TaxTMI 
TaxTMI 
2025 (5) TMI 1743
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....ar as it was against Respondent No. 2-Mrs. Ranjana Sharma was concerned. The proceedings have been quashed on the ground that there were no sufficient averments in the complaint filed by the appellant to invoke the vicarious liability against the respondent No. 2 under Section 141 of the NI Act. Aggrieved, the appellant is before us. BRIEF FACTS: - 3. The facts lie in a narrow compass. The respondent no. 2 - Mrs. Ranjana Sharma along with her daughter Ms. Rachana Sharma and one Mr. Rakesh Rajpal were directors of a company named M/s R Square Shri Sai Baba Abhikaran Pvt. Ltd. According to the complaint filed by the appellant, the accused no. 1 - company along with respondent no. 2 (accused no.2) and other two directors approached the appellant/complainant for grant of credit facility in the form of Revolving Loan Facility as Inventory Funding for the working capital requirements. According to the appellant, loan amounts were extended and on account of the failure of the accused to repay the outstanding dues, the account of the company was classified as a Non-Performing Asset on 27.03.2018 in accordance with the guidelines issued by the Reserve Bank of India. It is the case of the....
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....eto annexed and marked as Exhibit C-1 to Exhibit C-3 are the copies of sanction letter dated 27.10.2015, 22.02.2016 and 12.09.2016 respectively 5. The Loan account of Accused No. 1 maintained by complainant was numbered as loan account No 02400450029354. That in consideration of grant of the said facilities, accused(s) had executed various loan and security documents in favor of Complainant from time-to time inter alia accepting the terms and conditions of respective documents It is submitted that the Accused No. 1 lastly, amongst other, entered into Loan agreement with Complainant on 17.09.2016 and executed Demand Promissory Note for a sum of Rs. 8,00,00,000/- on 20.09.2016 Hereto annexed and marked as Exhibit 'D-1 IS the copy of Supplemental and Amendatory Loan Agreement dated 17.09.2016 and Exhibit' D 2" is the Demand Promissory Note dated 20 09 2016. 6. Be that as it may, the Complainant states that the sanctioned/renewed credit facilities were duly availed and utilized by the Accused without any demur. The Complainant further states that after availing the aforementioned credit facilities, Accused No. 1 failed to maintain the account with Complainant Bank in the ....
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....y authorized, jointly and/or severally to be present in HDFC Bank and deposit /redeposit the original tittle deeds of the Company's immovable properties with an intention to create security thereof and to make necessary declarations on behalf of the Company." ( Emphasis supplied ) 8. It will be seen that apart from negotiations, Mrs. Ranjana Sharma - respondent no. 2, was also authorized to deposit the original title deeds of the company's immovable property. Further the board resolution provides as under: - "RESOLVED FURTHER THAT the draft of the document received from HDFC Bank (a) respect credit facility (ies) be and is/are hereby approved and Ms. Rachana Sharma and/or Mrs. Ranjana Sharma and/or hereby authorized, jointly and/or to execute, sign and issue all/any such Demand Promissory notes Hypothecation Agreements, mortgages (in such form as HDFC bank may require), guarantees, indemnities all/any other documents, writings and instruments and all renewals and/or amendments there to including after Acknowledgement of Debt/balance confirmations HDFC Banks(s) may require from time to time in this regard, RESOLVED FURTHER THAT Ms. Rachana Sharma and/or Mrs. Ranjana Sharm....
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.... the averments in the complaint read with the documents filed leave no manner of doubt that the respondent no. 2 - Ranjana Sharma was in charge of, and was responsible for the conduct of the business of the company inasmuch as she had participated in the negotiations and was authorized to sign all the relevant documents and her performance guarantee was also taken. In view of this, learned Senior Counsel contends that the High Court was not justified in quashing the complaint insofar as the respondent no. 2 - Ranjana Sharma was concerned. 13. Learned Senior Counsel for the appellant contends that respondent No.2-Mrs.Ranjana Sharma is the Director of the Accused No.1-Company and she submitted a personal guarantee and also signed a supplemental continuing guarantee dated 17.09.2016 for the loan transaction. It is submitted that the Company is a family-run private entity. Learned Senior Counsel for the appellant relied upon certain judgments of this Court in support of his submission. 14. In response, learned counsel for the respondent No.2 submitted that the averments in the complaint fell short of the requirement mandated in S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla and Another....
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....aspect of vicarious liability is concerned, in the present case, the averments made are to the following effect:- "Accused Nos. 2 to 4 are the Directors of Accused No.1 Company" and "Is responsible for its day-to-day affairs, management and working of the Accused No.1-Company" 18. The real question is, is the above averment along with the other averments in the complaint sufficient to meet the tests laid down by this Court in the leading judgment of S.M.S. Pharmaceuticals-I (supra). 19. Before we advert to S.M.S. Pharmaceuticals-I (supra), it will be useful to refer to the meaning of the word "in charge of". P. Ramanatha Aiyar's Advanced Law Lexicon defines the word "in charge of" as follows:- "A person "in charge of" and responsible to the company for the conduct of the business of the company must be a person in overall control of the day-to-day business of the company or firm". 20. It will be seen that the averment made in the complaint, in the present case, clearly uses the phrase "responsible for its day-to-day affairs, management and working of the Accused No.1 Company", which going by the dictionary meaning set out hereinabove in substance is the same as "in char....
