1 CRI.WP NO.717/2010 IN THE HIGH COURT OF JUDICATURE OF BOMBAY BENCH AT AURANGABAD CRIMINAL WRIT PETITION NO.717/2010. Kailas s/o Nandlal Agrawal - PETITIONER VERSUS 1) Dinesh Ghavarchand Khivsara and others. - RESPONDENTS WITH CRIMINAL WRIT PETITION NO.741/2010. Mahavir Bansiprasad Sharam - PETITIONER VERSUS 1) Dinesh Ghavarchand Khivsara and others. - RESPONDENTS WITH CRIMINAL WRIT PETITION NO.719/2010. Kailas s/o Nandlal Agrawal - PETITIONER VERSUS 1) Pritesh Ghavarchand Khivsara and others. - RESPONDENTS WITH CRIMINAL WRIT PETITION NO.740/2010. Mahavir Bansiprasad Sharam - PETITIONER VERSUS 1) Pritesh Ghavarchand Khivsara and others. - RESPONDENTS WITH 2 CRI.WP NO.717/2010 CRIMINAL WRIT PETITION NO.720/2010. Kailas s/o Nandlal Agrawal - PETITIONER VERSUS 1) Pritesh Ghavarchand Khivsara and others. - RESPONDENTS WITH CRIMINAL WRIT PETITION NO.743/2010. Mahavir Bansiprasad Sharam - PETITIONER VERSUS 1) Pritesh Ghavarchand Khivsara and others. - RESPONDENTS WITH CRIMINAL WRIT PETITION NO.721/2010. Kailas s/o Nandlal Agrawal - PETITIONER VERSUS 1) Adesh Ghavarchand Khivsara and others. - RESPONDENTS WITH CRIMINAL WRIT PETITION NO.747/2010. Mahavir Bansiprasad Sharam - PETITIONER VERSUS 1) Adesh Ghavarchand Khivsara and others. - RESPONDENTS WITH CRIMINAL WRIT PETITION NO.722/2010. Kailas s/o Nandlal Agrawal - PETITIONER VERSUS 1) Adesh Ghavarchand Khivsara and others. - RESPONDENTS WITH CRIMINAL WRIT PETITION NO.736/2010. Mahavir Bansiprasad Sharam - PETITIONER 3 CRI.WP NO.717/2010 VERSUS 1) Adesh Ghavarchand Khivsara and others. - RESPONDENTS WITH CRIMINAL WRIT PETITION NO.724/2010. Kailas s/o nandlal Agrawal - PETITIONER VERSUS 1) Dinesh Ghavarchand Khivsara and others. - RESPONDENTS WITH CRIMINAL WRIT PETITION NO.742/2010. Mahavir Bansiprasad Sharam - PETITIONER VERSUS 1) Dinesh Ghavarchand Khivsara and others. - RESPONDENTS WITH CRIMINAL WRIT PETITION NO.725/2010. Kailas s/o Nandlal Agrawal - PETITIONER VERSUS 1) Adesh Ghavarchand Khivsara and others. - RESPONDENTS WITH CRIMINAL WRIT PETITION NO.738/2010. Mahavir Bansiprasad Sharam - PETITIONER 4 CRI.WP NO.717/2010 VERSUS 1) Adesh Ghavarchand Khivsara and others. - RESPONDENTS WITH CRIMINAL WRIT PETITION NO.726/2010. Kailas s/o Nandlal Agrawal - PETITIONER VERSUS 1) Pritesh Ghavarchand Khivsara and others. - RESPONDENTS WITH CRIMINAL WRIT PETITION NO.739/2010. Mahavir Bansiprasad Sharam - PETITIONER VERSUS 1) Pritesh Ghavarchand Khivsara and others. - RESPONDENTS CRIMINAL WRIT PETITION NO.727/2010. Kailas s/o Nandlal Agrawal - PETITIONER VERSUS 1) Pritesh Ghavarchand Khivsara and others. - RESPONDENTS WITH CRIMINAL WRIT PETITION NO.745/2010. 5 CRI.WP NO.717/2010 Mahavir Bansiprasad Sharam - PETITIONER VERSUS 1) Pritesh Ghavarchand Khivsara and others. - RESPONDENTS CRIMINAL WRIT PETITION NO.728/2010. Kailas s/o Nandlal Agrawal - PETITIONER VERSUS 1) Dinesh Ghavarchand Khivsara and others. - RESPONDENTS WITH CRIMINAL WRIT PETITION NO.737/2010. Mahavir Bansiprasad Sharam - PETITIONER VERSUS 1) Dinesh Ghavarchand Khivsara and others. - RESPONDENTS WITH CRIMINAL WRIT PETITION NO.748/2010. Mahavir Bansiprasad Sharam - PETITIONER VERSUS 1) Dinesh Ghavarchand Khivsara and others. - RESPONDENTS CRIMINAL WRIT PETITION NO.729/2010. Kailas s/o Nandlal Agrawal - PETITIONER VERSUS 1) Dinesh Ghavarchand Khivsara 6 CRI.WP NO.717/2010 and others. - RESPONDENTS CRIMINAL WRIT PETITION NO.723/2010. Kailas s/o Nandlal Agrawal - PETITIONER VERSUS 1) Adesh Ghavarchand Khivsara and others. - RESPONDENTS WITH CRIMINAL WRIT PETITION NO.744/2010. Mahavir Bansiprasad Sharma - PETITIONER VERSUS 1) Adesh Ghavarchand Khivsara and others. RESPONDENTS. ***** Mr.AP Bhandari, Advocate for Petitioners; Mr.CR Deshpande, Advocate for Resp.No.1. S/Shri VH Dighe, KM Suryawanshi & NB Patil, APPs for State. ----- CORAM : K.U.CHANDIWAL, J. DATE : 17th January, 2011. PER COURT : 1) Since an identical issue is involved in group of writ petitions, heard finally and disposed of by this common order. 