HON’BLE SRI JUSTICE N. RAVI SHANKAR CRIMINAL PETITION No.4682 of 2​008 ORDER:- The petitioner herein is the third accused (A3) in a criminal case i.e. C.C.No.172 of 2003 on the file of the Court of the II Metropolitan Magistrate, Hyderabad. He filed this petition under Section 482 of the Code of Criminal Procedure (for short ‘Cr.P.C’) to quash the proceedings against him in the said criminal case. 2. The first respondent herein which is a private limited company is the complainant in the aforesaid C.C.No.172 of 2003 and it filed the same alleging an offence punishable under Section 138 read with Section 142 of the Negotiable Instruments Act 1881 (for short ‘Act’) against the petitioner and respondents 2 and 3 herein. The allegations made in the complaint are that the petitioner and the third respondent herein are partners of the second respondent partnership firm and that in connection with a subsisting liability the third respondent Umakanth Agarwal issued six cheques for various amounts aggregating to Rs.18 lakhs on behalf of the said firm in favour of the complainant drawn on Agroha Co-operative Urban Bank Limited, Ricob Gunj, Hyderabad and that the said cheques when presented for encashment were dishonoured with the endorsement “payment stopped by drawer”. The learned Magistrate after examining the complaint took cognizance of it as C.C.No.172 of 2003 on his file for the above offences and issued process to the petitioner, his partnership firm and the other partner i.e. Umakanth Agarwal who is the third respondent herein. It is then stated in the complaint that the petitioner and the third respondent are active partners of their partnership firm M/s. Paro Food Products which is the first accused in the case and therefore all the three them are liable for the offence punishable under Section 138 read with Section 142 of the Act. 3. The contention of the petitioner herein is that in the whole complaint nothing is averred or stated against him in so many words as required by Section 141 of the Act that at the time when the cheques in question were issued he was also in charge of and was responsible for the conduct of business of the partnership firm and also to the said partnership firm and therefore the complaint or the criminal case against him is defective inasmuch as it does not disclose his role in the business of the partnership firm and consequently the proceedings in the said criminal case against him are bad and should be quashed. This is the only contention or ground upon which this criminal petition is filed. Sri Sharad Sanghi, the learned counsel for the petitioner in support of this contention relied upon two decisions of the Apex Court given in S.M.S. PHARMACEUTICALS LTD. vs. NEETA BHALLA[1] and another given in SAROJ KUMAR PODDAR vs. STATE (NCT OF DELHI)[2] and this latter decision was given following the earlier decision in S.M.S.PHARMACEUTICALS LTD’s case (1 supra). Both these decisions relate to prosecution of companied and its directors as contemplated under Section 141 of the Act. 4. Elaborating on the above contention Sri Sanghi pointed out that Section 141 of the Act which deals with prosecution of companies for the offence under Section 138 of the Act covers a partnership firm and its partners also and since the petitioner did not admittedly issue the cheques in question, he would not be personally liable for the alleged offence but he may be held vicariously liable as a partner only if it is pleaded in the complaint that he was in charge of the conduct of the business of the partnership firm in question as contemplated under Section 141 of the Act and since it is not pleaded so in the complaint as required by Section 141 of the Act the proceedings against him should be quashed. His plea is that this is the principle laid down in the aforesaid two decisions relied upon by him. 5. Now to appreciate the plea of the petitioner and the contention of his counsel Sri Sanghi it would be necessary to look into Section 141 of the Act and the relevant portions in it read as follows. “141. Offences by Companies.---(1) If the person committing an offence under 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. …………… (2) ………………… 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 a firm, means a partner in the firm.” 6. A perusal of Section 141 of the Act shows that it deals with prosecution of companies and directors or other connected with such companies for the offence punishable under Section 138 of the Act. Further in the Explanation to Section 141 of the Act it is stated that the expression “company” also includes a firm and similarly the expression “director” in relation to a firm means a partner of the firm. Thus Section 141 of the Act applies to partnership firms and its partners also. Section 141(1) of the Act says that when the offence under Section 138 of the Act is alleged against a company, then every person who at the time the offence was committed was in charge of and was responsible to the company for the conduct of its business and as well as to the company shall be deemed to be guilty of that offence. The plea of the petitioner is that the averments in the complaint would show that he has been arrayed as the third accused in the case on the plea that he happens to be an active partner of the firm and there are no specific averments in the complaint that he was in charge of its business and was responsible for the conduct of the business of the firm and to the firm as stipulated in Section 141 of the Act and consequently the proceedings against him should be quashed. 7. On the other hand Sri Srinivasa Reddy the learned counsel appearing for the first respondent i.e. the complainant in the above criminal case argued that the allegations in the complaint read as a whole would indicate that requirement of Section 141 of the Act are complied with and placed reliance upon two other decisions of the Apex Court i.e. one given in STATE OF PUNJAB VS. KASTURI LAL[3] and the other given in VENKATESHWARAN vs. SINGARAVEL YARN TRADERS[4] in support of his contention that the question raised by the petitioner should be allowed to be decided only on evidence in the trial in the criminal case and therefore this Court cannot having regard to the averments in the complaint go into the pleas of the petitioner in this petition at the threshold and consequently this criminal petition should be dismissed. 