Full Judgment Text
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CASE NO.:
Appeal (crl.) 664 of 2002
PETITIONER:
S.M.S. Pharmaceuticals Ltd
RESPONDENT:
Neeta Bhalla & Anr
DATE OF JUDGMENT: 20/02/2007
BENCH:
S.B. Sinha & Markandey Katju
JUDGMENT:
J U D G M E N T
S.B. Sinha, J.
Appellant herein is a company registered and incorporated under the
Companies Act. Respondent No. 1 was a Director of a company known as
M/s. Direct Finance and Investment Ltd., New Delhi. She allegedly
submitted her resignation on 15.04.1994.
Against the said company, the Managing Director thereof, Respondent
No. 1 herein as also another director, a complaint petition was filed by the
appellant alleging that the Company represented by its Managing Director
had called for inter-corporate deposit for a short period of 15 days to the
extent of rupees two crores and to such a proposal it agreed. The rate of
interest for such deposit was stipulated at 25% per annum therefor payable
within 15 days. A promissory note was executed by the accused No. 2 on
behalf of the Company. The date of maturity of the said deposit was fixed
on 15.03.1995. Upon expiry of the period of deposit, the accused \026
Company represented by its Managing Director allegedly issued a cheque
for a sum of rupees two crores as also a cheque for a sum of Rs. 1,58,219.00
and another cheque for a sum of Rs. 8,33,334.00 drawn on Canara Bank,
Janpath, New Delhi. All the cheques were dated 15.08.1996. The cheques
for Rs. 8,33,334.00 and Rs. 1,58,219.00 represented the interest part on the
deposit of rupees two crores for 15 days. The said cheques upon
presentation were dishonoured on the ground of insufficient funds. It stands
accepted that a notice dated 21.09.1996 was issued by the appellant asking
the accused No. 1 \026 Company to pay the said sum. The said notice was
served upon the accused Nos. 2 and 3, viz., the Managing Director and
another Director of the Company. Respondent No. 1 who was arrayed as the
accused No. 4 in the complaint petition was however not served with any
notice. The address of Respondent No. 1 herein \026 accused No. 4 was shown
as the Director of the Company being resident of 353, Bhera Enclave, Outer
Ring Road, Delhi \026 110 041. We may, however, notice that in the complaint
petition her address had been shown to be Outer Ring Road, Paschin Vihar,
Delhi \026 110 041.
In the complaint petition the allegations made inter alia are as under:
"The Accused No. 1 is a duly incorporated
Company, having its registered office at the
address mentioned above, represented by the
Director, Accused no. 2. The accused No. 3 and 4
are also the Directors of the Accused No. 1
company and the accused 2 to 4 are actively
involved in the management of the affairs of the
Accused No. 1 Company."
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Appellant along with the said complaint petition annexed a purported
resolution dated 15.02.1995 authorizing the Managing Director of the
Company to execute the promissory note which reads as under:
"RESOVED THAT the Company to avail an Inter
Corporate Deposit of Rs. 2 Crores (Rupees Two
Crores Only) for 15 days @ 25% p.a. from Reddy
Nagar, Hyderabad and that Mr. Rajiv Anand,
Director be and is hereby authorized to sign and
execute Demand Promissory Note, Post Dated
Cheques and other documents as may be required
by M/s. SMS Pharmaceuticals Ltd. on behalf of the
Company and deliver the same to M/s. SMS
Pharmaceuticals Ltd.
RESOVED FURTHER THAT Mr. Rajiv Anand,
Director of the Company be and is hereby
authorized to affix common seal of the Company
on such documents and papers as may be required
in this connection pursuant to the Articles of
Association of the Company."
In the said proceedings, a petition for discharge was filed by
Respondent No. 1 which was rejected by the learned Trial Judge. A revision
petition filed thereagainst was also dismissed by the learned Sessions Judge.
An application under Section 482 of the Code of Criminal Procedure was
filed questioning the said orders which, however, was permitted to be
withdrawn by the High Court stating:
"The learned counsel for the petitioner seeks leave
of the Court to withdraw this application. The
same shall accordingly stand dismissed as
withdrawn.
