TaxTMI 
TaxTMI 
2024 (8) TMI 1267
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....rom the petitions are: (a) M/s Brightstar Telecommunications India Ltd. ('BTIL') is a company incorporated under the Companies Act, 1956 and is structured into multiple business segments encompassing distribution of mobile handsets, accessories, communication devices etc. and is associated with leading telecom operators and biggest brands in the Original Equipment Manufacturer space including Apple products. (b) Rajesh Madan, accused No. 6 (hereinafter referred to as 'Petitioner No. 1') was inducted in BTIL on 31.03.2015 as an Independent Non-Executive Director; Harjeet Singh Kohli, accused No.8 (hereinafter referred to as 'Petitioner No. 2') was inducted in BTIL on 01.08.2016 as Non-Executive Director; and Geeta Mathur, accused No.5 (hereinafter referred to as 'Petitioner No. 3') was inducted in BTIL on 30.03.2015 as an Independent Non-Executive Director. (c) M/s Good Marketing and Sales Pvt. Ltd., complainant company/ Respondent herein is a part of group of companies including iWorld Business Solutions Pvt. Ltd. ('IBS') and iWorld Digital Solutions Pvt. Ltd. ('IDS') and is owned and operated by the same individuals and for the ease of reference is herei....
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....rs were Independent Non-Executive Directors/Non-Executive Director respectively and had no role to play in the day to day affairs of BTIL. (g) Despite receipt of response to the legal notice and being aware of the status of the Petitioners, complainant maliciously filed a complaint under Section 138 read with Sections 141 and 142 of NI Act on 12.12.2017 before learned Metropolitan Magistrate, Patiala House Courts, against BTIL, Petitioners and other individuals. There is no averment in the complaint as to how Petitioners were in charge of or responsible for the conduct of the day to day business and affairs of BTIL, so as to make them vicariously liable for the alleged offence. In fact, complaint does not even disclose details under STC or the basis of alleging that there is an enforceable debt/liability of the Petitioners in connection with the concerned cheque. (h) On 14.12.2017, learned MM proceeded to record pre-summoning evidence of the Authorised Representative of the complainant and passed an order taking cognizance and summoning the Petitioners and others accused of the offence, without application of mind on whether the complaint disclosed commission of t....
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....s. ECE Industries Ltd., 2013 SCC OnLine Del 1804 and Lalit Bhasin v. Pawan Trade Connect Pvt. Ltd., 2024 SCC OnLine Del 559. 4. It was contended that the complainant has made only bald averments in the complaint in respect of the Petitioners that they were in charge of and responsible for the conduct of the business of BTIL and has not spelt out how and in what manner Petitioners were in charge and responsible and therefore, the contents of the complaint are not sufficient to attract the offence under Section 138 of NI Act. There are catena of judgments wherein it is held that the complaint must necessarily contain averments as to how and in what manner the accused were in charge of and responsible for the conduct of business of the company, failing which at the threshold the complaint case and the summons ought to be quashed. In order to bring the offence under Section 141 (2), where the offence is alleged to be committed by a company, a Director, Manager, Secretary or other officer of a company, it is to be proved that the offence was committed with the consent or connivance of, or is attributable to, any neglect on the part of such individual. No material was placed before th....
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....ation Limited v. Harmeet Singh Paintal and Another, (2010) 3 SCC 330, etc. 6. It was argued that reliance of the complainant on Form No.MGT-7 to contend that Petitioners being Executive Directors were regularly attending Board meetings/Audit Committee's meetings etc. and this was sufficient to hold them vicariously liable and fasten liability under Section 141 (2), is wholly misplaced for more than one reason. Firstly, no such averment was made in the complaint and it is for the first time during the course of oral hearing that this argument was made. Secondly, even as per the laid down procedure, once the complainant has already tendered pre-summoning evidence, there is no occasion to bring on record any additional document either before this Court or even before the learned MM. In the present petition, Court is testing the validity of the impugned summoning order, which cannot be done on the anvil of fresh documents or factual averments, brought before this Court. Without prejudice, even if Form No. MGT-7 is considered, it shows that Petitioners are Non-Executive Directors, who merely attended Board/Audit meetings but this fact alone does not and cannot lead to a conclusion th....
