TaxTMI 
TaxTMI 
2014 (7) TMI 1377
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....ing summons against him as one of the Directors of M/s. Davangere Sugar Co. Ltd. Whereas, in Crl.P. No. 100576/2014, the petitioner was called upon before the Court after taking cognizance and issuance of summons by virtue of he being the Chairman of M/s. Shamanur Sugars Ltd. 3. After hearing the arguments of the learned Counsel for the petitioner and the respondent, I must express a word of appreciation that both the counsels have very effectively and efficiently assisted the Court in a befitting manner, to understand legal and factual dispute to be addressed by the Court. 4. Before adverting to the points which are involved in these cases, it is just and necessary to bear in mind few facts that led to filing of the above said Criminal petitions before this Court. 5. There is absolutely no dispute that the petitioner is one of the Directors of M/s. Davangere Sugars Co. Ltd. and also Chairman of M/s. Shamanur Sugars Ltd., Davanagere. 6. The respondent herein, a rival Sugar factory running under the name and style of M/s. India Sugars and Refineries Ltd., having its registered Office at Chitwadgi, Hospet, Bellary Dist., filed three private complaints against the accused ....
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....r the offences punishable under Sections 7 and 8 r/w. Section 10 of the EC Act and issued summons against the accused persons. Against which orders the present petitions are preferred. 8. There is no dispute between the parties with regard to the provisions under the EC Act and also with respect to the Sugar (Control) Order and Sugarcane orders and Notification issued by the Government from time to time, as noted above. 9. In all the above said cases, the legal point raised by the petitioner is that - he is one of the Directors of Davangere Sugars Co. Ltd., and Chairman of Shanamur Sugars Ltd., he has not been managing the affairs of the Company, therefore, he is not liable to be made as accused in these cases. It is specifically contended in the petitions that by virtue of his position as the Director and the Chairman, he is not liable to the acts of the Companies. Therefore, without there being any special and specific allegations against him, he cannot be prosecuted in a Criminal Case. That, there is no concept of vicarious liability so far as criminal matters are concerned. This is the only strong ground taken up by the petitioner. 10. The learned Counsel who is appear....
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....ition and also on facts having knowledge of the affairs of the Company is liable to be prosecuted. Therefore, the present petition filed u/s. 482 are not maintainable before this Court. 12. Having heard the arguments of the learned Counsel for the parties and also on going through the entire material placed before this court for consideration, the important points that would arise for consideration by this court are: (1) Whether the petitioner being the Director of M/s. Davangere Sugars Co. Ltd., and Chairman of M/s. Shamanur Sugars Co. Ltd., by virtue of his position, is liable to be prosecuted in a Criminal Case? (2) Whether on facts, the respondent has established that petitioner is having knowledge and has a specific role and active participation in the conduct and business of the Companies at the time of commission of the alleged offence by the companies? 13. Now, let me consider the above said points one by one. 14. Before adverting to the rulings relied upon by the respective parties, it is just and necessary to peep into the relevant provisions of the EC Act as to whether the Chairman, Directors and Managing Director of the Company are liable for ....
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....ime 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 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 attributable to, any neglect on the part of, any director, manager, secretary or oth....
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.... conclusion that prima-facie the offence has been committed with the consent and connivance or is attributable to neglect on the part of any of the members, then they are also liable to be prosecuted. Provision has been made for Directors, Managers, Secretaries and other officers of a company to cover them in cases of their proved involvement. By virtue of this provision, persons other than the person in charge of the conduct and business of the Company are also liable to be prosecuted. Therefore, for the purpose of proceeding against the persons other than the persons who are in charge of and are responsible to the Company for the conduct and business of the Company, some proof is required to prosecute them before the Court. In this background, some of the decisions of the Apex Court are to be looked into. 17. In the present case, I am concerned with the criminal liability of a Chairman or a Director. The normal rule in the case involving criminal liability is against vicarious liability, i.e., no one is to be held guilty of criminal liability for an act of another. This normal rule is however subject to exception on account of specific provision being made in the statute, exte....
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....lainant averred that "at the time of commission of offence, accused Nos. 2 to 9 were in charge of and responsible for the conduct of the day-to-day business of A1" and that therefore, they are deemed to be guilty of offence u/s. 138 r/w Section 141 of the NI Act. The Magistrate directed issuance of summons to all the accused, the respondent No. 1 (A9) filed two petitions u/s. 482 Cr.P.C. for quashing of the proceedings against him on the ground that as the Deputy Manager, he was not in-charge and responsible for the conduct and business of the Company. The High Court allowed the said petition and quashed the summoning order passed by the Magistrate. The order of the High Court was challenged before the Supreme Court and the Supreme Court held as follows: "if a mere reproduction of the wording of sec. 141(1) in the complaint is sufficient to make a person liable to face prosecution, virtually every officer/employee of a company without exception could be impleaded as accused merely making an averment that at the time when the offence was committed, they were in charge of and were responsible to the company for the conduct and business of the Company. That would be absurd an....
