers of the accused no. 1, company, are
incharge of and responsible to the accused no.1, company for the
conduct of the business and day to day affairs of the accused no.1,
company. All the accused nos. 2 to 11 have been dealing with the
complainant from time to time.
That the complainant had booked to the accused no.1, company,
one plot admeasuring 175 Sq. Yds. in the so called upcoming
project of the accused no.1, company at Shourya Puram, NH-24,
Ghaziabad. The accused no.1, company had given to the
complainant a registration No.GP-1175 and had provisionally
allotted one plot with No.G-1278 in the said project. The complete
payments for the said booking/provisional allotment were duly
made to the accused no.1, company, by the complainant from time
to time as per the demand of the accused no.1, company.”
9. Ld. Counsel for the petitioner has referred Annexure – 2, which is at
Page 62, as he was working with “AURA”. The same is reproduced as
under:-
“This is to certify that Mr. Upendra Joshi was working with our
organization as General Manager in Construction Department
st th
since 1 December, 2006 till 30 April, 2010. During his tenure,
his dedication towards the organization and towards his work as
tremendous and his performance was good. We wish him good
luck for his future endeavours.”
10. Ld. Counsel has drawn the attention of this court to the cheque in
Crl.M.C. 1895/2011
Page 3 of 23
question not issued by said AURA Company, whereas in complaint Mr.
Upender Joshi is mentioned as alleged accused.
11. Ld. Counsel for the petitioner has relied upon a case of K.K. Ahuja vs.
V.K. Vora and Anr. (2009) 10 SCC 48 wherein it is held as under:-
“20. The position under section 141 of the Act can be summarized
thus:
(iv) Other Officers of a company cannot be made liable under
sub-section (1) of section 141. Other officers of a company can be
made liable only under sub-section (2) of Section 141, be averring
in the complaint their position and duties in the company and their
role in regard to the issue and dishonour of the cheque, disclosing
consent, connivance or negligence.
21. If a mere reproduction of the wording of section 141(1) in
the complaint is sufficient to make a person liable to face
prosecution, virtually every officer/employee of a company without
exception could be impleaded as accused by merely making an
averment that at the time when the offence was committed they
were in charge of and were responsible to the company for the
conduct and business of the company. This would mean that if a
company had 100 branches and the cheque issued from one branch
was dishonoured, the officers of all the 100 branches could be
made accused by simply making an allegation that they were in
charge of and were responsible to the company for the conduct of
the business of the company. That would be absurd and not
intended under the Act. As the trauma, harassment and hardship of
a criminal proceedings in such cases, may be more serious than the
ultimate punishment, it is not proper to subject all and sundry to be
impleaded as accused in a complaint against a company, even
when the requirements of section 138 read and section 141 of the
Act are not fulfilled.”
Crl.M.C. 1895/2011
Page 4 of 23
12. He further referred Para 2 of the complaint and submitted that he is
neither a signatory and no categorical averments were made and he is not
employee of the said company, which issued cheque.
13. He has further relied upon a judgment decided by Coordinate Bench
of this Court on 29.03.2011 in Satyapal Talwar vs. State Crl. M.C.
410/2011 qua directors wherein it is held as under:-
“6. The allegations to fix the vicarious liability of the petitioners
with the aid of Section 141 N.I. Act are in Para 7 and 8 of the
complaint which are reproduced thus:
“7. That the Complainant immediately informed accused
persons but, no heed was given towards the same. The accused
No. 3 is the Chairman and the accused No. 4 to 7 are the
Directors of the accused No. 1.
8. That the accused No. 2 to 7 are vicariously liable for the
commission of the offence on behalf of the company as such
the accused No. 2 issued the said cheques and the accused No.
3 to 7 are incharge and responsible to the accused No. 1 for
the conduct of its business. The accused persons are also
associated with the management of day to day affairs of the
company.”
13. From the above judgments, it is apparent that in order to rope
in a director of a company for the offence under Section 138 N.I.
Act with the aid of Section 141 of N.I. Act, the complainant is not
only required to make a clear allegation that the person concerned
was the director of the company, but he is also required to make
specific allegation of the facts indicating as to how and in what
manner the said director was in-charge and responsible for conduct
of the business of the company.
14. As regards the petitioners Om Dutt Sharma, Jagdish Kumar
Gupta, Vikram Mittal and Satyapal Talwar, on reading of the
complaint filed by the respondent No. 2, it would be seen that they
are not alleged to be signatories of the cheques in question. In
order to rope in the above four petitioners vicariously for the
offence under Section 138 N.I.Act committed by the company, in the
Crl.M.C. 1895/2011
Page 5 of 23
name of allegations respondent has simply reproduced the
language of Section 141 N.I. Act in the complaint. There is no
allegation in the complaint to show as to how and in what manner
the petitioner directors were in-charge and responsible for the day
to day affairs and business of the company. In absence of specific
allegation in this regard, in my considered view, the requirement of
Section 141 N.I. Act to hold the petitioners vicariously liable for the
offence committed by the company is not fulfilled. Even in the
affidavit evidence given by the respondent before the Magistrate,
there is no mention as to how and in what manner the petitioner
directors were in-charge of or were responsible to the company for
its day to day affairs and conduct of business. Thus, I am of the
considered view that the impugned order of learned M.M. dated
05.05.2010 summoning the petitioners Vikram Mittal, Jagdish
Kumar Gupta, Om Dutt Sharma and Satyapal Talwar for the
offence under Section 138 N.I.Act committed by the company with
the aid of Section 141 N.I.Act is not sustainable in law as there is
neither a specific allegation nor prima facie evidence on record to
show that the petitioners were Incharge and responsible for the
conduct of the business and the day-to-day affairs of Hotel
Indraprastha.
15. The case of the petitioner Ashok Kumar Mittal, however, stands
on a different footing. On perusal of the complaint under Section
138 N.I.Act filed by respondent No.2, it transpires that as regards
the petitioner Ashok Mittal, the complainant has specifically
alleged that he is the Chairman of the accused company. This imply
that petitioner Ashok Mittal was the Executive Head of the accused
company M/s. Hotel Indraprastha and in that capacity, he was
prima facie Incharge of running the business of the company and
was responsible for day-today affairs of the company. Thus, his
case squarely falls within the ambit of Section 141 N.I. Act to make
him vicariously liable for the offence under Section 138 N.I. Act
committed by the company.”
14. F
urther relied upon a judgment decided by Coordinate Bench of this
Court on 24.02.2011 in Gaurav Kumar & Ors. vs. Surinder Patwa, Crl.
Crl.M.C. 1895/2011
Page 6 of 23
M.C. 3298/2010 and same Judgment in B.T. Gokhale vs. State and Anr. in
Crl. M.C. 1345/2008 decided on 02.08.2011.
15. On the other hand, ld. counsel for the respondent has submitted that it
is stated in the complaint as under:-
“That the complainant had booked to the accused no.1, company,
one plot admeasuring 175 Sq. Yds. in the so called upcoming
project of the accused no.1, company at Shourya Puram, NH-24,
Ghaziabad. The accused no.1, company had given to the
complainant a registration No. GP-1175 and had provisionally
allotted one plot with No.G-1278 in the said project. The complete
payments for the said booking / provisional allotment were duly
made to the accused no.1, company, by the complainant from time
to time as per the demand of the accused no.1, company.
That the accused persons could not fulfil their commitments and the
so called project of the accused no.1, company at Shourya Puram,
NH-24, Ghaziabad never materialized. Ultimately, the
complainant was constrained to cancel its aforesaid registration
and provisional allotment for the aforesaid plot and after much
deliberations, persuasions and repeated follow ups by the
complainant, on 20.11.2008, the accused persons had agreed to
refund to the complainant the registration amount of Rs.6,98,206/-
.”
16. Ld. Counsel further submitted that cheque issued on 22.08.2009
presented on the same day. Legal notice issued on 19.09.2009 and
complaint filed on 22.10.2009. The Court took cognizance on 21.10.2009.
17. Further submitted that the petitioner cheated the respondent persons
and an amount of Rs.7 Lacs is involved in both the cases. The accused
company admitted to settle the matter with the respondent, but the same was
declined by the respondent.
Crl.M.C. 1895/2011
Page 7 of 23
18. Ld. Counsel for the respondent has referred the memo of parties at
page B that everyone has given the address of the company. Everyone has
given the name. None has signed the addresses.
