R. Kannan vs Kotak Mahindra Finance Ltd.

B. Akbar Basha Khadiri, J.—The instant criminal original petition is to quash the proceedings pending in C. C No. 1476 of 1998 on the file

of the XIII Metropolitan Magistrate, Egmore, Madras.

This Crl. O. P. has arisen in this way :

The respondent herein preferred a private complaint alleging that Alsa Constructions and Housing Ltd., a company and its managing director,

chairman and directors have committed an offence u/s 138 of the Negotiable Instruments Act, 1881. According to the petitioner, the second

accused Salim Pasha issued two cheques dated February 26, 1997, for Rs. 10,00,000 and June 14, 1997, for Rs. 20,00,000 towards the liability

of the company towards bill discounting facilities given by the complainant to the accused. In the complaint, the complainant had stated that the

cheques were issued by the second accused Salim Pasha in his capacity as managing director of the first accused company as per instructions of

accused Nos. 3 to 8 herein, who are the directors and in charge of the day-to-day affairs of the first accused company. The petitioner herein is one

of the directors of the company, who is arrayed as the sixth accused. He has come forward with the instant quash proceedings contending that he

is not the drawer of the cheque and the complainant does not specify any involvement of the petitioner in the alleged issue of the cheques.

According to the petitioner, the complaint is silent about the role of the petitioner with regard to management of the first accused company or its

day-today affairs, and thus the essential element required to prosecute the director u/s 141(2) of the Negotiable Instruments Act is lacking.

Heard both the sides.

141(1). Offences by companies.--(V) 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.

(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.

A reading of the section would go to show that (i) the company is liable, (ii) the person who was (a) in charge, (b) responsible to the company,

and (c) for the conduct of the business of the company, is liable ; and (iii) other officer of the company including director, manager, secretary or

other officer is liable if there had been (a) consent, or (b) connivance, or (c) an act attributable to, or (d) due to negligence on his part.

Admittedly, the petitioner is a director. Admittedly, there is averment in the complaint that he is ""in charge of the day-to-day affairs of the first

accused ""company"". The only question that arises is whether such averment would be sufficient to satisfy the requirement of Section 141(2) of the

Negotiable Instruments Act or there should be specific averments as against the petitioner, with respect to his role in the conduct of the affairs of

the company on whose behalf the cheque was issued. There is no allegation with respect to the role played by the accused in relation to the

commission of the offence by the company.

It is noteworthy that Sub-sections (1) and (2) to Section 141 of the Negotiable Instruments Act attach a sort of vicarious liability on such

person. A combined reading of Sub-section (1) of Section 141 of the Negotiable Instruments Act with the proviso thereto, would show that every

person who, at the time when the offence was committed, was in charge of and responsible to the company for the conduct of the business of the

company, shall be deemed to be guilty of the offence. There is a deeming provision, but the deeming provision can be rebutted, if such person

proves that the offence was committed without his knowledge or that he has exercised all due diligence to prevent the commission of such offence.

Sub-section (2) to Section 141 of the Negotiable Instruments Act widens the scope of the vicarious liability as it lays down that where it is

proved that the offence by the company 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, shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and

punished accordingly. It would thus be clear that an offence u/s 138 of the Negotiable Instruments Act is committed by a company or a firm, every

director of the company, every partner of the firm and every officer, etc., of the company or the firm shall be deemed to be guilty of the offence,

provided at that time when such offence was committed, such person was in charge of, and was responsible to the company or the firm for the

conduct of the business of the company or the firm. The proviso to Section 141 of the Negotiable Instruments Act introduces an exception to the

rule in the main clause, in that it is for such person to prove that the offence was committed without his knowledge, etc.

Learned counsel for the petitioner submitted that because there are no averments detailing the overt act committed by the petitioner, offence u/s

138 of the Negotiable Instruments Act is not attracted against him. Learned counsel for the petitioner referred to a decision in State of Haryana

Vs. Brij Lal Mittal and Others, , wherein while dealing with a case u/s 34(1) of the Drugs and Cosmetics Act (23 of 1940), their Lordships of the

apex court had an occasion to deal with a question if there are no averments in the complaint that the accused were in charge of the company and

also responsible to the company for the conduct of its business. Their Lordships pointed out that so far as the directors are concerned, there is not

even a whisper nor a shred of evidence nor anything to show, apart from the presumption drawn by the complainant, that there is any act

committed by the directors from which a reasonable inference can be drawn that they could also be vicariously liable. That was a case which arose

under the Drugs and Cosmetics Act and there was no whisper in the complaint to show that the director''s were in charge of the company and also

responsible to the company for the conduct of its business.

