HON’BLE SRI JUSICE N. RAVI SHANKAR CRIMINAL PETITION Nos.5744 and 5745 of 2009 COMMON ORDER: Criminal Petition No.5744 of 2009 is filed under Section 482 of the Code of Criminal Procedure, 1973 (for short Code) for quashing C.C.No.406 of 2007 on the file of the Court of XIV Additional Chief Metropolitan Magistrate, Nampally, Hyderabad (trial Court). Criminal Petition No.5745 of 2009 is filed for the same relief in respect of C.C.No.407 of 2007 on the file of the trial Court. 2. Both the cases pertain to an offence under Section 138 of the Negotiable Instruments Act, 1881 (for short Act) and are filed against a company called S.S.Organics Limited, one V.N.Sunanda Reddy and another Y.Ramachandra Reddy describing them as Managing Director and Joint Managing Director respectively of the said company. They are shown as A-1 to A-3 in both the cases. Petitioners in these two quash petitions are A-2 and A-3. As the point involved is same in both, they are being disposed of by this common order. 3. The complainant in C.C.No.406 of 2007 is a proprietary concern called Real Chemicals represented by its proprietor Chanumolu Anil Babu. The complainant in C.C.No.407 of 2007 is another proprietary concern called Andhra Enterprises represented by its proprietrix Chanumolu Madhavi. 4. The case of the complainant in C.C.No.406 of 2007 is that at the instance of A-2 and A-3 he supplied various quantities of Sulphuric Acid in all worth Rs.11,52,633/- on various dates to A-2 and he received it on behalf of A-1 company and ultimately A-2 Sunanda Reddy gave a cheque dated 20.02.2007 for that amount drawn on ICICI Bank, SR Nagar branch, Hyderabad and the same was dishonoured and after complying with the formalities relating to issuance of statutory notice under the Act he filed the said case. Similarly the case of the complainant in C.C.No.407 of 2007 is that she supplied Hydrocloric Acid worth Rs.1,68,029/- to A-2 Sunanda Reddy who received it on behalf of A-1 and thereafter A-2 and A-3 paid a part of that amount and A-2 issued a cheque dated 25.02.2007 for Rs.1,18,029/- drawn on HDFC Bank towards the balance price of the said Acid and that was dishonoured. She also says that after issuing statutory notice under the Act she filed the said criminal case. It should be mentioned here that in both the cases A-2 Sunanda Reddy is also described as “authorized signatory” for issuing the cheques and this aspect has significance and it will be mentioned a little later. Regarding the complicity of A-3 it is mentioned in both the cases that A-2 issued both the cheques on behalf of A-1 company with the consent of A-3 and both undertook to pay the amounts. 5. The plea of A-2 and A-3 (petitioners) is that both of them ceased to be Managing Director and Joint Managing Director of A- 1 company from 20.10.2006 and the cheques in question were issued as post dated cheques prior to that date and they were not the directors by the date of the offence i.e. by the date of dishonour in both the cases which occurred in May 2007 and therefore they were not in a position to influence the management of A-1 company to make payments under the aforesaid two cheques and consequently both the cases against them should be quashed. To show that they ceased to be directors of A-1 company from 20.10.2006 they filed a photostat copy of Form 20B which is the annual return filed on behalf of A-1 company for the relevant period before the Registrar of Companies. This Form 20B is disputed by the complainants and it is stated that A-2 commenced some litigation also regarding this Form 20B pleading that it is invalid and that he also succeeded in it. This aspect will also be dealt with a little later. 6. Sri A.Hanumantha Reddy the learned counsel for A-2 and A-3 reiterating the above plea argued that their case should be accepted and these petitions should be allowed. In support of his contention he also relied upon mainly two decisions, one of Supreme Court given in DCM Financial Services Limited v. J.N.Sareen[1] and the other of High Court of Delhi given in M.L.Gupta v. DCM Financial Services Limited[2]. He also relied upon other cases which lay down the criteria for prosecution of companies and its directors or employees for the offence under Section 138 of the Act as contemplated under Section 141 of the Act. That criteria is that directors or other employees of the companies cannot be prosecuted for the above offence unless it is specifically pleaded in detail about the role of directors or employees of the company in conducting the business of the company and that former directors or employees cannot be prosecuted unless they were in-charge of the business or affairs of the company at the time when the offences has been committed. There is no dispute about this proposition