Mr. K.S. Mehta vs. M/S Morgan Securities & Credits Pvt. Ltd.

$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Reserved on: August 16, 2023
Decided on: November 28, 2023
+ CRL.M.C. 1645/2019 & CRL.M.A. 6584/2019, CRL.M.A.
38631-32/2019

MR. K.S. MEHTA ..... Petitioner
Through: Mr. Darpan Wadhva, Senior
Advocate with Mr. Vikas
Kumar, Mr. Ayush Kapur,
Ms. Palak Tyagi, Mr. Jalaj
Govil, Advocates
V
M/S MORGAN SECURITIES & CREDITS
PVT. LTD. ..... Respondents
Through: Mr. Rohit Priya Ranjan,
Mr. Sanket Mishra,
Ms. Srishti Sonkar,
Advocates
CORAM
HON'BLE DR. JUSTICE SUDHIR KUMAR JAIN
J U D G M E N T
1. The present petition is filed under section 482 of the Code of
Criminal Procedure, 1973 (hereinafter referred to as “the Code” ) to
set aside the order dated 29.01.2019(hereinafter referred to as the
“impugned order”) passed by the Court of Sh. N.K Malhotra
Additional Sessions Judge / Special Judge,CBI-02, Patiala House
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Courts, New Delhi in Criminal Revision bearing no.540/2018 titled
as K. S. Mehta V M/S Morgan Securities& Credits Pvt. Ltd. and
order dated 10.10.2018 passed by the court of sh. Dharmender Singh,
Metropolitan Magistrate- 05, Patiala House Courts, New Delhi in
Complaint Case bearing no.15857/2017 titled as M/S Morgan
Securities& Credits Pvt. Ltd. V Blue Coast Hotels& Resorts
Ltd.& others.
2. M/S Morgan Securities and Credits Pvt. Ltd. (herein referred
to as “the respondent/the complainant”) through its Authorized
Representative Mahender Gautam filed a complaint under sections
138/141/142 of Negotiable Instruments Act, 1881 (hereinafter
referred as “ NI Act ”) and 420 IPC titled as M/S Morgan
Securities& Credits Pvt. Ltd. V Blue Coast Hotels& Resorts
Ltd.& others bearing no15857/2017on allegations that the accused
no. 2 namely Arun Suri with the consent of the accused no 3 to 6
namely Mamta Suri, Basant Kumar Goswami, K. S. Mehta (the
petitioner) and the Sushil Suri on behalf of the accused no.1 known
as Blue Coast Hotels & Resorts Ltd. had approached the
respondent/the complainant for the financial assistance for business
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purposes by way of Inter Corporate Deposit(ICD) facility with a
promise to repay back the amount of the ICD as per the terms
mutually agreed and reduced in writing by way of an Inter Corporate
Deposit Agreement dated 09.09.2002. The respondent/complainant
paid Rs.5,00,00,000/- (Rs. five crores only) under the ICD facility to
the accused(s) vide cheque bearing no. 227605 dated
09.09.2002drawn on HDFC Bank, K.G. Marg, New Delhi and
Demand Promissory Note and Inter Corporate Deposit Receipt were
also executed in favour of the respondent no 2/the complainant
besides other documents. The Accused (s) were required to pay
Rs.5,00,00,000/- (Rupees five crores only) after expiry of 180 days
from the date of receipt of ICD, i.e. on 08.03.2003alongwith interest
as agreed.
2.1 The respondent/the complainant has extended the financial
assistance to the accused no. 1 to the tune of Rs.5,00,00,000/-
(Rupees Five Crores Only) according to the usual prevailing
corporate convention and, believing and acting upon promises of the
accused(s) persons. The accused no. 2 is the managing Director and
Authorized Signatory, the accused no.3 to 5 are the Directors, and the
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accused no.6 is the Authorized Signatory of the accused no 1 and are
incharge of day to day affairs and are responsible for the conduct of
the business of the accused No.1 and for all acts and deeds committed
by or on behalf of the accused no. 1.
2.2 The respondent/the complainant also filed / initiated arbitration
proceedings against the accused No. 1, 2 and the accused no.6and
M/s Morepan Laboratories Ltd. joined as parties during the
Arbitration proceedings. During the arbitration proceedings, a
compromise took place between the accused no. 1, 2 &6and M/s
Morepan Laboratories Ltd. and the respondent/the complainant and a
Memorandum of Settlement dated 27.05.2003 was signed and
accordingly the Arbitrator passed a Consent Award on 21.07.2003.
Thereafter the accused no.2 on behalf of the accused no. 1 with the
consent and knowledge of the accused No.3 to 6 have signed and
issued several cheques and most of them were got dishonour. The
accused no.2 on behalf of the accused no.1 with the consent of the
accused no.3 to 6 towards part payment of the outstanding bill had
issued the cheque bearing no 842629 dated 30.03.05 amounting to
Rs. 50,00,000/- drawn on ICICI Bank Ltd., Connaught Place, New
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Delhi (hereinafter referred as “cheque in question” ).The
respondent/the complainant presented cheque in question to its
banker HDFC Bank for encashment but cheque in question got
dishonoured due to “ funds insufficient” vide cheque returned memo
dated 27.09.2005 and this fact was intimated to the respondent/the
complainant by its banker on 30.09.2005. The respondent/the
complainant sent legal notice dated15.10.2005 which was served
upon the accused(s). The accused no 2 is the Managing Director and
authorized signatory and the accused no 3 to 6 are the directors of the
accused no. 1 and are incharge of and responsible for the conduct of
business and day to day affairs and management of the accused no 1.
The respondent being aggrieved filed the present complaint.
3. The concerned court of Metropolitan Magistrate vide order
dated 19.11.2005 opined that there is sufficient grounds to proceed
against the accused (s) for offences punishable under section 138
read with section 141 of the NI Act and accordingly summoned the
accused(s).The accused Arun Suri stated to have been expired and
proceedings qua the accused Arun Suri were ordered to be abated
vide order date 10.10.2018. The Court of Sh. Dharmender Singh,
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Metropolitan Magistrate-05, Patiala House Courts, New Delhi
(hereinafter referred to as “the trial court” ) vide order dated
10.10.2018 opined that prima facie case under section 138 of NI Act
is made out against accused company (the accused no 1) and
remaining accused (the accused no 2 to 6 including the petitioner).
The relevant part of the order dated 10.10.2018 is reproduced
verbatim as under:-
This court is of the considered view that although accused
Arun Suri (Expired) is drawer of cheque in question but
the liability of remaining accused persons is due to the fact
that they allegedly were directors of accused company at
the time of issuance of cheque. As per Section 141 of NI Act
directors of company who are responsible for its day to day
affairs and conduct of its business, are vicariously liable
and specific allegations have been levelled against them as it
is clearly stated that they were responsible for day to day
affairs of accused company and they were directors of the
accused company at the time of issuance of cheque in
question and in view of this court they can prove that they
were not the directors of the company the time of issuance
of cheque only in their defence evidence. As per judgment
of Hon'ble High Court of Delhi in case tided as Sudeep Jain
Vs. M/s ECE Industries ltd, CRL M.C 1821/2013 &
1822/2013 dated 6.05.2013, the guidelines contained in said
judgment came into effect from 01.07.2013 and before that
said guidelines were not in operation and present complaint
has been filed in the year 2005. Accordingly prime facie
case u/s 138 NI Act is made out against accused company
and remaining accused persons who are presently facing
the criminal proceedings.
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4. The petitioner being aggrieved by the order dated 10.10.2018
filed Criminal Revision bearing no. 540/2018 titled as K. S. Mehta
VM/s. Morgan Securities & Credit Pvt. Ltd. which was dismissed
vide order dated 29.01.2019 (hereinafter referred to as “the
impugned order” ) passed by the court of Sh. N.K Malhotra
Additional Sessions Judge/Special Judge, CBI-02, New Delhi
district, Patiala House Courts, New Delhi (hereinafter referred as to
