1 Cri.W.P.No.1657-1658.11 hvn IN THE HIGH COURT OF JUDICATURE AT BOMBAY CRIMINAL APPELLATE SIDE CRIMINAL WRIT PETITION NO. 1657 OF 2011 Mr. T.N. Reddy Arvind, Age 64 years, At 105/106, 1 st Floor, Raheja Chambers, Museum Road, Bangalore 560 001 (Karnataka) ... Petitioner Versus 1. State of Maharashtra, 2. Global Trade Finance Ltd. Metropolitan Building, 6th Floor, Bandra Kukrla Complex, Bandra (E), Mubai 400 051 ... Respondents WITH CRIMINAL WRIT PETITION NO. 1658 OF 2011 Mr. Reddy Vijayanarayana T.N. Age 64 years, At 105/106, 1 st Floor, Raheja Chambers, Museum Road, Bangalore 560 001 (Karnataka) And at 18, 1st Main, Defence Colony, Indira Nagar, Bangalore 560 038 (Karnataka) ... Petitioner Versus 1. State of Maharashtra, 2. Global Trade Finance Ltd. Metropolitan Building, 6th Floor, Bandra Kurla Complex, Bandra (E), Mubai 400 051 ... Respondents 2 Cri.W.P.No.1657-1658.11 Smt. P.J. Kanani, Advocate for Petitioners. Mr. Yashpal Thakur, i/by M/s. Paras Kuhad & Associates for Respondent no. 2. Mr. A.S. Shitole A.P.P. for Respondent no. 2 State. CORAM : K.U. CHANDIWAL,J. DATED : SEPTEMBER 20, 2011 JUDGMENT : Heard. 2. Rule. Rule made returnable forthwith. 3. These petitions raise virtually common grounds and consequently heard together and disposed of by common order. T.N. Reddy Arvind, petitioner in Writ Petition No. 1657 of 2011 is original accused no. 2 (hereinafter referred as Arvind) and Reddy Vijaynarayan T.N. is original accused no. 7, petitioner in Writ Petition No. 1658 of 2011 (hereinafter referred as "Vijaynarayan). 4. M/s. Global Trade Finance Limited (complainant) (GTFL) extended financial facilities to M/s. Madanapalle Spinning Mills Ltd (for short Company). In discharge of the said facility/liability, towards repayment of trade finance facility due and payable, the Company issued numerous cheques as part of repayment in favour of complainant 3 Cri.W.P.No.1657-1658.11 GTFL. The cheques at item nos. 1 to 5, 7 to 32 and 34 to 51 were signed by Laxmikant Bhandari, while cheques at item nos. 6 and 33 were signed by Bood Balkrishnan. By virtue of copy of board resolution dated 23.12.2008 these persons were authorized to sign the cheques. The complainant claim that accused no.2 Arvind was the Chairman while accused no. 4 was the Managing Director, accused no. 7 Vijaynarayan was the director of the said company. Accused no. 2 to 7 were and are in charge and responsible for the conduct of business of accused no. 1 company as also they are looking after day to day affairs of accused no. 1 company. 5. The petitioners claim that Arvind Reddy resigned as Director of M/s. Madanapalle on 8.10.2008 and consequently he would not be answerable to the cheques dishonoured subsequent to his resignation as the cheques were ranging the period from 17.1.2009 to 7.4.2009. The learned counsel submits that the statutory notice received by Arvind was replied by three modes and complainant was informed well in advance of his resignation. Inspite of the said fact, initially process was issued on 31.3.2010 and due to challenge in this court, thereafter again fresh verification was caused on 24.9.2010. The learned counsel submits, in the complaint/petition or the verification there is no reference of 4 Cri.W.P.No.1657-1658.11 resignation of Arvind or his reply being dispatched. The court had lacked territorial jurisdiction as the petitioner resides at Bangalore and this issue is pending in Hon'ble Supreme Court in other matters. Mere denial by the complainant would not make out a case of liability of a director who has already resigned. In order to stress her point she has relied on the judgment of Hershendra Kumar D. Vs. Vs. Rebtilata Koley etc. Cri. 2010 All MR 955 (SC), Fortis Financial Services Ltd. Vs. State of Maharashtra and Ors. 2006 (11) LJSOFT 146, Mansoor Ali Khan Pataudi Vs. Ram Niranjan Kedia Tours and Travels Pvt. Ltd. and Anr. 2005 (7) LJSOFT 38 (Para 5), Kusum A. Bardeskar & Ors. Vs. Babulal Tarachand Shah & Anr. 1998 (4) LJ 654 (para 3 and 4). In so far as Petition No. 1658 of 2011 is concerned, the learned counsel submits that the said Vijaynarayan resigned on 27.1.2009. Most of the cheques were presented after his resignation. Consequently he could not be said to be liable to meet the allegations in the complaint. 6. The learned counsel for respondent Global Trade Finance (GTFL) submits the fact of resignation either of accused no. 2 Arvind as Chairman and Managing Director or accused no. 7 Vijaynarayan as director is disputed, this is so informed even in verification recorded on 24.9.2010 and consequently a disputed fact cannot be treated to be 5 Cri.W.P.No.1657-1658.11 accepted by virtue of mere production of form no. 32 of the Companies Act to demonstrate acceptance of resignation and liability of director being ceased from the obligation. 