Sunil Kumar Chhaperia vs Dakka Eshwaraiah and Another

R. Ramanujam, J.—The oft recurring question that:

Whether a Director of a Company registered under the Companies Act is liable Cor prosecution for an offence punishable u/s 138 of the Negotiable Instruments Act without there being an allegation in the complaint to the effect that he was in-charge of and was responsible for the conduct of the business of the Company at the time when the offence was committed or that the offence was committed with his consent or connivance ?

Has again come up for consideration in this batch of five criminal petitions, which were filed u/s 482, Cr.P.C. for quashing the criminal proceedings in Calendar Case Nos. 290, 291, 316, 282 and 283 of 1999 respectively pending on the file of the I Additional Judicial Magistrate of I Class. Proddatur, Cuddapah District.

The petitioner herein is figuring as A-3 in all the aforesaid Calendar Cases and he is charged with the offences punishable under Sections 138 and 142 of the Negotiable Instruments Act (for short ''the Act'') and Section 420, IPC. Proceedings in Calendar Case Nos. 290, 291 and 316 of 1999 were initiated on the private complaints filed by one Sri. Dakka Eswaraiah and proceedings in Calendar Case Nos. 282 and 283 of 1999 were initiated on the private complaints filed by one Sri Molhukuru Venkataramana. The accused in all the five cases are common. The 1st accused in all the five cases is Ind. Silk Exports Pvt. Ltd., (hereinafter referred to as "the Company") which is an existing Company registered under the Companies Act. The other accused, including the petitioner herein, are the Directors of the Company.

The material averments in all the five complaints are identical except for the details relating to the dates of the cheques, amounts of the cheques, the dates of their presentation and their dishonouring, etc.

The case of the complainants, as is evident from the complaints, is that they are doing business at Proddatur in Dupion Silk (Handloom silk). A-1 (the Company) to A-6 are also doing same business at Calcutta. A-2 to A-6 are the Directors of the Company. A-2 and A-4 are doing business on behalf the Company, by placing orders, receiving ordered goods, selling the same, etc. On the order placed by the Company, the complainants have supplied Dupion Silk to the accused. The Company then issued the cheques in question towards the price of the goods supplied by them on the dates mentioned in the respective complaints. When the said cheques were deposited by the complainants with their Bankers, for collection, they were dishonoured on the several dates mentioned in the complaint with an endorsement "due to insufficient funds". On receiving that information from their Bankers, the complainants issued statutory notice to all the accused demanding payment. Since they failed to pay the amounts, they filed the complaints. After examining the complainants, the learned Magistrate took cognizance of the same and issued process. Coming to know of the said fact, the petitioner herein, who is A-3 in all the cases, came up with these petitions, u/s 482, Cr.P.C. seeking quashing of the proceedings insofar as they relate to him.

Mr. V.S. Raju, learned Counsel for the petitioner-A-3 contends that:

(1) A-3 ceased to be the Director of the Company with effect from 2.11.1998 i.e., much before the dates on which the cheques were issued by the Company; and

(2) A-3 was never in-charge of the day-to-day business of the Company and there is absolutely no allegation/averment in the complaints to the effect that A-3 was in-charge of and responsible for conduct of the business of the Company at the time when the offences were committed. On the other hand, there is a clear admission in the complaints that only A-2 and A-4 were conducting the business of the Company. In the absence of such an allegation, the petitioner-A-3 is not liable for prosecution for the offence punishable u/s 138 of the Act in view of the clear language contained in Section 141 of the Act, and, therefore, the Criminal Proceedings against A-3 in all the five Calendar Cases are liable to be quashed.

Mr. L.T. Veera Reddy learned Counsel for the 1st respondent-complainants, on the other hand, contends that since the petitioner A-3, who is a Director of the Company, is responsible for the acts of the Company and, therefore, he is also liable for prosecution. He further contends that, the cheques, which were dishonoured, were issued by the Company making the complainants to believe that A-l to A-6 will arrange the amounts under the cheque? and honour them; therefore, all the accused, including the petitioner-A-3, are liable to be punished u/s 138 of the Act.

So far as the first contention i.e., that the petitioner-A-3, ceased to be a Director of the Company with effect from 2.11.1998 is concerned, the learned Counsel could not produce the certified copy of Form No. 32 u/s 303(3) of the Companies Act certifying the said fact even though he has filed the other material like copies of the resignation letters addressed to the Company and also to the Registrar of Companies. In the absence of the same, it is difficult to accept this contention in a proceeding u/s 482, Cr.P.C. It may be that the petitioner A-3 can lead evidence before the Trial Court for proving the said fact, However, any finding on this aspect may not be necessary in the view I am taking on the second contention.

