S. R. Kangeyan vs Indian Potash ltd

K. N. Basha J.

The petitioner who has been arrayed as the third accused out of three accused, has come forward with this petition seeking the relief of quashing

the proceedings initiated against him by the respondent/ complainant for the offence u/s 138 of the Negotiable Instruments Act, 1881. Mr. M.

Balasubramanian, learned counsel appearing for the petitioner brought to the notice of this court that the petitioner along with the other accused,

viz., A1/company and A2 (another director) have filed a quashing petition in Crl. O. P. No. 10519 of 1999 and the same was dismissed by this

court by the order dated April 12, 2001. It is submitted that in the earlier occasion, the petitioner has not raised the specific point, viz., that the

complainant has not stated in the complaint as to how and in what manner the petitioner/A3 was involved in the day to day affairs of the company

or how he is responsible and in charge of the business of the company. Learned counsel would submit that a general argument was advanced to

the effect that the complainant has made a vague allegation only to the effect that the other directors of the first accused-company were also

responsible and in charge of the day, to day affairs of the company and only the said point was considered by this court while dismissing the earlier

petition filed by the petitioner along with the other accused, viz., A1 and A2.

Learned counsel appearing for the petitioner would now vehemently contend that in the complaint, there is absolutely no allegation whatsoever

made against the petitioner as to how and in what manner, he is responsible and in charge of the day to day affairs of the company, viz., A1 except

to state that all the directors are responsible and in charge of the day to day affairs of the company, therefore, it is contended that second quashing

petition is very much maintainable in view of the above said specific point not raised on the earlier occasion. Learned counsel further contended

that even the disputed cheque involved in this matter is also alleged to have been signed only by the second accused on behalf of the first accused/

company. It is also pointed out by learned counsel appearing for the petitioner that the accounts was also maintained by the company in the

company''s name and as far as the petitioner who is aged about 72 years at that time is concerned, he was only a sleeping partner and he is not

able to involve himself in the business activities of the first accused-company and at the request of the other directors, the petitioner has been

continued as a director and he has absolutely no role to play in the day to day affairs of the company. Learned counsel would also submit that the

respondent/ complainant, apart from enclosing the disputed cheque, legal notice and the reply to the said notice and the communications from the

bank, has not enclosed any other document to substantiate his contention to the effect of the involvement of the petitioner in the day to day affairs

of the company. Therefore, it is contended that allowing the proceedings to continue against the petitioner would amount to a clear case of abuse

of process of court and as such, the proceedings in so far as the petitioner is concerned, is liable to be quashed.

Per contra, Mr. V. Jayachandran, learned counsel appearing for the respondent/complainant would contend that the petitioner has raised the

same question relating to his liability by filing an earlier petition in Crl. O. P. No. 10519 of 1999 and this court has rejected the said contention and

as such, the present petition in Crl. O. P. No. 25703 of 2003 is not maintainable. He would contend that there is a specific allegation levelled

against the petitioner in paragraph No. 3 of the complaint to the effect that the first accused-company as well as its directors are in charge of the

day to day affairs of the company and they are also responsible for the conduct of the business of the first accused-company. It is pointed out that

even in paragraph 7 of the complaint, similar allegation against the petitioner was made stating that the first accused-company and the second and

third accused, being the directors of the company, are responsible and in charge of the day to day affairs and conduct of the business of the first

accused-company and they are liable to be proceeded and punished. Learned counsel would place reliance on the reply given to the statutory

notice issued by the complainant and in the said reply, it is stated that the reply was sent as per the instructions of the petitioner, viz., the third

accused and in that reply, there is no specific plea regarding the non-liability of the petitioner for the day to day affairs of the company and as such,

the petitioner cannot be absolved from his liability and he, is liable to be proceeded for the offence u/s 138 of the Negotiable Instruments Act along

with the other accused.

This court carefully considered the rival contentions put forward on either side and also thoroughly scrutinised the entire materials available on

record including the complaint, statutory notice issued by the respondent/ complainant dated November 25, 1998 and the reply given by the

accused dated November 28, 1998, annexed along with the complaint.

