Mrs. Nirmal Ahluvalia vs Mrs. O. Meenakshi

G. M. Akbar Ali, J.—The petitions are filed seeking a direction to call for the records in C. C. Nos. 2356, 2357 and 2358 of 2010 on the file of the learned XIII Metropolitan Magistrate, Egmore, Chennai.

The common point that arises in all the above criminal original petitions is whether the petitioner, who has been arrayed as A3 in a private complaint given u/s 138 read with section 141 of the Negotiable Instruments Act, 1881, was in charge of and was responsible for the conduct of the business of the company.

The brief facts of the case are as follows :

The respondent was dealing with manufacturing and selling of medicines. The petitioner is a director of a company named M/s. Guru Chem Laboratories P. Ltd., one Vikram Ahluvalia was a chairman and director. The petitioner, who is the mother of the above said person, is also one of the directors. The chairman-cum-director has placed orders on behalf of the company for supplying of medicines to the tune of Rs. 39,70,994. Based on the request, the medicines were supplied, but the amount was not paid. Cheques were issued by the chairman-cum-director on behalf of the company. On presentation of the cheque, they returned for the reason "funds insufficient.

The respondent issued statutory notices to the company as well as to the directors. Though they have received the notices they failed to repay the amount. Hence the respondent has initiated section 138 proceedings against the company as well as the directors.

The petitioner, who is one of the directors, has come forward with the present application to quash the entire proceedings on the sole ground that the petitioner was not in charge and was not responsible for the conduct of the day-to-day business of the company and the complainant has failed to specifically aver that the petitioner was in charge of and was responsible for the business of the company.

Mr. Rajnish Pathiyil, learned counsel for the petitioner would draw our attention to section 141 of the Negotiable Instruments Act, 1881 (hereinafter called "the Act"), which deals with offence by the company. Learned counsel submitted that in the complaint, it was merely stated that "the second and third accused are in charge of the day-to-day affairs of the company" and there is no specific allegation against the petitioner. Learned counsel also referred to paragraph 7 of the complaint, which reads as follows :

The first accused is primarily liable for the payment of the amount covered under the cheques and the second and third accused are also jointly and severally liable as directors of the company, which is first accused for the dishonouring of the said cheques.

Learned counsel further submitted that the complainant has already been examined as PW1 and in his evidence no averment is made against the petitioner.

Learned counsel relied on a decision reported in S.M.S. Pharmaceuticals Ltd. Vs. Neeta Bhalla and Another, , wherein the apex court held as follows (page 578) :

(a) It is necessary to specifically aver in a complaint u/s 141 that at the time the offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company. This averment is an essential requirement of section 141 and has to be made in a complaint. Without this averment being made in a complaint, the requirements of section 141 cannot be said to be satisfied.

(b)... Merely being a director of a company is not sufficient to make the person liable u/s 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for conduct of its business. The requirement of section 141 is that 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.

On the contrary, Mr. A Ramesh, learned senior counsel for Mr. M. Ajmal Azzath appearing for the respondent submitted that the petitioner has not approached the court with clean hands. Learned counsel pointed out that the entire transaction took place in the year 2004 and the statutory notice was given in the year 2005. Learned counsel further pointed out that on June 9, 2005, the complaint was presented and the same was taken on file in the year 2006 and twice non bailable warrant was issued to the accused and on July 9, 2008, PW1 was examined in chief and the accused did not participate in the proceedings. Only on December 2, 2009, PW1 was cross examined and the matter is pending without any progress. Learned counsel submitted that only thereafter examination of witnesses was effected and the accused was questioned u/s 313 of the Code of Criminal Procedure, 1973 and at this stage, the petitioner has come forward with the present application only to drag on the proceedings.

Learned senior counsel also submitted that in the statutory notice itself, a clear averment was made against the petitioner that she was in charge of and responsible to the affairs of the company and the same averment was also made in the complaint. Learned counsel relied on a decision reported in Amar Chand Agarwalla Vs. Shanti Bose and Another, etc., according to which, in a case, where several prosecution witnesses have been examined and cross examined and only two prosecution witnesses and court witnesses remained to be examined and at that stage, when a petition to quash the proceedings was moved, the court held : "the proper course to be adopted by the High Court was to allow the proceedings to go on and to come to its logical conclusion one way or other and declined to interfere with those proceedings".

Section 141 of the Act reads as follows :

Offences by companies.--(1) If the person committing an offence u/s 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.

Therefore, 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. The above provision makes it clear that the persons who are sought to be made vicariously liable for criminal offence should be 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.

In (2008) 144 Comp Cas 55; (2008) 3 SCC (Crl.) 401 (DCM Financial Services Ltd. v. J.N. Sareen), it was held as follows (page 63) :

While analysing section 141 of the Act, it will be seen that it operates in cases where an offence u/s 138 is committed by a company. The key words which occur in the section are ''every person''. These are general words and take every person connected with a company within their sweep.

Therefore, these words have been rightly qualified by use of the words :

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, etc.