Leave granted to the petitioner to avail the
remedies if any available to him in law.
The trial Court shall expeditiously dispose of the
matter in accordance with law. The Trial Court is
directed not to grant any unreasonable
adjournments to any of the parties to the
proceedings."
Another discharge application was filed which was dismissed on
03.08.2000. The application for quashing of the proceeding was filed
thereafter.
The High Court by reason of the impugned judgment opining that the
allegations contained in the complaint petition as against Respondent No. 1
are vague and indefinite and do not satisfy the requirements of law as
contained in Section 141 of the Negotiable Instruments Act (for short "the
Act"), held that no case had been made out for issuance of any summons
against her. As regards the contention raised by the appellant herein that the
involvement of Respondent No. 1 in the affairs of the Company is evident
from the resolution dated 15.02.1995, the High Court opined that the same
by itself did not disclose commission of any offence on the day of
commission of the offence.
Appellant has filed the appeal aggrieved by the said judgment.
Requirements of law for proceeding against the Directors of the
Company for their purported constructive liability came up for consideration
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in this case before a Division Bench of this Court, wherein the following
questions were posed:
"(a) Whether for purposes of Section 141 of the
Negotiable Instruments Act, 1881, it is sufficient if
the substance of the allegation read as a whole
fulfil the requirements of the said section and it is
not necessary to specifically state in the complaint
that the person accused was in charge of, or
responsible for, the conduct of the business of the
company.
(b) Whether a director of a company would be
deemed to be in charge of, and responsible to, the
company for conduct of the business of the
company and, therefore, deemed to be guilty of the
offence unless he proves to the contrary.
(c) Even if it is held that specific averments are
necessary, whether in the absence of such
averments the signatory of the cheque and or the
managing directors or joint managing director who
admittedly would be in charge of the company and
responsible to the company for conduct of its
business could be proceeded against."
Having regard to the importance of the questions, the matter was
referred to a 3-Judge Bench of this Court. Upon noticing the rival
contentions of the parties as also the precedents operating in the field, the
questions were answered by the larger bench in the following terms:
"19. In view of the above discussion, our answers
to the questions posed in the reference are as
under:
(a) It is necessary to specifically aver in a
complaint under Section 141 that at the time the
offence was committed, the person accused was in
charge of, and responsible for the conduct of
business of the company. This averment is an
essential requirement of Section 141 and has to be
made in a complaint. Without this averment being
made in a complaint, the requirements of Section
141 cannot be said to be satisfied.
(b) The answer to the question posed in sub-para
(b) has to be in the negative. Merely being a
director of a company is not sufficient to make the
person liable under Section 141 of the Act. A
director in a company cannot be deemed to be in
charge of and responsible to the company for the
conduct of its business. The requirement of Section
141 is that the person sought to be made liable
should be in charge of and responsible for the
conduct of the business of the company at the
relevant time. This has to be averred as a fact as
there is no deemed liability of a director in such
cases.
(c) The answer to Question (c) has to be in the
affirmative. The question notes that the managing
director or joint managing director would be
admittedly in charge of the company and
responsible to the company for the conduct of its
business. When that is so, holders of such positions
in a company become liable under Section 141 of
the Act. By virtue of the office they hold as
managing director or joint managing director,
these persons are in charge of and responsible for
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the conduct of business of the company. Therefore,
they get covered under Section 141. So far as the
signatory of a cheque which is dishonoured is
concerned, he is clearly responsible for the
incriminating act and will be covered under sub-
section (2) of Section 141."
The Bench, however, referred the matter back to the Division Bench
for determination on merit. The matter is, thus, before us.
Mr. P.S. Mishra, learned senior counsel appearing on behalf of the
appellant, would submit that the averments made in paragraph 2 of the
complaint petition are sufficient to attract the provisions of Section 141 of
the Act inasmuch as the involvement of Respondent No. 1 insofar as the
management of the affairs of the Company is concerned is evident from the
documents appended to the complaint petition.
The learned counsel brought to our notice that the well-settled
principle of law that for the purpose of attracting the provisions of Section
141 of the Act, it is not necessary to reproduce the exact wordings of the
statute and submitted that the involvement of an accused as a Director of a
Company being incharge of or responsible to the conduct of the Company
must be gathered from the other averments made in the complaint petition as
also the documents appended thereto.
