1 THE HIGH COURT OF MADHYA PRADESH MCRC 10576/2016 [PRECEDENT] Indore, Dated : 14/08/2018 Shri [ENTITY], counsel for the applicants. None for the respondents.
The present petition under [SECTION] of [ACT] has been filed for quashment of the order dated 03/05/2016, by which cognizance has been taken by the Court below, as well as the order dated 18/05/2016, by which the trial Magistrate has issued summons against the applicants.
The Office has pointed out that the respondents No. 2 and 3 have not been served.
It is submitted by the counsel for the applicants that the respondents No.2 and 3 are not the necessary party and by mistake, they were made respondents because they are the co-accused persons along with the present applicant in the criminal complaint filed by the respondent No.1 under [SECTION] of the [ACT] (in short [ACT] ).
Since the respondents No. 2 and 3 are the co-accused persons, therefore, it is not essential to hear them. Accordingly, the non-service on the respondents no. 2 and 3 is ignored.
The necessary facts for the disposal of the present petition in short are that the respondent No.1 has filed a criminal complaint under [SECTION] of the [ACT] against the applicants as well as the respondents No.2 and 3. By referring to the complaint filed by the respondent No.1, it is submitted by the counsel for the applicants that except mentioning that the applicants are the Karta Dharta and authorized signatories of the respondent No.2, no other THE HIGH COURT OF MADHYA PRADESH [PRECEDENT] allegation has been made against the applicants to the effect that they are the persons, who are responsible for the day-to-day business of the respondent No.1. By referring to the judgments of Supreme Court in the cases of [PRECEDENT], [PRECEDENT], [PRECEDENT] and the judgment passed by the Supreme Court in the case of [PRECEDENT] [Arising out of [CASE NUMBER]] decided on 20th April, 2018, it is submitted by the counsel for the applicants that until and unless the complainant clarifies as to in what manner the applicants are managing and responsible for the day-to-day business of the Company, the applicants cannot be saddled with vicarious liability of the Company or the person who has issued the cheque on behalf of the Company. It is further submitted that without verifying that whether the applicants are the Directors or are having some say in the matter of the Company, the trial Court has taken cognizance of the complaint under [SECTION] of the [ACT] in a mechanical manner and, therefore, the orders under challenge i.e. dated 3/5/2016 and 18/05/2016 passed by Additional Chief Judicial Magistrate, Indore are liable to be set aside. It is further submitted that the applicants have placed the copy of the Memorandum of Association of M/s. Mayuri Herbal Care Private Limited on record and from the said THE HIGH COURT OF MADHYA PRADESH [PRECEDENT], it is clear that the applicants are not Directors of M/s.Mayuri Herbal Care Private Limited.
Considered the submissions made by the counsel for the applicants.
The complainant/ respondent No.1 in its complaint has mentioned as under:-
1- ;g fd] vkjksih ekad 1 izk;osV fyfeVsM dEiuh gksdj] vkjksih ekad 2] 3 ,oa 4 dEiuh ds drkZ/krkZ o vf/kr gLrk{kjdrkZ gSA 2-;g fd] vkjksihx.k ds }kjk ifjoknh nSfud HkkLdj dks foKkiu izdk'ku ds Hkqxrku isVs dEiuh ds [kkrs ;wdks cSad U;w iykfl;k bUnkSj 'kk[kk dk pSd eakd 521355 fnukad 17-07-2015 :i;s 10,53,500/- v{kjh ,d yk[k frj;klh gtkj nks lkS l=g :i;s dk gLrk{kj;qDr bl fo'okl ,oa vk'oklu ds lkFk iznku fd;k x;k fd lnj pSd dk Hkqxrku ifjoknh dks izkIr gks tkosxkA Thus, it is clear that the complainant has mentioned that the applicants and other co-accused persons are Karta Dharta of the Company and they are authorized signatories and they had given the cheque in question to the complainant/respondent No.1 with an assurance and belief that such cheque would get encashed. Thus, the basic allegations in the complaint which have been made by the respondent No.1/complainant against the applicants are that they are the Karta Dharta of the Company and the cheque was also given by them with an assurance and belief that the said cheque would be encashed by the Bank, however, the cheque was returned on the ground of insufficient funds .
The question for consideration is that whether the averments made in the complaint that the applicants are Karta Dharta and authorized signatories of the Company, is sufficient to make them vicariously liable for offence THE HIGH COURT OF MADHYA PRADESH [PRECEDENT] under [SECTION] of the [ACT] or not ? The said question is no more res integra.
[SECTION] of [ACT] reads as under :
141. Offences by companies. (1) If the person committing an offence under [SECTION] is a company, every 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, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:
Provided that nothing contained in this sub- section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence:
2"Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this chapter." (2) Notwithstanding anything contained in sub-
section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded 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 THE HIGH COURT OF MADHYA PRADESH [PRECEDENT] partner in the firm. From plain reading of the aforesaid provision, it is clear that where the offence has been committed by a Company, then not only the Company, but every person who is in charge of or responsible for the day-to-day business of the Company at the time of commission of offence, shall be vicariously liable. Thus, [SECTION] creates vicarious/constructive liability on the person responsible for the business of the Company. However, in view of the judgment passed by the Supreme Court in the case of [PRECEDENT], it is essential for the complainant to allege in the complaint that the persons who have been arrayed as accused, are responsible for the day-to-day business of the Company. Thus, the complainant is under obligation to allege in the complaint that the persons who had been arrayed as accused, are responsible for the day-to-day business of the Company.
