Criminal Petition No. 847 of 2025 · The High Court · 2025

Order

This Criminal Petition is filed by the petitioner-accused No.2 seeking to quash the proceedings against him by setting aside the impugned order dated 24.09.2024 passed in CRL [/ P No 3717 of 2023 in S.T C Nl.No.346 of 202'l on the file of the learned X Judicial tVlagistrate of First Class, Manoranjan Complex, Nampally, Hyderabad (for short 'the learned trial Cou('), registered for the offence under Section 138 of the Negotiable lnstruments Act (for short 'the Nl Act'). 1 1\ 02 Heard Sri N.Ashwani Kumar, lrr qpns6 counsel representing Sri lVl.Avinash Reddy, learner counsel for petitioner and Sri K. Ravinder Reddy, learrr d counsel for unofficial respondent No.2. perused the materi rl on record. 03(a) A complaint was filed under Se r tion 190 read with Section 200 of the Code of Criminal : rocedure, (for short, "Cr.P C.") alleging the commission of c ffences under Sections 138 and 142 of the Nl Act by the ac: rsed persons The complaint was lodged by the respondent tr: 2 before the learned trial Court in respect of the all: ;ed offences committed on 19. 11.2020 and Og.O1 .2021 t re gist of the private complaint is that the complainant and U- r , accused had maintained acquaintance and association for nore than 20 years. Owing to the said acquaintance, il-t complainant advanced certain amounts to members of th,: Lingamaneni family, namely L. Ramesh (the petitioner_accus) >d No.2), LVS Rajasekhar, and their companies. 03(b) lt is further alleged that the accur; rd Nos.2 to 4 approached the complainant seeking funds for nvestment tn 3 real estate ventures and, in turn, promised to deliver certain properties to the complainant for the amounts received, with a furlher assurance that, in the event of their failure to deliver such properties, the amount would be repaid with interest at 18% per annum. A cheque bearing No.040421, dated

03.09.2013 for an amount of Rs.2.00 crores, drawn on Axis Bank, S.R. Nagar, Hyderabad, in favour of tt/l/s Viswaroopi Energy Private Limited i e. accused No 1, was issued and subsequently encashed through HDFC Bank, Benz Circle, Vijayawada. The complainant asseds that after waiting for nearly three years, she repeatedly approached the accused seeking repayment of the amount. Thereafter, the accused Nos.2 to 4 executed a Memorandum of Understanding (I\IOU) dated 24.06.20'16, signed by the petitioner-accused No.2 Under the said ttIOU, all creditors of the accused and their companies were collectively described as "Party A," and the debtors, including individuals and their companies, were described as "Party B." The complainant was reflected as the fifth member of Party A, while the accused No.4 was shown

as the first member of Party B, and the company was shown 4 as the third member. The consolidated liab I ty of pa(y B towards Party A was recorded as Rs.300 00 :rores, out of which the comprainant's entiflement was Rs .2 00 crores. However, the terms of the tt/OU were not honoLl ed 03(c). lt is further alleged that upon repee ted demands made by the complainant, the accused Nos 2 t: 4 expressed willingness to effect partial repayment, and the i ccused No.4 acting in the capacrty of Director of the Compe ny rssued a cheque for Rs.2.00 crores in April 2O1g l:wards part discharge of the debt. The accused rt> luested the complainant to await further instructions regardil 7 the date of presentation of the cheque, assuring that s I : would be informed once funds were arranged. The comple inant waited for approximately one and a half years and :3ain sought confirmation for presentation of the cheque. lt is ; ated that by the end of October 2020, the accused assured tt at he would intimate the complainant regarding the present rtion of the cheque and, in the event of failing to do so, she <:r ruld present the cheque at any time during November 2020. 5 03(d). lt is further alleged that as the complainant was unable to establish contact with the accused thereafter, she deposited the cheque in her bank on 23.11 2020. The cheque was returned unpaid on 2411.2020 along with a cheque return memo bearing the endorsement "payment stopped by drawer." Consequently, the complainant issued a statutory demand notice dated 19.122020 calling upon the accused to make payment of the cheque amount within 15 days The notice was duly served on 23. 122020 A reply notice dated 08.01 .2021 was issued by the accused and received by the complainant on 1001 .202'l As the accused failed to make payment even thereafter, the complainant filed the present complaint alleging commission of the offence under Section 138 of the Nl Act Based on the said complaint, the case was taken cognizance of and numbered as S.T.C. Nl No.346 of 2021.

