IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. Criminal Misc.45768-M of 2007 DATE OF DECISION : AUGUST 18, 2008 SHARWAN KUMAR ....... PETITIONER(S) VERSUS M/S VARDHMAN SPINNING AND GENERAL MILLS LIMITED .... RESPONDENT(S) CORAM : HON'BLE MR. JUSTICE AJAI LAMBA PRESENT: Mr. Jainainder Saini, Advocate, for the petitioner(s). Mr. RK Handa, Advocate, for the respondent. AJAI LAMBA, J. (Oral) This petition under Section 482, Code of Criminal Procedure, seeks quashing of complaint No.42/2 dated 9.3.2008 titled 'M/s Vardhman Spinning and General Mills Limited v. M/s Bhiwani Denim and Apparels Limited and others' under Section 138, Negotiable Instruments Act, 1881, (for short 'the Act') read with Section 420, Indian Penal Code (Annexure P- 1). While issuing notice of motion on 14.9.2007, the following was noticed:- “Learned counsel for the petitioner states that the Criminal Misc.45768-M of 2007 2 petitioner is only a Director in the company but is not in- charge of the affairs of the company nor is responsible for conduct of business of the company. It is also contended that there was a meeting between representatives of both the companies i.e. complainant and accused no.1 and minutes of the said meeting Annexure P-2 were also not signed by the petitioner nor he was present in that meeting. It is also contended that the impugned cheques were not signed by the petitioner. It is also contended that in the impugned complaint Annexure P-1, there are only general allegations that all the accused Nos.2 to 4 (including petitioner-accused No.4) were in-charge and responsible to the company for the conduct of its business.” Learned counsel for the respondent has referred to para-5 of the complaint (Annexure P-1), wherein it has been stated as under:- “5. All the accused are responsible for the offence committed as the person committing offence under Section1-38 of the Negotiable Instrument Act, is a Limited Company and all the accused no.2 to 4 at the time when the offence was committed,were incharge of the affairs of the company and were responsible to the company for conducting the business of the company. As such the accused no.2 to 4 as well as the accused no.1 shall be deemed to be guilty of the offence committed by them and are liable to be proceeded against and punished accordingly.” In the complaint, the petitioner is accused No.4. Learned counsel for the petitioner has pointed out that the petitioner as a Director of M/s Bhiwani Denim and Apparels Limited had approached the High Court of Himachal Pradesh at Simla in the context of another complaint. The issue involved in this petition was the precise issue that was placed before that Court for consideration. It has been held by the Himachal Pradesh High Court that the complaint under Section 138 of the Act and the summoning order passed by the Magistrate as against petitioners No.2 to 5 (that includes the petitioner), are quashed. Learned counsel for the respondent, however, has asserted that in that case there were no allegations whereas in the present case Criminal Misc.45768-M of 2007 3 there are allegations made against the petitioner. I have considered the entire controversy at issue. Other than the contents of the complaint reproduced above i.e. para-5, there is no allegation against the petitioner. It is not in dispute that the petitioner was not a signatory to the cheque. The judgment delivered by the High Court of Himachal Pradesh in Cr.M.M.No.76 of 2001 (Ram Lal Sahni and others v. State of H.P. and others) dated 21.5.2002 is relevant for consideration as it was the petitioner who had approached the Himachal Pradesh High Court for quashing of a complaint on identical grounds. The following needs to be noticed from the judgment:- “Dealing with the scope and ambit of Section 141 of the Act, the Hon'ble Supreme Court in Anil Hada v. Indian Acrylic Ltd. [(2000) 1 SCC 1] has held that the three categories of persons brought within the purview of penal liability through the legal fiction envisaged under Section 141, are:- (a) the company which committed the offence; (b) everyone who was in charge of and was responsible for the business of the company; and (c) any other person who is a director or officer of the company, with whose connivance or due to whose negligence the company has committed the offence. In Girdharilal Gupta & anr. v. D.N. Mehta, Collector of Customs & anr. [(1971) 3 SCR 748], the Hon'ble Supreme Court dealt with the provisions contained in Section 23c of the Foreign Exchange Regulation Act, 1947 which provisions are similar to the one contained in Section 141 of the Act. Dealing with the expression “a person in-charge of and was responsible to, the company for the conduct of the business of the company” appearing in the said provisions (which expression also appears in section 141 of the Act), it was held that in the context a person “in-charge” must mean that the person should be in over all control of the day to day business of the company or firms. Criminal Misc.45768-M of 2007 4 In Sham Sunder and others v. State of Haryana [AIR 1989 SC 1982] all the partners of a firm were prosecuted, convicted and sentenced for the offence under Section7 of the Essential Commodities Act, 1955. A contention was raised before the Hon'ble Supreme Court by the appellants therein (some of the partners of the firm) that there was no evidence adduced by the prosecution that the appellants were in-charge of the business of the partnership firm when the offence was committed and as such in the absence of such evidence the conviction and sentence of the appellants were bad and unsustainable. Dealing with the scope of Section 10 of the Essential Commodities Act, 1955 pertaining to “Offences by companies” the provisions of which are analogues to that of Section 141 of the Act, it was held that the person (partner) who was entrusted with the business of the firm and was responsible to the firm for the conduct of the business, could alone be prosecuted of the offence complained of. In the absence of evidence that the appellants were in any manner responsible to the firm for the conduct of business, they were acquitted of the offence charged against them. In Raj Kumar Mangla v. M/s Indo Lowenbrau Breweries Ltd. [1997(4) Crimes 180], a cheque issued by a partner of the firm was dishonoured. The firm and the two partners of the firm were sought to be prosecuted for the offence