IN THE HIGH COURT OF JUDICATURE OF ANDHRAPRADESH AT HYDERABAD HONOURABLE SRI JUSTICE SAMUDRALA GOVINDARAJULU CRIMINAL PETITION Nos.6149, 6151, 7150, 7811, 7812, 7815, 7816, 7822, 7824, 7827 & 7828 OF 2009 DATE:01.02.2011 CRIMINAL PETITION No.6149 of 2009 Between: Sri V.N.Sunanda Reddy …… Petitioner And M/s.Sri Vasavi Chemical Corporation and another …..Respondents CRIMINAL PETITION No.6151 of 2009 Between: Sri V.N.Sunanda Reddy …… Petitioner And M/s.Sri Vasavi Chemical Corporation and another …..Respondents CRIMINAL PETITION No.7150 of 2009 Between: Sri V.N.Sunanda Reddy …… Petitioner And M/s.Pravesha Industries Pvt. Ltd, and another …..Respondents CRIMINAL PETITION No.7811 of 2009 Between: Sri V.N.Sunanda Reddy …… Petitioner And M/s.Aurobindo Pharma Ltd, and another …..Respondents CRIMINAL PETITION No.7812 of 2009 Between: Sri V.N.Sunanda Reddy …… Petitioner And M/s. Aurobindo Pharma Ltd, and another …..Respondents CRIMINAL PETITION No.7815 of 2009 Between: Sri V.N.Sunanda Reddy …… Petitioner And M/s. Aurobindo Pharma Ltd another …..Respondents CRIMINAL PETITION No.7816 of 2009 Between: Sri V.N.Sunanda Reddy …… Petitioner And M/s. Aurobindo Pharma Ltd another …..Respondents CRIMINAL PETITION No.7822 of 2009 Between: Sri V.N.Sunanda Reddy …… Petitioner And M/s. Aurobindo Pharma Ltd another ….Respondents CRIMINAL PETITION No.7824 of 2009 Between: Sri V.N.Sunanda Reddy …… Petitioner And M/s. Aurobindo Pharma Ltd another …..Respondents CRIMINAL PETITION No.7827 of 2009 Between: Sri V.N.Sunanda Reddy …… Petitioner And M/s. Aurobindo Pharma Ltd another …..Respondents CRIMINAL PETITION No.7828 of 2009 Between: Sri V.N.Sunanda Reddy …… Petitioner And M/s. Aurobindo Pharma Ltd another …..Respondents HONOURABLE SRI JUSTICE SAMUDRALA GOVINDARAJULU CRIMINAL PETITION Nos.6149, 6151, 7150, 7811, 7812, 7815, 7816, 7822, 7824, 7827 & 7828 OF 2009 COMMON ORDER : In this batch of 11 Criminal Petitions, the petitioner who is the 2nd accused/A-2 in some criminal cases and the 12th accused/A- 12 in some cases, is accused of offences punishable under Section 138 of the Negotiable Instruments Act (in short, the Act). The 1st respondent in these criminal petitions happened to be the complainants who filed private complaints in the respective Courts alleging the above offences against the petitioner and others. The petitioner as Managing Director and authorised signatory of M/s.S.S. Organics Limited had drawn the respective cheques on behalf of the said company in favour of the respective complainants towards value of certain chemicals purchased from the respective complainants. As the cheques drawn by the petitioner as Managing Director and authorised signatory of M/s.S.S. Organics Limited were dishonoured, the petitioner as well as M/s.S.S. Organics Limited along with others landed in criminal Courts as accused persons. 2) The petitioner seeks in these petitions quashing of 11 private complaints filed against him on the ground that the respective complainants did not make out the offence under Section 138 of the Act against him. It is contended on behalf of the petitioner that the petitioner was not in-charge of and responsible to the company for the conduct of business of the company at the relevant point of time and that therefore, the petitioner cannot be prosecuted for offences punishable under Section 138 of the Act. 3) Section 141 of the Act deals with offences by companies; and relevant Sub-Section (1) thereof reads 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.” The petitioner is not claiming any relief in these criminal petitions basing on any of the two provisos contained therein. It is his contention that he ceased to be Managing Director of M/s.S.S. Organics Limited on 20.10.2006 and that therefore, it cannot be said that he was in-charge of and was responsible to the company for conduct of its business “at the time when the offence was committed” as contemplated under Section 141(1) of the Act. It is further contended by the petitioner’s counsel that as per relevant provisions of the Act and case law on the subject, mere drawing of cheque and/or dishonour of cheque are not the only criteria to constitute an offence under Section 138 of the Act. 4) In K.Bhaskaran V. Sankaran Vaidhyan Balan[1], the Supreme Court noted five components which constitute an offence under Section 138 of the Act by observing as follows: “14. The offence under Section 138 of the Act can be completed only with the con-catenation of a number of