19. Ld. Counsel has submitted that the application moved before the ld.
MM, Saket Court by Mr. Kanti Lal Jain for disposal of the complaint under
Section 138 of NI Act on account of tendering the payment of bounced
cheque by DD as per the judgment of Rajesh Aggarwal vs. State, Crl. M.C.
1996/2010.
20. Ld. Counsel for the respondent has pointed out that this application
filed without ticket and proforma. Ld. Counsel has referred the following
orders:
“12.08.2010
Present: Complainant with Counsel.
Sh. Brijesh Jha, Adv. Counsel for accused no. 1 to 4, 9
and 10.
Other accused are absent despite B/W.
Today I am also working as Link MM of two Courts.
Seen the report. Orally, personal exemption is sought on
behalf of all the accused submitting that they are out of Delhi.
Opposed by the ld. Counsel for complainant submitting that
warrants have already been issued against all the accused persons
despite that none is appeared. B/W against accused no. 1 to 4, 9
and 10 are cancelled subject to cost of Rs.1,000/- to e paid by the
each accused to the complainant. Issue fresh B/W in the sum of
Rs.15,000/- against accused no. 5,8 and 11 on PF. Dasti Prayed,
allowed.
Put up on 07.09.2010. Counsel for accused is directed to file
the Vakalatnama by the next date of hearing.
(Munish Markan)
MM/S.E/N.D./12.08.2010
Crl.M.C. 1895/2011
Page 8 of 23
15.12.2010
Present: Complainant in person along with Counsel Ms.
Sandhari Sakia.
All the accused persons are absent.
Sh. Brajesh Jha, Counse, for the accused No. 1,2,3,4 &
10.
An application on behalf of accused persons has been moved
stating thereinthat accused persons are willing to pay the cheque
amount in question by way of DD. Copy of the application supplied
to the Counsel for the complainant. Counsel for the accused has
brought today a D.D. of Rs. 6,98,206/- but the complainant refuses
to accept the same praying that interest and the other expenses be
given to him. Counsel for accused seeks pass over to file exemption
application on the behalf of the accused person as well as his
Vakalatnama.
Pass over is granted.
Put up at 2.00 p.m.
(Dheeraj Mittal )
MM-02(N.I.ACT)/South-East
New Delhi/15.12.2010
At 1:15 pm
Present: Sh. Brajesh Jha, Counsel for the accused no. 1,2,3,4 &
10 appeared and filed his Vakalatnama on the behalf
of accused no. 1,2,3,4 & 10. He has also moved an
application for the personal exemption of the accused
no. 3, 4& 10 on the ground that accused persons are
out of town and not able to attend the court today.
Heard.
Application is allowed for today only.
Perusal of the record shows that NBWs were issued against
the accused no. 3,4,9 & 10. However, NBWs returned back
unexecuted. Counsel submits that as the accused persons are
willing to pay the cheque amount in question by way of Demand
Draft so NBWs Issued against the accused be stayed till the next
date of hearing.
Considering submissions and the fact that accused persons
are willing to compromise the present complaint, NBWs issued
Crl.M.C. 1895/2011
Page 9 of 23
against accused no. 3,4 &10 are stayed till the next date of hearing.
Necessary Robkar be issued accordingly. B/W issued against the
accused no. 5 to 8 & 11 received back unserved. Issue fresh B/W
against accused no. 5 to 8 & 11 in the sum of Rs 25,000/- for the
next date of hearing. NBWs issued against accused no. 9 also
received back unexecuted.
Issue fresh NBW against accused no. 9 for the date fixed. Put up on
17.02.2011 for reply to the application moved on behalf of the
accused persons and arguments on the above said application and
further proceedings.
(Dheeraj Mittal )
MM-02(N.I.ACT)/South-East
New Delhi/15.12.2010
Vide this order, I shall dispose off application moved on behalf of
the accused for disposal of the present complaint case on account
of tendering the payment of the bounced cheques by way of DD as
per the judgment of Hon’ble High Court of Delhi in “Rajesh
Aggarwal vs. State” delivered in Crl. M.C. No. 1996/2010.
Vide this application, it is submitted by the accused that they are
ready to pay the cheque amount in question by way of DD through
their counsel to the complainant. It is further submitted that in view
of the judgment of High Court o Delhi in “Rajesh Aggarwal Vs.
State” delivered in Crl. M.C. No. 1996/2010 the present complaint
case be disposed off as accused persons are ready to pay the
cheque amount in question to the complainant.
Counsel for the complainant did not file any written reply to the
application. However, he argued that court cannot force the
complainant to compound the offence on payment of cheque amount
in question. He further submitted that complainant is not ready to
accept the cheque amount. I have heard the arguments from both
the sides and perused the record including the judgment relied by
the counsel for the accused. In my opinion consent of the
complainant is very much required for compounding of offence as
decided in 173 (2010) DLT 712 titled as “High tech Industry
(Bihar) Ltd. & other vs. State of Delhi & Anr ., wherein it is held
that court cannot force the respondent to compromise on deposit of
cheque amount or penalty by the accused.
Crl.M.C. 1895/2011
Page 10 of 23
For the reasons mentioned above, application in hand is
dismissed.
Announced in the open Court (Dheeraj Mittal)
On 17.02.2011 M.M. (N.I.Act) – 02:SED:
New Delhi
04.05.2011
Present: Complainant along with counsel Sh.D.Hasija.
None for the accused.
NBW issued against all the accused received back
unexecuted. Reports perused. Issue fresh NBW against all the
accused through SHO P.S. Sunlight Colony Delhi on filing of PF
for 08.06.2011. PF be filed within three days from today.
Perusal of the record shows that counsel Sh.Brijesh Jha
appeared for the accused No.1,2,3,4 & 10 on earlier two dates. Let
court notice be issued to the counsel Sh.Brijesh Jha for the date
fixed.
(Dheeraj Mittal)
MM-02(N.I.ACT)/South-East
New Delhi/04.05.2011”
21. Ld. Counsel for the respondent has relied upon a case of N.
Rangachari vs. Bharat Sanchar Nigam Ltd. (2007) 5 SCC 108 wherein it is
held as under:-
“Company, though a legal entity, cannot act by itself but can only
act through its directors. Normally, the Board of Directors act for
and on behalf of the company. This is clear from Section 291 of the
Companies Act which provides that subject to the provisions of that
Act, the Board of Directors of a Company shall be entitled to
exercise all such powers and to do all such acts and things as the
Company is authorized to exercise and do. Palmer described the
position thus:
Crl.M.C. 1895/2011
Page 11 of 23
"A company can only act by agents, and usually the persons
by whom it acts and by whom the business of the company is
carried on or superintended are termed directors.”
It is further stated in Palmer that:
"Directors are, in the eye of the law, agents of the company
for which they act, and the general principles of the law of
principal and agent regulate in most respects the
relationship of the company and its directors."
Therefore, a person in the commercial world having a transaction
with a company is entitled to presume that the directors of the
company are incharge of the affairs of the company. If any
restrictions on their powers are placed by the memorandum or
articles of the company, it is for the directors to establish it at the
trial. It is in that context that Section 141 of the Negotiable
Instruments Act provides that when the offender is a company,
every person, who at the time when the offence was committed was
incharge of and was responsible to the company for the conduct of
the business of the company, shall also be deemed to be guilty of
the offence along with the company. It appears to us that an
allegation in the complaint that the named accused are directors of
the company itself would usher in the element of their acting for
and on behalf of the company and of their being incharge of the
company. In Gower and Davies' Principles of Modern Company
Law (Seventh Edition), the theory behind the idea of identification
is traced as follows:
"It is possible to find in the cases varying formulations of the
under-lying principle, and the most recent definitions suggest
that the courts are prepared today to give the rule of
attribution based on identification a somewhat broader scope.
In the original formulation in the Lennard's Carrying
Company case Lord Haldane based identification on a person
Crl.M.C. 1895/2011
Page 12 of 23
"who is really the directing mind and will of the corporation,
the very ego and centre of the personality of the corporation".
Recently, however, such an approach has been castigated by
the Privy Council through Lord Hoffmann in the Meridian
Global case as a misleading "general metaphysic of
companies". The true question in each case was who as a
matter of construction of the statute in question, or presumably
other rule of law, is to be regarded as the controller of the
company for the purpose of the identification rule.”
