TaxTMI 
TaxTMI 
2017 (12) TMI 1099
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....f convenience, the Special Criminal Application No.8347 of 2017 is treated as the lead matter. 4. By this writapplication under Article 226 of the Constitution of India, the writapplicant original accused no.4 has prayed for the following reliefs: 6 (A) be pleased to admit this petition. (B) be pleased to issue appropriate writ, or direction for quashing and set aside the process issued against the petitioner U/s.138 and 141 of the Negotiable Instrument Act, in Criminal Case registered as Criminal Complaint No.22500 of 2011 before Learned Chief Judicial Magistrate, Surat (AnnexureA) against the present petitioner in the interest of justice. (C) be pleased to stay the further proceeding in connection with Criminal Case registered as Criminal Complaint No.22500 of 2011 before Learned Chief Judicial Magistrate, Surat (AnnexureA) pending, admission, hearing and Final disposal of this petition. (D) be pleased to grant such other and further relief(s) as deem fit to grant in the interest of justice. 5. It appears from the materials on record that the respondent no.2 has filed various complaints against the M/s. Baroda Rayon Corporation Limited an....
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....ravelling expenses in connection with attendance of such meetings shall be paid by the company. The company shall fully cooperate with the Special Director and furnish to him such information/ material as he may call for the proper discharge of his functions/duties as Special Director. Sd (A.K.Goswami) Member sd/ (Ravindra Gupta) Chairman New Delhi - 110 001 Dated : 26th June, 2006. 7. The issue raised in this batch of writapplications is squarely covered by a decision of this Court in the case of 'Nikhil P. Gandhi Vs. State of Gujarat & Ors.' reported in (2016) 4 GLR 2838. I may quote relevant observations as under: 78 Before I proceed to consider the case of the other applicants, who have been arrayed as accused, by virtue of their vicarious liability, I propose to take note of the relevant portion of the complaint, which reads thus: 4) For and on behalf of accused No.1 Company, the accused No.2 had given cheque as security. In the year 2000 some cheques had arisen between the complainant firm and the accused No.2 and the accused No.1 Company did not pay legitimate amount of the complainant firm, therefore, the complainan....
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....the penal liability, through the legal fiction envisaged in Section 141 of the Negotiable Instruments Act. They are: (1) The company which committed the offence. (2) Every person who was incharge of and responsible to the company for the conduct of the business of the company. (3) Any other person who is a director or a manager or a secretary or any officer of the company with whose connivance or with whose neglect the company has committed the offence. [Followed in M/s. B.S.I. Ltd v. Gift Holdings Pvt Ltd, 2000 Cr. LJ 1424 : AIR 2000 SC 926] The Apex Court in the said case of Anil Hada further explaining the law as to the liability of the company and its directors, for committing offence of dishonour of cheque, has held that normally an offence can be committed by human beings who are natural persons. Such offence can be tried according to the procedure established by law. But there are offences which could be attributed to the juristic persons also. If the drawer of a cheque happens to be a juristic person like a body corporate it can be prosecuted for the offence under Section 138 of the Act. Now there is no scope for doubt regarding that aspect in view of the clear lan....
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.... the complaint must prima facie disclose the act committed by the Directors from which a reasonable inference of their vicarious liability cane be drawn. [Ashok Muthanna v. Exports Finance Ltd (2001) 2 Crimes 602 (Mad)] Vicarious liability in legal parlance means the liability of the master for the acts of the servant or agent done in the course of employment. Section 141 makes a natural person vicariously liable for the contravention committed by a company provided such person has some nexus with the crime either because of his connivance with it or due to by criminal negligence which had resulted in its commission. No doubt the law makes the principal liable for the acts of his agent, but unless there is some absolute duty cast upon the principal, he cannot be held responsible for the acts of his agent. [State of Shewprasad, AIR 1956 All. 610 : 1956 Cr.L.J. 1156] 80 In K.K. Ahuja (supra), the Supreme Court while explaining the vicarious liability of persons of the company observed as under: 16. Having regard to section 141, when a cheque issued by a company (incorporated under the Companies Act, 1956) is dishonoured, in addition to the company, the foll....