acts. Following are the acts which are components of the said offence : (1) Drawing of the cheque, (2) Presentation of the cheque to the bank, (3) Returning the cheque unpaid by the drawee bank, (4) Giving notice in writing to the drawer of the cheque demanding payment of the cheque amount, (5) failure of the drawer to make payment within 15 days of the receipt of the notice.” In Jugesh Sehgal V. Shamsher Singh Gogi[2], the Supreme Court culled out six ingredients to constitute an offence under Section 138 of the Act and further observed that those ingredients are cumulative. The relevant observations of the Supreme Court therein are: “13. It is manifest that to constitute an offence under Section 138 of the Act, the following ingredients are required to be fulfilled: (i) a person must have drawn a cheque on an account maintained by him in a bank for payment of a certain amount of money to another person from out of that account; (ii) The cheque should have been issued for the discharge, in whole or in part, of any debt or other liability; (iii) that cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity whichever is earlier; (iv) that cheque is returned by the bank unpaid, either because of the amount of money standing to the credit of the account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with the bank; (v) the payee or the holder in due course of the cheque makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within 15 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; (vi) the drawer of such cheque fails to make payment of the said amount of money to the payee or the holder in due course of the cheque within 15 days of the receipt of the said notice;” In D.C.M. Financial Services Limited V. J.N.Sareen[3], the Supreme Court quoted observations made in its earlier decision in S.M.S. Pharmaceuticals Ltd., V. Neeta Bhalla[4] with approval to the effect that the persons who are 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 its business and that every person connected with the company shall not fall within the ambit of this provision and that it is only those persons who were in-charge of and responsible for the conduct of business of the company at the relevant time will be liable for criminal action. Reliance was also placed on K.Srikanth Singh V. North East Securities Ltd.,[5] wherein the Supreme Court observed that for showing a vicarious liability of a Director of a company upon the complaint alleging offence under Section 138 of the Act, it is incumbent to plead that the accused was responsible to the company for the conduct of its business. 5) On the other hand, the 1st respondent’s counsel placing reliance on several pronouncements of the Supreme Court contended that a Managing Director of a company and signatory of the dishonoured cheque cannot escape from criminal liability under Section 138 of the Act. In K.K.Ahuja V. V.K.Vora[6], the Supreme Court summed up the entire case law under Section 141 of the Act and laid down the following four principles: “( 20 ) The position under section 141 of the Act can be summarized thus : (i) If the accused is the Managing Director or a Joint Managing Director, it is not necessary to make an averment in the complaint that he is in charge of, and is responsible to the company, for the conduct of the business of the company. It is sufficient if an averment is made that the accused was the managing Director or Joint Managing Director at the relevant time. This is because the prefix `managing' to the word `director' makes it clear that they were in charge of and are responsible to the company, for the conduct of the business of the company. (ii) In the case of a director or an officer of the company who signed the cheque on behalf of the company, there is no need to make a specific averment that he was in charge of and was responsible to the company, for the conduct of the business of the company or make any specific allegation about consent, connivance or negligence. The very fact that the dishonoured cheque was signed by him on behalf of the company, would give rise to responsibility under sub-section (2) of Section 141. (iii) In the case of a Director, Secretary or Manager (as defined in Sec. 2 (24)of the Companies Act) or a person referred to in clauses (e) and (f) of section 5 of Companies Act, an averment in the complaint that he was in charge of, and was responsible to the company, for the conduct of the business of the company is necessary to