“the revisional court” ). The relevant portion of the impugned order
dated 29.01.2019 reads as under:-
As I observed in para no.7 of this judgment that
complainant has specifically mentioned that accused no.2 is
the Managing Director and Authorized Signatory, Accused
No.3 to 5 are the Directors and accused no. 6 is the
authorized signatory of the company, who are in charge of
day to day affairs and are responsible for the conduct of the
business of the accused no. 1company and for all acts and
deeds committed by or on behalf of accused no.1 company.
Taking into consideration that complainant has specifically
averred in para no.5 of the complaint that accused no.2 on
behalf of the accused no.1 with the consent of the accused
no.3 to 6 in the part payment of the outstanding bill had
issued cheque no.842629 dated 30.03.2005 amounting to
Rs.50 lacs. drawn on ICICl Bank Ltd, Connaught Place,
New Delhi and taking into consideration that in para no.11
of the complaint, the complainant has clearly mentioned
that accused Nos.3to6 are the Directors of accused no. I
company are in charge of. and are responsible to the
company for the conduct of business and day to day affairs
and management of the company and all accused persons
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have consented, connived and neglected to make repayment
and dishonouring of the said cheque and are liable for that
offence. I am of the view that complainant has
specifically mentioned the roles of the petitioners in the
complaint.
In view of the above discussions, I am of the view that there
is no illegality or infirmity in the order dated 10.10.2018
passed by Ld. MM in CC No. 15857/17. Ld. Trial Court has
passed a reasoned order. The revision petitions filed. by the
petitioners are without any merits and same are here by
dismissed.
5. The petitioner being aggrieved filed the present petition to
challenge the impugned order wherein besides referring factual
position pleaded that the petitioner (arrayed as the accused no 5 in the
complaint) is an independent practicing Chartered Accountant and
was independent Director of the accused No. 1. The petitioner
had never received any remuneration from the accused no. 1
Company except normal meeting fee from 2001 to 2012 during the
period of his directorship. M/S Morepen Laboratories Ltd. had issued
cheques in terms of consent award passed on the basis of
Memorandum of Settlement dated 27.5.2003 executed between the
respondent/the complainant and M/S Morepen Laboratories Ltd, M/s
Blue Coast Hotels & Resorts Ltd., Arun Suri and Sushil Suri in
arbitration proceedings initiated by the respondent/ the complainant.
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The respondent/the complainant filed an execution petition no. 13/04
before this Court. The accused no. 1 M/S Blue Coast Hotel & Resort
through letter dated 05.04.2004 had also issued post-dated cheques to
backup the cheque issued by the associate company M/S Morepen
Laboratories Ltd. on a specific assurance that these cheques would be
presented only if the associate company M/S Morepen Laboratories
Ltd did not pay its dues. The respondent/the complainant and its
directors assured that they will hold the cheques issued by the
accused no1and entrusted to the respondent/the complainant and
promised not to initiate legal proceedings and withdraw any legal
proceedings already initiated and promised to return the cheque upon
clearance of the respondent/the complainant dues. M/S Morepen
Laboratories Ltd made the payment of Rs 5 Crore alongwith Rs
37,50,000/- towards interest of delayed payment in lieu of the cheque
in question which was acknowledged by the respondent/the
complainant vide endorsement in letter dated 29.4.2005. The
respondent/the complainant misused the cheques and due to this M/S
Morepen Laboratories Ltd filed a complaint against the respondent/
the complainant and its directors on 01.07.2009 with the SHO, PS
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Barakhambha Road.
5.1 The trial court ignored material fact that the petitioner is a
Chartered Accountant and was an Independent Non-executive
Director in the accused no 1 without any remuneration and never
incharge of and responsible for the day to day affairs of the accused
no1. The trial court wrongly held that prima facie case under section
138 Nl Act is made out against the petitioner. The revisional court
also dismissed the Criminal Revision bearing no. 540/2018 vide
impugned order.
5.2 The petitioner challenged order dated10.10.2018 passed by the
trial court and impugned order on grounds that the courts below did
not appreciate that the petitioner was only an independent Non-
Executive Director of the accused no. 1 and was not in charge of and
responsible for the day to day conduct of the business of the accused
no.1. The petitioner was not a party to the ICD agreement,
memorandum of settlement and the consent award pursuant to which
the cheque in question was issued leading to the present complaint.
The petitioner has been falsely implicated as he is independent Non-
Executive director of the accused no. 1. The courts below failed to
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appreciate that the petitioner is a Chartered Accountant and was an
Independent Non-Executive Director during the relevant period. The
petitioner neither held any share in the accused no 1 nor was
receiving any remuneration. The petitioner could not be held
responsible for the conduct of the business of the accused no. 1. The
petitioner being an Independent Non-Executive Director and not
being involved in the day to day affairs of the accused no 1 is not
liable for the offence under section 138 NI Act. The petitioner who
was appointed as an independent director without any executive role
ceased to continue as a director with effect from 10.11.2012 as
reflected in Form No. 32. The courts below failed to appreciate that
the cheque in question was not signed by the petitioner and was not
part of the transaction resulting in either the cheque in question being
issued or leading to its dishonour. The cheque in question was signed
by the accused no. 2 in pursuance to a Memorandum of Settlement
dated 27.05.2003 and a consent award dated21.07.2003/28.06.2003.
5.2.1 The revisional court has failed to appreciate that there is no
averment in the complaint as to how the petitioner was in any manner
involved in the affairs and conduct of business of the accused no. 1
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nor there is any specific or material evidence determining the conduct
as to the part played by the petitioner as a Director of the accused no
1. The revisional court passed the impugned order merely on the
basis of false, baseless, bald and cursory allegations. The revisional
court has failed to appreciate that the allegations made in the
complaint are vague and bald and does not make any prima facie case
against the petitioner. The impugned order is based on conjectures
and surmises. It was prayed that impugned order be set aside.
6. The learned senior counsel for the petitioner advanced oral
arguments and also submitted written submissions. It was argued that
the revisional court without appreciating the facts and by ignoring the
settled principles of law has dismissed the revision petition vide
impugned order and held that there is no illegality or infirmity in the
order dated 10.10.2018 passed by the trial court. The impugned order
dated 29.01.2019 suffers from material error of the process of law. It
is accepted legal proposition that section 141 of NI Act does not
make a Director of a company automatically vicariously liable for
commission of an offence on behalf of the company and no specific
averments are made against the petitioner in the complaint. It is also
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argued that cheque in question was issued by the accused no 1,
managing director and authorized Signatory out of arbitration
settlement to which the petitioner was not a party. The petitioner is a