A person normally having business or commercial dealings with a
company, would satisfy himself about its creditworthiness and
reliability by looking at its promoters and Board of Directors and
the nature and extent of its business and its Memorandum or
Articles of Association. Other than that, he may not be aware of the
arrangements within the company in regard to its management,
daily routine, etc. Therefore, when a cheque issued to him by the
company is dishonoured, he is expected only to be aware generally
of who are incharge of the affairs of the company. It is not
reasonable to expect him to know whether the person who signed
the cheque was instructed to do so or whether he has been deprived
of his authority to do so when he actually signed the cheque. Those
are matters peculiarly within the knowledge of the company and
those in charge of it. So, all that a payee of a cheque that is
dishonoured can be expected to allege is that the persons named in
the complaint are in charge of its affairs. The Directors are prima
facie in that position.”
22. He further relied upon the case of K.K. Ahuja (Supra) , wherein it is
held as under:-
Section 291 of the Companies Act, 1956 provides that subject to the
provisions of that Act, the Board of Directors of a company shall be
entitled to exercise all such powers, and to do all such acts and
Crl.M.C. 1895/2011
Page 13 of 23
things, as the company is authorised to exercise and do. A company
though a legal entity can act only through its Board of Directors.
The settled position is that a Managing Director is prima facie in
charge of and responsible for the company's business and affairs
and can be prosecuted for offences by the company. But insofar as
other directors are concerned, they can be prosecuted only if they
were in charge of and responsible for the conduct of the company's
business.
A combined reading of Sections 5 and 291 of Companies Act, 1956
with the definitions in clauses (24), (26), (30), (31), (45) of section
2 of that Act would show that the following persons are considered
to be the persons who are responsible to the company for the
conduct of the business of the company : --
(a) the managing director/s;
(b) the whole-time director/s;
(c) the manager;
(d) the secretary;
(e) any person in accordance with whose directions or instructions
the Board of directors of the company is accustomed to act;
(f) any person charged by the Board with the responsibility of
complying with that provision (and who has given his consent in
that behalf to the Board); and
(g) where any company does not have any of the officers specified
in clauses (a) to (c), any director or directors who may be specified
by the Board in this behalf or where no director is so specified, all
the directors.
Crl.M.C. 1895/2011
Page 14 of 23
It follows that other employees of the company, cannot be said to be
persons who are responsible to the company, for the conduct of the
business of the company.
The position under section 141 of the Act can be summarized thus:
(i) If the accused is the Managing Director or a Joint Managing
Director, it is not necessary to make an averment in the complaint
that he is in charge of, and is responsible to the company, for the
conduct of the business of the company. It is sufficient if an
averment is made that the accused was the Managing Director or
Joint Managing Director at the relevant time. This is because the
prefix `Managing' to the word `Director' makes it clear that 18 they
were in charge of and are responsible to the company, for the
conduct of the business of the company.
(ii)In the case of a director or an officer of the company who signed
the cheque on behalf of the company, there is no need to make a
specific averment that he was in charge of and was responsible to
the company, for the conduct of the business of the company or
make any specific allegation about consent, connivance or
negligence. The very fact that the dishonoured cheque was signed
by him on behalf of the company, would give rise to responsibility
under sub-section (2) of Section 141. (iii) In the case of a Director,
Secretary or Manager (as defined in Sec. 2(24) of the Companies
Act) or a person referred to in clauses (e) and (f) of section 5 of
Companies Act, an averment in the complaint that he was in charge
of, and was responsible to the company, for the conduct of the
business of the company is necessary to bring the case under
section 141(1). No further averment would be necessary in the
complaint, though some particulars will be desirable. They can also
be made liable under section 141(2) by making necessary
averments relating to consent and connivance or negligence, in the
complaint, to bring the matter under that sub-section. (iv)Other
Officers of a company can not be made liable under sub-section (1)
of section 141. Other officers of a company can be made liable only
under sub-section (2) of Section 141, be averring in the complaint
their position and duties in the company and their role in regard to
Crl.M.C. 1895/2011
Page 15 of 23
the issue and dishonour of the cheque, disclosing consent,
connivance or negligence.
23. Ld. Counsel has further relied upon a judgment of Shree Raj Travels
& Tours Ltd. & Ors. Vs. Destination of the World (Subcontinent) Private
Limited 2010 (4) JCC 9NI) 313 , wherein it is held as under:
“7. It is a matter of common knowledge that when companies are
floated and public issues are brought, big advertisements are issued
giving big names as Directors and promoters of the company.
These names are the names of successful CEOs, or Directors who
have achieved success in other fields. Due to these names at the
very inception and formation of company, when there is no wealth
or property of the company, the share of the company is sold at a
premium promising big business and success. Once money is
mopped up from the public, in all those cases where the companies
were created only for the purpose of mopping up hard earned
money of public or to befool them, it is found that those big names
disappear and in almost every litigation those Directors who
formed part of the core of the company and gave promises that the
Company would do roaring business quietly disappear from the
scene or take plea that they were not responsible for business of the
company. That is how the problem arises. While the public stands
cheated and the persons who had mopped up wealth and pocketed
the public wealth are not prepared to take responsibility.
8. Let us examine the role of Board of Directors (BoD) in terms of
Companies Act and other legal provisions. Company is a legal
personality and Board of Directors acts as its body and mind.
Under Section 291 of the Companies Act, BoD is authorized to do
what the company is authorized to do, unless barred by restrictions
on their power by the provisions of the Companies Act. It is well
settled that Directors, while exercising their powers, do not act as
agents for the majority or even all the members and so the members
Crl.M.C. 1895/2011
Page 16 of 23
cannot by a resolution passed by a majority of even unanimously,
supersede the Directors‟ power and instruct them how they shall
exercise their power. The powers of management are vested in
Directors and they and they alone can exercise these powers. The
only way in which the General Body of a company can overrule the
BoD is altering the Articles and refusing to re-elect the Directors,
whose actions they disapprove. The shareholders cannot themselves
usurp the powers, which by Articles are vested in the Directors.
Thus the Crl.M.C.No. 2652-59/10, 2661-63/2010, 2665/2010,
2670/2010, 2678/2010, & 2692/2010 Page 4 of 13 relationship of
BoD with the shareholders is more of a federation than that one of
subordinate and superior.
9. Under the Companies Act, BoD has powers to make calls on
shareholders in respect of money unpaid on their share, power to
authorize the buy- back, power to issue debentures, power to
borrow moneys otherwise than on debentures, power to invest the
funds of the company and power to take and make loans. There is
no doubt that BoD may, by a resolution passed at a meeting,
delegate to any committee of Directors, the Managing Director, the
Manager or any other principal officer of the company, the above
powers. However the principal power still vests in BoD and the
Manager or Managing Director acts only as an agent of the BoD.
Apart from this, BoD has power to form opinion about the solvency
of the company in respect of buy back shares (Section 77A), power
to fill up casual vacancies in the office of Directors (Section 262),
power to constitute Audit Committee and specify terms of reference
thereof (Section 292A), power to make donation to political parties
[Section 293A(2)], power to accord sanction for specified contracts
in which one or more Directors are interested [Section 297(4)],
power to receive notice of disclosure of Director‟s interest [Section
299(3)(c)], power to appoint or employ a person as Managing
Director or Manager [Section 316(2)], power to invest in shares or
debentures of any other body corporate (Section 372A), power to
Crl.M.C. 1895/2011
Page 17 of 23
appoint or employ a person as its Manager [Section 386(2)], power
to make a declaration of solvency, where it is proposed to wind up
the company voluntarily [Section 488(1)], power to approve the
text of advertising for inviting public deposits [Section 58A r/w
Rule 4(4)]. Some of the powers can only be exercised by resolution
passed at the meeting with consent of the Directors present at the
meeting.”
24. I have heard learned counsels for the parties.
25. The petitioners / accused persons could not fulfill their commitment
and the so called upcoming project of the accused no.1, never materialized.
Ultimately, the complaint was constrained to cancel its aforesaid registration
and provisional allotment for the aforesaid plot. After deliberations,
persuasions and repeated follow-ups by complaint, on 20.11.2008,
petitioners had agreed to refund the money to the complaint i.e. registration
amount of Rs.6,98,206/-.
