IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED:25.07.2008 CORAM: THE HONOURABLE MR.JUSTICE K.MOHAN RAM Criminal Original Petition No.5458 of 2008 & M.P.No.1 of 2008 Prashant Jhun Jhun Wala .. Petitioner/Accused-3 Vs. Tamil Nadu Newsprint and Paper Ltd., rep. By its Senior Officer (Marketing) T.Lal Jagadheesh 67, Mount Road, Guindy, Chennai 600 032. .. Respondent/Complainant Prayer : Criminal Original Petition filed under Section 482 of the Code of Criminal Procedure praying for the relief as stated therein. For Petitioner :: Mr.Haripillai For Respondent :: Mr.Shivakumar O R D E R The above Criminal Original Petition has been filed to quash the proceedings in C.C.No. 3644 of 2006 on the file of the learned IX Metropolitan Magistrate, Saidapet, Chennai, 2.The petitioner herein is the third accused in C.C.No.3644 of 2006 on the file of the IX Metropolitan Magistrate, Saidapet,Chennai. The respondent herein filed the complaint against Shiv Ganga Papers Convertors P Ltd., a company registered under the Companies Act and its Managing Director and other Directors for the alleged offence under Section 138 of the Negotiable Instruments Act (hereinafter called 'Act') in respect of the dishonour of two cheques issued by the second accused on behalf of the first accused in favour of the complainant/ respondent herein. 3.The petitioner herein is described as one of the Directors of the first accused Company and he sought to be proceeded in the light of the provisions contained in Section 141 of the Act. With regard to the liability of the petitioner, which is vicarious in nature, the following averments have been made in paragraph Nos. 2, 5 and 9 of the complaint, which reads as follows: https://hcservices.ecourts.gov.in/hcservices/ "2...... The Third Accused Mr.Prasat Jhun Jhun Wala, Son of Late R.K.Jhun Jhun Wala whose age is not known to the complainant herein, is the Director of Shiv Ganga Papers Convertors P Ltd.,.." 3.......... 4........... 5.The Complainant states that all the accused herein had been regularly contacting the complainant and promising that they would make payments for the outstanding amounts and seeking time under one pretext or the other. Finally the accused had consented and purported to make payment of the aforesaid outstanding dues and the interest for the delayed payments to the complainant for the supply of the above said goods and the second accused had issued two cheques on behalf of the first accused..... 6....... 7....... 8......... 9.The complainant further states that the second to the fifth accused are the only persons known to the complainant who are involved in the conduct of the business of the first accused and who are involved in the issuance of the said cheques and the dishonour of the same......." 4.The learned counsel for the petitioner herein contends that at the relevant point of time, the petitioner was not the Director of the Company. It is further contended that no cognizance could have been taken on the basis of the allegations made in the complaint as the same do not satisfy the requirements of the provisions of Section 141 of the Act. The learned counsel also submitted that the person who is sought to be made criminally liable under section 141 of the Act should be, at the time the offence was committed, in charge of and responsible to the company for the conduct of the business of the company and according to the counsel, in the complaint, no such averment has been made and it has not been stated in the complaint or in the sworn statement as to how the offence has been committed and how the petitioner is responsible therefor. The learned counsel further submitted that the petitioner by his resignation letter dated 30.12.2005, resigned from the post of Director of the first accused company and on 25.1.2006, he had sent a copy of the resignation letter to the Registrar of Companies which was acknowledged by the Registrar of the Companies vide its communication dated 31.1.2006 and as such the petitioner was not the Director of the first accused company even on the date when the legal notice was served by the complainant/respondent herein and on that ground, the complaint is liable to be quashed. 5.In support of the aforesaid contentions, the learned counsel https://hcservices.ecourts.gov.in/hcservices/ relied on the the following decisions of the Hon'ble Apex Court. 1.SMS PHARMACEUTICALS LTD., Vs. NEETA BHALLA & ANOTHER [2005 8 SCC 89 = 2005 (7) SCALE 397) 2.SMS PHARMACEUTICALS LTD., Vs. NEETA BHALLA & ANOTHER ((2007) 3 SCALES 245) 3.SAROJ KUMAR PODDAR Vs. STATE OF NCT OF DELHI reported in (2007) 1 CTC 529. 6.On the aforesaid submissions, the learned counsel for the respondent was heard. 