Case: Ashoke Mal Bafna Vs. M/s. Upper India Steel Mfg. & Engg. Co. Ltd

1. Leave granted. 2. The appellant preferred this appeal aggrieved by the judgment and order passed by the High Court of Punjab & Haryana in Criminal Miscellaneous No. M-35870 of 2010 (O&M) by which the High Court dismissed the appellants petition for quashing the Complaint under Section 138 of the Negotiable Instruments Act, 1881 (for short the Act) read with Section 420 of the Indian Penal Code. 3. The brief history of the case as per the complaint is that the accused/appellant issued nine cheques on 6-7-2006 in favour of the complainant Company for Rs.8,00,000/- each, and one other cheque for Rs.9,40,780.05 in discharge of legal liability of M/s. Coventry Spring and Engineering Company Ltd. (for short the defaulter Company) of which the appellant was a Director. When the cheques were presented for clearance, they were dishonoured by the bank with remarks insufficient funds on 24-08-2006. The complainant-respondent thereafter, served legal notice dated 6-9-2006 demanding payment but the appellant-accused did not make payment. Ld. Judicial Magistrate took cognizance of the complaint and summoned the appellant-accused. On his failure to turn up before the Court, learned Magistrate proceeded under Section 299 of Criminal Procedure Code (for short the Code). The appellant-accused thereafter filed a petition before the High Court under Section 482 of the Code for quashing the complaint, summoning order and subsequent criminal proceedings, which came to be dismissed by the order impugned in the present appeal. 4. The case of the appellant is that the respondent Company has unnecessarily made him a party to the complaint though he was not associated with the defaulter Company on the date of cause of action. The complaint in question is not pertaining to the cheques issued by him on 28-12-2004 in the capacity of Director of the defaulter Company. He had resigned from the post of Director w.e.f. 2-1-2006, long before the date on which cause of action arose in the present case. The cheques issued during his tenure as Director with the validity of six months, were neither deposited by the drawee nor dishonoured by the bank and after the lapse of six months period they ceased to be negotiable instruments under the Act. The cheques against which the present Complaint was lodged were issued by the defaulter Company on 6-7-2006 much later after his resignation and were dishonoured on 24-08-2006 against which the legal notice dated 6-9-2006 was served and subsequently the complaint in question has been filed. Learned counsel further argued that since the bounced cheques were not actually issued by the appellant, nor he was holding the post of Director at that point of time and he has nothing to do with that transaction therefore he is not liable. Simply for the reason that at one point of time, the appellant had played some role in the activities of the defaulter Company as a Director would not bind him to the constructive liability under Section 141 of the Act. In support of his argument, learned counsel relied on a decision of this Court in DCM Financial Services Ltd. v. J.N. Sareen & Anr. (2008) 8 SCC 1. 5. Learned counsel for the respondent, on the other hand, supported the impugned judgment and submitted that as a matter of fact the cheques were issued by the appellant towards the amount due since the year 2004 when the appellant was Director. On 16-12-2014, a letter was written to the defaulter Company demanding payment of outstanding dues. Thereafter, on 9-7-2005, the earlier cheques were replaced by new cheques to the tune of Rs.67.49 lakhs and on 1.1.2006 again new cheques were issued. Thus the cheques initially issued by the appellant were getting replaced with new cheques till their presentation and finally on 24-08-2016 they were dishonoured at the bank. Since the dues were originated at the time when the accused-appellant was Director of the defaulter Company, he is liable under the Act and the High Court has rightly dismissed his application for quashing criminal proceedings under Section 482, Cr.P.C. 6. We have given our thoughtful consideration to the arguments advanced by the counsel on either side. The issue for determination before us is whether the role of the appellant in the capacity of erstwhile Director of the defaulter Company makes him vicariously liable for the activities of the defaulter Company as defined under Section 141 of the Act ? In that perception, whether the appellant had committed the offence chargeable under Section 138 of the Act; and whether the High Court was right in dismissing the Criminal Miscellaneous application filed by the appellant seeking quashing of the criminal proceedings ? 7. Before delving into the issue further, it would be apt to look into the principles of law settled by this Court on the subject. 8. In Girdhari Lal Gupta v. D.H. Mehta & Anr., (1971) 3 SCC 189 , this Court observed that a person in charge of a business means that the person should be in overall control of the day to day business of the Company. 9. Interpreting the provisions of Section 141 this Court in National Small Industries Corporation v. Harmeet Singh Paintal & Anr. (2010) 3 SCC 330 observed that 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 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 the accused was in charge of or was responsible to the Company for the conduct of its business. This is in consonance with strict interpretation of penal statutes especially where such statutes create vicarious liability. 