Mr. Sovan Dasgupta v. Yes Bank & Ors.

Mr. Shriram Shirsat, Advocate for the petitioners. Mr. Yashpal Thakur i/by. M/s. Paras Kuhad & Associates Advocate for respondent no.1. Mrs. A.A. Mane, APP for State-respondent no.2. CORAM :- SMT. R.P. SONDURBALDOTA, J. 16th DECEMBER, 2011. P. C. :

1. Rule. Rule made returnable forthwith. By consent of the parties, taken up for hearing immediately. W.P.1697-1699 &1700-1701-2011 16.12.2011 This is a common order on the above petitions which are * 2 *

2. between the same parties, arising out of identical complaints and raising identical questions for consideration of this Court.

3. Respondent no.1-Bank has filed five complaints for the offences punishable under Section 138 read with Section 141 of Negotiable Instruments Act (hereinafter referred to as the N.I. Act’ ‘ for short) against the three petitioners and five others. Petitioner no.1 is original accused no. 6 and the Executive vice-president- Corporate of accused no.1 company. Petitioner no.2 is original accused no.7 and Vice-President-Corporate Finance of the Company. Petitioner no.3 is the officer of the Company as well as its promoter.

4. Accused no.1-Company is engaged in the business of Engineering, Procurement and Construction (EPC), project management, project development and infrastructure projects works in India and abroad. In the year 2008, at its request, respondent no. 1-Bank had sanctioned Letter of Credit facility to it to the extent of Rs.60 crores . The cheques in question had been issued towards the liability of the Company under the facility. All the cheques when presented for payment had dishonoured. Respondent no.1 therefore had issued statutory notices to the Company (accused no.1), its Director (accused no.2), Managing Director and Group CEO, (accused no.3), Director (accused no.4), Executive Vice-President- W.P.1697-1699 &1700-1701-2011 16.12.2011 Corporate (accused no.5) who is also signatory of the cheques, and * 3 * the petitioners. When the company and other accused persons, failed to make the payment the Bank filed proceedings for the offence punishable under Section 138 Negotiable Instruments Act.

5. The relevant averments made by respondent no.1 in the complaint are that, in the year 2008 accused no.1 company had approached it through accused nos. 5 , 6 and 7, with a request for Letter of Credit facility. The Company had by its Board Resolutions dated 28th May, 2008 and 11th August, 2008 authorized accused nos. 2, 4, 5 and 6 to execute documents on behalf of accused no.1 in connection with and for availing the facility. Further, at paragraph-12 of the complaint, respondent no.1 specifically avers as follows :-

12. “ At all material time, the accused no.2 to 8 were in- charge and responsible for the day-to-day affairs of the accused no.1 and for the conduct of the business of accused no. 1. The accused no.2 to 8 were looking after business affairs of accused no.1 at the relevant time when they approached the complainant Bank for grant of facility. The accused no.5, 6 and 7 personally approached the complainant company for Letter of Credit facility for the purpose of business of the accused no.1 and gave assurance of regular payment towards repayment of said facility. The accused no.2 to 8 were personally interacting with the complainant Bank from time to time. The accused no.2 to 8 were looking after the functioning of accused no.1 when the accused approached complainant for discussions and negotiations, when the cheque in question was issued, and when the statutory notice was issued to the accused. All the necessary documents have been signed and executed by the accused no.5 at the time of availing the facility. Hence, the accused no.2 to 8 were duty bound to honour the cheque in question which was issued by them, on behalf of accused no.1 against the aforesaid liability.” * 4 * W.P.1697-1699 &1700-1701-2011 16.12.2011

6. The learned Metropolitan Magistrate before whom the cases are pending, after recording verification issued process in all the complaints by his orders dated 28th May, 2010 against all the accused persons for the offence punishable under Section 138 read with Section 141 of the N.I. Act. The orders came to be challenged by the petitioners by preferring Revision Applications before the Sessions Court which came to be dismissed by the orders dated 25th February,

2011. Thereafter, the petitioners have approached this Court by the present petitions. The challenge to the order of issuance of process is on the ground of insufficient compliance with Section 141 of N.I. Act by respondent no.1.