7. The learned counsel for the respondents (GTFL) reiterated that the factum of resignation of the petitioner being disputed by the respondent, the burden lies upon the petitioner to establish and to prove resignation by leading cogent evidence before the trial court. By production of copy of form no. 32, the claim and assertion of the complainant would not be diluted as the authenticity and genuineness of the said document is yet to be established. The contents of form No. 32 are tobe proved by the petitioner as the same is specifically denied and disputed by the complainant. 8. I find, these submissions, indeed flow in tune of facts and legal position. 9. On going through the record, it is seen that at least 18 cheques were prior to resignation of Vijaynarayan. 10. Both the learned counsel stress to the judgment of SMS 6 Cri.W.P.No.1657-1658.11 Pharmaceuticals Ltd. Vs. Nita Bhalla reported in (2005) 8 S.C.C. 89 (three Judge Judgment) and also to the judgment in the matter of National Small Industries Corpn. Ltd. Vs.Hermeet Singh Paintal and anr. 2010 ALL MR (Cri) 921 (SC). In the matter of National Small Industries, Hon'ble Supreme Court gave reference to section 291 of the Companies Act, observed in para 24 as under : "24. Section 291 of the Companies Act provides that subject to the provisions of that Act, the Board of Directors of a company shall be entitled to exercise all such powers, and to do all such acts and things, as the company is authorized to exercise and do. A company, though a legal entity, can act only through its Board of Directors. The settled position is that a Managing Director is prima facie in-charge of and responsible for the company's business and affairs and can be prosecuted for offences by the company. But insofar as other Directors are concerned, they can be prosecuted only if they were in-charge of and responsible for the conduct of the business of the company. A combined reading of Sections 5 and 291 of Companies Act, 1956 with the definitions in clauses 24, 26, 30, 31 and 45 of Section 2 of that Act would show that the following persons are considered to be the persons who are responsible to the company for the conduct of the business of the company: (a) the Managing Director/s; (b) the whole-time Director/s; (c) the Manager; (d) the Secretary; (e) any person in accordance with whose directions or instructions the Board of Directors of the company is accustomed to act; 7 Cri.W.P.No.1657-1658.11 (f) any person charged by the Board of Directors with the responsibility of complying with that provision; Provided that the person so charged has given his consent in this behalf to the Board; (g) where any company does not have any of the officers specified in Clauses (a) to (c), any director or directors who may be specified by the Board in this behalf or where no director is so specified, all the directors: Provided that where the Board exercises any power under Clause (f) or Clause (g), it shall, within thirty days of the exercise of such powers, file with the Registrar a return in the prescribed form. But if the accused is not one of the persons who falls under the category of "persons who are responsible to the company for the conduct of the business of the company" then merely by stating that "he was in-charge of the business of the company" or by stating that "he was in- charge of the day-to-day management of the company" or by stating that "he was in-charge of, and was responsible to the company for the conduct of the business of the company", he cannot be made vicariously liable under Section 141(1) of the Act. To put it clear that for making a person liable under Section 141(2), the mechanical repetition of the requirements under Section 141(1) will be of no assistance, but there should be necessary averments in the complaint as to how and in what manner the accused was guilty of consent and connivance or negligence and therefore, responsible under Sub-section (2) of Section 141 of the Act." 11. The learned counsel for the petitioner relied on the judgment in the matter DCM Financial Services Ltd. Vs. J.N. Sarin, AIR 2008 SC.2255, Central Bank of India Vs. M/s. Asian Global Ltd. 2010 8 Cri.W.P.No.1657-1658.11 (0) AIJEL 48620 dated 6.7.2010. 