V. Kannan vs S. Subramanian

Aruna Jagadeesan, J.—These Criminal Original Petition are filed to quash the complaints and all further criminal proceedings as against the

petitioner in CC. Nos. 450, 449, 451, 452 and 453/2005 on the file of the learned Judicial Magistrate I, Pondicherry.

The brief facts of the prosecution as culled out from the complaints are as follows:

The petitioner who is arrayed as A1 is the Chairman of the M/s. PNL Nidhi Limited (herein after referred to as the Company). A2 is the Vice

Chairman of the Company, A3 to A6 are the Directors and A7 and A8 are the Secretary and Manager of the Company and A9 is the Company.

The respondent/complainant had made investments by way of deposits in the Company/A9 and he had approached the Company for withdrawal

of the said deposits. The Company had issued five cheques bearing Nos. 968150 for a sum of Rs. 2,25,500/- dated 2.9.2004, 968151 for a sum

of Rs. 2,25,500/- dated 4.9.2004, 968124 for a sum of Rs. 1,80,000/- dated 29.8.2004, 968125 for a sum of Rs. 1,87,731/- dated 27.8.2004

and 968152 for a sum of Rs. 2,250,500/- dated 6.9.2004 drawn on City Union Bank Limited, Pondicherry signed by S. Ramalingam, Director

and V.V. Margbandu, Secretary of the Company, who were in charge of the affairs of the Company at that time. When the said cheques were

presented for encashment, the same were returned dishonoured on 7.2.2005 with an endorsement ''insufficient funds. Thereafter, the complainant

issued a statutory notice dated 16.5.2005 to all the accused by Registered Post and the notice sent A1 to A4 were returned as ''refused'' and the

notice sent to A5 to A9 were returned as ''door locked'', ''door intimation given'', ''the addressee gone to long tour'', ''left without instructions'' and

''office not functioning'' respectively.

According to the respondent, the accused were evading to receive the notice and they were having knowledge of the contents of the notice

issued u/s 138(b) of the Negotiable Instruments Act (herein after referred to as the Act) and even after the same, they failed to pay the cheque

amount, which necessitated him to file the impugned complaints under Sections 138 and 142 of the Act.

According to the petitioner, he had resigned from the Board of the Company as early as on 9.6.2004 and he has nothing to do with the affairs of

the Company.

Mr.Gupta, the learned Counsel for the petitioner would contend that the cognizance taken by the learned Magistrate of the offences against the

petitioner is illegal, as he had resigned from the Board of the Company as early as on 9.6.2004 and he was not the signatory to the cheques in

question or possessing any executive powers during that time. He would contend that it is the obligation of the complainant to prove that at the time

when the offence was committed the accused was in charge of and responsible to the Company for the conduct of its business and in the absence

of any such averment to that effect in the complaint, initiation of prosecution and the cognizance taken by the learned Magistrate are illegal.

The learned Counsel for the petitioner would rely upon the judgements of the Honourable Supreme Court rendered in the cases of S.M.S.

Pharmaceuticals Ltd. Vs. Neeta Bhalla and Another, , K.P.G. Nair Vs. Jindal Menthol India Ltd., and Smt. Katta Sujatha Vs. Fertilizers and

Chem. Travancore Ltd. and Another, in support of his contention that the allegation in the complaint that the accused was in charge of and

responsible to the Company for the conduct of its business was essential and in the absence thereof, he was entitled to be discharged.

On the other hand, Mr. Dhanyakumar the learned Counsel for the respondent would submit that on the complaint given by one Boothanathan, a

case in Cr. No. 31/2004 was registered against the petitioner and the 2nd accused by name V. Baskaran, who are said to be the major share

holders of the Company and accused Directors thereof as well as the Directors of M/s. New Hasan Sugar Mills Limited for the offences

punishable under Sections 409, 420 read with Section 34 of IPC and Sections 138 and 142 of the Negotiable Instruments Act on the allegation

that they misappropriated a sum of Rs. 12.5 crores belonged to the Company and diverted the said amount to their own trade and business. In the

said criminal case, the learned Chief Judicial Magistrate, Pondicherry had passed an order dated 18.2.2005 directing attachment of various

properties standing in the name of the petitioner herein and V. Bhaskaran/A2 and their mother Shivapriya. He would further submit that several

complaints were received from the public against the Chairman/Directors of the Company alleging misappropriation of huge amounts deposited by

the public in the Company.

The learned Counsel for the respondent would refer to the complaint wherein it is specifically stated that the complainant had invested his hard

earned money into the Company by way of deposits and when he approached them for withdrawal of the deposits, the Company/A9 had issued

the cheques cited supra in favour of the complainant towards the discharge of their liability for the deposit made by him. When the same were

presented for encashment, the same were returned dishonoured with an endorsement ''insufficient funds''. It is specifically averred that A1 to A6

are liable to pay the cheque amount as Chairman, Vice Chairman and Directors respectively of the Company. It is also averred that the notice sent

by registered post to A1 to A4 were returned as ''refused''.