2) Rule. Rule made returnable forthwith with consent of the respective parties. Learned 7 CRI.WP NO.717/2010 Counsel for respective parties waive service. 3) The issuance of process for an offence under Section 138 of the Negotiable Instruments Act by the learned Judicial Magistrate, First class, Dhule, is questioned, as the orders are confirmed by the learned Additional Sessions Judge Dhule in respective Criminal Revision Applications moved by the petitioners. 4) The petitioners are Directors of Shri Agrasen Cooperative Credit Society Ltd. Dhule (for short, the society). An agreement of sale dated 29.10.2007 was executed by Respondent no.1 with his two brothers as owner of the immovable properties referred therein in favour of the society, through its Chief Executive Officer. In compliance to the transaction of the immovable property of respondent no.1 in favour of respondent no.3-society certain cheques were issued by Chief Executive Officer. Since the cheques on presentation were not honoured, procedure as required under the Negotiable Instruments Act was followed by issuing notices to the petitioners and other respondents. Thereafter various complaints came to be filed before the learned JMFC, Dhule and process was issued, which was challenged before the Revisional Court, as stated earlier. 8 CRI.WP NO.717/2010 5) Mr.Bhandari, the learned Counsel for the accused/petitioners pressed into service following points, - a) Whether based on the agreement of sale, there can be a legally enforceable debt in the frame of Section 138 of the Negotiable Instruments Act ? b) Whether prosecution is permissible, when the agreement of sale inhibits ? ; c) Whether in terms of the effect of Section 141 of the Negotiable Instruments Act, a Director can be held liable for the affairs of society in absence of any reference of resolution in the agreement of sale, or they being not a signatory to it or to the cheque; d) One of the Directors, viz. Kailas has already resigned at the time of transaction, which has been acknowledged by the Manager of the Bank society and hence no liability can be fastened against him; e) No resolution is produced by the complainant, showing any validity of the transaction of purchase of the property by respondent no.3- society through its Manager or Chief Executive Officer; 9 CRI.WP NO.717/2010 f) Beneficiary of the agreement was the society and not the accused/petitioners in the capacity as Directors. 6) In order to substantiate the contentions, the learned Counsel for the petitioners placed reliance to the following judgments, - (i) DCM Financial Services Ltd. Vs. J.N.Sareen and Anr. - 2008 STPL (LE) 40253 SC = AIR 2008 SC 2255; (ii) Sabitha Ramaamurth Vs. RBS Channabasavaradhya – 2006 STPL (LE) 37396 SC = (2006) 10 SCC 581; (iii) Katta Sujatha Vs. Fertilizers and Chemicals Travancore Limited – 2002 STPL (LE) 31603 SC = (2002) 7 SCC 655; (iv) KK Ahuja Vs. VK Vora and Anr. - 2009 STPL (LE) 42356 SC = 2009 (9) SCALE 87.Ramrajsingh Vs. State of M.P. and Anr. - 2009 (4) Bom.C.R. 213; (v) National Small Industries Corporation Limited Vs. Harmeet Singh Paintal and Anr. - (2010) 3 SCC 330. 