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....ecretary or other officer, though not in charge of the conduct of the business of the company will be liable if the offence had been committed with his consent or connivance or if the offence was a result of any 12 negligence on his part. The liability of persons mentioned in subsection (2) is not on account of any legal fiction but on account of the specific part played consent and connivance or negligence. If a person is to be made liable under subsection (2) of section 141, then it is necessary to aver consent and connivance, or negligence on his part. 19 This takes us to the next question under subsection (1) of section 141, as to (i) who are the persons who are responsible to the company for the conduct of the business of the company, and (ii) who could be said to be in charge and was responsible to the company for the conduct of the business of the company. The words "every person who, at the time of the offence was committed, was in charge of, and was responsible for the conduct of the business of the company" occurs not only in section 141(1) of the Act but in several enactments dealing with offences by companies, to mention a few section 278 B of the Income Tax Ac....
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....It follows that other employees of the company, cannot be said to be persons who are responsible to the company, for the conduct of the business of the company. 22 Section 141 uses the words "was in charge of, and was responsible to the company for the conduct of the business of the company". It is evident that a person who can be made vicariously liable under subsection (1) of Section 141 is a person who is responsible to the company for the conduct of the business of the company and in addition is also in charge of the business of the company. There may be many directors and secretaries who are not in charge of the business of the company at all. The meaning of the words "person in charge of the business of the company" was considered by this Court in Girdhari Lal Gupta v. D.N. Mehta [1971 (3) SCC 189] followed in State of Karnataka v. Pratap Chand [1981 (2) SCC 335] and Katta Sujatha vs. Fertiliser & Chemicals Travancore Ltd. [2002 (7) SCC 655]. This Court held that the words refer to a person who is in overall control of the day to day business of the company. This Court pointed out that a person may be a director and thus belongs to the group of persons making the pol....
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....manner the accused was guilty of consent and connivance or negligence and therefore, responsible under subsection (2) of Section 141 of the Act. 26 Another aspect that requires to be noticed is that only a Director, Manager, Secretary or other officer can be made liable under subsection (2) of section 141. But under subsection (1) of section 141, it is theoretically possible to make even a person who is not a director or officer, liable, as for example, a person falling under category (e) and (f) of section 5 of Companies Act, 1956. When in SMS Pharma (I), this Court observed that 'conversely, a person not holding any office or designation in a company may be liable if he satisfies the requirement of being in charge of and responsible for conduct of the business of the company', this Court obviously had in mind, persons described in clauses (e) and (f) of section 5 of Companies Act. Be that as it may. 27 The position under section 141 of the Act can be summarized thus : (i) If the accused is the Managing Director or a Joint Managing Director, it is not necessary to make an averment in the complaint that he is in charge of, and is responsible to th....
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....s and the cheque issued from one branch was dishonoured, the officers of all the 100 branches could be made accused by simply making an allegation that they were in charge of and were responsible to the company for the conduct of the business of the company. That would be absurd and not intended under the Act. 29 As the trauma, harassment and hardship of a criminal proceedings in such cases, may be more serious than the ultimate punishment, it is not proper to subject all and sundry to be impleaded as accused in a complaint against a company, even when the requirements of section 138 read and section 141 of the Act are not fulfilled. 81 In view of the aforesaid dictum of law explained by the Supreme Court, the other accused who have been arrayed as accused by virtue of Section 141 of the N.I. Act could not be held liable. I take notice of the fact that some of the accused are Office Bearers, like the Chief Operating Officer, Chief Financial Officer, Financial Controller. Some of the Directors are nominated Directors and also NonExecutive. 82 I am also not impressed by the argument of Mr. Ponda that as the inherent powers of this Court under Section 482 of....
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....ection 141 of the N.I. Act where an offence under Section 138 of the N.I. Act has been committed by a company, the complainant is required to give a serious thought and make enquiries and ascertain the fact as to whether a particular Director was incharge of and responsible to the affairs and conduct of the business of the company. Routinely roping in all the Directors by merely repeating the words used in Section 141 of the N.I. Act without ascertaining the facts is a serious matter which has to be deprecated. 85 Some of the applicants before me are indisputably nonexecutive Directors of the company. A nonexecutive Director is no doubt a custodian of the governance of the company, but does not involve in the daytoday affairs of the running of its business and only monitors the executive activity. [See: Pooja Ravinder Devidasani v. State of Maharastra, AIR 2015 SC 675] 86 In Pooja Ravinder Devidasani (supra), the Supreme Court made the following observations in para 30, which I deem fit to refer and rely upon : 30. Putting the criminal law into motion is not a matter of course. To settle the scores between the parties which are more in the nature of a civ....