Chartered Accountant and was an independent Non-Executive
Director of the accused no. 1 never involved in the day to day affairs
of the accused no. 1. The accused no. 1 issued cheques pursuant to
the said consent award and the petitioner had no role in said
transaction. The petitioner has never been a shareholder or a Director
of the Blue Coast Group of Companies except being an Independent
Non-Executive director of the accused no 1 as mentioned in the
Corporate Governance Reports. The petitioner has marked himself as
a Director and not as a Non-Executive Director in Form 32 due to
legal provisions as per Companies Act, 1956.
6.1 The learned Senior Counsel relied on Pooja Ravinder
Devidasini V State of Maharashtra and another, 2014 (16) SCC
1; National small Indusries Corporation LimitedV Harmeet
Paintal & another, ( 2010)3 SCC 330; Ashok Shewakramani &
others V State of Andhra Pradesh and others,
MANU/SC/0858/2023 ; Sunita Palita and others V Panchami
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Stone Quarry, MANU/SC/0944/2022; Prashant Bharti V State of
NCT of Delhi ,MANU/SC/0063/2013 ; S.M.S Pharmaceuticals Ltd.
V Neeta Bhalla and another, MANU/SC/0622/2005etc.
7. The counsel for the respondent stated that the petitioner has
challenged order dated 10.10.2018 passed by the trial court and
impugned order passed by the revisional court primarily on grounds
that the petitioner is an Independent Non-Executive Director, there is
no specific averment attributed to the petitioner in the complaint to
bring the petitioner within the ambit of Section 141 of the NI Act,
the petitioner was not a party to arbitration and as such proceeding
qua the petitioner for the offence of section138 of NI Act is not
maintainable. It is argued that the accused no 1 issued cheque in
question with the consent and knowledge of the petitioner to
discharge its liability towards the respondent/ the complainant. The
legal notice was also issued to the petitioner after dishonour of the
cheque in question which was not replied by the petitioner. The
petitioner has not challenged the summoning order dated 26.10.2005.
There is no provision under which the petitioner can be discharged
for offence under section 138 of NI Act. The present petition being
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second revision in nature is not maintainable. The Corporate
governance Report and Form 32 relied upon by the petitioner are not
admissible as per section 76 of Indian Evidence Act,1872 . It is
further argued that specific allegations qua the petitioner have been
made in the complaint meeting basic ingredients of section 141 of the
NI Act. The arbitration proceedings and proceedings under
section138 of the NI Act are different and distinct and arbitration
proceedings do not have any bearing on trial under section 138 of the
NI Act. It was argued that the present petition is liable to be
dismissed.
8. Section 138 and section 141 of the NI Act read as under:-
138 Dishonour of cheque for insufficiency, etc., of funds in
the account. —Where any cheque drawn by a person on an
account maintained by him with a banker for payment of
any amount of money to another person from out of that
account for the discharge, in whole or in part, of any debt
or other liability, is returned by the bank unpaid, either
because of the amount of money standing to the credit of
that account is insufficient to honour the cheque or that it
exceeds the amount arranged to be paid from that account
by an agreement made with that bank, such person shall be
deemed to have committed an offence and shall, without
prejudice to any other provisions of this Act, be punished
with imprisonment for19 [a term which may be extended to
two years], or with fine which may extend to twice the
amount of the cheque, or with both: Provided that nothing
contained in this section shall apply unless—
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(a) the cheque has been presented to the bank within a
period of six months from the date on which it is drawn or
within the period of its validity, whichever is earlier;
(b) the payee or the holder in due course of the cheque, as
the case may be, makes a demand for the payment of the
said amount of money by giving a notice in writing, to the
drawer of the cheque, 20 [within thirty days] of the receipt
of information by him from the bank regarding the return
of the cheque as unpaid; and
(c)the drawer of such cheque fails to make the payment of
the said amount of money to the payee or, as the case may
be, to the holder in due course of the cheque, within fifteen
days of the receipt of the said notice.
Explanation.— For the purposes of this section, “debt or
other liability” means a legally enforceable debt or other
liability.
141. Offences by companies. —
1) If the person committing an offence under section 138 is
a company, every person who, at the time the offence was
committed, was in charge of, and was responsible to the
company for the conduct of the business of the company, as
well as the company, shall be deemed to be guilty of the
offence and shall be liable to be proceeded against and
punished accordingly: Provided that nothing contained in
this sub-section shall render any person liable to
punishment if he proves that the offence was committed
without his knowledge, or that he had exercised all due
diligence to prevent the commission of such offence:
Provided further that where a person is nominated as a
Director of a company by virtue of his holding any office or
employment in the Central Government or State
Government or a financial corporation owned or controlled
by the Central Government or the State Government, as
the case may be, he shall not be liable for prosecution under
this Chapter.
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2) Notwithstanding anything contained in sub-section (1),
where any offence under this Act has been committed by a
company and it is proved that the offence has been
committed with the consent or connivance of, or is
attributable to, any neglect on the part of, any director,
manager, secretary or other officer of the company, such
director, manager, secretary or other officer shall also be
deemed to be guilty of that offence and shall be liable to be
proceeded against and punished accordingly.
Explanation.— For the purposes of this section,—
(a) “company” means anybody corporate and includes a
firm or other association of individuals;and
b) “director”, in relation to a firm, means a partner in the
firm..
9. Section 138 of NI Act casts criminal liability on a person who
issues a cheque towards discharge of a debt or liability as a whole or
in part and the cheque is dishonoured by the bank on
presentation. Section 138of NI Act creates criminal liability in case
of dishonour of a cheque. The main ingredients of section 138of NI
Act are :
(i) Issuance of a cheque
(ii) Presentation of the cheque
(iii) Dishonour of the cheque
(iv)Service of statutory notice on the person sought to be made
liable, and
(v) Non-compliance or non-payment in pursuance of the notice
within 15 days of the receipt of the notice.
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9.1 Section 141 of NI Act extends criminal liability in case of a
company to every person who at the time of the offence, was in
charge of and was responsible for the conduct of the business of the
company. A company is a juristic person and every person who at the
time of commission of offence is in charge and responsible for the
conduct of the business of the company is liable for the offence stated
to be committed by the company. The criminal liability arises when
the offence was committed and not on the basis of merely holding a
designation or office in a company. Section 141 of the NI Act
mandates that a person is criminally liable when at the time of
commission of offence was in charge and responsible for the conduct
of the business of the company and person connected with the
company may not fall within the ambit of section 141 of the NI Act.