26. I note, it is recorded in the order dated 12.08.2010 by learned
Metropolitan Magistrate, Delhi that the orally, personal exemption was
sought on behalf of the accused by submitting that they were out of Delhi.
Same was opposed by learned counsel appearing on behalf of the
complainant and submitted that warrants were already been issued against
all the accused persons, despite that none appeared. Accordingly, bailable
Warrants against accused Nos.1 to 4, 9 & 10 were cancelled subject to costs
of Rs.1,000/- to paid by each of the accused persons to the complaint.
Learned Magistrate further issued fresh bailable warrants in the sum of
Rs.15,000/- against accused Nos.5, 8, & 11 on PF.
Crl.M.C. 1895/2011
Page 18 of 23
27. I further note that on 15.12.2010, all accused persons were absent.
Therefore, an application moved on behalf of accused stating therein that
they were willing to pay the cheque amount in question by way of demand
draft. Counsel for accused persons had brought the demand draft for an
amount of Rs.6,98,206/-, but the complaint refused to accept the same
praying that interest and other expenses should also be given to him. In that
eventuality, learned counsel for accused persons sought pass over to file
exemption application on behalf of accused persons as well as his
Vakaltnama. At request, pass over was granted. On the second call, learned
counsel for accused numbers 1, to 4, & 10 appeared and filed the
Vakaltnama . He also moved application on behalf of said accused persons,
as mentioned above for exemption on the ground that accused persons were
out of town and were unable to attend the Court on that date.
28. Learned Magistrate perused the record and it revealed that the NBWs
were issued against accused Nos.3,4, 9 & 10; however, NBWs were returned
back unexecuted. Learned counsel appearing on behalf of the accused
persons submitted that ther were willing to pay the cheque amount in
question by way of demand draft, so NBWs be stayed till next date of
hearing.
29. Considering the submissions and the fact that accused persons were
willing to compromise the present complaint, NBWs issued against accused
No.1,3,4 & 10 were stayed till next date of hearing by the learned M.M..
The application of the accused persons for disposal of the complaint case on
account of tendering the payment of the bounced cheque by DD as per
judgment of this Court in Rajesh Aggarwal v. State, Crl.M.C.No.1996/2010,
Crl.M.C. 1895/2011
Page 19 of 23
learned counsel for complaint did not file any written reply to the
application; however, he argued that the Court cannot force the complainant
to compound the offence on payment of the cheque amount in question. He
further submitted that the complainant was not ready to accept the cheque
amount.
31. After hearing learned counsels for parties, learned Magistrate
recorded that the consent of the complainant was very much required for
compounding of the offence, as law has been settled in High Tech Industry
(Bihar) Ltd & Ors v. State of Delhi & Anr : 173 (2010) DLT 172 wherein it
has been held that the Court cannot force the complainant to compromise on
deposit of the cheque amount or penalty by the accused. Accordingly, said
application was dismissed by the learned MM.
32. It has been held in Rangachari (supra) that the company, though a
legal entity, cannot act by itself but can only act through its directors.
Normally, the Board of Directors act for and on behalf of the company. This
is clear from Section 291 of the Companies Act which provides that subject
to the provisions of that Act, the Board of Directors of a Company shall be
entitled to exercise all such powers and to do all such acts and things as the
Company is authorized to exercise. It is further observed that the company
can only act by agents, and usually the persons by whom it acts and by
whom the business of the company is carried on or superintended are termed
directors. The directors are, in the eye of the law, agents of the company for
which they act, and the general principles of the law of principal and agent
regulate in most respects the relationship of the company and its directors.
Crl.M.C. 1895/2011
Page 20 of 23
33. Therefore, a person in the commercial world having a transaction with
a company is entitled to presume that the directors of the company are
incharge of the affairs of the company. If any restrictions on their powers are
placed by the memorandum or articles of the company, it is for the directors
to establish it at the trial. It is in that context that Section 141 of the NI Act
provides that when the offender is a company, every person, who at the time
when the offence was committed was incharge of and was responsible to the
company for the conduct of the business of the company. They shall also be
deemed to be guilty of the offence along with the company.
34. When a cheque issued to him by the company is dishonoured, he is
expected only to be aware generally of who are incharge of the affairs of the
company. It is not reasonable to expect him to know whether the person who
signed the cheque was instructed to do so or whether he has been deprived
of his authority to do so when he actually signed the cheque. A company
though a legal entity can act only though its board of directors. The settled
proposition of law is that the managing director is prima facie in charge of
the act and responsibility for the company‟s business and affairs and can be
prosecuted for the offences by the company.
35. In so far as the other directors are concerned, they can be prosecuted
only if they were in-charge and responsible for the conduct of company‟s
business. In case of a director of an officer of the company who signed the
cheque on behalf of the company, as is in the present case, there is no need
to make a specific averment that he was in-charge and was responsible to the
company, for the conduct of the business of the company or make any
specific allegations about consent, connivance or negligence. The very fact
Crl.M.C. 1895/2011
Page 21 of 23
that the dishonoured cheque was signed by him on behalf of the company
would give rise to responsibility under sub-section (2) of Section 141 NI
Act. For the conduct of the business of the company is necessary to bring the
case under section 141(1) NI Act. No further averment would be necessary
in the complaint, though some particulars will be desirable. They can also be
made liable under section 141(2) NI Act by making necessary averments
relating to consent and connivance or negligence, in the complaint, to bring
the matter under that sub-section.
36. When companies are floated and public issues are brought, big
advertisements are issued giving big names as directors and promoters of the
company. These names are the names of successful CEOs, or Directors who
have achieved success in other fields. Due to these names at the very
inception and formation of company, when there is no wealth or property of
the company, the share of the company is sold at a premium promising big
business and success. Once money is mopped up from the public, in all those
cases where the companies were created only for the purpose of mopping up
hard earned money of public or to befool them. It is found that those big
names disappear and in almost every litigation. Directors who formed part
of the core of the company and gave promises that the Company would do
roaring business quietly disappear from the scene or take plea that they were
not responsible for business of the company.
37. The powers of management are vested in directors and they alone can
exercise these powers. The only way in which the general body of a
company can overrule the board of directors is altering the Articles and
refusing to re-elect the directors, whose actions they disapprove.
Crl.M.C. 1895/2011
Page 22 of 23
38. In view of the above discussion, legal proposition, and submissions of
both the parties, I find no merit in the instant petition.
39. The same is accordingly dismissed.
40. No order as to costs.
SURESH KAIT, J
MAY 30, 2012
Jg/Mk
Crl.M.C. 1895/2011
Page 23 of 23
+ CRL.M.C. 1895/2011
th
% Judgment reserved on: 06 March, 2012
th
Judgment delivered on: 30 May, 2012.
DEEPIKA MALHOTRA & ORS ..... Petitioner
Through : Mr.Praveen Mahajan, Adv.
versus
KANTI LAL JAIN ..... Respondent
Through : Through : Mr. D. Hasija and
Ms. Sandhavi B. Saikia, Advs.
CORAM:
HON'BLE MR. JUSTICE SURESH KAIT
SURESH KAIT, J .
1. The instant petition is being filed to quash the summoning order dated
31.10.2009 and consequent criminal proceedings initiated under Section 200
Cr. P.C. 1973 read with Section 138 read with Section 141/142 of NI Act
against the petitioner in the complaint pending in the Saket Court titled as
„Kanti Lal Jain vs. Nitisree Infrastructure Limited and Ors.‟
2. The cheque in question bearing no. 414842 dated 27.7.2009 for a sum
of Rs.3,48,206/- drawn on Punjab and Sindh Bank, Connaught Circus, New
Delhi, which was alleged to be issued by accused no. 1 Company i.e. M/s.
Nitishree Infrastructure Limited and the said cheque was alleged to be
signed solely by Mr. Anil Jain, Director of accuse no. 1 / company.
Crl.M.C. 1895/2011
Page 1 of 23
3. The said cheque was presented by the complainant on 27.07.2009
with his Banker at the Axis Bank, Cittaranjan Park, New Delhi and same
was dishonoured by the Banker of the accused with remarks “Exceeds
arrangement” on 29.07.2009.
