CHANAKYA BHUPEN CHAKRAVARTI & ANR vs. MRS RAJESHRI KARWA

$~26 to 33
IN THE HIGH COURT OF DELHI AT NEW DELHI

th
Decided on:- 4 December, 2018

+ CRL.M.C. 3729/2017 & Crl.M.A. 15136/2017
CHANAKYA BHUPEN CHAKRAVARTI & ANR...
Petitioners
Through: Mr. Mohit Mathur, Sr. Adv.
with Ms. Sonam Gupta, Mr.
Anurag Tandon & Mr. Mayank
Sharma, Advs.
versus
MRS RAJESHRI KARWA ..... Respondent
Through: Mr. Divyakant Lahoti, Adv.

+ CRL.M.C. 3730/2017 & Crl.M.A.15138/2017
CHANKYA BHUPEN CHAKRAVARTI & ANR.....Petitioners
Through: Mr. Mohit Mathur, Sr. Adv.
with Ms. Sonam Gupta, Mr.
Anurag Tandon & Mr. Mayank
Sharma, Advs.
versus
NAND KISHORE KARWA HUF ..... Respondent
Through: Mr. Divyakant Lahoti, Adv.

+ CRL.M.C. 3731/2017 & Crl.M.A. 15149/2017

CHANAKYA BHUPEN CHAKRAVARTI & ANR .....
Petitioners
Crl. M.C. No.3729/2017 & conn. Page 1 of 11




Through: Mr. Mohit Mathur, Sr. Adv.
with Ms. Sonam Gupta, Mr.
Anurag Tandon & Mr. Mayank
Sharma, Advs.
versus
PRAMOD KARWA ..... Respondent
Through: Mr. Divyakant Lahoti, Adv.

+ CRL.M.C. 3732/2017 & Crl.M.A. 15152/2017
CHANAKYA BHUPEN CHAKRAVARTI & ANR .. Petitioner
Through: Mr. Mohit Mathur, Sr. Adv.
with Ms. Sonam Gupta, Mr.
Anurag Tandon & Mr. Mayank
Sharma, Advs.
versus
NAND KISHORE KARWA ..... Respondent
Through: Mr. Divyakant Lahoti, Adv.

+ CRL.M.C. 3733/2017 & Crl.M.A. 15154/2017
CHANKYA BHUPEN CHAKRAVARTI & ANR..... Petitioner
Through: Mr. Mohit Mathur, Sr. Adv.
with Ms. Sonam Gupta, Mr.
Anurag Tandon & Mr. Mayank
Sharma, Advs.
versus
NILESH KARWA HUF ..... Respondent
Through: Mr. Divyakant Lahoti, Adv.

+ CRL.M.C. 3734/2017 & Crl.M.A. 15156/2017
Crl. M.C. No.3729/2017 & conn. Page 2 of 11




CHANAKYA BHUPEN CHAKRAVARTI & ANR .....
Petitioners
Through: Mr. Mohit Mathur, Sr. Adv.
with Ms. Sonam Gupta, Mr.
Anurag Tandon & Mr. Mayank
Sharma, Advs.
versus

SULOCHANA KARWA ..... Respondent
Through: Mr. Divyakant Lahoti, Adv.

+ CRL.M.C. 3735/2017 & Crl.M.A. 15158/2017
CHANKYA BHUPEN CHAKRAVARTI & ANR.....Petitioners
Through: Mr. Mohit Mathur, Sr. Adv.
with Ms. Sonam Gupta, Mr.
Anurag Tandon & Mr. Mayank
Sharma, Advs.
versus
PRAMOD KARWA HUF ..... Respondent
Through: Mr. Divyakant Lahoti, Adv.

+ CRL.M.C. 3736/2017 & Crl.M.A. 15160/2017
CHANAKYA BHUPEN CHAKRAVARTI & ANR....
Petitioners
Through: Mr. Mohit Mathur, Sr. Adv.
with Ms. Sonam Gupta, Mr.
Anurag Tandon & Mr. Mayank
Sharma, Advs.
Crl. M.C. No.3729/2017 & conn. Page 3 of 11




versus
NILESH KARWA ..... Respondent
Through: Mr. Divyakant Lahoti, Adv.