9.2 The Supreme Court in SMS Pharmaceuticals Ltd. V Neeta
Bhalla & another , 2005 (8) SCC 89 held as under:-
The normal rule in the cases involving criminal liability is
against vicarious liability, that is, no one is to be held
criminally liable for an act of another. This normal rule is,
however, subject to exception on account of specific
provision being made in statutes extending liability to
others. Section 141 of the Act is an instance of specific
provision which in case an offence under Section 138 is
committed by a Company, extends criminal liability for
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While analysing Section 141 of the Act, it will be seen that it
operates in cases where an offence under Section 138 is
committed by a company. The key words which occur in
the Section are "every person". These are general words
and take every person connected with a company within
their sweep. Therefore, these words have been rightly
qualified by use of the words " who, at the time the offence
was committed, was in charge of, and was responsible to
the company for the conduct of the business of the
company, as well as the company, shall be deemed to be
guilty of the offence etc." What is required is that the
persons who are sought to be made criminally liable
under Section 141 should be at the time the offence was
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committed, in charge of and responsible to the company for
the conduct of the business of the company. Every person
connected with the company shall not fall within the ambit
of the provision. It is only those persons who were in charge
of and responsible for conduct of business of the company
at the time of commission of an offence, who will be liable
for criminal action. It follows from this that if a director of
a Company who was not in charge of and was not
responsible for the conduct of the business of the company
at the relevant time, will not be liable under the provision.
The liability arises from being in charge of and responsible
for conduct of business of the company at the relevant time
when the offence was committed and not on the basis of
merely holding a designation or office in a company.
Conversely, a person not holding any office or designation
in a Company may be liable if he satisfies the main
requirement of being in charge of and responsible for
conduct of business of a Company at the relevant time.
Liability depends on the role one plays in the affairs of a
Company and not on designation or status. If being a
Director or Manager or Secretary was enough to cast
criminal liability, the Section would have said so. Instead of
"every person" the section would have said "every
Director, Manager or Secretary in a Company is
liable"..etc. The legislature is aware that it is a case of
criminal liability which means serious consequences so far
as the person sought to be made liable is concerned.
Therefore, only persons who can be said to be connected
with the commission of a crime at the relevant time have
been subjected to action. A reference to sub-section (2)
of Section 141 fortifies the above reasoning because sub-
section (2) envisages direct involvement of any Director,
Manager, Secretary or other officer of a company in
commission of an offence. This section operates when in a
trial it is proved that the offence has been committed with
the consent or connivance or is attributable to neglect on
the part of any of the holders of these offices in a company.
In such a case, such persons are to be held liable. Provision
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has been made for Directors, Managers, Secretaries and
other officers of a company to cover them in cases of their
proved involvement.
The conclusion is inevitable that the liability arises on
account of conduct , act or omission on the part of a person
and not merely on account of holding an office or a position
in a company. Therefore, in order to bring a case
within Section 141 of the Act the complaint must disclose
the necessary facts which make a person liable.
9.2.1 The Supreme Court in Siby Thomas V M/s Somany
Ceramics Ltd., Criminal Appeal No…. of 2023 (arising out of
th
Special Leave Petition (Crl.) No.12 of 2020) decided on 10
October, 2023 referred decision in S.P. Mani and Mohan Dairy
V Dr. Snehalatha Elangovan, 2022 SCC OnLine SC 1238 and
observed that it is the primary responsibility of the complainant to
make specific averments in the complaint, so as to make the
accused vicariously liable. The Supreme Court also referred
observations made in S.P. Mani which are as under:-
41. In Gunmala Sales Private Limited (supra), this Court
after an exhaustive review of its earlier decisions on Section
141 of the NI Act, summarized its conclusion as under:-
(a) Once in a complaint filed under Section 138 read with
Section 141 of the NI Act the basic averment is made that
the Director was in charge of and responsible for the
conduct of the business of the company at the relevant
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time when the offence was committed, the Magistrate can
issue process against such Director;
(b) ……
(c) ……
(d) No restriction can be placed on the High Court’s
powers under Section 482 of the Code. The High Court
always uses and must use this power sparingly and with
great circumspection to prevent inter alia the abuse of the
process of the Court. There are no fixed formulae to be
followed by the High Court in this regard and the
exercise of this power depends upon the facts and
circumstances of each case. The High Court at that stage
does not conduct a mini trial or roving inquiry, but
nothing prevents it from taking unimpeachable evidence
or totally acceptable circumstances into account which
may lead it to conclude that no trial is necessary qua a
particular Director.
42. The principles of law and the dictum as laid in
Gunmala Sales Private Limited (supra), in our opinion,
still holds the field and reflects the correct position of
law.”
9.2.2 It was further observed as under:-
11. In the light of the afore-extracted recitals from the
decision in Gunmala Sales Private Limited v. Anu, (2015) 1
SCC 103 quoted with agreement in S.P. Mani’s case (supra)
and in view of sub-section (1) of Section 141 of the N.I. Act
it cannot be said that in a complaint filed under Section 138
read with Section 141 of the N.I. Act to constitute basic
averment it is not required to aver that the accused
concerned is a person who was in charge of and responsible
for the conduct of the business of the company at the
relevant time when the offence was committed.
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It is thereafter that in the decision in S.P. Mani’s case
(supra) in paragraph 47 (a) it was held that the primary
responsibility of the complainant is to make specific
averments in the complaint so as to make the accused
vicariously liable.
9.2.3 The Supreme Court in Siby Thomas V M/s Somany
Ceramics Ltd. also referred Anita Malhotra V Apparel Export
Promotion Council & another, (2012) 1 SCC 520 wherein it was
observed as under:-
22. This Court has repeatedly held that in case of a
Director, the complaint should specifically spell out how
and in what manner the Director was in charge of or was
responsible to the accused company for conduct of its
business and mere bald statement that he or she was in
charge of and was responsible to the company for conduct
of its business is not sufficient. (Vide National Small
Industries Corpn. Ltd. v. Harmeet Singh Paintal). In the
case on hand, particularly, in Para 4 of the complaint,
except the mere bald and cursory statement with regard to
the appellant, the complainant has not specified her role in
the day-to-day affairs of the Company. We have verified
the averments as regards to the same and we agree with the
contention of Mr. Akhil Sibal that except reproduction of
the statutory requirements the complainant has not
specified or elaborated the role of the appellant in the day-
to-day affairs of the Company. On this ground also, the
appellant is entitled to succeed.