7.The learned counsel for the respondent by drawing the attention of this Court to the averments contained in paragraph No. 5 of the complaint submitted that since all the accused had been regularly contacting the complainant and promising that they would make payment for the outstanding amounts and seeking time under one pretext or the other and finally the accused had consented and purported to make payment of the aforesaid outstanding dues and the interest for the delayed payments to the complainant and since these averments are sufficient to show that the petitioner was in charge and responsible for the conduct of the business of the company at the relevant point of time, the complaint cannot be quashed. 8.The learned counsel sought to rely upon certain letters said to have been written by the petitioner/third accused to the respondent to substantiate his contentions that the petitioner was in charge and responsible for the conduct of the business of the company at the relevant point of time. The learned counsel further submitted that since the petitioner had not produced any authenticated proof from the Registrar of Companies to prove his resignation from the post of Director of the first accused Company and merely based on the resignation letter and the letter addressed by him to the Registrar of the Companies, it could not be presumed that he had resigned from the post of Director of the first accused company even before the relevant point of time. In support of the said contention, the learned counsel sought to rely upon the order dated 6.12.2007, passed by me in Crl.O.P.Nos. 27176 of 2007 etc. batch of cases in JAYANT BHATTARCHARJEE Vs. LALITH STEEL SUPPLIERS. 9.I have carefully considered the submissions made by the counsel on either side. 10.In a catena of decisions, the Apex Court has held that for showing a vicarious liability of a Director of the Company, upon the complaint, it is incumbent to plead that the accused was in charge of and responsible to the company for the conduct of the business of the company. In this case, a perusal of the complaint as well as the sworn statement recorded shows that no such allegations are found and therefore, in my considered view, the complaint is liable to be quashed. 11.Further the offence envisaged under section 138 of the Act https://hcservices.ecourts.gov.in/hcservices/ contains several ingredients as has been held by the Three Judges Bench of the Hon'ble Apex Court in SMS PHARMACEUTICALS LTD., Vs. NEETA BHALLA & ANOTHER [(2005) 2 SCC 89] in the following terms. "10....... What is required is that the persons who are sought to be made criminally liable under Section 141 should be, at the time the offence was committed, in charge of and responsible to the company for the conduct of the business of the company. Every person connected with the company shall not fall within the ambit of the provision. It is only those persons who were in charge of and responsible for the conduct of the business of the company at the time of commission of an offence, who will be liable for criminal action. It follows from this that if a Director of a company who was not in charge of and was not responsible for the conduct of the business of the company at the relevant time, will not be liable under the provision. The liability arises from being in charge of and responsible for the conduct of business of a company at the relevant time when the offence was committed and not holding a designation or office in a company. Conversely, a person not holding any office or designation in a company may be liable if he satisfies the main requirement of being in charge of and responsible for the conduct of business of a company at the relevant time. Liability depends on the role one plays in the affairs of a company and not on designation or status. If being a Director or Manager or Secretary was enough to cast criminal liability, the section would have said so. Instead of "every person" the section would have said "every director, manager or secretary in a company is liable"....etc. The legislature is aware that it is a case of criminal liability which means serious consequences so far as the person sought to be made liable is concerned. Therefore, only persons who can be said to be connected with the commission of a crime at the relevant time have been subjected to action." 12.In the decision reported in SMS PHARMACEUTICALS LTD., Vs. NEETA BHALLA & ANOTHER [(2007) 3 SCALES 245)], while considering whether the following allegations contained in the complaint in that case are sufficient to attract the provisions contained in Section 141 of the Act and whether the Directors of the company can be proceeded with for the vicarious liability, the Apex Court held that the allegations are not sufficient to proceed against them. In the complaint in that case, the allegations made were as under: "3.... 