It was submitted that for the said purpose, the term "management"
should be given its ordinary or dictionary meaning which would include the
act or manner of managing, controlling or conducting.
Mr. Ranjit Kumar, learned senior counsel appearing on behalf of
Respondent No. 1, on the other hand submitted that no allegation has been
made as against Respondent No. 1 herein in the complaint petition which
satisfies the requirements of Section 141 of the Act but as would appear
from the facts of the case that she had no role to play in commission of the
offence at all.
Section 141 of the Act does not say that a Director of a Company shall
automatically be vicariously liable for commission of an offence on behalf
of the Company. What is necessary is that sufficient averments should be
made to show that the person who is sought to be proceeded against on the
premise of his being vicariously liable for commission of an offence by the
Company must be incharge and shall also be responsible to the Company for
the conduct of its business.
By reason of the said provision, a legal fiction has been created. The
larger Bench in this case [since reported in (2005) 8 SCC 89] categorically
held:
"11. 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 the 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 has been made for directors, managers,
secretaries and other officers of a company to
cover them in cases of their proved involvement.
12. 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.
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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."
Referring to this Court’s earlier decisions in K.P.G. Nair v. Jindal
Menthol India Ltd. [(2001) 10 SCC 218] and Monaben Ketanbhai Shah and
Another v. State of Gujarat and Others [(2004) 7 SCC 15], it was stated:
"18. To sum up, there is almost unanimous judicial
opinion that necessary averments ought to be
contained in a complaint before a person can be
subjected to criminal process. A liability under
Section 141 of the Act is sought to be fastened
vicariously on a person connected with a company,
the principal accused being the company itself. It
is a departure from the rule in criminal law against
vicarious liability. A clear case should be spelled
out in the complaint against the person sought to
be made liable. Section 141 of the Act contains the
requirements for making a person liable under the
said provision. That the respondent falls within the
parameters of Section 141 has to be spelled out. A
complaint has to be examined by the Magistrate in
the first instance on the basis of averments
contained therein. If the Magistrate is satisfied that
there are averments which bring the case within
Section 141, he would issue the process. We have
seen that merely being described as a director in a
company is not sufficient to satisfy the
requirement of Section 141. Even a non-director
can be liable under Section 141 of the Act. The
averments in the complaint would also serve the
purpose that the person sought to be made liable
would know what is the case which is alleged
against him. This will enable him to meet the case
at the trial."
In terms of Section 138 of the Act, a complaint petition alleging an
offence thereto must demonstrate that the following ingredients exist that:
(i) a cheque was issued;
(ii) the same was presented;
(iii) but, it was dishonoured;
(iv) a notice in terms of the said provision was served on the person
sought to be made liable; and
(v) despite service of notice, neither any payment was made nor other
obligations, if any, were complied with within fifteen days from
the date of receipt of the notice.
The liability of a Director must be determined on the date on which
the offence is committed. Only because Respondent No. 1 herein was a
party to a purported resolution dated 15.02.1995 by itself does not lead to an
inference that she was actively associated with the management of the affairs
of the Company. This Court in this case has categorically held that there
may be a large number of Directors but some of them may not associate
themselves in the management of the day to day affairs of the Company and,
thus, are not responsible for conduct of the business of the Company. The
averments must state that the person who is vicariously liable for
commission of the offence of the Company both was incharge of and was
responsible for the conduct of the business of the Company. Requirements
laid down therein must be read conjointly and not disjunctively. When a
legal fiction is raised, the ingredients therefor must be satisfied.
If the complaint petition is read in its entirety, the same would show
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that the only person who was actively associated in the matter of obtaining
loan, signing cheques and other affairs of the company which would lead to
commission of the alleged offence was the accused No. 2. By reason of the
purported resolution dated 15.02.1995, whereupon strong reliance has been
placed by Mr. Mishra, only the accused No. 2 was authorized to do certain
acts on behalf of the Company. The cheques were issued on 15.08.1996,
i.e., after a period of 17 months from the date of the said resolution. As is
evident from the averments made in the complaint petition, the cheques
represented the amount of interest payable for a total period of 15 days only
calculated at the rate of 25% per annum on the amount of deposit, viz.,
rupees two crores.