4. Another cheque bearing no. 288713 dated 26.08.2009 for Rs.3,48,206
drawn on Noble Cooperative Bank Limited, NOIDA, UP was alleged to be
issued in lieu of cheque no. 414842. The said cheque was deposited with the
Banker of the Complainant at the Axis Bank, Chittaranjan Park, New Delhi
and the same was dishonoured by the Banker of accused with the remarks
“Exceeds arrangement” on 28.08.2009 .
5. On 17.09.2009, respondent issued legal notice against the accused
persons demanding the amount of cheque no. 288713. The said legal notice
was alleged to be sent through Speed Post and Courier Service on
23.09.2009.
6. The cause of action arose in favour of the respondent to file the
complaint on 10.10.2009, since there was no payment against the
dishonoured cheque as alleged by the respondent.
7. The respondent has filed 2 separate criminal complaint arising out of
same alleged transaction i.e. alleged refund for booking of one plot, one such
complaint for cheque bearing no. 414843 dated 22.08.2009 for Rs.3,50,000/-
and another complaint was filed in respect of dishonoured cheque bearing
no. 288713 dated 26.08.2009 for Rs.3,48,206.
8. Ld. Counsel for the petitioner has submitted that in the complaint
Crl.M.C. 1895/2011
Page 2 of 23
under Section 200 of the Cr. P.C. the allegation of the complainants are that:
“That the accused no. 1 is a company which engaged in the
business of real estate and is having its registered office at 78-B,
SectorD-2, DDA Flats, Group-II, Kondli Gharoli, Mayur Vihar
Phase-III, Delhi – 110096; and offices at B-111, Sector-5, NOIDA-
201301 (UP), at D-44, Sector-6, NOIDA-201301 (UP) and at C-68,
Sector 30, NOIDA-201301 (UP). The accused no. 2 to 4 are the
Directors of the accuse no. 1, company and are actively involved in
the day to day working of the accused no.1, company. The accused
no. 5 to 11 are the managers of the accused no. 1, company, are
incharge of and responsible to the accused no.1, company for the
conduct of the business and day to day affairs of the accused no.1,
company. All the accused nos. 2 to 11 have been dealing with the
complainant from time to time.
That the complainant had booked to the accused no.1, company,
one plot admeasuring 175 Sq. Yds. in the so called upcoming
project of the accused no.1, company at Shourya Puram, NH-24,
Ghaziabad. The accused no.1, company had given to the
complainant a registration No.GP-1175 and had provisionally
allotted one plot with No.G-1278 in the said project. The complete
payments for the said booking/provisional allotment were duly
made to the accused no.1, company, by the complainant from time
to time as per the demand of the accused no.1, company.”
9. Ld. Counsel for the petitioner has referred Annexure – 2, which is at
Page 62, as he was working with “AURA”. The same is reproduced as
under:-
“This is to certify that Mr. Upendra Joshi was working with our
organization as General Manager in Construction Department
st th
since 1 December, 2006 till 30 April, 2010. During his tenure,
his dedication towards the organization and towards his work as
tremendous and his performance was good. We wish him good
luck for his future endeavours.”
10. Ld. Counsel has drawn the attention of this court to the cheque in
Crl.M.C. 1895/2011
Page 3 of 23
question not issued by said AURA Company, whereas in complaint Mr.
Upender Joshi is mentioned as alleged accused.
11. Ld. Counsel for the petitioner has relied upon a case of K.K. Ahuja vs.
V.K. Vora and Anr. (2009) 10 SCC 48 wherein it is held as under:-
“20. The position under section 141 of the Act can be summarized
thus:
(iv) Other Officers of a company cannot be made liable under
sub-section (1) of section 141. Other officers of a company can be
made liable only under sub-section (2) of Section 141, be averring
in the complaint their position and duties in the company and their
role in regard to the issue and dishonour of the cheque, disclosing
consent, connivance or negligence.
21. If a mere reproduction of the wording of section 141(1) in
the complaint is sufficient to make a person liable to face
prosecution, virtually every officer/employee of a company without
exception could be impleaded as accused by merely making an
averment that at the time when the offence was committed they
were in charge of and were responsible to the company for the
conduct and business of the company. This would mean that if a
company had 100 branches and the cheque issued from one branch
was dishonoured, the officers of all the 100 branches could be
made accused by simply making an allegation that they were in
charge of and were responsible to the company for the conduct of
the business of the company. That would be absurd and not
intended under the Act. As the trauma, harassment and hardship of
a criminal proceedings in such cases, may be more serious than the
ultimate punishment, it is not proper to subject all and sundry to be
impleaded as accused in a complaint against a company, even
when the requirements of section 138 read and section 141 of the
Act are not fulfilled.”
Crl.M.C. 1895/2011
Page 4 of 23
12. He further referred Para 2 of the complaint and submitted that he is
neither a signatory and no categorical averments were made and he is not
employee of the said company, which issued cheque.
13. He has further relied upon a judgment decided by Coordinate Bench
of this Court on 29.03.2011 in Satyapal Talwar vs. State Crl. M.C.
410/2011 qua directors wherein it is held as under:-
“6. The allegations to fix the vicarious liability of the petitioners
with the aid of Section 141 N.I. Act are in Para 7 and 8 of the
complaint which are reproduced thus:
“7. That the Complainant immediately informed accused
persons but, no heed was given towards the same. The accused
No. 3 is the Chairman and the accused No. 4 to 7 are the
Directors of the accused No. 1.
8. That the accused No. 2 to 7 are vicariously liable for the
commission of the offence on behalf of the company as such
the accused No. 2 issued the said cheques and the accused No.
3 to 7 are incharge and responsible to the accused No. 1 for
the conduct of its business. The accused persons are also
associated with the management of day to day affairs of the
company.”
13. From the above judgments, it is apparent that in order to rope
in a director of a company for the offence under Section 138 N.I.
Act with the aid of Section 141 of N.I. Act, the complainant is not
only required to make a clear allegation that the person concerned
was the director of the company, but he is also required to make
specific allegation of the facts indicating as to how and in what
manner the said director was in-charge and responsible for conduct
of the business of the company.
14. As regards the petitioners Om Dutt Sharma, Jagdish Kumar
Gupta, Vikram Mittal and Satyapal Talwar, on reading of the
complaint filed by the respondent No. 2, it would be seen that they
are not alleged to be signatories of the cheques in question. In
order to rope in the above four petitioners vicariously for the
offence under Section 138 N.I.Act committed by the company, in the
Crl.M.C. 1895/2011
Page 5 of 23
name of allegations respondent has simply reproduced the
language of Section 141 N.I. Act in the complaint. There is no
allegation in the complaint to show as to how and in what manner
the petitioner directors were in-charge and responsible for the day
to day affairs and business of the company. In absence of specific
allegation in this regard, in my considered view, the requirement of
Section 141 N.I. Act to hold the petitioners vicariously liable for the
offence committed by the company is not fulfilled. Even in the
affidavit evidence given by the respondent before the Magistrate,
there is no mention as to how and in what manner the petitioner
directors were in-charge of or were responsible to the company for
its day to day affairs and conduct of business. Thus, I am of the
considered view that the impugned order of learned M.M. dated
05.05.2010 summoning the petitioners Vikram Mittal, Jagdish
Kumar Gupta, Om Dutt Sharma and Satyapal Talwar for the
offence under Section 138 N.I.Act committed by the company with
the aid of Section 141 N.I.Act is not sustainable in law as there is
neither a specific allegation nor prima facie evidence on record to
show that the petitioners were Incharge and responsible for the
conduct of the business and the day-to-day affairs of Hotel
Indraprastha.
15. The case of the petitioner Ashok Kumar Mittal, however, stands
on a different footing. On perusal of the complaint under Section
138 N.I.Act filed by respondent No.2, it transpires that as regards
the petitioner Ashok Mittal, the complainant has specifically
alleged that he is the Chairman of the accused company. This imply
that petitioner Ashok Mittal was the Executive Head of the accused
company M/s. Hotel Indraprastha and in that capacity, he was
prima facie Incharge of running the business of the company and
was responsible for day-today affairs of the company. Thus, his
case squarely falls within the ambit of Section 141 N.I. Act to make
him vicariously liable for the offence under Section 138 N.I. Act
committed by the company.”
14. F
urther relied upon a judgment decided by Coordinate Bench of this
Court on 24.02.2011 in Gaurav Kumar & Ors. vs. Surinder Patwa, Crl.
