1 1342.10-wp-- IN THE HIGH COURT OF JUDICATURE AT BOMBAY. APPELLATE JURISDICTION. CRIMINAL WRIT PETITION NO. 1342 OF 2010 WITH CRIMINAL WRIT PETITION NO. 1343 OF 2010 WITH CRIMINAL WRIT PETITION NO. 1344 OF 2010 WITH CRIMINAL WRIT PETITION NO. 1345 OF 2010 WITH CRIMINAL WRIT PETITION NO. 1346 OF 2010 WITH CRIMINAL WRIT PETITION NO. 1347 OF 2010 WITH CRIMINAL WRIT PETITION NO. 1348 OF 2010 Parag Bhikhalal Tejani. ... Petitioner. V/s. State of Maharashtra and another. ... Respondents. WITH CRIMINAL WRIT PETITION NO. 2033 OF 2010 WITH CRIMINAL WRIT PETITION NO. 2035 OF 2010 WITH CRIMINAL WRIT PETITION NO. 2036 OF 2010 WITH CRIMINAL WRIT PETITION NO. 2037 OF 2010 WITH CRIMINAL WRIT PETITION NO. 2038 OF 2010 WITH CRIMINAL WRIT PETITION NO. 2039 OF 2010 WITH CRIMINAL WRIT PETITION NO. 2040 OF 2010 WITH CRIMINAL WRIT PETITION NO. 2041 OF 2010 WITH Mr.Rohit Dave. ... Petitioner. V/s. State of Maharashtra and another. ... Respondents. 2 1342.10-wp-- S.V.Kotwal with K.S.Vardhan, Sapna Rachure i/b. T.N.Tripathi & Co. for the petitioners. Mrs.M.R.Tidke, APP for respondent No.1- State. Yashpal Thakur i/b. Paras Kuhad for respondent No.2. CORAM: B.R.GAVAI, J. DATED : 17th June 2011. ORAL JUDGMENT : Rule. Rule is made returnable forthwith. Heard by consent of parties. 2. The respondent No.2- complainant is common in all these cases. In Writ Petition Nos.1342/2010 to 1348/2010, the complaint has been filed by the complainant for the offence punishable under section 138 of the Negotiable Instruments Act (“N.I.Act” for short) against M/s.Elite International Pvt.Ltd. of which the present petitioner is Director, and as such arrayed as accused in the complaint. 3. In Writ Petition No.2033/2010 with Writ Petition Nos.2035 to 2041/2010 the complaint has been filed by the complainant against M/s.Vedic Cotton Limited. It is the allegation of the complainant that the petitioner herein is a Director of accused No.1. However, it is disputed by the petitioner contending that the petitioner had resigned on 11th September 2008. However, in view of the view that I am taking in the present matter, I do not find it necessary to go into that controversy. 3 1342.10-wp-- 4. The basic contention of the petitioners is that the petitioners are sought to be implicated in the complaint by invoking provision of vicarious liability under section 141 of the N.I.Act. It is contended that the averments necessary for fastening the petitioners with criminal liability under section 141 as mandated by the Apex Court in various pronouncements have not been made in the complaint and, as such, the complaint is liable to be quashed. 5. Shri Kotwal, learned counsel for the petitioners submits that merely alleging that the Director was in-charge of the affairs of the company at the relevant time is not sufficient enough to fasten a vicarious liability upon a Director of the company unless a specific role of such a Director is placed on record of the complaint. Learned counsel relies on the judgment of the Apex Court in the case of S.M.S.Pharmaceuticals Ltd. v. Neeta Bhalla, 2005 (8) SCC 89 : 2005 AIR 3512 (SC); N.K.Wahi v. Shekhar Singh, (2007) 9 SCC 481; Ramrajsingh v. State of M.P., 2009 (6) SCC 729; and National Small Industries Corpn.Ltd. v. Harmeet Singh Paintal, (2010) 3 SCC 330. 6. Shri Yashpal Thakur, learned counsel appearing on behalf of respondent No.2, on the contrary, submits that the averments necessary to implicate the Director have been made in the complaint. He submits that the learned single Judge of this Court (Kanade, J.) in the case of Mrs.Pooja Ravinder Devidasani v. State of Maharashtra (Criminal Writ Petition No.614/2010 along 4 1342.10-wp-- with other writ petitions decided on 6th October 2010), who was also the Director of M/s.Elite International Pvt.Ltd., has held that the averments made in the complaint were sufficient enough to fasten the liability upon the Director and to proceed further with the case against the said Director under section 138 of the N.I.Act. He submits that the averments made in the present case are identical with the averments in the said cases. He submits that the learned single Judge of this Court while considering all the judgments of the Apex Court, on the issue, has taken the said view and, therefore, on this short ground the present petitions are also liable to be dismissed. Learned counsel also relies on the judgment of the same learned single Judge in the case of Rajiv Banga v. L & T Finance Company Ltd. (Criminal Writ Petition No.1238/2010 decided on 3rd December 2010) and the recent judgment of the Apex Court in the case of Rallys India Ltd. v. Poduru Vidya Bhusan (Criminal Appeal No.924/2011 decided on 13th April 2011). He submits that the Apex Court in the said case has found that the averments like the one, made in the present complaint, were sufficient enough to proceed against the director or the partner of the company, in view of the provisions of section 141 of the N.I.Act. He, therefore, submits that the said judgment, which is the last word of the Apex Court, would bind this Court and, in view of the said judgment, this Court should dismiss the present petitions. 7. Section 141 of the N.I.Act reads thus: “141. Offences by companies. - (1) If the person committing an offence under 5 1342.10-wp-- 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. (2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable o be proceeded against and punished accordingly. Explanation.- For the purposes of this section.