TaxTMI 
TaxTMI 
2017 (10) TMI 457
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....cused company and that on the entire reading of the complaint there is no averment against the petitioner as required under Section 141 of the Negotiable Instruments Act, warranting implication of the petitioner for the offence alleged and thereby the further proceedings against her is an abuse of process of law. 3. Learned counsel appearing for the respondent/complainant has vehemently contended that the petitioner is the wife of the Managing Director of the company and as such she is involved in the day to day affairs of the company and that she being a Director is also liable for prosecution under the Act. 4. For the sake of convenience, the relevant paragraphs in the complaint are extracted hereunder. "1. The complainant states that the accused company had business dealings with the complainant in the past and during such business transactions with the complainant, the accused company owes to the complainant various amounts on various dates and towards the discharge of the same, the accused in the capacity of Authorized Signatories issued the following cheques in favour of the complainant: Sl. No. Cheque No. & Date Cheque amount Rs. Drawn on (Ba....
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....At this juncture it is necessary to refer to Sections 138 and 141 of Negotiable Instruments Act, which extracted hereunder:- "138. Dishonour of cheque for insufficiency, etc., of funds in the account. Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless" (a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its valid....
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....tion of individuals; and (b) director , in relation to a firm, means a partner in the firm. 6. A perusal of the entire complaint shows that there is absolutely no averment against the petitioner who is arrayed as A-3 though she is in-charge and responsible for the day to day affairs of the company as contemplated under Section 141 of the Act. 7. In the judgment reported in (2005) 8 SCC 89 (S.M.S.Pharmaceuticals Ltd., vs. Neeta Bhalla), the Hon'ble Apex Court has held as follows:- (paragraphs 1, 2, 10, 11, 12, 13, 14, 15 and 18) "1. This matter arises from a reference made by a two Judge Bench of this Court for determination of the following questions by a larger Bench : " (a) 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. (b) whether a director of a company would be deemed to be in charge of, and responsible to, the company....
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....ipt of the said notice. Explanation For the purposes of this section, "debt or other liability" means a legally enforceable debt or other liability. 141. Offences by companies [1] If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be 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 [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 attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretar....
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....t if a director of a Company who was not in charge of and was not responsible for the conduct of the business of the company at the relevant time, will not be liable under the provision. The liability arises from being in charge of and responsible for conduct of business of the company at the relevant time when the offence was committed and not on the basis of merely holding a designation or office in a company. Conversely, a person not holding any office or designation in a Company may be liable if he satisfies the main requirement of being in charge of and responsible for conduct of business of a Company at the relevant time. Liability depends on the role one plays in the affairs of a Company and not on designation or status. If being a Director or Manager or Secretary was enough to cast criminal liability, the Section would have said so. Instead of "every person" the section would have said "every Director, Manager or Secretary in a Company is liable".etc. The legislature is aware that it is a case of criminal liability which means serious consequences so far as the person sought to be made liable is concerned. Therefore, only persons who can be said to be connected with the com....
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....erely a director of the Company cannot be fastened with criminal liability for an offence under Section 138 of the Negotiable Instruments Act unless it is shown that he was involved in the day-today affairs of the company and was responsible to the company." Further, it was held that allegations in this behalf have to be made in a complaint before process can be issued against a person in a complaint. To same effect is the judgment of the Madras High Court in R. Kannan v. Kotak Mahindra Finance Ltd. 2003 (115) CC (Mad) In Lok Housing and Constructions Ltd. v. Raghupati Leasing and Finance Ltd. and another [2003 (115) CC (Del) 957], the Delhi High Court noticed that there were clear averments about the fact that accused No.2 to 12 were officers in charge of and responsible to the company in the conduct of day-to-day business at the time of commission of offence. Therefore, the Court refused to quash the complaint. In Sunil Kumar Chhaparia v. Dakka Eshwaraiah and another [2002 (108) CC (AP) 687, the Andhra Pradesh High Court noted that there was a consensus of judicial opinion that: " a director of a company cannot be prosecuted for an offence under Section 138 of t....
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....d out in the complaint against the person sought to be made liable. Section 141 of the Act contains the requirements for making a person liable under the said provision. That respondent falls within parameters of Section 141 has to be spelled out. A complaint has to be examined by the Magistrate in the first instance on the basis of averments contained therein. If the Magistrate is satisfied that there are averments which bring the case within Section 141 he would issue the process. We have seen that merely being described as a director in a company is not sufficient to satisfy the requirement of Section 141. Even a non director can be liable under Section 141 of the Act. The averments in the complaint would also serve the purpose that the person sought to be made liable would know what is the case which is alleged against him. This will enable him to meet the case at the trial. 8. In the later decision reported in 2014 (16) SCC 1 (Pooja Ravinder Devidasani Versus State Of Maharashtra), the Hon'ble Apex Court has held as follows:- (paragraphs 17 to 21) 17 There is no dispute that the appellant, who was wife of the Managing Director, was appointed as a Director of th....
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....as accused in a complaint merely on the basis of a statement that they are in charge of and responsible for the conduct of the business of the company without anything more is not a sufficient or adequate fulfillment of the requirements under Section 141. 18 In Girdhari Lal Gupta Vs. D.H. Mehta & Anr. (1971) 3 SCC 189, this Court observed that a person 'in charge of a business' means that the person should be in overall control of the day to day business of the Company. 19 A Director of a Company is liable to be convicted for an offence committed by the Company if he/she was in charge of and was responsible to the Company for the conduct of its business or if it is proved that the offence was committed with the consent or connivance of, or was attributable to any negligence on the part of the Director concerned [See: State of Karnataka Vs. Pratap Chand & Ors. (1981) 2 SCC 335]. 20 In other words, the law laid down by this Court is that for making a Director of a Company liable for the offences committed by the Company under Section 141 of the N.I. Act, there must be specific averments against the Director showing as to how and in what manner the D....