The petitioner''s contention are based upon the premise that he was implicated in his capacity of the erst while Chairman as he resigned from the

Company. By virtue of the provisions of Section 141(1) of the Negotiable Instruments Act, the guilt for the offence and the liability to be

prosecuted and punished shall be extended to every person who at the time when the offence was committed was in charge of and responsible to

the Company for the conduct of its business irrespective of whether such a person is a Chairman, Director, Manager or Secretary. It would for

such responsible person, in order to be exonerated in terms of the proviso, to prove that the offence was committed without his knowledge or

despite his due diligence.

Under the separate provisions of Sub-section 2 of Section 141 of the Act, if it is proved that the offence was committed with the consent or

connivance of or was attributable to the neglect on the part of the Chairman, Deputy Chairman, Manager or other officers of the Company, such

person would also be deemed to be guilty. Obviously, the burden of alleging and proving consent, connivance or neglect on the part of any

Director etc. would rest upon the complainant. The non obstante clause with which Sub-section 2 opens indicates that the deeming provision is

distinct and different from the deeming provisions in Sub-section (1) in which the office or designation of the person in charge of and responsible to

the Company for the conduct of its business is immaterial.

While the essential element for implicating a person under Sub-section (1) is his being in charge of and responsible to the Company in the

conduct of its business at the time of commission of the offence, the emphasis in Sub-section (2) is upon the holding of an office and consent,

connivance or negligence of such officer irrespective of his being or not being actually in charge of and responsible to the Company for the conduct

of its business. Thus, the important and distinguishing feature in Sub-section (1) is the control of a responsible person over the affairs of the

Company rather than his holding of an office or his designation while the liability under Sub-section (2) arises out of holding an office and consent,

connivance or neglect. While all the persons covered by Sub-section (1) and Sub-section (2) are liable to be proceeded against and also punished

upon proof of their being either in charge of or responsible to the Company in the conduct of its business or of their holding of the office and having

been guilty of consent, connivance or neglect in the matter of commission of the offence by the Company, the person covered by Sub-section (1)

may by virtue of the proviso, escape only punishment if he proves that the offence was committed without his knowledge or despite his due

diligence.

As for the requisite evidence, the burden upon the prosecution would be discharged under Sub-section (1) when a person is proved to be in

charge of and responsible to the Company for the conduct of its business and would shift upon the accused to prove that he was ignorant or

diligent, if that be his defence; it would be sufficient if the complaint indicates that such a person has been arraigned on the basis of the averments

which disclose him to be the person in charge of and responsible to the Company for the conduct of its business at the time the offence was

committed.

As held by the Honourable Supreme Court in the case of Anil Hada Vs. Indian Acrylic Limited, , the phrase ''as well as'' used in Sub-section

(1) of Section 141 of the Act would embroil the persons mentioned therein within the tentacles of the offence on a par with the offending

Company. Therefore, when the Company is the drawee of the cheque, such Company is the principal offender and the remaining persons are

offenders by virtue of the legal fiction created by the legislature. When the offence is attributed to a juristic person or a body made up of several

individuals and the liability to be prosecuted and punished is extended to embroil by legal fiction certain human beings that legal fiction has to be so

interpreted and applied that the individuals intended to be embroiled may not escape the liability by mere fact of having not been in charge at the

time when one or the other of the events essential to complete the offence by the Company happened. Borrowing from K. Bhaskaran Vs.

Sankaran Vaidhyan Balan and Another, the court should not adopt an interpretation which helps a dishonest evader and slips an honest payee as

that would defeat the very legislative measure.

In the facts of the present case, the petitioner who claims to have resigned from the post of Chairman/Director of the accused Company claims

to be neither a Director nor the person in charge of or responsible to the Company at the time when the offence was committed. Taking the

complaint at its face value, the allegation that A1 to A4 returned the notice as refused and the further allegation that the petitioner failed to make

payment and that the said failure was mala fide, intentional, deliberate and with the knowledge, since the time the cheques were issued that the

cheques would meet the fate of dishonour.

It is held by this Court in Habibunnisa Akthar v. S&S Industries and Enterprises Limited 1995 83 Comp Cas 593] that whether the allegations

made in the complaint were true or whether the extract from the Registrar of Firms indicating the accused not to be a partner reflected the real

state of affairs were matters which could be gone into only when evidence in that regard was let in and which could come only at the stage of trial.

In the present case, prima facie it is shown that the petitioner was in charge of and responsible to the Company for the conduct of its business

and it would be a matter of evidence where that prima facie presumption will have to be substantiated and it would be for the petitioner to prove

before the trial court that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of

such offence, if that be his defence. Therefore, his defence that he has resigned from the Director can neither be considered at this stage for

quashing the complaint against him nor can it be presumed to be an available defence unless it is proved to be falling within the four corners of the

proviso to Sub-section (1) of Section 141 of the Act. Under the scheme of Section 141(1) if it is proved by the prosecution that the accused

person was in charge of and responsible to the Company in the conduct of its business at any stage of commission of the offence and the accused

fails to prove his ignorance or exercise of due diligence to prevent the commission of the offence, then by virtue of the deeming fiction, he has to be

deemed to be guilty of the offence.

In the above said facts and circumstances, I am of the considered view that no case has been made out to quash the complaint or to set aside

the issuance of process against the petitioner in the impugned complaints.

In the result, these Criminal Original Petitions are dismissed. Consequently, the connected MPs are closed.