Crl.M.C. 1895/2011
Page 6 of 23
M.C. 3298/2010 and same Judgment in B.T. Gokhale vs. State and Anr. in
Crl. M.C. 1345/2008 decided on 02.08.2011.
15. On the other hand, ld. counsel for the respondent has submitted that it
is stated in the complaint as under:-
“That the complainant had booked to the accused no.1, company,
one plot admeasuring 175 Sq. Yds. in the so called upcoming
project of the accused no.1, company at Shourya Puram, NH-24,
Ghaziabad. The accused no.1, company had given to the
complainant a registration No. GP-1175 and had provisionally
allotted one plot with No.G-1278 in the said project. The complete
payments for the said booking / provisional allotment were duly
made to the accused no.1, company, by the complainant from time
to time as per the demand of the accused no.1, company.
That the accused persons could not fulfil their commitments and the
so called project of the accused no.1, company at Shourya Puram,
NH-24, Ghaziabad never materialized. Ultimately, the
complainant was constrained to cancel its aforesaid registration
and provisional allotment for the aforesaid plot and after much
deliberations, persuasions and repeated follow ups by the
complainant, on 20.11.2008, the accused persons had agreed to
refund to the complainant the registration amount of Rs.6,98,206/-
.”
16. Ld. Counsel further submitted that cheque issued on 22.08.2009
presented on the same day. Legal notice issued on 19.09.2009 and
complaint filed on 22.10.2009. The Court took cognizance on 21.10.2009.
17. Further submitted that the petitioner cheated the respondent persons
and an amount of Rs.7 Lacs is involved in both the cases. The accused
company admitted to settle the matter with the respondent, but the same was
declined by the respondent.
Crl.M.C. 1895/2011
Page 7 of 23
18. Ld. Counsel for the respondent has referred the memo of parties at
page B that everyone has given the address of the company. Everyone has
given the name. None has signed the addresses.
19. Ld. Counsel has submitted that the application moved before the ld.
MM, Saket Court by Mr. Kanti Lal Jain for disposal of the complaint under
Section 138 of NI Act on account of tendering the payment of bounced
cheque by DD as per the judgment of Rajesh Aggarwal vs. State, Crl. M.C.
1996/2010.
20. Ld. Counsel for the respondent has pointed out that this application
filed without ticket and proforma. Ld. Counsel has referred the following
orders:
“12.08.2010
Present: Complainant with Counsel.
Sh. Brijesh Jha, Adv. Counsel for accused no. 1 to 4, 9
and 10.
Other accused are absent despite B/W.
Today I am also working as Link MM of two Courts.
Seen the report. Orally, personal exemption is sought on
behalf of all the accused submitting that they are out of Delhi.
Opposed by the ld. Counsel for complainant submitting that
warrants have already been issued against all the accused persons
despite that none is appeared. B/W against accused no. 1 to 4, 9
and 10 are cancelled subject to cost of Rs.1,000/- to e paid by the
each accused to the complainant. Issue fresh B/W in the sum of
Rs.15,000/- against accused no. 5,8 and 11 on PF. Dasti Prayed,
allowed.
Put up on 07.09.2010. Counsel for accused is directed to file
the Vakalatnama by the next date of hearing.
(Munish Markan)
MM/S.E/N.D./12.08.2010
Crl.M.C. 1895/2011
Page 8 of 23
15.12.2010
Present: Complainant in person along with Counsel Ms.
Sandhari Sakia.
All the accused persons are absent.
Sh. Brajesh Jha, Counse, for the accused No. 1,2,3,4 &
10.
An application on behalf of accused persons has been moved
stating thereinthat accused persons are willing to pay the cheque
amount in question by way of DD. Copy of the application supplied
to the Counsel for the complainant. Counsel for the accused has
brought today a D.D. of Rs. 6,98,206/- but the complainant refuses
to accept the same praying that interest and the other expenses be
given to him. Counsel for accused seeks pass over to file exemption
application on the behalf of the accused person as well as his
Vakalatnama.
Pass over is granted.
Put up at 2.00 p.m.
(Dheeraj Mittal )
MM-02(N.I.ACT)/South-East
New Delhi/15.12.2010
At 1:15 pm
Present: Sh. Brajesh Jha, Counsel for the accused no. 1,2,3,4 &
10 appeared and filed his Vakalatnama on the behalf
of accused no. 1,2,3,4 & 10. He has also moved an
application for the personal exemption of the accused
no. 3, 4& 10 on the ground that accused persons are
out of town and not able to attend the court today.
Heard.
Application is allowed for today only.
Perusal of the record shows that NBWs were issued against
the accused no. 3,4,9 & 10. However, NBWs returned back
unexecuted. Counsel submits that as the accused persons are
willing to pay the cheque amount in question by way of Demand
Draft so NBWs Issued against the accused be stayed till the next
date of hearing.
Considering submissions and the fact that accused persons
are willing to compromise the present complaint, NBWs issued
Crl.M.C. 1895/2011
Page 9 of 23
against accused no. 3,4 &10 are stayed till the next date of hearing.
Necessary Robkar be issued accordingly. B/W issued against the
accused no. 5 to 8 & 11 received back unserved. Issue fresh B/W
against accused no. 5 to 8 & 11 in the sum of Rs 25,000/- for the
next date of hearing. NBWs issued against accused no. 9 also
received back unexecuted.
Issue fresh NBW against accused no. 9 for the date fixed. Put up on
17.02.2011 for reply to the application moved on behalf of the
accused persons and arguments on the above said application and
further proceedings.
(Dheeraj Mittal )
MM-02(N.I.ACT)/South-East
New Delhi/15.12.2010
Vide this order, I shall dispose off application moved on behalf of
the accused for disposal of the present complaint case on account
of tendering the payment of the bounced cheques by way of DD as
per the judgment of Hon’ble High Court of Delhi in “Rajesh
Aggarwal vs. State” delivered in Crl. M.C. No. 1996/2010.
Vide this application, it is submitted by the accused that they are
ready to pay the cheque amount in question by way of DD through
their counsel to the complainant. It is further submitted that in view
of the judgment of High Court o Delhi in “Rajesh Aggarwal Vs.
State” delivered in Crl. M.C. No. 1996/2010 the present complaint
case be disposed off as accused persons are ready to pay the
cheque amount in question to the complainant.
Counsel for the complainant did not file any written reply to the
application. However, he argued that court cannot force the
complainant to compound the offence on payment of cheque amount
in question. He further submitted that complainant is not ready to
accept the cheque amount. I have heard the arguments from both
the sides and perused the record including the judgment relied by
the counsel for the accused. In my opinion consent of the
complainant is very much required for compounding of offence as
decided in 173 (2010) DLT 712 titled as “High tech Industry
(Bihar) Ltd. & other vs. State of Delhi & Anr ., wherein it is held
that court cannot force the respondent to compromise on deposit of
cheque amount or penalty by the accused.
Crl.M.C. 1895/2011
Page 10 of 23
For the reasons mentioned above, application in hand is
dismissed.
Announced in the open Court (Dheeraj Mittal)
On 17.02.2011 M.M. (N.I.Act) – 02:SED:
New Delhi
04.05.2011
Present: Complainant along with counsel Sh.D.Hasija.
None for the accused.
NBW issued against all the accused received back
unexecuted. Reports perused. Issue fresh NBW against all the
accused through SHO P.S. Sunlight Colony Delhi on filing of PF
for 08.06.2011. PF be filed within three days from today.
Perusal of the record shows that counsel Sh.Brijesh Jha
appeared for the accused No.1,2,3,4 & 10 on earlier two dates. Let
court notice be issued to the counsel Sh.Brijesh Jha for the date
fixed.
(Dheeraj Mittal)
MM-02(N.I.ACT)/South-East
New Delhi/04.05.2011”
21. Ld. Counsel for the respondent has relied upon a case of N.
Rangachari vs. Bharat Sanchar Nigam Ltd. (2007) 5 SCC 108 wherein it is
held as under:-
“Company, though a legal entity, cannot act by itself but can only
act through its directors. Normally, the Board of Directors act for
and on behalf of the company. This is clear from Section 291 of the
Companies Act which provides that subject to the provisions of that
Act, the Board of Directors of a Company shall be entitled to
exercise all such powers and to do all such acts and things as the
Company is authorized to exercise and do. Palmer described the
position thus:
Crl.M.C. 1895/2011
Page 11 of 23
"A company can only act by agents, and usually the persons
by whom it acts and by whom the business of the company is
carried on or superintended are termed directors.”
