CR.MA/14784/2007 1/8 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD CRIMINAL MISC.APPLICATION No. 14784 of 2007 With CRIMINAL MISC.APPLICATION No. 15389 of 2007 For Approval and Signature: HONOURABLE MS.JUSTICE H.N.DEVANI ========================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ========================================= ALOKE KUMAR BANERJEE Versus THE INDUSTRIAL DEVELOPMENT BANK OF INDIA LTD AND ANOTHER ========================================= Appearance : MR ANSHIN H DESAI for Applicant(s) : 1, MR JIGAR J SHETH for Respondent(s) : 1, MR KP RAVAL, ADDL. PUBLIC PROSECUTOR for Respondent(s) : 2, ========================================= CORAM : HONOURABLE MS.JUSTICE H.N.DEVANI Date : 18/06/2008 COMMON ORAL JUDGMENT 1. The petitioners of both these applications under section 482 of the Criminal Procedure Code, 1973 (the Code), have prayed to quash the complaint lodged by the respondent No.1 CR.MA/14784/2007 2/8 JUDGMENT – Industrial Development Bank of India Limited against them before the Metropolitan Court at Ahmedabad, which has been registered as Complaint No.11436 of 2006; as well as the summons issued on the said complaint vide order dated 16th December, 2006. 2. The facts of the case stated briefly are that the respondent No.1 herein had lodged the aforesaid complaint before the learned Metropolitan Magistrate, Court No.13, Ahmedabad under the provisions of section 138 of the Negotiable Instruments Act, 1881 (the Act) against the petitioners and other accused persons alleging that the accused No.2 had issued two post dated cheques bearing No.575474 dated 28th March, 2006 for a sum of Rs.6 lacs and bearing No.575492 dated 28th March, 2006 for a sum of Rs.3 lacs, both drawn on the Standard Chartered Bank, Ahmedabad in favour of the complainant. That both the said cheques were presented for collection to the drawee Bank and the same were returned unpaid vide advices both dated 19.09.2006 with endorsement “payment stopped by attachment order/court order.” Upon further inquiry, the Bank clarified that there were no funds available in the account of the accused No.1 company to honour the said cheques. According to the complainant, this amounts to dishonour of cheques for insufficiency of funds. After giving notice under section 138 of the Act, the amount in question was not paid to the respondent No.1 Industrial Development Bank of India Ltd. (IDBI), hence, the IDBI has lodged the aforesaid complaint. 3. It is the case of the petitioners that the petitioner of Criminal Misc. Application No.14784 of 2007 who is arraigned CR.MA/14784/2007 3/8 JUDGMENT as accused No.5 in the complaint, was a Professional Technical Director, who had tendered his resignation to the Board of Directors on 9th September, 2005, which was accepted by the Board of Directors and the said petitioner was relieved as a Director on 15th September, 2005, whereas the petitioner of Criminal Misc. Application No.15389 of 2007, who is arraigned as accused No.4 in the complaint, had tendered his resignation to the Board of Directors on 1st July, 2006, which was accepted by the Board on 5th July, 2006 and the petitioner was relieved as a Director. Both the petitioners had informed the Registrar of Companies for the purpose of Form No.32 and by filling in E form for the same. It is the case of the petitioners that at the relevant time, when the cheques were dishonoured, both the petitioners had ceased to be Directors of the accused No.1 company and as such could not be held liable for the offence in question. 4. Heard Mr. A.H. Desai, learned advocate for the petitioner, Mr. Jigar J. Sheth, learned advocate for the respondent No.2 and Mr. K.P. Raval, learned Additional Public Prosecutor for respondent No.1 – the State of Gujarat. 5. Mr. A.H. Desai, learned advocate for the petitioners has submitted that both the petitioners had resigned prior to the date of the offence in question and were not Directors of the company at the relevant date and as such cannot be held liable for the offence in question. It is further submitted that the petitioners had joined the accused No.1 company as Professional Technical Directors and as such have nothing to do with the transaction in question. It is submitted that it is settled legal position that the persons who are sought to be CR.MA/14784/2007 4/8 JUDGMENT made criminally liable under section 141 should at the time the offence was committed, be in charge of and responsible to the company for the conduct of the business of the company. Every person connected with the company does not fall within the ambit of the provision and it is only those persons who were in charge of and responsible for the conduct of the business of the company at the time of commission of the offence, who will be liable for criminal action. It follows from this that if a Director of a company who was not in charge of and was not responsible for the conduct of the business of the company at the relevant time, he will not be liable under the said provision. 