bring the case under section 141 (1 ). No further averment would be necessary in the complaint, though some particulars will be desirable. They can also be made liable under section 141 (2) by making necessary averments relating to consent and connivance or negligence, in the complaint, to bring the matter under that sub-section. (iv) Other Officers of a company can not be made liable under sub-section (1) of section 141. Other officers of a company can be made liable only under sub-section (2) of Section 141, be averring in the complaint their position and duties in the company and their role in regard to the issue and dishonour of the cheque, disclosing consent, connivance or negligence.” I n S.M.S.Pharmaceuticals Limited (4 supra) also the Supreme Court on liability of a Managing Director or signatory of a cheque under Section 138 of the Act, held as follows: “(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.” 6) Apart from the above legal positions relied upon by the respective counsel, the petitioner’s counsel tried to persuade this Court factually by stating that since the petitioner ceased to be in the Board of Directors with effect from 20.10.2006, he cannot be prosecuted for the offences under Section 138 of the Act when cheques drawn by him as Managing Director of M/s.S.S. Organics Limited were dishonoured subsequent to the date when he ceased to be Managing Director of the Company and ceased to be in the Board of Directors itself. For appreciating this contention of the ptitioner’s counsel, it is necessary to note various relevant dates in these 11 criminal cases; and those dates are given in the following tabular form. Crl.P.No. Date of Cheque (post dated) Date of dishonour Date of notice Date of postal ack. Date of complaint 6149/2009 12.8.2006 & 26.8.2006 21.12.2006 06.01.2007 08.01.2007 19.02.2007 6151/2009 15.07.2006& 29.07.2006 21.12.2006 06.01.2007 08.01.2007 19.02.2007 7150/2009 30.09.2007 08.10.2007 15.10.2007 23.10.2007 05.12.2007 7811/2009 01.04.2007 04.04.2007 16.04.2007 23.04.2007 05.06.2007 7812/2009 01.01.2008 02.01.2008 16.01.2008 22.01.2008 05.03.2008 7815/2009 01.03.2008 12.03.2008 02.04.2008 05.04.2008 14.05.2008 7816/2009 01.07.2007 01.08.2007& 01.09.2007 26.09.2007 18.09.2007& 17.09.2007 04.10.2007 08.10.2007 20.11.2007 7822/2009 01.12.2007 06.12.2007 02.01.2008 08.01.2008 15.02.2008 7824/2009 01.10.2007& 01.11.2007 25.10.2007& 02.11.2007 20.11.2007 26.11.2007 02.01.2008 7827/2009 01.05.2007& 01.06.2007 14.06.2007& 14.06.2007 21.06.2007 29.06.2007 10.08.2007 7828/2009 01.02.2008 11.02.2008 29.02.2008 10.03.2008 18.04.2008 In order to show that the petitioner ceased to be one in the Board of Directors of M/s.S.S. Organics Limited, the petitioner’s counsel furnished certified copy of Form 20B along with annual return filed by M/s.S.S. Organics Limited before the Registrar of Companies, Andhra Pradesh, Hyderabad under Section 159 of the Companies Act, 1956, wherein it was noted that the petitioner by name V.N.Sunanda Reddy ceased to be in the Board of Directors with effect from 20.10.2006. It is further stated therein that one B.Subba Reddy was appointed as Managing Director of the Company on 20.10.2006. Placing reliance on M.L.Gupta V. D.C.M Financial Services Limited[7] of the Delhi High Court and K.V.Rajendra V. The State of A.P (unreported decision dated 03.04.2008 in crl.P.No.5088 of 2007) of this Court, it is contended for the petitioner that certified copies of relevant documents issued by Registrar of Companies can be looked into for granting relief in a petition filed under Section 482 Cr.P.C. It is further pointed out that under Section 164 of the Companies Act, the register of principals, the register of debenture holders and the annual returns, certificates and statements referred to in Sections 159, 160 and 161 shall be prima facie evidence of any matters directed or authorised to be inserted therein by the said Act. In so far as certified copy issued by the Registrar of Companies, Hyderabad in respect of Form 20B and annual return filed by M/s.S.S. Organics is concerned, there is no dispute. They show that in the Annual General Body Meeting of the company held on 20.10.2006, the petitioner ceased to be Managing Director/Director of the company and one B.Subba Reddy became Managing Director of M/s.S.S. Organics Limited. But, it is contended by the 1st respondent’s counsel that the petitioner viz., V.N.Sunanda Reddy questioned validity of the annual general body meeting of