12. The counsel for the complainant produced agreement between Global Trade Finance Limited and M/s. Madnapalle, to inform that it is signed by authorised signatory and stipulates the terms and conditions of financial facilities between the complainant and the borrower. According to him the liabilities of the company are not open to be disputed by the petitioners as they were consciously aware of the transaction, accepted their liability in so many words in several correspondence. The learned counsel inform Form No. 32 under the Companies Act, would be required to be proved as indicated by Division Bench of this Court in the matter of Suhas Bhand Vs. State of Maharashtra, 2009 ALL M.R. (Cri.) 2614. 13. Analyzing the legal position and submissions advanced by both the sides, it is clear that factum of resignation claimed by Arvind was disputed and dealt with in the complaint petition while dealing with statutory notice. The vicarious liability of accused no. 2 and 7 is also spelt in the complaint in following words : "2. I say that in discharge of the said liability towards repayment of the above referred Trade Finance Facility(ies) due and payable to us, Accused had issued us the following 9 Cri.W.P.No.1657-1658.11 cheques :.................." It is further stated in Para 2 as under : "All drawn on ING Vysys Bank Ltd, Vithal Mallya Road Branch, No. 23/3, St. Joseph Indian High School Compound, Vithal Mallya Road, Bangalore 560 001, as a part payment in favour of Complainant company. Cheques at item Nos. 1 to 5, 7 to 32 and 34 to 51 is duly signed by accused no. 4, while Cheque at Item No. 6 and Item No. 33 is duly signed by Accused No. 3 and Accused No. 5 respectively, on behalf of the Accused No. 1 company." Para 4 and 5 illustrate as under; : "4. I say that Accused No.1 is a Limited Company of which Accused Nos. 6 and 7 are the Directors. Accused nos. 2 and 4 are the Chairman and Managing Director, Accused No. 3 is the Whole time Director and Authorized Signatory and Accused No. 5 is Director and Authorized Signatory. At all material times relevant and relating to the complainant, Accused Nos. 2 to 7 were and are in-charge of and responsible for the conduct of the business of the Accused No.1 Company and are also looking after day to day affairs of Accused No.1 Company. It is further submitted that Accused Nos. 2 to 7 with Accused No.1 are also liable to be prosecuted as all the Accused have connived in the Commission of the present offence, in their capacity as Directors/Officers/Chairman and Managing Directors/Whole Time Director and Authorised Signatory of the Accused No.1 Company. 5. I say that as narrated in paragraph 4, Accused Nos. 2 to 7 being responsible for the affairs of Accused No. 1 Company are liable to be prosecuted for having committed a Criminal Offence in the event of failure on their part to comply with the requisitions contained in the Statutory Notice dated 25.6.2009, which was sent to the Accused by Speed Post on 25th June, 2009. I say that the Statutory 10 Cri.W.P.No.1657-1658.11 Notice was served on the Accused in due course on or about 27th June, 2009. I say that upon receipt of the Statutory Notice, Accused No. 2 addressed a letter dated 2nd July, 2009 to our Solicitor, wherein the Accused has falsely denied the liability, as particularly set out therein. I say that upon receipt of the Statutory Notice, Accused No. 7 addressed two letters dated 4th July ,2009 to our Solicitor, wherein the Accused has falsely denied the liability, as particularly set out therein. I say that upon receipt of the Statutory Notice, Accused Nos. 3 and 5 both addressed a Letter dated 8th July, 2009 to our Solicitor, wherein both the Accused have falsely denied the liability, as particularly set out therein. I further say that upon receipt of the Statutory Notice, Accused No.1 addressed a Letter dated 15th July, 2009 to our Solicitor, wherein the Accused has falsely denied the liability, as particularly set out therein. I also say that upon receipt of the Statutory Notice, Accused Nos. 2, 4, 6 and 7 all addressed Letters dated 20th July, 2009 to our Solicitor, wherein the all Accused have falsely denied the liability, as particularly set out therein. I say that the Accused have failed and neglected to make payment towards the abovementioned Dishonoured cheques. Hereto annexed and marked Exhibits "D", "E", "F" colly", "G", "H", "I", "J", "K", "L", "M", "N" colly" is the copy of the Statutory notice dated 25.6.2009, is the copy of the latter dated 2nd July, 2009 addressed by Accused No. 2. Copy of the letter dated 4th July, 2009 addressed by Accused No. 7 are the Copies of the Letters dated 8th July, 2009 addressed by Accused nos. 3 and 5, Copy of the letter dated 15th July, 2009 addressed by accused No.1 are the copies of the letters dated 20th July addressed by Accused Nos. 2, 4, 6 and 7 and the postal acknowledgments and postal receipts evidencing the dispatch by UPC/Speed Posts of packets containing the said Notices." 