04. lt is pertinent to note that a few developments subsequent to lodging of the complaint, and number of writ petitions came to be filed in the High Court for the State of 6 Telangana The learned Single Judge of l is Court vide common order dated 20.12.2022, passed in \A, ) No 33376 of 2021 and batch and the same is as follows: "Since all the writ petitions are filed by the petrtioners for quashing proceedings initiated under Sectio I 138 of the Negotiable Instruments Act, they are being he: d together and disposed off by way of this Common Order.

2. 3 Heard learned counsel for the pe:i ioners and learned counsel for the 2nd respondent_de facto cr> rplainant. Several grounds are raised rnc uding the grounds of there being no legally enforceabie < ebt and/or subsisting liability. 4 All these questions are mixed que:; ons of fact and law which can only be agitated before the trial Court during trial. lf the petitioners are so advised, the I can frle an application seeking discharge, in accordance v. i h law tald down by the Hon'ble Supreme court in the case I Bhushan Kumar and another v. State (NCT of Delhi) arr I another. All the grounds including the grounds raised in t re present writ may be raised.

5. Wth the above observations, a I the Writ Petitions are disposed off. No order as to costs. I s a sequel thereto, miscellaneous applications, if any, shall st: _rd closed.

05. The order of the learned Single Judg e was carried to the Hon'ble Supre{ne Court by way of SpL (: RL.) No.4330 of 2023 challenging the common orde. passed in 7 W.P.No.33376 of 2021 and batch. The Honourable Supreme Court by its order dated 21 .04.2023 passed the following order: "Since by the impugned order the High Court has given liberty to the petitioner to move the trial court for discharge, we do not frnd any reason to interfere with the impugned order and hence, the special leave petitions are dismissed. Pending application(s), if any, shall stand disposed of."