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....rment is made that a Director is in-charge of and responsible for the conduct of the business of the company at the time when the offence was committed, process can be issued by the learned Magistrate and rest would be a matter of trial, as held by the Supreme Court in K.K. Ahuja v. V.K. Vora and Another, (2009) 10 SCC 48 and Gunmala Sales Private Limited v. Anu Mehta and Others, (2015) 1 SCC 103. 9. It was argued that in Gunmala Sales (supra); Sunil Todi and Others v. State of Gujarat and Another, 2021 SCC OnLine SC 1174; and S.P. Mani (supra), the Supreme Court held that at the stage of considering a petition under Section 482 Cr.P.C. Court is required to look into only the averments made in the complaint by the complainant and no more. Complainant has, in the present case, clearly adverted to the acts committed by the Petitioners and the averments made disclose the commission of the offence under Section 138 of NI Act. Complainant has averred that accused Nos.2 to 10 which includes the Petitioners, who are accused Nos.6, 8 and 5 respectively, have personally interacted with various officers of the complainant and represented to the officials of the complainant that they were ....
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....gment of this Court in Basant Kumar Goswami v. State NCT of Delhi and Another, 2023 SCC OnLine Del 7635, wherein the Court held that having attended Board meetings and being a member of an Audit Committees, Petitioner would not fall within the definition of Independent Director or Non-Executive Director and cannot escape the liability of commission of an offence under Section 138 of NI Act. 12. It was urged that BTIL and complainant were having three different kinds of transactions but the same were not interlinked. In these transactions, several documents were executed, such as STC Agreement dated 20.04.2015; Credit Notes/Purchase Orders/Invoices; and Distributorship Agreement dated 27.05.2015 and admittedly a running account was maintained between the parties. The ledger account maintained by the complainant and the corresponding credit notes would bely the stand of the Petitioners that there existed no legally enforceable debt against BTIL. In the Arbitration Petition bearing No. 664/2017 filed by BTIL against the complainant, BTIL has filed a copy of its ledger account where there is a reference to the credit note of Rs. 1.34 crores given by BTIL to the complainant. Between ....
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.... payee by giving a notice in writing within the prescribed period and failure of the drawer to pay within the prescribed period. Upon fulfilment of these requirements, the commission of the offence which may be called the offence of "dishonour of cheque" is complete. If the drawer is a company, the offence is primarily committed by the company. 26. By virtue of the provisions of sub-section (1) of Section 141, the guilt for the offence and the liability to be prosecuted and punished shall be extended to every person who, at the time the offence was committed, was in charge of and was responsible to the company for the conduct of its business; irrespective of whether such person is a Director, manager, secretary or other officer of the company. It would be for such responsible person, in order to be exonerated in terms of the first proviso, to prove that the offence was committed without his knowledge or despite his due diligence. 27. Under the separate provision of sub-section (2), if it is proved that the offence was committed with the consent or connivance of or was attributable to the neglect on the part of any Director, manager, secretary or other officer of t....
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....suggest that the same person cannot be made to face the prosecution either under sub-section (1) or sub-section (2) or both." 17. The Supreme Court further analysed the expression occurring in Section 141 (1), i.e. 'at the time the offence was committed' and observed as under:- "34. The seminal issue raised and required to be settled in the present case is one relating to a person liable to be proceeded against under the provisions of sub-section (1) of Section 141 for being in-charge of and responsible to the company "at the time the offence was committed." It would, therefore, be important to find out the "time" when the offence under Section 138 can be said to have been committed by the company. It is commonplace that an offence means an aggregate of facts or omissions which are punishable by law and, therefore, can consist of several parts, each part being committed at different time and place involving different persons. The provisions of Section 138 would require a series of acts of commission and omission to happen before the offence of, what may be loosely called "dishonour of cheque" can be constituted for the purpose of prosecution and punishment. It is held b....
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....ime of commission of the offence of dishonour of cheque cannot be on the stroke of a clock or during 15 days after the demand notice has to be construed as the time when each of the acts of commission and omission essential to constitute the offence was committed. The word "every" points to the possibility of plurality of responsible persons at the same point of time as also to the possibility of a series of persons being in charge when the sequence of events culminating into the commission of offence by the company were taking place. 38. As to what this "relevant time" is, was a question that this Court was called to answer, inter alia, in N. Rangachari v. BSNL [N. Rangachari v. BSNL, (2007) 5 SCC 108 : (2007) 2 SCC (Cri) 460]. In this case, Data Access, a company had issued two cheques to BSNL, which were duly presented, but were dishonoured for insufficiency of funds. A complaint under Section 138 of the NI Act was filed. While BSNL held the Directors liable, the appellant, a Chairman in the company contended that he being a nominated Chairman and holding an honorary post in the Company, was never assigned with any of the company's financial or other business activi....
