IN THE HIGH COURT OF JUDICATURE AT BOMBAY CRIMINAL APPELLATE SIDE JURISDICTION CRIMINAL APPLICATION NO.532 OF 2011 WITH CRIMINAL APPLICATION NO.166 OF 2011 WITH CRIMINAL APPLICATION NO.793 OF 2011 WITH CRIMINAL APPLICATION NO.794 OF 2011 Mr. Piyush A. Vora -- Applicant V/s. HDFC Bank Ltd. And another. -- Respondents AND Navneet R. Shah -- Applicant V/s. H.D.F.C., Bank -- Respondents Mr. H.H. Ponda, Sr. Counsel a/w. P.D. Desai, Advocate for applicant. Mr. S.S. Pednekar, APP for State/R.No.2. Ms. T.R. Shetty, Advocate i/b. M/s. Kanga & Co. for R.No.1 in Cri. Apl.No. 532 of 2011 and 166 of 2011. Mr. Amit Desai, Senior Counsel with Ms. T.R. Shetty for R.No.1 in Apl.No. 793 of 2011 and 794 of 2011 CORAM : K.U. CHANDIWAL, J. DATE : 19th OCTOBER 2011 P.C. 1. Heard. Rule made returnable forthwith. 2. All petitions are disposed of by common order as they raise common question of fact and also law. 3. The respondent No.1 HDFC bank sanctioned financial facilities to the tune of Rs.25 Crores to Ashapura Minechem Ltd. (for short Ashapura). In discharge of liability of the installments, five cheques were issued by Ashapura Company in favour of HDFC bank. On presentation of the said cheques, they were dishonoured. Statutory notice in terms of Sec. 138 of Negotiable Instrument Act was served upon the Petitioners. Non compliance of demand made the complainant HDFC bank to prosecute by two cases being case No.8863/SS/10 (subject matter of Petition No.166 of 2011 and 794/2011) and criminal case No.655/SS/2011, (subject matter of Petitions 532 of 2011 & 793 of 2011). The Petitioners Piyush A. Vora is accused No.4, while Petitioner Navneet R. Shah is accused No.2 in both the cases. 4. Learned counsel for the Petitioner read the petition and particular paragraph 4,5,10 and addressed, that the recitals therein are short of compliance to facer vicarious liabilities as against the Petitioners as no specific averments are made as to how the accused persons are responsible to meet claims and contentions of the complaint as to their liability. Learned counsel explained the scheme of Sec.141 of Negotiable Instrument Act, as to how care and precaution is to be taken in respect of Directors who are not incharge of or actively involved in the affairs of company and how the liability should not be saddled or they should not be prosecuted for unreasonable cause, accelerating to their humiliation a persecution, and harassment. 5. In order to stress his points the learned counsel for the Petitioner, has relied on:- 1. 2006 (Criminal 4862) Sabitha Ramamurthy & Anr. Vs. R.B.S. Channabasavaradhya. 2. 2007 ALL MR (Cri.)560 (S.C.) Saroj Kumar Poddar Vs. State & Anr. 3. 2007 ALL MR (Cri)1445 (S.C.) N.K. Wahi Vs. Shekhar Singh & ors. 4. 2009, 6SCC729, (three Judge Judgment )Ramrajsingh Vs. State of M.P. & anr. 5. National Small Industries Corp. Ltd. Vs. Harmeet Singh Paintal & Anr., in Cri. Appeal No.320-336 of 2010, decided on February,2010 6. 2010 ALL MR (Cri)2599 (S.C.) Central Bank of India Vs. M/s. Asian Global Ltd., & ors. 7. PEPSICO India Holdings Pvt. Ltd. vs. Food Inspector & Anr., Cri. Appeal No. 836 of 2010 dated 18th November, 2011. 6. In the matter of Sabitha Ramamurthy & Anr. in Paragraph 5, the Supreme Court has observed as under :- “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 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 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 therefor. In 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 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”. 7. The subsequent judgment of National Small Industries indeed deals, with case of Sabitha, case of Saroj Kumar, Case of N.K. Wahi, Case of Ramrajsingh and also celebrity judgment of SMS Pharmaceuticals V/s. Neeta Bhalla, 2005(5) SCC Page 89 (three judge judgment. The Apex Court in the matter of Central Bank of India in Paragraph 13, giving reference to SMS Pharmaceuticals have observed as under :- “We have carefully considered the submissions made on behalf of the respective parties and we are unable to persuade ourselves to differ with the judgment and order of the High Court. The judgment in S.M.S. Pharmaceuticals Ltd.'s case (2005(5) ALL MR (S.C.) 1118) (supra), which was relied upon by the High Court, while interpreting the provisions of sub-section (1) of Section 141 of the 1881 Act, made it very clear that unless a specific averment was made in the complaint that at the time when the offence was committed, the person accused was in charge of and responsible for the conduct of the business of the Company, the requirements of Section 141 would not be satisfied. It was further held that while a Managing Director or a Joint Director of the Company would be admittedly in charge of the Company and responsible to the Company for the conduct its business, the same yardstick would not apply to a Director. The position of a signatory to a cheque would be different in terms of Sub-section (2) of Section 141 of the 1881 Act. That, of course, is not the fact in this case”. 