Full Judgement
Delhi High Court
Ankush Arora vs M/S Rachna Sarees And Anr. on 13 March, 2024
Author: Manoj Kumar Ohri
Bench: Manoj Kumar Ohri
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision: 13.03.2024.
+ CRL.M.C. 9176/2023, CRL.M.A. 34274/2023
ANKUSH ARORA ..... Petitioner
Through: Mr. Varun Dhingra and Mr. Shlok
Suden, Advocates.
versus
M/S RACHNA SAREES AND ANR. ..... Respondents
Through: Mr. Bharat Verma, Advocate.
CORAM:
HON'BLE MR. JUSTICE MANOJ KUMAR OHRI
JUDGMENT (ORAL)
1. By way of present petition filed under Section 482 Cr.P.C., the petitioner seeks to assail the summoning order dated 24.02.2020 passed by learned M.M. in Complaint Case No. 1538/2020 initiated under Section 138 read with Section 142 of the Negotiable Instrument Act, 1881 (for short, the 'NI Act').
2. Facts, as available from the records, are that the parties were having business relations since April, 2017. It was further claimed that from time to time, respondent No.1/Rachna Sarees supplied fabric clothes to Manglam Embroideries Pvt. Ltd./accused company on credit basis. Subsequently, to repay the dues of Rs.8 lacs, eight cheques for Rs.1 lac each were issued. However, on presentation, the cheques were returned dishonoured with the remarks 'funds insufficient' vide return memo dated 09.12.2019. Subsequently, a demand notice was issued to the petitioner as well as the
Signature Not Verified Digitally Signed By:NIJAMUDDEEN ANSARI CRL.M.C. 9176/2023 Page 1 of 10 Signing Date:22.03.2024 19:00:35 accused company, however upon their failure to discharge the liability, the subject complaint came to be filed.
3. Present petition is premised on the ground that though in the criminal complaint, respondent has impleaded the petitioner as Director of the accused company, however, the petitioner is neither the director nor the authorised signatory of the accused company. Consequently, the petitioner has denied having any vicarious liability to make any payment.
4. The law as regards the liability of a Director for an offence under Section 138 NI Act committed by a company is no longer res integra. In S.M.S Pharmaceuticals Ltd. v. Neeta Bhalla & Anr.1, the Supreme Court while dealing with the aforesaid, discussed in detail the role of a Director in a company as well as their liability. The relevant extract of the said judgement reads as under:-
"xxx
8. The officers responsible for conducting the affairs of companies are generally referred to as directors, managers, secretaries, managing directors, etc. What is required to be considered is: Is it sufficient to simply state in a complaint that a particular person was a director of the company at the time the offence was committed and nothing more is required to be said. For this, it may be worthwhile to notice the role of a director in a company. The word "director" is defined in Section 2(13) of the Companies Act, 1956 as under:
"2. (13) 'director' includes any person occupying the position of director, by whatever name called;"
There is a whole chapter in the Companies Act on directors, which is Chapter II... There is nothing which suggests that simply by being a director in a company, one is supposed to discharge particular functions on behalf of a company. It happens that a
1 (2005) 8 SCC 89
Signature Not Verified Digitally Signed By:NIJAMUDDEEN ANSARI CRL.M.C. 9176/2023 Page 2 of 10 Signing Date:22.03.2024 19:00:35 person may be a director in a company but he may not know anything about the day-to-day functioning of the company... What emerges from this is that the role of a director in a company is a question of fact depending on the peculiar facts in each case. There is no universal rule that a director of a company is in charge of its everyday affairs... Therefore, mere use of a particular designation of an officer without more, may not be enough by way of an averment in a complaint. When the requirement in Section 141, which extends the liability to officers of a company, is that such a person should be in charge of and responsible to the company for conduct of business of the company, how can a person be subjected to liability of criminal prosecution without it being averred in the complaint that he satisfies those requirements...
xxx
10. ...What is required is that the persons who are sought to be made criminally liable under Section 141 should be, at the time the offence was committed, in charge of and responsible to the company for the conduct of the business of the company. Every person connected with the company shall not fall within the ambit of the provision. It is only those persons who were in charge of and responsible for the conduct of business of the company at the time of commission of an offence, who will be liable for criminal action... The liability arises from being in charge of and responsible for the conduct of business of the company at the relevant time when the offence was committed and not on the basis of merely holding a designation or office in a company. Conversely, a person not holding any office or designation in a company may be liable if he satisfies the main requirement of being in charge of and responsible for the conduct of business of a company at the relevant time. Liability depends on the role one plays in the affairs of a company and not on designation or status...
xxx
12. The conclusion is inevitable that the liability arises on account of conduct, act or omission on the part of a person and not merely
Signature Not Verified Digitally Signed By:NIJAMUDDEEN ANSARI CRL.M.C. 9176/2023 Page 3 of 10 Signing Date:22.03.2024 19:00:35 on account of holding an office or a position in a company. Therefore, in order to bring a case within Section 141 of the Act the complaint must disclose the necessary facts which make a person liable.