'The Accused No.1 is duly incorporated Company, having its registered office at the address mentioned above, represented by the Director, Accused No.2. The accused No.3 and 4 are also the Directors of the https://hcservices.ecourts.gov.in/hcservices/ Accused No.1 company and the accused 2 to 4 are actively involved in the management of the affairs of the Accused No.1 Company." 13.After considering the said allegations and after referring to the decision of the Three Judges Bench, referred to supra, in paragraph Nos. 16 and 17, the Apex Court has observed as under: "16.Section 141 of the Act does not say that a Director of a company shall automatically be vicariously liable for commission of an offence on behalf of the Company. What is necessary is that sufficient averments should be made to show that the person who is sought to e proceeded against o the premise of his being vicariously liable for the commission of an offence by the Company must be incharge and shall also be responsible to the company for the conduct of its business. 17.By reason of the said provision, a legal fiction has been created. The larger Bench in this case [since reported in (2005) 8 SCC 89] categorically held: "11. A reference to sub-section (2) of Section 141 fortifies the above reasoning because sub-section (2) envisages direct involvement of any director, manager, secretary or other officer of a company in the commission of an offence. This section operates when in a trial it is proved that the offence has been committed with the consent or connivance or is attributabe to neglect on the part of any of the holders of these offices in a company. In such a case, such persons are to be held liable. Provision has been made for directors, managers, secretaries and other officers of a company to cover them in cases of their proved involvement. 12.The conclusion is inevitable that the liability arises on account of conduct, act or omission on the part of a person and not merely on account of holding an office or a position ina company. Therefore, in order to bring a case within Section 141 of the Act the complaint must disclose the necessary facts which make a person liable." and ultimately held that a plain reading of the averments made in the complaint/objection does not satisfy the statutory requirements as contemplated under section 141 of the Act and quashed the https://hcservices.ecourts.gov.in/hcservices/ complaint. 14.In the decision reported in SAROJ KUMAR PODDAR Vs. STATE OF NCT OF DELHI reported in (2007) 1 CTC 529, the Hon'ble Supreme Court has laid down as follows: "8....... A person would be vicariously liable for commission of an offence on the part of a Company only in the event the conditions precedent laid down therefor in Section 141 of the Act stand satisfied. For the aforementioned purpose, a strict construction would be necessary. 9.The purported averments which have been made in the complaint petitions so as to make the appellant vicariusly liable for the offence committed by the company read as under: That the accused No.1 is a public limited company incorporated and registered under the Companies Act, 1956, and the accused 2 to 8 are /were its Directors at the relevant time and the said company is managed by the Board of Directors and they are responsible for the incharge of the conduct and business of the company-Accused No.1. However, cheques referred to in the complaint have been signed by the Accused No.3 & 8 i.e. Shri K.K.Pllania and Shri N.K.Munjal for and on behalf of the Accused Company No.1. 10.Apart from the Company and the appellant, as noticed hereinbefore, the Managing Director and all other Directors were also made accused. The appellant did not issue any cheque. He, as noticed hereinbefore, had resigned from the Directorship of the Company. It may be true that as to exactly on what date the said resignation was accepted by the Company is not known, but, even otherwise, 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 allegations made in paragraph 3, thus, in our opinion do not satisfy the requirements of Section 141 of the Act." 15.If the allegations in the complaint in the case on hand and the sworn statement of the witness examined by the complaint are considered, in the light of the law laid down by the Hon'ble Apex Court in the aforesaid decisions and other decisions, it could be easily held that the statutory requirements contained in section 141 of the Act have not been complied with. It may be true that it https://hcservices.ecourts.gov.in/hcservices/ is not necessary for the complainant to specifically reproduce the wordings of the section, but what is required is a clear statement of fact so as to enable the Court to arrive at a prima facie opinion that the accused are vicariously liable. Section 141 raises legal fiction. By reason of the said provision, a person although is not personally liable for commission