P. Ravinder Reddy vs M/s NCC Finance Ltd.

A. Hanumanthu, J.—These three criminal petitions are filed u/s 482 Cr. P.C. to quash the criminal proceedings initiated against these petitioners in CC.No.560/ 97,558/97 and 559/97 respectively on the file of V. Metropolitan Magistrate, Hyderabad.

The facts, in brief, are as under:

The 1st respondent herein M/s NCC Finance Ltd. is a Limited Company incorporated under the Companies Act and it has been doing business in hire purchase, leasing and bill discount, etc. M/s.Ravileela Diary Products is also a Limited Company incorporated under the Companies Act. The 1st petitioner herein P.Ravinder Reddy is the chairman, J. Madhan Mohan Reddy is the Managing Director, P. Srinivasa Reddy., Samantha Reddy and the petitioners 2 and 3, P. Poorna Chandra Reddy and A. Sanjeeva Reddy are the Directors of the Said Ravileela Diary Products Ltd. M/s Ravileela Diary Products Ltd. entered into hire purchase agreement with the 1st respondent-Company for extending financial assistance for a total sum of Rs.43,65,000/-. The Managing Director and another Director P. Srinivasa Reddy stood as guarantors to the said transaction. They agreed to discharge the said amount in 36 monthly instalments of Rs. 1.22,500/- per month. They paid 14 instalments and committed default in paying the remaining instalments. On the persuation made by the 1st respondent, they gave five cheques bearingNo.537033, dated 5.1.1997, 537034 dated 5.2.1997,537035 dated 5.3.1997, 537036 dated 5.4.1997, 537037 dated 5.5.1997,537038 dated 5.6.1997, each cheque for a sum of Rs. 1,22,500/-. All these cheques were issued by the Managing Director Madhan Mohan Reddy on behalf of the company. When the 1st respondent herein presented the said cheque for realisation to its Banker, Canara Bank, Industrial Finance, Hyderabad, they were dishonoured and returned with an endorsement "Insufficient funds". Thereafter, the 1st respondent got issued legal notice to all of them demanding to pay the amount equivalent to the cheque amount within 15 days from the date of receipt of the notice. Though notice was served on all of them, they failed to pay the amount. Hence, the 1st respondent-Company filed C.C. No.560/97 with respect to the dishonour of the cheques bearing No.537034 dated 5.2.1997,537036 dated 5.6.1997, C.C.No.558/97 for the dishonour of the cheque bearing No.537033, dated 5.1.1997, 537034, dated 5.2.1997 and 537035, dated 5.3.1997 against the Company Revileela Diary Products Ltd. (A-1), its Managing director A-2, its Chairman A-3 and directors A-4 to A-7. All these cases have been filed for the offence punishable u/s 138 of the Negotiable Instruments Act (hereinafter called as Act).

The petitioners who are A-3, A-6 and A-7 respectively in all the three cases, have come up with these petitions to quash the said proceedings as far as they are concerned.

As the parties are common and the point involved in all the three cases is common, all the three petitions are being disposed of by a common order.

The learned Counsel for the petitioner raised the following contentions:

(1) The 1st petitioner herein is the Chairman, and the petitioners 2 and 3 are Directors of the 1st accused-Company, that they have not been in charge and responsible for the conduct of the business of the Company, that the hire purchase agreement with the complainant-Company was signed by the Managing Director and by A-4 as guarantor to the said transactions and that the Managing Director (A-2) alone issued the cheques which were dishonoured and that these petitioners were not at all in charge of the business of the Company on the date of the alleged offence and as such, these petitioners cannot be prosecuted.

(2) The complaint is silent with regard to the overt acts attributed to these petitioners in the commission of the offence.

(3) The averments in the complaint even admitted to be true, make out a civil liability but not criminal liability and as such, the criminal complaint is not maintainable.

The learned Counsel for the 1st respondent, on the other hand, vehemently contends that the managing Director A-2 issued the dishonoured cheques with the consent, knowledge, instructions and connivance of all the other accused 3 to 7 and as such, these petitioners also liable for the acts of the Company and the petitioners who were the Directors of the 1st accused Company when the complainant advanced the loan amount to the Company and the Managing Director A-2 issued the cheques on behalf of the Company.

The point that arises for the consideration in all the three petitions is whether there are any justifiable grounds to quash the proceedings in all the three cases against these petitioners.

It is not disputed that the 1st petitioner is the Chairman and the petitioners 2 and 3 are the Directors of the 1st accused-Company even on the date when hire purchase agreement was entered into and the loan was obtained from the complainant. They also continued to be Directors of the accused-Company when A-2 issued the dishonoured cheques. But, admittedly, there is no averment in the complaints that these petitioners were incharge and responsible for the conduct of the business of the Company. In this context, it is relevant to contract Section 141(1) of the Act, to appreciate the contentions of both parties.

Section 141. Offences By Companies:

(1) If the person committing an offence u/s 138 is a company, every person who, at the time when the offence was committed, was incharge 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 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 has exercised all due diligence to prevent the commission of such offence.

It is clear from a reading of this Section 141 of the Act, that if the offence u/s 138 of the Act is committed by a Company or a firm, every person who was in charge and responsible for affairs and conduct of the business of the Company or firm, as the case may be, at the time when the alleged offence was committed, is also liable for prosecution along with the Company.

In the instant case, it is an admitted fact that the cheques were issued only by A-2, the Managing Director of A-1 Company. Undisputably, there are no allegations in the complaint that these petitioners were in charge and responsible for the conduct of the business of A-1 firm at the time of the alleged commission of the offence. No doubt, in para 3 of the complaint, there is a vague allegation that these cheques were issued by A-2 with the consent, knowledge, instructions and connivance of these petitioners and other Directors. But, on that allegation, it cannot be said that these petitioners were actually incharge and responsible for the conduct of the business of A-1 Company. Simply because, these petitioners are Directors of A-1 Company, they cannot be prosecuted for the offences committed by the Managing Director or other Directors of the Company, who are actually incharge and responsible for the conduct of the business. It is well settled that there is no vicarious liability in criminal law unless the statute takes that also into its fold. There is nothing on record to show that all the Directors of A-1 Company are liable of the criminal offences whether they participate in the day-to-day business of the company or not.

1 have been fortified in my view by the observations of the Apex Court in Sham Sunder and Others Vs. State of Haryana, where in it is observed in Para 9 thus:

More often it is common that some of the partners of the firm may not even be knowing of what is going on day-to-day in the firm. They may be partners, better known as sleep-ladies and minors who were admitted for the benefit of 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) that the offence was committed without their knowledge. It is significant to note that the obligation for 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 incharge of the business. In the absence any such proof, no partner could be convicted. We, therefore, reject the contention urged by Counsel for the State.

This court also taken similar view in B. Lakshmi v. M/s Trishul Coal Services and Transporters and others, 1997 Cri. L.J.3619 (AP and also in Smt.Gottamaneni Prameela v. Smt.Avula Hymavathy, 1997(2) ALT (Cri) 210 (AP). Therefore, in the absence of the allegations in the complaint that these petitioners were also incharge and responsible for the business of the 1st accused-Company, the criminal proceedings initiated against these petitioners, in my opinion, definitely amount to abuse of process of the Court and as such, the criminal proceedings are liable to be quashed.

For the reasons stated above, all the three petitions are allowed. The proceedings in C.C.No.560/97 C.C.No.558/97 and C.C.No.559/97 on the file of XV Metropolitan Magistrate, Hyderabad as against these petitioners only are quashed.