14. These details corresponding in the statutory notice and the replies of the petitioners are also dealt with. The re-verification caused 11 Cri.W.P.No.1657-1658.11 subsequently also endorse the complainant's stand of disputing the existence of Form No. 32, its genuineness or resignation of Arvind as Chairman/Managing Director and Vijaynarayan as Director of M/s. Madnapalle. The challenge to the territorial jurisdiction is incorrect as the cheques were issued to the GTFL at Mumbai, they were presented at Mumbai and financial facilities were advanced at Mumbai. The office of the complainant is at Mumbai. The notices were issued from Mumbai, the amounts were required to be paid at Mumbai. In the situation, filing complaint at Mumbai is not out of jurisdiction. 15. The Hon'ble SuprmeCourt in (2004) 1 SCC 691 State of M.P. Vs. Awadh Kishore, it is observed in para 13 : "While exercising jurisdiction u/s. 482 Cr.P.C. it is not permissible for High Court to look into materials, the acceptability of which is essentially a matte of trial. The court should not act on annexures to the petitions u/s. 482 Cr.P.C. which cannot be termed as evidence without being tested and proved." 16. Since the existence of form No. 32 itself is disputed, the observation of the Division Bench in Suhas Bhand (supra),Para 33 will 12 Cri.W.P.No.1657-1658.11 have its impact and effect on the present controversy. "33. A reading of these judgments makes for the following legal propositions with regard to the resignation of a Director of a registered Company:- (i) If the accused in a criminal prosecution under Section 138 of the Negotiable Instruments Act produces a certified copy of Form No.32 certified by the ROC and there is no dispute of the factum of his resignation, the accused is entitled to be discharged from the prosecution. (ii) If his resignation is not accepted or admitted by the complainant upon production of the certified copy of Form No.32, the accused would have to prove the truth of the contents of the said certified copy i.e. the factum of his resignation. Such accused cannot be discharged simplicitor upon production of a certified copy of Form No.32. (iii) If the complainant produces any evidence showing the continuance of the accused as Director of the Company after the date of the resignation claimed by him as per the certified copy of Form No.32 produced by him, such accused cannot be discharged simplicitor upon production of such certified copy of Form No.32. He would have to lead evidence to prove the factum of his resignation. Similarly the complainant would be entitled to prove the factum of his continuing as Director. The trial under Section 138 read with Section 141 of the Negotiable Instruments Act would, therefore, proceed." 17. The complainant has since inception disputed the resignation of Arvind and Vijaynarayan and consequently it would not be open to accept resignation to be correct unless evidence is led and genuineness is proved. The legal position is explained in the matter of Rallis India Ltd. Vs. Poduru Vidya Bhusan and Ors. 2011 ALL MR (Cri) 1645 (SC). 13 Cri.W.P.No.1657-1658.11 Though the said matter revolve to controversy of partnership firm disputing its liability in terms of section 141 of N.I.C Act, however, in view of the position of the director in relation to Firm means partner in the firm as spelt out in section 141 (b) of the N.I. Act, the said judgment would be applicable to the facts of the present case. 18. The Hon'ble Supreme Court observed in Para 11 as under : 11. Thus, in the light of the aforesaid averments as found by us in the Criminal Complaint, we are of the considered opinion that sufficient averments have been made against the Respondents that they were the partners of the firm, at the relevant point of time and were looking after day to day affairs of the partnership firm. This averment has been specifically mentioned by the Appellant in the complaint even though denied by the Respondents but the burden of proof that at the relevant point of time they were not the partners, lies specifically on them. This onus is required to be discharged by them by leading evidence and unless it is so proved, in accordance with law, in our opinion, they cannot be discharged of their liability. Consequently, High Court committed an error in discharging them. Also, at the cost of repetition, by virtue of their own submissions before the High Court (reproduced