1985 (10) TMI 249 - HC - Companies Law

Court quashes criminal proceedings due to lack of evidence, petitioners not held criminally liable

Rachana Flour Mills (P) Ltd. Versus Lal Chand Bhanagadiya

The court quashed criminal proceedings under Section 482, Criminal Procedure Code, finding no evidence of direct involvement or connivance by the accused ... Offences against the act to be cognizable only on complaints by registrar, etc. Issues Involved:1. Quashing of criminal proceedings under Section 482, Criminal Procedure Code.2. Civil vs. criminal liability for dishonored cheques.3. Vicarious liability of company directors and agents.4. Applicability of the Negotiable Instruments Act and Companies Act.5. Conspiracy and fraud allegations.Issue-Wise Detailed Analysis:1. Quashing of Criminal Proceedings under Section 482, Criminal Procedure Code:The petitioners sought to quash the proceedings in C.C. No. 58 of 1985 on the grounds that some were not directors at the time of the alleged transaction, and that the matter was civil rather than criminal. The court examined whether the allegations in the complaint constituted any offense, referencing the Supreme Court's decision in *Delhi Municipality v. Ram Kishan Rohtagi* which stated that proceedings could be quashed if no offense was constituted based on the complaint alone.2. Civil vs. Criminal Liability for Dishonored Cheques:The court analyzed the relevant provisions of the Negotiable Instruments Act, 1881, particularly sections 6, 30, 31, and 91-94. It was concluded that dishonor of a cheque does not automatically lead to criminal liability unless it is proven that the drawer knew there were insufficient funds and intended to cheat the payee. This principle was supported by cases such as *M. M. S. T. Chidambaram Chettiar v. Shanmugham Pillai* and *P. Eswara Reddy v. State of A.P.*3. Vicarious Liability of Company Directors and Agents:The court discussed the concept of vicarious liability under section 34 of the Companies Act, 1956, and section 33 of the Companies Act, which holds every person in charge of the company at the time of the offense liable. However, it was emphasized that mere directorship does not automatically impose criminal liability without evidence of direct involvement or connivance in the alleged criminal activity. This was further supported by the case *Sakhirchand Dhavan v. State of A.P.*4. Applicability of the Negotiable Instruments Act and Companies Act:The court reiterated that under the Negotiable Instruments Act, a broken promise to pay via a post-dated cheque is not a criminal offense unless there is evidence of intent to defraud. Additionally, under the Companies Act, criminal liability can only be imposed if it is proven that the directors or managers were actively involved in or consented to the fraudulent activity. This principle was supported by the case *Public Prosecutor v. S. Srinivasan.*5. Conspiracy and Fraud Allegations:The court examined the allegations of conspiracy and fraud, noting that the complaint did not provide sufficient evidence of direct representation or involvement by the petitioners in the alleged fraudulent transaction. The court referenced *State of U.P. v. Joti Prasad* to highlight that fraudulent representation by an agent can implicate the principal, but in this case, no such direct involvement was proven.Conclusion:The court concluded that the petitioners (accused Nos. 1, 3 to 8) were not criminally liable as there was no evidence of their direct involvement or connivance in the alleged fraudulent transaction. The proceedings in C.C. No. 58 of 1985 were quashed, and the criminal miscellaneous petition was allowed.