1 IN THE HIGH COURT OF BOMBAY AT GOA CRIMINAL WRIT PETITION NOS. 104, 105, 110 AND 111 OF 2009 1. Shri R. K. Chawla, Director of M/s Goa Food & Pharma(P) Ltd. residing at White House, 1933/10, G.P. Extension, New Delhi 110 119. 2. Smt. Neena Chawla, Director of M/s Goa Food & Pharma(P) Ltd. residing at White House, 1933/10, G.P. Extension, New Delhi 110 119. ... Petitioners versus 1. M/s Goa Antibiotics & Pharmaceuticals Ltd., (a Government of Goa undertaking) through its attorney Mr. Gerald John Fernandes, Head of Personnel & Administration, Tuem, Pernem, Goa. 2. State of Goa, Through its Public Prosecutor, having his office at Secretariat, Porvorim-Goa. ... Respondents Shri S. Singbal, Advocate for the Petitioners. Shri J. P. D'Souza, Advocate for Respondent No.1. Ms. Winnie Coutinho, Public Prosecutor for Respondent No.2. 2 CORAM : N. A. BRITTO, J. DATE : 12TH APRIL, 2010. ORAL ORDER These petitions filed under Section 482 of the Code of Criminal Procedure, 1985 are directed against Orders dated 17-9-2008. 2. The petitioners herein are husband and wife and were the Directors of M/s. Goa Food & Pharma(P) Ltd. The respondent herein is a Government Company. On behalf of the said Company complaints were filed under Section 138 of the Negotiable Instruments Act, 1981(Act, for short). In the said complaints, petitioner no.1 R. K. Chawla was shown as accused no.1. Petitioner No.2 Smt. Neena Chawla was shown as accused no.2. Accused No.3 was M/s. Goa Food & Pharma( P) Ltd. In C. C. No.57/0A/99/A the General Manager Shri A. A. Pacheco was shown as accused no.4 and that was because the cheques involved in the said case were signed by him on behalf of respondent no.3/M/s. Goa Food & Pharma(P) Ltd. In the other three cases, the subject cheques were signed only by petitioner no.1/accused no.1 in the said cases. 3. Process was issued against all the accused under Section 138 of the said Act. The said Order issuing process came to be challenged by the 3 present petitioners before the learned Sessions Court, Panaji. The entire dispute is regarding the averments or lack of them which a complainant is required to make whilst prosecuting the Directors of a given company. The learned Additional Sessions Judge by impugned Orders dated 17-9-2008 observed as follows:- “Thus on bare reading of the complaint and the statement of PW1 it is clear that allegations in the complaint are that at the time of issuing two cheques by the company, the applicants were the directors of the company and were in charge of the affairs of the company. In other words substance of allegations made in the complaint and the statement made by PW1 as a whole fulfill the requirements of ingredients of Section 138 of the NIA to proceed against the appellants. That being the position and in view of ratio laid down in the case of N. Rangachari v. Bharat Sanchar Nigam Limited 2007 Cri.L.J. 2448 above mentioned the question as to whether appellants were in charge of the affairs of the company or not at the time of issuing cheque cannot be adjudicated at the stage of issuing process. Hence, no interference can be called in the impugned order”. 4. The relevant allegations in the complaint against the petitioners/accused nos./1 and 2 in all the cases are as follows:- 4 2.” The accused nos.1 and 2 are the Directors of accused no.3 concern, Goa Food & Pharma(P) Ltd. having their head office at White House, No. 1933/19, G.P.Extension, New Delhi, 110019”. In the petition, arising from C.C.No.57/0A/99/A it was further stated that:- “The accused no.4 is a General Manager of accused no.3”. 5. It was the case of the respondent/complainant that the subject cheques were given towards repayment of goods dispatched as per the instructions of the accused. There is also no dispute that the said cheques when presented for payment were returned with endorsement that the payment was stopped by the drawer. A legal notice was also sent but the same was not complied with and therefore the complaints came to be filed for the dishonour of the amount due on the said cheques. 6. Since the controversy in these petitions is limited further details of the complaints are not reproduced herein. 7. The contention raised on behalf of the petitioners i.e. accused 5 nos./1 and 2 in the said cases is that the complainant had not stated in the complaints nor in the statements recorded under Section 200 of Cr. P.C. that the petitioners herein who were the Directors of the said company were in charge of and responsible to the Company for the conduct of its business, as required under Section 141 of the Act, and, therefore no process could have been issued against the petitioners. Shri Singbal, the learned Counsel has placed reliance on the first Judgment in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and another(2006(1) DCR 1) wherein a three Judge Bench of the Apex Court raised three questions and answered them in para 20, as follows:- 20.” In view of the above discussion, our answers to the questions posed in the Reference are as under:- (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 question posed in sub-para (b) has to be in negative. Merely being a director 6 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 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 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 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 signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under sub-section(2) of Section 141”. 