Ashish Mutha & Ors. v. The State of Maharashtra & Ors.

Mr. Yashpal Thakur i/by M/s. Paras Kuhad & Associates for respondent no. 2. CORAM : K.U. CHANDIWAL,J. DATED : SEPTEMBER 30, 2011 P.C. Heard finally.

2. Respondent M/s. Global Trade Finance Ltd. (for short "GTFL) had lent financial facilities to M/s. Uniword Telecom Ltd. (for short "Company") by way of trade finance facilities as was required by the company. Consequently sanction letter was issued. The agreements were entered into. The letter of guarantees were signed by the original accused nos. 2, 3 and 6. In discharge of the liability and debts towards repayment of the trade finance facility, due and payable to GTFL. The company or accused/applicants had issued 18 cheques which on presentation were dishonoured. Consequently statutory notices were issued to the accused applicants dated 13.1.2010. Despite receipt of the statutory notices, there was no liquidation of the cheque amount. Consequently the complaint was filed. After recording verification, process was issued against applicants on 28.10.2009. 2 7//apl/462.11group

3. The applicants are accused no. 4 Ms. Neha Mutha and accused no. 5 Mrs. Usha Mutha. Criminal application Nos. 461, 462, 463, 464 of 2011 are filed by Ashish Mutha, original accused no. 6. Criminal Application Nos. 425, 426, 427, 428 of 2011 are filed by Ms. Neha Mutha and Mrs. Usha Mutha, original accused Nos.4 and 5.

4. The learned counsel for the applicants contend that there are no averments to apply satisfaction in terms of section 141 of N.I. Act. No documents are even produced to support allegations. The applicants Neha Mutha and Usha Mutha had already resigned. Form No. 32 of Neha Mutha shows cessation from 10.11.2008 while cheques in question are subsequent to her resignation. Mrs. Usha Mutha was appointed on

12.4.1993 and ceased to be director on 23.1.2002. She was again introduced on the board on 15.12.2008 as Additional Director. There was Form No. 21 of the company and amalgamation orders dated

23.1.2009 were issued. The company was amalgamated in Shivling Industrial Limited. Mrs. Usha Mutha never gave consent to be director in transferee company. The learned Metropolitan Magistrate should have considered the public documents while issuing summons. 3 7//apl/462.11group

5. So far as Ashish Mutha is concerned (accused No. 6), the learned counsel submits he is not signatory to any of the cheque. Notice which was sent did not reach its destination and hence, he did not reply. The allegations against Ashish Mutha are in general. The learned counsel for the applicants relied on the judgment in the matter of SMS Pharmaceuticals Ltd. Vs. Neeta Bhalla, 2005 (8) S.C.C. 89 paragraph 4 thereof. The another judgment of SMS Pharmaceuticals Ltd. Vs. Neeta Bhalla and anr. (2007) 4 Supreme Court Cases 70. The learned counsel then relied on the judgment of National Small Industries Corpn Ltd. Vs. Harmeet Singh Paintal and anr. reported in 2010 ALL MR (Cri) 921 (SC). Then K.K. Ahuja Vs. V.K. Vora and anr. in Criminal Appeal No. 1130-31 of 2003. Sarojkumar Poddar Vs. State (NCT of Delhi) and anr. AIR 2007 S.C. 912, Hardeep Singh Nagra Vs. State and Anr. 2010 (1) JCC (NI) 62. Manish Kant Aggarwal Vs. National Agricultural Cooperative Marketing Federation of India Ltd. and anr. 156 (2009) Delhi Law Times 415. The learned counsel indicates, to launch prosecution against alleged directors, there must be specific allegations in the complaint as to the part played by the directors in the transaction. These should be clear and unambiguous allegation as to how the 4 7//apl/462.11group directors are incharge and responsible for the conduct of business of the company. The complaint disclose words from the provisions of the Act without there being iota of substance to saddle individual liability to the applicants to meet the claims of the complainant.

6. The learned counsel for the GTFL (respondent No. 1) submits that Mr. Ashish Mutha has signed the financial documents as guarantor. He has not disputed his status to be director. Ms. Neha Mutha even if has resigned on 12.11.2008, such resignation is not to the knowledge of the GTFL nor could be considered, as such resignation is yet to be established. Mrs. Usha Mutha is referred as additional director. However, nomenclature does not affect the prospects of the complaint. Learned counsel has relied to section 291 of the Companies Act to submit, this is internal arrangement of the company. He reiterated, the applicants failed and neglected to put a foundation. It was for the first time the applicants have come forward with the case of resignation. Such resignation has been disputed in the complaint. Even documents of Smt. Neha Mutha are denied. The notices were sent at three addresses and presumption under section 27 of General Clauses Act would apply as the 5 7//apl/462.11group applicants do not dispute correctness of the address. However, they did not receive notices as endorsement indicate notices are refused.

