TaxTMI 
TaxTMI 
2023 (11) TMI 1357
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....ing no.15857/2017 titled as M/S Morgan Securities& Credits Pvt. Ltd. V Blue Coast Hotels& Resorts Ltd.& others. 2. M/S Morgan Securities and Credits Pvt. Ltd. (herein referred to as "the respondent/the complainant") through its Authorized Representative Mahender Gautam filed a complaint under sections 138/141/142 of Negotiable Instruments Act, 1881 (hereinafter referred as "NI Act") and 420 IPC titled as M/S Morgan Securities& Credits Pvt. Ltd. V Blue Coast Hotels& Resorts Ltd.& others bearing no15857/2017on allegations that the accused no. 2 namely Arun Suri with the consent of the accused no 3 to 6 namely Mamta Suri, Basant Kumar Goswami, K. S. Mehta (the petitioner) and the Sushil Suri on behalf of the accused no.1 known as Blue Coast Hotels & Resorts Ltd. had approached the respondent/the complainant for the financial assistance for business purposes by way of Inter Corporate Deposit(ICD) facility with a promise to repay back the amount of the ICD as per the terms mutually agreed and reduced in writing by way of an Inter Corporate Deposit Agreement dated 09.09.2002. The respondent/complainant paid Rs.5,00,00,000/- (Rs. five crores only) under the ICD facility to the accused(....
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....espondent/the complainant sent legal notice dated15.10.2005 which was served upon the accused(s). The accused no 2 is the Managing Director and authorized signatory and the accused no 3 to 6 are the directors of the accused no. 1 and are incharge of and responsible for the conduct of business and day to day affairs and management of the accused no 1. The respondent being aggrieved filed the present complaint. 3. The concerned court of Metropolitan Magistrate vide order dated 19.11.2005 opined that there is sufficient grounds to proceed against the accused (s) for offences punishable under section 138 read with section 141 of the NI Act and accordingly summoned the accused(s).The accused Arun Suri stated to have been expired and proceedings qua the accused Arun Suri were ordered to be abated vide order date 10.10.2018. The Court of Sh. Dharmender Singh, Metropolitan Magistrate-05, Patiala House Courts, New Delhi (hereinafter referred to as "the trial court") vide order dated 10.10.2018 opined that prima facie case under section 138 of NI Act is made out against accused company (the accused no 1) and remaining accused (the accused no 2 to 6 including the petitioner). The relevant ....
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....g into consideration that complainant has specifically averred in para no.5 of the complaint that accused no.2 on behalf of the accused no.1 with the consent of the accused no.3 to 6 in the part payment of the outstanding bill had issued cheque no.842629 dated 30.03.2005 amounting to Rs.50 lacs. drawn on ICICl Bank Ltd, Connaught Place, New Delhi and taking into consideration that in para no.11 of the complaint, the complainant has clearly mentioned that accused Nos.3to6 are the Directors of accused no. I company are in charge of. and are responsible to the company for the conduct of business and day to day affairs and management of the company and all accused persons have consented, connived and neglected to make repayment and dishonouring of the said cheque and are liable for that offence. I am of the view that complainant has specifically mentioned the roles of the petitioners in the complaint. In view of the above discussions, I am of the view that there is no illegality or infirmity in the order dated 10.10.2018 passed by Ld. MM in CC No. 15857/17. Ld. Trial Court has passed a reasoned order. The revision petitions filed. by the petitioners are without any merits and ....
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....court wrongly held that prima facie case under section 138 Nl Act is made out against the petitioner. The revisional court also dismissed the Criminal Revision bearing no. 540/2018 vide impugned order. 5.2 The petitioner challenged order dated10.10.2018 passed by the trial court and impugned order on grounds that the courts below did not appreciate that the petitioner was only an independent Non- Executive Director of the accused no. 1 and was not in charge of and responsible for the day to day conduct of the business of the accused no.1. The petitioner was not a party to the ICD agreement, memorandum of settlement and the consent award pursuant to which the cheque in question was issued leading to the present complaint. The petitioner has been falsely implicated as he is independent NonExecutive director of the accused no. 1. The courts below failed to appreciate that the petitioner is a Chartered Accountant and was an Independent Non-Executive Director during the relevant period. The petitioner neither held any share in the accused no 1 nor was receiving any remuneration. The petitioner could not be held responsible for the conduct of the business of the accused no. 1. The pet....
