HONOURABLE SRI JUSTICE SAMUDRALA GOVINDARAJULU CRIMINAL PETITION No. 7865 OF 2007 DATE:08.07.2010 Between: Arrakuntal V. Ganeshan and another …… Petitioners. And: The State of A.P., rep. By its Public Prosecutor and another …..Respondents HONOURABLE SRI JUSTICE SAMUDRALA GOVINDARAJULU CRIMINAL PETITION No. 7865 OF 2007 ORDER: 1. The only point urged by the petitioners’ counsel in this petition is one based on Section 141 of the Negotiable Instruments Act (in short, the Act). 2. The 2nd respondent/complainant filed complaint in C.C.No.117 of 2007 on the file of Special Judicial Magistrate of the First Class for Excise Offences, Guntur alleging offence punishable under Section 138 of the Act against four accused persons. A-1 is an incorporated company. A-2 to A-4 are Directors of A-1 company. The dishonoured cheque in question was issued by A-2 with his signature representing A-1 company. After issuing the required statutory notices to A-1 to A-4, the 2nd respondent filed the complaint in the lower court. 3. It is only A-3 and A-4 who figured as petitioners herein. Sheet anchor of the petitioners’ case is S.M.S.Pharmaceuticals Limited v. Neeta Bhalla[1] of the Supreme Court. The Supreme Court referred to answers given by Division Bench of that Court in a reference to the following effect: “(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 the question posed in sub-para (b) has to be in the 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 the 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 the affirmative. The question notes that the managing director or joint managing director would be admittedly in charge of the company and responsible to the company for the 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 the signatory of a cheque which is dishoncured is concerned, he is clearly responsible for the incriminating act and will be covered under sub-section (2) of Section 141. " On the basis of the said answers, the Supreme Court held that no prosecution of Directors of a company who are not Managing Director or Additional Managing Director or signatory to the dishonoured cheque, are liable in the absence of necessary averments required to attract liability of Directors as per Section 141 of the Act. 4. In S.M.S.Pharmaceuticals (1 supra), the question was whether the following averments in the complaint are sufficient to prosecute the Directors for offence under Section 138 of the Act: “Accused 1 is a duly incorporated company, having its registered office at the address mentioned above, represented by the Director, Accused 2. Accused 3 and 4 are also the Directors of Accused 1 company and Accused 2 to 4 are actively involved in the management of the affairs of Accused 1 company.” The Supreme Court finally held that those allegations are not sufficient either to attract liability against or to proceed for prosecution of Directors of a company. This Court following S.M.S. Pharmaceuticals(1 supra), came to the similar conclusion in Shanmugha Sundera Raja v. State of A.P.,[2]. 5. In the light of the above pronouncements of the Apex Court as well as this Court, I proceed to examine averments in the complaint herein. They are as follows: “A-1 being the company, A-2 to A-4 being the Directors of A-1 company having the supervision and control over the affairs of the business of A-1 company are jointly and severally liable for commission of the offence punishable under Section 138 of N.I.Act.” There is no allegation in the complaint to the effect that A-3 and A-4 were at the time the offence was committed, was in-charge and was responsible to the company for conduct of business of the company as well as the company. It is only when those averments were specifically made in the complaint, then the burden will be on those accused to prove as per first proviso to Section 141 of the Act that the offence was committed without his knowledge or that he had exercised all due diligence to prevent commission of such offence. In so far as the petitioners 1 and 2/A-3 and A-4 are concerned, they are not signatories to the dishonoured cheque. They are neither Managing Partners nor additional Managing Partners. Therefore, prosecution of A-3 and A-4 for dishonour of cheque in this case is not in accordance with law. 6. In the result, the petition is allowed quashing proceedings against the petitioners 1 and 2/A-3 and A-4 in C.C.No.117 of 2007 on the file of Special Judicial Magistrate of the First Class for Excise Offences, Guntur. __________________________________ SAMUDRALA GOVINDARAJULU,J. Date:08.07.2010. Gk. HONOURABLE SRI JUSTICE SAMUDRALA GOVINDARAJULU CRIMINAL PETITION 7865 OF 2007 Date:08.07.2010 Gk. [1] (2007) 4 Supreme Court Cases 70 [2] 2010(1) ALT (Crl.) 363 (A.P)