Dr. Ramesh Babulal Baheti vs M.P. State Industrial Development Corporation Limited

R.C. Mishra, J.—This common order shall govern disposal of both the petitions preferred. u/s 482 of the Code of Criminal Procedure (hereinafter referred to as "the Code") for quashing of the proceedings pending before ACJM-cum-Special Magistrate (for MPSIDC cases). Bhopal, details of which may be summarised as under:

In these cases, cognizance of the offence punishable u/s 138 of the Negotiable Instruments Act, 1881 (hereinafter referred to as "the Act") was taken against the petitioner, the then Executive Chairman of STI Products India Limited. Bangalore, a company registered under the Companies Act, 1956 and its two Directors viz.. Dr. P.N. Mehra and K.N. Garg, upon complaints made on behalf of the respondent viz. Madhya Pradesh State Industrial Development Corporation (for brevity ''MPSIDC''), a Government Company registered under the Companies Act.

Common averments made in the complaints may be summarised as under:-

The petitioner, being the Executive Chairman, was the in-charge of and responsible for the conduct of the business of the company that has taken financial assistance to the tune of Rs. 8 crores in the name of Inter-Corporate Deposits (ICDs), to be matured on 9-5-2011. As per the undertaking given for or on behalf of the borrower company, 12 post-dated cheques were issued for repayment of the loan together with interest as per terms of the agreement. However, the cheques were dishonoured by the Bank on the ground of "Exceed Arrangement". Thereafter, despite service of respective demand notice, the amount covered by the corresponding cheques/cheque was not paid by the company.

Learned Senior Counsel appearing on behalf of the petitioner has strenuously contended that his prosecution is liable to be quashed as an abuse of the process of the Court on the following grounds:-

(i) The order taking cognizance without examining the officer authorised by the complainant was bad in law as the exemption under clause (a) of the proviso to Section 200 of the Code of Criminal Procedure was applicable to the complaint concerning any offence under the General Law and not an offence under a special statute like the NI Act.

(ii) In absence of specific averments explaining as to how the petitioner was in-charge of day-to-day business of the company and responsible for conduct of its business, the requirements of Section 141 of the Act were not satisfied.

(iii) No legally enforceable debt or liability was in existence as the cheques in question were issued against the ICDs, which had already been repudiated in the year 1999.

(iv) The company was not arraigned as one of the accused in the complaint, bearing No. 2056/04 and called in question in M.Cr.C. No. 10832/11.

In response, learned Counsel for the complainant/respondent has submitted that being the Executive Chairman, the petitioner was prima facie in charge of and responsible for the conduct of the business of the company. Inviting attention to the fact that in Complaint Case No. 2056/04, an application to implead the Company as an additional accused has already been moved before the Trial Magistrate, he has further urged that no interference with a legitimate prosecution is called for under the inherent powers on any other grounds raised by the petitioner.

Ground No. (i) (supra), is apparently misconceived in view of the decision of the Apex Court in National Small Industries Corporation Ltd. Vs. State (NCT of Delhi) and Others, holding that every employee of Government Company is "Public Servant" entitled to exemption under clause (a) of the proviso to Section 200 of the Code with regard to a complaint relating to the offence u/s 138 of the Act also.

Adverting to ground No. (ii) (supra), learned Senior Counsel has contended that mere averment that the petitioner had the knowledge about functioning of the Company was inadequate in the eyes of law to make him vicariously liable for the offence. To buttress the contention, he has placed reliance on the following observations made by the Supreme Court in National Small Industries Corporation Ltd. Vs. Harmeet Singh Paintal 2010 AIR SCW 1508:-

But if the accused is not one of the persons who falls under the category of ''persons who are responsible to the company for the conduct of the business of the company'' then merely by-stating that ''he was in-charge of the business of the company'' or by stating that ''he was in-charge of the day-to-day management of the company'' or by stating that ''he was in-charge of, and was responsible to the company for the conduct of the business of the company'', he cannot be made vicariously liable u/s 141 (1) of the Act. To put it clear that for making a person liable u/s 141 (2), the mechanical repetition of the requirements u/s 141 (1) will be of no assistance, but there should be necessary averments in the complaint as to how and in what manner the accused was guilty of consent and connivance or negligence and therefore, responsible under sub-section (2) of Section 141 of the Act.

A bare perusal of the precedent would reveal that it is based on a three-Judge Bench decision in S.M.S. Pharmaceuticals Ltd. Vs. Neeta Bhalla and Another, wherein the nature and extent of the liability u/s 141 of the Act was explained in the following terms:-

The liability u/s 141 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.