9.2.3 The Supreme Court in Siby Thomas V M/s Somany
Ceramics Ltd. also referred Ashok Shewakramani & others V
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State of Andhra Pradesh & another, 2023 INSC 692wherein it was
observed as under:-
19. Section 141 is an exception to the normal rule that there
cannot be any vicarious liability when it comes to a penal
provision. The vicarious liability is attracted when the
ingredients of subsection 1 of Section 141 are satisfied. The
Section provides that every person who at the time the
offence was committed was in charge of, and was
responsible to the Company for the conduct of business of
the company, as well as the company shall be deemed to be
guilty of the offence under Section 138 of the NI Act. In the
light of sub-section 1 of Section 141, we have perused the
averments made in the complaints subject matter of these
three appeals. The allegation in paragraph 1 of the
complaints is that the appellants are managing the
company and are busy with day to day affairs of the
company. It is further averred that they are also in charge
of the company and are jointly and severally liable for the
acts of the accused No.1 company. The requirement of sub-
section 1 of Section 141 of the NI Act is something different
and higher. Every person who is sought to be roped in by
virtue of sub-section 1 of Section 141 NI Act must be a
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. Merely because
somebody is managing the affairs of the company, per se,
he does not become in charge of the conduct of the business
of the company or the person responsible for the company
for the conduct of the business of the company. For
example, in a given case, a manager of a company may be
managing the business of the company. Only on the ground
that he is managing the business of the company, he cannot
be roped in based on sub-section 1 of Section 141 of the NI
Act. The second allegation in the complaint is that the
appellants are busy with the day-to-day affairs of the
company. This is hardly relevant in the context of
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subsection 1 of Section 141 of the NI Act. The allegation
that they are in charge of the company is neither here nor
there and by no stretch of the imagination, on the basis of
such averment, one cannot conclude that the allegation of
the second respondent is that the appellants were also
responsible to the company for the conduct of the business.
Only by saying that a person was in charge of the company
at the time when the offence was committed is not sufficient
to attract sub-section 1 of Section 141 of the NI Act.

