AI Structured Summary
Not yet generated for this judgment
Judgment
C. Nagappan, J.—The petitioner in Crl. O.Ps. 16531 and 16532 of 1999 is Ashok Malhotra and the petitioner in Crl. O.Ps. 16533 and
16534 of 1999 is S.L. Kumar, who are accused Nos. 8 and 6 in CC No. 9595 and 9596 of 1998, respectively, on the file of VII Metropolitan
Magistrate, George Town, Chennai, have filed these petitions for quashing the proceedings, insofar as they are concerned, in both the calendar
cases.
The petitioner, Ashok Malhotra, in his petitions has stated thus : He is a business executive based in Delhi and he is 8th accused in both the
cases and no summons or copy of the complaints have been served on him. He was a non-executive and non-functional director on the Board of
the first accused company between 1992 and 1994. He had not attended the day-to-day functions of the company, since he was only a non-
executive director and he neither had knowledge, nor was he concerned with the day-to-day affairs of the company. He ceased to be a director of
the company with effect from 19.8.1994 which is evident from the letter of the company, dated 20.8.1994. He cannot be made responsible for the
affairs of the company as he was not a director at the relevant time. The inclusion of his name in the complaints is mala fide. Hence, the
proceedings in both the cases, insofar as he is concerned, are liable to be quashed.
The petitioner, S.L. Kumar, in his petitions, has stated as follows : He is a practising advocate in the High Court of Delhi and the Supreme Court
of India, and he is 6th accused in both the cases and no summons or copies of complaints have been served on him. He was a non-executive and
non-functional director on the Board of the first accused company between 1992 and 1994. He neither had knowledge nor was he concerned with
the day-to-day affairs of the company. He never attended the Board meetings of the company except one in 1992 and, due to this, the company
had, by its letter dated 23.11.1994, informed him that he had ceased to be the director of the company and further informed him that Form 32 had
been filed with the Registrar of Companies for the cessation of directorship. In the annual report for the year 1994-95, the fact that the petitioner
ceased to be the director from 9.11.1994 has also been mentioned. Hence, he had no connection with the company from 9.11.1994. He cannot
be made responsible, since he was not a director at the relevant time. The inclusion of his name in the complaints is mala fide. Hence, the
proceedings in both the cases, insofar as he is concerned, are liable to be quashed.
Heard the learned counsel for the petitioners and the respondent.
The respondent herein filed two private complaints, dated 15.10.1998 and 26.6.1998, against M/s Harvest Financial Limited and its directors
u/s 138 of Negotiable Instruments Act, which were taken on file in C.C. Nos. 9595 and 9596 of 1998, respectively, by the learned VII
Metropolitan Magistrate, George Town, Chennai. The complaint in C.C. No. 9595 of 1998 pertains to dishonour of three cheques, dated
1.9.1998, each for the value of Rs. 40,000 totalling to Rs. 1,20,000. The complaint of C.C. No. 9596 of 1998 pertains to dishonour of one
cheque for Rs. 40,000 dated 28.3.1998.
The case of the petitioner, Ashok Malhotra, is that he ceased to be the director of the first accused company with effect from 19.8.1994 as
evident from the letter of the company, dated 20.8.1994. In the typed set filed by him, he has shown copies of three letters. In the letter, dated
15.6.1994, he had written to the Board of directors of the first accused company that he was liable to company and due to his pre-occupation
with other projects, he was not in a position to devote time for the company and, therefore, he would not like to seek re-election. In the letter,
dated 12.7.1994, the managing director of the company has written to the petitioner, Ashok Malhotra, that he was liable for retirement by rotation
in the forthcoming annual general meeting to be held on 19.8.1994 and he expressed his thanks for his services. In the letter, dated 20.8.1994, the
first accused company had written that re-election of the petitioner as a director had not taken place at the annual general meeting held on
19.8.1994. In the typed set, copy of fourth annual report 1994-95 of the first accused company is also shown. In that, Chairman and Board of
directors of the first accused company are mentioned. The petitioner, Ashok Malhotra, is not shown as a director in the Board.
The case of the petitioner, S.L. Kumar, is that he ceased to be a director of the first accused company from 9.11.1994. In the typed set filed by
him, copy of letter, dated 23.11.1994, sent by the company to him is shown, and, in that letter, the Chairman of the company had written to him
that since S.L. Kumar has not attended Board meetings, the Board considered that his office had become vacant and, accordingly, they have filed
Form 32 for cessation of this directorship from the company. A copy of fourth annual report, 1994-95, of the first accused company is also shown
in the typed set and, in that, the Chairman and Board of directors are mentioned. Petitioner, S.L. Kumar, was shown as a director up to
9.11.1994 in the Board and, in column No. 9, it is also mentioned that S.L. Kumar ceased to be a director of the company from 9.11.1994.