xxx"
5. The said dicta of Supreme Court continue to form the bedrock for the principles surrounding vicarious liability of Directors under Section 138 read with Section 141 NI Act and has been reiterated with approval in a number of judgements including but not limited to S.M.S. Pharmaceuticals v. Neeta Bhalla & Anr. (II)2, K.K. Ahuja v. V.K. Vora3, Pooja Ravinder Devidasani v. State of Maharashtra & Anr.4, Gunmala Sales Pvt. Ltd. v. Anu Mehta & Anr.5 , Standard Chartered Bank v. State of Maharashtra6, Ashok Mal Bafna v. Upper India Steel Manufacturing and Engineering Co. Ltd.7, Ashutosh Ashok Parasrampuriya v. Gharrkul Industries Pvt. Ltd. & Ors.8, and most recently in Susela Padmawathy Amma v. Bharti Airtel Ltd.9 What arises from the conspectus of decisions provided above is that while a Director of a company indeed holds a special/unique position in the company, having authority to take decisions, however, the mere nomenclature or mention of an individual as a Director of a company cannot itself be the basis for bringing him/her into the fold of Section 138 by assistance of Section 141 NI Act.
6. Section 141 of the NI Act dealing with offences by companies,
2 (2007) 4 SCC 70 3 (2009) 10 SCC 48 4 (2014) 16 SCC 1 5 (2015) 1 SCC 103 6 (2016) 6 SCC 62 7 (2018) 14 SCC 202 8 2021 SCC OnLine SC 915 9 2024 SCC OnLine SC 311
Signature Not Verified Digitally Signed By:NIJAMUDDEEN ANSARI CRL.M.C. 9176/2023 Page 4 of 10 Signing Date:22.03.2024 19:00:35 contains the provision related to vicarious liability of Director and reads as under:-
"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: xxx (2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly."
7. As has been observed in a catena of judgements, Section 141 being a penal provision, has to be strictly construed. Resultantly, not every Director can be brought into the fold of the said provision merely due to the aforesaid reason. It is only those Directors who were in-charge of the day-to-day affairs and responsible for the conduct of the business of the company can be held liable for the offence under Section 138 NI Act. The word 'in-charge of a business' has been interpreted to mean a person having overall control of the day-to-day business of the company.10 Thus, for a Director to be vicariously liable, the complainant has to show that the said Director was indeed associated with the day-to-day affairs and management of the business. A Director cannot be arrayed as an accused on the basis of a
Signature Not Verified Digitally Signed By:NIJAMUDDEEN ANSARI CRL.M.C. 9176/2023 Page 5 of 10 Signing Date:22.03.2024 19:00:35 cursory statement or vague averment. What would be appropriate pleadings/averments would be determined on a case-to-case basis.
8. Insofar as the legal position regarding quashing of complaints filed under Section 138 NI Act against the Directors in exercise of the powers conferred under Section 482 Cr.P.C. is concerned, the same has been discussed in detail by the Supreme Court in Sunita Palita v. Panchami Stone Quarry11 and S.P. Mani & Mohan Dairy v. Snehalatha Elangovan12. In S.P. Mani (Supra), it has been observed:-
"xxx
58. Our final conclusions may be summarised as under:
58.1. The primary responsibility of the complainant is to make specific averments in the complaint so as to make the accused vicariously liable... On the other hand, the first proviso to sub-
section (1) of Section 141 of the Act clearly lays down that if the accused is able to prove to the satisfaction of the Court that the offence was committed without his/her knowledge or he/she had exercised due diligence to prevent the commission of such offence, he/she will not be liable of punishment.
58.2. The complainant is supposed to know only generally as to who were in charge of the affairs of the company or firm, as the case may be. The other administrative matters would be within the special knowledge of the company or the firm and those who are in charge of it. In such circumstances, the complainant is expected to allege that the persons named in the complaint are in charge of the affairs of the company/firm... The existence of any special circumstance that makes them not liable is something that is peculiarly within their knowledge and it is for them to establish at the trial to show that at the relevant time they were not in charge of the affairs of the company or the firm.
10
Girdhari Lal Gupta vs. B.H. Mehta, (1971) 3 SCC 189 11 (2022) 10 SCC 152 12 (2023) 10 SCC 685
Signature Not Verified Digitally Signed By:NIJAMUDDEEN ANSARI CRL.M.C. 9176/2023 Page 6 of 10 Signing Date:22.03.2024 19:00:35 xxx 58.4. If any Director wants the process to be quashed by filing a petition under Section 482 of the Code on the ground that only a bald averment is made in the complaint and that he/she is really not concerned with the issuance of the cheque, he/she must in order to persuade the High Court to quash the process either furnish some sterling incontrovertible material or acceptable circumstances to substantiate his/her contention. He/she must make out a case that making him/her stand the trial would be an abuse of process of Court.
xxx"
9. From the above-mentioned cases, it can be seen that if any Director seeks quashing of a complaint under Section 138 NI Act or any process issued therein, then he would have to show that the complaint is bereft of the appropriate pleadings/averments which would bring him into the fold of the rigours of Section 141 NI Act and in this regard, he would have to bring on record certain sterling and incontrovertible evidence showing that he is not concerned with issuance of cheque.