The High Court has gone into the matter at some length. The High
Court found that the resolution by itself did not constitute an offence even
assuming that the same bore the signature of Respondent No. 1 (although the
genuineness thereof was disputed).
On a plain reading of the averments made in the complaint petition,
we are satisfied that the statutory requirements as contemplated under
Section 141 of the Act were not satisfied.
This aspect of the matter has recently been considered by this Court in
Sabitha Ramamurthy & Anr. v. R.B.S. Channabasavaradhya [2006 (9)
SCALE 212], wherein it was held:
"A bare perusal of the complaint petitions
demonstrates that the statutory requirements
contained in Section 141 of the Negotiable
Instruments Act had not been complied with. It
may be true that it is not necessary for the
complainant to specifically reproduce the wordings
of the section but what is required is a clear
statement of fact so as to enable the court to arrive
at a prima facie opinion that the accused are
vicariously liable. Section 141 raises a legal
fiction. By reason of the said provision, a person
although is not personally liable for commission of
such an offence would be vicariously liable
therefor. Such vicarious liability can be inferred
so far as a company registered or incorporated
under the Companies Act, 1956 is concerned only
if the requisite statements, which are required to be
averred in the complaint petition, are made so as to
make the accused therein vicariously liable for the
offence committed by the company. Before a
person can be made vicariously liable, strict
compliance of the statutory requirements would be
insisted..."
Yet again in Saroj Kumar Poddar v. State (NCT of Delhi) and Anr.
[2007 (2) SCALE 36], the said legal principle was reiterated stating:
"Apart from the Company and the appellant,
as noticed hereinbefore, the Managing Director
and all other Directors were also made accused.
The appellant did not issue any cheque. He, as
noticed hereinbefore, had resigned from the
Directorship of the Company. It may be true that
as to exactly on what date the said resignation was
accepted by the Company is not known, but, even
otherwise, there is no averment in the complaint
petitions as to how and in what manner the
appellant was responsible for the conduct of the
business of the Company or otherwise responsible
to it in regard to its functioning. He had not issued
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any cheque. How he is responsible for dishonour
of the cheque has not been stated. The allegations
made in paragraph 3, thus, in our opinion do not
satisfy the requirements of Section 141 of the
Act."
A faint suggestion was made that this Court in Saroj Kumar Poddar
(supra) has laid down the law that the complaint petition not only must
contain averments satisfying the requirements of Section 141 of the Act but
must also show as to how and in what manner the appellant was responsible
for the conduct of the business of the company or otherwise responsible to it
in regard to its functioning. A plain reading of the said judgment would
show that no such general law was laid down therein. The observations
were made in the context of the said case as it was dealing with a contention
that although no direct averment was made as against the appellant of the
said case fulfilling the requirements of Section 141 of the Act but there were
other averments which would show that the appellant therein was liable
therefor.
We, therefore, are of the opinion that the judgment of the High Court
cannot be faulted.
Another submission of Mr. Mishra was that the second application
was not maintainable. Such a question had not been raised before the High
Court. Even otherwise, the High Court was not denuded from exercising its
inherent jurisdiction in a matter of this nature. The principles of res judicata
are not attracted. Reliance placed by Mr. Mishra on Simrikhia v. Dolley
Mukherjee and Chhabi Mukherjee and Another [(1990) 2 SCC 437] is
misplaced. The question which arose for consideration therein was as to
whether despite dismissal of an earlier application a second application
would be maintainable which would virtually amount to review of the earlier
order which would be contrary to the spirit of Section 362 of the Code of
Criminal Procedure. It was held:
"7. The inherent jurisdiction of the High Court
cannot be invoked to override bar of review
under Section 362. It is clearly stated in Sooraj
Devi v. Pyare Lal, that the inherent power of the
court cannot be exercised for doing that which is
specifically prohibited by the Code. The law is
therefore clear that the inherent power cannot be
exercised for doing that which cannot be done on
account of the bar under other provisions of the
Code. The court is not empowered to review its
own decision under the purported exercise of
inherent power. We find that the impugned order
in this case is in effect one reviewing the earlier
order on a reconsideration of the same materials.