8. Even the earlier judgments are also reiterated in Paragraph 14. On particular facts of said case Supreme Court did not agree to the contentions raised by Central Bank, in respect of said Respondent Rajiv and Sarla being only the Directors of accused company and could not be established that they were responsible and liable for the acts of the said company as there were no specific allegations indicated in the complaint petition against them. 9. Learned Senior Counsel for HDFC bank challenging the Petition of Navneetlal has referred to cause title and branding said Navneetlal as Executive Chairman and Full Time Director. Learned Counsel invited my attention to Paragraph 6 & 10 and he informed, the basic principle is, whether there should be a presumptive liability or the liability should flow from act and conduct of an individual either as Director or authorized signatory or a Managing Director of particular company. The learned counsel reiterates, the recitals in the complaint petition read as a whole gives a overall picture of assertions of the complainant as to role of Navneetlal being Executive Director and Full Time Director, being associated with the affairs of the company, in know and incharge of affairs hence vicariously liable to meet assertions and claim of HDFC Bank. 10. The learned counsel has also dealt with the judgment in the matter of National Small Industries, particularly paragraph 23 & 24 thereof to indicate how a case has to be differentiated between the merely a Director or Full Time Director of a active person, may be authorized signatory or otherwise involved in the affairs of the company. The position is clarified in the three Bench judgment of SMS Pharmaceuticals, as to role of Managing Director. 11. Smt. Shetty, the learned counsel for the Bank opposing Petition of Piyush Vora submits that the point of resignation as raised by the Petitioner is untenable. He was Executive Director to his own knowledge, the resignation dated 9th February, 2007 is fallacious as the papers tendered by Petitioner Piyush Vora informed that he was appointed as Director effective 30th January, 2007. 12. The learned Counsel invited my attention to Page 33 of the letter of resignation dated 1st January, 2007. The letter reads as under: “I hereby tender my resignation as the Executive Director and Chief Financial Officer (CFO) of the Company to be considered with effect from 30th January, 2007” The acknowledgment says, “Received, put before the Board” 13. The learned counsel submits that, it is not informed as to whether the resignation is approved, accepted or acted upon as Executive Director and Chief Financial Officer, CFO of the Company. The learned Counsel reiterates, the resignation as canvassed by the Petitioner has been disputed by HDFC Bank and unless it is established, proceedings as against said Petitioner cannot be quashed. 14. The settled legal position flowing from the above referred judgments does not carry any quarrel as to its interpretation. The legal position in respect of interpretation based on the facts of each case has also been explained by the Apex Court in the matter of National Small Industries Corporation Ltd. Paragraph 23 & 24 thereof are quite important. Para 24 in terms illustrates, if it is shown that the persons who are responsible to the company for the conduct of the business of the company a) the Managing Director, b) the whole time Director, 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, would be liable to be branded in the definition as he was incharge of the business of the Company. The Hon’ble Lordships have, in Paragraph 25 crystallized the legal position, which reads as under :- “ The primary responsibility is, on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every Director knows about the transaction. (ii) Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the Company. (iii) Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be averred in the complaint/petition, are made so as to make accused therein vicariously liable for offence committed by company along with averments in the petition containing that accused were in-charge of an responsible for the business of the company and by virtue of their position they are liable to be proceeded with. (iv) Vicarious liability on the part of a person must be pleaded and proved and not inferred. (v) If accused is Managing Director or Joint Managing Director then it is not necessary to make specific averment in the complaint and by virtue of their position they are liable to be proceeded with. (vi) If accused is a Director or an Officer of a Company who signed the cheques on behalf of the company then also it is not necessary to make specific averment in complaint. (vii) 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. 15. The point of resignation of Petitioner Piyush as has been canvassed by the learned counsel for the Petitioners needs to be dealt with. The financial facilities extended to the Company are of June 2009. The communication so called resignation to which reliance is given by the Petitioner is referred either 30th January, 2007 or 2nd February, 2007. The Petitioner Piyush accepts that he was the Executive Director in past. But subsequently, simply remain a Director of the Company, therefore, not involved in the acts and activities, vicariously liable to meet demand as raised by the bank or for dishonour of the cheques. 16. Though this Court is not required to deal with the factual matrix, however, the record illustrates that in the Registrar of Companies, an annual return dated 22nd September, 2009 filed by Ashapura Company, the Petitioner Piyush Vora was shown as the Director of Ashapura Ltd. and at the time of execution of loan agreement dated 13th August, 2009. It is not disputed by said Piysuh that financial facilities of Rs.25 Crores were lent to the Company vide sanctioned letter dated 28th June, 2009. The communication and the negotiations for such terms of the sanction or the financial facilities were equally attended to by said Piyush Vora with the bank, the financier. Mere tendering the resignation as a Executive Director, by itself would not primarily absolve the liability of Petitioner Piyush Vora to meet the claims raised in the complaint petition. That apart, the factum of resignation in either capacity as Executive Director or Director has been disputed by HDFC bank in its reply addressed to said Petitioner Piyush Vora dated 24th January, 2010 and this is so indicated in the complaint petition. It is thus, clear the bank all throughout disputed the factum of resignation. Since it is disputed question of fact, there cannot be a presumption of tendering resignation even if Form – 32 to which reference is given by the learned Counsel for the Petitioner is put into acceleration before this Court. 