9.2.4 The Supreme Court in Siby Thomas V M/s Somany
Ceramics Ltd. after referring above mentioned decisions observed as
under:-
16. Thus, in the light of the dictum laid down in Ashok
Shewakramani’s case (supra), it is evident that a vicarious
liability would be attracted only when the ingredients of
Section 141(1) of the NI Act, are satisfied. It would also
reveal that merely because somebody is managing the
affairs of the company, per se, he would not become in
charge of the conduct of the business of the company or the
person responsible to the company for the conduct of the
business of the company. A bare perusal of Section 141(1)
of the NI Act, would reveal that only that 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 alone shall
be deemed to be guilty of the offence and shall be liable to
be proceeded against and punished. In such circumstances,
paragraph 20 in Ashok Shewakramani’s case (supra) is also
relevant. After referring to the Section 141(1) of NI Act, in

paragraph 20 it was further held thus:

20 On a plain reading, it is apparent that the words "was
in charge of" and "was responsible to the company for
the conduct of the business of the company" cannot be
read disjunctively and the same ought to be read
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conjunctively in view of use of the word "and" in
between.

10. It is reflecting that the respondent/the complainant videInter
Corporate Deposit Agreement dated 09.09.2002 has paid
Rs.5,00,00,000/- (Rs. five crores only) to the accused no1 vide
cheque bearing no. 227605 dated 09.09.2002 drawn on HDFC Bank,
K.G. Marg, New Delhi on execution of Demand Promissory Note
and Inter Corporate Deposit Receipt which was required to pay back
after expiry of 180 days from the date of receipt of ICD, i.e. on
08.03.2003 along with interest. The accused no. 2 (now deceased)
was the managing director and authorized signatory, the accused no.3
to 5 including the petitioner were the directors, and the accused no.6
was the authorized signatory of the accused no 1 and stated to be in
charge of day to day affairs and are responsible for the conduct of the
business of the accused No.1 and for all acts and deeds committed by
or on behalf of the accused no. 1.The respondent no/the complainant
also initiated arbitration proceedings against the accused No. 1, 2 and
the accused no.6 wherein M/s Morepan Laboratories Ltd also joined
as one of the parties. The accused no. 1, 2 & 6 and M/s Morepan
Laboratories Ltd. and the respondent/the complainant entered into
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compromise vide Memorandum of Settlement dated 27.05.2003 and
thereafter the Arbitrator passed a Consent Award dated 21.07.2003.
The accused no.2 on behalf of the accused no.1 with the consent of
the accused no.3 to 6 towards part payment of the outstanding
amount had issued cheque in question i.e. cheque bearing no 842629
dated 30.03.05 amounting to Rs. 50,00,000/- drawn on ICICI Bank
Ltd., Connaught Place, New Delhi which on presentation got
dishonoured due to “ funds insufficient” vide cheque returned memo
dated 27.09.2005. The cheque amount was not paid despite legal
notice dated 15.10.2005.The concerned court of Metropolitan
Magistrate vide order dated 19.11.2005 summoned the accused(s)
including the petitioner for offences punishable under section 138
read with section 141 of the NI Act. The trial court vide order dated
10.10.2018 opined that prima facie case under section 138 of NI Act
is made out against accused company (the accused no 1) and
remaining accused (the accused no 2 to 6 including the
petitioner).The revisional court vide impugned order dismissed
revision petition bearing no 540/2018 which was filed to challenge
the order dated 10.10.2018.
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10.1 The petitioner was arrayed as the accused no 5 in the
complaint and has been summoned for offence punishable under
section 138 of NI Act. 5.1 The petitioner is a Chartered Accountant.
The petitioner was not a party to the Inter Corporate Deposit
Agreement dated 09.09.2002, Memorandum of Settlement dated
27.05.2003 and the Consent Award dated 21.07.2003 pursuant to
which the cheque in question was issued leading to the present
complaint. The cheque in question was not signed by the petitioner
which was signed by the accused no. 2. The petitioner as per Farm 32
was appointed as Additional Director with effect from 29.06.2001
and resigned as Director on 10.11.2012. The petitioner is not shown
as Non-Executive Director in Farm 32. The petitioner in Governance
Reports for Financial Years 2003-2004 and 2005-2006 and in other
documents filed by the petitioner was shown as Independent Non-
Executive Director.
11. It was argued on behalf of the petitioner that the impugned
order and order dated 10.10 2018 passed by the trail court suffer from
material error of the process of law as section 141 of NI Act does not
make a Director of a company automatically vicariously liable for
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commission of an offence on behalf of the company. The complaint
is without sufficient averments to make petitioner vicariously liable
for acts done on behalf of the accused no 1.The counsel for the
respondent/the complainant argued that the respondent has made the
specific averments in the complaint regarding issuance of cheque in
question with the knowledge and consent of the accused no 3 to 6
who were the persons-in-charge and responsible to the day-to-day
affairs of the accused no 1 and referred paras no 2, 4, 6, 8, 9, 11 and
12 of the complaint.
11.1 It is accepted legal proposition in view of law laid down by the
Supreme Court in above referred decision that it is the primary
responsibility of the complainant to make specific averments in the
complaint so as to make the accused vicariously liable. If the basic
averment is made in the complaint under section 138 of NI Act that
the Director was in charge of and responsible for the conduct of the
business of the company at the relevant time when the offence was
committed then Magistrate can issue process against such Director.
The complaint should specifically spell out how and in what manner
the Director was in charge of or was responsible to the accused
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company for conduct of its business and mere bald statement that he
or she was in charge of and was responsible to the company for
conduct of its business is not sufficient.
11.2 The petitioner is arrayed as the accused no 5 in the complaint.
The perusal of complaint reflects that the respondent/the complainant
has made following allegations in the complaint qua the petitioner,
some of which are also discussed by the revisional court in impugned
judgment:-
2. That Accused No. 2 with the consent of Accused Nos. 3to
6 on behalf of Accused No.1 had approached complainant
company for the financial assistance for business purposes
by way of Inter Corporate Deposit (ICD) facility with a
promise to repay back the monies/amount of the ICD as per
the terms mutually agreed and reduced in writing by way
of an Inter Corporate Deposit Agreement dated 09.09.2002.

