Ashok Muthanna v. Wipro Finance Ltd.

Wipro Finance Limited, Chennai filed two complaints against M/s. Fidelity Industries Ltd., Chennai and its Directors and Authorised Signatory arraying them as A1 to A6 for the offences under Sections 138 and 141 of the Negotiable Instruments Act.

2. On receipt of summons the petitioners 1 to 4, who are accused 2 to 5, have filed these two petitions under Section 482 Cr.P.C praying to quash the entire proceedings in those two complaints on the following grounds:-

(i) Mr. V.G Subbaraman, the second petitioner (A3), retired on 28.3.1998 itself, as evidenced by Form No. 32 issued by the Registrar of Companies. Hence, he is not responsible for the issuance of the cheque on 23.1.1999 and the non-payment of the cheque amount after its dishonour and as such the proceedings under Section 138 of the Act are not valid in law in so far as he is concerned.

(ii) Though in the complaint, there is allegation against the petitioners that they are incharge of and responsible for the conduct of the business of the company (A 1), no overt act or specific allegation has been attributed to these petitioners. The cheque has been signed and issued only by the 6th accused, who is the authorised signatory. Therefore, other accused, namely, these petitioners, cannot be held responsible for the offence under Section 138 of the Act.

3. On these two grounds, I heard the arguments of the learned counsel on either side.

4. In regard to the first point in relation to the second petitioner V.G Subbaraman (A3), I find merit in the contention of the learned counsel for the petitioners, in as much as Form No. 32 issued by the Registrar of Companies, which has been produced before this Court and the same has not been disputed by the counsel for the respondent/complainant, would reveal that the said second petitioner retired on 28.3.1998 itself and as such he did not function as a Director either on the date when the cheques were issued (i.e) on 23.1.1999 or when the cause of action arose for non-payment of the cheque amount on receipt of the statutory notice on 10.7.1999

5. Though the said document does not form part of the complaint and other records accompanied with the complaint, this can be taken into consideration by this Court, since the contents of the said document, which is a public document, is not disputed by the learned counsel for the respondent.

6. As held by the Supreme Court in Satish Mehra v. Delhi Administration and Another, 1996 (3) Crimes 85 (SC), the Court is within its powers to consider even materials which the accused may produce even before the commencement of trial for the purpose of deciding whether the accused could be discharged when those documents are not in dispute.

7. In the present case, as noted above, the document Form No. 32 would reveal that the second petitioner was not the director who was in-charge of and responsible for the affairs of the company during the relevant period and as such the proceedings as against the second petitioner are liable to be quashed and accordingly quashed.

8. In view of the number of decisions cited by the learned counsel for the petitioners in respect of the second point, we shall deal with the said point in detail.

9. While dealing with the said point it would be appropriate to refer to the allegations against the petitioners as contained in the complaint.

10. Para 10 of the complaint would provide the relevant words :-

“The said cheques were issued by the 1st accused herein, as per the instructions of the accused 2 to 6 herein who are the Managing Director, Directors and Authorised Signatory incharge of the day to day affairs of the first accused company. The said cheque was signed by the 6th accused in his capacity as the Authorised Signatory of the first accused company herein.”

11. According to the counsel for the petitioner the mere words that “they are incharge and responsible for the day today affairs of the company” would not be sufficient to make all the directors as accused, especially in this case, the 6th accused alone in his capacity as Authorised Signatory has signed and issued the cheques.

12. The authorities for substantiating the said ground cited by the counsel for the petitioners are as follows:-

(1) Parmeet Singh Sawney case, (1988) Vol. 169 I.T.R 5;

(2) Sham Sander and Others v. State of Haryana, 1989 (4) S.C.C 630;

(3) P. Jeyanthi v. State, 1990 L.W (Crl.) 398;

(4) P. Vasantha v. K.R Muthiah and Another, 1991 L.W(Crl.) 178;

(5) A.K Jain v. State of Sikkim, 1992 Crl. L.J 839;

(6) R. Banerjee & Others v. H.D Dubey & Others, 1993 L.W (Crl.) 4;

(7) Sudesh Kumar Sharma & Another v. K.S Selvamani, 1994 (1) L.W (Crl) 337.;

(8) J.K Industries Ltd. v. Chief Inspector of Factories, 1997 L.L.J 112 S.C;

(9) State of Haryana v. Brij Lal Mittal, AIR 1998 S.C 2327;

(10) Col. R.S Agarwal & Others v. M/s. Ashok Leyland Ltd., 1998 (1) L.W (Crl.) 24;

(11) Modern Denim Ltd. v. Lucas T.V.S Ltd., 1999 (III) C.T.C 143;

(12) Sagar Suri v. State of U.P, 2000 (II) C.T.C 107;

(13) KP.G Nair v. Jindal Menthol India Ltd., 2000 (IV) C.T.C, 432.

13. The guidelines given in these decisions are as follows:

(i) The partners of the firm, who at the time of commission of offence were responsible for the conduct of the business of the firm could alone be prosecuted. Mere reproduction of the expression in the relevant Section in the complaint does not meet the requirement of law.

(ii) More often it is common that some of the partners of a firm may not even be knowing of what is going on day to day in the firm. There may be partners, better known as sleeping partners, who are not required to take part in the business of the firm. It does not make all the partners liable whether they do business or not. The requisite condition is that the partner was responsible for carrying on the business and was during the relevant time in charge of the business. In the absence of any such proof, no partner could be convicted.