The learned counsel for the petitioners contended that both the petitioners were directors of the first accused company between 1992-1994 and
petitioner Ashok Malhotra retired at the annual general meeting of the company on 19.8.1994 and did not seek re-election as evidenced by the
letters filed in the typed set and, hence, his name also does not find a place in the Board of directors published in the fourth annual report of the
company. The learned counsel further contended that petitioner S.L. Kumar ceased to be a director of the first accused company from 9.11.1994
as evident from the letter of the company and the fourth annual report 1994-95 of the company. In support of his above contention, he further
produced certified true copy of annual return of the first accused company made upto 30.9.1995 issued by the Registrar of Companies, Bombay.
In that certified copy, the names of Chairman and directors of the first accused company are mentioned. In it, the name of Ashok Malhotra does
not find a place as a director of the company and the date of ceasing as director is mentioned as 9.11.1994. The learned counsel for the petitioners
contended that the certified copy issued by Registrar of Companies, Bombay, is a public document and coupled with the documents filed int he
typed set, clearly shows that both the petitioners Ashok Malhotra and S.L. Kumar ceased to be the directors from 19.8.1994 and 9.11.1994,
respectively, and they did not function as directors either on the date when cheques in both the cases were issued or when the cause of action
arose for non-payment of those cheque amounts and, hence, the proceedings u/s 138 of the Negotiable Instruments Act in both the cases are not
valid in law insofar as the petitioners are concerned, and he relies on the judgment of the apex court in K.P.G. Nair v. Jindal Menthol India Ltd.
(2001) 2 Comp LJ 258 (SC). The apex court in the above decision held that a person other than the company can be proceeded against under
Sections 138 and 141 of Negotiable Instruments Act, only if that person was in-charge of and was responsible to the company for the conduct of
its business.
The learned counsel for the respondent contended that the complaints contained allegations that the petitioners were directors in-charge and
responsible for the conduct of the business of the first accused company, and are guilty of the offences and the question as to whether the
petitioners were directors of the company on the relevant date could only be gone into in the trial of the cases and he mainly relied on the decision
of this court in Karumuthu C. Sundaram and 5 others v. Indian Bank Merchant Banking Services Ltd. (2001) 2 CTC 209. In the facts of that
case, this court came to the conclusion that the allegations as contained in the complaint prima facie made out a case against the petitioners therein,
that they were in-charge and responsible for the affairs of the company and offences were committed with their consent and connivance, and in
those circumstances, it was held that the question whether they were actually in-charge [of] and responsible for conduct of business of the
company could be determined only after evidence was let in on that behalf by the parties. That decision will not apply to the facts of the present
cases. As already seen the respondent herein, who is the complainant in both the cases, has merely averred that the accused Nos. 1 to 12 being
the directors in-charge of and responsible for the conduct of the business of the first accused company are guilty of the offences and besides this,
nothing else is stated as to how the said directors were in-charge and responsible to the company in the conduct of its business. On the other hand,
both the petitioners have shown that they ceased to be the directors of the first accused company in the year 1994, long before the issuance of
cheques which are the subject matter of the complaints. This court in the decisions in Ashok Muthanna v. Wipro Finance Ltd. (2001) 2 CTC 78,
M. Chockalingam v. Sundaram Finance Service Ltd., (2000) 1 LW (Crl.) 16 and Ashok Muthanna and Ors. v. Escorts Finance Ltd. (2001) 2 Cri
602 have held that the persons who ceased to be the directors of the company on the relevant date cannot be proceeded against for the offence
u/s 138 of the Negotiable Instruments Act alleged against the company and quashed the proceedings of the cases.
Certified copy of the annual return of the first accused company issued by the Registrar of Companies is a public document, and it, coupled
with the documents filed in the typed set by the petitioners, can be taken into consideration by this court and they show that the petitioners have
ceased to be directors of the first accused company in the year 1994 itself. The cheques pertaining to the cases were drawn in the year 1998 and,
during that period, the petitioners did not function as directors of the first accused company and they were also not in-charge of the responsible for
the affairs of the company when the cause of action arose for the non-payment of the cheque amounts. Hence, the proceedings in both the cases,
as against the petitioners, are liable to be quashed. In view of the above conclusion, the other contentions raised by the learned counsel for the
petitioners need not be gone into.
In the result, all the petitions are allowed, and the proceedings in C.C. Nos. 9595 and 9596 of 1998 on the file of VII Metropolitan
Magistrate, George Town, Chennai, are quashed insofar as the petitioners are concerned. Connected Crl. M.P. Nos. 8072, 8074, 8076 and
8078 of 1999 are closed.