The first and foremost contention put forward by learned counsel appearing for the respondent/complainant is to the effect that the petitioner, on

an earlier occasion, moved a similar quash petition along with the other accused raising the same point about the liability of the petitioner as a

director and the said contention was rejected by this court as this court has dismissed the quash petition in Crl. O. P. No. 10519 of 1999 vide

order dated April 12, 2001. I am unable to countenance the said contention of learned counsel appearing for the respondent/complainant for the

simple reason that a perusal of the order dated April 12, 2001, made in Crl. O. P. No. 10519 of 1999 would make it abundantly clear that the

said petition was filed by the petitioner who has been arrayed as A3 along with two other accused, viz., A1/company and A2/director and at that

time only a general point was raised regarding the liability of the petitioner as a director and the present point, viz., the absence of specific allegation

in the complaint to the effect that as to how and in what manner the petitioner is responsible and in charge of the day to day affairs of the

A1/company, was not at all raised. Therefore, it is needless to state that a second quash petition is very much maintainable in the event of the

petitioner raising a new and specific point.

The fact remains that a perusal of the complaint would disclose the following allegation in paragraph 3 of the complaint, as far as the

petitioner/A3 is concerned. Paragraph 3 reads as here under :

The complainant states that accused Nos. 2 and 3 above named are the directors of the first accused-company who in their capacity as

directors were and are in charge of the day to day affairs of the company and also legally responsible for the conduct of the business of the first

accused-company.

Again, in paragraph 7, the following allegations are found :

Accused No. 1 being the company and A2 and A3 director of the company and having been responsible in charge of the day to day affairs and

conduct of the business of the first accused are all liable to be punished.

A reading of the above said allegations contained in the complaint would make it crystal clear that there is not a whisper as to how and in what

manner the petitioner/A3 is in charge and responsible for the day to day affairs of the company. The said allegations are nothing but general, vague

and bald allegations and the same cannot be construed to be a specific and definite allegation made against the petitioner herein.

The yet another aspect to be borne in the mind by this court is that as far as the second accused is concerned, it is specifically stated in

paragraph 5 of the complaint to the effect that the second accused, as a director of the A1/company, had issued a cheque bearing No. 537961

dated October 20, 1998, in favour of the complainant on behalf of all the accused. But, as far as the petitioner is concerned, as already pointed

out, there is not even a single allegation to make out a prima facie case as to how and in what manner, the petitioner/A3, is responsible and in

charge of the day to day affairs of the company in order to maintain the complaint for the offence u/s 138 of the Negotiable Instruments Act.

At this juncture, it is relevant to refer the following decisions of the hon''ble apex court.

The honourable apex court has held in S.M.S. Pharmaceuticals Ltd. Vs. Neeta Bhalla and Another, , as follows (page 89 of (2005) 8 SCC) :

There is almost unanimous judicial opinion that necessary averments ought to be contained in a complaint before a person can be subjected to

criminal process. A liability u/s 141 of the NI Act is sought to be fastened vicariously on a person connected with a company, the principal

accused being the company itself. It is a departure from the rule in criminal law against vicarious liability. A clear case should be spelled out in the

complaint against the person sought to be made liable.

Under section 141 what is required is that the persons who are sought to be made criminally liable 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 on account of conduct, act or

omission on the'' part of a person and not merely on account of holding an office or a position in a company.

It was further held that (pages 90 and 91 of (2005) 8 SCC) :

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.

A director in a company cannot be deemed to be in charge of and responsible to the company for the conduct of its business.

In yet another decision in Saroj Kumar Poddar Vs. State (NCT of Delhi) and Another, , the apex court has held that (page 842 of 137 Comp

Cas):

The purported averments which have been made in the complaint petitions so as to make the appellant vicariously liable for the offence committed

by the company read as under:

''That accused No. 1 is a public limited company incorporated and registered under the Companies Act, 1956, and accused Nos. 2 to 8 are/were

its directors at the relevant time and the said company is managed by the board of directors and they are responsible for the in charge of the

conduct and business of the company--accused No. 1. However, cheques referred to in the complaint have been signed by accused Nos. 3 and 8,

i.e., Shri K. K. Pilania and Shri N. K. Munjal for and on behalf of the accused-company No. 1.

... there is no averment in the complaint petitions 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. He had not issued any cheque. How he is responsible for dishonour of the

cheque has not been stated. The allegations made in paragraph 3, thus, in our opinion, do not satisfy the requirements of section 141 of the Act.