10. In the present case, as noted above, the petitioner has denied liability by contending that he is neither the Director nor the authorized signatory of the accused company. The petition is accompanied by the criminal complaint as well as the subject cheques. A perusal of the said cheques would show that the same were signed by authorised signatory of the accused company. Further, a reading of the complaint would show that while the petitioner is sought to be impleaded by way of vicarious liability by describing him as a Director, the complaint is silent about any averment of his specific role. The relevant extract of the complaint is as follows:-
"5. That immediately on receipt of the said cheques dishonored, the complainant tried to contact the accused in
Signature Not Verified Digitally Signed By:NIJAMUDDEEN ANSARI CRL.M.C. 9176/2023 Page 7 of 10 Signing Date:22.03.2024 19:00:35 order to apprise him about the factum of dishonoring of the aforesaid cheques but the accused avoided the issue on one pretext or the other and thus the payment of the said cheques is still due out outstanding against him.
6. That from the aforesaid facts and circumstances, it is crystal clear that even at the time of issuance of the aforesaid cheques in favour of the complainant, the accused was fully aware that the same would not make any arrangement with his bankers for the encashment of the said cheques. But inspite of the same, the accused had issued the said cheques in favour of the complainant and thus, his intention from the very beginning was to cheat and defraud the complainant and was having no intention to make the payment of the lawful dues of the complainant and thus, the accused has also committed an offence of cheating, punishable under Section 420 of the Indian Penal Code.
7. That in case if the complainant would have know the fact that the cheques would not be encashed on its respective due dates due to insufficiency of the funds, then in that event, he would not have accepted the abovesaid cheques for valuable consideration.
8. That after the said cheques were received back dishonored, the complainant approached the accused for payment of the said cheques amount but the accused was putting off the complainant on one pretext or the other and failed to make the payment of the said cheque and consequently, the complainant, served a notice upon the accused vide notice dated 07.01.2020, under Speed Post as well as through Courier. The office copy of the notice dated 07.01.2020 is annexed herewith as ANNEXURE C-4.
The original speed post receipt is annexed herewith as ANNEXURE - C-5 (COLLY.), The original courier receipt is annexed herewith as ANNESURE C- 6 (COLLY.), The track report of speed post is annexed herewith as
Signature Not Verified Digitally Signed By:NIJAMUDDEEN ANSARI CRL.M.C. 9176/2023 Page 8 of 10 Signing Date:22.03.2024 19:00:35 ANNEXURE C-7 (COLLY.), The track report of the courier is annexed herewith as ANNEXURE C-8(COLLY.),
9. The complainant and accused had a business relations with each other due to which a complete tax invoices and business ledger was maintain by the complainant which early shows the outstanding of the accused towards the complainant. The business ledger and tax invoices are hereby annexed as ANNEXURE C-9 (COLLY) AND C- 10 (COLLY) respectively.
10. That the accused was fully aware that besides an offence of cheating, the issuance of a cheque with no intention to get the same encashed constitutes an offence punishable under Section 138 of the Negotiable Instruments Act, and as such, the accused has committed an offence punishable under Section 138 read with Section 142 of the Negotiable Instruments Act.
11. That as the accused has failed to make the payment of the cheque amount inspite of the notice of demand which was duly served upon him in accordance with law and as such, the accused is liable to be prosecuted for an offence punishable under Section 138 read with Section 142 of the Negotiable Instruments Act.
12. That the complainant is having bank account in East Punjabi Bagh and as the offence was committed within the jurisdiction of the Hon'ble Court is competent to try the offence and to issue the summons to the accused for trial for commission of the said offence."
11. Keeping in view the legal position as enumerated hereinabove and upon a reading of the complaint, this Court is of the considered opinion that learned Magistrate has failed to apply judicial mind to the averments made in the complaint and has issued the summoning order without the complaint having the necessary averments qua the present petitioner. It is pertinent to note that during the course of submissions, even learned counsel for the
Signature Not Verified Digitally Signed By:NIJAMUDDEEN ANSARI CRL.M.C. 9176/2023 Page 9 of 10 Signing Date:22.03.2024 19:00:35 respondent has conceded to the aforesaid factual and legal position, however, he has submitted that poor drafting of the complaint should not come to the disadvantage of the complainant. The proceedings under the Act being quasi-criminal in nature leading to penal consequences, and as such, there is no scope for such a submission. The provisions have to be interpreted strictly. Resultantly, the petition is allowed and the impugned order is set aside. Pending application is disposed of as infructuous.
MANOJ KUMAR OHRI (JUDGE) MARCH 13, 2024/ga
Signature Not Verified Digitally Signed By:NIJAMUDDEEN ANSARI CRL.M.C. 9176/2023 Page 10 of 10 Signing Date:22.03.2024 19:00:35