7 8. Shri Singbal has specifically placed reliance on what has been stated in para (a) herein above and has tried to distinguish other Judgments which were cited and relied upon by the learned Additional Sessions Judge. 9. On the other hand, Shri J. P. D'Souza, the learned Counsel appearing on behalf of the complainant/respondent has submitted that in three cases the subject cheque were signed by petitioner no.1/accused no.1, and, therefore he would be liable in terms of what the Apex Court has stated in para (c) herein above. Learned Counsel has further submitted that the petitioners were the only Directors of the said Company, out of whom one had to be a Managing Director who had to be in charge of the Company and responsible to the Company of conduct of its business and that being the position the petitioners herein cannot escape their liability. Learned Counsel has further submitted with reference to S.M.S. Pharmaceuticals Ltd.(supra) that in that case there were several Directors. 10. The learned Sessions Judge in para 9, reproduced herein above has, inter alia observed that a bare reading of the complaint and the statement of PW1 it was clear that the allegations in the complaint were that at the time of issuing two cheques by the Company, the applicants were Directors of the Company and were in charge of the affairs of the Company. 8 11. Shri Singbal, learned Counsel appearing on behalf of the petitioners submits that there is no averment or allegation in the complaint that the Petitioners were in charge of the affairs of the Company and that being so the observation made therein is incorrect. Learned Counsel has also referred to N. Rangachari v. Bharat Sanchar Nigam Ltd.(supra) and submitted that in that case there were clear averments made on behalf of the complainant, and, therefore the ratio of that case could not have been made applicable to the facts of the case at hand, by the learned Additional Sessions Judge. 12. Learned Counsel Shri Singbal is right in making the above submissions. 13. There is no dispute that the law is now settled in relation to Section 141 of the Act by the first three Judge Judgment in the case of S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and another(supra). It still holds the field and has been followed in all other decisions cited at the Bar. 14. In the second Judgment in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and another(2007(1) DCR 549) it was held that the complaint had to be read in its entirety. It was observed that the averments must state that the person who is vicariously liable for commission of the offence of the Company both was incharge of and was responsible for the conduct of the 9 business of the Company. Requirements laid down therein must be read conjointly and not disjunctively. When a legal fiction is raised, the ingredients therefore must be satisfied. 15. In N. Rangachari v. Bharat Sanchar Nigam Ltd.(AIR 2007 SC 1682) the relevant statement in the complaint read as follows:- “That accused no.1 is a company incorporated under the Companies Act. Accused Nos.2 and 3 are its Directors. They are incharge of and responsible to accused no.1 for conduct of business of accused no.1 Company. They are jointly and severally liable for the acts of accused no.1”. 15.1. In N. Rangachari v. Bharat Sanchar Nigam Ltd.(supra) considering the above said averments the Apex Court observed that a person normally having business or commercial dealings with a Company will satisfy himself about its creditworthiness and reliability by looking at its promoters and Board of Directors and the nature and extent of its business and its Memorandum or Articles of Association. Other than that, he may not be aware of the arrangements within the company in regard to its management, daily routine, etc. Therefore, when a cheque issued to him by the company is dishonoured, he is expected only to be aware generally of who are incharge of 10 the affairs of the company. It is not reasonable to expect him to know whether the person who signed the cheque was instructed to do so or whether he has been deprived of his authority to do so when he actually signed the cheque. Those are matters peculiarly within the knowledge of the company and those in charge of it. So, all that a payee of a cheque that is dishonoured can be expected to allege is that the persons named in the complaint are in charge of its affairs. The Directors are prima facie in that position. The Apex Court followed the ratio of S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and another(supra) observing that what is to be looked into is whether in the complaint, in addition to asserting that the appellant and another are the Directors of the Company, it is further alleged that they are in charge of and responsible to the Company for the conduct of the business of the Company. The Apex Court noted that an averment was clearly made in the complaint and concluded that the contention sought to be raised by the accused could only be dealt with after the conclusion of the trial. 