Case: A. K. Singhania Vs. Gujarat State Fertilizer Company Ltd. and Anr

In Complaint Case No. 331 of 1996 the allegations which are relevant for the decision of these appeals read as follows:3. The accused No. 14 is a Limited Company registered under the Companies Act, 1956 and are doing business of chemicals, synthetics etc. The accused No. 1 is Managing Director of accused company No. 14 and accused No. 2 is Deputy Managing Director, accused No. 3 is Chairman, accused No. 4 is Whole Time Director, accused No. 5 is Finance Director, accused No. 6 to 12 are the Directors and the accused No. 13 was Senior Manager (Finance) of the accused company No. 14 Esslon Synthetics Ltd4. All the business and financial affairs of the accused company No. 14 are decided, organized, administered by accused No. 1 being Managing Director and accused No. 2 being Deputy Managing Director, accused No. 3 Chairman, accused No. 4 Whole Time Director, accused No. 5 Finance Director with consultation of other Directors from accused Nos. 6 to 12 and accused No. 13 was Sr. Manager (Finance) of accused company No. 14. So accused Nos. 1 to 12 and accused No. 13 are also responsible for all the transactions and business affairs done on behalf of accused Company No. 14 and are responsible for all the financial affairs and administration of accused Company No. 14A.K. Singhania is the accused No. 7 and Vikram Prakash is accused No.9 in this complaintIn Complaint Case No. 1293 of 1996, the allegations with which we are concerned in these appeals read as follows:4. All the business and financial affairs of the accused company No. 1 are decided, organized, administered by the accused No. 2 being Managing Director and accused No. 3 being Managing Director, accused No. 4 Chairman, accused No. 5 Whole Time Director, accused No. 6 Finance Director with consultation of other Directors from accused Nos. 7 to 13 and accused No. 14 was Sr. Manager (Finance) of accused No. 1. At the time the offence was committed, they were incharge of and were responsible to the company for the conduct of the business of the accused company. Therefore, they are responsible for day to day affairs and all the transactions and business done on behalf of the accused Company No. 1 and they are also responsible for all the financial affairs and administration of accused company No. 1A.K. Singhania and Vikram Prakash have been arrayed as accused Nos. 8 and 10 in this complaint and in all other complaints, the allegations against A.K. Singhania are identical to what have been alleged in the Complaint Case No. 331 of 1996Taking into account the allegations made in the respective complaints, the learned Magistrate took cognizance of the offence, issued process to the accused aforesaid besides other accused to face trial for commission of the offence under Section 138 of the ActVikramPrakash, aggrieved by the order issuing summons to face trial under Section 138 of the Act in different complaints, filed applications under Section 482 of the Code of Criminal Procedure for quashing the order taking cognizance and issuing process. The applications filed by said Vikram Prakash were registered as Criminal Miscellaneous Application Nos. 13393-13399 of 2007. The High Court by its common order dated January 20, 2012 allowed all the applications and quashed his prosecution. While doing so, the High Court held as follows:7.…………It is to be noted that as such there are general allegations and averments against the applicant in the complaints, however there are no specific allegations and averments in the complaint against the applicant with respect to transaction for which the cheques were issued by the accused no. 14 company. Under the circumstance, on the ground that applicant was non Executive Director of the Company on the board of the company, which is not disputed by the complainant, the applicant cannot be prosecuted for the offence under Sections 138 r/w 141 of the Negotiable Instruments Act and cannot be held vicariously liable for the offence alleged to have been committed by the accused no. 14 company. Under the circumstance, this Court is of opinion that this is a fit case to exercise the powers under Section 482 of the Code of Criminal Procedure and to quash and set aside the impugned complaint/criminal case qua applicant-original accused no. 9……It is this common order which has been assailed by the Gujarat State Fertilizer Company Ltd. in the special leave petitions filed by itA.K. Singhania also, aggrieved by the order issuing process under Section 138 of the Act, filed separate applications for quashing the entire prosecution including the aforesaid order under Section 482 of the Code of Criminal Procedure. All the applications filed by A.K. Singhania were taken together by the High Court for consideration and by the impugned order the applications filed by him have been dismissed. While doing so, the High Court observed as follows:9. As the paragraphs of the complaint reproduced in earlier part of decision specifically para 4 and subsequent paragraphs would reveal that the applicant in the capacity of Director was responsible for business affairs and he was in- charge of the Company. Not only that but nowhere it can be said that the applicant was non-Executive Director and even if it is so the said argument is in realm of defence to be decided by Court trying the case under the Negotiable Instruments Act. Since sufficient averments attracting of Section 138 of Negotiable Instrument Act are the foundation of the complaint and it is further averred that cheques were issued with mischievous, dishonest intention, knowingly and willingly to cheat the complainant company. Arguments canvassed by learned advocate for the applicant do not require any further deliberation in exercise of powers under Section 482 of the Code since quashing the complaint would not secure end of justice but would result into miscarriage of justice………A.K. Singhania, aggrieved by the aforesaid common order, has preferred these special leave petitions.

