Pooja Ravinder Devidasani v. State Of Maharashtra And Another

N.V Ramana, J.— Leave granted. These appeals by special leave are filed by the appellant challenging the impugned judgment and order dated 6-10-2010 passed by the High Court of Judicature of Bombay in Pooja Ravinder Devidasani v. State of Maharashtra WP (Cri) No. 614 of 2010 whereby the High Court dismissed the writ petitions filed by the appellant seeking quashing of the complaints filed by Respondent 2 under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881 (hereinafter referred to as “the NI Act”).

2. The brief facts of these appeals are that Respondent 2, a finance Company, filed seven complaints under the NI Act against the appellant and others viz. (1) Complaint No. 3370.SS/2008 claiming Rs 1,64,69,801.14, (2) Complaint No. 3641.SS/2008 claiming Rs 1,06,55,289.91, (3) Complaint No. 3368.SS/2008 claiming Rs 1,41,95,806.40, (4) Complaint No. 3640.SS/2008 claiming Rs 85,21,294, (5) Complaint No. 3369.SS/2008 claiming Rs 1,88,12,292, (6) Complaint No. 3642.SS/2008 claiming Rs 1,69,95,353.50; and (7) Complaint No. 4086.SS/2009 for a claim of Rs 8,08,973.25. In all the complaints the allegation was that Respondent 2 Company had extended trade finance facility to M/s Elite International (P) Ltd. of which the appellant was a Director at the relevant time and several cheques (119 in number) issued by M/s Elite International (P) Ltd. aggregating to Rs 8,64,58,810.16, in discharge of its liability towards part-payment, stood dishonoured with the banker's remarks “insufficient funds”. According to the complainant, at the material time, the appellant-accused was in-charge and at the helm of affairs of M/s Elite International (P) Ltd. and therefore she is vicariously liable for the default of the Company as she is responsible for the conduct of its business. Metropolitan Magistrate, 12th Court, Bandra, Mumbai took cognizance of the complaints and issued process against the appellant-accused for the offence punishable under Section 138 of the NI Act.

3. The aggrieved appellant filed criminal writ petitions before the High Court under Section 482 CrPC seeking quashing of the criminal proceedings pending before the Metropolitan Magistrate. The High Court initially by an interim order dated 28-7-2010 granted stay of the criminal proceedings qua the appellant and directed the trial to be proceeded against the other accused. Finally, by the impugned order WP (Cri) No. 614 of 2010, the High Court dismissed the writ petitions filed by the appellant. Challenging the said order of dismissal, the appellant has preferred these appeals before this Court.

4. The main contention advanced by the learned counsel for the appellant is that the appellant is merely a housewife who was appointed as a non-Executive Director of M/s Elite International (P) Ltd. and had no active role in the conduct of business of the Company, particularly in the issuance of the cheques in question. As a matter of fact, the appellant had resigned as the Director much before the issuance of the cheques in question, her resignation was also approved by the Board of Directors in the meeting held on 17-12-2005. The resignation of the appellant as Director of M/s Elite International (P) Ltd. has also been informed to the Registrar of Companies by Form No. 20-B under Section 159, Schedule V, Part II of the Companies Act, 1956 when the annual return for the year ending on 31-3-2006 was filed. The trade facility was sanctioned by Respondent 2 on 19-1-2005 as per the letter of guarantee executed by the appellant on the same date. The effective date of resignation of the appellant as Director of the Company was 17-12-2005. With the result of approval of her resignation by the Board of Directors, the appellant ceased to play any role in the activities of the Company. The cheques in question were issued by the Company in the year 2008 i.e about two-and-half years after resignation of the appellant as Director. This fact itself emphasises that the appellant was not involved in the affairs of the Company when the cheques were issued and had no role either in the conduct of the business of the Company or in issuing the cheques.