17. Reliance to the judgment in the matter of Harshendra Kumar V/s. Rebatilata Koley Etc. reported in 2010 ALL MR 955 (SC) by the learned counsel for the Petitioner as of no avail for the simple reason, in the said proceedings the resignation tendered by the Director was uncontroverted and accepted by the financier. Based on such facts, the Hon’ble Supreme Court has held in Paragraph 19 that above documents placed on record by Appellant have not been disputed nor controverted by the complainant. In present case, documents now relied by Petitioner are associated with cloud and need not be accepted by this Court in exercise of jurisdiction U/s.482 of Cr.P.C. 18. To repeat the legal position in the present proceeding the Bank all throughout disputed about resignation of Piyush Vora as Executive Director or Director of the said Company. 19. The legal position again is explained recently by Hon'ble Supreme Court in the matter of Rallies India Ltd. Vs. Poduru Vidya Bhushan & Ors., 2011 ALL MR (Cri.) 1645 (S.C.). Though the matter of Rallies India was concerning the dispute between the partners, however, in terms of the effect of Sec.141 Negotiable Instrument Act, the definition of a partner vis-a-vis a Director is the same, consequently said judgment would equally be applicable to the facts of present case. The Supreme Court after referring to the judgment in the matter of SMS Pharmaceuticals V/s. Neeta Bhalla, 2005(5) SCC Page 89 observed that, it is a pre requisite that when there is disputed question of fact, it is primarily to be established by leading evidence. In Paragraph 13 it says: “unless parties are given opportunity to lead evidence, it is not possible to come to defend clear as to when the earlier partnership has dissolved and since what date the Respondent cease the partners of the firm”. 20. The Hon’ble Lordships have also observed by raising a caveat in paragraph 15 as under :- “ While analyzing 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 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 provisions. The liability arises from being in charge of and responsible for conduct of business of the company t 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 satisfied the main requirement of being in charge of an responsible for conduct of business of a Company. 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 case 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. A reference to sub section (2) of Section 141 fortified the above reasoning because sub section (2) envisages direct involvement of any Director, Manager, Secretary or other officer of a compnay in commission of an offence. This section operates when in a trial it is proved that the offence has been committed with the consent or connivance or is attributable to neglect on the part of any of the holders of these offices in a company. In such a case, such persons are to be held liable. Provision has been made for Directors, Managers, Secretaries and other officers of a company to cover them in cases of their proved involvement.” It was further opined:- “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 principle accused being the company itself. It is a departure from the rule in criminal law against vacarious liability. A clear case should be spelled 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 fails within 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.” 21. The Division Bench of this Court in the matter of Subhash Bhand Vs. State of Maharashtra, 2009 ALL MR (Cri) 2614, had also an occasion to deal with resignation and the proof of documents more precisely Form – 32 as could be tendered by the Director. The Court has discussed the law related to resignation of Director and in Paragraph 33, after evaluation of reported judgments has observed as under :- “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 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 his 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 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. 22. Thus the Division Bench has also indicated that the factum of resignation having been disputed and not admitted by the complainant, only production of certified copy of Form –32, the compliance is not adhered to accused has to prove the truth of contents of certified copies i.e. factum of resignation. 23. Now, in the light of above legal position, revisiting facts of present case I find as under :- In Cause title Navneet R. Shah is branded as Executive Chairman of Board of Director and Whole time Director; In paragraph 4, the complainant has referred accused No.1 Piyush Vora as Executive Director of Accused No.1. In said paragraph, it is stated that the “accused Nos. 2 to 7 are wholly in charge and responsible for carrying out the day to day business of the Accused No.1. The affairs of the Accused No.1 are managed by Accused Nos.2 to 7 and as such they are in control of the affairs of the Accused No.1 and liable for all the acts and deeds committed by the accused No.1. In paragraph 6 reference is given to the loan agreement dated 13th August, 2009 executed between complainant and accused No.1, the said loan agreement was signed by