TaxTMI 
TaxTMI 
2025 (6) TMI 1159
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....e commission of an offence punishable under Section 138 read with Sections 141 and 142 of the N.I. Act against the accused. It was asserted that the accused No.1 M/s Pride NATC Co-operative Society Limited is registered under the H.P. Co-operative Societies Act. It opened one Branch office at Theog, District Shimla, H.P by hiring the premises of the complainant in the year 2017 for carrying out commercial activities. It remained the tenant of the complainant till 31.01.2023. Accused No.2 being the President of accused No.1 and accused No.6 being the Secretary of accused No.1 visited the office on 20.01.2023 and expressed their desire to vacate the premises on 31.01.2023. The complainant demanded an amount of Rs.2,40,000/- being the arrears of rent from June 2022 to 31.01.2023. They issued a post-dated cheque of Rs.2,40,000/-, which was signed by accused No.2 and accused No.6 on behalf of accused No.1. The complainant presented the cheque but it was dishonoured with an endorsement of "funds insufficient". The complainant issued a notice demanding the amount but no amount was paid. Accused No. 2 to 8 are office bearers of the Managing Committee of accused No.1. Hence, the complaint w....
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....by the Hon'ble Supreme Court in B.N. John v. State of U.P., 2025 SCC OnLine SC 7 as under: - "7. As far as the quashing of criminal cases is concerned, it is now more or less well settled as regards the principles to be applied by the court. In this regard, one may refer to the decision of this Court in State of Haryana v. Ch. Bhajan Lal, 1992 Supp (1) SCC 335, wherein this Court has summarized some of the principles under which FIR/complaints/criminal cases could be quashed in the following words: "102. In the backdrop of the interpretation of the various relevant provisions of the Code under Chapter XIV and of the principles of law enunciated by this Court in a series of decisions relating to the exercise of the extraordinary power under Article 226 or the inherent powers under Section 482 of the Code which we have extracted and reproduced above, we give the following categories of cases by way of illustration wherein such power could be exercised either to prevent abuse of the process of any court or otherwise to secure the ends of justice, though it may not be possible to lay down any precise, clearly defined and sufficiently channelised and inflexible guideli....
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....any offence or make out a case against the accused, then the FIR or the complaint can be quashed. As per clause (4), where the allegations in the FIR do not constitute a cognizable offence but constitute only a non- cognizable offence, no investigation is permitted by a police officer without an order dated by the Magistrate as contemplated under Section 155 (2) of the CrPC, and in such a situation, the FIR can be quashed. Similarly, as provided under clause (6), if there is an express legal bar engrafted in any of the provisions of the CrPC or the concerned Act under which the criminal proceedings are instituted, such proceeding can be quashed." 10. This position was reiterated in Ajay Malik v. State of Uttarakhand, 2025 SCC OnLine SC 185 wherein it was observed: "8. It is well established that a High Court, in exercising its extraordinary powers under Section 482 of the CrPC, may issue orders to prevent the abuse of court processes or to secure the ends of justice. These inherent powers are neither controlled nor limited by any other statutory provision. However, given the broad and profound nature of this authority, the High Court must exercise it s....
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....he business of the company; (ii) any Director, Manager, Secretary or other officer of the company with whose consent and connivance, the offence under section 138 has been committed; and (iii) any Director, Manager, Secretary or other officer of the company whose negligence resulted in the offence under section 138 of the Act, being committed by the company. While the liability of persons in the first category arises under sub-section (1) of Section 141, the liability of persons mentioned in categories (ii) and (iii) arises under sub-section (2). The scheme of the Act, therefore is, that a person who is responsible to the company for the conduct of the business of the company and who is in charge of the business of the company is vicariously liable by reason only of his fulfilling the requirements of subsection (1). But if the person responsible to the company for the conduct of business of the company, was not in charge of the conduct of the business of the company, then he can be made liable only if the offence was committed with his consent or connivance or as a result of his negligence. 17. The criminal liability for the offence by a company ....