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....be of no assistance, but there should be necessary averments in the complaint as to how and in what manner the accused was guilty of consent and connivance or negligence and thereby responsible for the commission of the offence by the Company." 21. In fact, this Court also had an occasion to deal with similar matters under the EC Act between Smt. Vidya Murkumbi and Others vs. India Sugars and Refineries Ltd., in Crl.P. No. 7563/2009 dated 4.11.2009, wherein, learned brother Judge Justice Jawad Rahim, evaluated the provisions under the EC Act as well as the NI Act. Considering the averments made in the complaint etc., made the following observations: "25. From the case laws, it is clear that the statute has to be read and interpreted in its nakedness and when we do that we find clear distinction between the pedestal on which the principal officers of the company and other Directors and the person in-charge of the business are placed. I am, therefore, satisfied that in the instant case the position of the petitioners in the Company must be taken into consideration to decide whether the action is justified. As far as petitioners 3 to 11 are concerned, they fall in the cate....
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....ersonnel being in charge of/or responsible to the Company and its business and an element of presumption is being available against them. 22. Having looked into the above said decisions, it is crystal clear that there is almost unanimous judicial opinion that necessary averments ought to be contained in the complaint, particularly against a person who are not deemed to be persons in charge of a Company or looking after the day to day affairs of the Company and therefore, it is necessary to specifically aver the duties, role of each and every person to show his responsibility, his duties and functions assigned under the Memorandum of Articles of the Company. 23. It is also worth to note here, Chapter II, Section 291 of the Companies Act, 1956 (hereinafter referred to as 'Act' for short) refers to the general powers of the Board. A perusal of these provisions show that what the Board of Director is empowered to do in relation to a Company depends upon the roles and functions assigned to a directors as per the memorandum and Articles of the Company. There is nothing to suggest that simply by being a Director in the Company, one is supposed to discharge a particular funct....
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....he Chairman is a Director who is authorised to preside over the Board and General Meetings. In some companies, it is a practice to appoint an Executive Director namely the Managing Director or whole time Director as Chairman of the Board, to conduct meetings or general meetings and there are some other companies who elect a Non-executive Director i.e. the Director who is not a whole time employee or Managing Director, as a Chairman of the Board or General Meeting. If a Managing Director or a Executive-Director or the person who has been looking after the day today affairs of the Company, if he himself act as a Chairman, then ipso-facto by virtue of the position as a Chairman, he becomes liable for the offences committed by the Company vicariously. Otherwise a Chairman is as good as a Director who is only authorised to preside over the Board and general meetings. In some of the provisions under the Companies Act, the word Chairman is used. Section 175 of the Act deals with election of a Chairman. Section 177 of the Act deals with voting to be by show of hands in first instance to elect a Chairman, Section 178 of the Act refers to Chairman's declaration of result of voting by sho....
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....ed." The Apex Court has also observed that, "vicarious liability of a Chairman can be fastened when the offence is committed by the Company. It is observed that complaint filed against the accused Company and its Chairman for fabricating documents produced on record in arbitration proceeding. On the basis of the arbitrator's adverse observation in the award, High Court declined to quash the complaint. Presumption cannot be drawn that a Chairman of a Company is responsible for all the acts committed by or on behalf of the Company. Wherever by a legal fiction, principle of vicarious liability is attracted, it has to be specifically provided in the statute concerned or by means of a specific averments in the complaint. Therefore, it is incumbent on the complainant to specifically aver the role of each of the accused in the Company. Absence of any such specific averment in the complaint demonstrating the role of the Chairman in commission of the offence, it cannot be held that prima facie case is made out against the appellant No. 2 Chairman." 31. In view of the above said ruling, in my opinion, the Chairman also stands on the same footing as that of a Director. If a....
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....aint is sufficient to make a person virtually liable to face prosecution, virtually every officer/employee of a company without exception could be impleaded as accused by merely making an averment that at the time when the offence was committed, they were in charge and were responsible to the Company for the conduct and business of the Company. This would mean that if a Company had 100 branches and the cheque issued from one Branch was dishonoured, the officers of all the 100 branches could be made as accused by simply making an averment that at the time when the offence was committed they were in charge of and were responsible to the Company for the conduct and business of the Company. That would be absurd and not intended under the Act." 35. The above said principle is equally applicable to the case on hand. Therefore, it goes without saying that the complaint averments shall specify the role of the Director or the Chairman of the Company at the time of commission of offence by the Company. It is not that even at the earlier point of time, any of the Directors or the Chairman was also involved in such offences is also not a good ground to fasten the liability in the s....
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....ons in the Private Complaint. The said SLPs. were dismissed accordingly. 39. The learned Counsel contends that because of the above said proceedings, the petitioner is having knowledge of the offence committed by the Company, therefore, such knowledge can be imputed to impose the liability on the respondent so far as present cases are concerned. I do not find any strong reasons to accept the said contention of the learned Counsel. Because of the simple reason, in the above said cases before the Supreme Court, the liability of the Chairman has not been in detail dealt with because of the undertaking given by the respondent therein, the SLPs. were came to be dismissed and they were not on merits. But, at present, in these petitions, this court is called upon to deal with the liability of the petitioner as a Director and Chairman of the companies. Therefore, this Court is bound to give its finding by means of elaborate discussions made above. Even in the complaint averments, the knowledge of the commission of the offence by the Company is not imputed to the petitioner on the basis of the previous litigation. It should be brought on record by way of specifically mentioning the circu....