in Para 6 above), the Respondents have admitted the fact that the Appellant had referred to them in their capacity as partners who were incharge of the affairs of the firm in the initial complaints. The question as to whether or not they were partners in the firm as on 31.03.2004, is one of fact, which has to be established in trial. The initial burden by way of averment in the complaint has been made by the Appellant." Para 15 thereof reads as under : 15. Strictly speaking, the ratio of the SMS 14 Cri.W.P.No.1657-1658.11 Pharmaceuticals (supra) can be followed only, after the factum that accused were the Directors or Partners of a Company or Firm respectively at the relevant point of time, stands fully established. However, in cases like the present, where there are allegations and counter-allegations between the parties regarding the very composition of the firm, the above rule of ‘specific averment’ must be broadly construed. Indeed, it would be nothing short of a travesty of justice if the Directors of a Company or Partners of a Firm, who, having duped a third-party by producing false documents (like a fake partnership deed) or making false statements (that some others were in charge of the Company/Firm), at a subsequent stage, seek protection from prosecution on the ground that they were not directly indicted in the complaint – such a proposition strikes against one of the very basic tenets of the law of natural justice, which is, that none shall be allowed to take advantage of his own default. Of course, the above observation is of a general nature, and has no bearing on the present case, but nonetheless, the power to quash a criminal proceeding with respect to an offence under Section 141 of the Act, must be exercised keeping this advisory note and caveat in mind. " 19. The learned counsel for the petitioners relied on the judgment of the Supreme Court in the matter of Harshendra Kumar D. Vs. Rebatilata Koley ETc. Cri all MR 2011 955 SC dated 8.2.2011. In the said case, the Form No. 32 which were placed on record were not disputed nor controverted by the complainants and consequently the Hon'ble Supreme court observed in para 26 as under : "26. Criminal prosecution is a serious matter; it affects the liberty of a person. No greater damage can be done to the reputation of a person than dragging him in a criminal 15 Cri.W.P.No.1657-1658.11 case. In our opinion, the High Court fell into grave error in not taking into consideration the uncontroverted documents relating to appellant’s resignation from the post of Director of the Company. Had these documents been considered by the High Court, it would have been apparent that the appellant has resigned much before the cheques were issued by the Company. " 20. The fact of present case, to reiterate is quite clear. The complainant at all stages from the complaint or verification has disputed the resignation of Arvind Accused No. 2 and Accused no. 7 and genuineness of either form no. 32 or the resolution of the company or existence of resignation of Arvind as Chairman/Managing Director and accused no. 7 Vijaynarayan as Director of the company. The record illustrate Arvind was instrumental in negotiating with GTFL for lending financial facilities and after availing the fruits conveniently desires to wash off his hands from the legal consequences of his representation. 21. On overall analysis of the documents tendered by the petitioners, at this stage of the matter, it can not be said that they will have to be accepted in the light of presumption as indicated in the commercial Documents Evidence Act, 1939. Such presumption is not mandatory as the documents forms part of schedule II of the said Act. The judgment in the matter of Omprakash Berlia and another Vs. Unit Trust of India and Ors. AIR 1983 Bombay 1 relied on by the petitioner's counsel will not 16 Cri.W.P.No.1657-1658.11 be applicable as the writer of the document is required to depose to the truth of its contents. The truth and contents of the document prima facie cannot be proved by merely producing document for inspection of the court. 22. The petitioners did not invoke remedies under section 397 Cr.P.C. and have approached this Court in its jurisdiction under section 482 Cr.P.C. The order of process prima facie being on available material does not call for interference. 23. Both the writ petitions are dismissed. Rule discharged. Stay granted on 15.7.2011 stands vacated. 24. Heard. 25. The learned counsel prays for stay of this order. The stay granted by this court dated 15.7.2011 is extended for further period of six weeks. (K.U. CHANDIWAL,J.)