4. That complainant company has extended the
financialassistance to Accused No. 1 company to the tune of
Rs.5,00,00,000/- (Rupees Five Crores Only) according to the
usual prevailing corporate convention and, believing and
acting upon promises of the accused persons. Accused No. 2
is the managing Director and Authorized Signatory,
Accused No.3 to 5 are the Directors, and Accused No.6 is
the Authorized Signatory of company, who are incharge of
day to day affairs and are responsible for the conduct of the
business of the Accused No.1 company and for all acts and
deeds committed by or on behalf ofAccused No. 1 company.

5. That complainant also filed / initiated
arbitrationproceedings against Accused No. 1, 2 and
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accused no.6 and M/s Morepan Laboratories Ltd. jointed
as parties during the Arbitration proceedings. The
Arbitration proceedings were conducted by Hon'ble Mr.
Justice H.L. Aggarwal (Retd.) and during the proceedings,
a compromise took place between Accused No. 1, 2 &6and
M/s Morepan Laboratories Ltd. and the complainant. In
pursuance of this compromise, a Memorandum of
Settlement dated 27.05.2005 was signed and on the basis of
which the Hon'ble Arbitrator passed a Consent Award on
21.07.2003.

6. That in compliance of the above said award and as per
terms of the compromise/ Memorandum of
Settlementdated 27.05.2003 and accused no.2 on behalf of
Accused No. 1 with the consent and knowledge of Accused
No.3 to 6, have signed and issued several cheques most of
them were got dishonour. Accused No.2 on behalf of the
accused No.1 with the consent of the accused no.3 to 6 in
the part payment of the outstanding bill had issued the
following cheque…….

10. That the complainant company got issued Notice
dated15.10.2005 throught their counsel Shri B.S. Arora
dispatched under Registered AD covers as well as UPC on
18.10.2005. Notice were duly served upon the accused
persons and notice sent by the registered by AD covers are
duly served.

11. That the Accused No.2, is the Managing Director and
authorized signatory. Accused Nos. 3 to 7 are the Directors
of Accused No. 1 company are incharge of and are
responsible to the company for the conduct of business and
day to day affairs and management of the company and all
accused persons have consented, connived and neglected to
make repayment, and dishonouring of the said cheque and
are liable for that offence.

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12. That accused persons have failed to pay legally accrued
debts to complainant company in usual course of business
as stipulated in the Inter Corporate Deposit Agreement, but
accused persons have also made themselves liable to be
prosecuted as provided under section 138, 141 and 142 of
the Negotiable Instruments Act, 1881 as amended update.

13. That although there were no sufficient amount in the
account of the accused person but the accused person had
issued the cheque to defraud the complainant and thereby
caused wrongfully loss to the complainant and had gain
wrongfully.