10. To fasten vicarious liability under Section 141 of the Act on a person, the law is well settled by this Court in a catena of cases that the complainant should specifically show as to how and in what manner the accused was responsible. Simply because a person is a Director of defaulter Company, does not make him liable under the Act. Time and again, it has been asserted by this Court that only the person who was at the helm of affairs of the Company and in charge of and responsible for the conduct of the business at the time of commission of an offence will be liable for criminal action [See : Pooja Ravinder Devidasani v. State of Maharashtra & Ors. AIR 2015 SC 675 ]. 11. In other words, the law laid down by this Court is that for making a Director of a Company liable for the offences committed by the Company under Section 141 of the Act, there must be specific averments against the Director showing as to how and in what manner the Director was responsible for the conduct of the business of the Company. 12. Turning to the case on hand, admittedly the cheques dated 28-12-2004 were issued while the appellant was Director of the Company with validity for a period of six months but during that period they were not presented for realization at the bank. The appellant has resigned as Director w.e.f. 2-1-2006 and the fact of his resignation has been furnished by Form 32 to the Registrar of Companies on 24-03-2006 in conformity with the rules. Thereafter, the appellant had played no role in the activities of the default Company. This fact remains substantiated with the Statement filed by the default Company on 20-02-2006 with the Registrar of Companies that in an advertisement of the Company seeking deposits (Annexure P3), only the names of three Directors of the Company were shown as involved in the working of the Company and the name of appellant was not therein. Indisputably, therefore, the cheques bounced on 24-08-2006 due to insufficient funds were neither issued by the appellant nor the appellant was involved in the day to day affairs of the Company. 13. Before summoning an accused under Section 138 of the Act, the Magistrate is expected to examine the nature of allegations made in the complaint and the evidence both oral and documentary in support thereof and then to proceed further with proper application of mind to the legal principles on the issue. Impliedly, it is necessary for Courts to ensure strict compliance of the statutory requirements as well as settled principles of law before making a person vicariously liable. 14. The Superior Courts should maintain purity in the administration of Justice and should not allow abuse of the process of Court. Looking at the facts of the present case in the light of settled principles of law, we are of the view that this is a fit case for quashing the complaint. The High Court ought to have allowed the criminal miscellaneous application of the appellant because of the absence of clear particulars about role of the appellant at the relevant time in the day to day affairs of the Company.

Decision reasoning: 1[ds]11. In other words, the law laid down by this Court is that for making a Director of a Company liable for the offences committed by the Company under Section 141 of the Act, there must be specific averments against the Director showing as to how and in what manner the Director was responsible for the conduct of the business of the Company12. Turning to the case on hand, admittedly the cheques dated4 were issued while the appellant was Director of the Company with validity for a period of six months but during that period they were not presented for realization at the bank. The appellant has resigned as Director w.e.f.6 and the fact of his resignation has been furnished by Form 32 to the Registrar of Companies on6 in conformity with the rules. Thereafter, the appellant had played no role in the activities of the default Company. This fact remains substantiated with the Statement filed by the default Company on6 with the Registrar of Companies that in an advertisement of the Company seeking deposits (Annexure P3), only the names of three Directors of the Company were shown as involved in the working of the Company and the name of appellant was not therein. Indisputably, therefore, the cheques bounced on6 due to insufficient funds were neither issued by the appellant nor the appellant was involved in the day to day affairs of the Company13. Before summoning an accused under Section 138 of the Act, the Magistrate is expected to examine the nature of allegations made in the complaint and the evidence both oral and documentary in support thereof and then to proceed further with proper application of mind to the legal principles on the issue. Impliedly, it is necessary for Courts to ensure strict compliance of the statutory requirements as well as settled principles of law before making a person vicariously liable14. The Superior Courts should maintain purity in the administration of Justice and should not allow abuse of the process of Court. Looking at the facts of the present case in the light of settled principles of law, we are of the view that this is a fit case for quashing the complaint. The High Court ought to have allowed the criminal miscellaneous application of the appellant because of the absence of clear particulars about role of the appellant at the relevant time in the day to day affairs of the Company.