SSK/ 1 appln 2869.10 IN THE HIGH COURT OF JUDICATURE AT BOMBAY CRIMINAL APPELLATE JURISDICTION CRIMINAL APPLICATION NO. 2869 OF 2010 WITH CRIMINAL APPLICATION NO. 2870 OF 2010 WITH CRIMINAL APPLICATION NO. 2871 OF 2010 WITH CRIMINAL APPLICATION NO. 2872 OF 2010 WITH CRIMINAL APPLICATION NO. 2873 OF 2010 WITH CRIMINAL APPLICATION NO. 2874 OF 2010 WITH CRIMINAL APPLICATION NO. 2875 OF 2010 WITH CRIMINAL APPLICATION NO. 2876 OF 2010 WITH CRIMINAL APPLICATION NO. 2877 OF 2010 WITH CRIMINAL APPLICATION NO. 4598 OF 2010 Mr. Aluri Rao Srinivasa ....Applicant Vs. 1. The State of Maharashtra 2. Tata Capital Ltd. 3. Mr. Ling Wei Ong ....Respondents. ALONG WITH CRIMINAL APPLICATION NO. 2114 OF 2010 WITH CRIMINAL APPLICATION NO. 2115 OF 2010 WITH CRIMINAL APPLICATION NO. 2116 OF 2010 WITH CRIMINAL APPLICATION NO. 2117 OF 2010 WITH CRIMINAL APPLICATION NO. 2118 OF 2010 SSK/ 2 appln 2869.10 WITH CRIMINAL APPLICATION NO. 2119 OF 2010 Mr. Aluri Rao Srinivasa ....Applicant Vs. 1. Tata Capital Ltd. 2. Mr. Ling Wei Ong 3. The State of Maharashtra ....Respondents. Mr. Amit Desai, senior counsel with Mr. Dharam Jumani with Ms.Madhavi Nalluri i/b. M/s. Amarchand & Mangaldas & Suresh A Shroff & Co., advocates for the applicant. Mr. Chaitanya Margaonkar i/b. Mr. Rishi Bhuta, advocate for Tata Capital Ltd. Mr. D. P. Adsule, APP for the State. CORAM : RANJIT MORE, J. DATED : 9th DECEMBER, 2011. P.C.: Rule. Rule is made returnable forthwith. By consent of the parties, the applications are heard finally. 2. Tata Capital Limited who is the original complainant/respondent is common in all the applications. The aforesaid applications are filed under the provisions of Section 482 of the Code of Criminal Procedure, 1976 for quashing the proceedings of various complaints filed at the instance of Tata Capital Limited against the applicant -Mr. Aluri Rao Srinivasa and respondent - Mr. Ling Wei Ong, which are pending before the 33rd Metropolitan Magistrate, Ballard Pier, Mumbai. SSK/ 3 appln 2869.10 3. Since the parties and the facts of the above criminal applications are same, and also the issue involved in the applications is also common, the applications are being disposed of, by this common order. 4. The facts of Criminal Application No. 2869 of 2010 are taken into consideration for the disposal of the above criminal applications :- Respondent No.2 is the complainant, and the applicant and respondent no.3 are the original accused nos. 8 & 7 respectively in Complaint No.298 of 2010 filed under the provisions of Section 138 read with Section 141 of the Negotiable Instruments Act, 1881. The complainant is a non-banking finance Company incorporated under the provisions of the Companies Act, 1956. The complaint is filed against Biotor Industries Limited- accused no.1 and its directors i.e. accused nos. 2 to 8 therein. As stated above, the applicant and respondent no.3 are the original accused nos. 8 & 7 respectively. The complainant in short stated that in and around September, 2007, a Bill Discounting Facility for an amount of Rs.30,00,00,000/- was sanctioned in favour of accused no.1. The said facility was granted by the complainant vide its Sanction Letter dated 1st September, 2007 on the terms and conditions stipulated therein and the same was accepted by SSK/ 4 appln 2869.10 accused no.1. At the request of accused nos. 1, 2, 3 and 4, the above facility was subsequently enhanced by the complainant to Rs.50,00,00,000/- vide its Sanction Letter dated 7th April, 2008. Accused Nos. 1 & 3 on behalf of accused no.1 have executed a Demand Promissory Note dated 9th April, 2008 in favour the the complainant, and accused nos. 3 & 4 have executed a Personal Guarantee dated 9th April, 2008 guaranteeing the repayment of the said facility of Rs.50,00,00,000/- availed by accused no.1. The complainant at the instance of accused no.1 agreed to discount the bills under the said Credit Facilities as per the provisions contained in the above documents. Accordingly, accused no.1 from time to time, submitted to the complainant for discounting various Bills of Exchange which were accepted by them. Accused No.1 passed a resolution at the Board Meeting held on 28th March, 2008 inter-alia authorizing its Directors and Executives named therein to accept the Bills of Exchange on behalf of accused no.1 for availing the said facility from the complainant. The complainant discounted