06. Pursuant to the drrections of the writ Court and the Honourable Supreme Court, a discharge petition CRL.M P.No.3717 of 2023 in CC.Nl.No 346 of 2021 (later clarified by the learned trial Court to be STC.N|.No.346 of 2021 on a query by this Court) was filed seeking discharge of the petitioner in the present criminal petition. The learned trial Court, after hearing learned counsels for both sides and considering the case vide impugned order dated 24.09.2024, held as follows: "... Several grounds were raised by the accused including there is no subsisting liability and the Hon'ble High Court gave finding that all the questions were mixed question of fact 8 and law which can be agitated before the trral I trial. ou rt during The accused was an independent n: Director in the accused company and was neve and responsible for the day to day affairs of :l company can be decided after full fledged trial o I stage. lt is settled law that a magistrate is devo r to discharge and/or drop proceedings in case/summons cases instituted on a complaint, rr proceedings in cheque dishonor case. ln view, and circumstances of the case, the petitior dismissed. t-executive -in-charge e accused not at this of powers SU MMON S :lud ing the f the facts rs hereby ln the result, the petition is dismissed. No, osts." 07(a). Learned counsel for the petitioner ;ubmitted that a perusal of the entire complaint does noi disclose any specific averment against the petitioner-accus:d No.2 As per the Companies Act, a director is a pr rson who is appointed to the Board of Directors of a corr :any and the Board is the governing body responsible fo supervising, controlling, and directing the affairs of the r rompany and appointment of the director must be accordir ; to the Act, Articles of Association, and shareholders, resc lutions. lt is contended that in order to attract the offences; under the Nl Act, particularly under Section 141, the c() nplaint must 9 contain specific assertions that the petitioner-accused No.2 was, at the time of the commission of the offence, in charge of and responsible for the conduct of the business of the company. ln the absence of such averments, the mere fact that the petitioner was a Director of the company cannot render him liable for the offences under the Nl Act, as vrcaflo us liability cannot be inferred in the absence of necessary pleadings indicating his role at the relevant time 07(b). lt is further submitted that only if the petitioner- accused No.2, as a Director, was actively involved in the day- to-day affairs of the company at the time of the alleged offence, could liability be fastened upon him. lt is further contended that the complaint, as presented, is devoid of any such specific averment, and therefore, initiation of proceedings is abuse of process of law. The docket order dated 07.09.2021 passed in S.T.C.No.346 of 2021 issuing summons to the accused is bereft of reasons, and the learned Magistrate is said to have erred in issuing process without recording any basis or satisfaction for doing so. l0 i-) 07(c) lt is further contended that the ,: rmplaint of the respondent No 2 is unsustainable as it lacl s any specific allegation regarding the acts or role of the peii ioner_accused No.2 in the conduct of the day_to_day affairs c f the company at the time of the alleged offence, which s a mandatory requirement under Section 141 0f the Nr ,r:t. rt is arso submitted that, in view of the change in circL mstances, the second petition seeking quashment of the 1 ,roceedings is maintainable 07(d) Wrth the above submissions, v,t rile praying to quash proceedings against the petitioner-ac(:r sed No 2 the learned counsel relied upon a decision of tl e Honourable Supreme Court in Hitesh Verma v. Health ( are at Home lndia Private Limited and othersl wherein : was held at Paragraph Nos.4 and 5 that: "4. There are twin requirements under sub-Sect.< n (1) of Section 1 41 of the 1 BB1 Act. ln the compte nt, it must be alleged that the person, who is soughr o be held liabte by virlue of vicaious liability, at thL> time when the offence was committed, was in charg.. of, t 12025; 7 Supreme Court Cases 623 1l and was responsible to the company for the conduct of the busrness of the company. A Director who is in charge of the company and a Director who was responsibte to the company for the conduct of the busrness, are two different aspecis. The requirement of law is that both the ingredients of sub-Section (1) of Section 141 of the 1881 Act must be incorporated in the complaint. Admittedly, there is no asseftion in the complaints that the appellant, at the time of commission of the offence, was in charge of the buslness of the company. Therefore, on a plain reading of the complaints, the appellant cannot be prosecuted with the ard of sub-Section (1) of Section 141 ofthe 1881 Act.