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....was not a party. The petitioner is a Chartered Accountant and was an independent Non-Executive Director of the accused no. 1 never involved in the day to day affairs of the accused no. 1. The accused no. 1 issued cheques pursuant to the said consent award and the petitioner had no role in said transaction. The petitioner has never been a shareholder or a Director of the Blue Coast Group of Companies except being an Independent Non-Executive director of the accused no 1 as mentioned in the Corporate Governance Reports. The petitioner has marked himself as a Director and not as a Non-Executive Director in Form 32 due to legal provisions as per Companies Act, 1956. 6.1 The learned Senior Counsel relied on Pooja Ravinder Devidasini V State of Maharashtra and another,2014 (16) SCC 1;National small Indusries Corporation LimitedV Harmeet Paintal & another, (2010)3 SCC 330; Ashok Shewakramani & others V State of Andhra Pradesh and others, MANU/SC/0858/2023; Sunita Palita and others V Panchami Stone Quarry, MANU/SC/0944/2022; Prashant Bharti V State of NCT of Delhi,MANU/SC/0063/2013; S.M.S Pharmaceuticals Ltd. V Neeta Bhalla and another, MANU/SC/0622/2005etc. 7. The counsel for the re....
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.... Act, be punished with imprisonment for19 [a term which may be extended to two years], or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless- (a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier; (b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, 20 [within thirty days] of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and (c)the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice. Explanation.- For the purposes of this section, "debt or other liability" means a legally enforceable debt or other liability. 141. Offences by companies. - 1) If the person committing an offence under ....
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....ase of a company to every person who at the time of the offence, was in charge of and was responsible for the conduct of the business of the company. A company is a juristic person and every person who at the time of commission of offence is in charge and responsible for the conduct of the business of the company is liable for the offence stated to be committed by the company. The criminal liability arises when the offence was committed and not on the basis of merely holding a designation or office in a company. Section 141 of the NI Act mandates that a person is criminally liable when at the time of commission of offence was in charge and responsible for the conduct of the business of the company and person connected with the company may not fall within the ambit of section 141 of the NI Act. 9.2 The Supreme Court in SMS Pharmaceuticals Ltd. V Neeta Bhalla & another, 2005 (8) SCC 89 held as under:- The normal rule in the cases involving criminal liability is against vicarious liability, that is, no one is to be held criminally liable for an act of another. This normal rule is, however, subject to exception on account of specific provision being made in statutes extendi....
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....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 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 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 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 sect....
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.... Director; (b) ...... (c) ...... (d) No restriction can be placed on 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. 42. The principles of law and the dictum as laid in Gunmala Sales Private Limited (supra), in our opinion, still holds the field and reflects the correct position of law." 9.2.2 It was further observed as under:- 11. In the light of the afore-extracted recitals from the decision in Gunmala Sales Private Limited v. Anu, (2015) 1 SCC 103 quoted with agreement in S.P. Mani's case (supra) and in view of sub-section (1) of Section 141 of the N.I....
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....pany, as well as the company shall be deemed to be guilty of the offence under Section 138 of the NI Act. In the light of sub-section 1 of Section 141, we have perused the averments made in the complaints subject matter of these three appeals. The allegation in paragraph 1 of the complaints is that the appellants are managing the company and are busy with day to day affairs of the company. It is further averred that they are also in charge of the company and are jointly and severally liable for the acts of the accused No.1 company. The requirement of subsection 1 of Section 141 of the NI Act is something different and higher. Every person who is sought to be roped in by virtue of sub-section 1 of Section 141 NI Act must be a 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. Merely because somebody is managing the affairs of the company, per se, he does not become in charge of the conduct of the business of the company or the person responsible for the company for the conduct of the business of the company. For example, in a given case, a manager of a company may be managing the busine....