the Bill of Exchange dated 21st March, 2009 for an amount of Rs.1,49,44,332/-, and after deducting discount charges, disbursed the amount of Rs. 1,44,15,958/-. At the time of discounting this bill, accused no.1 furnished a covering letter along with the invoices. Accused No.1 issued a cheque bearing no.011619 dated 13th June, 2009 for an amount of Rs.1,49,44,332/- drawn on Central Bank of India towards SSK/ 5 appln 2869.10 repayment of amount due under the said facility and discharge of liability of accused no.1 in respect of the above bill discounted by the complainant under the said facility. The said cheque was presented to the Bankers of the complainant viz. HDFC Bank Ltd.. However, the said cheque was returned dishonoured by the Bankers of accused no.1 vide their Memo dated 27th October, 2009 with the endorsement “Exceeds Arrangement”. The said dishonour was intimated to the complainant by its Bankers vide their Memo dated 27th October, 2009. The complainant thereafter issued a notice dated 25th November, 2009 to the accused. The notices were duly served on the accused. The accused sent a reply through their advocate raising false and frivolous contentions. Since, the payment was not made within a period of 15 days from the date of service of notice, the complainant was constrained to file complaint under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881. 5. Mr. Desai, learned senior counsel appearing for the applicant, submitted that on or about October, 2008, MSPEA Embark (Mauritius) Ltd. (hereinafter referred to as “MSPEA”) a company incorporated under the laws of Mauritius entered into a Share Subscription cum Shareholders Agreement dated 15th October, 2008 with Biotor and its promoters whereby MSPEA invested an amount of INR 1,820,000,000 in Biotor by subscribing to 9,168,968 equity shares and 10,864,825 preference shares of Biotor. He SSK/ 6 appln 2869.10 further submitted that in accordance with the terms of the Shareholders Agreement, MSPEA was entitled to appoint a minimum of two independent directors to the Board of Directors of Biotor as non-executive “Investor Directors”. Subsequently, in pursuance of the Shareholders Agreement, the Articles of Association of Biotor were amended on 11th November, 2008 to give effect to the terms of the aforesaid Shareholders Agreement. Thereafter, on 19th December, 2008, respondent no.3 who is a citizen of Hong Kong, was appointed as an Investor Director on the Board of Direcotors of Biotor, and on the same day, applicant was appointed as an Alternate Investor Director on the Board of Directors of Biotor. The appointments of the applicant and respondent no.3 were appropriately intimated to the Registrar of Companies in Form 32. Mr. Desai, learned senior counsel, further submitted that respondent no.3 was Non-Executive Investor Director and the applicant was Non-Executive Alternate Investor Director on the Board of Directors of Biotor appointed by MSPEA. They had not been involved in day-to-day affairs of the management of Biotor, and therefore, they could not be made liable vicariously by taking the aid of provisions of Section 141 of the Negotiable Instruments Act. He submitted that applicant and respondent no.3 cannot be held liable for the conduct of the business of accused no.1- Company, and therefore, the proceedings in Criminal Complaint under SSK/ 7 appln 2869.10 Section 138 read with 141 of the Negotiable Instruments Act, 1881 are required to be quashed. In support of his submission, he has relied upon the Shareholders Agreement, amended Articles of Association of Biotor, intimations to the Registrar of Companies in Form 32 and Supreme Court Judgments in National Small Industries Corporation Limited Versus Harmeet Singh Paintal & Anr. reported in (2010) 3 SCC 330 and Mrs. Anita Malhotra Versus Apparel Export Promotion Council & Anr. in Criminal Appeal No.2033 of 2011. 6. Mr.Margaonkar, learned counsel for respondent no.2, on the contrary, supported respondent no.2’s case in the Complaint. He submitted that the applicant and respondent no.3 were accused nos. 8 & 7 respectively and Directors of accused no.1-Company viz. Biotor, and they were responsible for the conduct of the business of accused no.1, and therefore, they are liable under Section 141 of the Negotiable Instruments Act, 1881 for the act of accused no.1-Company viz. Biotor. He submitted that the application is devoid of any merit, and same is required to be dismissed. 