7. Mr. Shirsat, the learned counsel for the petitioners submits that Section 141 being a penal provision creating vicarious liability is required to be strictly construed. Therefore, if the vicarious liability is to be fastened upon any person, the complaint should spell out as to how and in what manner the named person was in-charge of or responsible to the company for the conduct of its business. According to him, the averments made in the complaint, particularly in regard to petitioner no.3-original accused no.8 are bald and cursory. She has been merely described in the complaint. In view of insufficient W.P.1697-1699 &1700-1701-2011 16.12.2011 compliance with Section 141 N.I. Act, Mr. Shirsat argues that, the * 5 * complaints against the petitioners are liable to be dismissed. On the other hand, Mr. Thakur, the learned counsel for respondent no.1 submits that, the requirement under Section 141 N.I. Act has been completely fulfilled. In that regard, he refers to the above-mentioned averments in the complaint, as well as, the documents accompanying the complaint. He points out that the copy of the complaints filed by respondent no.1 annexed to the petitions are incomplete copies. The petitioners have not produced the annexures to the complaint before this Court.

8. Mr. Shirsat, in particular relies upon the decision of the Apex Court in K.K. Ahuja V/s. V.K. Vohra and anr. reported in 2009 (9) S.C.C. page 2275 : (2009) (4) Bom. C.R. page 558 to submit that since petitioner no.3 is described in the complaint as only an officer of the Company, unless the complaint contained an averment to indicate that she had played a specific part by either consenting or conniving for the dishonor of the cheque or was guilty of negligence leading to dishonour of the cheque, she cannot be held criminally liable for the dishonour of the cheque. In that decision, the Apex Court, after considering its earlier decisions, has noted at paragraph-9 the prevailing trend on the question of the nature of the averments required. * 6 * W.P.1697-1699 &1700-1701-2011 16.12.2011

9. “ …… .The prevailing trend appears to require the complainant to state how a Director who is sought to be made an accused, was in-charge of the business of the Company, as every director need not be and is not in- charge of the business of the Company. If that is the position in regard to a Director, it is needless to emphasize that in the case of non-Director officers, there is all the more the need to state what his part is with regard to conduct of business of the Company and how and in what manner he is liable.” It then noted at paragraph-10, the persons that are deemed to be guilty for dishonour of the cheque having regard to Section 141 of N.I. Act.

10. “ Having regard to Section 141, when a cheque issued by a company (incorporated under the Companies Act, 1956) is dishonoured, in addition to the company, the following persons are deemed to be guilty of the offence and shall be liable to be proceeded against and punished; (i)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; (ii)any Director, Manager, Secretary or other officer of the company with whose consent and connivance, the offence under Section 138 has been committed; and (iii)any Director, Manager, Secretary or other officer of the company whose negligence resulted in the offence under Section 138 of the Act, being committed by the company. While liability of persons in the first category arises under Sub-section (1) of Section 141, the liability of persons mentioned in categories (ii) and (iii) arises under Sub- section (2). The scheme of the Act, therefore is, that a person who is responsible to the company for the conduct * 7 * W.P.1697-1699 &1700-1701-2011 16.12.2011 of the business of the company and who is in-charge of business of the company is vicariously liable by reason only of his fulfilling the requirements of Sub-section (1). But if the person responsible to the company for the conduct of business of the company, was not in-charge of the conduct of the business of the company, then he can be made liable only if the offence was committed with his consent or connivance or as a result of his negligence.”