M/s.S.S. Organics Limited held on 20.10.2006 and the resolutions therein and also forms and returns submitted by the company to the Registrar of Companies under Section 159 of the Companies Act by taking the matter before the Company Law Board and got relief therefrom. The 1st respondent’s counsel placed before this Court certified copy of order dated 14.08.2009 passed by the Company Law Board, Additional Principal Bench, Chennai in C.P. No.14 of 2007 filed under Sections 397 and 398 of the Companies Act by the petitioner V.N.Sunanda Reddy in the matter of M/s.S.S. Organics Limited. Operative portion of the said order reads as follows: “6. In view of my foregoing conclusions and in exercise of the powers under Sections 397 and 398 read with Section 402 and with a view to regulate the affairs of the Company, it is ordered as under:- (i) The proceedings of the 13th annual general meeting conducted by the respondents 2 to 7 on 20.10.2006 and the proceedings of the board meeting conducted on 22.10.2006 and the resolutions passed at the aforesaid meetings are declared as null and void. (ii) The cancellation of allotment of 25 lakh shares in the name of the petitioner as well as 1.50 lakhs shares in favour of IDBI is set aside. (iii) The board constituted by the petitioner and his associates at the 13th annual general meeting conducted under the Chairmanship of E.Prabakara Reddy will carry on the business of the Company, in terms of its memorandum and articles of association. (iv) The Registrar of Companies, Andhra Pradesh, Hyderabad, shall delete from his records all the forms filed in respect of the Company on or after 20.10.2006 by the respondents 2 to 7. (v) M/s.Brahmayya & Co., Chartered Accountants, Hyderabad, will hand over all the records of the Company, in their custody to the petitioner herein. (vi) The second respondent shall not in any way deal with the 25 lakh shares allotted in the course of the present proceedings on 01.04.2009 in his favour, until the validity of such allotment is confirmed by the BIFR. 7. With the above directions, the Company Petition and the connected Company Applications stand disposed of. In view of this, the interim order dated 19.05.2009 is made absolute. The Bench Officer will forward a copy of the order to the Registrar of Companies, Andhra Pradesh, Hyderabad, to act in terms of para 6(iv) hereabove. No order as to costs.” 7) The Company Law Board directed the Registrar of Companies, Andhra Pradesh, Hyderabad, to delete from his records all the forms filed in respect of the company on or after 20.10.2006 filed by the Company and its new management who are respondents 1 to 7 in C.P. No.14 of 2007. In view of the said order, Form 20B and annual return filed on behalf of M/s.S.S. Organics Limited under Section 159 of the Companies Act, ceased to be on record; and so no reliance can be placed thereon in these criminal petitions. 8) It is contended by the petitioner’s counsel that the order dated 14.08.2009 passed by the Company Law Board in C.P. No.14 of 2007 is questioned in this High Court and that the said order of the Company Law Board did not become final and that the said order is yet to be implemented and Management of the Company is yet to be handed over to the petitioner. As the matter now stands, the petitioner did not legally cease to be Managing Director of M/s.S.S. Organics Limited. In view of the pending litigation under the Companies Act between the petitioner and his rival group in the Company for running the Management of the Company, it would be premature to say that the petitioner ceased to be Managing Director of the Company with effect from 20.10.2006. 9) Taking advantage of litigation between the petitioner and his rival group for Management of the Company, the petitioner cannot be permitted to non-suit the 1st respondents/complainants in their respective claims/prosecutions under Section 138 of the Act against the petitioner. Therefore, the prosecutions launched by the 1st respondents/complainants against the petitioner for offences punishable under Section 138 of the Act are not liable to be quashed. 10) In the result, all the Criminal Petitions are dismissed. _______________________________ SAMUDRALA GOVINDARAJULU, J February 01, 2011 ksh [1] (1999)7 Supreme Court Cases 510 [2] (2009)14 Supreme Court Cases 683 [3] (2008)8 Supreme Court Cases 1 [4] (2005)8 Supreme Court Cases 89 [5] (2007)12 Supreme Court Cases 788 [6] 2009(2) ALD (Crl.) 507 (SC) [7] II(2010) BC 216