Crl.M.C.Nos.923, 1654 of 2009 Page 1 of 19 * IN THE HIGH COURT OF DELHI AT NEW DELHI + Crl.M.C. Nos. 923/2009 & 1654/2009 Reserved on: 18th November, 2009 % Date of Decision: 30th November, 2009 # V.S. GUPTA ..... Petitioner ! Through: Mr. Sanjay Gupta, Adv. Versus PUNJAB NATIONAL BANK ..... Respondent Through: Mr. U.C. Mittal & Mr. Ankur Mittal, Advs. * CORAM: HON'BLE MR. JUSTICE V.K. JAIN 1. Whether the 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 : V.K. JAIN, J. 1. This is a petition under Section 482 of the Code of Criminal Procedure, 1973 for quashing criminal complaints No.1367/2008 and 1368/2008, filed by the respondent against the petitioner and others under Section 138 of Negotiable Instrument Act. Identical allegations have been made in both the complaints, the only difference being the date and amount of the cheques. 2. Complaints under Section 138 and 141 of Negotiable Instrument Act read with Section 420 of IPC were filed by respondent – Punjab National Bank against Padmini Technologies Ltd. and 30 Crl.M.C.Nos.923, 1654 of 2009 Page 2 of 19 others including the petitioner – V.S.Gupta. It was alleged in the complaint that accused No.2 to 4 namely Shri Vivek Nagpal, Managing Director, Shri Mahesh Malhotra, Commercial Manager, Shri V.S.Gupta, Director of accused No.1 – Padmini Technologies Ltd., were carrying on the management and day to day affairs of Company and were responsible for everything related to finances of the company. It has been further alleged that accused No.1 which had availed credit facilities from the complainant – Bank issued cheques towards part payment of its liability. The cheques according to the complainant were issued by accused No.3 acting for all other accused. The aforesaid cheques when present to the Bank were returned unpaid with remarks „funds insufficient‟. A notice demanding amount of the cheque in question was sent to the accused persons. They having failed to make payment, these complaints were filed. 3. Vide order dated 12.9.2008, the learned Metropolitan Magistrate summoned all the accused only under Section 138 of Negotiable Instrument Act. 4. The case of the petitioner is that since he had resigned as a director of accused No.1 - Padmini Technologies Ltd., prior to issue of cheques in question, he is not vicariously liable for the offence committed by the Company. A certified copy of Form 32 has been filed by the petitioner which shows that he had resigned as a Director of Padmini Technologies Ltd. w.e.f. 30.4.2003. The petitioner has also filed a certified copy of the order dated 24.2.2009 passed by learned ACMM, North Delhi, whereby the petitioner was discharged in a complaint initiated by Registrar under Section 209A(8) of Companies Crl.M.C.Nos.923, 1654 of 2009 Page 3 of 19 Act against four persons including the petitioner V.S.Gupta. The other persons against whom complaint was filed were Mr.Vivek Nagpal, Managing Director and Mr.Praveen Kumar, whole Director and Mr.Rajesh Sodhi, an officer of Padmini Technologies Ltd. During the course of his judgment, the learned ACMM recorded that the accused No.3 had resigned w.e.f. 30.4.2003 and since the offence was committed on 30.5.2003, he was entitled to a discharge. 5. The petition has been opposed by the respondent. It has been alleged in the reply the petitioner is the person who is responsible for day to day affairs of Padmini Technologies Ltd., along with accused No.2 and 3 was carrying on the management and day to day affairs of Company and was responsible for everything related to finances of the company. It has also been alleged that petitioner has been representing the Company in O.A.No.481/1999 filed by the respondent and in R.C.No.349/2009 arising out of the final order passed in O.A.No.481/1999. It has been claimed that the appearance of the petitioner as a representative of the Company has been recorded by Debt Recovery Tribunal in various proceedings including the proceeding dated 18.2.2005. It has been stated in the reply that to attract liability under Section 141(1) of Negotiable Instruments Act, the person concerned need not necessarily be a Director of the Company and any person, who is incharge of and responsible to the Company for conduct of its business will be deemed to be guilty of the offence. It has also been claimed that it is the petitioner who had been approaching the Bank for the compromise which was affected in R.C.No.349/2009 pursuant to which cheque in question was issued by Crl.M.C.Nos.923, 1654 of 2009 Page 4 of 19 Company. It has also been pointed out that it was the statement of the petitioner which was recorded on behalf of the Company at the time of compromise. 6. Section 141(1) of Negotiable Instruments Act reads as under:- “ 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: [Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.] 7. In support of his claim that he had resigned as a Director of Padmini Technologies Ltd. w.e.f. 30.4.2003, the petitioner has placed on record a certified copy of Form 32 issued by Registrar of Companies. This document shows that the petitioner resigned as a Director of Padmini Technologies Ltd.w.e.f. 30.4.2003. There is no reason, not to accept an authentic public document such as certified copy of Form 32. Therefore, for the purpose of this petition, I proceed on the basis that the petitioner had actually resigned as a Director of Padmini Technologies Ltd. w.e.f. 30.4.2003. Crl.M.C.Nos.923, 1654 of 2009 Page 5 of 19 8. In Dr.