Lavish Dewan vs Balwant Singh Gurpartap Singh

Manisha Batra, J

Prayer in this petition, filed under Section 482 of the Code of Criminal Procedure (for short 'the Code'), is for quashing of Complaint bearing No. 6817 of 2017 (Annexure P-3), titled as M/s Balwant Singh Gurpartap Singh v. V.I.R. Foods Limited and others, filed under Section 138 of the Negotiable Instruments Act, 1881 (for short 'N. I. Act') as well as for quashing of the order dated 05.01.2019 (Annexure P-4), whereby the petitioner had been summoned to face trial in the aforesaid complaint, along with all the subsequent proceedings having emanated therefrom.

Brief facts of the case relevant for the purpose of disposal of this petition are that the aforementioned complaint has been filed by the complainant-respondent against the petitioner and the co-accused on the allegations that M/s VIR Foods Limited had business dealings with the complainant regarding supply of paddy/Basmati and in discharge of its liability, the accused persons had issued cheque bearing No. 934106 dated 31.03.2017 amounting to Rs. 20 lakhs, drawn on Punjab National Bank, Phase-7, Mohali, which was signed by accused No. 3-Mohit Dewan with the knowledge of accused No. 2-Kamal Dewan and was handed over to the complainant through accused No. 3 and accused No.4/petitioner Lavish Dewan. Upon presentation, the cheque was dishonoured vide memo dated 28.06.2017 on account of "Funds Insufficient". Thereafter, the complainant issued a legal demand notice dated 21.07.2017 under Sections 138 of the Negotiable Instruments Act to the accused persons including the present petitioner. In response, the petitioner sent a reply-cum-counter notice dated 08.08.2017 specifically asserting that he had no concern with the day-to-day affairs of the accused company and was neither its Director nor employee, and requested withdrawal of the notice. However, dissatisfied with the reply given by the petitioner and non-payment of cheque amount, the respondent instituted the impugned complaint under Section 138 of the N. I. Act before the Court of learned JMIC, Amritsar, who vide order dated 05.01.2019 summoned the petitioner along with other accused to face trial for commission of the aforementioned offence. Aggrieved from the same, the petitioner has approached this Court by way of the present petition.

Learned counsel for the petitioner has argued that the impugned summoning order dated 05.01.2019 passed by the learned trial Court is not sustainable in the eyes of law as the same has been passed in a mechanical manner, without proper application of judicial mind. It is further argued that the petitioner was neither a working Director nor an employee of accused Company M/s VIR Foods Limited at the time of issuance of the cheque in question and had no role whatsoever in the day-to-day affairs or management of the Company. The petitioner had only briefly served as a non-working Director from 20.02.2013 to 20.05.2013 and had thereafter resigned from the Directorship on 20.05.2013 vide Annexure P-7 and the same stood duly reflected in the records of the Ministry of Corporate Affairs. Therefore, on the date of issuance of the cheque dated 31.03.2017, the petitioner had already ceased to have any association with the Company.

It is further argued by learned counsel for the petitioner that the complaint lacks the mandatory averments required under Section 141 of the N.

I. Act as there is no specific assertion that the petitioner was in charge of or responsible for the conduct of the business of the Company at the relevant time. The learned counsel submitted that mere holding of a small number of shares, i.e. 100 equity shares of Rs. 10/- each out of 9,90,000 equity shares of the Company, cannot fasten criminal liability upon the petitioner. It was also pointed out that the main control and management of the Company vested with the Promoter Director Kamal Kant Dewan, who held the majority shareholding. The learned counsel further argued that the cheque in question was never signed by the petitioner and that he had been falsely implicated despite the complainant being fully aware that the petitioner had no connection with the affairs of the Company. It was argued that the respondent had abused the process of law by intentionally arraying the petitioner as an accused and misleading the learned trial Court into issuing the impugned summoning order. Attention of the Court is drawn toward the order dated 18.03.2024 passed by a coordinate Bench of this Court in CRM-M-16808-2019, wherein similar complaint had been quashed the petitioner on the grounds as raised in the present petition. Hence, it is urged that the petition deserves to be allowed and the impugned complaint, summoning order as well as all the consequential proceedings having emanated therefrom are liable to be quashed qua the petitioner.

