TaxTMI 
TaxTMI 
2022 (8) TMI 55
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....Panchami Stone Quarry, hereinafter referred to as "PSQ" filed a petition of complaint, inter alia, against the Appellants under Section 138/141 of the NI Act which was registered as Case No. AC/121/2017. 4. In the petition of complaint, PSQ impleaded M/s MBL Infrastructure Limited, a public limited company, within the meaning of the Companies Act 2013 (hereinafter referred to as "the Accused Company"), as Accused No.1. One Mr. Anjanee Kumar Lakhotia, Managing Director of the Accused Company was impleaded as the Accused No.2 and the Appellants were impleaded as Accused Nos. 3, 4 and 5. The Appellant No.1 was the fourth accused, Appellant No.2 was the fifth accused and Appellant No.3 was the third accused. 5. In the said petition of complaint, PSQ alleged "Accused Nos.2, 3, 4 and 5 are the Directors of Accused No.1. i.e., M/s MBL Infrastructures Ltd. respectively [and] are responsible to conduct the day-to-day business affairs of the Accused No.1 ." 6. The Accused Company placed orders on PSQ on different dates for purchase, inter alia, of Stone Dust and Stone Aggregate. Purchase Orders dated 24.12.2015, 25.05.2016, 07.01.2016 and 09.04.2016 were issued by the Accused Compan....
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....same day, the Judicial Magistrate, 2nd Court, Suri, Birbhum, West Bengal, received the case records for trial and disposal. 14. On 26th March 2018, the Accused appeared through Advocates and filed petitions under Section 205 of the Cr.P.C. and under Section 305 of the Cr.P.C. Sections 205 and 305 of the Cr.P.C. are set out hereinbelow:- "Section 205. Magistrate may dispence with personal appearance of accused.- (1) Whenever a Magistrate issues a summons, he may, if he sees reason so to do, dispense with the personal attendance of the accused and permit him to appear by his pleader. (2) But the Magistrate inquiring into or trying the case may, in his discretion, at any stage of the proceedings, direct the personal attendance of the accused, and, if necessary, enforce such attendance in the manner hereinbefore provided." *** "Section 305. Procedure when corporation or registered society is an accused.- (1) In this section, "corporation" means an incorporated company or other body corporate, and includes a society registered under the Societies Registration Act, 1860 (21 of 1860). (2) Where a corporation is the accused person or one of t....
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....a, praying that the proceedings in Case No.AC.121/2017 under Section 138 read with Section 141 of the NI Act pending in the Court of the Judicial Magistrate, 2nd Court, Suri be quashed and pending such order, all proceedings in the said case be stayed. 18. In the High Court, it was contended that the Judicial Magistrate, 2nd Court, Suri, dealt with the application under Section 205 of the Cr.P.C. without considering whether any useful purpose would be served by requiring the personal attendance of the Accused or whether the progress of the trial was likely to be hampered on account of their absence. 19. By the judgment and order impugned in this Appeal, a Single Bench of the High Court rejected the application under Section 482 of the Cr.P.C. Being aggrieved, the Appellants have approached this Court. The Appellants claim that they are independent non-executive Directors of the Accused Company, who are in no way responsible for the day-to-day affairs of the Accused Company. 20. Mr. Sidharth Luthra appearing on behalf of the Appellants submitted that Section 205 of the Cr.P.C. confers discretion on the Court to exempt personal appearance of an accused, till such time as his....
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....al action. It follows from this that 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 the 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 the 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 perso....
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....ceding financial years or during the current financial year: Provided that the relative may hold security or interest in the company of face value not exceeding fifty lakh rupees or two per cent. of the paid-up capital of the company, its holding, subsidiary or associate company or such higher sum as may be prescribed; (ii) is indebted to the company, its holding, subsidiary or associate company or their promoters, or directors, in excess of such amount as may be prescribed during the two immediately preceding financial years or during the current financial year; (iii) has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, its holding, subsidiary or associate company or their promoters, or directors of such holding company, for such amount as may be prescribed during the two immediately preceding financial years or during the current financial year; or (iv) has any other pecuniary transaction or relationship with the company, or its subsidiary, or its holding or associate company amounting to two per cent or more of its gross turnover or total income singly or in combination with the....
