2007 (4) TMI 625 - SC - Companies Law

Supreme Court: Magistrate lacks jurisdiction to recall summons under Section 141

The Supreme Court held that the Magistrate lacked jurisdiction to recall the summons and found the allegations in the complaint were adequate to summon ... Whether for purposes of Section 141 of the Negotiable Instruments Act, 1881, it is sufficient if the substance of the allegation read as a whole fulfill the requirements of the said section and it is not necessary to specifically state in the complaint that the persons accused was in charge of, or responsible for, the conduct of the business of the company? - Held that:- It is necessary to specifically aver in a complaint under Section 141 that at the time the offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company. This averment is an essential requirement of Section 141 and has to be made in a complaint. Whether a director of a company would be deemed to be in charge of, and responsible to, the company for conduct of the business of the company and, therefore, deemed to be guilty of the offence unless he proves to the contrary? - Held that:- Answer to this question is in negative. Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for the conduct of its business. The requirement of Section 141 is that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a director in such cases. Even if it is held that specific averments are necessary, whether in the absence of such averments the signatory of the cheque and or the Managing Directors of Joint Managing Director who admittedly would be in charge of the company and responsible to the company for conduct of its business could be proceeded against? - Held that:- The answer to Question has to be in the affirmative. The question notes that the managing director or joint managing director would be admittedly in charge of the company and responsible to the company for the conduct of its business. When that is so, holders of such positions in a company become liable under Section 141 of the Act. By virtue of the office they hold as managing director or joint managing director, these persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 141. So far as the signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under sub-section (2) of Section 141. Issues Involved1. Jurisdiction of the Magistrate to recall summons.2. Sufficiency of allegations in the complaint to summon the accused.3. Application of Section 141 of the Negotiable Instruments Act.Detailed Analysis1. Jurisdiction of the Magistrate to Recall SummonsThe Supreme Court addressed whether the Magistrate had the jurisdiction to recall the order issuing summons. The Court referred to the precedent set in *Adalat Prasad v. Rooplal Jindal and Others* [(2004) 7 SCC 338], which held that a Magistrate does not have inherent jurisdiction to recall an order of issuance of process. The Court reiterated that the Code of Criminal Procedure does not provide for review or interference at interlocutory stages, thereby affirming that the Magistrate acted beyond his jurisdiction in recalling the summons.2. Sufficiency of Allegations in the Complaint to Summon the AccusedThe Supreme Court evaluated whether the allegations in the complaint were sufficient to summon Respondent Nos. 2 and 3. The High Court had dismissed the applications, noting that the complaint contained only omnibus allegations without specific averments regarding the involvement of the accused in the conduct of the business or the issuance of the cheque. The Supreme Court, however, found that the complaint had made specific allegations that Respondent Nos. 2 and 3 were involved in meetings and negotiations related to the payments, thus satisfying the requirements of Section 141 of the Negotiable Instruments Act.3. Application of Section 141 of the Negotiable Instruments ActThe Court extensively discussed the applicability of Section 141, which deals with offenses by companies. It cited the precedent in *S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Anr.* [(2005) 8 SCC 89], which necessitates specific averments in the complaint that the accused was in charge of and responsible for the conduct of the business of the company at the relevant time. The Supreme Court found that the complaint did indeed contain such averments, stating that Respondent Nos. 2 and 3 were actively involved in the business dealings and negotiations, thereby making them liable under Section 141.The Court also referred to *Saroj Kumar Poddar v. State (NCT of Delhi) and Anr.* [2007 (2) SCALE 36], which emphasized that a complaint must specifically state how the accused was responsible for the conduct of the business. The Supreme Court concluded that the allegations in the complaint were sufficient to establish a prima facie case against Respondent Nos. 2 and 3, as they were involved in the meetings and issuance of cheques.ConclusionThe Supreme Court set aside the impugned judgment of the High Court, holding that the Magistrate did not have the jurisdiction to recall the summons and that the allegations in the complaint were sufficient to summon the accused under Section 141 of the Negotiable Instruments Act. The appeal was allowed, reinstating the summons against Respondent Nos. 2 and 3.