Previously, the respondent/complainant was being represented before this Court but on the date of hearing the final arguments and reserving the judgment thereof, there was no representation on behalf of the respondent.

This Court has heard the submissions made by learned counsel for the petitioner, besides going through the material placed on record.

Section 138 of the N. I. Act refers to penalty in case of dishonour of a cheque for insufficient fund in the bank account. Since, the impugned complaint has been filed against the Company and its directors alleging commission of offence under Section 138 of the N. I. Act, therefore, it is appropriate to refer to Section 141 of the N. I. Act, which deals with the offence by a Company. The same reads as follows:-

Section 141- OFFENCES BY COMPANY:-

(1) If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:

Provided that nothing contained in this sub-section shall render any person liable to punishment, if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence:

Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.

(2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

Explanation.--For the purposes of this section,--

(a) "company" means any body corporate and includes a firm or other association of individuals; and

(b) "director", in relation to a firm, means a partner in the firm."

On a bare reading of the aforementioned provision, it is clear that so far as the companies are concerned, if any offence is committed by it, then every person who is director or employee of the company is not laible. Only such person would be held liable, who, if at the time when offence was committed, was in charge and was responsible for the company for the conduct of business of the company as well as of the company. However, by way an exception to the normal rule that in cases involving criminal liability against vicarious liability, no-one is to be held liable for an act of another, a specific provision is made in the statue by way of this Section that criminal liability can be extended to others. Section 141 of the N. I. Act is an instance of specific provision, which in case an offence under Section 138 of the N. I. Act is committed by a Company, extends criminal liability for dishonour of cheque to the officers of the Company. For that purpose certain conditions, which are mentioned in Section 141 of the N. I. Act, have to be satisfied and those conditions have to be strictly complied with. In that case apart from the Company, all persons, who at the time of commission of offence were in-charge and were responsible to the Company for conduct of business of the Company, are liable for the offence. This section postulates constructive liability of the directors of the company or the business of the company.

It is well settled that what is required for a person, who is sought to be vicarously liable for the offence under Section 141 of the N. I. Act, is that when the offence was committed, he was in charge and responsible for conduct and business of the company and this should be reflected in the averments made in the complaint. Reliance in this context can be made to S.M.S. Pharmaceuticals Ltd. Vs. Neeta Bhalla, 2005(3) Apex Criminal 229, wherein a three Judges Bench of Hon'ble Supreme Court was dealing with the reference made by a two Judges Bench, for determination of the question, as to whether, for the purpose of Section 141 of N. I. Act, it was sufficient if the substance of the allegation read as a whole fulfilled the requirement of the said Section and it was not necessary to specifically state in the complaint that the person accused was in charge of or responsible for the conduct of a company or not. The second question for determination was whether a director of a company was deemed to be in charge of and responsible for the company for conduct of the business of the company and therefore, deemed to be guilty of the offence unless, he proved to the contrary and further that whether in the absence of specific averments that the signatory of the cheque and the Managing Director or Joint Managing Director was responsible to the company for conduct of its business, he could be proceeded against? The Hon'ble Apex Court observed that it was necessary to specifically aver in a complaint under Section 141 that at the time when the offence was committed, the person accused was in charge of, and responsible for the conduct of the business of the company and this averment was an essential requirement of Section 141 and had to be made in a complaint. Without this averment having been made in the complaint, the requirement of Section 141 could not be said to be satisfied.

Reliance can also be placed upon Saroj Kumar Poddar Vs. State (NCT of Delhi), 2007(1) R.A.J. 205, wherein it was observed by Hon'ble Supreme Court that the complaint must not only contain averments justifying the requirement of Section 141 of NI Act but must also show as to how and in what manner, the accused named therein was responsible for the conduct of the business of the company or otherwise responsible to it with regard to its functioning.