5. After resignation of the appellant as a Director, Form 32 under the Companies Act, 1956, pursuant to Section 303(2), was filed by M/s Elite International (P) Ltd. on 20-12-2005 with the Registrar of Companies indicating the appointments and changes among Directors. In the said Form 32, the names of two Directors who were newly appointed were shown with remarks “appointed as a Director-Operations” and against the name of the appellant the remarks “resigned as a Director” were shown. Taking note of this Form 32, Respondent 2 arrayed the newly appointed Directors as Accused 4 and 5 in the complaints. It is thus clear that Respondent 2 is well aware of the fact that the appellant was no longer a part of M/s Elite International (P) Ltd., yet initiated criminal proceedings fastening vicarious liability on the appellant.

6. The learned counsel submitted that to fasten vicarious liability it is necessary under Section 141 of the NI Act that the complainant must aver and prove how and in what manner the appellant was responsible in the conduct of the business of the Company. The complainant shall also state in the light of proviso to Section 141(1), in what capacity the appellant was incharge of day-to-day affairs of the default Company at the relevant time, particularly when cheques were issued. Respondent 2 (complainant) did not fulfil these pre-requisites contemplated by the Act but sought to impute the appellant with vicarious liability only on account of the fact that the appellant had attended the Board Meeting of M/s Elite International (P) Ltd. held on 14-8-2004. In that meeting, the Board of Directors authorised another Director to execute necessary documents in connection with trade finance facility from Respondent 2. The mere presence of the appellant in the Board Meeting on 14-8-2004 would not amount to an offence punishable under Section 138 of the NI Act. Merely arraying a Director of a company as an accused in the complaint and making a bald or cursory statement without attributing any specific role, that the Director is responsible for the conduct of the business would not make a case of vicarious liability against a Director of the company under Section 141 of the NI Act. Similarly, simply stating that the appellant was in charge of the affairs of the Company would not be sufficient to justify the allegation under Section 138 of the NI Act. In other words, the complainant must explain the role specifically attributable to the appellant in the commission of the offence. Placing reliance on this Court's judgment in National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal (2010) 3 SCC 330 the learned counsel submitted that the law is well settled by this Court in a catena of cases that the complainant should specifically show as to how and in what manner the accused was responsible.

7. Despite Respondent 2 having knowledge of the resignation of the appellant as Director of the Company and that she had no role in the issuance of cheques in question, yet as an arm twisting measure, the complainant arrayed the appellant in the complaint as a defaulter and initiated criminal proceedings against her. Knowing fully well about the change of Directors, Respondent 2 unnecessarily dragged the name of the appellant into the litigation in a casual and callous manner and initiated criminal proceedings against her along with the existing Directors of the Company which is untenable under the law. The Metropolitan Magistrate without proper application of mind issued process and the High Court also erred in construing the penal provision enunciated under the NI Act, and wrongfully dismissed the criminal writ petitions filed by the appellant under Section 482 CrPC.

8. In support of his contention that the appellant was no more a Director of the Company and responsible for the conduct of its business at the relevant time, the learned counsel relied upon the following:

(i) Agenda Item 4 of the Minutes of the Board meeting dated 17-12-2005 which reads as under:

“4. Resignation of director

Chairman placed before the members of the Board a letter received from Ms Pooja Devidasani tendering her resignation as a Director of the Company.

Members of the Board noted the same and then they unanimously resolved as under:

Resolved that resignation tendered by Ms Pooja Devidasani be and is hereby accepted from the conclusion of this Board Meeting.”

(ii) Form 32 submitted to the Registrar of Companies in pursuance of requirements of provisions of the Companies Act, 1956 in which against the name of the appellant, it was shown as “resigned as a Director”. Whereas against the names of Mr Hitesh Haria and Mr Parag Tejani, the words “appointed as a Director-Operations” were shown. Against the column “Date of appointment or change” the dates against all the above three persons were shown as 17-12-2005. Taking note of these changes, Respondent 2 arrayed the newly added Directors as defaulters, but not omitted the appellant who has resigned as a Director which is specified in the very Form 32.

(iii) The annual return filed by the Company for the year ending 31-3-2006 which also showed that the appellant was no longer a Director of the Company. In Column IV of the annual return against the name of the appellant, it was clearly mentioned as “Date of ceasing: 17-12-2005”.