(iii) There may be ladies and minors who were admitted for the benefit of partnership. They may not know anything about the business of the firm. It would be a travesty of justice to prosecute all partners and ask them to prove under the proviso to sub-section (1) of Section 141 of the Negotiable Instruments Act that the offence was committed without their knowledge. The obligation for the accused to prove under the proviso that the offence took place without his knowledge or that he exercised all due diligence to prevent such offence arises only when the prosecution establishes the requisite condition that the partner was responsible for carrying on the business during the relevant time. The mere fact that the petitioner was a partner of the company would not be sufficient to mulct the said person with criminal liability.

(iv) Merely extracting the words of the Section in the complaint is not sufficient to find the accused guilty. The expression “a person in-charge and responsible for the conduct of the affairs of the company” must mean that the person should be in overall control of the day to day business of the firm.

(v) In a case arisen out of the Food Adulteration Act where a person has been nominated under sub-section (2) of Section 17, he alone can be proceeded against and punished for the crime in question. It is only where no such person has been nominated that every person who at the time the offence was committed was in-charge of and was responsible to the company for the conduct of its business can be proceeded against and punished.

(vi) In the case of a company, the ultimate control of the affairs of a factory, where the company is the owner of the factory, always vests with the company, through its Board of Directors. The Manager or any other employee of whatever status can be nominated by the Board of Directors to have immediate or day to day or even supervisory control over the affairs of the factory. There is a vast difference between a person having the ultimate control of the affairs of the factory and the one who has immediate or day to day control over the affairs of the factory.

(vii) The vicarious liability of a person for being prosecuted for an offence committed under the Act by a company arises if at the material time, he was incharge and was also responsible to the company for the conduct of its business. Simply because a person is a director of the company, it does not mean that he fulfills the requirements so as to make him liable.

(viii) To bring persons within the purview of Section 138 of the Negotiable Instruments Act, there must be some specific averment against those person to take cognizance of the offence by the learned Magistrate with respect to the persons. On that basis, the specific allegation that the directors or partners of the company are in-charge or and responsible to the company for the conduct of the business of the said company is necessary to maintain the complaint against those directors or partners.

(ix) The words of Section 141(1) of the Negotiable Instruments Act need not be incorporated in a complaint as magic words, but the substance of the allegations read as a whole should answer and fulfill the requirements of the ingredients of the said provision, namely. Section 141(1) for being proceeded against for an offence, which he is alleged to have committed. If those words may not be exact reproduction of Section 141 (1) would convey the meaning that if the persons concerned were in-charge of and was responsible to the company for the conduct of the business when the offence was committed, then those persons other than the company also be proceeded against.

14. In the light of these guidelines, we shall look into the allegations of the complaint in order to verify whether the requirements of Section 141(1) of the Act has been satisfied.

15. As noted above, it is mentioned in the complaint that the accused 2 to 6 (including the petitioners (A2 to A5) instructed the Authorised Signatory (A6) on behalf of the company (A1) to issue the said cheques and during the relevant period, they were in charge of the day to day affairs of the first accused company. It is also mentioned in the complaint that the statutory notice was sent to the accused on 10.7.1999 and despite receipt of the notice, they have not made any payment whatsoever towards the amount covered by the said cheque. Thus, it is clear that the allegations in the complaint would reveal that the cheques were issued by A6 being the authorised signatory of the company only at the instructions of the petitioners, who were incharge of the day to day affairs of the first accused company on behalf of the company. Therefore, it cannot be said that there are no necessary averments in the complaint.

16. It is contended by the learned counsel for the petitioners that mere reproduction of the words used in the Section is not sufficient. But, in this case, it is not only stated that the petitioners were in-charge and responsible for the day to day affairs of the company, but also stated that only on the instructions given by the petitioners, the cheques were issued by A6 on behalf of the company. Therefore, as per the complaint, they had also taken a vital role in the act of issuance of the cheques.

17. Similarly, as mentioned in the complaint, despite receipt of the statutory notice on 10.7.1999, they have not paid any amount within the stipulated period. These things would show that the petitioners who are in-charge of the day to day affairs of the company are responsible for these acts also.

18. All the decisions cited by the learned counsel for the petitioners rendered by this Court as well as the Apex Court would deal with the situation where the accused came before the Court either after conviction or after acquittal. Under those circumstances, the Courts would hold that mere words used in the Section is not sufficient in the absence of any material to prove the same.

19. The decision in 1993 L.W (Crl) 4 (supra) would, however observe that when a person on behalf of the company has been nominated under Section 17(1) of the Food Adulteration Act, he alone can be prosecuted and not other directors even though they were in-charge and responsible for the affairs of the company. But, such a contingency sub-section as contained in Section 17(1) or Section 17(2) of the Prevention of Food Adulteration Act is not available in-Section 141 (1) or 141 (2) of the Negotiable Instruments Act. Therefore, the contention that when the authorised signatory who issued the cheque was made as an accused, the other directors cannot be prosecuted has to be rejected.

20. In view of the above discussion I am of the view that there are sufficient allegations in the complaint so as to maintain the complaint as against the petitioners. Therefore, the arguments advanced by the learned counsel for the petitioners cannot be accepted to be a valid one. Therefore, the said submission is liable to be rejected and accordingly, the petitions are dismissed as far as petitioners 1, 3 and 4.

21. Since as contained in the earlier paragraphs, no proceedings will lie as against the 2nd petitioner V.G Subbaraman (A3), the proceedings as against him alone are quashed. So, the petitions as far as the petitioners 1, 3 and 4 are dismissed and the petitions as far as 2nd petitioner is concerned are allowed.