On a conspectus of the subsequent decision on the subject, the Supreme Court in National Small Industries Corporation Ltd.''s (supra), case culled out the following principles:-

(i) The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every Director knows about the transaction.

(ii) Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who. at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company.

(iii) Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 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 offence committed by the company along with averments in the petition containing that the accused were in charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with.

(iv) Vicarious liability on the part of a person must be pleaded and proved and not inferred.

(v) If the accused is a Managing Director or a Joint Managing Director then it is not necessary to make specific averment in the complaint and by virtue of their position they are liable to be proceeded with.

(vi) If the accused is a Director or an officer of a company who signed the cheques on behalf of the company then also it is not necessary to make specific averment in the complaint.

(vii) The persons sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant lime. This has to be averred as a fact as there is no deemed liability of a Director in such cases.

Coming to the fact''s of the case, it may be observed that the petitioner has been prosecuted in the capacity of the then Executive Chairman of the Company.

A conjoint reading of Sections 5 and 291 of the Companies Act, 1956 with the definitions in Clauses (24), (26), (30), (31), (45) of Section 2 of that Act would show that the following persons are considered to be the persons who are responsible to the company for the conduct of the business of the Company:-

(a) the Managing Director (s);

(b) the whole-time Director (s);

(c) the Manager;

(d) the Secretary;

(e) any person in accordance with whose directions or instructions the Board of Directors of the company is accustomed to act:

(f) any person charged by the Hoard with the responsibility of complying with that provision (and who has given his consent in that behalf to the Hoard); and

(g) where any company does not have any of the officers specified in clauses (a) to (c), any Director or Directors who may be specified by the Hoard in this behalf or where no Director is so specified, all the Directors.

(Emphasis supplied)

By reason of the legal fiction introduced by Section 141 of the Act, a person, though, not personally liable for commission of an offence u/s 138 would be vicariously liable therefor. However, it is not necessary to reproduce the language of Section 141 verbatim in the complaint since the complaint is required to be read as a whole. If the substance of the allegations made in the complaint fulfills the requirements of Section 141 of the Act. the compliant has to proceed and is required to be tried with. In construing a complaint, a hyper technical approach should not be adopted so as to quash the same. The laudable object of preventing bouncing of cheques and sustaining the credibility of commercial transactions resulting in enactment of Sections 138 and 141 has to be borne in mind. These provisions create a statutory presumption of dishonesty, exposing a person to criminal liability if payment is not made within the statutory period even after issue of notice. It is also true that the power of quashing is required to be exercised very sparingly and where, read as a whole, factual foundation for the offence has been laid in the complaint, it should not be quashed [ Monaben Ketanbhai Shah and Another Vs. State of Gujarat and Others, relied on). Incidentally, these observations were quoted with approval in Paragraph 17 of the judgment in S. M.S. Pharmaceutical''s case (supra).

Re-affirming the ratio in Monaben''s case, the Apex Court in N. Rangachari Vs. Bharat Sanchar Nigam Ltd., has laid down the following guidelines:-

It is not proper to split hairs in reading the complaint so as to come to a conclusion that the allegations as a whole are not sufficient to show that at the relevant point of time the appellant and the other are not alleged to be persons in-charge of the affairs of the company.

In Rangachari case (supra), rejecting the contention that being a nominated Chairman and holding an honorary post in the Company, the appellant was never assigned with any of the Company''s financial or other business activities, the Court observed as under:-

A person normally having business or commercial dealings with a company, would satisfy himself about its creditworthiness and reliability by looking at its promoters and Board of Directors and the nature and extent of its business and its memorandum or articles of association. Other than that, he may not be aware of the arrangements within the company in regard to its management, daily routine, etc. Therefore, when a cheque issued to him by the company is dishonoured, he is expected only to be aware generally of who are in-charge of the affairs of the company. It is not reasonable to expect him to know whether the person who signed the cheque was instructed to do so or whether he has been deprived of his authority to do so when he actually signed the cheque. Those are matters peculiarly within the knowledge of the company and those in charge of it. So, all that a payee of a cheque that is dishonoured can be expected to allege is that the persons named in the complaint are in-charge of its affairs.

A bare perusal of the complaints would reveal that in paragraph (2) thereof, it was specifically pleaded that being the Chairman of the Company, the petitioner was aware of every act as well as of the transaction of the company. As pointed already, cheques for a total sum of Rs. 8 crores were issued in favour of the Government Company for and on behalf of STI Products India Limited, for repayment of the outstanding amounts against the Inter Company Loan termed as ICDs and therefore, the petitioner as the Executive Chairman could not plead ignorance of entire transaction [ Everest Advertising Pvt. Ltd. Vs. State, Govt. of NCT of Delhi and Others, Under these circumstances, as opined in Paresh P. Rajda Vs. State of Maharashtra and Another, it would be inappropriate to quash proceedings against the petitioner.