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....the centre of the corporate personality, the vital organ of the body corporate, the alter ego of the employer corporation or its directing mind. Since the company/corporation has no mind of its own, its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation. To this extent there are no difficulties in our law to fix criminal liability on a company. The common law tradition of alter ego or identification approach is applicable under our existing laws." (emphasis in original) 45. Now, the logical question that would follow is who would be liable through the company for this offence? Can the company itself be prosecuted for this offence? Answering this question, Section 141 says, "every person who was in charge of" and "was responsible to the company for the conduct of the business" shall be deemed to be guilty of the offence. 46. This concept of vicarious liability has been explained by this Court in Sabitha Ramamurthy v. R.B.S. Channabasavaradhya: "7. ... Se....
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.... to bring the case under Section 141 (1) of the Act. No further averment would be necessary in the complaint, though some particulars will be desirable. They can also be made liable under Section 141 (2) by making necessary averments relating to consent and connivance or negligence, in the complaint, to bring the matter under that sub-section. (iv) Other Officers of a company cannot be made liable under sub-section (1) of Section 141. Other officers of a company can be made liable only under sub-section (2) of Section 141, 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." (emphasis supplied) 48. In a very recent pronouncement in Sunita Palita v. Panchami Stone Quarry, this Court, after referring to K.K. Ahuja referred to above, observed as under: "29. ... when the accused is the Managing Director or a Joint Managing Director of a company, it is not necessary to make an averment in the complaint that he is in charge of, and is responsible to the company for the conduct of the business of the company. This is because....
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....:- "8. The officers responsible for conducting the affairs of companies are generally referred to as directors, managers, secretaries, managing directors, etc. What is required to be considered is: Is it sufficient to simply state in a complaint that a particular person was a director of the company at the time the offence was committed and nothing more is required to be said. For this, it may be worthwhile to notice the role of a director in a company. The word "director" is defined in Section 2 (13) of the Companies Act, 1956 as under: "2. (13) 'director' includes any person occupying the position of director, by whatever name called;" There is a whole chapter in the Companies Act on directors, which is Chapter II. Sections 291 to 293 refer to the powers of the Board of Directors. A perusal of these provisions shows that what a Board of Directors is empowered to do in relation to a particular company depends upon the roles and functions assigned to directors as per the memorandum and articles of association of the company. There is nothing which suggests that simply by being a director in a company, one is supposed to discharge particular functions on b....
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....hy the cheque in question was issued and why it got dishonoured. 9. The position of a managing director or a joint managing director in a company may be different. These persons, as the designation of their office suggests, are in charge of a company and are responsible for the conduct of the business of the company. In order to escape liability such persons may have to bring their case within the proviso to Section 141 (1), that is, they will have to prove that when the offence was committed they had no knowledge of the offence or that they exercised all due diligence to prevent the commission of the offence. 10. While analysing Section 141 of the Act, it will be seen that it operates in cases where an offence under Section 138 is committed by a company. The key words which occur in the section are "every person". These are general words and take every person connected with a company within their sweep. Therefore, these words have been rightly qualified by use of the words: "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 deem....
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....e for directors, managers, secretaries and other officers of a company to cover them in cases of their proved involvement. 12. The conclusion is inevitable that the liability arises on account of conduct, act or omission on the part of a person and not merely on account of holding an office or a position in a company. Therefore, in order to bring a case within Section 141 of the Act the complaint must disclose the necessary facts which make a person liable. 13. The question of what should be the averments in a criminal complaint has come up for consideration before various High Courts in the country as also before this Court. Secunderabad Health Care Ltd. v. Secunderabad Hospitals (P) Ltd. [(1999) 96 Comp Cas 106 (AP)] was a case under the Negotiable Instruments Act specifically dealing with Sections 138 and 141 thereof. The Andhra Pradesh High Court held that every director of a company is not automatically vicariously liable for the offence committed by the company. Only such director or directors who were in charge of or responsible to the company for the conduct of business of the company at the material time when the offence was committed alone shall be deeme....
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....e primary liability is that of a company. State of Karnataka v. Pratap Chand [(1981) 2 SCC 335 : 1981 SCC (Cri) 453] was a case under the Drugs and Cosmetics Act, 1940. Section 34 contains a similar provision making every person in charge of and responsible to the company for the conduct of its business liable for offence committed by a company. It was held that a person liable for criminal action under that provision should be a person in overall control of the day-to-day affairs of the company or a firm. This was a case of a partner in a firm and it was held that a partner who was not in such overall control of the firm could not be held liable. In Municipal Corpn. of Delhi v. Ram Kishan Rohtagi [(1983) 1 SCC 1 : 1983 SCC (Cri) 115] the case was under the Prevention of Food Adulteration Act. It was first noticed that under Section 482 of the Criminal Procedure Code in a complaint, the order of a Magistrate issuing process against the accused can be quashed or set aside in a case where the allegation made in the complaint or the statements of the witnesses recorded in support of the same taken at their face value make out absolutely no case against the accused or the complaint doe....