It is well-settled that the liability of a director of a company arises when he is in charge of and responsible for the conduct of the 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. Section 141 of the Act provides for a constructive liability. Therefore, it requires strict compliance with the provision. In the matters of post dated cheques which were presented on later dates, the relevant time of the commission of the offence is very important. For constituting an offence u/s 138 of the Act, the following ingredients are to be satisfied :

(a) a cheque must be drawn;

(b) it must be presented and returned unpaid with a remark "insufficient fund";

(c) a notice for payment shall be served on the accused;

(d) the accused has failed to make the payment of the said amount to the payee within 15 days from the date of receipt of notice.

Only on the cumulative effect of all the above ingredients an offence is said to have been committed. Cheque drawn is not an offence. Presentation and return will constitute commencement of the offence. Statutory notice served and failure of payment will be the conclusion of the offence giving rise to initiation of prosecution.

In S.M.S. Pharmaceuticals Ltd. Vs. Neeta Bhalla and Another, , the hon''ble Supreme Court held as follows (page 572) :

When the requirement in section 141, which extends the liability to officers of a company, is that such a person should be in charge of and responsible to the company for conduct of business of the company, how can a person be subjected to liability of criminal prosecution without it being averred in the complaint that he satisfies those requirements ? Not every person connected with a company is made liable u/s 141. Liability is cast on persons who may have something to do with the transaction complained of. A person who is in charge of and responsible for conduct of business of a company would naturally know why the cheque in question was issued and why it got dishonoured.

And further held (page 577 of 127 Comp Cas) :

To sum up, there is almost unanimous judicial opinion that necessary averments ought to be contained in a complaint before a persons can be subjected to criminal process. A liability u/s 141 of the Act is sought to be fastened vicariously on a person connected with a company, the principal accused being the company itself. It is a departure from the rule in criminal law against vicarious liability. A clear case should be spelled out in the complaint against the person sought to be made liable. Section 141 of the, Act contains the requirements for making a person liable under the said provision. That respondent falls within parameters of section 141 has to be spelled out. A complaint has to be examined by the Magistrate in the first instance on the basis of averments contained therein. If the Magistrate is satisfied that there are averments which bring the case within section 141 he would issue the process. We have seen that merely being described as a director in a company is not sufficient to satisfy the requirement of section 141. Even a non director can be liable u/s 141 of the Act. The averments in the complaint would also serve the purpose that the person sought to be made liable would know what is the case which is alleged against him. This will enable him to meet the case at the trial.

Therefore it is well-settled that merely by being a director of a company, one cannot be deemed to be in charge of and responsible for the conduct of its business to make the person liable u/s 141 of the Act. The requirement of section 141 is that 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. If this has to be averred as a fact, then there is no deemed liability of a director in such case.

Section 141 of the Act provides for a constructive liability. For constituting an offence u/s 138 of the Act :

(a) a cheque must be drawn;

(b) it must be presented and returned unpaid;

(c) a notice for payment shall be served;

(d) there must be a failure to make payment within 15 days from the date of receipt of notice.

Cheque drawn is not an offence but presentation and return for want of sufficient funds may constitute commencement of offence. However, failure of payment will be the conclusion of the offence giving rise to initiation of prosecution. The director in charge of and responsible to the company for the conduct of its business must be either a person who draws the cheque or a person in a position to make payment on service of statutory notice. Mere averment that a person was in charge of the day-to-day affairs of the company is not sufficient but there must be other facts pleaded and proved that the said person was in charge of and was responsible for the conduct of the business of the company.

In the present case, the averment would show that it is only the second accused, viz., the chairman-cum-director who was in charge of and was responsible for the conduct of the business of the company. The petitioner is the mother of the second accused and a mere averment that the third accused is also jointly and severally liable as director of the company is not sufficient to fasten vicarious liability u/s 141 of the Act. It is also pertinent to note that PW1 has not spoken anything about the petitioner in his chief examination.

It is submitted by the respondent that the witnesses were also examined and the questioning u/s 313 of the Code of Criminal Procedure, 1973, was also completed and this court should allow the proceedings to go on and come to their logical conclusion. When there is no liability against the petitioner as a director of a company, no purpose would be served to allow the proceedings to continue even at the stage of arguments. The petitioner is an aged lady, who resides at New Delhi. The records would show that non-bailable warrant was issued for her non-appearance. Therefore, I am satisfied that the continuance of the proceedings is only harassment to the petitioner who cannot be fastened with liability u/s 141 of the Act. It is also pertinent to note that the respondent-complainant can proceed against the company and the director who was actually in charge of and responsible for the conduct of the business of the company.

Therefore, no prejudice or loss would be caused to the complainant if the proceedings are quashed as far as the petitioner is concerned. Otherwise, the continuance of which will be an abuse of process of court even if it is for one more day.

In the result, all the petitions are allowed and the proceedings in C. C. Nos. 2358, 2357 and 2356 of 2010 on the file of the learned XIII Metropolitan Magistrate, Egmore, Chennai are quashed as far as the petitioner is concerned. However, the learned Magistrate is directed to dispose of the cases within four months from the date of receipt of copy of this order. Consequently, connected MPs are closed.