7. Having considered the rival submissions of learned counsel appearing for the respective counsel and having gone through the compilation of the application and annexures thereto as well as ratios of the SSK/ 8 appln 2869.10 decisions laid down by the Supreme Court, I find merit in the criminal application. 8. Respondent No.2 has not disputed the Shareholders Agreement executed in October, 2008, between MSPEA and Biotor under which MSPEA invested an amount of INR 1,820,000,000 in Biotor by subscribing to 9,168,968 equity shares and 10,864,825 preference shares of Biotor. Respondent No.2 also has not disputed that in accordance with the terms of the Shareholders Agreement, MSPEA was entitled to appoint a minimum of two independent directors to the Board of Directors of Biotor as Non-Executive “Investor Directors”. The relevant clause of the agreement reads as under : “7.1.8. The Investor Director(s) shall be a non- executive Director(s) and shall have no responsibility for the day-to-day management of the Company and/or the Subsidiaries and shall not be liable for any failure by the Company and/or the Subsidiaries to comply with applicable Law.” In pursuance of the Shareholders Agreement, the Articles of Association of Biotor were amended on 11th November, 2008 in order to give effect to the terms of the aforesaid Shareholders Agreement. Accordingly, Article 140A was added to Biotor’s Articles of Association which also made expressly clear that the Investor Directors were Non- Executive Directors with no responsibility for the day-to-day management of SSK/ 9 appln 2869.10 Biotor. The amended Articles of Association is annexed at Exhibit “B” and the relevant extract of Clauses (1) and (6) of Article 140A reads as under : (1) Notwithstanding anything contained in these Articles, the Investor, shall have the right to nominate such number of director(s) on the Board of the Company (rounded up to the nearest whole number) that is proportionate to its shareholding based on the paid- up equity share capital of the Company, provided that the Investor shall have a right to nominate a minimum of 2(two) directors on the Board of the Company. The Investor shall also be entitled to nominate 1(one) observer for all Board meetings, who shall have the right to attend meetings of the Board and all committees of the Board. However, the Observer shall not have any voting rights. (2) ..... (3) ..... (4) .... (5) .... (6) The Investor Director(s) shall be a non-executive Director(s) and shall have no responsibility for the day-to-day management of the Company and/or the Subsidiaries and shall not be liable for any failure by the Company and/or the Subsidiaries to comply with applicable Law. The Company shall nominate Director(s) or Person(s) other than the Investor Director(s) as the “officer in default” as contemplated under applicable Law and shall ensure that the Investor Director(s) is not included within the scope of SSK/ 10 appln 2869.10 “officer in default” under applicable Law. In the event that any notice or proceedings have been filed against the Investor Director(s) by reason of him/her being included within the scope of “officer in default”, the Company and the Promoters shall take all necessary steps to ensure that name(s) of the Investor Director(s) is excluded/deleted and the charges/proceedings against the Investor Director(s) is withdrawn and shall also take all steps to defend the Investor Director(s) against such proceedings and the Company shall pay all Loss that may be levied against or incurred by the Investor Director(s). (emphasis supplied) 9. The applicant at page 137 and 141 has annexed the intimations of the Registrar of Companies in Form 32. The extract of Form 32 at page 141 shows that respondent no.3 was appointed as Additional Director of Biotor w.e.f. 19th December, 2008 and he is shown to be Non-Executive Director. Form 32 at page 137 shows that applicant was appointed as Alternate Director of Biotor w.e.f. 19th December,2008 and he is shown to be Non-Executive Director. The amended Articles of Association as well as intimation to the Registrar in Form 32 are public documents and a copy thereof is available and could have been obtained from the Registrar of Companies, Maharashtra. Clause 7.1.8. of the Shareholders Agreement