In N.K. Wahi Vs. Shekhar Singh, 2007(2) RCR (Criminal) 266, it was observed by Hon'ble Supreme Court that Section 141 of NI Act raised a legal fiction by reason of which a person, although not personally liable for commission of an offence, would be vicariously liable and that it was held that such vicarious liability could be inferred against a company only if the requisite statement was made in the complaint but before a person could be made vicariously liable strict compliance with the statutory requirements would be insisted. In that case, the basic averments in terms of Section 141 of NI Act were absent and hence, the complaint was ordered to be quashed by observing that to launch a prosecution against alleged directors, there must be a specific allegation in the complaint as to the part played by them in the transaction. There should be clear and unambiguous allegation, as to how the directors are in charge and responsible for the conduct of the business of the company. The description should be clear.

In Paresh P. Rajda Vs. State of Maharashtra and another (2008) 7 SCC 442, it was observed by Hon'ble Supreme Court that the entire matter would boil down to an examination of the nature of the allegations made in the complaint to determine the question as to whether, a particular director is liable to face trial due to his vicarious liability or not.

In K.K. Ahuja Vs. V.K. Arora, 2009(3) RCR (Criminal) 571, the Hon'ble Supreme Court while considering the same question summarized the position under Section 141 of the N. I. Act as under:-

The position under Section 141 of the Act can be summarised thus:

(i) If the accused is the Managing Director or a Joint Managing Director, it is not necessary to make an averment in the complaint that he is in charge of, and is responsible to the company, for the conduct of the business of the company. It is sufficient if an averment is made that the accused was the Managing Director or Joint Managing Director at the relevant time. This is because the prefix "Managing" to the word "Director" makes it clear that they were in charge of and are responsible to the company, for the conduct of the business of the company.

(ii) In the case of a Director or an officer of the company who signed the cheque on behalf of the company, there is no need to make a specific averment that he was in charge of and was responsible to the company, for the conduct of the business of the company or make any specific allegation about consent, connivance or negligence. The very fact that the dishonoured cheque was signed by him on behalf of the company, would give rise to responsibility under sub¬section (2) of Section 141.

(iii) In the case of a Director, secretary or manager [as defined in Section 2(24) of the Companies Act] or a person referred to in clauses (e) and (f) of Section 5 of the Companies Act, an averment in the complaint that he was in charge of, and was responsible to the company, for the conduct of the business of the company is necessary to bring the case under Section 141(1) of the Act. No further averment would be necessary in the complaint, though some particulars will be desirable. They can also be made liable under Section 141(2) by making necessary averments relating to consent and connivance or negligence, in the complaint, to bring the matter under that sub-section.

(iv) Other officers of a company cannot be made liable under sub-section (1) of Section 141. Other officers of a company can be made liable only under sub-section (2) of Section 141, by averring in the complaint their position and duties in the company and their role in regard to the issue and dishonour of the cheque, disclosing consent, connivance or negligence."

Reference can also be made to National Small Industry Corporation Limited vs. Harmeet Singh Paintal, 2010(2) RCR (Criminal) 122, wherein the Hon'ble Supreme Court while dealing with the same question laid down 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 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 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 complaint.

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

In A.K. Singhania vs. Gujarat State Fertilizer Company Ltd.,2013 (4) RCR (Criminal) 777, while dealing with the same, Hon'ble Supreme Court observed that it is necessary for a complainant to state in the complaint that the person accused was in charge of and responsible for the conduct of the business of the company. Although, no particular form for making such an allegation is prescribed, and it may not be necessary to reproduce the language of Section 138 of the N. I. Act, but a reading of the complaint should show that the substance of the accusation discloses that the accused person was in charge of and responsible for the conduct of the business of the company at the relevant time.

In Mannalal Chamaria vs. State of West Bengal, 2014(2) RCR (Criminal) 25, the Hon'ble Supreme Court reiterated the above observations and observed that in the averments made before it, there was no specific or even a general allegation made against the appellants. Therefore, the complaint filed against the appellants under Section 138 of the NI Act was dismissed.

