IN THE HIGH COURT OF DELHI Crl.M.C. No.2586/2007 Reserved on 8th September 2009 Date of decision: 22nd September, 2009 Nitin Meshram ....Petitioner through: Anand, Adv. & Mr. Rajshree N. Reddy, Adv. VERSUS Softmart Solutions ....Respondent through: Vivek Sood, Adv. CORAM: HON'BLE MS. JUSTICE GITA MITTAL 1.Whether reporters of local papers may be allowed to see the Judgment? Yes 2.To be referred to the Reporter or not? Yes 3.Whether the judgment should be reported in the Digest? Yes GITA MITTAL, J 1. The present case raises a fundamental issue with regard to necessary averments to invite vicarious liability of persons concerned with the affairs of the company by virtue of Section 141 of the Negotiable Instruments Act for commission of an offence under Section 138 thereof in relation to dishonouring of a cheque, the primary liability for which falls on the drawer company. 2. The petitioner has sought quashing of the proceedings arising - 1 - out of Complaint Case No.1718/1/03 filed by the respondent for commission of such offences, on the ground that there is no averment in the complaint as to how or in what manner the petitioner was responsible for the conduct of the business of the company or otherwise responsible in regard to its functioning. It is submitted that the petitioner has not issued any cheque and the averments in the complaint taken in their entirety do not disclose commission of any offence under the Negotiable Instruments Act, 1881 by the petitioner. 3. The respondent filed a complaint under Sections 138 to 142 of the Negotiable Instruments Act, 1881, read with Section 420 of the Indian Penal Code against the Digitech Solutions Limited; Shri Anoop Sareen; Shri Rajiv Goel and Shri Nitin Mishra-its directors and one Darshan-its accountant on the allegations that they approached and transacted with the respondent-complainant for the purchase of computer software items and that in partial discharge of liability, issued four cheques being Cheque nos.705515, 705516, 705517 & 705518 which were dishonoured on presentation due to insufficiency of funds in the bank account of the company. Proceedings against the accountant were not pressed. 4. In support of the contention noticed hereinabove, reliance is - 2 - placed on several pronouncements of the Apex Court reported at 2005 SCC (Crl.) 1975 SMS Pharmaceutical Limited Vs. Neeta Bhalla & Anr.; (2007) 3 SCC 693 Saroj Kumar Poddar Vs. State (NCT of Delhi & Anr.); (2006) 10 SCC 581 Sabitha Ramamurthy & Anr. Vs. RBS Channabasavaradhya; (2008) 8 SCC 278 Green Earth Asphalt & Power Private Limited Vs. State of Maharashtra through PSO & Ors. & (2009) 9 SCALE 455 Jugesh Sehgal Vs. Shamsher Singh Jogi. 5. On the other hand, learned counsel for the respondent has vehemently opposed the submissions made by the petitioner. It is contended that the complaint was filed in the year 2003 and the petitioner has waited to raise this challenge in the year 2007. It is urged that the matter is at the stage of evidence and no interference is called for at this stage. It is further urged that the respondent-complainant has placed reliance not on Section 138 alone but the complaint contains substantive allegations inviting the applicability of Section 141(2) of the Negotiable Instruments Act, 1881. The submission is that the pronouncements relied upon by the petitioner do not deal with the necessary averments and ingredients laid down under Section 141 of the Negotiable Instruments Act, 1881. Learned counsel has urged at length that - 3 - the expression “consent”, “connivance” and “neglect” as appear in Section 141 of the Negotiable Instruments Act, have not been explained by the legislature and have to derive their meaning from the meaning given to them in common parlance. My attention is drawn to the meaning of this expression given in the Legal Glossary issued by the Government. In support of this contention, reliance is placed on the pronouncements of the Apex Court reported at 2007 (4) JCC (NI) 364 Ramji Lal Vs. Amit Ved & 2007 (4) JCC 3083 Krishana Dwivedi Vs. Surender Kumar. It 6. I have heard learned counsels at great length. In order to appreciate the submissions which have been made before this court, it becomes necessary to notice the relevant provisions of Sections 138 & 141 of the Negotiable Instruments Act, 1881 which read thus:- 138. Dishonour of cheque for insufficiency, etc. of funds in the account:- Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for (a term which - 4 - may be extended to two years) or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless- (a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier; (b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque (within thirty days) of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and (c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or as the case may be, to the holder in due course of the cheque within fifteen days of the receipt of the said notice. 