(iv) A letter dated 5-2-2009 issued by the default Company in favour of Respondent 2. In the said letter, while forwarding certain details/information, a list of Directors was also sent. The said list did not contain the name of the appellant.

9. The learned counsel for the appellant submitted that in the light of the above Respondent 2 was fully aware that the appellant had ceased to be a Director of the Company: (a) prior to the issuance of cheques, (b) prior to the dishonour of cheques, (c) prior to the date of issuance of legal notice, (d) prior to the expiry of 15 days' period after issuance of legal notice after which cause of action to file criminal complaints arose; and (e) prior to the filing of the criminal complaints.

10. The learned counsel finally submitted that the allegations set out in the complaint do not constitute any offence against the appellant and the High Court committed a manifest error in interpreting Section 141 of the NI Act in its proper perspective, which led to travesty of justice. He therefore urged for setting aside the impugned judgment WP (Cri) No. 614 of 2010 and quash the criminal proceedings against the appellant.

11. The learned Senior Counsel appearing for the respondents, on the other hand, supported the impugned judgment WP (Cri) No. 614 of 2010 of the High Court and submitted that by dismissing the writ petitions of the appellant the High Court had neither committed any illegality nor misinterpreted the provisions of the NI Act. Vehemently contending that the resignation of the appellant itself is a disputed fact, he submitted that no certified copy of Form 32 was produced by the appellant and only a certified copy of annual return has been filed before this Court. Under Section 79 of the Evidence Act, 1872, a court can presume genuineness of a document only when a certified copy is filed. Even if a certified copy of Form 32 is produced by the appellant to contend that at the time of issuance of cheques, she had already resigned, when such Form 32 is disputed by the complainant, it shall be the bounden duty of the appellant to prove such Form 32 by leading evidence in the trial. Only supplying a copy of Form 32, without proving its contents, would not be sufficient to quash a complaint under Section 138 read with Section 141 of the NI Act.

12. In support of his contention that when Form 32 furnished by the appellant was disputed by Respondent 2 the High Court cannot draw an inference on the basis of such disputed document, the learned counsel relied on decisions of this Court in Chand Dhawan v. Jawahar Lal (1992) 3 SCC 317, (1992) 2 SCR 837, Malwa Cotton and Spg. Mills Ltd. v. Virsa Singh Sidhu (2008) 17 SCC 147. Therefore, the High Court was right in dismissing the writ petitions preferred by the appellant. Hence the appellant cannot take the plea of her resignation to escape from legal liability that too when the resignation itself is a disputed fact. Unless and until trial takes place, it cannot be held that the appellant is no more a Director and not liable. At the material time relating to the financial transaction between Respondent 2 and the accused Company, the appellant was a Director and looking after the day-to-day affairs of the Company as a Director and hence she is liable to be prosecuted since she had connived in the commission of offence.

13. The learned counsel further submitted that apart from the averments made in the complaint, the appellant has also executed an irrevocable letter of guarantee on 19-1-2005 in favour of Respondent 2 complainant, for availing trade finance facility. In the said letter of guarantee, the appellant categorically undertook that in the event of the Company failing or neglecting or refusing to pay the amount remaining unpaid, the same would be payable by her. She further agreed that her liability and obligation under the guarantee shall be continuing, absolute, unconditional and irrevocable until the borrower is fully discharged from all liabilities, irrespective of any disputes or differences between the parties. The binding clause of the guarantee reads:

“I, the guarantor, expressly, irrevocably and unconditionally agree that your Company shall be entitled to enforce this guarantee without making any demand on or taking any proceedings against the client for all the amounts due and payable by the client to your Company under and in relation to the Agreement.”

The cheques in question were issued on the basis of the said guarantee given by the appellant and on the simple ground of resignation she cannot deviate from vicarious liability as per the assurance given by her in the letter of guarantee.