9. The Apex Court, thereafter, at paragraph-14 noted that a combined reading of Sections 5 and 291 of the Companies Act, 1956 with the definitions in Clauses- (24), (26), (30), (31), (45) of Section 2 of that Act, would show that the following persons are considered to be the persons who are responsible to the Company for the conduct of business of the Company. (a) the managing director/s; (b) the whole-time director/s; (c) the manager; (d) the secretary; (e) any person in accordance with whose directions or instructions the Board of directors of the company is accustomed to act; (f) any person charged by the Board with the responsibility of complying with that provision (and who has given his consent in that behalf to the Board); and W.P.1697-1699 &1700-1701-2011 16.12.2011 (g) where any company does not have any of the officers specified in * 8 * clauses (a) to (c), any director or directors who may be specified by the Board in this behalf or where no director is so specified, all the directors. Further, that there may be many Directors or Secretaries who are not in-charge of the business of the Company at all. A person may be a Director and thus belong to a group of persons making the policy followed by the Company but yet may not be in-charge of business of the Company. A person may be a Manager who is in- charge of the business but may not be in overall in-charge of the business and a person may be an officer who may be in-charge of some part of the business. Therefore, it held that in the case of a Director, Secretary or a Manager an averment in the complaint that he was in-charge of and responsible to the company for the conduct of business of the company is necessary to bring the case under Section 141(1). No further averment would be necessary in the complaint, though some particulars would be desirable. As regards the other officers of the Company, they can be made liable only under Sub-section 2 of s.141 by averring in the complaint their position and duties in the company and their role in regard to the issue and dishonour of the cheque, disclosing consent, connivance or negligence. Mr. Shirsat, submits that the same view has been taken by the Apex Court in subsequent decision in National Small W.P.1697-1699 &1700-1701-2011 16.12.2011 Industries Corporation Limited V/s. Harmeet Singh Paintal * 9 * and anr. reported in 2010 ALL MR (Cri.) 921 (S.C.). In the subsequent decision, the Apex Court has observed that an overall reading of the complaint has to be made to see whether the requirement of Section 141 has been made out against the accused persons or not.

10. On the backdrop of the above position in law, the complaint is required to be read as a whole together with its annexures, to see whether requirements of Section 141 have been made out against the petitioners. There is no dispute that by the resolutions passed by the Board of Directors of the Company, on 25th May, 2008 and 11th August, 2008, petitioner no.1 alongwith accused nos.2, 4 and 5 were authorized to sign and execute all necessary documents, agreements etc. on behalf of the Company with respondent no.1-Bank. Further, petitioner no.3 one of the promoters of the Company is a guarantor for the facility sanctioned by the Bank. As regards petitioner no.2, he being Director, Finance, Corporate, cannot at this preliminary stage of the proceedings be said to be not concerned with the dishonour of the cheques. It has been specifically averred by respondent no.1 that the petitioners alongwith other accused were personally interacting with respondent no.1 from time to time. They were looking after functioning of the Company for the discussions and negotiations when the cheques in question were issued and W.P.1697-1699 &1700-1701-2011 16.12.2011 when the statutory notice was served upon them. This would * 10 * indicate that they were concerned not just with the negotiations for obtaining financial assistance on behalf of the Company but also in relation to all the acts in connection thereof including the return of the amount by issuance of cheques in question. Mr. Thakur, further points out that petitioner no.3 being a promoter of the Company would fall under the category (e) at Section 291 of any person in “ accordance whose directions or instructions the Board of Directors of the Company is accustomed to act”. In my opinion, the averments made in the complaint, cannot be said to be mere repetition of the words in Section 141 of the Negotiable Instruments Act. The averments, made together with the documents produced, do prima- facie bring out the specific role of each petitioner. Thus, the pleadings can be seen to be sufficient and an opportunity must be given to respondent no.1 to bring evidence in support thereof at the time of trial. Therefore, the complaints against the petitioners cannot be quashed at the threshold and the opportunity of proving the case against them denied to respondent no.1. Hence, the petitions are dismissed. [SMT. R.P. SONDURBALDOTA, J] * 11 * W.P.1697-1699 &1700-1701-2011 16.12.2011