but whether that will be applicable to the case of A-2 and A-3 or not has to be examined here. 7. Sri T. Bali Reddy the learned Senior Counsel appearing for the complainants in both the cases argued that A-2 and A-3 never informed the complainants about their ceasing from the management of A-1 company even after receiving notices and therefore they cannot plead that ground for quashing the cases now. He also argued that in the complaints itself it is mentioned that the cheques were issued on 20.02.2007 and 25.02.2007 and they are not post dated cheques issued earlier and consequently the above plea is not available to them. He then pointed out that both the cheques contain the endorsements to the effect that A-2 issued the cheques as authorized signatory of A-1 company and therefore they cannot plead now for quashing the cases on the above ground as A-2 is also liable as authorized signatory. Regarding the liability of A-3 he pointed out that the cheques in question were issued with his consent and therefore he is also responsible as he was in management of A-1 company. 8. In the light of the above rival pleas and contentions the point is whether there are grounds to quash the cases. 9. In DCM Financial Services Limited case (1 supra) the Supreme Court was dealing with a fact situation where the post dated cheque in question was issued in April 1995 and it was dated 28.01.1998 and when it was presented for encashment it was dishonoured subsequent to 28.01.1998. By that date the director of the company in question therein ceased to be the director on or about 25.05.1996. It was in that fact situation the Supreme Court upheld the plea of the director therein that he cannot be made liable as the cheque was dishonoured long after he ceased to be the director inasmuch as he was not in a position to control the affairs of the company and see that the cheque was honoured. In the above case the cheque was admittedly issued as a post dated cheque prior to the date on which the director in that case ceased to be the director and by the date of offence i.e. when the cheque was presented for encashment he was not director. 10. In the present case both the complaints read that the cheques in question were issued on the dates they bear i.e. 20.02.2007 and 25.02.2007 and there is no averment that the cheques were issued as the post dated cheques prior to 20.10.2006 on which date A-2 and A-3 have pleaded that they ceased to be directors. On the other hand, A-2 and A-3 pleaded that the cheques were issued as post dated cheques prior to 20.10.2006. Thus this dispute between the parties raises a disputed question of fact regarding the date on which the cheques were issued and this question has to be resolved only on evidence and not in this petition. This is the first minus point for the petitioners. 11. It may also be noted here that the plea of A-2 and A-3 that they ceased to be Managing Director and Joint Managing Director of A-1 company with effect from 20.10.2006 is also disputed by the complainants. Their version is that Form 20B filed by A-2 and A-3 has been disputed by A-2 himself. This Form 20B purports to be an annual return filed by the A-1 company before the Registrar of Companies showing that A-2 and A-3 ceased to be Managing Director and Joint Managing Director with effect from 20.10.2006. It is brought to my notice by Sri Bali Reddy that earlier this very A- 2 V.N.Sunanda Reddy filed Crl.P.No.6149 of 2009 and ten other petitions to quash about ten criminal cases pertaining to an offence under Section 138 of the Act. A copy of the common judgment dated 01.02.2011 pronounced in the said criminal petitions by which all the said petitioners were dismissed by this court has been filed. 12. A reading of the above common judgment would show that it pertains to S.S. Organics Limited which is none other than A-1 in the present two cases. After discussing about the liability of directors for the cheques issued by the company this court discussed about the Form 20B and the resolution dated 20.10.2006 of the Board of Directors and found that A-2 Sunanda Reddy questioned the same and also the annual general body meeting of the said company held on 20.10.2006 before the Company Law Board and the Company Law Board, Additional Principal Bench, Chennai, by its order dated 14.08.2009 held the above resolution removing the A-2 from the job of Managing Director as invalid. This court also has set out in the above judgment the relief granted by the Company Law Board. These aspects are discussed in Paras-6, 7 and 8 of the said common judgment. 