The High Court has grievously erred in doing so.
Even on merits, we do not find any compelling
reasons to quash the proceedings at that stage."
We have noticed the previous order passed by the High Court. The
High Court gave liberty to Respondent No. 1 to agitate the matter once
again. Respondent No. 1 merely took recourse thereto. Equally misplaced
is the judgment of this Court in Rajinder Prasad v. Bashir and Others [(2001)
8 SCC 522]. Although therein it was held that when an earlier revision
application under Section 397 of the Code of Criminal Procedure has been
dismissed, as not pressed, a second application under Section 482 thereof for
grant of same relief should not have been entertained, this Court opined:
"8. We are of the opinion that no special
circumstances were spelt out in the subsequent
application for invoking the jurisdiction of the
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High Court under Section 482 of the Code and the
impugned order is liable to be set aside on this
ground alone."
It is, therefore, an authority for the proposition that the High Court is
not completely denuded of its power to exercise inherent jurisdiction for the
second time.
Furthermore, this court therein also went into the merit of the matter.
In this case, not only the merit of the matter had been gone into by the High
Court as also by this Court, the questions raised in the petition had been
referred to a larger Bench for obtaining an authoritative pronouncement. It
is, therefore, too late in the day for the appellant to contend that the
application under Section 482 of the Code of Criminal Procedure was not
maintainable.
We may, however, notice that this Court in Superintendent and
Remembrancer of Legal Affairs, West Bengal v. Mohan Singh and Others
[(1975) 3 SCC 706] held that when there is a changed set of circumstances, a
second application under Section 561A of the Code of Criminal Procedure
would be maintainable stating:
"2. The main question debated before us was
whether the High Court had jurisdiction to make
the order dated April 7, 1970 quashing the
proceeding against Respondents 1, 2 and 3 when
on an earlier application made by the first
respondent, the High Court had by its order dated
December 12, 1968 refused to quash the
proceeding. Mr Chatterjee on behalf of the State
strenuously contended that the High Court was not
competent to entertain the subsequent application
of Respondents 1 and 2 and make the order dated
April 7, 1970 quashing the proceeding, because
that was tantamount to a review of its earlier order
by the High Court, which was outside the
jurisdiction of the High Court to do. He relied on
two decisions of the Punjab and Orissa High
Courts in support of his contention, namely,
Hoshiar Singh v. State and Namdeo Sindhi v.
State. But we fail to see how these decisions can
be of any help to him in his contention. They deal
with a situation where an attempt was made to
persuade the High Court in exercise of its
revisional jurisdiction to reopen an earlier order
passed by it in appeal or in revision finally
disposing of a criminal proceeding and it was held
that the High Court had no jurisdiction to revise its
earlier order, because the power of revision could
be exercised only against an order of a subordinate
court. Mr Chatterjee also relied on a decision of
this Court in U.J.S. Chopra v. State of Bombay
where N.H. Bhagwati, J., speaking on behalf of
himself and Imam, J., observed that once a
judgment has been pronounced by the High Court
either in exercise of its appellate or its revisional
jurisdiction, no review or revision can be
entertained against that judgment and there is no
provision in the Criminal Procedure Code which
would enable the High Court to review the same or
to exercise revisional jurisdiction over the same.
These observations were sought to be explained by
Mr Mukherjee on behalf of the first respondent by
saying that they should not be read as laying down
any general proposition excluding the applicability
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of Section 561-A in respect of an order made by
the High Court in exercise of its appellate or
revisional jurisdiction even if the conditions
attracting the applicability of that section were
satisfied in respect of such order, because that was
not the question before the Court in that case and
the Court was not concerned to inquire whether the
High Court can in exercise of its inherent power
under Section 5 61 A review an earlier order made
by it in exercise of its appellate or revisional
jurisdiction..."
For the reasons aforementioned, we do not find any error whatsoever
in the impugned judgment. The appeal is dismissed with costs. Counsel’s
fee assessed at Rs. 10,000/-.