Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO.1265 OF 2008
(Arising out of SLP (Crl.) No. 6049 of 2005)
Malwa Cotton & Spinning Mills Ltd. ..
Appellant
Versus
Virsa Singh Sidhu and Ors. ..Respondents
WITH
Criminal Appeal No. 1266 of 2008 @ SLP (Crl.) No.408 of 2006
Criminal Appeal No. 1267 of 2008 @ SLP (Crl.) No.409 of 2006
Criminal Appeal No. 1268 of 2008 @ SLP (Crl.) No.410 of 2006
Criminal Appeal No. 1269 of 2008 @ SLP (Crl.) No.411 of 2006
Criminal Appeal No. 1270 of 2008 @ SLP (Crl.) No.412 of 2006
Criminal Appeal No. 1271 of 2008 @ SLP (Crl.) No.413 of 2006
Criminal Appeal No. 1272 of 2008 @ SLP (Crl.) No.414 of 2006
J U D G M E N T
Dr. ARIJIT PASAYAT, J.
SLP (Crl.) 6049/2005
1. Leave granted.
2. Challenge in this appeal is to the order passed by a
learned Single Judge of the Punjab and Haryana High Court
accepting the prayer of respondent No.1 for quashing the
proceedings pending before the Judicial Magistrate, First
Class, Ludhiana. The proceedings related to the complaint
filed by the appellant alleging commission of offence
punishable under Section 138 of the Negotiable Instruments
Act, 1881 (in short the ‘Act’). In all, 8 petitions were filed
which were disposed of by the common judgment.
3. The present appeals relate to Criminal Miscellaneous
No.52153 of 2002 and connected cases. The High Court
quashed the proceedings primarily on the ground that
respondent No.1-Virsa Singh Sidhu in the first case had
resigned from the Directorship before the cheques were
issued. The other petitions were allowed on the ground that
there were some general allegations that all Directors were
responsible.
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4. Learned counsel for the appellant submitted that the
High Court’s judgment is clearly unsustainable. So far as
respondent No.1 is concerned he claims to have resigned on
2.4.1999 whereas cheques were issued on various dates vis in
December 2000 and February 2001. It is pointed out that the
Form No.32 which was required to be filed with the Registrar
of Companies was filed on 5.7.2001 i.e. much after the
cheques were issued. Whether in fact the respondent No.1’s
claim to have resigned was factually correct would have been
established in trial and the High Court could not have passed
the impugned judgment while dealing with the application
under Section 482 of the Code of Criminal Procedure, 1973 (in
short the ‘Code’)? It is further pointed out that the High Court
was not justified in holding that there was no specific
allegation against other accused persons. With reference to
the complaint it was pointed out that specific allegation is to
the effect that the accused persons were in charge of day to
day management work. In any event, this is not a question
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which could have been gone into in a proceeding under
Section 482 of Code. It is a matter of trial.
5. Learned counsel for respondent No.1 on the other hand
submitted that the High Court was justified in its view that
respondent No.1 had intimated the company about his desire
to resign. If the company delayed in submitting the requisite
form before the Registrar of Companies, he cannot be made to
suffer.
6. As rightly contended by learned counsel for the appellant
factual disputes are involved. What was the effect of delayed
presentation before the Registrar of Companies is essentially a
matter of trial. Whether respondent No.1 had intimated the
company and whether there was any resolution accepting his
resolution are matters in respect of which evidence has to be
led. Therefore, the High Court was not justified in its view.
7. So far as allegations against the Directors are concerned
about their position in the company the complaint specifically
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contained the averments regarding the position of the accused
Directors in the company.
8. At this juncture, it would be relevant to take note of
certain observations made by this Court in various cases.
9. In S.V. Muzumdar v. Gujarat State Fertilizer Co. Ltd.
and Anr. (2005 (4) SCC 173), it was inter-alia observed as
follows:
“3. The facts as projected by the respondents
in the complaint were to the effect that the
respondent no.1 (hereinafter referred to as the
‘complainant’) supplied goods on credit to M/s
Garware Nylons Ltd. (hereinafter referred to as
the ‘Company’) (accused no.14). Cheques
issued by the company were not honoured by
the drawee bank on the ground of insufficient
funds. Payments were not made even after
legal notices. There were 14 accused persons
including the company named in the
complaint. Some of the accused persons were
Directors and while others were employees.
Learned Chief Judicial Magistrate, Vadodara
after recording statement of marketing
manager who had filed the complaint for
himself and on behalf of the complainant-
company, issued summons to all the accused
persons for facing trial for alleged commission
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of offences punishable under Section 138 of
the Act read with Sections 420 and 114 of the
Indian Penal Code, 1860 (in short the ‘IPC’).