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....ll not be liable under the provision. The liability 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 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 the 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 section would have said "every Director, Manager or Secretary in a Company is liable"..etc. The legislature is aware that it is a case of criminal liability which means serious consequences so far as the person sought to be made liable is concerned. Therefore, only persons who can be said to be connected with the commission of a crime at the relevant time have been subjected to action... 18. To sum up, there is an almost unanimous judicial o....
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....ccordingly. 4. Coming to the judicial position, we notice a judgment of this Court in Monaben Ketanbhai Shah v. State of Gujarat [Monaben Ketanbhai Shah v. State of Gujarat, (2004) 7 SCC 15: 2004 SCC (Cri) 1857] wherein it was observed that: (SCC pp. 18-19, para 6) "6. ... The primary responsibility is on the complainant to make necessary averments in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every partner knows about the transaction. The obligation of the appellants to prove that at the time the offence was committed, they were not in charge of and were not responsible to the firm for the conduct of the business of the firm, would arise only when first the complainant makes necessary averments in the complaint and establishes that fact." 5. A Bench of three learned Judges in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla [S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89: 2005 SCC (Cri) 1975] observed: (SCC p. 102, para 18) "18. To sum up, there is an almost unanimous judicial opinion that necessary averments ought to be contained in a complaint before a....
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.... Provided that nothing contained in this sub- section shall render any such person liable to any punishment provided in this Act if he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence." It is thus seen that the vicarious liability of a person for being prosecuted for an offence committed under the Act by a company arises if, at the material time, he was in charge of and was also responsible to the company for the conduct of its business. Simply because a person is a director of the company it does not necessarily mean that he fulfils both the above requirements so as to make him liable. Conversely, without being a director a person can be in charge of and responsible to the company for the conduct of its business. From the complaint in question we, however, find that except for a bald statement that the respondents were directors of the manufacturers, there is no other allegation to indicate, even prima facie, that they were in charge of the company and also responsible to the company for the conduct of its business." 19. It could thus be seen that this Court had held th....
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.... was in charge of the day-to-day affairs of the company or responsible to the affairs of the company. This Court, however, clarified that the position of a managing director or a joint managing director in a company may be different. This Court further held that 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. To escape liability, 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. 22. In the case of Pooja Ravinder Devidasani v. State of Maharashtra (2014) 16 SCC 1 this Court observed thus: "17. ...... Every person connected with the Company will not fall into the ambit of the provision. Time and again, it has been asserted by this Court that only those persons who were in charge of and responsible for the conduct of the business of the Company at the time of the commission of an offence will be liable for criminal action. A Director, who was not in charge of and was not responsible for the conduct of the business of the Company at t....
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....owing as to how and in what manner the Director was responsible for the conduct of the business of the company. 21. In Sabitha Ramamurthy v. R.B.S. Channabasavaradhya [Sabitha Ramamurthy v. R.B.S. Channabasavaradhya, (2006) 10 SCC 581 (2007) 1 SCC (Cri) 621], it was held by this Court that: (SCC pp. 584- 85, para 7) "7. ... it is not necessary for the complainant to specifically reproduce the wordings of the section but what is required is a clear statement of fact so as to enable the court to arrive at a prima facie opinion that the accused is vicariously liable. Section 141 raises a legal fiction. By reason of the said provision, a person although is not personally liable for the commission of such an offence would be vicariously liable therefor. Such vicarious liability can be inferred so far as a company registered or incorporated under the Companies Act, 1956 is concerned only if the requisite statements, which are required to be averred in the complaint petition, are made so as to make the accused therein vicariously liable for the offence committed by the company." (emphasis supplied) By verbatim reproducing the words of the section withou....
