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S.V Muzumdar And Others v. Gujarat State Fertilizer Co. Ltd. And Another
Factual and Procedural Background
Respondent 1 supplied goods on credit to M/s Garware Nylons Ltd. (“the Company”). Cheques issued by the Company were dishonoured for insufficiency of funds and the amounts remained unpaid even after statutory notices. The complainant thus filed a criminal complaint before the Chief Judicial Magistrate (CJM), Vadodara, against the Company and thirteen individuals (Directors, employees and other professionals) alleging offences under Section 138 of the Negotiable Instruments Act, 1881 (“the Act”) read with Sections 420 and 114 of the Indian Penal Code.
After recording the statement of the complainant’s marketing manager, the CJM issued summons to all fourteen accused. Revision petitions against the summoning order were dismissed on 21 March 1996. Special criminal applications filed in the High Court were withdrawn so that the accused could seek relief before the CJM, but the CJM rejected their application to drop proceedings on 21 August 1997. A Single Judge of the Gujarat High Court thereafter refused to quash the complaint, holding that the pleas raised were matters for trial. The present appeals challenge that High Court decision.
Legal Issues Presented
- Whether the complaint, even when taken at face value, discloses the necessary ingredients of Section 141 of the Negotiable Instruments Act so as to fasten criminal liability on the individual appellants for the Company’s dishonoured cheques.
- Whether criminal proceedings under Section 138/141 NI Act can or should be quashed at the threshold under the Court’s inherent powers when questions of fact—such as who was “in charge of and responsible to the company”—are disputed.
- Whether these appeals ought to be tagged with matters already referred to a larger Bench dealing with similar Section 141 questions.
Arguments of the Parties
Appellants’ Arguments
- Identical questions stand referred to a larger Bench; hence these appeals should be heard with those matters.
- The complaint, even if accepted in its entirety, does not show that the appellants were in charge of, or responsible for, the conduct of the Company’s business at the relevant time; therefore the basic foundation required by Section 141 is missing.
- Some appellants are lawyers or other professionals with no participation in day-to-day management, making it impossible to attribute vicarious liability to them.
Respondents’ Arguments
- No constitutional challenge is involved; the only question is factual application of Section 141, which should be decided at trial, not at the quashing stage.
- The complaint contains specific averments sufficient to attract Section 141 and deem each appellant liable; consequently, the High Court rightly declined to interfere.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court’s Reasoning and Analysis
The Court reproduced Section 141 NI Act and emphasised its structure: (i) the company, (ii) persons “in charge of and responsible for” its business, and (iii) directors/managers/ officers whose consent, connivance or neglect facilitated the offence. Whether any given accused falls within these categories is a factual matter to be proved at trial. The proviso to Section 141(1) places the burden on an accused to show lack of knowledge or due diligence.
The appellants’ principal request—dropping proceedings because the complaint allegedly lacks the necessary averments—cannot be granted at the threshold. Questions of being “in charge” or “responsible,” or of consent/connivance, depend on evidence yet to be led. Therefore, the High Court properly refused to quash the complaint, and the appellants must stand trial.
On the plea to tag these appeals with matters pending before a larger Bench, the Court held that no constitutional validity issue is raised here; the outcome of the larger-Bench reference, when delivered, will naturally govern the trial. Hence tagging is unnecessary.
Given the long pendency, the Court directed the trial court to take up the case on 8 August 2005, encouraged early completion (preferably by November 2005) and permitted applications under Section 205 CrPC for exemption from personal appearance, reserving power to revoke such exemption if the trial is delayed.
Holding and Implications
The appeals are dismissed.
Immediate consequence: the criminal proceedings before the CJM, Vadodara, will continue, with directions to expedite trial and with possible dispensation of the appellants’ personal attendance under Section 205 CrPC. The judgment does not create new precedent; it reiterates that the question of managerial responsibility under Section 141 NI Act is ordinarily one for trial, not for pre-trial quashing.
Arijit Pasayat, J.— Leave granted.
2. In all these appeals the appellants have questioned correctness of the judgment rendered by a Single Judge of the Gujarat High Court refusing to accept the prayer by the appellants to quash the proceedings initiated on the basis of a complaint filed by the respondents alleging commission of offence in terms of Section 138 of the Negotiable Instruments Act, 1881 (in short “the Act”) and other connected offences.
