Case: Central Bank of India Vs. Asian Global Ltd. and Ors

of holding a particular office since law would assume so. It was submitted that while correctly holding that to fasten liability on a Director it has to be proved that such Director was responsible to the Company and was in charge of its affairs and that such fact would have to be pleaded and proved, the High Court had erred in holding that the pleadings in paragraphs 12 and 21 of the complaint fell short of sufficient averments required to be made in a complaint under Section 138 read with Section 141 of the 1881 Act.9. It was submitted that the decision of this Court in S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla & Anr. ((2005) 8 SCC 89 ), did not affect the Banks case, since it had been stated in the complaint in clear and unambiguous terms that the respondents as Directors of the Company were liable for its acts and that such an allegation could be proved by leading evidence, which stage was yet to arrive when the High Court quashed the complaint and discharged the accused. It was submitted that the impugned order of the High Court was liable to be set aside and the matter was liable to be remanded to the Trial Court for being proceeded with from the stage when the complaint was quashed.10. Apart from the above submissions, a further submission was made on behalf of the Bank to the effect that since the cheques which were issued in favour of the Bank had been handed over by the Respondent No.1 for collection and had been dishonoured, the Bank had become the holder of the cheques in due course and were, therefore, entitled to proceed against the Respondent No.1. 11. The submissions made on behalf of the Petitioner Bank were strongly opposed on behalf of the respondents and it was submitted that having regard to the decision of this Court in S.M.S. Pharmaceuticals Ltd.s case (supra) which was later followed in N.K. Wahi vs. Shekhar Singh & Ors. ((2007) 9 SCC 481 ), there was no scope to urge that the ingredients of a complaint against the respondents had been satisfied by the averments made in paragraphs 12 and 21 of the complaint.12. As far as the second limb of the submissions made on behalf of the Bank was concerned, it was submitted that the same was an argument of desperation as the cheques in question had been drawn by the Respondent No.3 on its own Bank which had dishonoured the cheques. Except for presenting the cheques to the Bank for collection, the Respondent No.1 had no other role to play in the dishonour thereof. 13. We have carefully considered the submissions made on behalf of the respective parties and we are unable to persuade ourselves to differ with the judgment and order of the High Court. The judgment in S.M.S. Pharmaceuticals Ltd.s case (supra), which was relied upon by the High Court, while interpreting the provisions of sub-section (1) of Section 141 of the 1881 Act, made it very clear that unless a specific averment was made in the complaint that at the time when the offence was committed, the person accused was in charge of and responsible for the conduct of the business of the Company, the requirements of Section 141 would not be satisfied. It was further held that while a Managing Director or a Joint Director of the Company would be admittedly in charge of the Company and responsible to the Company for the conduct of its business, the same yardstick would not apply to a Director. The position of a signatory to a cheque would be different in terms of Sub-section (2) of Section 141 of the 1881 Act. That, of course, is not the fact in this case.14. The law as laid down in S.M.S. Pharmaceuticals Ltd. s case (supra) has been consistently followed and as late as in 2007, this Court in the case of N.K. Wahis case (supra), while considering the question of vicarious liability of a Director of a Company, reiterated the sentiments expressed in S.M.S. Pharmaceuticals Ltd.s case (supra) that merely being a Director would not make a person liable for an offence that may have been committed by the Company. For launching a prosecution against the Directors of a Company under Section 138 read with Section 141 of the 1881 Act, there had to be a specific allegation in the complaint in regard to the part played by them in the transaction in question. It was also laid down that the allegations had to be clear and unambiguous showing that the Directors were in charge of and responsible for the business of the Company. This was done to discourage frivolous litigation and to prevent abuse of the process of Court and from embarking on a fishing expedition to try and unearth material against the Director concerned.15. In this case, save and except for the statement that the Respondents, Mr. Rajiv Jain and Sarla Jain and some of the other accused, were Directors of the accused Companies and were responsible and liable for the acts of the said Companies, no specific allegation has been made against any of them. The question of proving a fact which had not been mentioned in the complaint did not, therefore, arise in the facts of this case. This has prompted the High Court to observe that the Bank had relied on the mistaken presumption that as Directors, Rajiv Jain, Sarla Jain and the other Directors were vicariously liable for the acts of the Company. Admittedly, except for the aforesaid statement, no other material has been disclosed in the complaint to make out a case against the respondents that they had been in charge of the affairs of the Company and were responsible for its action. The High Court, therefore, rightly held that in the absence of any specific charge against the Respondents, the complaint was liable to be quashed and the respondents were liable to be discharged.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]13. We have carefully considered the submissions made on behalf of the respective parties and we are unable to persuade ourselves to differ with the judgment and order of the High Court. The judgment in S.M.S. Pharmaceuticals Ltd.s case (supra), which was relied upon by the High Court, while interpreting the provisions of(1) of Section 141 of the 1881 Act, made it very clear that unless a specific averment was made in the complaint that at the time when the offence was committed, the person accused was in charge of and responsible for the conduct of the business of the Company, the requirements of Section 141 would not be satisfied. It was further held that while a Managing Director or a Joint Director of the Company would be admittedly in charge of the Company and responsible to the Company for the conduct of its business, the same yardstick would not apply to a Director. The position of a signatory to a cheque would be different in terms of(2) of Section 141 of the 1881 Act. That, of course, is not the fact in this case.14. The law as laid down in S.M.S. Pharmaceuticals Ltd. s case (supra) has been consistently followed and as late as in 2007, this Court in the case of N.K. Wahis case (supra), while considering the question of vicarious liability of a Director of a Company, reiterated the sentiments expressed in S.M.S. Pharmaceuticals Ltd.s case (supra) that merely being a Director would not make a person liable for an offence that may have been committed by the Company. For launching a prosecution against the Directors of a Company under Section 138 read with Section 141 of the 1881 Act, there had to be a specific allegation in the complaint in regard to the part played by them in the transaction in question. It was also laid down that the allegations had to be clear and unambiguous showing that the Directors were in charge of and responsible for the business of the Company. This was done to discourage frivolous litigation and to prevent abuse of the process of Court and from embarking on a fishing expedition to try and unearth material against the Director concerned.15. In this case, save and except for the statement that the Respondents, Mr. Rajiv Jain and Sarla Jain and some of the other accused, were Directors of the accused Companies and were responsible and liable for the acts of the said Companies, no specific allegation has been made against any of them. The question of proving a fact which had not been mentioned in the complaint did not, therefore, arise in the facts of this case. This has prompted the High Court to observe that the Bank had relied on the mistaken presumption that as Directors, Rajiv Jain, Sarla Jain and the other Directors were vicariously liable for the acts of the Company. Admittedly, except for the aforesaid statement, no other material has been disclosed in the complaint to make out a case against the respondents that they had been in charge of the affairs of the Company and were responsible for its action. The High Court, therefore, rightly held that in the absence of any specific charge against the Respondents, the complaint was liable to be quashed and the respondents were liable to be discharged.