While pointing out that proviso to Section 141 of the Act clearly provides that if the accused is able to prove to the satisfaction of the Court that the offence was committed without his knowledge or he had exercised due diligence to prevent the commission of such offence, he will not be liable to punishment, the Supreme Court in a recent decision rendered in Rallis India Ltd. Vs. Poduru Vidya Bhusan and Others, has proceeded to struck a note of caution:-

....., we also take this opportunity to strike a cautionary note with regard to the manner in which the High Courts ought to exercise their power to quash criminal proceedings when such proceeding is related to offences committed by companies. The world of commercial transactions contains numerous unique intricacies, many of which are yet to be statutorily regulated. More particularly, the principle laid down in Section 141 of the Act (which is in pari materia with identical sections in other Acts like the Food Safety and Standards Act, the erstwhile Prevention of Food Adulteration Act, etc.) is susceptible to abuse by unscrupulous companies to the detriment of unsuspecting third parties.

Accordingly, the Ground No. (ii) has not merit or substance.

Turning to the Ground No. (iii), it may be observed that the offence is a strict liability offence, which excludes the defence other than permissible as the conditions set out in Section 138 of the Act. Moreover, Section 139 of the Act creates a presumption, in favour of the holder of the dishonoured cheque that it was issued in discharge of a "legally recoverable debt" or "liability'' [ Rangappa Vs. Sri Mohan, referred to]. In this view of the matter, the plea that the cheques were issued against the ICDs, which had already been repudiated in the year 1999, is not of much relevance for the relief sought for as the question whether a person is in charge of and responsible for the conduct of the business of the Company, is to be adjudged during the trial on the basis of the materials to be placed on record by the parties.

This brings me to the last ground that relates to M.Cr.C. No. 10832/ 11. According to learned Senior Counsel, the petition deserves to be allowed in the light of a recent decision rendered by a three-Judge Bench of the Supreme Court in Aneeta Hada Vs. Godfather Travels and Tours Pvt. Ltd., . holding that for launching a prosecution against the Directors of a Company u/s 138 read with Section 141 of the Act, arraigning of the company as an accused is a condition precedent.

Per contra, learned Counsel for the respondent has pointed out that the application for joining the company as one of the accused would still be maintainable in view of the well settled position of law, as propounded in M/s. Bilakchand Gyanchand Co. Vs. A. Chinnaswami, and affirmed in Rajneesh Aggarwal Vs. Amit J. Bhalla, that demand notice u/s 138 sent to the Director of the Company, who had signed the cheque on its behalf, amounts to notice to the Company itself.

However, as explained in Aneeta Hada''s case (supra). Section 141 of the Act makes Directors of the Company vicariously liable for the offence u/s 138. in a case where cheque in question is issued for and on its behalf. Accordingly, it was obligatory on the part of the complainant to comply with the statutory requirement by impleading the Company as an accused.

Faced with such a situation, learned Counsel for the complainant/respondent stales that liberty may be granted to file another compliant on the same set of allegations against the Company, its Chairman viz., the petitioner and the Directors, in the light of the decision in Aneeta Hada''s case (supra), whereby a contrary view taken in Sheoratan Agarwal and Another Vs. State of Madhya Pradesh, and followed in State of Punjab Vs. Kasturi Lal and Others, was overruled. However, it would not be desirable to make any observation in respect thereof.

Subject-matter of M.Cr.C. No. 10703/11 is the complaint that, in turn. relates to cheques covering a huge amount of public money. Section 143 (3) of the Act contains legislative mandate to expedite the trial for cheque dishonour and to conclude the same within 6 months from the date of filing of complaint. In the light of the petitioner''s strategy to cause unnecessary delay, the petition is liable to be dismissed with exemplary costs in view of the mandate contained in Section 143 (3) of the Act and guidelines laid down in Mary Angel and Others Vs. State of Tamil Nadu,

In the result,-

(i) The petition, registered as M.Cr.C. No. 10703/11, is dismissed with a cost quantified at Rs. 2,000/-. As on obvious consequence. the interim stay order dated 1-10-2011 stands vacated.

(ii) The petition, numbered as M.Cr.C. No. 10832/11, is allowed and the proceedings pending as Criminal (Complaint) Case No. 2056/04 (above) are hereby quashed.

A copy of this order be retained in the connected M.Cr.C.