14. The learned counsel for the respondents made a reference to the judgment of this Court in Gunmala Sales (P) Ltd. v. Anu Mehta (2015) 1 SCC 103 decided on 17-10-2014 and submitted that once in a complaint filed under Section 138 read with Section 141 of the NI Act, the basic averment is made that the Director was in charge of and responsible for the conduct of the business of the Company at the relevant time when the offence was committed, the Magistrate can issue process against such Director and the basic averment is sufficient to make out a case against the Director. Hence, the learned Senior Counsel concluded that there is no illegality in issuing process against the appellant.

15. We have given our thoughtful consideration to the arguments advanced by the counsel on either side at length. The questions that arise for determination are:

15.1 (i) Whether the appellant is liable for prosecution under Section 138 read with Section 141 of the NI Act for the alleged offence of dishonour of cheques committed by the default Company?

15.2 (ii) Whether the High Court was right in dismissing the writ petitions filed by the appellant seeking quashing of the criminal proceedings initiated against her by Respondent 2?

16. Before delving into the merits of the case, it would be apt to take note of relevant portions of the complaints filed by Respondent 2 which read thus:

“I say that Accused 2 to 5 on behalf of Accused 1 have approached us with request for trade finance facility and accordingly the said facility has been granted by us to the accused as per their request and requirement.

I say that Accused 1 is a private limited company of which Accused 2, 3 and 5 are Directors and Accused 4 is the Director and authorised signatory of Accused 1 M/s Elite International (P) Ltd.—Imprest. At all material time relevant and relating to the complaint, Accused 2 to 5 were and are in charge of and responsible for the conduct of business of Accused 1 and are also looking after the day-to-day affairs of Accused 1. It is further submitted that Accused 2 to 5 with Accused 1 are liable to be prosecuted and/or connived in the commission of the present offence, in their capacity as a Director/signatory of the said private limited company.

I say that as narrated in para 4 Accused 2 to 5 being responsible for the affairs of Accused 1 i.e private limited company are liable to be prosecuted for having committed a criminal offence in the event of failure on their part to comply with the requisitions contained in the statutory notice dated 3-11-2008, which was sent to them both under RPAD and UPC on 6-11-2008. I say that notice was received by all the accused on or about 8-11-2008 and notice sent through UPC are deemed to have been served. However, the accused have failed and neglected to make our payment under the abovesaid dishonoured cheques.”

17. There is no dispute that the appellant, who was wife of the Managing Director, was appointed as a Director of the Company—M/s Elite International (P) Ltd. on 1-7-2004 and had also executed a letter of guarantee on 19-1-2005. The cheques in question were issued during April 2008 to September 2008. So far as the dishonour of cheques is concerned, admittedly the cheques were not signed by the appellant. There is also no dispute that the appellant was not the Managing Director but only a non-executive Director of the Company. Non-executive Director is no doubt a custodian of the governance of the company but is not involved in the day-to-day affairs of the running of its business and only monitors the executive activity. To fasten vicarious liability under Section 141 of the Act on a person, at the material time that person shall have been at the helm of affairs of the company, one who actively looks after the day-to-day activities of the company and is particularly responsible for the conduct of its business. Simply because a person is a Director of a company, does not make him liable under the NI Act. Every person connected with the Company will not fall into the ambit of the provision. Time and again, it has been asserted by this Court that only those persons who were in charge of and responsible for the conduct of the business of the Company at the time of commission of an offence will be liable for criminal action. A Director, who was not in charge of and was not responsible for the conduct of the business of the Company at the relevant time, will not be liable for an offence under Section 141 of the NI Act. In National Small Industries Corpn. (2010) 3 SCC 330 this Court observed:

“13. Section 141 is a penal provision creating vicarious liability, and which, as per settled law, must be strictly construed. It is therefore, not sufficient to make a bald cursory statement in a complaint that the Director (arrayed as an accused) is in charge of and responsible to the company for the conduct of the business of the company without anything more as to the role of the Director. But the complaint should spell out as to how and in what manner Respondent 1 was in charge of or was responsible to the accused Company for the conduct of its business. This is in consonance with strict interpretation of penal statutes, especially, where such statutes create vicarious liability..

14. A company may have a number of Directors and to make any or all the Directors as accused in a complaint merely 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 is not a sufficient or adequate fulfilment of the requirements under Section 141.”