7) In the aforesaid judgments, the Hon’ble Apex Court dealt with several situations as to liability of Director of the Company; whether he was incharge or managing the affairs of the 10 CRI.WP NO.717/2010 company and effect of averments or no averments. The Apex Court in the above referred judgments have also dealt with judgment of S.M.S. Pharmaceuticals Ltd. Vs. Neeta Bhalla, reported in (2005) 8 SCC 89, wherein the Apex Court has observed, as under, - “20. The liability of a Director must be determined on the date on which the offence is committed. Only because Respondent 1 herein was a party to a purported resolution dated 15.2.1995 by itself does not lead to an inference that she was actively associated with the management of the affairs of the Company. this Court in this case has categorically held that there may be a large number of Directors but some f them may not associate themselves in the management of the day-to-day affairs of the Company and, thus, are not responsible for the conduct of the business of the company. The averments must state that the person who is vicariously liable for commission of the offence of the Company both was in charge of and was responsible for the conduct of the business of the Company. Requirements laid down therein must be read conjointly and not disjunctively. When a legal fiction is raised, the ingredients therefor must be satisfied.” 8) In the matter of K.K.Ahuja, the Hon’ble Apex court in paragraph 21 has observed as under, - 11 CRI.WP NO.717/2010 “21. If a mere reproduction of the wording of Section 141(1) in the complaint is sufficient to make a person liable to face prosecution, virtually every officer/employee of a company without exception could be impleaded as accused by merely making an averment that at the time when the offence was committed they were in charge of and were responsible to the company for the conduct and business of the company. This would mean that if a company had 100 branches and the cheque issued from one branch was dishonoured, the officers of all the 100 branches could be made accused by simply making an allegation that they were in charge of and were responsible to the company for the conduct of the business of the company. That would be absurd and not intended under the Act.” As the trauma harassment and hardship of a criminal proceedings in such cases, may be more serious than the ultimate punishment, it is not proper to subject all and sundry So be impleaded as accused in a 12 CRI.WP NO.717/2010 complaint against a company, even when the requirements of Section 138 read and section 141 of the Act are not fulfilled.” 9) Shri Deshpande, learned Counsel for Respondent No.2 (original complainant) took recourse to the following judgments, - a) N.Rangachari Vs. Bharat Sanchar Nigam Ltd. AIR 2007 SC 1682; b) Prafulla Maheshwari Vs. State of Maharashtra 2008 (1) Mh.L.J. 844; c) Ruchika Enterprises Vs. Shriram Enterprises Manu/MH/1185/2007; d) Smt.Nagawwa Vs. Veeranna Konjalgi AIR 1976 SC 1947; e) Manjula Sinha Vs. State of U.P. 2007 AIR SCW 4555; and f) State Farm Corporation of India Vs. M/s Nijjar Agro Foods Ltd. - AIR 2006 SC 679. 10) Mr.Deshpande for complainant submit, the offence under Section 138 of the Negotiable Instruments Act, stand established, no sooner ingredients therein are fulfilled. He read the agreement of sale to impress that the possession of the property was given to the society including rights to collect rents from the tenants, this was 13 CRI.WP NO.717/2010 for the benefit of society/bank to the knowledge and concurrence of petitioner. 11) Having gone through the agreement of sale, I find the cheques, signed and issued in favour of Respondent No.2 or his brother, the vendor of the property, are of the Society/Respondent No.3. Pursuant to issuance of cheque by the society, signed by the Chairman and also by the Chief Executive Officer, the possession of the property was parted, consequently, it is explicit that based on the agreement of sale, there would be a legally enforceable debt. Even if the agreement provides inhibition, there cannot be a legal bar in prosecuting the matter, as any prohibition to enforce the legally enforceable remedy, cannot be incorporated against self interest of any person. This is in breach of constitutional arrangement. 