- (a) 'company' means any body corporate and includes a firm or other association of individuals; and (b) 'director', in relation to firm, means a partner in the firm.” 6 1342.10-wp-- 8. The Apex Court in the case of S.M.S.Pharmaceuticals Ltd. (supra) had an occasion to consider the scope of section 141. The Apex Court observed thus in paragraph Nos.9 to 14 : “9. The officers responsible for conducting affairs of companies are generally referred to as Directors, Managers, Secretaries, Managing Directors etc. What is required to be considered is: is it sufficient to simply state in a complaint that a particular person was a Director of the Company at the time the offence was committed and nothing more is required to be said? For this, it may be worthwhile to notice the role of a director in a company. The word 'director' is defined in Section 2(13) of the Companies Act, 1956 as under: “director” includes any person occupying the position of director, by whatsoever name called”; 10. There is a whole chapter in the Companies Act on Directors, which is Chapter 11. Sections 291 to 293 refer to powers of Board of Directors. A perusal of these provisions shows that what a Board of Directors is empowered to do in relation to a particular company depends upon the role of functions assigned to Directors as per the Memorandum and Articles of Association of the company. There is nothing which suggests that simply by being a Director in a Company, one is supposed to discharge particular functions on behalf of a company. It happens that a person may be a Director in a company but he may not know anything about day-to-day functioning of the company. As a Director he may be attending meetings of the Board of Directors of the company where usually they decide policy matters and guide the course of business of a company. It may be that a board of Directors may appoint sub- 7 1342.10-wp-- committees consisting of one or two Directors out of the Board of the company who may be made responsible for day-to-day function of the Company. These are matters which form part of resolutions of Board of Directors of a Company. Nothing is oral. What emerges from this is that the role of a Director in a company is a question of fact depending on the peculiar facts in each case. There is no universal rule that a Director of a company is in charge of its everyday affairs. We have discussed about the position of a Director in a company in order to illustrate the point that there is no magic as such in a particular word, be it Director, Manager or Secretary. It all depends upon respective roles assigned to the offices in a company. A company may have Managers or Secretaries for different departments, which means, it may have more than one Manager or Secretary. These officers may also be authorized to issue cheques under their signatures with respect to affairs of their respective departments. Will it be possible to prosecute a Secretary of Department-B regarding a cheque issued by the Secretary of Department-A which is dishonoured? The Secretary of Department- B may not be knowing anything about issuance of the cheque in question. Therefore, mere use of a particular designation of an officer without more, may not be enough by way of an averment in a complaint. When the requirement in Section 141, which extends the liability to officers of a company, is that such a person should be in charge of and responsible to the company for conduct of business of the company, how can a person be subjected to liability of criminal prosecution without it being averred in the complaint that he satisfies those requirements? Not every person connected with a Company is made liable under Section 141. Liability is cast on persons who may have something to do with the transaction complained of. A persons who is in charge of and responsible for 8 1342.10-wp-- conduct of business of a Company would naturally know why the cheque in question was issued and why it got dishonoured. 11. The position of a Managing Director or a Joint Managing Director in a company may be different. These persons, as the designation of their office suggests, are in charge of a company and are responsible for the conduct of the business of the company. In order to escape liability such persons may have to bring their case within the proviso to Section 141(1), that is, they will have to prove that when the offence was committed they had no knowledge of the offence or that they exercised all due diligence to prevent the commission of the offence. 12. While analysing Section 141 of the Act, it will be seen that it operates in cases where an offence under Section 138 is committed by a company. The key words which occur in the Section are “every person”. These are general words and take every person connected with a company within their sweep. Therefore, these words have been rightly qualified by use of the words “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 s the company, shall be deemed to be guilty of the offence etc.” 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 conduct of 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 9 1342.10-wp-- 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 conduct of business of the company at the relevant time when the offence was committed and not on the basis of merely holding a designation of 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 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 connected with the commission of a crime at the relevant time have been subjected to action. 13. 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 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 attributable 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 Director, Managers, Secretaries and other officers of a company to cover them in cases of their proved involvement. 10 1342.10-wp-- 14. 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 in a company. Therefore, in order to bring a case within Section 141 of the Act the complaint must disclose the necessary fact which make a person liable. 