Learned counsel for the petitioner also cited another unreported judgment rendered by my learned brother A. Ramamurthi J. in Crl. O. P. No.

11316 of 1999 dated October 11, 1999, wherein the noble judge has considered how far the averment that the petitioner therein who was a

director, ""was in charge of and responsible to the company for the conduct of the business of the company"" would clinch the issue. In that case,

there was evidence to show that the director who sought to quash the proceeding on the ground that she was a resident of Nilgiris and the

company was at Madras. It was held that there was no material to infer that the petitioner was in charge of or responsible to the company for its

day-to-day affairs. That decision was rendered on the factual aspect of the case.

Now, the question is whether the averment that the petitioner is in charge of the day-to-day affairs of the first accused company, would be

sufficient to satisfy the requirements of Sub-section (1) to Section 141 of the Negotiable Instruments Act. The company is admittedly situated at

Madras. The petitioner is also a resident of Madras, who claims himself to be an auditor and that he has been inducted as a director, but he is not

involved in the day-today administration of the work.

Where there is averment in the complaint that the directors were in charge of and responsible for the day-to-day affairs of the company, on the

face of the averment in the complaint, prima facie a case for summoning the accused directors had been made out. The liability of the other

directors of the company other than the director who signed the cheque can be determined by the trial court.

The question is whether this court can go into this aspect whether he was not in charge of the day-to-day affairs of the company. A recent

decision in Natasha Singh v. Klen and Marshalls Manufacturers and Exporters P. Ltd. [1999] 96 Comp Cas 538 my learned brother M.

Karpagavinayagam J. had an occasion to deal with a similar matter. What has been stated supra by me regarding the distinction that exists between

Sub-sections (1) and (2) to Section 141 of the Negotiable Instruments Act has been expressed by the noble judge. The noble judge had stated

that Sub-section (2) to Section 141 starts with the non obstante clause and under Sub-section (1) the persons in charge of and responsible to the

company shall be deemed to be guilty of the offence. Under Sub-section (2) even persons who are not stated to be in charge of and responsible to

the company can be prosecuted, if it is alleged and proved that the offence has been committed with the consent or connivance of or attributable to

any neglect on the part of any of these persons prosecuted. No doubt, it is true that in the case of prosecution of persons under Sub-section (1) to

Section 141(1), a presumption of their guilt can be inferred, but the said presumption cannot at all be available under Sub-section (2) to Section

141(1). If it is merely mentioned in the complaint that they are director, manager, etc. then the case would have been different. In that case, there

were no averments that the directors were in charge of and was responsible to the company for the conduct of the business of the company. The

allegations made in that complaint were :

The complainant states that the first accused as the company and the second accused as the chairman and authorised signatory of the first

accused, the third accused as the managing director of the first accused, the fourth accused as the director of the first accused, the fifth accused as

the general manager (finance) of the first accused-company, are responsible for the failure to make payment of the sums claimed under the notice

and are guilty of the commission of an offence u/s 138 of the Negotiable Instruments Act and are liable to be punished therefor.

The learned judge pointed out that besides stating about the position which the accused held, it was specifically mentioned in the complaint that

they were responsible for the non-payment of the cheque amount after receipt of notice within the statutory period, which alone would create the

offence. The learned judge pointed out that in the context of those allegations mentioned in the complaint, it cannot be stated that there were no

averments that the offence was committed with the consent of the chairman, managing director and general manager respectively and the averments

referring to their position and that they are responsible for failure to make payment of sums claimed under the notice and therefore are guilty of

offence u/s 138 of the Negotiable Instruments Act, would be sufficient to bring their case within the fold of Section 141(2) of the Negotiable

Instruments Act.

In the instant case, the complainant had stated in the complaint that the petitioner is a director in charge of the day-to-day affairs of the first

accused company. This averment is sufficient to satisfy the provision of Section 141(1) of the Negotiable Instruments Act. I feel, it is not necessary

that the petitioner should specifically aver the overt act committed by the petitioner as a director of the company. The mere fact that he is a director

is sufficient to show that he is responsible for the affairs of the company and it is for him to prove that he comes within the proviso to Section

141(1) of the Negotiable Instruments Act. This criminal original petition is therefore dismissed. Consequently, Crl. M. P. Nos. 10794 and 10799

of 1999 are also dismissed.