12) Now, turning to the point of resignation of Kailas, one of the Director of the society, before the agreement itself, is a matter of production of record, require to be proved, which will be agitated and stressed only at the time of evidence. If the applicant submits that he has tendered the resignation to the Manager of the society, competence of the Manager to accept it is important. The law mandates, a procedure for 14 CRI.WP NO.717/2010 resignation of a Director from society which is to be scrupulously adhered to. Simply, tendering of resignation, without its effect, turns the document to be a scrap paper, will not have any adverse impact on the person, who has parted with the immovable property, believing the transaction for affairs of the society. 13) The petitioner/accused had acquiesced to the arrangement of agreement of sale since the possession of the property was received including rights to collect rentals from few of the tenants. The petitioners did not respond to the statutory notice to portray their defence and deny the liability. If they had ambivalent feeling for the affairs of the society, there was, as stated above, no injunction against the petitioner/accused to challenge affairs of the society and disassociate and dissuade themselves from on-going or contemplated litigation desired by Respondent No.2 for infraction of Section 138 of the said Act.In the complaint, it is informed that petitioners were directors and were in charge and in know of all the affairs of the society. The decision to purchase property was unanimous, held in the meeting of accused no.1. The genuineness of resolution cannot be questioned as a defence. The petitioners cannot obliterate and dilute their primary responsibility to ensure that the cheques 15 CRI.WP NO.717/2010 for purchase of property are honoured. 14) The petitioner/accused will have to inform by evidence that there was no legally enforceable debt/transaction or that there was no resolution that has been passed to purchase the property. 15) The law on the point of issuance of process is quite clear. If prima facie case is made out, a process on verification of complaint can be issued. Defences that could be raised at the trial st age when the evidence is adduced, need not be considered while entertaining application, seeking discharge or seeking quashment of the proceedings. 16) The contention that the accused/petitioners were not involved in the day- to-day affairs of the Respondent No.3-society, is flagrant to events, hence, prima facie, difficult to digest as it is for the accused/petitioner to establish that they were dormant Directors at the material time and had no active role in the affairs of the society. Vicarious liability that has been spelt out in terms of Section 141 of the Negotiable Instruments Act, cannot be put to shelves to enjoy benefit by agreement of sale and get relieved from the prosecution arising out of 16 CRI.WP NO.717/2010 infraction of Section 138 of the Negotiable Instruments Act. The prosecution, in the set of above facts, launched against the accused/petitioners cannot be said to be perverse, requiring any interference in terms of Article 227 of Constitution of India. The writ petitions lack merit, dismissed. Rule discharged. The observations are prima facie in nature. Interim relief vacated. 17) Heard. Operation of the order and its effect is stayed up to 18th March, 2011. ( K.U.CHANDIWAL ) JUDGE bdv/