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....ibers to the Memorandum of Association, or the company's charter or constitution ("Memorandum"), shall be deemed to be the Directors of the company, until such time when Directors are duly appointed in the annual general meeting ("AGM"). 2. Casual vacancies: Where a Director appointed at the AGM vacates office before his or her term of office expires in the normal course, the resulting vacancy may, subject to the Articles, be filled by the Board. Such person so appointed shall hold office up to the time which the Director who vacated office would have held office if he or she had not so vacated such office. 3. Additional Directors: If the Articles specifically so provide or enable, the Board has the discretion, where it feels it necessary and expedient, to appoint Additional Directors who will hold office until the next AGM. However, the number of Directors and Additional Directors together shall not exceed the maximum strength fixed in the Articles for the Board. 4. Alternate Director: If so authorized by the Articles or by a resolution passed by the company in general meeting, the Board may appoint an Alternate Director to act for a Director ("Origi....
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....r 4 and Chapter 5 that follow set out certain duties and liabilities that apply to, or can be affixed on, Directors in general. Whether nominee Directors are required by law to discharge such duties or bear such liabilities will depend on the application of the legal provisions in question, the fiduciary duties involved and whether such nominee Director is to be regarded as being in control or in charge of the company and its activities. This determination ultimately turns on the specific facts and circumstances involved in each case. B. Classification under the Listing Agreement The Securities Contracts (Regulation) Act, 1956, read with the rules and regulations made thereunder, requires every company desirous of listing its shares on a recognized Indian stock exchange, to execute a listing agreement ("Agreement") with such Indian stock exchange. This Agreement is in a standard format (prescribed by the Securities Exchange Board of India ("SEBI")), as amended by SEBI from time to time. The Agreement provides for the following further categories of Directors: Categories under Listing Agreement 1. Executive Director; 2. Nonexecutive Direc....
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.... e. is not a material supplier, service provider or customer or a lessor or lessee of the company, which may affect the independence of the Director; or f. he is not a substantial shareholder of the company, i.e., owning two percent (2%) or more of the block of voting shares; and g. he is not less than twentyone (21) years of age. Nominee directors appointed by an institution that has invested in, or lent money to, the company are also treated as independent Directors. 88 The following observations of the Supreme Court, made in the case of M/s. Pepsi Foods Ltd v. Special J.M. [1998 Cri. L.J. 1 : AIR 1998 SC 128] should be kept in mind by the Magistrates, when they decide to summon a director or partner of a company or firm to face trial under Section 138 of the Negotiable Instruments Act. Summoning of an accused in a criminal case is a serious matter. Criminal law cannot be set into motion as a matter of course. It is not that the complainant has to bring only two witnesses to support his allegations in the complaint to have the criminal law set into motion. The order of the Magistrate summoning the accused must reflect that he has ....
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....Supreme Court, after considering its earlier judgment on the point in question, held as under: 7. This provision clearly shows that so far as the companies are concerned if any offence is committed by it then every person who is a Director or employee of the company is not liable. Only such person would be held liable if at the time when offence is committed he was in charge and was responsible to the company for the conduct of the business of the company as well as the company. Merely being a Director of the company in the absence of above factors will not make him liable. 8. To launch a prosecution, therefore, against the alleged Directors there must be a specific allegation in the complaint as to the part played by them in the transaction. There should be clear and unambiguous allegation as to how the Directors are incharge and responsible for the conduct of the business of the company. The description should be clear. It is true that precise words from the provisions of the Act need not be reproduced and the Court can always come to a conclusion in facts of each case. But still in the absence of any averment or specific evidence the net result would be that co....
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.... the High Court's powers under Section 482 of the Code. The High Court always uses and must use this power sparingly and with great circumspection to prevent inter alia the abuse of the process of the Court. There are no fixed formulae to be followed by the High Court in this regard and the exercise of this power depends upon the facts and circumstances of each case. The High Court at that stage does not conduct a mini trial or roving inquiry, but, nothing prevents it from taking unimpeachable evidence or totally acceptable circumstances into account which may lead it to conclude that no trial is necessary qua a particular Director. 91 In view of the above, there is no cogent material on record to fasten any vicarious liability so far as the other accused are concerned who are NonExecutive Directors including the Office Bearers concerned with the Accounts Department of the company. 92 The plain reading of Section 138 of the N.I. Act would clearly go to show that by reason thereof, a legal fiction had been created. A legal fiction, as is wellknown, although is required to be given full effect, yet has its own limitations. It cannot be taken recourse to for any ....