9. After considering various earlier judgments, the Apex Court observed thus in paragraph Nos.19 and 20 : 19. To sum up, there is almost unanimous judicial opinion that necessary averments ought to be contained in a complaint before a persons can be subjected to criminal process. A Liability under Section 141 of the Act is sought to be fastened vicariously on a person connected with a Company, the principal accused being the company itself. It is departure from the rule in criminal law against vicarious liability. A clear case should be spelled out in the complaint against the person sought to be made liable. Section 141 of the Act contains the requirements for making a person liable under the said provision. That respondent falls within parameters of Section 141 has to be spelled out. A complaint has to be examined by the Magistrate in the first instance on the basis of averments contained therein. If the Magistrate is satisfied that there are averments which bring the case within Section 141 he would issue the process. We have seen that merely being described as a Director in a company is not sufficient to satisfy the requirement of Section 141. Even a non director can be liable under Section 141 of the Act. The averments in the complaint would also serve the purpose that the person sought 11 1342.10-wp-- to be made liable would know what is the case which is alleged against him. This will enable him to meet the case at the trial. 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 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 12 1342.10-wp-- 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. 10. It can, thus, clearly be seen that the Apex Court has clearly distinguished the cases of Managing Director and Joint Managing Director on one hand and the other Directors on the other hand. It has been held that the Managing Director or the Joint Managing Director since are the persons in charge of the business of the company they get covered under section 141. By virtue of their designation or the office, they are in charge of and responsible for the conduct of the business of the company. It has been held that in order to escape liability such persons will have to prove that when the offence was committed they had no knowledge of the said offence. However, so far as other Directors are concerned, the Apex Court found that there is no universal rule that a Director of a company is in charge of its everyday affairs. It has been held that it all depends upon the role assigned to such a Director. It has been further held by the Apex Court that every person connected with the company cannot be made liable under section 141. The liability can be fastened only on such persons who have something to do with the transactions complained of. It has clearly been held by the Apex Court that in order to bring the case within the ambit of section 141 of the N.I.Act the 13 1342.10-wp-- complaint must disclose the necessary facts which make the person liable. 11. The Apex Court in the case of N.K.Wahi v. Shekhar Singh (supra) also had an occasion to consider the said issue. In the said case also, the High Court had held that there was no clear averment or evidence to show that the respondents therein were in charge of or responsible to the conduct of business of the company and, as such, the proceedings were quashed. An appeal was carried to the Apex Court and in the said appeal, the Apex Court observed thus : “8. To launch a prosecution, therefore, against the alleged Directors there must be a specific allegation in the complaint as to the part played by them in the transaction. There should be clear and unambiguous allegation as to how the Directors are in-charge and responsible for the conduct of the business of the company. The description should be clear. It is true that precise words from the provisions of the Act need not be reproduced and the court can always come to a conclusion in facts of each case. But still, in the absence of any averment or specific evidence the net result would be that complaint would not be entertainable. (emphasis supplied) 12. It can, thus, clearly be seen that the Apex Court in unequivocal terms has held that to launch a prosecution against the alleged Director there must be a specific allegation in the complaint as to the part played by him in the transaction. It has been held that 14 1342.10-wp-- there should be clear and unambiguous allegation as to how the Director is in charge and responsible for the conduct of the business of the company. It has been held that the description must be clear. 13. A Bench of three Hon'ble Judges of the Apex Court in the case of Ramrajsingh v. State of M.P. (supra) had an occasion to consider these two judgments and the bench of three Hon'ble Judges of the Apex Court reaffirmed the view taken by the earlier two benches in the cases of S.M.S.Pharmaceuticals Ltd. v. Neeta Bhalla, and N.K.Wahi v. Shekhar Singh (cited supra) . 14. In the recent judgment in the case of National Small Industries Corpn.Ltd. (supra), the Apex Court had reconsidered the issue and observed thus in paragraphs 10 and 11 : 13. Section 141 is a penal provision creating vicarious liability, and which, as per settled law, must be strictly construed. It is therefore, not sufficient to make a bald cursory statement in a complaint that the Director (arrayed as an accused) is in charge of and responsible to the company for the conduct of the business of the company without anything more as to the role of the Director . But the complaint should spell out as to how and in what manner Respondent No.1 was in- charge of or was responsible to the accused company for the conduct of its business. This is in consonance with strict interpretation of penal statutes, especially, where such statutes create vicarious liability. 14. A company may have a number of Directors and to make any or all the Directors as accused in a complaint merely 15 1342.10-wp-- on the basis of a statement that they are in-charge of and responsible for the conduct of the business of the company without anything more is not a sufficient or adequate fulfillment of the requirements under Section 141. 15) In a catena of decisions, this Court has held that for making Directors liable for the offences committed by the company under Section 141 of the Act, there must be specific averments against the Directors, showing as to how and in what manner the Directors were responsible for the conduct of the business of the company. (emphasis supplied) 15. The Apex Court, after considering the relevant provisions of the Companies Act, observed