It is further stated in Palmer that:
"Directors are, in the eye of the law, agents of the company
for which they act, and the general principles of the law of
principal and agent regulate in most respects the
relationship of the company and its directors."
Therefore, a person in the commercial world having a transaction
with a company is entitled to presume that the directors of the
company are incharge of the affairs of the company. If any
restrictions on their powers are placed by the memorandum or
articles of the company, it is for the directors to establish it at the
trial. It is in that context that Section 141 of the Negotiable
Instruments Act provides that when the offender is a company,
every person, who at the time when the offence was committed was
incharge of and was responsible to the company for the conduct of
the business of the company, shall also be deemed to be guilty of
the offence along with the company. It appears to us that an
allegation in the complaint that the named accused are directors of
the company itself would usher in the element of their acting for
and on behalf of the company and of their being incharge of the
company. In Gower and Davies' Principles of Modern Company
Law (Seventh Edition), the theory behind the idea of identification
is traced as follows:
"It is possible to find in the cases varying formulations of the
under-lying principle, and the most recent definitions suggest
that the courts are prepared today to give the rule of
attribution based on identification a somewhat broader scope.
In the original formulation in the Lennard's Carrying
Company case Lord Haldane based identification on a person
Crl.M.C. 1895/2011
Page 12 of 23
"who is really the directing mind and will of the corporation,
the very ego and centre of the personality of the corporation".
Recently, however, such an approach has been castigated by
the Privy Council through Lord Hoffmann in the Meridian
Global case as a misleading "general metaphysic of
companies". The true question in each case was who as a
matter of construction of the statute in question, or presumably
other rule of law, is to be regarded as the controller of the
company for the purpose of the identification rule.”
A person normally having business or commercial dealings with a
company, would satisfy himself about its creditworthiness and
reliability by looking at its promoters and Board of Directors and
the nature and extent of its business and its Memorandum or
Articles of Association. Other than that, he may not be aware of the
arrangements within the company in regard to its management,
daily routine, etc. Therefore, when a cheque issued to him by the
company is dishonoured, he is expected only to be aware generally
of who are incharge of the affairs of the company. It is not
reasonable to expect him to know whether the person who signed
the cheque was instructed to do so or whether he has been deprived
of his authority to do so when he actually signed the cheque. Those
are matters peculiarly within the knowledge of the company and
those in charge of it. So, all that a payee of a cheque that is
dishonoured can be expected to allege is that the persons named in
the complaint are in charge of its affairs. The Directors are prima
facie in that position.”
22. He further relied upon the case of K.K. Ahuja (Supra) , wherein it is
held as under:-
Section 291 of the Companies Act, 1956 provides that subject to the
provisions of that Act, the Board of Directors of a company shall be
entitled to exercise all such powers, and to do all such acts and
Crl.M.C. 1895/2011
Page 13 of 23
things, as the company is authorised to exercise and do. A company
though a legal entity can act only through its Board of Directors.
The settled position is that a Managing Director is prima facie in
charge of and responsible for the company's business and affairs
and can be prosecuted for offences by the company. But insofar as
other directors are concerned, they can be prosecuted only if they
were in charge of and responsible for the conduct of the company's
business.
A combined reading of Sections 5 and 291 of Companies Act, 1956
with the definitions in clauses (24), (26), (30), (31), (45) of section
2 of that Act would show that the following persons are considered
to be the persons who are responsible to the company for the
conduct of the business of the company : --
(a) the managing director/s;
(b) the whole-time director/s;
(c) the manager;
(d) the secretary;
(e) any person in accordance with whose directions or instructions
the Board of directors of the company is accustomed to act;
(f) any person charged by the Board with the responsibility of
complying with that provision (and who has given his consent in
that behalf to the Board); and
(g) where any company does not have any of the officers specified
in clauses (a) to (c), any director or directors who may be specified
by the Board in this behalf or where no director is so specified, all
the directors.
Crl.M.C. 1895/2011
Page 14 of 23
It follows that other employees of the company, cannot be said to be
persons who are responsible to the company, for the conduct of the
business of the company.
The position under section 141 of the Act can be summarized thus:
(i) If the accused is the Managing Director or a Joint Managing
Director, it is not necessary to make an averment in the complaint
that he is in charge of, and is responsible to the company, for the
conduct of the business of the company. It is sufficient if an
averment is made that the accused was the Managing Director or
Joint Managing Director at the relevant time. This is because the
prefix `Managing' to the word `Director' makes it clear that 18 they
were in charge of and are responsible to the company, for the
conduct of the business of the company.
(ii)In the case of a director or an officer of the company who signed
the cheque on behalf of the company, there is no need to make a
specific averment that he was in charge of and was responsible to
the company, for the conduct of the business of the company or
make any specific allegation about consent, connivance or
negligence. The very fact that the dishonoured cheque was signed
by him on behalf of the company, would give rise to responsibility
under sub-section (2) of Section 141. (iii) In the case of a Director,
Secretary or Manager (as defined in Sec. 2(24) of the Companies
Act) or a person referred to in clauses (e) and (f) of section 5 of
Companies Act, an averment in the complaint that he was in charge
of, and was responsible to the company, for the conduct of the
business of the company is necessary to bring the case under
section 141(1). No further averment would be necessary in the
complaint, though some particulars will be desirable. They can also
be made liable under section 141(2) by making necessary
averments relating to consent and connivance or negligence, in the
complaint, to bring the matter under that sub-section. (iv)Other
Officers of a company can not be made liable under sub-section (1)
of section 141. Other officers of a company can be made liable only
under sub-section (2) of Section 141, be averring in the complaint
their position and duties in the company and their role in regard to
Crl.M.C. 1895/2011
Page 15 of 23
the issue and dishonour of the cheque, disclosing consent,
connivance or negligence.
23. Ld. Counsel has further relied upon a judgment of Shree Raj Travels
& Tours Ltd. & Ors. Vs. Destination of the World (Subcontinent) Private
Limited 2010 (4) JCC 9NI) 313 , wherein it is held as under:
“7. It is a matter of common knowledge that when companies are
floated and public issues are brought, big advertisements are issued
giving big names as Directors and promoters of the company.
These names are the names of successful CEOs, or Directors who
have achieved success in other fields. Due to these names at the
very inception and formation of company, when there is no wealth
or property of the company, the share of the company is sold at a
premium promising big business and success. Once money is
mopped up from the public, in all those cases where the companies
were created only for the purpose of mopping up hard earned
money of public or to befool them, it is found that those big names
disappear and in almost every litigation those Directors who
formed part of the core of the company and gave promises that the
Company would do roaring business quietly disappear from the
scene or take plea that they were not responsible for business of the
company. That is how the problem arises. While the public stands
cheated and the persons who had mopped up wealth and pocketed
the public wealth are not prepared to take responsibility.
8. Let us examine the role of Board of Directors (BoD) in terms of
Companies Act and other legal provisions. Company is a legal
personality and Board of Directors acts as its body and mind.
Under Section 291 of the Companies Act, BoD is authorized to do
what the company is authorized to do, unless barred by restrictions
on their power by the provisions of the Companies Act. It is well
settled that Directors, while exercising their powers, do not act as
agents for the majority or even all the members and so the members
Crl.M.C. 1895/2011
Page 16 of 23
cannot by a resolution passed by a majority of even unanimously,
supersede the Directors‟ power and instruct them how they shall
exercise their power. The powers of management are vested in
Directors and they and they alone can exercise these powers. The
only way in which the General Body of a company can overrule the
BoD is altering the Articles and refusing to re-elect the Directors,
whose actions they disapprove. The shareholders cannot themselves
usurp the powers, which by Articles are vested in the Directors.
Thus the Crl.M.C.No. 2652-59/10, 2661-63/2010, 2665/2010,
2670/2010, 2678/2010, & 2692/2010 Page 4 of 13 relationship of
BoD with the shareholders is more of a federation than that one of
subordinate and superior.