(emphasis in original)

18. In Girdhari Lal Gupta v. D.H Mehta (1971) 3 SCC 189, AIR 1971 SC 2162, this Court observed that a person “in charge of a business” means that the person should be in overall control of the day-to-day business of the Company.

19. A Director of a company is liable to be convicted for an offence committed by the company if he/she was in charge of and was responsible to the company for the conduct of its business or if it is proved that the offence was committed with the consent or connivance of, or was attributable to any negligence on the part of the Director concerned (see State of Karnataka v. Pratap Chand (1981) 2 SCC 335).

20. In other words, the law laid down by this Court is that for making a Director of a company liable for the offences committed by the company under Section 141 of the NI Act, there must be specific averments against the Director showing as to how and in what manner the Director was responsible for the conduct of the business of the company.

21. In Sabitha Ramamurthy v. R.B.S Channabasavaradhya (2006) 10 SCC 581, it was held by this Court that:

“7. … it is not necessary for the complainant to specifically reproduce the wordings of the section but what is required is a clear statement of fact so as to enable the court to arrive at a prima facie opinion that the accused is vicariously liable. 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.”

(emphasis supplied)

By verbatim reproducing the words of the section without a clear statement of fact supported by proper evidence, so as to make the accused vicariously liable, is a ground for quashing proceedings initiated against such person under Section 141 of the NI Act.

22. As held by this Court in Pepsi Foods Ltd. v. Judicial Magistrate (1998) 5 SCC 749, summoning of an accused in a criminal case is a serious matter. Criminal law cannot be set into motion as a matter of course. The order of the Magistrate summoning the accused must reflect that he has applied his mind to the facts of the case and the law applicable thereto. He has to examine the nature of allegations made in the complaint and the evidence both oral and documentary in support thereof and would that be sufficient for the complainant to succeed in bringing charge home to the accused. It is not that the Magistrate is a silent spectator at the time of recording of preliminary evidence before summoning of the accused. The Magistrate has to carefully scrutinise the evidence brought on record and may even himself put questions to the complainant and his witnesses to elicit answers to find out the truthfulness of the allegations or otherwise and then examine if any offence is prima facie committed by all or any of the accused.

23. In Gunmala Sales (P) Ltd. (2015) 1 SCC 103 on which the learned counsel for the respondents has heavily relied, this Court at para 34.3 held:

“34.3. In the facts of a given case, on an overall reading of the complaint, the High Court may, despite the presence of the basic averment, quash the complaint because of the absence of more particulars about the role of the Director in the complaint. It may do so having come 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 Director. Take for instance a case of a Director suffering from a terminal illness who was bedridden at the relevant time or a Director who had resigned long before issuance of cheques. In such cases, if the High Court is convinced that prosecuting such a Director is merely an arm-twisting tactic, the High Court may quash the proceedings. It bears repetition to state that to establish such case unimpeachable, incontrovertible evidence which is beyond suspicion or doubt or some totally acceptable circumstances will have to be brought to the notice of the High Court. Such cases may be few and far between but the possibility of such a case being there cannot be ruled out.”

(emphasis supplied)

24. In the light of the law laid down by this Court, the present case be examined. It is not in dispute that two persons, namely, Parag Tejani and Hitesh Haria, were inducted as Director-Operations of the Company w.e.f 17-12-2005 by virtue of a resolution passed by the Company on the same date. It is on the same date the appellant had ceased to be a Director as per the Annual Report which is not disputed by Respondent 2. A perusal of the complaint shows that Respondent 2 has made the newly appointed Directors-Operations Parag Tejani and Hitesh Haria also as the accused stating that all the accused approached him with a request for trade finance facility and accordingly the said facility was granted as per their request. It thus gives an impression that Respondent 2 is well aware of the change of Directors in the accused Company. In spite of knowing the developments taken place in the Company that the appellant was no longer a Director of the Company and two new Directors were inducted, Respondent 2 has chosen to array all of them as accused in the complaints. Moreover, Respondent 2 had not disputed this fact emphatically in the proceedings before the High Court. We have gone through the reply-affidavit filed by Respondent 2 before the High Court of Bombay.

