TaxTMI 
TaxTMI 
2023 (7) TMI 38
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....dure, 1973 ('Cr.P.C.') the petitioners seek quashing of summoning orders dated 08.03.2017 passed by the learned Metropolitan Magistrate, District Courts, Saket, Delhi in CC Nos. 2999/2017 (New CC No. 7355/2017), 3000/2017 (New CC No. 7359/2017), 2996/2017 (New CC No. 7357/2017), 2997/2017 (New CC No. 7358/2017), 3002/2017 (New CC No. 7356/2017), 2998/2017 (New CC No. 7361/2017), 3001/2017 (New CC No. 7360/2017) and the respective complaints seeking prosecution of the petitioners under section 138 Negotiable Instruments Act, 1881 ('NI Act'). Brief Facts 2. A brief conspectus of facts leading-up to the filing of the present petition is as follows : 2.1 Petitioner No. 1 (Sashi Kumar Nagaraji), petitioner No. 2 (Sanjay Kumar Nagaraji) and petitioner No. 3 (Swaminathan Nagaraji) are directors of respondent No. 2 company (M/s. Saravana Alloys Steels Pvt Ltd). Respondent No. 1 company/complainant (M/s Magnifico Minerals Pvt Ltd) is engaged in the business of resale of imported steam coal. Respondent No. 3/Nagaraji Saravana is the signatory of the cheques that are subject matter of the present petition and has therefore been impleaded as a pro-forma respondent in the present petit....
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.... that are subject matter of challenge in CRL.M.C. Nos. 2480/2017, 2481/2017, 2489/2017, 2491/2017 and 2492/2017. 2.7 In the 05 complaints filed in Bangalore, the learned ACMM, Bangalore was satisfied that the complainant had made-out a prima-facie case against the accused persons, and therefore, vide order dated 10.09.2014, the learned ACMM, Bangalore proceeded to issue summons to all the accused persons in those complaints. 2.8 As for the 02 complaints initiated in Delhi, the learned CMM, Saket, Delhi transferred those to the court of learned ACMM, Bangalore since the bank of the accused company was situate within the local jurisdiction of the Bangalore court. Thereafter, the learned ACMM, Bangalore issued summons to the accused in those two complaints as well vide order dated 19.02.2015. 2.9 Thereafter, following the change brought about by the Negotiable Instruments (Amendment) Act, 2015 (Act No. 26 of 2015), the proceedings in all the complaints were transferred to the learned CMM, South East, Saket, New Delhi since the bank of the complainant company was situate within the local jurisdiction of the Saket court and thereupon came to be marked to a learned Metropolitan ....
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....* * * * Complainant is present. Affidavit by way of Sworn Statement is filed. Complainant is accordingly examined. List with certified copy of documents filed. After verification, same are returned to the complainant. Heard the Complainant. Perused the complaint, documents and the sworn statement of the complainant. Complainant has made out a prima facie case against the accused that he has committed an offence u/sec 138 of N.I. Act. Hence the following ORDER Register a case against the accused in Register No. III for the offence u/sec 138 of N.I. Act. Issue process to the accused through court and RPAD if PF, copy of complaint, documents and list of witness is furnished by the complainant. Call on 20-10-2014 (Typed to my dictation in the open court) * * * * * " 3. Since the present judgment contains reference to sections 138 and 141 of the NI Act, it would also be beneficial to extract the relevant portions of the said provisions below : "138. Dishonour of cheque for insufficiency, etc., of funds in the account.-Where any cheque drawn by a person on an account....
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....eeded against and punished accordingly. Explanation.-For the purposes of this section,- (a) "company" means any body corporate and includes a firm or other association of individuals; and (b) "director", in relation to a firm, means a partner in the firm." (emphasis supplied) 4. The court has heard Mr. Mukul Gupta, learned senior counsel appearing for the petitioners and Mr. Ayush Jindal, learned counsel for respondent No. 1. Submissions on behalf of the petitioners 5. Mr. Gupta submits that the petitioners were mere directors of respondent No. 2 company and were neither in-charge of the company nor were they responsible for the conduct of the affairs of the company at any point in time. Senior counsel submits that the mandate of section 141 of the NI Act clearly is that not every director or employee of an accused company is liable for the offence under section 138 of the NI Act. Such person is liable only if, at the time when the offence was committed, the person was in charge-of and responsible for the conduct of the business of the company. It is submitted that merely being a director of the company does not affix liability on a person by ....