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....ade in the complaint fulfil the requirements of Section 141, the complaint has to proceed and is required to be tried with. It is also true that in construing a complaint a hypertechnical approach should not be adopted so as to quash the same. The laudable object of preventing bouncing of cheques and sustaining the credibility of commercial transactions resulting in enactment of Sections 138 and 141 has to be borne in mind. These provisions create a statutory presumption of dishonesty, exposing a person to criminal liability if payment is not made within the statutory period even after issue of notice. It is also true that the power of quashing is required to be exercised very sparingly and where, read as a whole, factual foundation for the offence has been laid in the complaint, it should not be quashed. All the same, it is also to be remembered that it is the duty of the court to discharge the accused if taking everything stated in the complaint as correct and construing the allegations made therein liberally in favour of the complainant, the ingredients of the offence are altogether lacking. The present case falls in this category as would be evident from the facts noticed herei....
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.... 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 Section 141 cannot be said to be satisfied. (b) The answer to the question posed in sub-para(b) has to be in the negative. Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for the conduct of its business. The requirement of Section 141 is that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a director in such cases. ....
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....ge of and were responsible for the conduct of the business of the company. (iii) Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be averred in the complaint/petition, are made so as to make accused therein vicariously liable for offence committed by company along with averments in the petition containing that accused were in-charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with. (iv) Vicarious liability on the part of a person must be pleaded and proved and not inferred. (v) If accused is Managing Director or Joint Managing Director then it is not necessary to make specific averment in the complaint and by virtue of their position, they are liable to be proceeded with. (vi) If accused is a Director or an Officer of a company who signed the cheques on behalf of the company then also it is not necessary to make specific averment in complaint. (vii) The person sought to be made liable should be in-charge of and responsible for the conduct of the busine....
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....body is managing the affairs of the company, per se, he would not become in charge of the conduct of the business of the company or the person responsible to the company for the conduct of the business of the company. A bare perusal of Section 141 (1) of the NI Act, would reveal that only that 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 alone shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished. 19. In such circumstances, para 24 in Ashok Shewakramani case [Ashok Shewakramani v. State of A.P., (2023) 8 SCC 473 : (2023) 4 SCC (Civ) 116 : (2023) 3 SCC (Cri) 568 : 2023 INSC 692] is also relevant. After referring to Section 141 (1) of the NI Act, in para 24 it was further held thus : (SCC p. 480) "24. ... On a plain reading, it is apparent that the words "was in charge of" and "was responsible to the company for the conduct of the business of the company" cannot be read disjunctively and the same ought to be read conjunctively in view of use of the word "and" in between." 20. The upsh....
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....cused/petitioner are beyond suspicion or doubt and upon consideration, demolish the very foundation of the the accusation/s levelled against the accused then in such a matter it is incumbent for the Court to look into the said document/s which are germane even at the initial stage and grant relief to the person concerned under Section 482 CrPC in order to prevent injustice or abuse of process of law. In my opinion the present petition would fall within the aforesaid parameters. 23. I must state that the learned counsel for the petitioner is justified in relying upon the judgment of a Coordinate bench of this Court in the case of J.N. Bhatia (supra), wherein it was held as under: "16. However, difficulty arises when the complainant states that the concerned accused was Director and also makes averment that he was in charge of and responsible for the conduct of its day-to-day business, but does not make any further elaboration as to how he was in charge of and responsible for the day-today conduct of the business. The question would be as to whether making this averment, namely, reproducing the language of Sub-section (1) of Section 141 would be sufficient or someth....
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....ioner is liable to be quashed. It is accordingly quashed and the complaint qua him is dismissed. xxx xxx xxx 76. Summoning orders are issued in all these cases. Sh. Mukhesh Punjwani, who is accused No. 4, has filed these petitions raising similar plea that he had tendered his resignation on 1.3.2002, which was accepted on 10.3.2002 and thereafter, Form 32 was filed with the Registrar of Companies. Cheques were allegedly issued on 20.3.2002, namely, after his resignation and were dishonoured much thereafter when he was not the director. It is further contended that apart from bald allegation that he was in charge of the affairs of the company, nothing is stated as to how he was in charge of and/or responsible for the conduct of the day-to-day business of the accused No. 1 company. The averments qua the petitioner herein contained in all these complaints are as under: "The accused Nos. 2 to 4 are the Directors and accused No. 5 is the General Manager Finance, who are responsible for the day-today affairs of accused No. 1 company and are jointly and severally liable for the acts and liabilities of the accused No. 1 company." 77. On the basis of thes....
