[CASE NUMBER] IN THE COURT OF SPECIAL JUDGE, CBI (PC ACT)-06, CENTRAL DISTRICT, TIS HAZARI COURTS, DELHI [CASE NUMBER] [CASE NUMBER] [ENTITY] Represented by AR Sh. Tashila Ethenpa, Assistant General Manager, Department of Non-Banking Supervision Regional Office, [ENTITY], New Delhi-110001 Petitioner Versus 1. [ENTITY] Director, Hoffland Finance Ltd. R/o E-15/B, DDA Flats, Munirka, New Delhi-110067. 2. [ENTITY] (since deceased) Director, Hoffland Finance Ltd. R/o CS-91/398, West Azad Nagar, Krishna Nagar, Delhi-51. 3. [ENTITY] Chief Manager, Hoffland Finance Ltd. R/o H.No. 734, B & C Quarters, Type-II, JNU Campus, New Delhi-110067 Respondents Instituted on : 2nd July 2016 Argued on : 1st September 2016 Decided on : 1st September 2016 JUDGMENT
1. This revision petition U/[SECTION]/[SECTION] of the [ACT] ([ACT]) is preferred by the petitioner against order dated 25 th February 2016, passed by the Court of Sh. [ENTITY], Learned Additional Chief Metropolitan Magistrate-01, Central District, Tis Hazari Courts, Delhi, whereby in a proceedings arising out of a complaint case ([CASE NUMBER]) for proceedings u/[SECTION]/[SECTION]/[SECTION] and [SECTION] of [ENTITY] Act 1934 filed by the petitioner [ENTITY] (herein after referred to as [ENTITY]) against M/s Hoffland Finance Ltd (A-1), [ENTITY] (A-2), [ENTITY] (A-3), A. Subba [ENTITY] vs Manohar Lal etc 1 out of 11 Rao (A-4) and [ENTITY] (A-5) whereby (A-3), (A-4) & (A-5) (respondents herein) have been discharged.
2. Impugned order is dated 25th February, 2016 and this revision is filed on 1 st July, 2016. There is a delay of 35 days in filing this revision. Heard on the application moved on behalf of State for condonation of delay in filing the revision. As per the application, the delay in filing the revision is stated to be due to procedural formalities. It is submitted that after obtaining certified copy of the order the same was sent to the Regional officer New Delhi, who sent it to the Central office at Mumbai and thereafter, concerned officers of the bank after examining the case and report of the lawyer decided to challenge the impugned order. Lawyer then drafted the revision petition which was sent to the legal department at Mumbai, through the regional office at Delhi and after their approval this petition was finalized and requisite affidavit of the officer authorized to file the same was prepared and that [ENTITY] is a statutory corporation and the decision regarding filing of the revision petition has to be taken by the appropriate authority in accordance with the rules and procedure of the bank.
3. Sh. [ENTITY], learned counsel appearing for the petitioner submits that Hon'ble Supreme Court in the case of [PRECEDENT] while refusing to condone the delay in filing special writ petition relied upon the judgment in Post Master General vs Living Medial India Ltd., II (2012) SLT
312. It is submitted that in the said case, there was a delay of 427 days in filing SLP and for condoning the delay, the petitioner had merely given various dates without explaining the reason for disposal of files vide different officials. In the case of the present petition, there is a delay of only 35 days. It is further submitted that in the similar situation, Hon'ble Delhi High Court in the case of State vs Sachin [ENTITY] vs Manohar Lal etc 2 out of 11 Shokeen1 vide its judgment dated 3rd September 2013 condoned the delay of 92 days. It is argued that, in the present case, the delay is neither deliberate nor malafide but only because the final decision making body is situated in Mumbai and present petition is in public interest whereas petitioner or its officials have no personal interest and hence delay of 35 days may be condoned.
4. No doubt, period of limitation can be condoned in case appropriate explanation has been tendered for the delay but the period can not be condoned on the mere asking of prosecutor appearing for the State. It is obligatory on the part of prosecution to provide reasonable explanation for day to day delay, otherwise provisions of [ACT] would be rendered nugatory. It is pertinent to note the observations made by Supreme Court in "[PRECEDENT]", while quoting [PRECEDENT]'s case, which are as under:
"In our view, it is the right time to inform all the government bodies, their agencies and instrumentalities that unless they have reasonable and acceptable explanation for the delay and there is bonafide effort, there is no need to accept the usual explanation that the file was kept pending for process. The government departments are under a special obligation to ensure that they perform their duties with diligence and commitment. Condonation of delay is an exception and should not be used as an anticipated benefit for the Government Departments. The law shelters everyone under the same light and should not be swirled for the benefit of a few."