5. Accordingly, the impugned orders are set aside and the order taking cognizance of the complaints filed by the first respondent stands quashed and set aside onty as against the present appellant who is arraigned as accused no.3. We make it clear that we have made no adjudication on the merits of the complaints and a// rssues are left open to be decided by the trial court." 07(e). Further, he relied upon a decision of the Honourable Supreme Court in Sunil Bharti Mittal v. Central Bureau of lnvestigation2 wherein it was held at Paragraph Nos.48 and 52 that: ' lzor sy + scc oos t2 "48. Sine Qua Non for taking cognizance , f the offence is the application of mind by the Ma,1 strate and his satisfaction that the allegations, if p cved. would constitute an offence. lt is, therefore, imS.t rative that on a complaint or on a police repcr . the Magistrate is bound to consider the questior as to whether the sarne discloses commission of an ,> €ence and is required to form such an opinion it fitis respect. When he does so and decides ic lssue process, he shall be said to have taken cogn.; ance. At the stage of taking cognizance. llt, onty consideration before the Courl remains to c t, si6!s1 judiciously whether the material on whict the prosecution proposes to prosecLtte the ,a,; used brings out a prima facie case or not. 52. A wide discretion has been given as to g.r nt or refusal of process and it must be judicially exe. isect. A person ought not to be dragged into Court .t erely because a complaint has been filed. lf a prima facie case has been made out. the Magistrate oL.g ht to issue process and it cannot be refusecl t erely because he thinks that it is unlikely to resu,t in a conviction." 07(f). Further, he relied upon a der, :ision of the Honourable Supreme Court in Suseta padmar,; rthy Amma v. M/s. Bharti Airtel Limited wherein it was hel: at paragraph Nos.10, 12, 19, 20,24,28 and 29 that: 13 "!9. Accused No.3, who is a female senior citizen and the Director of Fibtel Telecom So/utions, filed Crl. O.P. No. 3470 of 2019 against CC. No. 3151 ot 2017 & Crl O.P. No. 5767 of 2019 against C.C. No. 3150 of 2017, before lhe High Courl under Secllon 482 of the CrPC for quashing of the criminal complaints qua her. 12. Aggrieved by the rejection of the petition for quashing of criminal complaints, the appellant herein filed the present appeal. Vide order dated 12th December 2022, this Courl had issued notice and stay of further proceedings qua the appellant was granted. 19. lt was held that merely because a person is a director of a company, it is not necessa4/ that he is aware about the dayloday functioning of the company. This Courl held that there is no universal rule that a director of a company is in charge of its everyday affairs. lt was, therefore, necessary, to aver as to how the director of the company was in charge of daylo-day affairs of the company or responsible to the affairs of the company. This Courl, however, clarified that lhe position of a managing director or a joint managing director in a company may be different. This Courl fufther held that these persons, as ihe desrErn ation of their office suggests, are rn charge of a company and are responsible for the conduct of the business of the company. To escape liability, they will have to prove that when the offence was committed, they had no knowledge of the offence 1,1 or that they exercised all due ditigence to prev(\ t the commission of the offence. 20. ln Pooja Ravinder Devidasanr ys. Slzrr : of Maharashtra ancl anotherl this Court obseryer, ./rus. "17. Every person connectecl with the Compa t , witt not fatt into the ambit of the provision. Time and t 1ain, it has been asserted by this Courl that onlv tose persons who were in charge of and responsi;), ) for the conduct of the business of the Company e, the time of commission of an offence wi be liaitt l for crimind action. A Director, who was not in char e of and was not responsible for the conduct .t the busrness of the Company at the relevant time. t t I not be liable for an offence under Section 141 of t e Nt Act. ln Nationat Smalt tndustries Corpn. [Na, onat Small lndustt'ies Corpn. Ltd. v. Harmeet Singh Fz ntal. (2010) s SCC 330 (2010) 1 SCC (Civ) 677 . (2) o) 2 SCC (Cri) 11131 this Courl observed (SCC p 336, paras 1 3-14) "13. Seclron 1 41 is a penal provision rt vicaious liability, and which, as per set ed law nust be strictly construed. tt is lherefore, not suffict= tt to make a bald cursory statement in a complaint t I the Director (arrayed as an accused) is in charge o, and responsible to the company for the conduct t the busrness of the company without anything more s to the role of the Director. But the comptaint shout(t ipelt out as to how and in what manner Respondent 1 was in charge of or was responsible to the ac.' rsed Company for the conduct of rls busrness. Ihl.. s rn = t5 consonance with strict interpretation of penal sfafu/es, especially, where such stafules create vicarious liabtlity. 1 4. A company may have a number of Directors and to make any or all the Directors as accused in a complaint merely on the basrs of a statemenl that they are in charge of and responsible for the conduct of the busrness of the company without anything more is not a sufficient or adequate fulfilmenl of the requirements under Section 141 ." ORDER CRLP.No.847 of 2025 , r1: STA 14- O,: '2 ILC ?Ui i,\a. i! ..,;l ll(.;,i-..,-:- ' --:-:-: -:-:'" ,} ,r. l', \- i\ ALLOWING THE CRIMINAL PETITION .<7 co€4 &*-