In Gunmala Sales Pvt. Ltd. Vs. Anu Mehta 2015(1) SCC 103, the Hon'ble Apex Court was dealing with a question with regard to the directors of a company, who were not signatories to the cheques but were summoned as accused. It was observed that so far as the directors who are not signatories to the cheques or not managing directors or joint managing directors are concerned, it is necessary to aver in the complaint filed under Section 138 read with Section 141 of the NI Act that at the relevant time, when the offence was committed, such directors were in charge of and were responsible for the conduct of the business of the company. This was a basic requirement and there was no deemed liability of the directors. It was further observed that when a petition is filed for quashing the process, in a given case, on an overall reading of the complaint, if the basic averments are found to be sufficient, the complaint must proceed against the directors, but if there is bald averment, the High Court can quash the process, if the director makes out a case that making him stand a trial would be an abuse of process of the Court.

Reference can also be made to the judgment dated 15.03.2024 passed by the Hon'ble Supreme Court in Criminal Appeal No. 1577-1578 of 2024 arising out of Special Leave Petition (criminal) No. 12390-12391 of 2022 decided on 15.03.2024 titled as Susela Padmavathy Amma vs. M/s Bharti Airtel Limited, wherein it was observed that simply because a person is a director of a company, it does not necessarily mean that he fulfills the requirement so as to make him liable, unless at the material time he was in charge of the company and was responsible for conduct of its business.

On applying the above discussed position of law to the peculiar facts and circumstances of the present case and on a careful reading of the impugned complaint, it is revealed that except for making vague and omnibus allegations against the petitioner, there is no specific averment demonstrating that at the relevant time he was in charge of or responsible for the conduct and day-to-day affairs of accused Company-M/s VIR Foods Limited, which is a mandatory requirement for fastening vicarious liability under Section 141 of the N. I. Act. The records placed before this Court clearly show that the petitioner had merely remained a non-working Director of the Company for a brief period from 20.02.2013 to 20.05.2013 and had resigned much prior to the issuance of the cheque in question dated 31.03.2017. The resignation of the petitioner stood duly reflected in the records of the Ministry of Corporate Affairs and there is nothing on record to suggest that the petitioner continued to participate in the affairs or management of the Company thereafter. It is further evident that the cheque in question had not been signed by the petitioner and the complaint itself attributes issuance and signing of the cheque to co-accused Mohit Dewan with the knowledge of Kamal Dewan. Mere holding of 100 equity shares out of the total shareholding of the Company, by itself, cannot attract criminal liability under Section 141 of the N. I. Act. The allegations made in the complaint are conspicuously silent as to the precise role played by the petitioner in the transaction in question and do not disclose as to how and in what manner the petitioner was responsible for the conduct of the business of the Company at the relevant time. The legal position on the issue is no longer res integra. The Hon'ble Supreme Court in the authorities cited above has consistently held that vicarious liability under Section 141 of the N. I. Act cannot be inferred merely because a person is a Director of the Company and that specific averments showing active role and responsibility in the conduct of the business of the Company are sine qua non for prosecution.

In the present case, the complaint lacks the foundational pleadings required under Section 141 of the N. I. Act and continuation of criminal proceedings against the petitioner, despite his resignation years prior to the issuance of the cheque and absence of any material indicating his involvement in the affairs of the Company, would amount to abuse of the process of law. The learned trial Court, while passing the impugned summoning order dated 05.01.2019, failed to appreciate these material aspects and mechanically summoned the petitioner without recording satisfaction regarding the statutory requirements necessary to attract vicarious liability. This Court can also not lose sight of the fact that on similar grounds, a coordinate Bench of this Court had quashed a similar complaint qua the petitioner. Keeping in view the discussion as made above, this Court is of the considered opinion that continuation of proceedings under the impugned complaint against the present petitioner would amount to abuse of process of law. Hence, the interference by this Court in exercise of powers under Section 528 of BNSS is called for. Consequently, the present petition is allowed and the impugned complaint bearing No. 6817 of 2017 titled as M/s Balwant Singh Gurpartap Singh v. V.I.R. Foods Limited and others, filed under Section 138 of the N. I. Act, the summoning order dated 05.01.2019 passed by the learned JMIC, Amritsar, and all subsequent proceedings arising therefrom, are hereby quashed qua the present petitioner.