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....d that responsibility of exercising due diligence before selecting a person from the data bank referred to above, as an independent director shall lie with the company making such appointment. (2) The appointment of independent director shall be approved by the company in general meeting as provided in sub-section (2) of Section 152 and the explanatory statement annexed to the notice of the general meeting called to consider the said appointment shall indicate the justification for choosing the appointee for appointment as independent director. (3) The data bank referred to in sub-section (1), shall create and maintain data of persons willing to act as independent director in accordance with such rules as may be prescribed. (4) The Central Government may prescribe the manner and procedure of selection of independent directors who fulfil the qualifications and requirements specified under Section 149. 28. In K.K. Ahuja v. V.K. Vora (2009) 10 SCC 48 this Court discussed the principles of the vicarious liability of the officers of a company in respect of dishonour of a cheque and held: - "27. The position under Section 141 of the Act can be summa....
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....rs of the running of its business and only monitors the executive activity. To fasten vicarious liability under Section 141 of the Act on a person, at the material time that person shall have been at the helm of affairs of the company, one who actively looks after the day-to-day activities of the company and is particularly responsible for the conduct of its business. Simply because a person is a Director of a company, does not make him liable under the NI Act. Every person connected with the Company will not fall into the ambit of the provision. Time and again, it has been asserted by this Court that only those persons who were in charge of and responsible for the conduct of the business of the Company at the time of commission of an offence will be liable for criminal action. A Director, 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 for an offence under Section 141 of the NI Act. In National Small Industries Corpn. [National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal, (2010) 3 SCC 330 : (2010) 1 SCC (Civ) 677 : (2010) 2 SCC (Cri) 1113] this Court observed: (SCC p. 336, paras 13-1....
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....n charge of, and is responsible to the company for the conduct of the business of the company. This is because the prefix "Managing" to the word "Director" makes it clear that the Director was in charge of and responsible to the company, for the conduct of the business of the company. A Director or an Officer of the company who signed the cheque renders himself liable in case of dishonour. Other officers of a company can be made liable only under sub-section (2) of Section 141 of the NI Act by averring in the complaint, their position and duties in the company, and their role in regard to the issue and dishonour of the cheque, disclosing consent, connivance or negligence. 31. In course of the hearing Mr. Luthra emphasized on the proceedings initiated against the Accused Company under Section 7 of the Insolvency and Bankruptcy Code 2016, hereinafter referred to as the "IBC". 32. By an order dated 30th March 2017, the Calcutta Bench of the National Company Law Tribunal, hereinafter referred to as the "NCLT", admitted the application of a Financial Creditor of the Accused Company for appointment of an Interim Resolution Professional (IRP) to administer the Accused Company, as a ....
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....of the business of the company and they get covered under Section 141 of the NI Act. A signatory of a cheque is clearly liable under Section 138/141 of the NI Act. 38. The High Court, however, failed to appreciate that none of these Appellants were Managing Director or Joint Managing Director of the Accused Company. Nor were they signatories of the cheque which was dishonoured. 39. The High Court proceeded to hold that, in construing a complaint, a hyper technical approach should not be adopted, to quash the same. The High Court observed rightly that the laudable object of preventing bouncing of cheques and sustaining the credibility of commercial transactions, resulting in enactment of Sections 138 and 141 of the NI Act has to be borne in mind. A complaint should also not be read with a pedantically hyper technical approach to deny relief under Section 482 of the Cr.P.C. to those impleaded as accused, who do not have any criminal liability in respect of the offence alleged in the complaint. As observed by the High Court, the provisions of Section 138/141 of the NI Act create a statutory presumption of dishonesty, against those covered by Section 138/141 of the NI Act and exp....
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....-Executive Director is not involved in the day-to-day affairs of the company or in the running of its business. Such Director is in no way responsible for the day-to-day running of the Accused Company. Moreover, when a complaint is filed against a Director of the company, who is not the signatory of the dishonoured cheque, specific averments have to be made in the pleadings to substantiate the contention in the complaint, that such Director was in charge of and responsible for conduct of the business of the Company or the Company, unless such Director is the designated Managing Director or Joint Managing Director who would obviously be responsible for the company and/or its business and affairs. 44. The High Court correctly observed that three categories of persons were covered by Section 141 of the NI Act - the company who committed the offence as alleged; everyone who was in-charge of or was responsible for the business of the company and any other person who was a Director or a Manager or a Secretary or Officer of the Company with whose connivance or due to whose neglect the company had committed the offence. 45. Even though the High Court deprecated the adoption of a hype....