(Mrs.) Sarla Kumar vs. Srei International Finance Ltd., 2007 (2) NIJ 208 (Del), the petitioner sought quashing of the criminal complaint against her on the ground that she had resigned from the directorship of the concerned Company M/s.Sansar Braktols Pvt. Ltd. on 20.8.1994 whereas cheques in question were issued in the year 2003 and she was not a Director of the Company at that time. In that case, it was alleged in the complaint that the petitioner was a Director of the Company and was incharge and responsible for day-to-day conduct and business of the Company at the time of commission of the offence. The petitioner placed on record the certified copy of Form 32 and claimed that she was not liable for the offence committed by the Company. The petition was opposed by the respondent on the ground that the question as to whether the petitioner had resigned or not was a question of fact which should be gone into only at the stage of trial and should not be dealt with in proceeding under Section 482 of the Code of Criminal Procedure. The learned Single Judge noted that the petitioner had filed certified copy issued by Registrar of Companies, authenticity of which could not be disputed and such a document was conclusive of the fact that the petitioner had resigned w.e.f. the date mentioned in the document. Holding that the petitioner was not incharge or responsible for day-to-day affairs of the Company and could not be so, the petitions were allowed and the complaints were quashed quo the petitioner. I am in full agreement with the view taken in the above referred case as regards authenticity and conclusive nature of certified copy of form 32. When such an authentic and conclusive document is made available to the Court, it Crl.M.C.Nos.923, 1654 of 2009 Page 6 of 19 would be an exercise of futility to again go into the same question to find out as to whether the petitioner was a Director in the Company or not at the time mentioned in the document. Such an exercise, if undertaken, would not serve any useful purpose but would unnecessarily drag the person concerned to a long drawn trial without rendering any fruitful result. 9. The learned counsel for the respondent has referred to the decision of this Court in O.P. Aggarwal vs. State and Anr., 2009 (108) DRJ, 494, where despite the petitioner having produced certified copy of Form-32, the petition filed by him for quashing the proceedings was dismissed. A perusal of the judgment would show that in that case one of the co-accused Inder Verma had written a letter dated 3rd August, 2006 to the complainant-bank stating that petitioner Shri O.P. Aggarwal was, in fact, the Functional Head of the company and that he had issued cheque in question under the instruction and order of the petitioner Shri O.P. Aggarwal. There was a reference to this letter in the complaint itself. Also, in his reply to the legal notice, accused No. 7 has stated that he had signed the letters, etc. on the orders and instructions of accused No. 2 who was the owner/Functional Head of accused No. 1. It was, under these circumstances, that this Court after noticing that to incur criminal liability under Section 141 of Negotiable Instruments Act, one need not necessary be a Director of the company and could be any working person of the company if he was otherwise in charge of affairs of the company and responsible to it for the conduct of its business, held that the question whether or not the petitioner was a person in Crl.M.C.Nos.923, 1654 of 2009 Page 7 of 19 control of the affairs of the company, would only be proved after the case had gone to trial The facts of the present case being altogether different, the above referred decision would not apply to this case. 10. The learned counsel for the petitioner has mainly relied upon recent decision of the Supreme Court in K.K. Ahuja vs. V.K. Vora and Anr., 2009 (3) JCC (NI) 194. In the case before the Hon‟ble Supreme Court, the appellant before the Hon‟ble Court had impleaded 9 persons as accused. They included, the company, its Chairman, four Directors, Vice-President (Finance), General Manager and Deputy General Manager. It was alleged in the complaint that "at the time of the commission of offence, accused 2 to 9 were in-charge of and responsible for the conduct of day to day business of accused No. 1" and that therefore they were deemed to be guilty of offence under Section 138 read with Section 141 of the Act and Section 420 of the Indian Penal Code. The appellant also alleged that “respondents 2 to 9 were directly and actively involved in the financial dealings of the company” and that the accused had failed to make payment of the cheques which were dishonoured. In the pre- summoning evidence, the appellant “reiterated that accused 2 to 9 were responsible for the conduct of day to day business of first accused company at the time of commission of offence”. 11. Accused No.9, who was the first respondent before the Supreme Court, filed two petitions for quashing the proceedings against him on the ground that as Deputy General Manager, he was not in charge of and responsible to the company for the conduct of the business of the Crl.M.C.Nos.923, 1654 of 2009 Page 8 of 19 company. He also contended that merely stating that he was directly and actively involved in the financial dealings of the accused or was responsible for the conduct of day to day business would not be sufficient to fasten criminal liability on him. He submitted that neither the complaint nor the sworn statement gave any particulars of the part played by him or part attributed to him in the alleged offence. 