5. In State Vs. [ENTITY] & Ors.(Supra) referred by learned counsel for the petitioner, Office of Chief Post Master General's case as well as other case of Apex Court namely [PRECEDENT], 3 was referred in which several previous decisions had been referred and it was observed that certain 2 (2014) 2 SCC 422 3 (2008) 14 SCC 582 [ENTITY] vs Manohar Lal etc 3 out of 11 amount of latitude is not impermissible having regard to the procedural red tape in the process of making decision being the common feature and the court should decide the matter on merits unless the case is hopelessly without merits and the said position was highlighted in [PRECEDENT] and it was noted that adoption of strict standard of proof sometimes fails to protect public justice and it would result in the public mischief by skillful management of delay in the process of filing an revision and in the [ENTITY]'s Case (supra), 92 days delay was condoned by our high court.
6. Having regard to the aforenoted legal position as a whole and the facts and circumstances of this case, this court finds that ground assigned by the petitioner is not convincing and petitioner has failed to explain each day's delay in filing the revision, but this court has, in the interest of protection of public justice, condoned the delay of 35 days to put a final lid to the controversy and has proceeded to hear the counsel for parties on merits.
7. Relevant facts leading to the filing of this revision petition are that a Complaint case was filed by [ENTITY] on 30 th May 1998 and vide order dated 17 th July 1999, Ld trial court summoned the accused persons. During pre-charge evidence, complainant examined Sh. [ENTITY], Chief Manager, Department of Non Banking Finance Supervision as CW-1, [ENTITY], [ENTITY], Manager of the said department as CW-2 and [ENTITY], Assistant Manager, [ENTITY] as CW-3 and [ENTITY], AGM aforesaid department at CW-4. Averments made in the complaint were that M/s Hoffland Finance Ltd. (A-1 company) conducting the business of None Banking Finance Institution as a loan company and [ENTITY] (A-2) was Chairman-cum-MD of the said company. [ENTITY] (A-3) and [ENTITY] (A-4) 4 (2005) 3 SCC 752 [ENTITY] vs Manohar Lal etc 4 out of 11 were directors of the said company whereas [ENTITY] (A-5) was the Chief Manager of the said company. It was alleged that A-2 to A-5 had active involvement in the commission of offence and A-2 to A-5 were in-charge and responsible to the A-1 Company for the conduct of its business at the time of contravention and default and all the accused persons were jointly responsible of contravention of provisions of the directions in the notification issued under [ENTITY] Act. The documents collected revealed contravention of various provisions of Non Banking Finance Company ([ENTITY]) directions 1977 and [ENTITY] Act by the accused company.
8. [ENTITY] was empowered to issue directions vide notification No.DNBC.38/DG vide(H)-77 dated 20.06.1997 and No.DFC(COC)107ED(JRP)/97-98 dated 30.04.1997 to all the NBFs. Violations described in the complaint are that the accused company was collecting deposits from the public in the name of security deposit and offering very high rate of interest i.e.18% to 27 % per annum in contravention of directions of [ENTITY]. It was further alleged that deposit collected were shown as security deposit in the books of account of company and company promised to provide Group A shares as security for the amount deposited with the company. Copies of the advertisement, publicity pamphlets issued by the company, with copies of the application forms, sample deposit receipts and forwarding letter of the company addressed to the depositors are filed on record. It is alleged that documents of the company show that it was trying to maintain that the deposit in question were not u/[SECTION] of [ENTITY] Act being security deposit executed thereunder. Company was promising interest on the deposit and had treated them as deposit for all practical purposes. It is alleged that company had given an evasive and fake reply to the show cause notice dated 31st December 1997 u/s [ENTITY] vs Manohar Lal etc 5 out of 11 58(b)(4a) (58c)(i) [ENTITY] Act and accused company had not applied for grant of certificate of registration as required u/[SECTION] and the company carried on business of Non Banking Finance Institution without obtaining requisite certificate from the [ENTITY] and thus, contravened provisions u/[SECTION] of the [ENTITY] Act. [ENTITY] (Petitioner herein) is aggrieved with the impugned order whereby A-3, A-4 & A-5 have been discharged by the Ld trial court. [ENTITY] (A-4) (R-2 herein) expired after the order of discharge i.e.on 30 thApril 2016. His death certificate is filed on record by his wife Smt.[ENTITY] and factum of his death was got verified by this court from the SHO, PS Krishna Nagar.