7. The accused No. 6 Ashish Mutha is director of the company accused no. 1 and there are averments in the complaint to fasten vicarious liability on him. He was certainly in charge and responsible for the conduct of the affairs of the company. This could be seen if one peruses paragraph 2, 3, 4, and 9 of the complaint. Paragraph Nos. 2, 3, 4, and 9 reads as under : "2. The Accused no. 1 is a Limited Company, duly incorporated under the Companies Act, 1956 having its office and factory address mentioned in the cause title. Accused nos. 2 is the Managing Director and Authorised Signatory of the accused no.1 , company. Accused no. 3 is Director and Authorised Signatory of the accused no. 1 company. Accused Nos. 4 to 6 are the Directors of the Accused no. 1 company. The accused nos. 2 to 6 are in charge of and responsible for the day-to-day and/or conduct of the Management and business of the Accused no. 1 company, at all relevant times of the present Complaint as well as at the material time of cause of action. All the Accused are also responsible for the Issuance of Cheques, more particularly described hereunder and so also for 6 7//apl/462.11group dishonour as they have failed and neglected to exercise care and caution in ensuring that the below referred Cheques are honoured when presented for encashment and hence, the Accused have rendered themselves liable for their prosecution under section 138 r/2. S. 141 of Negotiable Instruments Act, 1881, as Amended. The accused no.1 alongwith accused nos. 2 to 6 have connived in the Commission of the offence, in their capacity as Managing Director/Authorised Signatories/Directors/Officers of the Accused No. 1 company.

3. The Accused Nos. 2 to 6, on behalf of Accused no. 1 had approached the Complainant, with a request for Trade Finance Facility(ies) and accordingly the said Facility(ies) had been granted by the Complainant to the Accused as per their request and requirement. Hereto annexed and marked Exhibits "B", "C" and "D" is the copy of the sanction letter. Global Accounts Receivable Management Agreement for Trade Finance Facility(ies) entered into and executed by and between the complainant and the accused and Letters of Guarantee issued by the accused nos. 2, 3 and 6.

4. The accused in discharge of their liability enforceable liability and debts towards repayment of the above referred Trade Finance Facility(ies) due and payable to the complainant, issued the following cheques in favour of the 7 7//apl/462.11group complainant, the details of which are as under : Sr.Nos. Cheque Nos. Cheque Date Amount in Rupees 1 2 3 4 5 6

18. 184698 217003 184598 184599 217014 217010 217017 217147 217146 217251 217150 217148 217252 184596 184597 217149 217018 184600

22.7.2009

4.8.2009

22.7.2009

22.7.2009

19.8.2009

19.8.2009

23.8.2009

9.9.2009

9.9.2009

9.9.2009

9.9.2009

9.9.2009

9.9.2009

22.7.2009

22.7.2009

9.9.2009

25.8.2009

22.7.2009 2,53,48,067/- 44,55,990/- 1,00,78,182/- 2,01,03,794/- 1,95,807/- 2,67,99,135/- 49,98,700/- 59,07,212/- 48,18,777/- 38,18,852/- 37,15,244/- 46,19,052/- 55,70,068/- 1,61,04,006/- 1,33,36,123/- 9,20,303/- 58,37,390/- 2,30,62,320/- All the above cheques were drawn on The Jammu and Kashmir Bank Limited, G-40, Connaught Place, New Delhi 110 001. The aforesaid Cheques were duly signed by Accused No. 2 on behalf of Accused No. 1, company. Hereto annexed and marked Exhibits "E" colly. are the copies of the above mentioned dishonoured cheques. 8 7//apl/462.11group

9. The aforesaid dishonoured cheques were issued by the Accused in discharge of their legally enforceable liability, accrued to them, after the Trade Finance Facility(ies) were availed by them. The accused have issued the aforesaid cheques under question from the account maintained by them and that the same are signed by the accused No. 2 and since the said cheques have been dishonoured due to reason "Funds Insufficient" in the accounts of the Accused and furthermore as the accused have failed and neglected to effect the payment covered under the aforesaid dishonored cheques, despite receipt of the Statutory notice dated 13.1.2010, the Accused in the circumstances have committed an offence u/s. 138 r/w S. 141 of the Negotiable Instruments Act, 1881, as amended and have rendered themselves liable for the prosecution of the same before this Hon'ble Court."

8. The documents produced by the respondent no. 2 GTFL shows that the petitioner Ashish Mutha or Neha Mutha or Usha Mutha had approached and requested for trade finance facility and it was granted as per request and requirement. It was as a result of the agreement which stipulate terms and conditions agreed upon between the parties at the 9 7//apl/462.11group time of availing such trade finance facility. The applicant Ashish Mutha singed the papers as guarantor, with financial documents executed between the parties.