11.3 The perusal of above paras of the complaint reflects that the
respondent/the complainant pleaded that the accused no.1 through the
accused no.2 with the consent of the accused no.3 to 6 including the
petitioner had approached the respondent/the complainant for the
financial assistance for business purposes by way of Inter Corporate
Deposit (ICD) facility. The respondent/the complainant also pleaded
that the petitioner being one of the directors of the accused no.1 was
incharge of day to day affairs and are responsible for the conduct of
the business of the accused no.1 company and for all acts and deeds
committed by or on behalf of the accused no 1. The respondent/the
complainant also pleaded that the accused no.2 on behalf of the
accused no 1 with the consent and knowledge of the accused no.3 to
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6 including petitioner have signed and issued several cheques and
further cheque in question was issued by the accused no.2 on behalf
of the accused no 1 with the consent of the accused no.3 to 6 in the
part payment of the outstanding amount. The respondent/the
complainant also got issued notice dated 15.10.2005 which was also
served on the petitioner. The respondent/the complainant as such
made sufficient, adequate and ample averments against/qua the
petitioner in the complaint necessary to constitute vicarious liability
of the petitioner. The argument advanced on behalf of the petitioner
that the complaint is without sufficient averments to make petitioner
vicariously liable for acts done on behalf of the accused no.1 is
without any basis.
12. It is also argued on behalf of the petitioner that the cheque in
question was issued by the accused no.1 and its managing director
and authorized Signatory out of arbitration settlement to which the
petitioner was not a party. The petitioner is a chartered accountant
and was an independent Non-Executive Director of the accused no 1.
The petitioner never remained involved in the day to day affairs of
the accused no.1. The petitioner never received any remuneration
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from the accused no.1. It is also argued that the petitioner was neither
a party nor a signatory to the Inter Corporate Deposit Agreement,
Memorandum of Settlement dated 27.05.2003 and Consent Award
dated 21.07.2003. The petitioner did not have any role in issuance of
cheque in question. The learned Senior Counsel referred Corporate
Governance Report of the accused no 1 Company, Annual Report of
the years 2003-2004 and 2005-2006. The counsel for the
respondent/the complainant argued to the contrary.
12.1 Section 141 of the NI Act provides for a constructive liability
which is created by a legal fiction. The section 141 of the NI Act
being a penal should receive strict construction and compliance. It the
accused played insignificant role in affairs of the company may not
be sufficient to attract the constructive liability under Section 141 of
the NI Act. The petitioner as per Form 32 was appointed as
Additional Director on 29.06.2001 and resigned as Director with
effect from 10.11.2012. Form 32 appears to be a declaration
regarding appointment of a director etc. in the company or any
change thereto as per section 303(2) of the Companies Act, 2013.It
reflects that when the cheque in question was issued, the petitioner
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was a director in the accused no 1. The petitioner was not shown as
Independent Non-Executive Director of the accused no.1 in Form 32
as pleaded and alleged by the petitioner.
12.2 Section 2(34) of the Companies Act, 2013 defines the Director
which means a director appointed to the Board of a company. Section
2(10) of the Companies Act, 2013 defines as Board of Directors in
relation to a company means the collective body of the directors of
the company. Chapter XI of the Companies Act, 2013 deals with
appointment and qualifications of the directors. Section 149 of the
Companies Act, 2013 provides that a company is required to have a
Board of Directors. Section 149(6) of the Companies Act, 2013
defines as Independent Director. Independent director in relation to a
company means a director other than a managing director or a whole-
time director or a nominee director. Independent Director may be a
person of integrity and may possess relevant expertise and
experience. Independent Director is or was not a promoter of the
company or its holding, subsidiary or associate company.
Independent Director has or had no pecuniary relationship with the
company, its holding, subsidiary or associate company, or their
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promoters, or directors during the relevant period. The petitioner does
not fall within the definition of independent director or non-executive
director being Director of the accused no.1 as reflected from Form
32.
12.3 The petitioner in Governance Report and other documents
relied on by the petitioner is shown as Independent Non-Executive
Director. However Governance Report also reflects that the petitioner
had attended 10 Board meetings and also attended last AGM. Mere
fact that the petitioner in few documents which are required to be
proved during trial, was mentioned as independent non-executive
director does not mean that the petitioner was not directly or
indirectly related with the affairs of the accused no.1. The documents
including Governance Report, Annual Report etc. referred and relied
upon by the parties are not conclusive proof that the petitioner was
independent non-executive director of the accused no.1. The
documents relied upon by the petitioner are not conclusive proof to
establish that the petitioner was not responsible for day to day affairs
and conduct of business of the accused no 1. Had the petitioner not
responsible for affairs of the accused no 1, it can only be established
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and proved in accordance with law during the trial of the complaint
under section 138 of NI Act. The petitioner cannot be absolved from
his liability qua the cheque in question by pleading that he was
independent non-executive director of the accused no 1. The
nomenclature of the petitioner in certain documents submitted by the
petitioner and required to be proved in accordance with law does not
mean that the petitioner was a non-functional director of the accused
no1.
12.4 It is reflecting that the petitioner was not a party to the
execution of Inter Corporate Deposit Agreement, Memorandum of
Settlement dated 27.05.2003 and Consent Award dated 21.07.2003
and the cheque in question was not issued under his signature.
However the petitioner was appointed as Additional Director and
resigned as Director from the accused no.1 and was one of the
Director when the cheque in question was issued, the petitioner
cannot absolve from vicarious liability arising out of cheque in
question by pleading that he was not a party to the execution of Inter
Corporate Deposit Agreement, Memorandum of Settlement dated
27.05.2003 and Consent Award dated 21.07.2003 and the cheque in
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question was not issued under his signature. The arguments advanced
by learned Senior Counsel on above legal and factual propositions
are without any force.
13. It is also relevant to mention that the petitioner never
challenged his summoning for offence punishable under section 138
of the NI Act and only challenged impugned order whereby the trial
court judicially opined about existence of prima facie case against
him.
14. The present petition is accordingly dismissed. There is no legal
and factual infirmity in the order dated 10.10.2018 passed by the trial
court and impugned order passed by the revisional court. None of the
observation on factual position in present judgment shall be taken as
opinion on final merits of the case.
15. The pending applications if any also stand disposed of.


DR. SUDHIR KUMAR JAIN
(JUDGE)
NOVEMBER 28, 2023
j/sd
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