8. To decide the above rival contentions of both sides, the relevant averments in the complaint have to be looked into and they are contained in para-7 of the complaint and it reads as follows. “The complainant submits that the issuance of the said cheques by the accused, dishonour of the same on 10-04- 2003, issuance of the notice on 22-04-2003, the receipt of the said notice on 23-04-2003 by the accused, the non-payment of the cheque amounts of Rs.18,00,000/- (Rupees Eighteen Lakhs) by the accused within 15 days from the receipt of the notice of dishonour constitutes an offence punishable under section 138 of the Negotiable Instruments Act and the accused having committed the above mentioned offence are liable for punishment as per the provisions of the Act. The Complainant submits that the accused NO: 1 is a partnership firm and the accused NO:2 and 3 are the partners of the accused NO: 1 and are active participants in the business of the firm and the accused NO: 2 is the signatory of the cheques in question and thus all the accused are liable for prosecution and punishment for having committed an offence punishable under section 138 of N I Act.” 9. It may be noted that a perusal of para-7 of the complaint would show that nothing is mentioned in the complaint that the petitioner herein was at the time or on the date of issuance of the cheques in question which were dishonoured was in charge of and was responsible to the partnership firm for the conduct of the business of the said firm except stating that the petitioner was also an active partner of the said firm. It is basing on this lapse Sri Sanghi says that the complaint against the petitioner should be quashed basing on the proposition of law laid down in S.M.S.PHARMACEUTICALS LTD’s case (1 supra). In the said case a two-Judge Bench of the Apex Court referred the following three questions for a decision by the larger Bench (i.e. of three honourable Judges) and those questions are as follows. "(a) Whether for purposes of Section 141 of the Negotiable Instruments Act, 1881, it is sufficient if the substance of the allegation read as a whole fulfill the requirements of the said section and it is not necessary to specifically state in the complaint that the persons accused were in charge of, or responsible for, the conduct of the business of the company. (b) Whether a director of a company would be deemed to be in charge of, and responsible to, the company for conduct of the business of the company and, therefore, deemed to be guilty of the offence unless he proves to the contrary. (c) Even if it is held that specific averments are necessary, whether in the absence of such averments the signatory of the cheque and or the Managing Directors of Joint Managing Director who admittedly would be in charge of the company and responsible to the company for conduct of its business could be proceeded against." 10. Of the above three questions the answers of the larger Bench to the questions (a) and (b) would be relevant here. The above mentioned question (a) referred by the Division Bench is whether it is sufficient if the substance of the allegations read as a whole fulfil or answer the requirements of Section 141 of the Act and it is not necessary to specifically state in the complaint that the person accused of was in charge of or responsible for the conduct of the business of the company. It is thus clear that the Division Bench was seeking a clarification whether it is necessary to reproduce the language of Section 141 of the Act in the complaint. This assumes importance. After considering the provisions relating to prosecution of companies especially with reference to the one contained in Section 141 of the Act and after discussing the previous case law on the point and the liability of directors of a limited company for an offence under Section 138 of the Act, the Apex Court answered the question (a) referred to supra and that answer along with answers to other questions are contained in para-20 of the judgment in the said case and they read 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 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.” 11. Thus from the answer to question (a) given by the larger Bench in the aforesaid case as to how a complaint should be drafted for prosecuting a company and its director for the offence under Section 138 of the Act it is clear that it is necessary and essential for the complainant to specifically aver in the complaint that at the time of the commission of that offence the director arrayed as accused was in charge of, and was responsible to, the company for the conduct of the business of the company and that this averment is a requirement under Section 141 of the Act and has to be made and without such averment being made the requirement of Section 141 of the Act cannot be said to be satisfied or complied with. This proposition squarely meets the argument of the learned counsel for the first respondent that if the allegations in the complaint read as a whole indicate the complicity of a partner for the offence under Section 141 of the Act that is enough to allow the trial to go on and that reproduction of the language in Section 141 of the Act is not necessary and consequently the said argument has to be rejected. 12. So far as question (b) is concerned it is connected to question (a) and it says that a director cannot be prosecuted merely because he happens to be a director. With regard to the liability of the signatory of the cheque for the offence under Section 138 of the Act it is laid down that such signatory ipso facto becomes liable for prosecution because of the issuance of the cheque. 13. In the present case so far as the petitioner is concerned it is the answer to the question (a) which is relevant. In the present complaint as already seen supra there are no averments to the effect that the petitioner has been looking after the business of the partnership firm which is also included in the definition of the “company” under Section 141 of the Act and that he was responsible for the conduct of its business. Except making an averment that the petitioner is also an active partner of the business of his partnership firm no specific averments are made as held in the above decision of the Apex Court to satisfy the requirements of Section 141 of the Act. 14. The learned counsel for the first respondent/ complainant pointed out that in the present case the second respondent is a partnership firm of which the petitioner and the third respondent are partners and that the above decision in S.M.S.PHARMACEUTICALS LTD’s case (1 supra) must be understood to have been given in the context of a company where there may be many directors or other officers and therefore the said decision cannot be applied to a partnership firm. His further contention is that since all the partners must be deemed to be the agents of the firm under the provisions of the Partnership Act each partner must be held to be responsible for the conduct of the business of the firm and therefore even in the absence of specific averments in the complaint as required by Section 141 of the Act the complaint against petitioner herein also must be held to be maintainable and his liability must be held to be decided by the trial Court. 