under Section 138 of the Act. The Magistrate after recording the preliminary evidence summoned all of them as accused. One of the partners approached the High Court of Punjab and Haryana under Section 482, Code of Criminal Procedure for quashing of the complaint and the order summoning him as accused. It was contended that there were no specific allegations against him that he was responsible to the firm in terms of Section 141 of the Act. It was observed in para 10 of the report as under:- “Reverting back to the facts of the present case, it is clear that as against the petitioner there was no averment or allegation that he was responsible to the partnership for conduct of the business. It was not alleged that he was in-charge of the partnership firm. There is not even a whisper that the offence was committed with the consent or connivance or any act which can be described as neglect on his part. .......” Again in State of Haryana v. Brij Lal Mittal and others [1998(5) SCC 343] dealing with Section 34 of the Drugs and Cosmetics Act, 1940, the provisions of which are analogous to the provisions contained in Section 141 of the Act, it was held by the Hon'ble Apex Court that the vicarious liability of Criminal Misc.45768-M of 2007 5 a person for being prosecuted for an offence committed by a company arises if at the material time he was in charge of and was responsible to the company for the conduct of its business. Simply because a person is a director of the company it does not necessarily mean that he fulfills both the requirements under the Section so as to make him liable. Conversely, without being a director, a person can be in- charge of and responsible to the company for the conduct of its business. [Emphasis supplied] Noticing that except a bald statement in the complaint that the respondents therein were directors of the company, there was no other allegation to indicate, even prima facie, that they were in-charge of the company and also responsible to the company for the conduct of its business, the complaint against the respondents therein was held liable to be quashed. In K.P.G. Nair v. M/s Jindal Menthol India Ltd. [JT 2000 (Suppl.) SC 519], dealing with the provisions of Section 141 of the Act, it was held by the Hon'ble Apex Court that a person, other than the company can be proceeded against under these provisions only if that person was in charge of and was responsible to the company for the conduct of its business. It was further held through the words of Section 141(1) of the Act need not be incorporated in a small complaint as magic words, the substance of the requirements of the ingredients of the said provision (for being proceeded against for an offence which he is alleged to have committed). Noticing that the allegations made in the complaint did not, either in express words or with reference to the allegations contained therein, make out a case that at the time of commission of the offence, the complaint was quashed. It is thus well settled that the vicarious liability of a person for being prosecuted for commission of an offence by a company arises only if at the time when the offence is alleged to have been committed, he was in charge of and was responsible to the company for the conduct of its business. It is necessary that there must be averment in the complaint that such person was in charge of and was also responsible to the company for the conduct of business of the company, or, that the offence was committed by the company his consent or connivance, or is attributable to any neglect on his part. If there is no such averment, there should be other material available before the Magistrate to indicate that such person was in charge of and was responsible to the company for the conduct of its business. Criminal Misc.45768-M of 2007 6 In the present case, petitioner No.7 is the Company itself. The cheques in question were issued by petitioner No.6 in his capacity of being the Managing Director of the Petitioner No.7 Company. Petitioner No.1 is the Chairman of the said Company. Necessary averments in this regard are found in the complaint. There is also evidence to this effect. Therefore, insofar as petitioners No.1 and 6 are concerned (who are accused/respondents No.2 and 3 before the learned Magistrate) in their capacity being the Chairman and Managing Director of the petitioner No.7 Company can be proceeded against along with the Company since they can be said to be responsible for day to day business of the Company. Insofar as petitioners No.2 to 5 (who are accused/respondents No.4, 7, 8 and 10, respectively, before the learned Magistrate) are concerned, a bare perusal of the complaint lodged by respondent No.2 Company before the Magistrate shows that except a bald statement in para 3 that they are the Directors of petitioner No.7 Company, there are no averments/allegations that the petitioners No.2 to 5 were in charge of and responsible to the Company for the conduct of its day to day business or that the offence was committed by the petitioner No.7 Company with the consent and connivance of the petitioners No.2 to 5 or that the same was attributable to any act of neglect on their part. So much so, the Chief Manager Shri Arvind Gupta of the respondent No.2 Company under Section 202, Code of Criminal Procedure, also has not stated even a word in this regard. Nor any other material is available on the record in this regard. Merely because petitioner No.7 Company, they cannot be held vicariously liable and as such the complaint as against them as well as the order dated 2.11.1998 of the learned Magistrate summoning them to face trial for the offence under Section 138 of the Act, are liable to be quashed.” In view of the facts that, admittedly, the petitioner was not a signatory to the cheque; there is no specific averment in the complaint and no material has been placed on the record to indicate that the petitioner was in-charge of the affairs of the company or was responsible for the conduct of the business of the company; the petitioner had not signed the minutes of meeting (Annexure P-2) and the High Court of Himachal Pradesh has considered an identical issue in the context of the petitioner Criminal Misc.45768-M of 2007 7 being in-charge of the affairs of the company, this petition is allowed. The complaint (Annexure P-1) is quashed qua the petitioner. August 18, 2008 ( AJAI LAMBA ) Kang JUDGE