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....s Advocate to the Accused calling upon the Accused for the repayment of the said amount within 15 days from the date of receipt of the said notice. A copy of the legal notice dated 12/07/2014 sent through RPAD, postal receipts and postal acknowledgement card which is duly served on the Accused on 15/07/2014 and are respectively produced herewith as Document No. 3, 4, 5, 6, 7, 8, 9 & 10." (underscoring supplied; bold in original) 7.1 Attention is also drawn to the following paragraphs of the 02 other complaints filed in Delhi, which contain a somewhat different narration in relation to the accused persons, and again read substantially the same, as follows : "3. That accused approached the complainant at Delhi office of complainant on different occasions for placing orders for purchase of Coal and all the above noticees had held discussions in finalizing purchase order with complainant at his Delhi office. * * * * * "9. As the purchase order was given by accused company in discussion with all the directors at Delhi Office of the complainant and the Cheques issued in favour of complainant at Delhi office of the complainant had been signed by Authorized....
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....the proviso is applicable only when it is proved pursuant to the trial that the offence was committed without the director's knowledge, or that he had exercised all due diligence to prevent the commission of the offence. 12. Furthermore, counsel places reliance on a decision of the Supreme Court in Sunil Todi vs. State of Gujarat 2021 SCC OnLine SC 1174, in which case, relying on Sunil Bharti Mittal vs. CBI (2015) 4 SCC 609 and S.M.S. Pharmaceuticals (supra), it was held that the determination of whether the conditions stipulated in section 141 of the NI Act have been fulfilled is a matter of trial and recourse to the proviso to section 141 cannot be taken at the stage of issuance of process. Therefore, it is argued that the question whether a director was in-charge of and responsible for the affairs of the company; or what the role of a given director was in relation to such affairs, is a question for trial. It is further argued that all the directors of the company are liable since the statutory regime itself attracts the doctrine of vicarious liability by specifically incorporating such provision in section 141 NI Act. 13. For whatever it is worth, in the context of the st....
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.... the company, as well as the company, shall be deemed to be guilty of the offence, etc." What is required is that the persons who are sought to be made criminally liable under Section 141 should be, at the time the offence was committed, in charge of and responsible to the company for the conduct of the business of the company. Every person connected with the company shall not fall within the ambit of the provision. It is only those persons who were in charge of and responsible for the conduct of business of the company at the time of commission of an offence, who will be liable for criminal 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 charg....
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....the 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. "19. In view of the above discussion, our answers to the questions posed in the reference are as under : (a) It is necessary to specifically aver in a complaint under Section 141 that at the time the offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company. This averment is an essential requirement of Section 141 and has to be made in a complaint. Without this averment being made in a complaint, the requirements of Sec....
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....ny. In a case where the court is required to issue summons which would put the accused to some sort of harassment, the court should insist strict compliance of the statutory requirements. In terms of Section 200 of the Code of Criminal procedure, the complainant is bound to make statements on oath as to how the offence has been committed and how the accused persons are responsible therefore. In the event, ultimately, the prosecution is found to be frivolous or otherwise mala fide, the court may direct registration of case against the complainant for mala fide prosecution of the accused. The accused would also be entitled to file a suit for damages. The relevant provisions of the Code of Criminal Procedure are required to be construed from the aforementioned point of view." (emphasis supplied) 18. In its decision in Saroj Kumar Poddar (supra) the Supreme Court said this : "14. Apart from the Company and the appellant, as noticed hereinbefore, the Managing Director and all other Directors were also made accused. The appellant did not issue any cheque. He, as noticed hereinbefore, had resigned from the directorship of the Company. It may be true that as to exactly....
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.... "31. When in view of the basic averment process is issued the complaint must proceed against the Directors. But, if any Director wants the process to be quashed by filing a petition under Section 482 of the Code on the ground that only a bald averment is made in the complaint and that he is really not concerned with the issuance of the cheque, he must in order to persuade the High Court to quash the process either furnish some sterling incontrovertible material or acceptable circumstances to substantiate his contention. He must make out a case that making him stand the trial would be an abuse of process of court. He cannot get the complaint quashed merely on the ground that apart from the basic averment no particulars are given in the complaint about his role, because ordinarily the basic averment would be sufficient to send him to trial and it could be argued that his further role could be brought out in the trial. Quashing of a complaint is a serious matter. Complaint cannot be quashed for the asking. For quashing of a complaint it must be shown that no offence is made out at all against the Director. * * * * * "34.1. Once in a complaint filed under Section 1....