Reasoning:
From a plain reading of the aforesaid provision it is evident that every person who at the time the offence was committed is in charge of and responsible to the Company shall be deemed to be guilty of the offence under Section 138 of the Act. In the face of it, will it be necessary to specifically state in the complaint that the person accused was in charge of and responsible for the conduct of the business of the Company? In our opinion, in the case of offence by Company, to bring its Directors within the mischief of Section 138 of the Act, it shall be necessary to allege that they were in charge of and responsible to the conduct of the business of the Company. It is necessary ingredient which would be sufficient to proceed against such Directors. However, we may add that as no particular form is prescribed, it may not be necessary to reproduce the words of the section. If reading of the complaint shows and substance of accusation discloses necessary averments, that would be sufficient to proceed against such of the Directors and no particular form is necessary. However, it may not be necessary to allege and prove that, in fact, such of the Directors have any specific role in respect of the transaction leading to issuance of cheque. Section 141 of the Act makes the Directors in charge and responsible to Company for the conduct of the business of the Company within the mischief of Section 138 of the Act and not particular business for which the cheque was issued. We cannot read more than what has been mandated in Section 141 of the ActFrom a plain reading of the aforesaid provision it is evident that every person who at the time the offence was committed is in charge of and responsible to the Company shall be deemed to be guilty of the offence under Section 138 of the Act. In the face of it, will it be necessary to specifically state in the complaint that the person accused was in charge of and responsible for the conduct of the business of the Company? In our opinion, in the case of offence by Company, to bring its Directors within the mischief of Section 138 of the Act, it shall be necessary to allege that they were in charge of and responsible to the conduct of the business of the Company. It is necessary ingredient which would be sufficient to proceed against such Directors. However, we may add that as no particular form is prescribed, it may not be necessary to reproduce the words of the section. If reading of the complaint shows and substance of accusation discloses necessary averments, that would be sufficient to proceed against such of the Directors and no particular form is necessary. However, it may not be necessary to allege and prove that, in fact, such of the Directors have any specific role in respect of the transaction leading to issuance of cheque. Section 141 of the Act makes the Directors in charge and responsible to Company for the conduct of the business of the Company within the mischief of Section 138 of the Act and not particular business for which the cheque was issued. We cannot read more than what has been mandated in Section 141 of the ActWe have found on fact that there is no averment that the two accused herein were in charge of and responsible for the conduct of the business of the company at the time the offence was committed. Hence, there is no essential averment in the complaints. In view of what we have observed above, the prosecution of accused A.K. Singhania and accused Vikram Prakash cannot be allowed to continue. Accordingly, the order of the High Court quashing the prosecution of the accused Vikram Prakash is not fit to be interfered with. For the same reason the order passed by the High Court declining the prayer of A.K. Singhania for quashing of the prosecution cannot be sustained and the appeals preferred by him deserve to be allowed.