141. Offences 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: (2) Notwithstanding anything contained in sub-section - 5 - (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.” 7. In view of the primary submissions on behalf of the petitioner noted hereinabove, it also becomes necessary to notice some of the material averments in the complaint which read as follows:- “1. That the complainant, a Partnership Firm is engaged in the business of Computer Software. The accused no.1 through accused nos.2 to 5 approached and transacted with the Complainant for the purchase of the following Computer Software items:- S.No Inv.No./Date Description of Software Qty. Amount 1. DO3-1256 11-03-2003 MS WINDOWS 2000 SERVER (5USER) CD MS OFFICE XP PROF. OEM AUTODESK AUTOCAD 2002 SYMANTEC NAV 2003 SYMANTEC ANTIVIRUS MULTI-TIER PROTECTION (5 USER) MS WINDOWS 2000 PROF OEM CD 3 2 1 5 2 9 96,720.00 29,120.00 1,12,320.00 7,280.00 14,040.00 63,882.00 2. DO3-1264 13-03-2003 AUTODESK AUTOCAD 2002 SYMANTEC NAV 2003 1 15 1,12,320.00 21,840.00 3. DO3-1323 27-03-2003 MS PROJECT 2002 SERVER (5 USER) MS PROJECT 2002 1 1 63,440.00 25,324.00 4. DO3-1353 MS WINDOWS 2000 CAL MOLP NL 10 13,000.00 - 6 - S.No Inv.No./Date Description of Software Qty. Amount 3-03-2003 MS PROJECT 2002 SERVER CAL MOLP NL 5 29,068.00 2. That in partial discharge of liability, the accused persons issued the following cheques to the complainant:- Ch. No. Dated Bank Amount 705515 30-04-03 Syndicate Bank C-34, 1 st Floor, Defence Colony, Lajpat Nagar, New Delhi – 110 024 1,20,000.00 705516 06-05-03 Syndicate Bank C-34, 1 st Floor, Defence Colony, Lajpat Nagar, New Delhi – 110 024 1,20,000.00 705517 06-05-03 Syndicate Bank C-34, 1 st Floor, Defence Colony, Lajpat Nagar, New Delhi – 110 024 1,20,000.00 705518 06-05-03 Syndicate Bank C-34, 1 st Floor, Defence Colony, Lajpat Nagar, New Delhi – 110 024 1,26,283.00 3. That on the presentation of the aforesaid cheques, the same were returned as dishonoured due to insufficiency of funds in the Bank account of accused no.1. The said cheques were presented on several occasions, on each of which they were returned as dishonoured for insufficiency of funds in the Bank account of accused no.1. The intimation of dishonour was received by complainant on/around 20th July, 2003. It is apparent from their conduct that they never had the intentions of making payment to the complainant for the purchase of the aforesaid software. The accused nos.2 to 5 have fraudulently induced the complainant to supply the aforesaid software, without the intention of making payment, thereby leading to financial losses to the - 7 - complainant. This act of commission and omission also amount to cheating for which the accused persons are liable to be punished under Section 420 I.P.C. 4. That the legal notice dated 17.08.2003 was sent on 18.08.2003 on behalf of the complainant to the accused persons vide which the accused were asked to make the payment of the amount of the said cheques with interest @ 15% per annum within 15 days of the said legal notice. The legal notice was sent by the complainant by Regd. A.D. Post, Speed Post and through U.P.C. And the same have been received by the accused persons. 5. That however the accused persons have not made any payment towards the said cheques, to the complainant within the statutory period of 15 days from the legal notice or even till date, and therefore the accused persons have committed the offence of dishonour of cheques under Sections 138-142 of the Negotiable Instruments Act, 1881 and hence are liable for punishment for the said offence. 6. That accused nos.2 to 5 are the principal officers of the accused no.1. The accused nos.2 to 5 are in charge of and responsible for the conduct of the business of the accused no.1. The accused nos.2 to 5 with the consent and connivance of each other have committed the aforesaid offence. They have actively participated in the transaction with the complainant in their capacity as principal officers. 7. That the cause of action for filing the instant complaint arose when the said cheques were dishonoured and when the payment was not made to the complainant within the stipulated period of 15 days from the receipt of the legal notice by the accused persons.” 