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....his 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." (emphasis supplied) 21. In its recent decision in Sunita Palita and Ors. vs. Panchami Stone Quarry (2022) 10 SCC 152, the Supreme Court emphasised the need for substantiating the contentions contained in the complaint against a director, who is not a signatory to the cheque nor a managing director or joint managing director, in the following words: "41. A Director of a company who was not in charge or responsible for the conduct of the business of the company at the relevant time, will not be liable under those provisions. As held by this Court in, inter alia, S.M.S. Pharmaceuticals Ltd. (supra), the liability Under Section 138/141 of the NI Act arises from being in charge of and responsible for the conduct of the business of the company at the relevant time when the offence was committed, and not on....
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.... to the facts of the case and the law applicable thereto. He has to examine the nature of allegations made in the complaint and the evidence both oral and documentary in support thereof and would that be sufficient for the complainant to succeed in bringing charge home to the accused. It is not that the Magistrate is a silent spectator at the time of recording of preliminary evidence before summoning of the accused. The Magistrate has to carefully scrutinise the evidence brought on record and may even himself put questions to the complainant and his witnesses to elicit answers to find out the truthfulness of the allegations or otherwise and then examine if any offence is prima facie committed by all or any of the accused." (emphasis supplied) 24. The above-referred principle has been reiterated by the Supreme Court in Sunil Todi vs. State of Gujarat (supra), observing that : "39. This Court has held that the Magistrate is duty bound to apply his mind to the allegations in the complaint together with the statements which are recorded in the enquiry while determining whether there is a prima facie sufficient ground for proceeding. In Mehmood UI Rehman v. Khazir M....
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....legations in the complaint constitute an offence and when considered along with the statements recorded and the result of inquiry or report of investigation under Section 202 CrPC, if any, the accused is answerable before the criminal court, there is ground for proceeding against the accused under Section 204 CrPC, by issuing process for appearance. The application of mind is best demonstrated by disclosure of mind on the satisfaction. If there is no such indication in a case where the Magistrate proceeds under Sections 190/204 CrPC, the High Court under Section 482 CrPC is bound to invoke its inherent power in order to prevent abuse of the power of the criminal court. To be called to appear before the criminal court as an accused is serious matter affecting one's dignity, self-respect and image in society. Hence, the process of criminal court shall not be made a weapon of harassment." * * * * * "53. The test to determine if the Managing Director or a Director must be charged for the offence committed by the Company is to determine if the conditions in Section 141 of the NI Act have been fulfilled i.e., whether the individual was in-charge of and responsible f....
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....purport of the Supreme Court observation in Kanti Bhadra Shah (supra) that summoning order can be passed mechanically without even a barebones reference or reasoning as to how a prima-facie case is made-out against a given accused. 27. Lastly, counsel for respondent No. 1/complainant has objected to the petitioner having invoked the remedy under section 482 Cr.P.C. at a belated stage, also urging that the present petition ought not to be entertained since the petitioners have an efficacious statutory remedy of filing a criminal revision petition under section 397 Cr.P.C. to challenge the summoning orders. This objection requires to be addressed briefly. Though there is no cavil with the position that the summoning orders were originally passed by the learned ACMM, Bangalore on 10.09.2014 and 19.02.2015, which were amenable to challenge by way of a criminal revision petition before the competent court, by reason of the chequered history of the case, another set of summoning orders came to be passed by the learned MM, Delhi on 08.03.2017. Principally it is these orders dated 08.03.2017 passed by the learned MM, Delhi that have been impugned by way of the present petitions before t....
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.... no allegation that the petitioners were involved in issuance of the cheques; nor any allegation that they were responsible for the dishonour of the cheques. No role has been ascribed to the petitioners in that behalf; 28.4 Though, in the two criminal complaints filed in Delhi it is narrated that all the directors of the accused company "had held discussions in finalizing purchase order"; that "the purchase order was given by accused company in discussion with all the directors"; that all the directors "had participated in finalization of purchase order"; and that hence "all other directors are involved and concerned with the business transaction", yet again there is no specificity as to the role ascribed to the petitioners individually. At best, there is a vague and sweeping allegation claiming that all directors of the accused company had engaged with the complainant in relation to the transaction, which is insufficient to impute any criminal liability upon any of the petitioners; 28.5 Neither the summoning orders made by the Bangalore court nor the summoning orders made by the Delhi court contain any reference, leave alone any discussion, as to any allegations ....