The honourable Supreme Court also considered the principles laid down by the Larger Bench in S.M.S. Pharmaceuticals Ltd. Vs. Neeta

Bhalla and Another, and ultimately held that (page 842 of 137 Comp Cas):

With a view to make a director of a company vicariously liable for the acts of the company, it was obligatory, on the part, of the complainant to

make specific allegations as are required in law.

Therefore, it is clear that a mere general allegation to the effect that the accused who are the directors at the relevant, point of time are

responsible and in charge of the conduct of the business of the company is not sufficient to hold a director to be vicariously liable for the offence

said to have been committed by a company.

The hon''ble Supreme Court in N. K. Wahi v. Shekhar Singh reported in (2007) 137 Comp Cas 939,; (2007) 2 Supreme 811, taken a similar

view. In that case, the hon''ble apex court has held as follows (page 943 of 137 Comp Cas) :

To launch a prosecution, therefore, against the alleged directors there must be a specific allegation in the complaint as, to the part played by them

in the transaction. There should be clear and unambiguous allegation as to how the directors are in charge of and responsible for the conduct of the

business of the company. The description should be clear. It is true, that precise words from the provisions of the Act need not be reproduced and

the court can always come to a conclusion in facts of each case. But still in the absence of any averment or specific evidence the net result would

be that complaint would not be entertainable.

The hon''ble Supreme Court further incorporated the allegation contained in that case as follows (page 944 of 137 Comp Cas) :

Accused Nos. 2 to 12 are the directors/persons responsible for carrying out the business of the company, and the liability of the accused persons

in the present complaint is joint and several.

The hon''ble apex court, ultimately held that the above said allegations are not sufficient to fasten the accused to be held vicariously liable for

the offence committed by the company.

Therefore, in view of the above well-settled principle of law laid down by a catena of decisions of the honourable Supreme Court in order to

implicate a particular accused who was holding a position as director, a mere vague and general allegation to the effect that the said directors are

also responsible and in charge of the business of the company itself is not sufficient to make them vicariously liable for the offence said to have been

committed by a company and on the other hand, there should be a specific averment and allegation in the complaint to that effect, which should be

clear and unambiguous in respect of the specific role played by such director indicating as to how and in what manner such director was

responsible for the conduct of the business of the company or otherwise responsible with regard to its functioning.

In the instant case also, as already pointed out there is absolutely no specific, clear and unambiguous allegations as to how and in what manner

the petitioner was responsible for the conduct of the business and there is absolutely no specific role assigned to the petitioner in respect of the

conduct of the business of the first accused-company. Learned counsel appearing for the respondent/complainant also made a feeble attempt to

contend that the petitioner is responsible for the day to day affairs of the company on the basis of the reply, dated November 28, 1998, given by

the first accused/company as represented by the petitioner herein to the statutory notice dated November 25, 1998, issued by the

respondent/complainant. I am unable to countenance such contention for the simple reason that a perusal, of the reply dated November 28, 1998,

given to the statutory notice dated November. 25, 1998, would make it abundantly clear that the reply was given by the advocate on behalf of his

client, viz., A1/company and it was also specifically stated in paragraph 5 of the reply that the said reply was sent only on behalf of the first

accused/ company and as such, merely because the reply was sent by the first accused/company represented by the petitioner, to the statutory

notice issued by the complainant it cannot be construed that the petitioner is responsible for the day to day affairs of the first accused/company.

Therefore, this court is of the considered view that allowing the proceedings to continue against the petitioner would certainly amount to a clear

case of abuse of the process of court and as such, the proceedings are liable to be quashed in so far as the petitioner is concerned.

Accordingly, the proceedings in C. C. No. 316 of 1998 initiated by the respondent/complainant on the file of the learned XIII Metropolitan

Magistrate, Egmore, Chennai is quashed in so far as the petitioner is concerned and the criminal original petition is allowed. Consequently,

connected miscellaneous petition is also closed.

Considering the fact that the case itself relates to the year 1998, the learned XIII Metropolitan Magistrate/Egmore, Chennai is hereby directed to

expedite the trial as expeditiously as possible and to complete the same within a period of six months from the date of receipt of a copy of this

order.