8. The issue which has been raised before this court has arisen for consideration in the several judgments noticed hereinabove. - 8 - Each time, the expressions used in the complaint varied slightly. The same can be usefully considered as to facilitate examination of the issue as to what would constitute adequate pleadings in a complaint to impose vicarious liability upon a person who was either a director or a person controlling the affairs of the company. 9. The exposition of law by the Supreme Court in 2005 SCC (Crl.) 1975 SMS Pharmaceutical Limited Vs. Neeta Bhalla & Anr. sets out the applicable principles succinctly and can be usefully adverted to. They read as follows:- “4. In the present case, we are concerned with criminal liability on account of dishonour of cheque. It primarily falls on the drawer company and is extended to officers of the Company. The normal rule in the cases involving criminal liability is against vicarious liability, that is, no one is to be held criminally liable for an act of another. This normal rule is, however, subject to exception on account of specific provision being made in statutes extending liability to others. Section 141 of the Act is an instance of specific provision which in case an offence under Section 138 is committed by a Company, extends criminal liability for dishonour of cheque to officers of the Company. Section 141 contains conditions which have to be satisfied before the liability can be extended to officers of a company. Since the provision creates criminal liability, the conditions have to be strictly complied with. The conditions are intended to ensure that a person who is sought to be made vicariously liable for an offence of which the principal accused is the Company, had a role to play in relation to the incriminating act and further that such a person should know what is attributed to him to make him - 9 - liable. In other words, persons who had nothing to do with the matter need not be roped in. A company being a juristic person, all its deeds and functions are result of acts of others. Therefore, officers of a Company who are responsible for acts done in the name of the Company are sought to be made personally liable for acts which result in criminal action being taken against the Company. It makes every person who. at the time the offence was committed, was incharge of and was responsible to the Company for the conduct of business of the Company, the Company, liable for the offence. The proviso to the sub-section contains an escape route for persons who are able to prove that the offence was committed without their knowledge or that they had exercised all due diligence to prevent commission of the offence. xxx xxx xxx 10. While analysing Section 141 of the Act, it will be seen that it operates in cases where an offence under Section 138 is committed by a company. The key words which occur in the Section are "every person". These are general words and take every person connected with a company within their sweep. Therefore, these words have been rightly qualified by use of the words " 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 etc." What is required is that the persons who are sought to be made criminally liable under Section 141 should be at the time the offence was committed, in charge of and responsible to the company for the conduct of the business of the company. Every person connected with the company shall not fall within the ambit of the provision. It is only those persons who were in charge of and responsible for conduct of business of the company at the time of - 10 - commission of an 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, will not be liable under the provision. The liability arises from being in charge of and responsible for conduct of 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 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 almost unanimous judicial opinion that necessary averments ought to be contained in a complaint before a persons can be subjected to criminal process. A liability under Section 141 of the Act is sought to be fastened vicariously on a person connected with a Company, the principal accused being the company itself. It is a departure from the rule in criminal law against vicarious liability. A clear case should be spelt out in the complaint against the person sought to be made liable. Section 141 of the Act contains the requirements for making a person liable under the said provision. That respondent tallies within - 11 - parameters of Section 141 has to be spelled out. A complaint has to be examined by the Magistrate in the first instance on the basis of averments contained therein. If the Magistrate is satisfied that there are averments which bring the case within Section 141 he would issue the process. We have seen that merely being described as a director in a company is not sufficient to satisfy the requirement of Section 141. Even a non director can be liable under Section 141 of the Act. The averments in the complaint would also serve the purpose that the person sought to be made liable would know what is the case which is alleged against him. This will enable him to meet the case at the trial. 