12. The High Court having quashed the summoning order of the first respondent on the ground that he was not a signatory to the cheque nor was the party to the decision to allow the cheques to be dishonoured, the appellant approached the Hon‟ble Supreme Court and contended that having regard to the specific averment in the complaint that the accused 2 to 9 were in charge of and responsible for the conduct of day to day business of the company, the order summoning the first respondent could not have been quashed under Section 482 Cr.P.C. It is also submitted that at the stage of summoning the accused, when evidence was yet to be led by the parties, the High Court committed an error in quashing the order summoning the first respondent, on the basis of an unwarranted assumption that the first respondent was not responsible for or involved in the conduct of the business of the company. Reliance was placed on the decision of this Court in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Anr. 2005 (3) JCC (NI) 203: [2005 (8) SCC 89]. 13. The Hon‟ble Supreme Court, after considering its earlier judgment in the case of S.M.S. Pharmaceuticals Ltd. (supra) and noticing that in that case, the Court had observed that only the persons who can be said to be connected with the commission of a Crl.M.C.Nos.923, 1654 of 2009 Page 9 of 19 crime at the relevant time have been subjected to action under Section 141 of the Act, also noticed the following observations made in Saroj Kumar Poddar v. State (NCT of Delhi), 2007 (1) JCC (NI), 60: 2007 (3) SCC 693, “there is no averment in the complaint petitions as to how and in what manner the appellant was responsible for the conduct of the business of the Company or otherwise responsible to it in regard to its functioning. He had not issued any cheque. How he is responsible for dishonour of the cheque has not been stated.” The Hon‟ble Court noted that in the later decisions, N.K. Wahi vs. Shekhar Singh – 2007 (1) JCC (NI) 112:2007 (9) SCC 481, DCM Financial Services Ltd. vs. J.N. Sareen-2008 (2) JCC (NI) 233: 20008 (8) SCC 1 and Ramraj Singh vs. State of M.P. 2009 (2) JCC (NI), 156: 2009 (5) SCALE 670, the Court had reiterated the principle laid down in Saroj Kumar Poddar (supra). 14. After considering the above noted decisions, the Hon‟ble Court inter alia observed as under: “The prevailing trend appears to require the complainant to state how a Director who is sought to be made an accused, was in charge of the business of the company, as every director need not be and is not in charge of the business of the company. If that is the position in regard to a director, it is needless to emphasise that in the case of non-director officers, there is all the more the need to state what his part is with regard to conduct of business of the company and how and in what manner he is liable. 15. The Hon‟ble Court further observed as under: “The scheme of the Act, therefore is, that a person who is responsible to the company for the conduct of the business of the company and who is in charge of business of the Crl.M.C.Nos.923, 1654 of 2009 Page 10 of 19 company is vicariously liable by reason only of his fulfilling the requirements of Sub-section (1). But if the person responsible to the company for the conduct of business of the company, was not in charge of the conduct of the business of the company, then he can be made liable only if the offence was committed with his consent or connivance or as a result of his negligence. 11. The criminal liability for the offence by a company under Section 138, is fastened vicariously on the persons referred to in Sub- section (1) of Section 141 by virtue of a legal fiction. Penal statutes are to be construed strictly. Penal statutes providing constructive vicarious liability should be construed much more strictly. When conditions are prescribed for extending such constructive criminal liability to others, courts will insist upon strict literal compliance. There is no question of inferential or implied compliance. Therefore, a specific averment complying with the requirements of Section 141 is imperative. As pointed out in K. Srikanth Singh v. North East Securities Ltd. 2007 (12) SCC 788, the mere fact that at some point of time, an officer of a company had played some role in the financial affairs of the company, will not be sufficient to attract the constructive liability under Section 141 of the Act.” 16. On the question as to who would be persons responsible to the company for conduct of its business, the Hon‟ble Court inter alia held as under: “A company though a legal entity can act only through its Board of Directors. The settled position is that a Managing Director is prima facie in charge of and responsible for the company's business and affairs and can be prosecuted for offences by the company. But insofar as other directors are concerned, they can be prosecuted only if they were in charge of and responsible for the conduct of the company's business. A combined reading of Sections 5 and 291 of Companies Act, 1956 with the definitions in clauses (24), (26), (30), (31), (45) of Section 2 of that Act would show Crl.M.C.Nos.923, 1654 of 2009 Page 11 of 19 that the following persons are considered to be the persons who are responsible to the company for the conduct of the business of the company : (a) the managing director/s; (b) the whole-time director/s; (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; (f) any person charged by the Board with the responsibility of complying with that provision (and who has given his consent in that behalf to the Board); and (g) where any company does not have any of the officers specified in clauses (a) to (c), any director or directors who may be specified by the Board in this behalf or where no director is so specified, all the directors. It follows that other employees of the company, cannot be said to be persons who are responsible to the company, for the conduct of the business of the company. 