25. A bare reading of the averment of Respondent 2 before the High Court, suggests that his case appears to be that the appellant has not proved her resignation in unequivocal terms and it is a disputed question of fact. It is noteworthy that Respondent 2 except making a bald statement and throwing the burden on the appellant to prove authenticity of documents, has not pleaded anywhere that the public documents Form 32 and annual return are forged and fabricated documents. Curiously, Respondent 2 on the one hand raises a doubt about the genuineness of Form 32, a public document, through which the default Company had communicated the change of Directors to the Registrar of the Companies with the effect of resignation of the appellant and induction of two Directors-Operations and on the other hand, he has arrayed the two newly appointed Directors-Operations as the accused whose names were communicated to the Registrar of Companies by the very same Form 32. The respondent complainant cannot be permitted to blow hot and cold at the same time. When he denies the genuineness of the document, he cannot act upon it and array the newly appointed Directors as accused.

26. We have also perused the copy of annual return filed by M/s Elite International (P) Ltd. for the year 2006, on 31-3-2006 furnished in Form 20-B as per Section 159 of the Companies Act, 1956. Column IV of Schedule V—Part II of the annual return, requires information regarding Directors/Manager/Secretary (past and present) in which against the name of Devidasani Ravinder Pooja, the appellant it was mentioned “Date of ceasing: 17-12-2005”. Admittedly, a certified copy of the annual return became part of record. Hence, we are of the considered opinion that the factum of the appellant resigning from the Board of Directors is established.

27. Unfortunately, the High Court did not deal the issue in a proper perspective and committed error in dismissing the writ petitions by holding that in the complaints filed by Respondent 2, specific averments were made against the appellant. But on the contrary, taking the complaint as a whole, it can be inferred that in the entire complaint, no specific role is attributed to the appellant in the commission of offence. It is settled law that to attract a case under Section 141 of the NI Act a specific role must have been played by a Director of the company for fastening vicarious liability. But in this case, the appellant was neither a Director of the accused Company nor in charge of or involved in the day-to-day affairs of the Company at the time of commission of the alleged offence. There is not even a whisper or shred of evidence on record to show that there is any act committed by the appellant from which a reasonable inference can be drawn that the appellant could be vicariously held liable for the offence with which she is charged.

28. In the entire complaint, neither the role of the appellant in the affairs of the Company was explained nor in what manner the appellant is responsible for the conduct of business of the Company, was explained. From the record it appears that the trade finance facility was extended by Respondent 2 to the default Company during the period from 13-4-2008 to 14-10-2008, against which the cheques were issued by the Company which stood dishonoured. Much before that on 17-12-2005 the appellant resigned from the Board of Directors. Hence, we have no hesitation to hold that continuation of the criminal proceedings against the appellant under Section 138 read with Section 141 of the NI Act is a pure abuse of process of law and it has to be interdicted at the threshold.

29. So far as the letter of guarantee is concerned, it gives way for a civil liability which Respondent 2 complainant can always pursue the remedy before the appropriate court. So, the contention that the cheques in question were issued by virtue of such letter of guarantee and hence the appellant is liable under Section 138 read with Section 141 of the NI Act, cannot also be accepted in these proceedings.

30. Putting the criminal law into motion is not a matter of course. To settle the scores between the parties which are more in the nature of a civil dispute, the parties cannot be permitted to put the criminal law into motion and courts cannot be a mere spectator to it. Before a Magistrate taking cognizance of an offence under Sections 138/141 of the NI Act, making a person vicariously liable has to ensure strict compliance with the statutory requirements. The superior courts should maintain purity in the administration of justice and should not allow abuse of the process of the court. The High Court ought to have quashed the complaint against the appellant which is nothing but a pure abuse of process of law.

31. For all the foregoing reasons, we are of the view that this is a fit case for quashing the complaint, and accordingly allow these appeals by setting aside the impugned judgment WP (Cri) No. 614 of 2010 passed by the High Court and quash the criminal proceedings pending against the appellant before the trial court.