9. Under the Companies Act, BoD has powers to make calls on
shareholders in respect of money unpaid on their share, power to
authorize the buy- back, power to issue debentures, power to
borrow moneys otherwise than on debentures, power to invest the
funds of the company and power to take and make loans. There is
no doubt that BoD may, by a resolution passed at a meeting,
delegate to any committee of Directors, the Managing Director, the
Manager or any other principal officer of the company, the above
powers. However the principal power still vests in BoD and the
Manager or Managing Director acts only as an agent of the BoD.
Apart from this, BoD has power to form opinion about the solvency
of the company in respect of buy back shares (Section 77A), power
to fill up casual vacancies in the office of Directors (Section 262),
power to constitute Audit Committee and specify terms of reference
thereof (Section 292A), power to make donation to political parties
[Section 293A(2)], power to accord sanction for specified contracts
in which one or more Directors are interested [Section 297(4)],
power to receive notice of disclosure of Director‟s interest [Section
299(3)(c)], power to appoint or employ a person as Managing
Director or Manager [Section 316(2)], power to invest in shares or
debentures of any other body corporate (Section 372A), power to
Crl.M.C. 1895/2011
Page 17 of 23
appoint or employ a person as its Manager [Section 386(2)], power
to make a declaration of solvency, where it is proposed to wind up
the company voluntarily [Section 488(1)], power to approve the
text of advertising for inviting public deposits [Section 58A r/w
Rule 4(4)]. Some of the powers can only be exercised by resolution
passed at the meeting with consent of the Directors present at the
meeting.”
24. I have heard learned counsels for the parties.
25. The petitioners / accused persons could not fulfill their commitment
and the so called upcoming project of the accused no.1, never materialized.
Ultimately, the complaint was constrained to cancel its aforesaid registration
and provisional allotment for the aforesaid plot. After deliberations,
persuasions and repeated follow-ups by complaint, on 20.11.2008,
petitioners had agreed to refund the money to the complaint i.e. registration
amount of Rs.6,98,206/-.
26. I note, it is recorded in the order dated 12.08.2010 by learned
Metropolitan Magistrate, Delhi that the orally, personal exemption was
sought on behalf of the accused by submitting that they were out of Delhi.
Same was opposed by learned counsel appearing on behalf of the
complainant and submitted that warrants were already been issued against
all the accused persons, despite that none appeared. Accordingly, bailable
Warrants against accused Nos.1 to 4, 9 & 10 were cancelled subject to costs
of Rs.1,000/- to paid by each of the accused persons to the complaint.
Learned Magistrate further issued fresh bailable warrants in the sum of
Rs.15,000/- against accused Nos.5, 8, & 11 on PF.
Crl.M.C. 1895/2011
Page 18 of 23
27. I further note that on 15.12.2010, all accused persons were absent.
Therefore, an application moved on behalf of accused stating therein that
they were willing to pay the cheque amount in question by way of demand
draft. Counsel for accused persons had brought the demand draft for an
amount of Rs.6,98,206/-, but the complaint refused to accept the same
praying that interest and other expenses should also be given to him. In that
eventuality, learned counsel for accused persons sought pass over to file
exemption application on behalf of accused persons as well as his
Vakaltnama. At request, pass over was granted. On the second call, learned
counsel for accused numbers 1, to 4, & 10 appeared and filed the
Vakaltnama . He also moved application on behalf of said accused persons,
as mentioned above for exemption on the ground that accused persons were
out of town and were unable to attend the Court on that date.
28. Learned Magistrate perused the record and it revealed that the NBWs
were issued against accused Nos.3,4, 9 & 10; however, NBWs were returned
back unexecuted. Learned counsel appearing on behalf of the accused
persons submitted that ther were willing to pay the cheque amount in
question by way of demand draft, so NBWs be stayed till next date of
hearing.
29. Considering the submissions and the fact that accused persons were
willing to compromise the present complaint, NBWs issued against accused
No.1,3,4 & 10 were stayed till next date of hearing by the learned M.M..
The application of the accused persons for disposal of the complaint case on
account of tendering the payment of the bounced cheque by DD as per
judgment of this Court in Rajesh Aggarwal v. State, Crl.M.C.No.1996/2010,
Crl.M.C. 1895/2011
Page 19 of 23
learned counsel for complaint did not file any written reply to the
application; however, he argued that the Court cannot force the complainant
to compound the offence on payment of the cheque amount in question. He
further submitted that the complainant was not ready to accept the cheque
amount.
31. After hearing learned counsels for parties, learned Magistrate
recorded that the consent of the complainant was very much required for
compounding of the offence, as law has been settled in High Tech Industry
(Bihar) Ltd & Ors v. State of Delhi & Anr : 173 (2010) DLT 172 wherein it
has been held that the Court cannot force the complainant to compromise on
deposit of the cheque amount or penalty by the accused. Accordingly, said
application was dismissed by the learned MM.
32. It has been held in Rangachari (supra) that the company, though a
legal entity, cannot act by itself but can only act through its directors.
Normally, the Board of Directors act for and on behalf of the company. This
is clear from Section 291 of the Companies Act which provides that subject
to the provisions of that Act, the Board of Directors of a Company shall be
entitled to exercise all such powers and to do all such acts and things as the
Company is authorized to exercise. It is further observed that the company
can only act by agents, and usually the persons by whom it acts and by
whom the business of the company is carried on or superintended are termed
directors. The directors are, in the eye of the law, agents of the company for
which they act, and the general principles of the law of principal and agent
regulate in most respects the relationship of the company and its directors.
Crl.M.C. 1895/2011
Page 20 of 23
33. Therefore, a person in the commercial world having a transaction with
a company is entitled to presume that the directors of the company are
incharge of the affairs of the company. If any restrictions on their powers are
placed by the memorandum or articles of the company, it is for the directors
to establish it at the trial. It is in that context that Section 141 of the NI Act
provides that when the offender is a company, every person, who at the time
when the offence was committed was incharge of and was responsible to the
company for the conduct of the business of the company. They shall also be
deemed to be guilty of the offence along with the company.
34. When a cheque issued to him by the company is dishonoured, he is
expected only to be aware generally of who are incharge of the affairs of the
company. It is not reasonable to expect him to know whether the person who
signed the cheque was instructed to do so or whether he has been deprived
of his authority to do so when he actually signed the cheque. A company
though a legal entity can act only though its board of directors. The settled
proposition of law is that the managing director is prima facie in charge of
the act and responsibility for the company‟s business and affairs and can be
prosecuted for the offences by the company.
35. In so far as the other directors are concerned, they can be prosecuted
only if they were in-charge and responsible for the conduct of company‟s
business. In case of a director of an officer of the company who signed the
cheque on behalf of the company, as is in the present case, there is no need
to make a specific averment that he was in-charge and was responsible to the
company, for the conduct of the business of the company or make any
specific allegations about consent, connivance or negligence. The very fact
Crl.M.C. 1895/2011
Page 21 of 23
that the dishonoured cheque was signed by him on behalf of the company
would give rise to responsibility under sub-section (2) of Section 141 NI
Act. For the conduct of the business of the company is necessary to bring the
case under section 141(1) NI Act. No further averment would be necessary
in the complaint, though some particulars will be desirable. They can also be
made liable under section 141(2) NI Act by making necessary averments
relating to consent and connivance or negligence, in the complaint, to bring
the matter under that sub-section.
36. When companies are floated and public issues are brought, big
advertisements are issued giving big names as directors and promoters of the
company. These names are the names of successful CEOs, or Directors who
have achieved success in other fields. Due to these names at the very
inception and formation of company, when there is no wealth or property of
the company, the share of the company is sold at a premium promising big
business and success. Once money is mopped up from the public, in all those
cases where the companies were created only for the purpose of mopping up
hard earned money of public or to befool them. It is found that those big
names disappear and in almost every litigation. Directors who formed part
of the core of the company and gave promises that the Company would do
roaring business quietly disappear from the scene or take plea that they were
not responsible for business of the company.
37. The powers of management are vested in directors and they alone can
exercise these powers. The only way in which the general body of a
company can overrule the board of directors is altering the Articles and
refusing to re-elect the directors, whose actions they disapprove.
Crl.M.C. 1895/2011
Page 22 of 23
38. In view of the above discussion, legal proposition, and submissions of
both the parties, I find no merit in the instant petition.
39. The same is accordingly dismissed.
40. No order as to costs.
SURESH KAIT, J
MAY 30, 2012
Jg/Mk
Crl.M.C. 1895/2011
Page 23 of 23