Case: S.M.S. Pharmaceuticals Ltd Vs. Neeta Bhalla &amp; Another

Appellant herein is a company registered and incorporated under the Companies Respondent No. 1 was a Director of a company known as M/s. Direct Finance and Investment Ltd, New Delhi. She allegedly submitted her resignation onthe said company, the Managing Director thereof, Respondent No. 1 herein as also another director, a complaint petition was filed by the appellant alleging that the Company represented by its Managing Director had called for inter-corporate deposit for a short period of 15 days to the extent of rupees two crores and to such a proposal it agreed. The rate of interest for such deposit was stipulated at 25% per annum therefore payable within 15 days. A promissory note was executed by the accused No. 2 on behalf of the Company. The date of maturity of the said deposit was fixed on 15.03.1995. Upon expiry of the period of deposit, the accused - Company represented by its Managing Director allegedly issued a cheque for a sum of rupees two crores as also a cheque for a sum of Rs. 1,58,219.00 and another cheque for a sum of Rs. 8,33,334.00 drawn on Canara Bank, Janpath, New Delhi. All the cheques were dated 15.08.1996. The cheques for Rs. 8,33,334.00 and Rs. 1,58,219.00 represented the interest part on the deposit of rupees two crores for 15 days. The said cheques upon presentation were dishonoured on the ground of insufficient funds. It stands accepted that a notice dated 21.09.1996 was issued by the appellant asking the accused No. 1 - Company to pay the said sum. The said notice was served upon the accused Nos. 2 and 3, viz., the Managing Director and another Director of the Company. Respondent No. 1 who was arrayed as the accused No. 4 in the complaint petition was however not served with any notice. The address of Respondent No. 1 herein - accused No. 4 was shown as the Director of the Company being resident of 353, Bhera Enclave, Outer Ring Road, Delhi - 110 041. We may, however, notice that in the complaint petition her address had been shown to be Outer Ring Road, Paschin Vihar, Delhi - 110the complaint petition the allegations made inter alia are asAccused No. 1 is a duly incorporated Company, having its registered office at the address mentioned above, represented by the Director, Accused no. 2. The accused No. 3 and 4 are also the Directors of the Accused No. 1 company and the accused 2 to 4 are actively involved in the management of the affairs of the Accused No. 1along with the said complaint petition annexed a purported resolution dated 15.02.1995 authorizing the Managing Director of the Company to execute the promissory note which reads asTHAT the Company to avail an Inter Corporate Deposit of Rs. 2 Crores (Rupees Two Crores Only) for 15 days @ 25% p.a. from Reddy Nagar, Hyderabad and that Mr. Rajiv Anand, Director be and is hereby authorized to sign and execute Demand Promissory Note, Post Dated Cheques and other documents as may be required by M/s. SMS Pharmaceuticals Ltd. on behalf of the Company and deliver the same to M/s. SMS Pharmaceuticals Ltd.RESOVED FURTHER THAT Mr. Rajiv Anand, Director of the Company be and is hereby authorized to affix common seal of the Company on such documents and papers as may be required in this connection pursuant to the Articles of Association of thethe said proceedings, a petition for discharge was filed by Respondent No. 1 which was rejected by the learned Trial Judge. A revision petition filed thereagainst was also dismissed by the learned Sessions Judge. An application under Section 482 of the Code of Criminal Procedure was filed questioning the said orders which, however, was permitted to be withdrawn by the High Courtlearned Counsel for the petitioner seeks leave of the Court to withdraw this application. The same shall accordingly stand dismissed as withdrawn.Leave granted to the petitioner to avail the remedies if any available to him in law.The trial Court shall expeditiously dispose of the matter in accordance with law. The Trial Court is directed not to grant any unreasonable adjournments to any of the parties, to thedischarge application was filed which was dismissed on 03.08.2000. The application for quashing of the proceeding was filedHigh Court by reason of the impugned judgment opining that the allegations contained in the complaint petition as against Respondent No. 1 are vague and indefinite and do not satisfy the requirements of law as contained in Section 141 of the Negotiable Instruments Act (for short "the Act"), held that no case had been made out for issuance of any summons against her. As regards the contention raised by the appellant herein that the involvement of Respondent No. 1 in the affairs of the Company is evident from the resolution dated 15.02.1995, the High Court opined that the same by itself did not disclose commission of any offence on the day of commission of thehas filed the appeal aggrieved by the said judgment.

Court's reasoning:
20. The liability of a Director must be determined on the date on which the offence is committed. Only because Respondent No. 1 herein was a party to a purported resolution dated 15.02.1995 by itself does not lead to an inference that she was actively associated with the management of the affairs of the Company. This Court in this case has categorically held that there may be a large number of Directors but some of them may not associate themselves in the management of the day to day affairs of the Company and, thus, are not responsible for conduct of the business of the Company. The averments must state that the person who is vicariously liable for commission of the offence of the Company both was incharge of and was responsible for the conduct of the business of the Company. Requirements laid down therein must be read conjointly and not disjunctively. When a legal fiction is raised, the ingredients therefore must be satisfied.21. If the complaint petition is read in its entirety, the same would show that the only person who was actively associated in the matter of obtaining loan, signing cheques and other affairs of the company which would lead to commission of the alleged offence was the accused No. 2. By reason of the purported resolution dated 15.02.1995, whereupon strong reliance has been placed by Mr. Mishra, only the accused No. 2 was authorized to do certain acts on behalf of the Company. The cheques were issued on 15.08.1996, i.e., after a period of 17 months from the date of the said resolution. As is evident from the averments made in the complaint petition, the cheques represented the amount of interest payable for a total period of 15 days only calculated at the rate of 25% per annum on the amount of deposit, viz., rupees two crores.A faint suggestion was made that this Court in Saroj Kumar Poddar (supra) has laid down the law that the complaint petition not only must contain averments satisfying the requirements of Section 141 of the Act but must also show as to how and in what manner the appellant was responsible for the conduct of the business of the company or otherwise responsible to it in regard to its functioning. A plain reading of the said judgment would show that no such general law was laid down therein. The observations were made in the context of the said case as it was dealing with a contention that although no direct averment was made as against the appellant of the said case fulfilling the requirements of Section 141 of the Act but there were other averments which would show that the appellant therein was liable therefor.26. We, therefore, are of the opinion that the judgment of the High Court cannot be faulted.It is, therefore, an authority for the proposition that the High Court is not completely denuded of its power to exercise inherent jurisdiction for the second time.30. Furthermore, this court therein also went into the merit of the matter. In this case, not only the merit of the matter had been gone into by the High Court as also by this Court, the questionsraised in thepetition had been referred to a larger Bench for obtaining an authoritative pronouncement. It is, therefore, too late in the day for the appellant to contend that the application under Section 482 of the Code of Criminal Procedure was not maintainable.