13. This court ultimately held in the above common judgment that having regard to the earlier litigation before the Company Law Board relating to the validity of the decision of the company seeking to remove A-2 from Managing Directorship which is already mentioned supra it would be premature to say that A-2 Sunanda Reddy ceased to be the Managing Director of the company with effect from 20.10.2006 and in that view of the matter it dismissed all the above criminal petitions. It follows that impliedly this court left that controversy to be decided by the trial courts therein before which the criminal cases were pending. Sri Hanumantha Reddy also relied upon this decision but it is not known as to how it would help him and on the other hand it helps the complainants. Thus from the above circumstance it follows that Form 20B filed by the A-2 and A-3 cannot be held to be conclusive and the matter has to be decided by the trial courts on evidence on the question whether A-2 and A-3 ceased to be directors of A-1 company with effect from 20.10.2006. This is the second minus point for the petitioners. 14. It may then be noted that at this stage it would also be useful to note the endorsements made on the two cheques in question which has been filed by A-2 and A-3 themselves. Copies of the said cheques have been filed by the counsel for A-2 and A-3. They purport to have been signed by A-2 with the following endorsement. “FOR S S ORGANICS LIMITED Sd/- V.N.Sunanda Reddy AUTHORISED SIGNATORIES” The issuance as such of the above two cheques is not in dispute. The above endorsement and signature of A-2 shows that he signed it as an authorized signatory of A-1 company and not as Managing Director. This aspect further shows that though A-2 as pleaded by him ceased to be managing director of A-1 company which is of- course is in dispute now, still he signed the cheques as an authorized signatory of A-1 company. Thus it can be said that A-2 would fall within the category of 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 A-1 company. It is not known as to how A-2 could sign the cheques as authorized signatory and under what authority he did so and what is the liability of A-1 company in that situation on such a cheque and what is the liability of A-2. These are all again questions of fact which have to be decided on evidence and therefore it is not possible for this court to accept the plea of A-2 and A-3 and quash the cases. 15. It may be noted that if there had been no dispute that the two cheques in question in this case were admittedly issued prior to 20.10.2006 and if admittedly A-2 and A-3 ceased to be directors after 20.10.2006 by the date of commission of the offence and if A- 2 had not signed the cheque as authorized signatory this case would squarely fall within the four corners of the proposition laid down in DCM Financial Services Limited case (1 supra) and A-2 and A-3 would have succeeded in these petitions. However as seen supra there are several disputed questions of fact with regard to all the pleas taken by A-2 and these are already stated supra. Hence the above decision cannot come to the rescue of A- 2 and the matter has to be decided on evidence. Accordingly it follows that there is no ground to quash the cases against A-2 Sunanda Reddy. 16. Then coming to the case of A-3 Y.Ramachandra Reddy he is described as the Joint Managing Director of A-1 company. So far as his case that he also ceased to be the Joint Managing Director with effect from 20.10.2006 is concerned it would also stand on the same footing as does the case of A-2. Further in both the complaints it is specifically averred by the complainants that the Sulphuric Acid in one case and Hydrocloric Acid in the other were supplied on the purchase orders placed by A-2 and A-3 on behalf of A-1 company. It is also averred that in this manner A-2 and A-3 looked after the affairs of A-1 company and were responsible for its business. It is then stated that A-2 issued the cheques with the consent of A-3 and both the cheques purport to have been signed by A-2 as authorized signatory to the knowledge of A-3 and its significance and the liability of A-2 and A-3 and A-1 company, as already stated supra, have to be again decided on evidence. 17. Thus in the above circumstances it cannot be said that the complainants have merely reproduced the language in Section 141 of the Act to make A-3 liable and it can be said that they have come out with a definite case against A-3 also. These pleas of the complainants again raise disputed questions of fact about the liability of A-3 also. 18. Hence for the aforesaid reasons it follows that these petitions have to fail and they are accordingly dismissed. It goes without saying that A-2 and A-3 have to workout their remedies before the trial court and it shall dispose of the case uninfluenced in any manner by this order. _____________________ N. RAVI SHANKAR,J 28th July, 2011 CVRK [1] (2008) 8 SCC 1 [2] II (2010) BC 216