15. He also pointed out that in S.M.S.PHARMACEUTICALS LTD’s case (1 supra) the Apex Court did not expressly lay down that a prosecution against a director of the company should be quashed as the consequence of non-complying with the requirement of Section 141 of the Act with regard to the averments to be made in the complaint and therefore the present case against the petitioner cannot be quashed. As will be presently seen there is no force in these contentions. 16. The two decisions namely KASTURI LAL’s case (3 supra) and VENKATESHWARAN’s case (4 supra) relied upon by the first respondent’s counsel are not on the point and they do not deal with the necessity of complying with the requirements of Section 141 of the Act as laid down in S.M.S.PHARMACEUTICALS LTD’s case (1 supra) which is binding on this Court. No other decision has been brought to my notice to conclude that this Court need not follow the rule laid down in S.M.S.PHARMACEUTICALS LTD’s case (1 supra). 17. It is true that in S.M.S.PHARMACEUTICALS LTD’s case (1 supra) the Apex Court was dealing with a limited company and its directors but not a partnership firm, but yet their lordships dealt with the scope of Section 141 of the Act and the requirements therein and expressly laid down that in order to prosecute a director of a company it should be specifically averred in the complaint that such director was at the time of commission of the offence was conducting the business of the company and was responsible for its business. This principle equally applies to a partnership firm as the Explanation to Section 141 of the Act says that a “company” includes a partnership firm and further the expression “director” includes a partner of a firm. 18. Then coming to the argument that since the Apex Court did not say expressly that where the requirements of Section 141 of the Act are not complied with, the proceedings should be quashed it does not follow that the petitioner’s case should be upheld cannot also be accepted. It may be noted that the Apex Court in the S.M.S. PHARMACEUTICALS LTD’s case (1 supra) expressly laid down that while instituting a prosecution against a “company” which expression includes a partnership firm and a “director” which expression includes a partner of a firm under Section 141 of the Act, the requirements therein should be complied with by making specific averments as laid down in the said section and that non-compliance with the same would not meet the requirements of Section 141 of the Act, it has to necessarily follow that consequence of non-compliance with Section 141 of the Act must result in the dismissal of the complaint against such accused at the threshold or when instituted the proceedings against such accused should be quashed. 19. Then coming to the argument of the learned counsel for the first respondent based on the law relating to partnership firms, it is true that under the Partnership Act every partner is an agent of the firm but here is a case where a partner who has not issued the cheques is sought to be prosecuted for the offence under Section 141 of the Act. In other words, he is sought to be made vicariously liable for a criminal offence under Section 141 of the Act. It may be true that he may be liable in a civil action for recovery of the amount covered by the cheques but so far as criminal offence is concerned even a partner who has not issued the cheques can be made vicariously liable only if it is pleaded and proved that he was also responsible for the business of the firm in which case alone he can be attributed with the knowledge that the cheques issued may be dishonoured. In fact in S.M.S. PHARMACEUTICALS LTD’s case (1 supra) it has been laid down that in order to make a director who has not issued the cheque liable it should be specifically pleaded about the requirements of Section 141 of the Act in order to make him know what the case is against him so as to meet it and defend himself. The same principle equally applies to a partner who has not issued the cheque. Therefore the contention of the first respondent’s counsel that a partner being an agent of the firm can be directly made liable for the offence under Section 138 of the Act without making the specific averments against him which are required to be made by Section 141 of the Act cannot be accepted. 20. Dealing with the consequence of such non-compliance it has been held in SAROJ KUMAR PODDAR’s case (2 supra) that the same would be fatal and then it has to be treated as a case where even if the allegations are believed to be true they do not disclose an offence against such director and in that view of the matter the Apex Court was pleased to quash the proceedings in the aforesaid case. The same rule has to be followed in the present case also though this is a case of a partnership firm and one of its partners who is the petitioner herein. 21. Accordingly for the aforesaid reasons the objections of the petitioner for the prosecution against him are upheld and the proceedings against him in the said case i.e. C.C.No.172 of 2003 on the file of the Court of the II Metropolitan Magistrate, Hyderabad are quashed. This Criminal Petition is accordingly allowed. 22. It is however made clear that this order shall not be understood to preclude the Court trying the present criminal case from proceeding under Section 319 Cr.P.C or any other suitable provision of law against the petitioner in case at a subsequent stage evidence is forthcoming to show that the petitioner is also guilty of the offence in question. ______________________ N. RAVI SHANKAR, J 30th March 2011 CVRK [1] AIR 2005 SC 3512 [2] AIR 2007 SCW 656 [3] (2004) 12 SCC 195 [4] (2009) 16 SCC 757