9. Grounds raised by the petitioner are that Learned trial court failed to appreciate that in Para 2 & Para 7 of the complaint, it was mentioned that A-2 to A5 were incharge of and responsible to the accused company for the conduct of its business at the time of contravention and also that they were actively involved in the commission of offence; that Ld trial court has not analyzed the evidence to find out if the allegations against them were sufficient to given a finding of conviction and that at the stage of framing of charge, complainant was required to establish a prima facie case. It is submitted that respondents relied upon [SECTION] of the rules framed under [ACT] as regards the resignation of [ENTITY] (R-2) and his resignation was w.e.f.30 thApril 1998 whereas the breach has been committed w.e.f.9th January 1997 onwards and the violation of directions was committed prior to his alleged resignation and have been thereafter. It was submitted that Ld trial court failed to consider the reply dated 7 thJanuary 1998 filed on behalf of accused company which was assigned by R-2 as director of company showing that he was not only actively involved and also in charge of day to day affairs of the company.
[ENTITY] vs Manohar Lal etc 6 out of 11
10. Ld. Counsel submitted that CW-2 placed on record letter dated 1 st December 1997 (Ex.CW-2/1) wherein he had not only identified but specifically stated that A-5 (R-3 herein) had given him said letter on behalf of accused company. It is submitted that Learned trial court failed to appreciate that R-1 & R- 2 were admittedly directors of the company and R-3 was manager of the company and as per [SECTION] of the [ACT] noted by learned trial court, every person who, at the time of contravention of default was incharge and responsible for the conduct and business of the company as well as company shall be deemed to be guilty of the contravention accordingly and further as per [SECTION]/[SECTION] of the [ACT] all the affairs of the company shall be exercised by the Board of Directors of the company and full time director of the company shall be responsible for the default committed by the company. As regards [ENTITY] (A-5)(R-3 herein), employed as Chief Manager of the A-1 Company, it was argued that there is a letter written by him to the Inspecting Officer, [ENTITY], Sansad Marg, New Delhi wherein it was stated that all the details were furnished.
11. Ld counsel appearing for the petitioner drew attention of the court towards copy of Annual Return dated 3rd July 1995 filed on behalf of accused company purported to have been signed by [ENTITY] as well as letter dated 16 th March 1997 written to the GM, [ENTITY] Non Banking Finance Company, New Delhi by [ENTITY], Chairman-cum-Managing Director of accused company specifying names of directors as [ENTITY], [ENTITY] and [ENTITY]. Ld counsel for petitioner submits that at the stage of framing of charge, only a prima facie case has to be seen and has not to establish guilt of the accused beyond all reasonable doubts. It is submitted that in the present case, [ENTITY] (R-1) was admittedly [ENTITY] vs Manohar Lal etc 7 out of 11 director of the accused company and was responsible for the affairs of the company evident from annual return (Ex.CW-3/B), filed before the ROC under his signatures and similarly, [ENTITY] (R-3) was responsible for maintaining the accounts of the company and in that capacity, he write a letter dated 1st December 1997 (Ex.CW-2/1), which clearly shows that R-3 was trying to mislead the [ENTITY] by saying that the deposits received by the accused company was "security deposit" and was only scrutinizable by SEBI and not [ENTITY].
12. Ld counsel for petitioner submits that impugned order may be set aside and charges be framed against R-1 & R-3. R-1 was the director of the company and incharge of and responsible to the company for the conduct of the business of the company and R-3 connived with the company in the commission of the offence by the company and as such were liable to be prosecuted under [SECTION] of [ENTITY] Act. It is submitted that the contention raised by the respondents about their having ceased to be responsible for the affairs of the company can be considered in their defence during trial and not at the stage of framing of charge and thus, Ld Magistrate erred to that extent in passing the impugned order discharging the respondents.
13. Per contra, Sh.[ENTITY], Ld counsel appearing for [ENTITY] (R-2) submits that [ENTITY] was merely Additional Director on papers and was not incharge and responsible for the day to day affairs of the company. He was neither signatory and was not dealing with day to day affairs of the company and it is submitted that merely being a director or additional director, criminal liability cannot be fasten upon a person. It is submitted that in the complaint that there is nothing to show as to how [ENTITY] was incharge and responsible for the day to day affairs of the company.