It is a settled principle of criminal jurisprudence that there can be no vicarious criminal liability. However, there are exceptions to the general principle. One such is, when the Company is the offender. In such a case, every person, who was in-charge of and responsible to the Company for the conduct of its business at the relevant time, will also be criminally liable. Almost all the special enactments contain a provision to that effect. Similar provision was made u/s 141 of the Act, which is as under:

"141. 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.

(2) Notwithstanding anything contained in Sub-section (1), where any offence under this Act 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".

A close reading of the aforementioned provision would clearly show that: (i) a Director of a Company will also be liable for punishment for an offence committed by the Company u/s 138 of the Act, if he was in-charge of and was responsible for the conduct of the business of the Company at the time when the offence was committed, (ii) a Director of the Company, who was not in-charge of and was not responsible to the Company for the conduct of the business of the Company at the relevant time, will also be liable, if the offence was committed with his consent or connivance.

The question then arises for consideration is:

Whether a Director of a Company registered under the Companies Act is liable for prosecution for an offence punishable u/s 138 of the Negotiable Instruments Act without there being an allegation in the complaint to the effect that he was in-charge of and was responsible for the conduct of the business of the Company at the time when the offence was committed or that the offence was committed with his consent or connivance?

This question is no longer res integra. The consensus of judicial opinion is that a Director of a Company cannot be prosecuted for an offence u/s 138 of the Act in the absence of a specific allegation in the complaint that he was incharge of and responsible to the Company in the conduct of its business at the relevant time or that the offence was committed with his consent or connivance. See the decisions of this Court in Secunderabad Health Care Ltd. v. Secunderabad Hospitals Pvt. Ltd., IV (1998) CCR 419:11 (1998) BC 277: 1998(4) Cri 74, and B. Lakshmi v. Trishul Coal Services, IV (1997) CCR 349= (1998) BC 435:1997 (4) Crimes 157 and decision of the Madras High Court in Agritech Hatchering v. Valuable Steel India Ltd., II (1998) BC 30, and the decision, of the Allahabad High Court in Smt. Sharad Aganval v. Addl. Chief Metropolitan Magistrate-II, Kanpur, I (1992) CCR 703:1992(1) Crimes 812.

Now, if we examine the complaints as a whole, without going into the merits of the allegations, we find that there is absolutely no allegation in the complaint to the effect that the petitioner A-3 was in-charge of and was responsible to the Company for the conduct of the business of the Company at the time when the offence was committed. There is also no allegation to the effect that the offence was committed with his consent or connivance. On the other hand, there is a clear admission in Para 1 of the complaints filed by Sri Dakka Eswaraiah (in Calendar Case Nos. 290, 291 and 316 of 1999) that "A-2 and A-4 are doing business on behalf of accused i.e., placing order, receiving ordered goods, selling them, etc., on behalf of Accused No. 1..........". In the complaints filed by Sri MothukuruVenkataraimana (in Calendar Cases Nos. 282 and 283 of 1999) it was admitted that "A-2 is doing business on behalf of accused i.e., placing order, receiving ordered goods, selling them, etc., on behalf of Accused No. 1...........". There is absolutely no allegation in any of the complaints to the effect that the offences were committed with the consent or connivance of the petitioner A-3.

Counsel for the 1st respondent-complainants, however, submits that the allegation that "A-1 issued the subject cheques..........towards part payment of the said debt amount of Dupion Silk in favour of the complainant, and made to believe the complainant that A-1 to A-6 will arrange amount and honour them, to that effect, they were also cooperate with the complainant. Complainant believed the words of the accused 1 to 6 and received subject cheques" will amount to alleging connivance or consent on the part of the petitioner.

I find it difficult to accept this contention, connivance or consent must be clearly pleaded and it cannot be interred from the aforesaid vague statement in the complaint. I have also perused the sworn statements of the complainants recorded by the learned Magistrate while taking cognizance of the offences. In those statements also there is absolutely nothing about the petitioner A-3 being in-charge of the affairs of the company at the lime when the offence was committed.

So far as the alleged offence u/s 420, IPC is concerned, there is not even a whisper, either in the complaint or in the sworn statement, about the facts that constituted the said offence.

For the aforementioned reasons, all the Criminal Petitions have to succeed and they are accordingly allowed. Consequently, the criminal proceedings in all the five Calendar Cases, i.e. Calendar Case Nos. 290, 291, 316, 282 and 283 of 1999, pending on the file of the 1 Additional Judicial Magistrate of 1 Class, Proddatur. Cuddapah District are quashed insofar as they relate to the petitioner A-3 accused is concerned.