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.... a company, one is supposed to discharge particular functions on behalf of a company. It happens that a person may be a director in a company but he may not know anything about the day-to-day functioning of the company. As a director he may be attending meetings of the Board of Directors of the company where usually they decide policy matters and guide the course of business of a company. It may be that a Board of Directors may appoint sub-committees consisting of one or two directors out of the Board of the company who may be made responsible for the day-to-day functions of the company. These are matters which form part of resolutions of the Board of Directors of a company. Nothing is oral. What emerges from this is that the role of a director in a company is a question of fact depending upon the peculiar facts in each case. There is no universal rule that a director of a company is in charge of its everyday affairs". [See Para 8] (Emphasis supplied) (iii) "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 the company, is that suc....
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....hat in construing a complaint, a hypertechnical approach should not be adopted and the laudable object of preventing bouncing of cheques and sustaining the credibility of commercial transactions had to be borne-in-mind. 25. After setting out the holding in Monaben Ketanbhai Shah (supra), this Court in S.M.S. Pharmaceuticals-I (supra) in para 18 held as follows:- "18. To sum up, there is almost unanimous judicial opinion that necessary averments ought to be contained in a complaint before a person can be subjected to criminal process. A liability under Section 141 of the Act is sought to be fastened vicariously on a person connected with a company, the principal accused being the company itself. It is a departure from the rule in criminal law against vicarious liability. A clear case should be spelled out in the complaint against the person sought to be made liable. Section 141 of the Act contains the requirements for making a person liable under the said provision. That the respondent falls within 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 Magistra....
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....esponsible for the incriminating act and will be covered under sub-section (2) of Section 141." ( Emphasis supplied ) 27. Hence, it is very clear that the conclusion in para 19(a) in S.M.S. Pharmaceuticals-I (supra) has to be read with the other holdings in judgment especially the ratio extracted hereinabove culminating in para 18. Merely reading para 19(a) to contend that what is required is parroting of the words of the section for a complaint to be sustained is completely unjustified. Para 19(a) does not mention that the words of the Section 141 has to be mechanically parroted. In fact, the cases that we discuss hereinbelow have expressly rejected the said contention. 28. After the reference in S.M.S. Pharmaceuticals-I (supra) was answered by the three-Judge Bench and before the case of the said parties could be taken up for disposal by the two judge Bench, came the judgment in Sabitha Ramamurthy and Another vs. R.B.S.Channabasavaradhya, (2006) 10 SCC 581. This Court, after noticing S.M.S. Pharmaceuticals-I (supra), held that it was not necessary for the complainant to specifically reproduce the wordings of the section but what was required was a clear statement of fact so....
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.... particular form is necessary. However, it may not be necessary to allege and prove that, in fact, such of the Directors have any specific role in respect of the transaction leading to issuance of cheque. Section 141 of the Act makes the Directors in charge of and responsible to the company "for the conduct of the business of the company" within the mischief of Section 138 of the Act and not particular business for which the cheque was issued. We cannot read more than what has been mandated in Section 141 of the Act." ( Emphasis supplied ) 31. In Ashok Shewakramani and Others vs. State of Andhra Pradesh and Another, (2023) 8 SCC 473, a judgment relied upon by Respondent No.2, the averments did not satisfy the ingredients of Section 141 and this Court observed that all that was averred in that case (the first set of appeal therein) was that the accused were liable for the transactions of the company and they were fully aware of the issuance of the cheque and dishonor of the cheque. This Court held that even taking a broad and liberal view of the pleadings in the complaint, there was no compliance with the requirements of Section 141 (1). In the second set of appeals therein the....
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....C 770, after noticing that the averments in the complaint were to the effect that the directors of the accused company were responsible for its business and all the appellant-accused therein were involved in the business of the company and are responsible for all the affairs of the company, this Court held that reading the complaint as a whole, the ingredients of Section 141 were satisfied. 34. What is important to note is that the repetition of the exact words of the Section in the same order, like a mantra or a magic incantation is not the mandate of the law. What is mandated is that the complaint should spell out that the accused sought to be arrayed falls within the parameters of Section 141(1) of the NI Act. Only then could vicarious liability be inferred against the said accused, so as to proceed to trial. Substance will prevail over form. 35. Strong reliance is placed on Siby Thomas (supra) by learned counsel for the respondent No.2 to contend that in the absence of the words "was in charge of", the present case against respondent No.2 cannot be proceeded. We are unable to countenance the said submission. This Court, in Siby Thomas (supra), on facts, found that on an overa....
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....before the Court that at the relevant point of time they were not in charge of the affairs of the company. Advertence to Sections 138 and Section 141, respectively, of the NI Act shows that on the other elements of an offence under Section 138 being satisfied, the burden is on the Board of Directors or the officers in charge of the affairs of the company/partners of a firm to show that they were not liable to be convicted. The existence of any special circumstance that makes them not liable is something that is peculiarly within their knowledge and it is for them to establish at the trial to show that at the relevant time they were not in charge of the affairs of the company or the firm." 38. As was rightly held therein, the administrative role of each director would be within the special knowledge of the company or the director of the firm and it is for them to establish that they were not in charge of the affairs of the company. In view of this, the contention of the learned counsel for the respondent No.2 that the specific role attributed to the directors should be set out in the complaint does not merit acceptance. Reliance has been placed on National Small Industries Corpora....