2018 (2) TMI 1265 - HC - Indian Laws

Directors can be prosecuted under Section 141 for company's affairs; no need for inquiry under Section 202(1)

Raj Buildhome Pvt. Ltd., Bherulal Gulabchand Nagda, Ali Asgar Magar (Director), Adil Mohsin Magar (Director), Fida Hussain (Director), Imdad Hussain (Director), Hussaini Magar (Director), Saffudin Bohara (Director) Versus Khozim Yusuf Nagarwala

The court upheld the validity of the process issued against non-signatory petitioners under Section 138 of the Negotiable Instruments Act. It ruled that ... Dishonor of cheque - Offence punishable under Section 138 of the Negotiable Instruments Act - it is the allegation of the complainant in the complaint itself that accused nos. 2 and 3 on behalf of accused no.1 Company have signed the cheque. Therefore, rest of the accused persons are not responsible for dishonor of the cheque, since they have not signed the cheque. therefore, they cannot be prosecuted. Held that: - In the present case, the cheque is issued on behalf of the Company by accused no.1 signed by accused nos. 2 and 3 and rest of the accused persons are the Directors having knowledge of the same and that can be gathered from the contents of the complaint itself, wherein it is specifically contended that the cheque dated 1.10.2016 was given to the complainant after accused nos. 2 and 3 signed on behalf of accused no.1 and accused nos. 2 to 8 gave assurance that the cheque will be honoured on the due date and accordingly the complainant had accepted the same. So, accused nos. 2 to 8 are acting on behalf of accused no.1 Company and they are directly connected with the daytoday affairs of the Company. Therefore, they are liable for the prosecution as per the provisions of Section 141 of the Negotiable Instruments Act. It appears that if offence is committed by the Company, then every person who, at the time of offence was incharge and was responsible for the conduct of business of the Company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly - when all the Directors are connected with the business of the Company, it will make no difference if the cheque is issued by one or all the Directors, because the cheque was issued for and on behalf of the Company. It was also alleged that the learned Magistrate has issued process without complying with the mandatory provisions of Section 202 of the Criminal Procedure Code - Held that: - it appears that the object of Section 200 of the Criminal Procedure Code is to test whether the complainant makes out a sufficient ground for the purpose of issuing process. Amended Section 202 (1) of the Criminal Procedure Code makes it obligatory upon the learned Magistrate that before summoning the accused residing beyond the jurisdiction of the Court, he shall enquire the case himself or direct the investigation to be made by the police officer or such other person as he thinks fit for finding out whether or not there is sufficient ground to proceed against the accused. Thus, it appears that the object of such inquiry is to ensure that the innocent persons residing beyond the jurisdiction of the Magistrate are not harassed by unscrupulous persons by filing false complaints. Therefore, it casts a duty upon the Magistrate to arrive at prima facie satisfaction whether or not there is sufficient ground to proceed against the accused residing beyond his jurisdiction. The learned Magistrate is not under obligation to direct the investigation to be made by the police officer. If he himself is satisfied that there is prima facie case to issue process, then on its satisfaction, the learned Magistrate can issue process directly - In the present case, the complainant has submitted his affidavit in the form of verification of the complaint before the Court and on perusal of the contents of verified affidavit of the complainant and after satisfaction the learned Trial Court has issued process - there is no illegality with the order passed by the learned Magistrate. Petition dismissed. Issues Involved:1. Whether the process issued against non-signatory petitioners under Section 138 of the Negotiable Instruments Act is valid.2. Whether the Magistrate erred in issuing process without conducting an inquiry under Section 202(1) of the Criminal Procedure Code.Detailed Analysis:Issue 1: Validity of Process Issued Against Non-Signatory PetitionersThe petitioners argued that since they were not signatories to the cheque, the process issued against them was incorrect. They relied on the case of Aparna A. Shah vs Sheth Developers Pvt. Ltd. and Anr., which held that under Section 138 of the Negotiable Instruments Act, only the drawer of the cheque can be prosecuted. The court noted that in Aparna A. Shah, the appellant was not a drawer of the cheque, and the cheque was issued by her husband from their joint account.However, in the present case, the cheque was issued by the Company (accused no.1) and signed by accused nos. 2 and 3. The court observed that the remaining accused (nos. 2 to 8) were Directors of the Company and were directly connected with its day-to-day affairs. Thus, they could be prosecuted under Section 141 of the Negotiable Instruments Act, which holds every person responsible for the conduct of the business of the company liable for the offence committed by the company.The court concluded that the allegations against accused nos. 2 to 8 fell within the purview of Section 141, and therefore, the first point argued by the petitioners was not acceptable.Issue 2: Requirement of Inquiry Under Section 202(1) of the Criminal Procedure CodeThe petitioners contended that the Magistrate issued the process without complying with the mandatory provisions of Section 202(1) of the Criminal Procedure Code, which requires an inquiry when the accused resides outside the jurisdiction of the court. They cited Netcore Solutions Pvt. Ltd. vs Pinnacle Teleservices Pvt. Ltd. to support their argument.The court examined Sections 200 and 202 of the Criminal Procedure Code, noting that the amended Section 202(1) mandates an inquiry before summoning an accused residing beyond the court's jurisdiction to prevent harassment through false complaints. The court also considered the Supreme Court's observations in Vijay Dhanuka vs Najima Mamtaj, which emphasized the necessity of such an inquiry.However, the court also referred to Bansilal S. Kabra vs Global Trade Finance Ltd., where it was held that the inquiry under Section 202 might not apply to complaints under Section 138 of the Negotiable Instruments Act, as it would defeat the purpose of the Act. The court noted that the provisions of Sections 143 to 147 of the Negotiable Instruments Act override the Criminal Procedure Code to ensure the expeditious disposal of cheque dishonor cases.The court concluded that the Magistrate is not obligated to direct an investigation by the police if he is satisfied with the prima facie case based on the complainant's verification affidavit. In this case, the Magistrate issued the process after being satisfied with the verified affidavit of the complainant.ConclusionThe court found no illegality in the order passed by the Magistrate and dismissed the Criminal Writ Petition. The process issued against the petitioners was valid, and the Magistrate was not required to conduct an inquiry under Section 202(1) of the Criminal Procedure Code before issuing the process.