15. Section 141 uses the words "was in charge of, and was responsible to the company for the conduct of the business of the company". It is evident that a person who can be made vicariously liable under Sub-section (1) of Section 141 is a person who is responsible to the company for the conduct of the business of the company and in addition is also in charge of the business of the company. There may be many directors and secretaries who are not in charge of the business of the company at all. The meaning of the words "person in charge of the business of the company" was considered by this Court in Girdhari Lal Gupta v. D.N. Mehta [1971 (3) SCC 189] followed in State of Karnataka v. Pratap Chand [1981 (2) SCC 335] and Katta Sujatha v. Fertiliser & Chemicals Travancore Ltd. [2002 (7)SCC655] . This Court held that the words refer to a person who is in Crl.M.C.Nos.923, 1654 of 2009 Page 12 of 19 overall control of the day to day business of the company. This Court pointed out that a person may be a director and thus belongs to the group of persons making the policy followed by the company, but yet may not be in charge of the business of the company; that a person may be a Manager who is in charge of the business but may not be in overall charge of the business; and that a person may be an officer who may be in charge of only some part of the business. 16. Therefore, if a person does not meet the first requirement, that is being a person who is responsible to the company for the conduct of the business of the company, neither the question of his meeting the second requirement (being a person in charge of the business of the company), nor the question of such person being liable under Sub-section (1) of Section 141 does not arise. To put it differently, to be vicariously liable under Sub- section (1) of Section 141, a person should fulfill the 'legal requirement' of being a person in law (under the statute governing companies) responsible to the company for the conduct of the business of the company and also fulfill the 'factual requirement' of being a person in charge of the business of the company. 17. Therefore, the averment in a complaint that an accused is a director and that he is in charge of and is responsible to the company for the conduct of the business of the company, duly affirmed in the sworn statement, may be sufficient for the purpose of issuing summons to him. But if the accused is not one of the persons who falls under the category of 'persons who are responsible to the company for the conduct of the business of the company' (listed in para 14 above), then merely by stating that 'he was in charge of the business of the company' or by stating that 'he was in charge of the day to day management of the company' or by stating that he was in charge of, and was responsible to the company for the conduct of the business of the company', he cannot be made vicariously liable under Section 141(1) of the Act.” Crl.M.C.Nos.923, 1654 of 2009 Page 13 of 19 17. As regards officers of the company, the Hon‟ble Court inter alia held as under: “It should, however, be kept in view that even an officer who was not in charge of and was responsible to the company for the conduct of the business of the company can be made liable under Sub-section (2) of Section 141. For making a person liable under Section 141(2), the mechanical repetition of the requirements under Section 141(1) will be of no assistance, but there should be necessary averments in the complaint as to how and in what manner the accused was guilty of consent and connivance or negligence and therefore, responsible under Sub-section (2) of Section 141 of the Act.” 18. The legal position under Section 141 of Negotiable Instruments Act was summarized as under: “(i) If the accused is the Managing Director or a Joint Managing Director, it is not necessary to make an averment in the complaint that he is in charge of, and is responsible to the company, for the conduct of the business of the company. It is sufficient if an averment is made that the accused was the Managing Director or Joint Managing Director at the relevant time. This is because the prefix `Managing' to the word `Director' makes it clear that they were in charge of and are responsible to the company, for the conduct of the business of the company. (ii) In the case of a director or an officer of the company who signed the cheque on behalf of the company, there is no need to make a specific averment that he was in charge of and was responsible to the company, for the conduct of the business of the company or make any specific allegation about consent, connivance or negligence. The