Whether there is any specific allegation that the persons who have been arrayed as accused, are the persons in charge of the day-to-day business of the Company and whether the same is sufficient to make out a prima facie offence against the applicants or not, is the moot question for consideration.
The Supreme Court in the case of [PRECEDENT] has held as under :
31. Now, is the time to scan the complaint. Mr [ENTITY], learned Senior Counsel appearing for the appellant Bank, has drawn our attention to Paras THE HIGH COURT OF MADHYA PRADESH [PRECEDENT] 2, 4 and 10 of the complaint petition. They read as follows:
"2. I further say that I know the accused abovenamed. Accused 1 is a company incorporated under the [ACT] having its registered address as mentioned in the cause-title. Accused 2 to 7 are the Chairman, Managing Director, Executive Director and whole- time Director and authorised signatories of Accused 1, respectively. As such being the Chairman, Managing Director, Executive Director and whole-time Director were and are the persons responsible and in charge of day-to-day business of Accused 1 viz. when the offence was committed. Accused 6 and 7 being signatories of the cheque are aware of the transaction and therefore Accused 2 to 7 are liable to be prosecuted jointly or severally for having consented and/or connived in the commission of present offence in their capacity as the Chairman, Managing Director, Executive Director, whole-time Director and authorised signatories of Accused 1, further the offence is attributable to Accused 2 to 7 on account of their neglect to ensure and make adequate arrangements to honour the cheque issued by Accused 1 and further on account of the neglect of Accused 1 to 7 to comply with the requisition made in the demand notice issued under the provisions of [SECTION] of the [ACT] within the stipulated period. The accused are therefore liable to be proceeded.
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4. I say that Accused 1 through Accused 2 and 3 approached the complainant Bank at its branch situated at Mumbai for a short-term loan facility for a sum of Rs 200 crores to meet the expenditure of four ORV vessels being built at ABG Shipyard. After verifying the documents submitted the complainant Bank vide its sanction letter dated 28-4-2012 sanctioned the said facility for the purpose mentioned therein. The said terms and conditions mentioned in the sanction letter dated 28-4-2012 were duly accepted by Accused 1 by signing the same. Accused 1 also agreed to pay interest at the negotiated rate by the complainant Bank. Hereto annexed the marked as THE HIGH COURT OF MADHYA PRADESH [PRECEDENT] Ext. 'B' is a copy of the said sanction letter dated 28-4-2012.
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10. I say that Accused 1 to 7 were aware that the aforesaid cheque would be dishonoured for being "account blocked" and all the accused, in active connivance mischievously and intentionally issued the aforesaid cheques in favour of the complainant Bank."
32. The aforesaid averments, as we find, clearly meet the requisite test. It is apt to mention here that there are seven accused persons. Accused 1 is the Company, Accused 2 and 3 are the Chairman and Managing Director respectively and Accused 6 and 7 were signatory to the cheques. As far as Accused 4 and 5 were concerned, they were whole-time Directors and the assertion is that they were in charge of day-to-day business of the Company and all of them had with active connivance, mischievously and intentionally issued the cheques in question. In the said case, the averments made against the persons who were arrayed as accused were that the said persons are the Managing Director, Executive Director and Whole-time Director, and were responsible and in charge of day-to-day business of accused Company when the offence was committed.
Although in the present case, the words used Karta Dharta in paragraph 1 of complaint cannot be said to be happily-worded complaint but if the meaning of words Karta Dharta is considered, then it would mean that the applicants along with other co-accused persons are managing the day-to-day business of the Company, as general meaning of Karta Dharta is the person who is enjoying all the powers. Whether the allegations that the persons, who have been arrayed as accused in a complaint THE HIGH COURT OF MADHYA PRADESH [PRECEDENT] under [SECTION] of the [ACT], are really responsible for the day-to-day business of the Company or not, cannot be adjudicated by the Trial Court at the time of taking cognizance. The basic averment is necessary and there is no reason to disbelieve the basic averment to the effect that the persons who have been arrayed as accused, are responsible/ in charge of the day-to-day business of the Company. Whether a person is responsible for the day-to- day business of the Company or not, is a disputed question, which has to be decided by the trial Court only after considering the evidence led by the parties in this regard.
It is submitted by the counsel for the applicants that in the case of [PRECEDENT] (supra), the Supreme Court has quashed the proceedings against the appellant therein on the ground that he had already submitted his resignation prior to issuance of the cheque in question and the said aspect of resignation was already communicated to the Registrar of Companies much prior to presentation of the cheque. In the present case, the applicant has relied upon the Memorandum of Association to show that the applicants are not the Directors of the Company. Whether the list of Directors in the Memorandum of Association relied upon by the applicants was in existence when the cheque was issued or there was any modification or alteration in the list of Directors, whether the applicants were in charge/ responsible for the day-to-day business of the Company or not, whether the applicants were the authorized signatories of the Company or not, and whether the applicants are vicariously liable for the cheque issued on behalf of the THE HIGH COURT OF MADHYA PRADESH [PRECEDENT] or not, are some of the questions which can be decided only after recording of the evidence.
Under these circumstances, this Court is of the considered opinion that the trial Court after considering the allegations made against the applicants in paragraphs 1 and 2 of the complaint, did not commit any mistake in taking cognizance against the applicants and issuing summons to the applicants.
Accordingly, the order dated 03/05/2016 and the order dated 18/05/2016 passed by Additional Chief Judicial Magistrate, Indore in [CASE NUMBER] are hereby affirmed.
This petition fails and is hereby dismissed.
([ENTITY]) Judge MKB