PLOT:
The respondent and the Petitioner Company entered into certain transaction, in furtherance of which, the authorized signatory of the Company issued certain cheques in favour of the respondent complainant. The cheques, when presented for its realization, were returned for want of sufficient funds, which leads the complainant to take recourse to legal proceedings against the Company and the office bearers, who are the petitioners herein the others. A complaint comes to be registered before the concerned Court invoking Section 200 of the Cr.P.C., for the offence under Section 138 of the Act. The learned Magistrate takes cognizance of the offence, issues summons to the petitioners and other accused.
ISSUES RAISED?
- WHETHER THE ROLE OF THE APPELLANTS IN THE CAPACITY OF THE DIRECTOR OF THE DEFAULTER COMPANY MAKES THEM VICARIOUSLY LIABLE FOR THE ACTIVITIES OF THE DEFAULTER COMPANY AS DEFINED UNDER SECTION 141 OF THE NI ACT? IN THAT PERCEPTION?
- WHETHER THE APPELLANT HAD COMMITTED THE OFFENCE CHARGEABLE UNDER SECTION 138 OF THE NI ACT?
- JUDGEMENTS CITED:
NATIONAL SMALL INDUSTRIES CORPORATION LTD. V. HARMEET SINGH PAINTAL [1]
Impleadment of all Directors of an Accused Company on the basis of a statement that they are in charge of and responsible for the conduct of the business of the company, without anything more, does not fulfil the requirements of Section 141 of the NI Act.
S.M.S. PHARMACEUTICALS LTD VS. NEETA BHALLA & ANOTHER [2]
Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for the conduct of its business. The requirement of Section 141 is that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a director in such cases.
It may not open for the High Court to interfere under Section 482 CrPC unless it comes across some unimpeachable, incontrovertible evidence which is beyond suspicion or doubt or totally acceptable circumstances which may clearly indicate that the Director could not have been concerned with the issuance of cheques and asking him to stand the trial would be abuse of process of Court. Despite the presence of basic averment, it may come to a conclusion that no case is made out against the particular Director for which there could be various reasons
S.P. MANI AND MOHAN DAIRY v. Dr. SNEHALATHA ELANGOVAN[3]
“In order to trigger corporate criminal liability for the actions of the employee (who must generally be liable himself), the actor-employee who physically committed the offence must be the ego, the centre of the corporate personality, the vital organ of the body corporate, the alter ego of the employer corporation or its directing mind. Since the company/corporation has no mind of its own, its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation. To this extent there are no difficulties in our law to fix criminal liability on a company. The common law tradition of alter ego or identification approach is applicable under our existing laws.”
SABHITHA RAMAMURTHY V. RBS CHANNABASAVARADHYA, [4]
Section 141 raises a legal fiction. By reason of the said provision, a person although is not personally liable for commission of such an offence would be vicariously liable therefor. Such vicarious liability can be inferred so far as a company registered or incorporated under the Companies Act, 1956 is concerned only if the requisite statements, which are required to be averred in the complaint petition, are made so as to make the accused therein vicariously liable for the offence committed by the company. Before a person can be made vicariously liable, strict compliance with the statutory requirements would be insisted.
SUNITA PALITA V. PANCHAMI STONE QUARRY[5],
When the accused is the Managing Director or a Joint Managing Director of a company, it is not necessary to make an averment in the complaint that he is in charge of, and is responsible to the company for the conduct of the business of the company. This is because the prefix “Managing” to the word “Director” makes it clear that the Director was in charge of and responsible to the company, for the conduct of the business of the company. A Director or an Officer of the company who signed the cheque renders himself liable in case of dishonour. Other officers of a company can be made liable only under subsection (2) of Section 141 of the NI Act by averring in the complaint, their position and duties, in the company, and their role in regard to the issue and dishonour of the cheque, disclosing consent, connivance or negligence.”
ARGUMENTS ADVANCED:
The petitioners have no role to play in the transaction, which is between the Company and the complainant. They are only the directors of the Company and were not aware of the day-to-day affairs of the Company. Accused No.1 is the Company and accused No.2 is the Chairman and Managing Director, accused No.5 is the Director, the signatory to the cheques. Therefore, accused Nos.1, 2 and 5 are the ones who have to answer the charge and not the petitioners
- The complaint does narrate the role of the petitioners being the Directors of the Company. the petitioners are not only Directors, but, whole time directors and promoters of the Company.
- KEY OBSERVATIONS:
- Once the necessary averments are made in the statutory notice issued by the complainant in regard to the vicarious liability of the partners and upon receipt of such notice, if the partner keeps quiet and does not say anything in reply to the same, then the complainant has all the reasons to believe that what he has stated in the notice has been accepted by the noticee. In such circumstances what more is expected of the complainant to say in the complaint.
- The primary responsibility of the complainant is to make specific averments in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no legal requirement for the complainant to show that the accused partner of the firm was aware about each and every transaction. 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.
- 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. It is only the Directors of the company or the partners of the firm, as the case may be, who have the special knowledge about the role they had played in the company or the partners in a firm to show before the court that at the relevant point of time they were not in charge of the affairs of the company. Advertence to Sections 138 and Section 141 respectively of the NI Act shows that on the other elements of an offence under Section 138 being satisfied, the burden is on the Board of Directors or the officers in charge of the affairs of the company/partners of a firm to show that they were not liable to be convicted. 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.
- The final judgment and order would depend on the evidence adduced. Criminal liability is attracted only on those, who at the time of commission of the offence, were in charge of and were responsible for the conduct of the business of the firm. But vicarious criminal liability can be inferred against the partners of a firm when it is specifically averred in the complaint about the status of the partners ‘qua’ the firm. This would make them liable to face the prosecution but it does not lead to automatic conviction. Hence, they are not adversely prejudiced if they are eventually found to be not guilty, as a necessary consequence thereof would be acquitted.
- 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.
- CONCLUSION:
In view of the contents of the legal notice, making allegations and the documents, which depict the petitioners to be whole time Directors and Promoters, they cannot now contend that they are not responsible for day-to-day affairs of the company, particularly in the light of the judgments of the Apex Court in the cases of ASHUTOSH ASHOK PARASRAMPURIYA and S.P. MANI. Therefore, it will become a matter of trial for the accused to come out clean, as held in S.P. MANI, the basic requirement of an allegation that would become ingredient of an offence under 138 and 141 of the NI Act is to be clearly brought out in the complaint.
[1] (2010) 3 SCC 330
[2] (2005) 8 SCC 89
[3] 2022 SCC OnLine SC 1238
[4] (2006) 10 SCC 581: AIR 2006 SC 3086
[5] 2022 SCC OnLine SC 945
DUCTUS EDGE 