Arjun Baljee vs State Of Rajasthan

Farjand Ali, J

The instant criminal misc. petition under Section 482 of the Cr.P.C. has been preferred by the petitioner being aggrieved by the order dated 24.01.2014 passed by the Mahanagar Magistrate (NI Act No. 9, Jodhpur) in Criminal Complaint No. 331/2024 present No. 8144/2015 and the criminal complaint qua the petitioner filed by the respondent No.2 before the Court of Special Judicial Magistrate NI Act Cases No.9 presently pending before Mahanagar Magistrate No.1, Jodhpur City under Section 138 of NI Act,1881.

Briefly stating the facts of the case are that the petitioner, an erstwhile Director of Peppermint Hospitality India Pvt. Ltd., has approached this Court aggrieved by the order dated 24.01.2014 passed by the Learned Magistrate, whereby cognizance was taken under Section 138 of the NI Act and summons were issued against him. The petitioner had resigned from the company on 16.11.2021, as evidenced by Form DIR-12 filed with the Registrar of Companies. The complaint submitted by the respondent-complainant alleges that the company executed a lease deed dated 21.07.2010 for certain premises and issued Cheque No. 676527 dated 01.06.2013 for Rs. 87,50,738/- towards alleged outstanding lease rent, which was dishonoured due to insufficiency of funds in the account of company.

Heard learned counsels for the parties and learned Public Prosecutor as well as perused the material available on record.

Upon a careful perusal of the record and the submissions made by the learned counsel for the petitioner, this Court finds merit in the contention that the impugned criminal complaint and the cognizance order dated 24.01.2014, insofar as they pertain to the petitioner, are not sustainable in the eyes of law. It is an admitted fact position that the petitioner was not arrayed as an accused in the original complaint under Section 138 of the NI Act and that the said complaint was filed solely against the company, M/s Peppermint Hospitality India Pvt. Ltd. It is further evident that the cheque in question was issued from the bank account of the company and not from the personal account of the petitioner. As such, the petitioner cannot be regarded as the “drawer” of the cheque within the meaning of Section 7 read with Section 138 of the NI Act.

The legal position, as laid down by Hon’ble the Supreme Court in Aneeta Hada v. Godfather Travels and Tours Pvt. Ltd. reported in (2012) 5 SCC 661, is that in a prosecution under Section 138 read with Section 141 of the NI Act, it is imperative to arraign the company, the principal offender as an accused. It was also held that vicarious liability of a person under Section 141 can arise only when the company is prosecuted and that such person must be specifically impleaded as an accused.

This Court also takes note of the fact that Section 141(1) of the NI Act mandates that the person sought to be made vicariously liable must be in charge of and responsible to the company for the conduct of its business at the relevant time. Section 141(2) further requires proof that the offence was committed with the consent or connivance of, or is attributable to the negligence of, such person. However, these statutory safeguards cannot be invoked or tested unless the person is first arrained as an accused in the complaint and he is given opportunity to contest the case. Moreover, the petitioner has placed on record Form DIR-12 reflecting his resignation as Director of the company on 16.11.2021, which remains undisputed. The complaint and the process issued predate his resignation, but crucially, no attempt was made to implead him in his personal or official capacity in the original proceedings. This procedural lapse strikes at the root of maintainability of the criminal complaint. In light of the expiry of the limitation period prescribed under Sections 138 and 142 of the N.I. Act, the petitioner cannot now be impleaded as an accused at this belated stage. Even a notice mandated under the law before launching the prosecution was not served upon him.

From a bare perusal of the cheque in question, it is evident that the petitioner has merely appended his signature as an authorised signatory on behalf of the company and not in his individual capacity as the “drawer” or as a Director operating in his personal domain. A scrutiny of the complaint further reveals a conspicuous absence of foundational or categorical averments attributing any direct role, act, or omission on the part of the petitioner either in the issuance of the cheque or in the conduct of the company’s business affairs at the material time. This omission is fatal in the context of fastening vicarious liability under Section 141 of the NI Act, which mandates specific allegations demonstrating that the person sought to be prosecuted was in charge of and responsible for the conduct of the business of the company at the time of commission of the offence. The complaint is bereft of any such allegations against the petitioner. Additionally, a closer inspection of the cheque discloses that it bears the signatures of two individuals and was drawn on the account maintained in the name of “Peppermint Hospitality India Pvt. Ltd.”. The nomenclature explicitly inscribed on the face of the cheque unmistakably indicates that it was issued not in an individual capacity but by authorised signatories for and on behalf of the corporate entity. The presence of dual signatures on the cheque further reinforces that the instrument was executed in official capacity and in representation of the company, thereby negating any inference of personal liability. Notably, there is complete silence in the pleadings and record as to the identity of the second signatory. Neither the complainant nor the company has elucidated or clarified the authorship of the second signature, which casts a further shadow on the prosecutorial clarity and evidentiary robustness required to sustain criminal liability against the petitioner. In absence of specific attribution or imputation of culpable conduct and in view of the procedural and substantive infirmities delineated above, the invocation of criminal process against the petitioner is manifestly unwarranted and amounts to an abuse of the process of law.