of such an offence would be vicariously liable for the offence committed by the company. Before a person can be made vicariously liable, strict compliance with statutory requirements would be insisted. Not only the averments made in para 7 of the complaint petition do not meet the said statutory requirements, the sworn statement of the witness made by the son of the respondent herein also does not contain any statement that the petitioner was in charge of the business of the Company. In a case where the Court is required to issue summons which would put the accused to some sort of harassment, the Court should insist strict compliance with statutory requirements. In terms of Section 200 of the Code of Criminal Procedure, the complainant is bound to make statements on oath as to how the offence has been committed and how the accused persons are responsible therefor. 16.In the decision reported in K.SRIKANTH SINGH Vs. NORTH EAST SECURITIES LTD., AND ANOTHER reported in (2008) 1 MLJ (Crl) 1098 (SC), the Apex Court has made the following observations. "6.......... In any event, ultimately, the prosecution is found to be frivolous or otherwise malafide, the Court may direct registration of case against the complainant for malafide prosecution of the accused. The accused wuld also be entitled to file a suit for damages. The relevant provisions of the Code of Criminal Procedure are required to be constructed from the aforementioned point of view." 17.The aforesaid observation of the Hon'ble Apex Court makes it abundantly clear that it is the bounden duty of the learned Magistrate before taking cognizance of the complaint to scrutinise the averments in the complaint as well as the statement of the complainant or his witness carefully to find out whether the statutory requirements of section 141 of the Act have been strictly complied with and the complaint is neither frivolous nor malafide. 18.In my considered view, in the case on hand, the learned Magistrate before taking cognizance of the complaint, does not appear to have applied his judicial mind to the averments contained in the complaint as well as in the sworn statement. Admittedly in this case, the petitioner herein had not issued the cheque and there is no averment in the complaint as to how and in what manner, the petitioner was responsible for the conduct of the business of the company or otherwise responsible to it in regard to its functioning and it has also not been stated as to how the petitioner is responsible for the dishonour of the cheque and these vital aspects have not been considered by the learned Magistrate before taking cognizance of the complaint and therefore the https://hcservices.ecourts.gov.in/hcservices/ complaint as against the petitioner herein is liable to be quashed. 19.The second contention of the learned counsel for the petitioner that since the petitioner had resigned from the post of Director of the first accused company even before the relevant date and the same was communicated by him to the Registrar of the Companies is concerned, this Court cannot entertain the contention as no document, evidencing such resignation from the post of Directorship, which can be said to be of impeachable and sterling quality has been produced before this Court. The letter said to have been written by the petitioner to the Registrar of Companies cannot be looked into at this stage. 20.Similarly the contention of the learned counsel for the respondent based on certain letters said to have been written by the petitioner herein to the respondent company, cannot also be entertained as those letters were admittedly not filed along with the complaint and as such the same cannot be looked into by this Court. 21.The order of mine dated 6.12.2007 in Crl.O.P.Nos.27176 of 2007 and etc. batch of case has no relevance to the facts of this case. There the accused was also the signatory of the cheque and over and above that sufficient allegations specifying the requirements of section 141 of the Act had been made in the complaint itself and only on a consideration of those facts, those Criminal Original petitions were dismissed. Therefore, the said order is not applicable to the facts of this case. 22.For the aforesaid reasons, the above Criminal Original Petition is allowed and all further proceedings in C.C.No.3644 of 2006 on the file of the learned IX Metropolitan Magistrate are quashed in so far as the petitioner/third accused alone is concerned. Consequently, connected Miscellaneous Petition is closed. Sd/ Asst.Registrar /true copy/ Sub Asst.Registrar rpa To 1.IX Metropolitan Magistrate, Saidapet, Chennai. 2.-Do- Through The Chief Metropolitan Magistrate Egmore, Chennai-8 1 CC To Mr. Shivakumar, Advocate, SR NO.40706. Crl. O.P. No.5458 of 2008 jp(co) pmk/26.8.2008. https://hcservices.ecourts.gov.in/hcservices/