CORAM:
HON'BLE MR. JUSTICE R.K.GAUBA

ORDER (ORAL)
1. On the criminal complaints (CC Nos. 4401, 4402, 4408, 4404,
4407, 4406, 4405, 4403 of 2017) instituted by the respondents in these
petitions, each alleging offence under Section 138, Negotiable
Instruments Act, 1881 (NI Act) having been committed concerning
different set of cheques, the Metropolitan Magistrate by his almost
identical orders passed on 26.04.2017, summoned amongst others, the
petitioners as accused, invoking the vicarious criminal liability under
Section 141 NI Act, 1881 against them, they having been shown in the
array as fourth and fifth accused, their description being that of a
director of Amrapali Silicon City Pvt. Ltd. which is the company
against whose account and on whose behalf the said cheques had been
issued, the same having been concededly returned unpaid.
2. The petitioners have come up to this Court invoking the
inherent power and jurisdiction of this Court under Section 482 of the
Code of Criminal Procedure, 1973 (Cr.P.C.) to bring a challenge to the
said summoning orders primarily contending that they were non-
executive directors of Amrapali Silicon City Pvt. Ltd. (the company
accused) at all relevant points of time, though their additional
Crl. M.C. No.3729/2017 & conn. Page 4 of 11




submission also is that they had already resigned from even such
position prior to the presentation of the cheques for encashment.
3. The submission of the petitioners that on account of being “non-
executive directors” nominees of the investor company, they were not
responsible for the day-to-day affairs or conduct of the business of the
company accused, is founded primarily on copies of Form 32
submitted pursuant to sections 303 (2), 264(2) or 266 (1) (a) and 266
(1)(b) (iii) of the Companies Act, 1956, the said document indicating
their appointment as “non-executive directors” in the company
accused on 07.08.2012. It has been submitted that this fact was
within the knowledge of the respondent (the complainant before the
magistrate) inasmuch as replies were sent on 10.02.2017 to the notices
of demand served upon these petitioners, the complainant having
scrupulously avoided any reference to such reply in the criminal
complaints as also the evidence which was led in its support at the
stage of pre-summoning inquiry. The petitioners have also placed
reliance on articles of agreement dated 09.10.2015 whereunder the
company accused had entered into an arrangement with the
respondents for purposes of investment in its group housing project by
the respondent (the complainant), which was to be repaid by the said
company through the cheques in question under “buy back
agreement”. Reliance is also placed on the articles of association of
the company accused wherein it is clarified – by clause 36 – that the
non-executive directors appointed by the investors – shall have no
responsibility for the day-to-day management of the company.
Crl. M.C. No.3729/2017 & conn. Page 5 of 11




4. The petitions are resisted by the respondents primarily on the
submissions that in terms of the articles of association of the company
accused, the petitioners being the non-executive directors nominated
by the investor company would continue to participate in the
management by being on the board of directors and consequently
being privy to all transactions entered upon including the liabilities
undertaken. It is the submission of the respondent that, from this
perspective, the petitioners being privy to the liability arising out of
the dishonored cheques cannot escape the presumption being raised in
terms of Section 141 NI Act, it being a matter of their burden of proof
to show facts to the contrary.
5. During the course of hearing, reference was made primarily to
three decisions of the Supreme Court reported as SMS
Pharmaceuticals Pvt. Ltd. vs. Neeta Bhalla (2005) 8 SCC 89;
Gunmala Sales (P) Ltd. vs. Anu Mehta (2015) 1 SCC 103 and
Standard Chartered Bank vs. State of Maharashtra (2016) 6 SCC 62.
Similar issues had come before this Court in a batch of matters led by
Jwala Devi Enterprises P. Ltd. vs. Fadi EL Jaouni 2018 SCC Online
Del 10030. This Court taking note of the penal clause under Section
138 held thus:-
“6. It is clear from the plain reading of the above quoted
provision and is now also well settled that the offence
under Section 138 of the Negotiable Instruments Act does
not stand constituted merely upon dishonor of a cheque.
The dishonor of a cheque which had been issued by the
person (who is sought to be prosecuted) in favour of the
complainant must be followed by a notice of demand
within the stipulated period. It is the non-payment of the
Crl. M.C. No.3729/2017 & conn. Page 6 of 11




amount of the cheque within the statutory period after
service of the notice of demand which constitutes the
offence that is punishable under the aforementioned
provision of law”.

