2021 (2) TMI 404 - HC - Indian Laws

Application to Quash Proceedings Dismissed under Section 138

The court dismissed the application to quash the proceedings under Section 138 of the Negotiable Instruments Act, holding that the complaint sufficiently ... Dishonor of Cheque - duties and rights of Director on behalf of the company - specific averments in the complaint that applicants were responsible for conduct of business of the company, present or not - It has been argued by learned counsel for applicants that the impugned summoning order has been passed without applying judicial mind - Applicability of Section 141 of Negotiable Instrument Act - HELD THAT:- It is apparent that it is necessary to specifically aver in a complaint under section 141 of Negotiable Instrument Act 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 of Negotiable Instrument Act. The requirement of Section 141 of Negotiable Instrument Act 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 - However, in view of law laid down in case of N. Rangachari [2007 (4) TMI 621 - Supreme Court] it is equally clear that if from reading the complaint as a whole, it appears that the allegations in the complaint are that at the time at which the dishonoured cheque was issued by the company, the persons were the Directors of the company and were in-charge of the affairs of the company, it is not proper to split hairs in reading the complaint so as to come to a conclusion that the allegations as a whole are not sufficient to show that at the relevant point of time the appellant and the other are not alleged to be persons in-charge of the affairs of the company. In such facts and circumstances on the other elements of an offence under Section 138 of Negotiable Instrument Act being satisfied, the burden is on the Board of Directors or the Officers in-charge of the affairs of the company to show that they are not liable to be convicted. Thus, it is not the mere terminology but the substance of complaint, which matters for consideration whether the Directors were in charge and responsible for conduct of business of the company or not. In the instant case it may be observed that there are allegations in the impugned complaint that applicant No. 2 and 3 are Directors of the company (applicant No. 1) and they were responsible for duties and rights on behalf of the applicant No. 1-company and that the cheque in question was issued by applicant No. 2 in presence of applicant No. 3 for payment of paddy supplied by the opposite party No. 2 to the said company and that they have assured that the cheque would be honoured. It is not being disputed that said cheque was dishonoured due to 'account closed'. The version of applicants, that said cheque was given by late C.P. Chaudhary as a blank cheque for security but the complainant has made forgery by filling the amount, date and his name in said cheque, cannot be accepted. In the instant case considering the impugned complaint as whole, it cannot be said that there are no averments that applicant Nos.2 and 3 were not in-charge and responsible for conduct of business of company. Further it is not the case of applicants that any other Director or Official of company was responsible for conduct of business of company. There are specific allegations that applicant nos.2 and 3 are Directors of said company and that the paddy was supplied to the company on their assurance. Thus, the contention of learned counsel for applicants that in view of Section 141 of Negotiable Instrument Act, the applicants cannot be held liable for criminal proceedings, has no force - Similarly, the version of applicants that the said cheque was given to opposite party no.2 as a blank cheque for security by deceased Director C.P. Chaudhary but after death of said C.P. Chaudhary, the opposite party no.2 has committed forgery by entering the said amount, date and name in the cheque, is liable to be outrightly rejected. It is apparent from record that after the cheque was dishonoured, the opposite party no.2 has issued a demand notice calling for payment against the said cheque but no payment was made. It is well-settled that the jurisdiction to quash a complaint, FIR or a charge-sheet should be exercised sparingly and only in exceptional cases. Thus, inherent power of High Court has to be exercised in exceptional cases and to prevent the abuse of process or otherwise to secure ends of justice. The jurisdiction under Section 482 Cr.P.C. is discretionary, therefore, the High Court may refuse to exercise the discretion if a party has not approached it with clean hands. The inherent power should not be exercised to stifle a legitimate prosecution. In the instant case considering material on record and from the aforesaid discussion, it cannot be said that a prima facie case is not made out. This Court is of the considered view that matter required adjudication by trial court and that no case for quashing of the impugned proceedings or the impugned summoning order is made out - The instant application under Section 482 Cr.P.C lacks merit and is accordingly dismissed. Issues Involved:1. Quashing of entire proceedings of Complaint Case No. 52 of 2017 under Section 138 of the Negotiable Instruments Act, 1881.2. Validity of the summoning order dated 23.03.2017.3. Specific averments regarding the responsibility of the Directors in the conduct of business.4. Allegations of forgery and misuse of a blank cheque.5. Applicability of vicarious liability under Section 141 of the Negotiable Instruments Act.Detailed Analysis:1. Quashing of entire proceedings of Complaint Case No. 52 of 2017 under Section 138 of the Negotiable Instruments Act, 1881:The applicants sought to quash the entire proceedings of Complaint Case No. 52 of 2017, arguing that the complaint lacked specific averments that the applicants were responsible for the conduct of the company’s business at the time of the alleged offense. The court reiterated that for fixing liability under Section 138 read with Section 141 of the Negotiable Instruments Act, it must be shown that the directors were in charge and responsible for the conduct of the business of the company. The court referenced several precedents, including the Central Bank of India case, which emphasized the necessity of specific allegations against directors to establish vicarious liability.2. Validity of the summoning order dated 23.03.2017:The applicants contended that the summoning order was passed without applying judicial mind and lacked specific averments against them. The court examined the complaint and found that there were sufficient allegations indicating that the applicants were responsible for the conduct of the company's business and had issued the dishonored cheque. The court held that the substance of the complaint, rather than specific terminology, is crucial in determining the responsibility of the directors.3. Specific averments regarding the responsibility of the Directors in the conduct of business:The court emphasized that specific averments are essential to establish that the directors were in charge and responsible for the conduct of the company's business. The complaint must contain clear and unambiguous allegations showing the directors' involvement in the transaction. The court noted that the complaint in this case contained sufficient allegations that the applicants were responsible for the conduct of the business and had issued the cheque in question.4. Allegations of forgery and misuse of a blank cheque:The applicants claimed that the cheque was issued as a blank security cheque by the deceased director and was later forged by the complainant. The court dismissed this argument, stating that such defenses could not be considered at the stage of quashing proceedings under Section 482 Cr.P.C. The court noted that these allegations could be examined during the trial.5. Applicability of vicarious liability under Section 141 of the Negotiable Instruments Act:The court discussed the principles of vicarious liability under Section 141, citing several precedents, including the National Small Industries Corporation Ltd. case. It emphasized that vicarious liability must be specifically pleaded and proved, and mere designation as a director is insufficient. The court found that the complaint contained necessary averments indicating that the applicants were in charge and responsible for the conduct of the business.Conclusion:The court concluded that the complaint contained sufficient allegations to establish a prima facie case against the applicants. It held that the summoning order was valid and that the matter required adjudication by the trial court. The application under Section 482 Cr.P.C. to quash the proceedings was dismissed, and any interim orders were vacated.