19. In view of the above discussion, our answers to the questions posed in the Reference are as under: (a) It is necessary to specifically aver in a complaint under Section 141 that at the time the offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company. This averment is an essential requirement of Section 141 and has to be made in a complaint. Without this averment being made in a complaint, the requirements of Section 141 cannot be said to be satisfied. (b) The answer to question posed in sub-para (b) has to be in negative. Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for conduct of its business. The requirement of Section 141 is that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a director in such cases. (c) The answer to question (c ) has to be in affirmative. The question notes that the Managing Director or Joint Managing Director would be admittedly in charge of the company and responsible - 12 - to the company for conduct of its business. When that is so, holders of such positions in a company become liable under Section 141 of the Act. By virtue of the office they hold as Managing Director or Joint Managing Director, these persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 141. So far as signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under Sub-section (2) of Section 141.” 10. In (2006) 10 SCC 581 Sabitha Ramamurthy & Anr. Vs. RBS Channabasavaradhya this issue was considered in the light of the complaint and supporting deposition. It was held as follows: “3. In support of the said complaint petition, one Ravidraradya, son of the complainant filed a sworn affidavit stating: ...The accused No. 2 is the M.D. and others are Chairman and partners. The accused- company towards repayment of the loan, issued a cheque in favour of the complainant. The M.D. signed and issued the cheque dated 23.6.2001 for Rs. 1,24,406/- on the account maintained by the company. On presentation of the said cheque to the Bank for collection, the same was returned on 30.6.2001 as insufficient funds. Notice dated 12.7.2001 was issued through Advocate to the accused was served on 13.7.2001. The case was filed on 27.8.2001.... Processes were directed to be issued on the said statement for alleged commission of an offence under Section 138 of the Negotiable Instruments Act. - 13 - xxx xxx xxx 7. A bare perusal of the complaint petitions demonstrates that the statutory requirements contained in Section 141 of the Negotiable Instruments Act had not been complied with. It may be true that 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 are vicariously liable. 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 therefore. 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. Not only the averments made in paragraph 7 of the complaint petitions does not meet the said statutory requirements, the sworn statement of the witness made by the son of Respondent herein, does not contain any statement that Appellants were in charge of the business of the company. In a case where the court is required to issue summons which would put the accused to some sort of harassment, the court should insist on strict compliance of the statutory requirements. In terms of Section 200 of the Code of Criminal procedure, the complainant is bound to make statements on oath as to how the offence has been committed and how the accused persons are responsible therefore. In the event, ultimately, the prosecution is found to be frivolous or otherwise mala fide, the court may direct registration of case against the complainant for mala fide prosecution of the accused. The accused would - 14 - also be entitled to file a suit for damages. The relevant provisions of the Code of Criminal Procedure are required to be construed from the aforementioned point of view.” (underlined supplied) 11. The Apex Court had occasion to consider this issue again in the pronouncement reported at (2007) 3 SCC 693 Saroj Kumar Poddar Vs. State (NCT of Delhi & Anr.). On a consideration of the averments made in the complaint laid before the court, the principles laid in the earlier pronouncements were reiterated and it was held thus:- “12. A person would be vicariously liable for commission of an offence on the part of a Company only in the event the conditions precedent laid down therefore