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....nd responsible for the conduct of the business at the time of commission of an offence will be liable for criminal action. (See Pooja Ravinder Devidasani v. State of Maharashtra). 10. 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 Act, there must be specific averments against the Director showing as to how and in what manner the Director was responsible for the conduct of the business of the Company. xxx xxx xxx 12. Before summoning an accused under Section 138 of the Act, the Magistrate is expected to examine the nature of allegations made in the complaint and the evidence both oral and documentary in support thereof and then to proceed further with proper application of mind to the legal principles on the issue. Impliedly, it is necessary for the courts to ensure strict compliance with the statutory requirements as well as settled principles of law before making a person vicariously liable. 13. The superior courts should maintain purity in the administration of justice and should not allow abuse of the process of court. Looking ....
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....se Legislature has enacted Sections 138 and 141 of the NI Act. 29. In Sabitha Ramamurthy and Another v. R.B.S. Channabasavaradhya, (2006) 10 SCC 581, the Supreme Court restated the requirements of Section 141 of the NI Act and held that the complainant must make a clear statement of fact to enable the Court to arrive at a prima facie opinion, even if the allegations are that the accused is vicariously liable. Section 141 of the NI Act raises a legal fiction where a person although not personally liable for commission of an offence, would be vicariously liable but before a person can be made vicariously liable, strict compliance with statutory requirements is to be insisted. In Krishna Lal Chawla and Others v. State of Uttar Pradesh and Another, (2021) 5 SCC 435, the Supreme Court held that the power conferred on the Magistrate under Section 202 Cr.P.C. to postpone the issue of process pursuant to a private complaint also provides an important avenue for filtering out frivolous complaints and this power must be fully exercised. On receipt of a private complaint, the Magistrate must first scrutinize it to examine if the allegations made in the private complaint, inter alia, smack ....
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.... the legal debts/liability, the Accused No. 1 issued a cheque, duly signed by the Accused No. 2 & 3 as Authorised Signatory of Accused No. 1 from the account maintained by the Accused No.l with its banker and with the knowledge and consent of Accused No 4 to 10. The Accused No. 2 to 10 made an assurance to the Complainant's official that the cheque shall be honoured on the presentation for the recovery of the debts/liability." 31. It is settled that Section 141 is a penal provision creating vicarious liability and must be strictly construed and therefore, bald cursory statements in the complaint in the absence of a specific role being ascribed to a Director and without spelling out how and in what manner the accused were in charge of or responsible to the accused company for the conduct of its business, vicarious liability cannot be fastened. It is also settled that it is not enough to state in the complaint that a particular person was a Director, Managing Director, CEO, etc. As held by the Supreme Court in S.M.S. Pharmaceuticals (supra), it may be that in a given case, a person may be a Director but may know nothing about the day to day functioning of the company and there....
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....ithout anything more as to the role of the Director. But the complaint should spell out as to how and in what manner Respondent 1 was in charge of or was responsible to the accused Company for the conduct of its business. This is in consonance with strict interpretation of penal statutes, especially, where such statutes create vicarious liability. 14. A company may have a number of Directors and to make any or all the Directors 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 fulfilment of the requirements under Section 141." (emphasis in original)" 32. Reliance by the complainant on the judgment in Basant Kumar Goswami (supra) is misplaced. In a catena of judgments, Supreme Court has laid down that it is on the complainant to aver specifically how a Director was involved in the day to day affairs of a company at the time of commission of the alleged offence under Section 138 of NI Act. In the complaint, as noted above, complainant has only made a bald averment that Petitioners were Directors and were involv....
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.... magic as such in a particular word, be it director, manager or secretary. It all depends upon the respective roles assigned to the officers in a company. A company may have managers or secretaries for different departments, which means, it may have more than one manager or secretary. These officers may also be authorised to issue cheques under their signatures with respect to affairs of their respective departments. Will it be possible to prosecute a secretary of Department B regarding a cheque issued by the secretary of Department A which is dishonoured? The secretary of Department B may not be knowing anything about issuance of the cheque in question. Therefore, mere use of a particular designation of an officer without more, may not be enough by way of an averment in a complaint. When the requirement in Section 141, which extends the liability to officers of a company, is that such a person should be in charge of and responsible to the company for conduct of business of the company, how can a person be subjected to liability of criminal prosecution without it being averred in the complaint that he satisfies those requirements. Not every person connected with a company is made l....