6. With reference to vicarious liability under Section 141 NI Act,
taking note of the rulings in SMS Pharmaceuticals Pvt. Ltd (supra),
Gunmala Sales (P) Ltd. (supra) and Standard Chartered Bank (supra)
and the guiding principles were culled out in Jwala Devi Enterprises
P. Ltd. (supra) thus:-
“ 14. The guiding principles with reference to Section 141
of the Negotiable Instruments Act, 1881, which are now well
settled by judicial pronouncements, some of which have
been noted above, may be summarised thus :-
(i) It is only those persons who are in charge of or
responsible for the conduct of the business of the company
at the time of commission of the offence under Section 138
of the Negotiable Instruments Act, 1881 who can be
subjected to criminal action with reference to Section 141;

(ii). If the person committing an offence under Section
138 of the Negotiable Instruments Act, 1881 is a company,
the person who was signatory to the cheque which is
dishonoured is clearly responsible for the incriminating act
and would be liable to be proceeded against under Section
141 (2);
(iii). By virtue of the office they hold, the persons working
in the capacity of the Managing Director or Joint Managing
Director are deemed to be in charge of, and responsible for
the conduct of the business of, the company and, therefore,
can be proceeded against in terms of Section 141;
(iv). Merely because a person is a director of the
company is not sufficient to make him liable under Section
141, there being no deeming that by holding such position
Crl. M.C. No.3729/2017 & conn. Page 7 of 11




he is in charge of, or responsible for the conduct of the
business of, the company within the meaning of Section 141;
(v). It is necessary for the complainant to specifically
aver in the complaint that at the time the offence was
committed, the person sought to be prosecuted was in
charge of, or responsible for the conduct of the business of,
the company in terms of Section 141, there being no need
for further particulars to be given in the complaint about his
role, this being subject to proof at the trial;
(vi). The person who has been summoned as an accused
for offence under Section 138 of the Negotiable Instruments
Act, 1881 on the basis of averment that he was director of
the company accused, he being in charge of or responsible
for the conduct of its business cannot get the complaint
quashed by the High Court by filing a petition under Section
482 of the Code of Criminal Procedure, 1973 merely on the
ground that no particulars as to his role have been set out in
the complaint; and
(vii). The person who has been summoned as an accused
for offence under Section 138 of the Negotiable Instruments
Act, 1881 by invoking the provision contained in Section
141 may persuade the High Court to quash the process in
exercise of its inherent power under Section 482 of the Code
of Criminal Procedure, 1973 by furnishing “some sterling
incontrovertible material or acceptable circumstances”
substantiating his contention that he was not in charge of
nor responsible for the conduct of the business of the
company “at the time the offence was committed” and
thereby showing a case that making him stand the trial
would be an abuse of the process of court, but not
otherwise”.


7. It may be that under the articles of association of the company
accused, the petitioners being the non-executive directors nominated
by the investor company have some role to play on the board of
Crl. M.C. No.3729/2017 & conn. Page 8 of 11




directors. It may also be that no meeting of board of directors could
be convened without at least one of them being present. But then,
there is some distinction between being privy to what were the affairs
of the company and being responsible for its day-to-day affairs or
conduct of its business.
8. Dealing with the issue relating to the status of “non-executive
directors”, the Supreme Court in Pooja Ravinder Devidasani vs. State
of Maharashtra & Anr.(2014) 16 SCC 1, ruled thus:-

Crl. M.C. No.3729/2017 & conn. Page 9 of 11




accused) is in charge of and responsible to the company for the
conduct of the business of the company without anything more
as to the role of the Director. But the complaint should spell out
as to how and in what manner Respondent 1 was in charge of or
was responsible to the accused Company for the conduct of its
business. This is in consonance with strict interpretation of
penal statutes, especially, where such statutes create vicarious
liability.
14. A company may have a number of Directors and to make
any or all the Directors as accused in a complaint merely on the
basis of a statement that they are in charge of and responsible
for the conduct of the business of the company without anything
more is not a sufficient or adequate fulfilment of the
requirements under Section 141.”

9. The respondent (complainant) concededly had received the
replies on behalf of the petitioners to the demand notices issued in the
wake of the dishonor of the cheques which are the subject matter of
these eight petitions. By the said replies, they had specifically
informed the complainant that they had no role to play in the day-to
day affairs of the accused company or conduct of its business. It was
the responsibility against this backdrop, to set out as to why they
wanted to proceed against the petitioners as well. The complaints are
conspicuously silent on this score. Rather the complaints would not
even acknowledge receipt of the said replies. Same is the position
with the affidavits which were filed during the pre-summoning
inquiry. The complaints, insofar as they are directed against the
petitioners, would, thus, fail even on the averment test.
10. Having regard to the above facts and circumstances, the
petitioners concededly being non-executive directors, in absence of
any further averments as to their role in the company at the time of
Crl. M.C. No.3729/2017 & conn. Page 10 of 11




commission of the offences, the presumption under Section 141 NI
Act cannot be raised against them.
11. Consequently, the petitions and the applications filed therewith
are allowed. The proceedings in the afore-mentioned eight criminal
complaint cases against the two petitioners are quashed.

R.K.GAUBA, J.
DECEMBER 04, 2018
nk




Crl. M.C. No.3729/2017 & conn. Page 11 of 11