M. Arumugam and Others vs Upasana Finance Ltd.

B. Akbar Basha Khadiri, J.—All these criminal original petitions have arisen in this way.

The respondent herein, a Finance Company, has preferred private complaints u/s 200 of the Criminal Procedure Code, 1973, against M/s.

Sivanandha Steels Ltd., its Executive Director R.P. Krishnamurthi, Managing Director Venkatesan, Directors Pitty Thiagarayam Chetty, M.

Arumugam, A.R. Varadharajelu and Munuswamy alleging that they had committed an offence punishable u/s 138 of the Negotiable Instruments

Act, 1881. According to the respondent herein, the complainant, on behalf of the first respondent-Company, the Managing Director, Executive

Director and the rest of the other Directors entered into hire-purchase agreements with the complainant and availed of finance facilities. In part

payment of the liability the second accused in his capacity as the Executive Director issued 12 cheques for and on behalf of the first accused

Company during the period between January 25, 1998 and July 4, 1998. The cheques were returned by the Bank with an endorsement that the

cheque amount exceeds arrangement. The dishonour of the cheques was intimated to the complainant by the banker''s memo dated July 13, 1998,

July 14, 1998, July 15, 1998 and July 16, 1998. The respondent herein, complainant, sent a statutory notice to the accused on July 17, 1998,

calling upon them to pay the amount. The accused received the notice on July 29, 1998, but they had not made any payment. According to the

respondent herein, complainant, by virtue of the restriction imposed u/s 219 of the Criminal Procedure Code, 1973, he is restricting each of his

complaints for three cheques only. Accordingly, C.C. No. 2725 of 1999, has been filed with respect to cheques issued by the accused on March

4, 1998, February 25, 1998 and January 25, 1998; C.C. No. 2730 of 1999 has been filed with respect to cheques dated February 4, 1998,

March 25, 1998 and April 4, 1998; C.C. No, 6894 of 1998 has been filed with respect to cheques dated June 4, 1998. July 4, 1998 and May

25, 1998; C.C. No. 2727 of 1998 has been filed with respect to cheques dated June 25, 1998, April 25, 1998 and May 4, 1998. Now, a few of

the Directors, namely, accused Nos. 5 to 11 have come forward with the instant criminal original petitions to quash the respective proceeding on

the ground that there are no averments in the complaints that the petitioners are responsible for the day-to-day affairs of the Company. According

to them, they have not signed the cheques and that they are not vicariously liable unless and until the complaints show the specific overt act

committed by them.

Notice of motion was ordered. The respondent entered appearance.

Heard both the sides. It. is not in dispute that the petitioners herein are the Directors of the first accused-Company. In the light of the decisions

rendered by the Supreme Court in Sheoratan Agarwal and Another Vs. State of Madhya Pradesh, and Anil Hada v. Indian Acrylic Ltd., X (1999)

SLT 1=IV (1999) CCR 285= (2000) 1 LW (Crl.) 423, it is settled that by virtue of the fiction envisaged in Section 141 of the Negotiable

Instruments Act, not only the Company, but every one who was in charge of and responsible for the business of the Company and any other

person who is a director or manager or secretary or officer of the Company with whose connivance or due to whose negligence, the Company

committed the offence, are jointly or severally liable. But the sine qua non is, such averment ought to have been made in the complaint, that is, that

the other persons who have not signed the cheques were in charge of and responsible for the business of the Company or, if they happened to be

directors, the offence was committed by the Company with their connivance or due to their negligence. In the case of a Company, the day-to-day

finance affairs are not carried out by all the directors in view of the Board delegating the powers to one or two directors or other officers of the

Company, like, the manager, secretary, etc. But where there is an averment in the complaint that the directors were in charge of and responsible

for day-to-day affairs of the Company, in the face of such averment in the complaint, a prima facie case for summoning the accused-directors can

be made out. If such averment is made in the complaint, then the liability of the other directors of the Company other than thedircctor who had

signed the cheques could be determined by the Trial Court. If no averment is made in the complaint that the directors were in charge of and

responsible for the day-to-day affairs of the Company, then it cannot be said that they could be made liable u/s 138 of the Negotiable Instruments

Act.

Learned Counsel for the petitioners cited a decision in Natasha Singh v. Klen and Marshalls Manufactures and Exports Pvt. Ltd., II(1999) BC

398=(1999) 96 Comp Cas 538, in which it has been held that there must be averments in the complaint making the accusation constituting the

alleged offence to enable the Magistrate to take cognizance of such offences and to issue process to such of the persons against whom the

allegations have been made in the complaint.

In Sham Sunder and Others Vs. State of Haryana, , while dealing with a case u/s 10 of the Essential Commodities Act, which is analogous to

Section 141 of the Negotiable Instruments Act, the Apex Court has made the following observations (page 4) :

More often, it is common that some of the partners of a firm may not even be knowing of what is going on day-to-day in the firm. There may be

partners, better known as sleeping partners, who are not required to take any part in the business of the firm. There may be ladies and minors who

were admitted only for the benefits of the partnership. They may not know anything about the business of the firm. It would be a travesty of justice

to prosecute all partners and ask them to prove under the proviso to Sub-section (1) of Section 10 that the offence was committed without their

knowledge. It is significant to note that the obligation of the accused to prove under the proviso that the offence took place without his knowledge

or that he exercised all due diligence to prevent such offence arises only when the prosecution establishes that the requisite condition mentioned in

Sub-section (1) is established. The requisite condition is that the partner was responsible for carrying on the business and was during the relevant

time in charge of the business. In Ihe absence of any such proof, no partner could be convicted.

It, therefore, follows that the prosecution must first show that the director to be prosecuted was in charge of and responsible for the conduct of

the business of the Company.

I have very carefully gone through the complaints. The petitioners herein are referred to as directors of the first respondent-Company, but,

nowhere, in the complaints, it is averred that the petitioners as directors were responsible for the affairs of the Company or in charge of the

Company. When the foundation to attract the culpability had not been made out in the complaint, I consider that the complaints have to be

quashed. These criminal original petitions are allowed. The further proceedings in C.C. No. 2725 of 1999, C.C. No. 2730 of 1999, C.C No.

6894 of 1998 and C.C. No. 2727 of 1998, on the file of the 18th Metropolitan Magistrate, Saidapet, Channai, against the petitioners herein alone

are quashed. Consequently, Crl.M.P. Nos. 10800 to 10807 of 1999, are closed.