16. In Sabitha Ramamurthy and another v. R.B.S. Channabasavaradhya((2006) 10 SCC 581) the averments in the complaint read as follows: “7. The complainant submits that the accused persons have failed to clear the liability. The accused, being the 11 Company and all the Directors, are responsible for the clearance of liability under Section 141 of the NI Act and the acts and deeds of the accused persons are punishable under Section 138 of the NI Act.” 16.1. Following the three Judge Judgment of the Apex Court in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and another(supra) the Apex Court noted that 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. The Apex Court therefore proceeded to quash and set aside the process issued to the accused persons. 17. In Saroj Kumar Poddar v. State(NCT of Delhi) and another((2007) 3 SCC 693) the Apex Court observed as follows:- “Our attention, however, has been drawn to the averments made in paras 7 and 10 of the complaint petition, but on a perusal thereof, it would appear that therein merely allegations have been made that the cheques in question were presented before the bank and they have been dishonoured. Allegations to satisfy the requirements of Section 138 of the Act might have been made in the 12 complaint petition but the same principally relate to the purported offence made by the company. With a view to make a Director of a company vicariously liable for the acts of the company, it was obligatory on the part of the complainant to make specific allegations as are required in law.” 17.1. Ultimately, following the law laid down in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and another(supra) held that they had no other option but to hold the allegations made in the complaint even if they are taken to be correct in their entirety did not disclose any offence as against the appellant therein and thus proceeded to quash the process issued against the appellant. 18. In the case of K. K. Ahuja v. V. K. Vora and another((2009) 10 SCC 48) the Apex Court observed that 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. That would be absurd and not intended under the Act. As the trauma, harassment and hardship of criminal proceedings in such cases, may 13 be more serious than the ultimate punishment, it is not proper to subject all and sundry to be impleaded as accused in a complaint against a company, even when the requirements of Section 138 read with Section 141 of the Act are not fulfilled. The Apex Court further observed that “person in charge of the business of the company” refer to a person who is in overall control of the day-to-day business of the company. 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. To be vicariously liable under Section 141(1), a person should be responsible to the company for the conduct of the business of the company and also a person in charge of the business of the company. 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”, then merely by stating that “he was in charge of the business of the company” or “he was in charge of the day-to-day management of the company” or “he was in charge of, and was responsible to the company for the conduct of the 14 business of the company”, he cannot be made vicariously liable under Section 141(1) of the Act. 19. Reverting to the facts of the case at hand, the complainant did not even spell out as to which of the accused had placed various orders with the complainant for the supply of pharmaceuticals items considering that in the complaint two Directors, the company and its General Manager were sought to be prosecuted. We have already noted the allegations or averments in para 2 of the complaint which merely states that accused nos.1 and 2 are the Directors of accused no.3 concern Goa Food & Pharma(P) Ltd. With the said bare averments and without any further averments that they were in charge of and responsible to the company for the conduct of the business of the company, no process could have been issued against them, and, therefore process issued against both the petitioners i.e. accused nos.1 and 2 in C. C. No.57/0A/99/A deserves to be quashed and set aside. In case, according to the complainant they were the only two Directors then the complainant ought to have stated so in the complaint and further stated as to how they were liable and in what capacity. It is no duty of the accused to tell the Court, as to how many directors there are in the Company. As far as the other three complaints are concerned, namely C. C. Nos.36/99/B, 37/0A/99/A and 21/0A/99/A, it is only petitioner no.2/A-2 who deserves to succeed in the absence of any averments in the complaint against her that she was in charge of and 15 responsible to the conduct of the business of the company A-3 as required under Section 141 of the Act. Petitioner No.1/A-1 R. K. Chawla has admittedly signed the subject cheques in the said three complaints, and, therefore he would be liable to be proceeded in the three complaints in view of the law laid down in para 20(c) of the first Judgment in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and another(supra). 20. As a result of the above discussion, the petitions deserve to succeed partly and the impugned Judgments/Orders of the learned Courts below are hereby set aside, partly. The process issued against both the petitioners in C. C. No.57/0A/99/A is hereby quashed and set aside. Likewise, process issued against petitioner no.2/A-2 in C.C. Nos.36/99/B, 37/OA/99/A and 21/0A/99/A is also quashed and set aside. 21. Parties to appear before the learned J.M.F.C. on 17-6-2010 at 10.00 a.m. for further proceedings. No order as to costs. N. A. BRITTO, J. RD