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..... 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." 27. A similar view has been taken by this Court in the case of Lalankumar Singh v. State of Maharashtra 2022 SCC OnLine SC 1383 to which one of us (B.R. Gavai, J.) was a party. 16. The Hon'ble Supreme Court held in Siby Thomas v. Somany Ceramics Ltd., (2024) 1 SCC 348 that the primary responsibility to make the averment, that the accused is in charge and responsible for the firm for its affairs lies upon the complainant in the absence of which the accused cannot be held liable. It was observed : 9. Bearing in mind the averments made in the complaint in relation to the role of the appellant and sub-section (1) of Section 141, we will have to appreciate the rival contentions. Going by the decision relied on by the respondent in the S.P. Mani case [S.P. Mani & Mohan Dairy v. Snehalatha Elangovan, (2023) 10 SCC 685 : (2024) 1 SCC ....
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....9;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.' 52. The principles of law and the dictum as laid in Gunmala Sales [Gunmala Sales (P) Ltd. v. Anu Mehta, (2015) 1 SCC 103 : (2015) 1 SCC (Civ) 433 : (2015) 1 SCC (Cri) 580], in our opinion, still holds the field and reflects the correct position of law. 11. In the light of the afore-extracted recitals from the decision in Gunmala Sales (P) Ltd. v. Anu Mehta [Gunmala Sales (P) Ltd. v. Anu Mehta, (2015) 1 SCC 103 : (2015) 1 SCC (Civ) 433 : (2015) 1 SCC (Cri) 580], quoted with agreement in S.P. Mani case [S.P. Mani & Mohan Dairy v. Snehalatha Elangovan,....
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....pn. Ltd. v. Harmeet Singh Paintal, (2010) 3 SCC 330 observed: "13. Section 141 is a penal provision creating vicarious liability, and which, as per settled law, must be strictly construed. It is therefore, not sufficient to make a bald cursory statement in a complaint that the Director (arrayed as an accused) is in charge of and responsible to the company for the conduct of the business of the company without 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. 22. Therefore, this Court has distinguished the case of persons who are incharge of and responsible for the conduct of the business of the company at the time of the offence and the persons who are merely holding the post in a company and are not in charge of and responsible for the conduct of the business of the company. Further, in order to fasten the vicarious liability in accordance with Section 141, the averment as to....
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.... should be clear and unambiguous allegation as to how the Directors are in-charge and responsible for the conduct of the business of the company. The description should be clear. It is true that precise words from the provisions of the Act need not be reproduced and the court can always come to a conclusion in facts of each case. But still, in the absence of any averment or specific evidence the net result would be that complaint would not be entertainable." 16.3. In S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89, this Court laid down that mere designation as a director is not sufficient; specific role and responsibility must be established in the complaint. 16.4. In Pooja Ravinder Devidasani v. State of Maharashtra, (2014) 16 SCC 1, this Court while taking into consideration that a non-executive director plays a governance role, they are not involved in the daily operations or financial management of the company, held that to attract liability under Section 141 of the NI Act, the accused must have been actively in charge of the company's business at the relevant time. Mere directorship does not create automatic liability under the Act. The law h....
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....s contained in para 14 and 22 of the complaint are reproduced as under:- "14. That the accused no.2 to 8 are office bearers of the Management Committee of accused no.1. xxxx 22. That the accused no. 2 to 8 are office bearers of the Management Committee of accused no.1. According to the latest Audited Report for the year 2019-2020 of the said society and they are persons responsible for the conduct of business of accused no.1 and the said cheque Has issued at their behest and with their knowledge, consent and connivance to the complainant." 20. It is apparent that there is no averment that the present petitioners are In charge and responsible for the affairs of the Company. It mentions that accused No. 2 to 8 are responsible for the conduct of the business of accused No.1, however, it does not contain any averment regarding the petitioners being in charge, therefore, the averments do not satisfy the ingredient of Section 141 of the N.I.Act.. 21. A heavy reliance was placed upon the fact that para- 22 mentions that the cheque was issued at the behest of accused No. 2 to 8 with their knowledge, consent and connivance. Hence, the present case falls with....