The order issuing summons was challenged by
filing criminal revision applications which were
dismissed by order dated 21.3.1996. Said
common judgment and order was challenged
before the High Court by filing special criminal
applications and these applications were
permitted to be withdrawn to enable the
appellants to move applications before the
learned Chief Judicial Magistrate as stated by
the petitioners. Application was filed with
prayer to drop proceedings. That application
was rejected by order dated 21.8.1997. Same
was questioned before the High Court. The
challenge before the High Court was primarily
on the ground that there was no material to
show that the accused persons at the time of
offence as allegedly committed were in charge
and/or responsible to the company for the
conduct of the business as required under
Section 141(1) of the Act. It was also
submitted that the deeming provision under
sub-section (2) of Section 141 which covers
persons with whose consent or connivance or
any attributable negligence for commission of
the offence by the company was also not
applicable. The High Court did not accept the
pleas and held that the controversy was to be
adjudicated at the trial. It considered the
petition to be unacceptable attempt to stall the
criminal proceedings at the threshold.
xx xx xx
8. We find that the prayers before the courts
below essentially were to drop the proceedings
on the ground that the allegations would not
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constitute a foundation for action in terms of
Section 141 of the Act. These questions have
to be adjudicated at the trial. Whether a
person is in charge of or is responsible to the
company for conduct of business is to be
adjudicated on the basis of materials to be
placed by the parties. Sub-section (2) of
Section 141 is a deeming provision which as
noted supra operates in certain specified
circumstances. Whether the requirements for
the application of the deeming provision exist
or not is again a matter for adjudication
during trial. Similarly, whether the allegations
contained are sufficient to attract culpability is
a matter for adjudication at the trial.
9. Under Scheme of the Act, if the person
committing an offence under Section 138 of
the Act is a company, by application of Section
141 it is deemed that every person who is in
charge of and responsible to the company for
conduct of the business of the company as
well as the company are guilty of the offence.
A person who proves that the offence was
committed without his knowledge or that he
had exercised all due diligence is exempted
from becoming liable by operation of the
proviso to sub-section (1). The burden in this
regard has to be discharged by the accused.
10. The three categories of persons covered
by Section 141 are as follows:
(1) The company who committed the offence.
(2) Everyone who was in charge of and was
responsible for the business of the
company.
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(3) Any other person who is a director or a
manager or a secretary or officer of the
company with whose connivance or due
to whose neglect the company has
committed the offence.
11. Whether or not the evidence to be led
would establish the accusations is a matter for
trial. It needs no reiteration that proviso to
sub-section (1) of Section 141 enables the
accused to prove his innocence by discharging
the burden which lies on him.”
10. In N. Rangachari v. Bharat Sanchar Nigam Ltd. (2007 (5)
SCC 108), it was observed as follows:
“19 . Therefore, a person in the commercial
world having a transaction with a company is
entitled to presume that the Directors of the
company are in charge of the affairs of the
company. If any restrictions on their powers
are placed by the memorandum or articles of
the company, it is for the Directors to establish
it at the trial. It is in that context that Section
141 of the Negotiable Instruments Act provides
that when the offender is a company, every
person, who at the time when the offence was
committed was in charge of and was
responsible to the company for the conduct of
the business of the company, shall also be
deemed to be guilty of the offence along with
the company. It appears to us that an
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allegation in the complaint that the named
accused are Directors of the company itself
would usher in the element of their acting for
and on behalf of the company and of their
being in charge of the company. In Gower and
Davies’ Principles of Modern Company Law
(17th Edn.), the theory behind the idea of
identification is traced as follows:
“It is possible to find in the cases varying
formulations of the underlying principle,
and the most recent definitions suggest
that the courts are prepared today to give
the rule of attribution based on
identification a somewhat broader scope.
In the original formulation in Lennard’s
Carrying Company case (1915 AC 705
(HL) Lord Haldane based identification on
a person ‘who is really the directing mind
and will of the corporation, the very ego
and centre of the personality of the
corporation’. Recently, however, such an
approach has been castigated by the
Privy Council through Lord Hoffmann in
Meridian Global case (1995 (2) AC 500
(PC) as a misleading ‘general metaphysic
of companies’. The true question in each
case was who as a matter of construction
of the statute in question, or presumably
other rule of law, is to be regarded as the
controller of the company for the purpose
of the identification rule.”
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11. Therefore, the High Court was not justified in quashing
the proceedings so far as respondent No.1 in the first case is
concerned. The appeal is allowed.
12. In view of the order passed in Criminal Appeal arising
out of SLP (Crl.) No.6049/2005, where details have been
indicated, other appeals are deserved to be allowed. The
impugned order of the High Court in each case is set aside.
…….....................................J.
(Dr. ARIJIT PASAYAT)
………………..........................J.
(DR. MUKUNDAKAM SHARMA)
New Delhi,
August 13, 2008
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