6. In support of his submissions, the learned advocate for the petitioners has placed reliance upon the following decisions of the Supreme Court as well as this Hon'ble Court. (i) the decision of the Supreme court in the case of Katta Sujatha (Smt) v. Fertilizers and Chemicals Travancore Ltd. and another, 2002(7) SCC 655; (ii)in the case of Monaben Ketanbhai Shah and another v. State of Gujarat and others, 2005(1) GLR 21 [SC]; (iii)in the case of S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and another, 2005(3) GLH 513 [SC]; (iv)in the case of Saroj Kumar Poddar v. State (NCT of Delhi) and another, 2007(3) SCC 693; (v)in the case of S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and another, 2007(4) SCC 70; CR.MA/14784/2007 5/8 JUDGMENT (vi)in the case of N.K. Wahi v. Shekhar Singh and others, 2007(9) SCC 481; (vii)the decision of this court in the case of Mayurbhai N. Vyas v. State of Gujarat and another, 2002(3) GLR 1918; (viii)in the case of Urban Co-operative Credit Society, Borsad v. State of Gujarat and another, 2003(3) GLR 207; (ix)in the case of Kanubhai J. Patel v. State of Gujarat, 2004(3) GLH (U.J.) 7; (x)in the case of Kartik Kiritbhai Parekh v. State of Gujarat, 2005(2) GLH 504; (xi)in the case of Dr. Rajan Sanatkumar Joshi v. Rajnikant Govindlal Shah, 2007(3) GLR 2100 7. In the facts of the present case it is the specific case of the petitioners that they had resigned from the post of Directors of the accused No.1 Company prior to the date of dishonour of the cheque in question. The learned Advocate for the respondent No.2 IDBI is not in a position to dispute the said position. This Court in the case of Urban Co-op. Credit Society, Borsad (supra) has been held that if on the date of the commission of the offence, the petitioner was not responsible for the affairs of the Company, complaint under section 138 of the NI Act would not be maintainable against such petitioner. In the circumstances, the said decision would be applicable on CR.MA/14784/2007 6/8 JUDGMENT all fours to the facts of the present case, since on the date of commission of the offence, i.e., on 19th September, 2006, neither of the petitioners were Directors of the Company and as such were not responsible for the affairs of the Company. Hence, the complaint in question is required to be quashed qua the present petitioners. 8. Examining the case from another angle, the Supreme Court in the case of N.K. Wahi (supra) has held as follows : “6. Chapter XVII has been incorporated under the Act with effect from 1.4.1989. In certain contingencies referred to under Section 138 of the Act on the cheques being dishonored a new offence as such had been created. But to take care of the offences purported to have been committed provisions of sub-section (1) to Section 141 of the Act come into play. It reads as under:- "141 - Offence by companies - (1) If the person committing an offence under section 138 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." 7. This provision clearly shows that so far as the companies are concerned if any offence is committed by it then every person who is a Director or employee of the company is not liable. Only such person would be held liable if at the time when offence is committed he was in charge and was responsible to the company for the conduct of the business of the company as well as the company. Merely being a Director of the company in the CR.MA/14784/2007 7/8 JUDGMENT absence of above factors will not make him liable. 8. To launch a prosecution, therefore, against the alleged Directors there must be a specific allegation in the complaint as to the part played by them in the transaction. There should be clear 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. 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. 14. The matter was again considered in Sabitha Ramamurthy and Anr. v. R.B.S. Channabasavaradhya and Anr., [2006] 9 SCALE 212, and Saroj Kumar Poddar v. State (NCT of Delhi) and Anr., JT (2007) 2 SC 233. It was, inter-alia, held as follows: "....Section 141 raises a legal fiction. By reason of the said provision, a person although is not personally liable for 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. Before a person can be made vicariously liable, strict compliance of the statutory requirements would be insisted....". 9. Applying the principles enunciated in the aforesaid decision to the facts of the present case, a bare perusal of the complaint shows that there are no specific allegations as to the part played by the petitioners in the transaction in question. In the circumstances, in absence of any clear and unambiguous allegation as to how the petitioners are in charge and responsible for the conduct of business of the CR.MA/14784/2007 8/8 JUDGMENT company, no vicarious liability can be inferred qua the present petitioners, hence the complaint deserves to be quashed qua the present petitioners on this ground also. 10. For the foregoing reasons the applications succeed and are accordingly allowed. Complaint No.11436 of 2006 pending before the learned Metropolitan Magistrate, Court No.13 at Ahmedabad as well as the summons issued on the said complaint pursuant to order dated 16th December, 2006, are hereby quashed qua the present petitioners namely (1) Alok Kumar Banerjee and (2) Indulal C. Vora. Rule is made absolute accordingly. (HARSHA DEVANI, J.) shekhar/-