8.It is also imperative to underscore that in a prosecution under Section 138 of the Negotiable Instruments Act, the accrual of a legally sustainable cause of action is not instantaneous, but rather contingent upon the culmination of a specific sequence of statutory events. These essential preconditions are as follows: (a) presentation of the cheque to the bank within the period of 3 months from date on which it was drawn or within its validity period, whichever is earlier ; (b) dishonour of the cheque either on account of insufficiency of funds or because it exceeds the arrangement made with the drawer's bank; (c) issuance of a statutory notice in writing by the payee or holder in due course to the drawer, demanding payment of the cheque amount within thirty days from the date of receipt of information regarding such dishonour from the bank; and (d) failure of the drawer to make payment of the cheque amount to the payee within fifteen days of receiving the notice. Only upon the confluence of these events does the cause of action under Section 138 of the NI Act crystallise.   In the facts of the present case, the cheque in question was dishonoured on 04.06.2023, and the complainant received intimation of the same from the bank on 05.06.2023. Thus, by necessary implication, the chain of events giving rise to a cause of action could not have commenced prior to 05.06.2023. Significantly, it stands undisputed on record that the petitioner had already ceased to be a Director of the company as of 16.11.2021, much prior to the occurrence of any of these determinative events. Therefore, on the date of accrual of cause of action, the petitioner was neither in control nor in management of the affairs of the company and could not, by any stretch of legal reasoning, be imputed with constructive or vicarious liability. The very substratum for proceeding against the petitioner is thus legally extinguished. The absence of any foundational material or statutory compliance requisite for his prosecution under Sections 138 and 141 of the Act renders the criminal complaint wholly misconceived insofar as it concerns the petitioner. In this legal context, there exists no tenable ground for continuation of proceedings against him, and the attempt to prosecute the petitioner at this belated juncture appears to be a clear misuse of the criminal process.

Merely stating that the petitioner was a Director or had signed the cheque, without any further particulars, does not suffice to invoke criminal liability. It is a well-settled proposition of law, as held by Hon’ble the Supreme Court in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, AIR 2005 SC 3512, that for the purpose of Section 141, it is not sufficient to merely state that the accused was a Director of the company, but specific averments must be made to show that the accused was in charge of and responsible for the conduct of the company’s business at the relevant time. In the absence of any such allegation, the complaint as filed does not disclose any cause of action against the petitioner. This renders the very initiation of criminal proceedings against him unsustainable in law and amounts to an abuse of the process of court. It further bears emphasis that the learned Magistrate, while taking cognizance of the matter, did not appear to have before him the complete and relevant material necessary for a judicious determination of the petitioner’s liability. A careful perusal of the cause title and the averments contained in the complaint ought to have prompted the Magistrate to verify whether the petitioner was impleaded in a legally tenable capacity—as a signatory or as a Director of the company—and whether the complaint contained categorical assertions that he was in charge of and responsible for the conduct of the company's business at the relevant time. In the absence of such judicial scrutiny, the cognizance appears to have been taken in a mechanical and perfunctory manner. Furthermore, the record unambiguously reflects that the petitioner had tendered his resignation from the directorship well before the accrual of the cause of action in favour of the complainant. In such circumstances, the exercise of inherent powers under Section 482 Cr.P.C. becomes not only justified but essential to prevent the perpetuation of manifest injustice and the misuse of the coercive machinery of criminal law.

In view of the above discussion, the instant petition deserves to be and is hereby allowed. The order dated 24.01.2014 passed by the Mahanagar Magistrate (NI Act No. 9, Jodhpur) in Criminal Complaint No. 331/2024 present No. 8144/2015 and the criminal complaint qua the petitioner filed by the respondent No.2 before the Court of Special Judicial Magistrate NI Act Cases No.9 presently pending before Mahanagar Magistrate No.1, Jodhpur City under Section 138 of NI Act,1881 are quashed and set aside.

Stay petition stands disposed of.