3. The facts as projected by the respondents in the complaint were to the effect that Respondent 1 (hereinafter referred to as “the complainant”) supplied goods on credit to M/s Garware Nylons Ltd. (hereinafter referred to as “the Company”) (Accused 14). Cheques issued by the Company were not honoured by the drawee bank on the ground of insufficient funds. Payments were not made even after legal notices. There were 14 accused persons including the Company named in the complaint. Some of the accused persons were Directors and while others were employees. Learned Chief Judicial Magistrate, Vadodara after recording statement of the Marketing Manager who had filed the complaint for himself and on behalf of the complainant company, issued summons to all the accused persons for facing trial for the alleged commission of offences punishable under Section 138 of the Act read with Sections 420 and 114 of the Indian Penal Code, 1860 (in short “IPC”). The order issuing summons was challenged by filing criminal revision applications which were dismissed by order dated 21-3-1996. The said common judgment and order was challenged before the High Court by filing special criminal applications and these applications were permitted to be withdrawn to enable the appellants to move applications before the learned Chief Judicial Magistrate as stated by the petitioners. Application was filed with prayer to drop proceedings. That application was rejected by order dated 21-8-1997. Same was questioned before the High Court. The challenge before the High Court was primarily on the ground that there was no material to show that the accused persons at the time of offence as allegedly committed were in charge and/or responsible to the Company for the conduct of the business as required under Section 141(1) of the Act. It was also submitted that the deeming provision under sub-section (2) of Section 141 which covers persons with whose consent or connivance or any attributable negligence for commission of the offence by the company was also not applicable. The High Court did not accept the pleas and held that the controversy was to be adjudicated at the trial. It considered the petition to be unacceptable attempt to stall the criminal proceedings at the threshold.
4. In support of the appeals, learned counsel for the various appellants submitted that identical issues have been referred for consideration by larger Bench and, therefore, these matters should also be tagged down with those cases. Reference has been made to various orders in this connection.
5. It was on merits pointed out that even the complaint read as a whole does not disclose commission of any offence, more particularly, so far as the appellants are concerned. It was pointed out that some of the appellants are lawyers and/or other professionals who had no scope for direct participation in the conduct of business and are not involved in the conduct of business and, therefore, no offence can be attributed to them in terms of Section 141 of the Act.
6. In response, learned counsel for the respondents submitted that there is no challenge to the constitutional validity of the provisions and that can never be the subject-matter of challenge in the proceedings under the Code of Criminal Procedure, 1973 (in short “the Code”). The allegations against the accused persons were covered by Section 141 of the Act. There were specific allegations against the appellants and, therefore, the courts below were justified in refusing to accept the prayer made by the appellants to drop the proceedings.
7. Section 141 of the Act reads as follows:
“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:
Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence:
Provided further that where a person is nominated as a director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.
(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.
Explanation.—For the purposes of this section,—
(a) ‘company’ means any body corporate and includes a firm or other association of individuals; and
(b) ‘director’, in relation to a firm, means a partner in the firm.”
8. We find that the prayers before the courts below essentially were to drop the proceedings on the ground that the allegations would not constitute a foundation for action in terms of Section 141 of the Act. These questions have to be adjudicated at the trial. Whether a person is in charge of or is responsible to the company for conduct of business is to be adjudicated on the basis of materials to be placed by the parties. Sub-section (2) of Section 141 is a deeming provision which as noted supra operates in certain specified circumstances. Whether the requirements for the application of the deeming provision exist or not is again a matter for adjudication during trial. Similarly, whether the allegations contained are sufficient to attract culpability is a matter for adjudication at the trial.
9. Under the scheme of the Act, if the person committing an offence under Section 138 of the Act is a company; by application of Section 141 it is deemed that every person who is in charge of and responsible to the company for conduct of the business of the company as well as the company are guilty of the offence. A person who proves that the offence was committed without his knowledge or that he had exercised all due diligence is exempted from becoming liable by operation of the proviso to sub-section (1). The burden in this regard has to be discharged by the accused.
10. The three categories of persons covered by Section 141 are as follows:
(1) The company who committed the offence.
(2) Everyone who was in charge of and was responsible for the business of the company.
(3) Any other person who is a Director or a manager or a secretary or officer of the company with whose connivance or due to whose neglect the company has committed the offence.
11. Whether or not the evidence to be led would establish the accusations is a matter for trial. It needs no reiteration that proviso to sub-section (1) of Section 141 enables the accused to prove his innocence by discharging the burden which lies on him.
12. Therefore, the High Court was justified in rejecting the petition filed by the appellants. The larger Bench is considering issues referred to. The decision to be rendered by the larger Bench obviously would govern the trial. As rightly submitted by the respondents in these appeals, there is no challenge to the validity of any provision and grievance essentially related to the prayer for dropping the proceedings. Therefore, we find no substance in the plea for tagging these matters with those pending before the larger Bench.
13. Taking into account the fact that the cases have been pending for nearly a decade, we direct that the matter be taken up on 8-8-2005 by the trial court. If the appellants file applications in terms of Section 205 of the Code for dispensing with their personal attendance, the trial court will do to take note of the same and dispense with the personal attendance by stipulating conditions in terms of Section 205(2) of the Code. It has to be borne in mind that while dealing with an application in terms of Section 205 of the Code, the court has to consider whether any useful purpose would be served by requiring the personal attendance of the accused or whether progress of the trial is likely to be hampered on account of his absence. We make it clear that if at any stage the trial court comes to the conclusion that the accused persons are trying to delay the completion of trial, it shall be free to refuse the prayer for dispensing with personal attendance. The trial court would do well to complete the trial by the end of November 2005. The parties shall cooperate in that regard. We make it clear that we have not expressed any opinion on the merits of the case.
14. The appeals are accordingly dismissed.
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