[ENTITY] vs Manohar Lal etc 8 out of 11
14. Sh. [ENTITY] (R-3) submitted that he was merely an employee of the company ad it is submitted that in the complaint it has not been specified as to how he was responsible and incharge in the day to day affairs of the company and that merely by writing letter to the [ENTITY] as an employee of the company, he cannot be made liable for commission of the alleged offence and lastly he submitted that he had resigned well before the alleged commission of offence and the issuance of notification referred by the complainant which came to effect on 1st April 1997. It is submitted that order of the Ld trial court is reasonable and there is no defect in the said order. Sh. [ENTITY] (R-3) in support of his submissions reported in [PRECEDENT] in support of his submissions. The citation in the case of [PRECEDENT].
15. There is no dispute about the factual position noted by the learned trial court. [ENTITY] was managing the affairs of the Company as the Chairman- cum Managing Director while [ENTITY] (R-1) and [ENTITY] (R-2) since deceased were alleged Directors of the company. [ENTITY] (R-3) was Chief Manager of the company. [SECTION] prescribes for punishment for a person who contravenes the provisions of [SECTION] of the Act which makes it mandatory for NBFC to obtain a certificate of registration to commence or carry on its business. [SECTION] states that where a an offence under the Act has been committed by a company and it is proved that the same was committed with the consent or connivance of, or is attributable to any neglect on the part or, any Director, Manager, Secretary, other officer or employee of the company, such Director, Manager, Secretary, other officer or employee shall also be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. [SECTION] provides that in case of company, if it is proved that [ENTITY] vs Manohar Lal etc 9 out of 11 the offence was committed with the consent or connivance of any Director, Manager, Secretary, other officer or employee of the company, then such person would also be liable to be punished. Similarly, this Section makes such other person liable even if the offence is attributable to any neglect of his part. Learned trial court rightly noted that at this stage, only a prima-facie view is to be taken and a detailed screening of evidence is not to be conducted at this same time, one can not loose sight of the fact that charges can be framed only when there is some incriminating evidence to demonstrate involvement of accused persons.
16. This court finds that Learned trial court correctly noted that in order to make a Director liable for committing an offence punishable under [SECTION], it must be established that he was in charge of and was responsible to the company for the conduct of its business and the argument that a Director becomes liable for committing the offence merely because of his official capacity does not hold ground and there is no universal rule that each Director is in charge of the affairs of the company. It is true that scheme of the act, is that the liability of a director depends upon the role played by him in the affairs of the company and not his status or designation and liability arises on account of conduct, act or omission on the part of the Director and not merely on account of holding the office or position in the company. In the present matter, as per [ENTITY] (R-1) was stated to having no signing power and was not authorized signatory of the company and was Director only on papers having no authority or role to play in managing the affairs of the company.
17. Legal position is well settled that to launch a prosecution against the alleged Directors or any other person there must be a specific allegation in the complaint as to the part played by them in the transaction. There should be clear [ENTITY] vs Manohar Lal etc 10 out of 11 and unambiguous allegation as to how the Directors are incharge and responsible for the conduct of the business of the company. The description should be clear. In the absence of any specific averment or evidence, complaint would not be entertenable against them. In order to make a person liable for committing an offence punishable under [SECTION] of the Act, it must be shown, how at the time of contravention, the person was incharge of or managing the affairs of the company or only then, the deeming fiction becomes applicable. This court is in agreement with learned trial court that there is no evidence on record to indicate that [ENTITY] (R-1) was managing the affairs of the company or they were in charge of the company. Similarly, there is no incriminating evidence to show that [ENTITY] was negligent or the contravention resulted because of his negligence on connivance. Criminal liability cannot be fastened upon (R-3) merely because he signed a letter as an employee of the company. There is no evidence on record to show that respondents were in charge of and responsible for the conduct of the business of the company.
18. Having regard to the aforenoted reasons and totality of facts and circumstances, this court finds no illegality, procedural irregularity or defect in the impugned order and thus, no interference is warranted therein. In the result, revision petition is dismissed. TCR be sent back along with a copy of this order. Revision file be consigned to Record Room.
ANNOUNCED IN THE OPEN COURT [ENTITY] on 1 September 2016 st Special Judge-CBI (PC Act)-06 Tis Hazari Courts/Delhi [ENTITY] vs Manohar Lal etc 11 out of 11