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....02 has paid Rs.5,00,00,000/- (Rs. five crores only) to the accused no1 vide cheque bearing no. 227605 dated 09.09.2002 drawn on HDFC Bank, K.G. Marg, New Delhi on execution of Demand Promissory Note and Inter Corporate Deposit Receipt which was required to pay back after expiry of 180 days from the date of receipt of ICD, i.e. on 08.03.2003 along with interest. The accused no. 2 (now deceased) was the managing director and authorized signatory, the accused no.3 to 5 including the petitioner were the directors, and the accused no.6 was the authorized signatory of the accused no 1 and stated to be in charge of day to day affairs and are responsible for the conduct of the business of the accused No.1 and for all acts and deeds committed by or on behalf of the accused no. 1.The respondent no/the complainant also initiated arbitration proceedings against the accused No. 1, 2 and the accused no.6 wherein M/s Morepan Laboratories Ltd also joined as one of the parties. The accused no. 1, 2 & 6 and M/s Morepan Laboratories Ltd. and the respondent/the complainant entered into compromise vide Memorandum of Settlement dated 27.05.2003 and thereafter the Arbitrator passed a Consent Award dated ....
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.... done on behalf of the accused no 1.The counsel for the respondent/the complainant argued that the respondent has made the specific averments in the complaint regarding issuance of cheque in question with the knowledge and consent of the accused no 3 to 6 who were the persons-in-charge and responsible to the day-to-day affairs of the accused no 1 and referred paras no 2, 4, 6, 8, 9, 11 and 12 of the complaint. 11.1 It is accepted legal proposition in view of law laid down by the Supreme Court in above referred decision that it is the primary responsibility of the complainant to make specific averments in the complaint so as to make the accused vicariously liable. If the basic averment is made in the complaint under section 138 of NI Act that the Director was in charge of and responsible for the conduct of the business of the company at the relevant time when the offence was committed then Magistrate can issue process against such Director. The complaint should specifically spell out how and in what manner the Director was in charge of or was responsible to the accused company for conduct of its business and mere bald statement that he or she was in charge of and was responsible ....
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....rt payment of the outstanding bill had issued the following cheque....... 10. That the complainant company got issued Notice dated15.10.2005 throught their counsel Shri B.S. Arora dispatched under Registered AD covers as well as UPC on 18.10.2005. Notice were duly served upon the accused persons and notice sent by the registered by AD covers are duly served. 11. That the Accused No.2, is the Managing Director and authorized signatory. Accused Nos. 3 to 7 are the Directors of Accused No. 1 company are incharge of and are responsible to the company for the conduct of business and day to day affairs and management of the company and all accused persons have consented, connived and neglected to make repayment, and dishonouring of the said cheque and are liable for that offence. 12. That accused persons have failed to pay legally accrued debts to complainant company in usual course of business as stipulated in the Inter Corporate Deposit Agreement, but accused persons have also made themselves liable to be prosecuted as provided under section 138, 141 and 142 of the Negotiable Instruments Act, 1881 as amended update. 13. That although there were no su....
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....Settlement dated 27.05.2003 and Consent Award dated 21.07.2003. The petitioner did not have any role in issuance of cheque in question. The learned Senior Counsel referred Corporate Governance Report of the accused no 1 Company, Annual Report of the years 2003-2004 and 2005-2006. The counsel for the respondent/the complainant argued to the contrary. 12.1 Section 141 of the NI Act provides for a constructive liability which is created by a legal fiction. The section 141 of the NI Act being a penal should receive strict construction and compliance. It the accused played insignificant role in affairs of the company may not be sufficient to attract the constructive liability under Section 141 of the NI Act. The petitioner as per Form 32 was appointed as Additional Director on 29.06.2001 and resigned as Director with effect from 10.11.2012. Form 32 appears to be a declaration regarding appointment of a director etc. in the company or any change thereto as per section 303(2) of the Companies Act, 2013.It reflects that when the cheque in question was issued, the petitioner was a director in the accused no 1. The petitioner was not shown as Independent Non-Executive Director of the accu....