TaxTMI 
TaxTMI 
TaxTMI 
2010 (9) TMI 228
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....under : "11. The trial under section 138 of NI Act cannot be carried like any other summons trial under IPC offences. The documents placed on record of the Court about the dishonour of cheque are the documents from banks and unless the accused says that these documents are forged, or he had not issued the cheque at all, he did not have any account in the bank, the cheque was not signed by him, the cheque book was forged by the complainant or other similar claim, the evidence of the complainant about dishonour of cheque cannot be questioned, nor the complainant can be asked to depose before the court again. If the case under section 138 of N.I. Act, which is document based, is not tried in summary manner, the sole purpose of making this offence summary trial stands defeated. Thus in all cases under section 138 of N.I. Act, once evidence is given by way of affidavit, at the stage of pre-summoning, the same evidence is to be read by the court at post-summoning stage and the witness need not be recalled at post-summoning stage unless court of MM, for reasons, considers it necessary." 2. This Court also specified the steps in a complaint under section 138 to be taken as under : "17. ....
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.... the Directors of companies is to prolong the trials under section 138 of NI Act. While when the cheque issued by a Company is dishonoured and notice of demand is issued, the propriety calls that the company should pay the amount against dishonoured cheque on receiving notice from the person to whom cheque was issued, however instead of paying the cheque amount and settle the issue, the effort is to deprive the complainant of the cheque amount. 5. Supreme Court had considered the purpose of provisions of the Negotiable Instruments Act and the exchanges made therein in Damodar S. Prabhu v. Syed Babalal H. AIR 2010 SC 19071 and had observed that the intent of Legislature was to provide a strong criminal remedy in order to deter the worryingly high incidence of dishonour of cheques. It was further observed that the dishonour of cheque can best be described as a regulatory offence that has been created to serve the public interest in ensuring the reliability of these instruments. 6. However, whatever be the law, it is apparent that the incidence of dishonour of cheques had not reduced because the law has not been implemented with same seriousness with which it was enacted, nor the Co....
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.... on their power by the provisions of the Companies Act. It is well-settled that Directors, while exercising their powers, do not act as agents for the majority or even all the members and so the members cannot by a resolution passed by a majority of even unanimously, supersede the Directors' power and instruct them how they shall exercise their power. The powers of management are vested in Directors and they alone can exercise these powers. The only way in which the General Body of a company can overrule the BoD is altering the Articles and refusing to re-elect the Directors, whose actions they disapprove. The shareholders cannot themselves usurp the powers, which by Articles are vested in the Directors. Thus, the relationship of BoD with the shareholders is more of a federation than that one of subordinate and superior. 9. Under the Companies Act, BoD has powers to make calls on shareholders in respect of money unpaid on their share, power to authorize the buy- back, power to issue debentures, power to borrow moneys otherwise than on debentures, power to invest the funds of the company and power to take and make loans. There is no doubt that BoD may, by a resolution passed at a m....
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....y of the offence and shall be liable to be proceeded against and proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence : Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter. (2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attribute to, any neglect on the part of, any Director, Manager, secretary, or other office of the company, such Director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished acc....
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.... people so that people may invest in the company. The law permits one person to hold Directorship of as many as 20 companies. Taking benefit of this, some successful persons lend their names, of course for value, to such companies who had no intention to do business and had only intention to cheat. Should the Court presume that the big persons who lend their names to the company as Directors cannot be held responsible for the actions of the company without there being any material placed before the Court that a particular Director had only lent the name and was actually not interested in functioning of the company? Who would know as to which Director performs what function in the company when as per law the whole body of BoD work as soul and mind of the company. 12. The Directors have collective responsibility towards the company. It is quite possible and is usual practice that different Directors among themselves divide responsibilities within the company, but this is an internal arrangement made by the BoD amongst themselves as to who shall look after what. It is also quite true that they appoint Managing Director, Managers, Secretary, paid Directors, paid whole-time Directors b....
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....management of the company is run by BoD and MD. Some companies are too big that it is not possible for one MD to humanly look after all affairs of the company and different Managing Directors, paid Directors are assigned different powers by the BoD. Again this fact is within the special knowledge of BoD and when summons are issued to these Directors under section 138 of NI Act, they can place before the Court of MM, after taking notice under section 251 Cr.P.C, the relevant material showing that the BoD by some resolution had delegated the powers for managing company to "XYZ". It can never be in the knowledge of an outsider as to what different resolutions were passed by the BoD of a company delegating powers, who were the persons to whom powers were delegated, what powers were delegated and who has to manage what. I, therefore, consider that benefit of section 141 of not facing the prosecution because of having no responsibility of managing the business of the company can be availed only after disclosing to the Court and proving before the Court that the particular Director was not the one who was involved for conducting the business of the company. As there is a presumption under....
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.... is dishonoured is in no position to prove whether the Director was responsible for conduct of business or not. The Director by virtue of his being a Director is responsible for conduct of business under law and if he says that he was not responsible he is supposed to prove the same. A person who is caught without ticket by virtue of his being caught without ticket is supposed to have committed a crime. If he says that he did purchase a ticket but lost it, it is 'he' who has to prove that he purchased the ticket. The onus cannot be reversed and thrust upon the complainant. This Court had made this position clear in Bharat Poonam Chand Shah v. Dominos Printech India (P.) Ltd. [Crl. M.C. No. 3206 (Delhi) of 2007, dated 10-10-2007 being proposition of law and observed as under : "3. When a cheque is issued by a company to a supplier or to any person against liability, the person only knows that the cheque was issued by the company. He may not be knowing the Directors of the company. A creditor or supplier need not come in contact with Directors of the company. He may be dealing with lower level management of the company. When a cheque is dishonoured, he makes efforts to find out as t....
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....e 300]. In Guide to the Companies Act by A. Ramaiya (Sixteenth Edition) this position is summed up thus : "All the powers of management of the affairs of the company are vested in the Board of Directors. The Board thus becomes the working organ of the company. In their domain of power, there can be no interference, not even by shareholders. The Directors as a board are exclusively empowered to manage and are exclusively responsible for that management." Therefore, a person in the commercial world having a transaction with a company is entitled to presume that the Directors of the company are in-charge of the affairs of the company. If any restrictions on their powers are placed by the memorandum or articles of the company, it is for the Directors to establish it at the trial. It is in that context that section 141 of the Negotiable Instruments Act provides that when the offender is a company, every person, who at the time when the offence was committed was in-charge of and was responsible to the company for the conduct of the business of the company, shall also be deemed to be guilty of the offence along with the company. It appears to us that an allegation in the complaint that ....
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....that cheque that is dishonoured can be expected to allege is that the persons names in the complaint are in charge of its affairs. The Directors are prima facie in that position. 15. In fact, in an earlier decision in Monaben Ketanbhai Shah v. State of Gujarat (2004) 7 SCC 15, two learned Judges of this Court noticed that : "The laudable object of preventing bouncing of cheques and sustaining the credibility of commercial transactions resulting in enactment of sections 138 and 141 has to be borne in mind." 16. In the light of the ratio in S.M.S. Pharmaceuticals Ltd.'s case (supra ) what is to be looked into is whether in the complaint, in addition to asserting that the appellant and another are the Directors of the company, it is further alleged that they are in-charge of and responsible to the company for the conduct of the business of the company. We find that such an allegation is clearly made in the compliant which we have quoted above. Learned Senior Counsel for the appellant argued that in Soroj Kumar Poddar case (supra), this Court had found the complaint unsustainable only for the reason that there was no specific averment that at the time of issuance of the cheque that ....