9. The averments in the complaint in effect shows complexity and involvement of the applicants. In the letter of guarantee by Ashish Mutha, unequivocally he has accepted his liability to be joint and several with the company and he will be liable to pay dues arising of default on the part of the company. He has even confirmed that his liability shall not be discharged, released altered or impaired in any manner on arising of any amalgamation or reconstitution or alteration in the status or change in the constitution of the company.

10. The complaint as a whole and the documents annexed thereto illustrate that the applicants represented to GTFL as directors they impressed financial viaility and ensured financial facilities. The statutory notice issued on the applicants has gone uncontroverted.

11. In the matter of SMS Pharma, the Supreme Court has distinguished the action of Chairman, Managing Director and other directors. By virtue of their designation, the Managing Director or the 10 7//apl/462.11group Chairman can be considered to be incharge and responsible for the conduct of the business of the company. It is for those persons to have proved that when the offence was committed, they had no knowledge of such offence as directors. Equally it was for the accused/applicants to prove that they had no knowledge about issuance of cheques or that they were not actively involved in the affairs of the company.

12. The Division Bench of this Court has in the matter of Subhash Bhand Vs. State of Maharashtra, 2009 ALL MR (Cri) 2614 has held in paragraph 33 as under : "33. A reading of these judgments makes for the following legal propositions with regard to the resignation of a Director of a registered Company:- (i) If the accused in a criminal prosecution under Section 138 of the Negotiable Instruments Act produces a certified copy of Form No.32 certified by the ROC and there is no dispute of the factum of his resignation, the accused is entitled to be discharged from the prosecution. (ii) If his resignation is not accepted or admitted by the complainant upon production of the certified copy of Form No.32, the accused would have to prove 11 7//apl/462.11group the truth of the contents of the said certified copy i.e. the factum of his resignation. Such accused cannot be discharged simplicitor upon production of a certified copy of Form No.32. (iii) If the complainant produces any evidence showing the continuance of the accused as Director of the Company after the date of the resignation claimed by him as per the certified copy of Form No.32 produced by him, such accused cannot be discharged simplicitor upon production of such certified copy of Form No.32. He would have to lead evidence to prove the factum of his resignation. Similarly the complainant would be entitled to prove the factum of his continuing as Director. The trial under Section 138 read with Section 141 of the Negotiable Instruments Act would, therefore, proceed."

13. The factum of resignation being disputed, it is for the accused/applicants to establish otherwise that when the cheques were issued they had no active involvement as director or they had resigned. This being disputed fact would not generate any presumption to dispel applicants liability.

14. In Rallis India Ltd. Vs. Poduru Vidya Bhusan 2011 ALL MR (Cri) 1645 (SC) the Hon'ble Supreme Court has observed that the question 12 7//apl/462.11group raised by the applicants whether they were partners in the firm is one of the fact which has to be established in the trial. The initial burden by way of averment in the complaint has been made by the complainant.

15. In Para 15 of the said judgment, the Hon'ble Supreme Court has observed as under : "15. Strictly speaking, the ratio of the SMS Pharmaceuticals (supra) can be followed only, after the factum that accused were the Directors or Partners of a Company or Firm respectively at the relevant point of time, stands fully established. However, in cases like the present, where there are allegations and counter- allegations between the parties regarding the very composition of the firm, the above rule of `specific averment' must be broadly construed. Indeed, it would be nothing short of a travesty of justice if the Directors of a Company of Partners of a Firm, who, having duped a third-party by producing false documents (like a fake partnership deed) or making false statements (that some others were in charge of the Company/Firm), at a subsequent stage, seek protection from prosecution on the ground that they were not directly indicted in the complaint - such a proposition strikes against one of the very basic tenets of the law of natural justice, which is, that none shall be allowed to take advantage of his own default. Of course, the above observation is of a general nature, and has no bearing on the present case, but nonetheless, the power to quash a criminal proceeding with respect to an offence under 13 7//apl/462.11group Section 141 of the Act, must be exercised keeping this advisory note and caveat in mind."

16. In the verification clause of the complaint, specific role as to the accused/applicant is demonstrated. The notice so illustrated the same. No foundation is laid by the accused/applicant to make out the case that to the knowledge of GTFL they had already ceased to be directors of the company and they did not owe any liability as such. Considering these facts, I do not see any reason to interfere in the orders of issuance of process against the applicants by the learned Metropolitan Magistrate. Petitions lack merit. All criminal applications stand dismissed. However, the learned Judge seized with respective criminal complaints shall entertain exemption applications if moved by Neha Mutha and Ashish Mutha on its own merits till their personal attendance is not warranted. Applications would necessarily be moved by the counsel representing those applicants. Heard. Stay granted by this court on 21.7.2011 in respective applications is extended till 29.11.2011. There will also be stay in so far as Criminal 14 7//apl/462.11group Application Nos. 462 and 463 of 2011 till 29.11.2011. (K.U. CHANDIWAL,J.) 15