between MSPEA and Biotor, Article 140 A of amended Articles of SSK/ 11 appln 2869.10 Association of Biotor and intimations to the Registrar of Companies in Form 32 clearly shows that the applicant and respondent no.3 are Non-Executive Director and Alternate Non-Executive Director respectively of Biotor. The aforesaid documents further shows that the applicant and respondent no.3 have no responsibility for day-to-day management of accused no.1-Biotor Company and they are not liable for any failure by the Company and/or the Subsidiaries to comply with applicable Law. In the above circumstances, the applicant and respondent no.3 cannot be said to be persons in-charge and responsible to accused no.1-Company for the conduct of its business within the meaning of Section 141 of the Negotiable Instruments Act, 1881. 10. The complaint by respondent no.2 is annexed at Exhibit “A”. Accused No.1 is Biotor Industries Limited and Accused Nos. 2 to 8 are its Directors on the Board of Directors of accused no.1. Accused No.4 is alleged to be Director and Signatory of the dishonoured cheque. Accused Nos. 2 to 8 are alleged to be persons in-charge of and responsible for the conduct of the business of accused no.1-Company and were alleged to be actively concerned with day-to-day conduct of the business of the accused no.1-Company. Perusal of the complaint, makes it clear that there is only baldcursory statement in the complaint that applicant and respondent no.3 are in charge of and responsible to accused no.1-Company for the conduct of its business. The complaint does not spell out as to how and in what SSK/ 12 appln 2869.10 manner the applicant and respondent no.3 were in charge of and responsible to accused no.1 – Company for the conduct of its business. The Apex Court in the case of National Small Industries Corpn. Ltd. (supra) reconsidered the issue and observed thus in Paragraphs 10 & 11 : 10) Section 141 is a penal provision creating vicarious liability, and which, as per settled law, must be strictly construed. It is therefore, not sufficient to make a bald cursory statement in a complaint that the Director (arrayed as an accused) is in charge of and responsible to the company for the conduct of the business of the company without anything more as to the role of the Director. But the complaint should spell out as to how and in what manner Respondent No.1 was in-charge of or was responsible to the accused company for the conduct of its business. This is in consonance with strict interpretation of penal statutes, especially, where such statutes create vicarious liability. A company may have a number of Directors and to make any or all the Directors as accused in a complaint merely on the basis of a statement that they are in-charge of and responsible for the conduct of the business of the company without anything more is not a sufficient or adequate fulfillment of the requirements under Section 141. 11) In a catena of decisions, this Court has held that for making Directors liable for the offences committed by the company under Section 141 of the Act, there must be specific averments against the Directors, showing as to how and in what manner the Directors were responsible for the conduct of the business of the company. (emphasis supplied) 11. In recent judgment in the case of Anita Malhotra (supra), the Apex Court following the decision in National Small Industries Corpn. Ltd. (supra) again held that the complaint should specifically spell out how SSK/ 13 appln 2869.10 and in what manner the Director was in charge of and was responsible to the accused Company for conduct of its business and mere bald statement that he or she was in charge of and was responsible to the company for conduct of its business is not sufficient. If the averment in the complaint is examined on the touchstone of the ratios of the Apex Court in the above judgments, then, it is clear to my mind, that the applicant and respondent no.3 cannot be made vicariously liable for the act of accused no.1- Company under the provisions of Section 138 read with Section 141 of the Negotiable Instruments Act, 1881. 12. In the above circumstances, a case is made out for quashing the complaints. All the criminal applications are allowed in terms of prayer clause (a). Thus, criminal proceedings in all the concerned complaints are quashed and set-aside. Sd/- (RANJIT MORE, J.)