Prashant Jhun Jhun Wala v. Tamil Nadu Newsprint and Paper Ltd.

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED:25.07.2008CORAM:THE HONOURABLE MR.JUSTICE K.MOHAN RAMCriminal Original Petition No.5458 of 2008 &M.P.No.1 of 2008Prashant Jhun Jhun Wala .. Petitioner/Accused-3Vs.Tamil Nadu Newsprint and Paper Ltd.,rep. By its Senior Officer (Marketing)T.Lal Jagadheesh67, Mount Road, Guindy, Chennai 600 032. .. Respondent/ComplainantPrayer : Criminal Original Petition filed under Section 482 of theCode of Criminal Procedure praying for the relief as statedtherein.For Petitioner :: Mr.Haripillai For Respondent :: Mr.Shivakumar O R D E RThe above Criminal Original Petition has been filed to quashthe proceedings in C.C.No. 3644 of 2006 on the file of the learnedIX Metropolitan Magistrate, Saidapet, Chennai, 2.The petitioner herein is the third accused in C.C.No.3644 of2006 on the file of the IX Metropolitan Magistrate,Saidapet,Chennai. The respondent herein filed the complaintagainst Shiv Ganga Papers Convertors P Ltd., a company registeredunder the Companies Act and its Managing Director and otherDirectors for the alleged offence under Section 138 of theNegotiable Instruments Act (hereinafter called 'Act') in respect ofthe dishonour of two cheques issued by the second accused on behalfof the first accused in favour of the complainant/ respondentherein. 3.The petitioner herein is described as one of the Directorsof the first accused Company and he sought to be proceeded in thelight of the provisions contained in Section 141 of the Act. Withregard to the liability of the petitioner, which is vicarious innature, the following averments have been made in paragraph Nos. 2,5 and 9 of the complaint, which reads as follows: https://hcservices.ecourts.gov.in/hcservices/ "2......The Third Accused Mr.Prasat Jhun Jhun Wala,Son of Late R.K.Jhun Jhun Wala whose age is notknown to the complainant herein, is the Directorof Shiv Ganga Papers Convertors P Ltd.,.."3..........4...........5.The Complainant states that all theaccused herein had been regularly contacting thecomplainant and promising that they would makepayments for the outstanding amounts and seekingtime under one pretext or the other. Finallythe accused had consented and purported to makepayment of the aforesaid outstanding dues andthe interest for the delayed payments to thecomplainant for the supply of the above saidgoods and the second accused had issued twocheques on behalf of the first accused.....6.......7.......8.........9.The complainant further states that thesecond to the fifth accused are the only personsknown to the complainant who are involved in theconduct of the business of the first accused andwho are involved in the issuance of the saidcheques and the dishonour of the same......."4.The learned counsel for the petitioner herein contends thatat the relevant point of time, the petitioner was not the Directorof the Company. It is further contended that no cognizance couldhave been taken on the basis of the allegations made in thecomplaint as the same do not satisfy the requirements of theprovisions of Section 141 of the Act. The learned counsel alsosubmitted that the person who is sought to be made criminallyliable under section 141 of the Act should be, at the time theoffence was committed, in charge of and responsible to the companyfor the conduct of the business of the company and according to thecounsel, in the complaint, no such averment has been made and ithas not been stated in the complaint or in the sworn statement asto how the offence has been committed and how the petitioner isresponsible therefor. The learned counsel further submitted thatthe petitioner by his resignation letter dated 30.12.2005, resignedfrom the post of Director of the first accused company and on25.1.2006, he had sent a copy of the resignation letter to theRegistrar of Companies which was acknowledged by the Registrar ofthe Companies vide its communication dated 31.1.2006 and as suchthe petitioner was not the Director of the first accused companyeven on the date when the legal notice was served by thecomplainant/respondent herein and on that ground, the complaint isliable to be quashed.5.In support of the aforesaid contentions, the learned counsel https://hcservices.ecourts.gov.in/hcservices/ relied on the the following decisions of the Hon'ble Apex Court.1.SMS PHARMACEUTICALS LTD., Vs. NEETA BHALLA & ANOTHER [2005 8 SCC 89 = 2005 (7) SCALE 397) 2.SMS PHARMACEUTICALS LTD., Vs. NEETA BHALLA & ANOTHER ((2007) 3 SCALES 245)3.SAROJ KUMAR PODDAR Vs. STATE OF NCT OF DELHI reported in (2007) 1 CTC 529.6.On the aforesaid submissions, the learned counsel for therespondent was heard. 7.The learned counsel for the respondent by drawing theattention of this Court to the averments contained in paragraph No.5 of the complaint submitted that since all the accused had beenregularly contacting the complainant and promising that they wouldmake payment for the outstanding amounts and seeking time under onepretext or the other and finally the accused had consented andpurported to make payment of the aforesaid outstanding dues and theinterest for the delayed payments to the complainant and sincethese averments are sufficient to show that the petitioner was incharge and responsible for the conduct of the business of thecompany at the relevant point of time, the complaint cannot bequashed. 8.The learned counsel sought to rely upon certain letters saidto have been written by the petitioner/third accused to therespondent to substantiate his contentions that the petitioner wasin charge and responsible for the conduct of the business of thecompany at the relevant point of time. The learned counsel furthersubmitted that since the petitioner had not produced anyauthenticated proof from the Registrar of Companies to prove hisresignation from the post of Director of the first accused Companyand merely based on the resignation letter and the letteraddressed by him to the Registrar of the Companies, it could not bepresumed that he had resigned from the post of Director of thefirst accused company even before the relevant point of time. Insupport of the said contention, the learned counsel sought to relyupon the order dated 6.12.2007, passed by me in Crl.O.P.Nos. 27176of 2007 etc. batch of cases in JAYANT BHATTARCHARJEE Vs. LALITHSTEEL SUPPLIERS.9.I have carefully considered the submissions made by thecounsel on either side.10.In a catena of decisions, the Apex Court has held that forshowing a vicarious liability of a Director of the Company, uponthe complaint, it is incumbent to plead that the accused was incharge of and responsible to the company for the conduct of thebusiness of the company. In this case, a perusal of the complaintas well as the sworn statement recorded shows that no suchallegations are found and therefore, in my considered view, thecomplaint is liable to be quashed. 11.Further the offence envisaged under section 138 of the Act https://hcservices.ecourts.gov.in/hcservices/ contains several ingredients as has been held by the Three JudgesBench of the Hon'ble Apex Court in SMS PHARMACEUTICALS LTD., Vs.NEETA BHALLA & ANOTHER [(2005) 2 SCC 89] in the following terms. "10.......What is required is that the persons who are soughtto be made criminally liable under Section 141 shouldbe, at the time the offence was committed, in charge ofand responsible to the company for the conduct of thebusiness of the company. Every person connected withthe company shall not fall within the ambit of theprovision. It is only those persons who were in chargeof and responsible for the conduct of the business ofthe company at the time of commission of an offence, whowill be liable for criminal action. It follows fromthis that if a Director of a company who was not incharge of and was not responsible for the conduct of thebusiness of the company at the relevant time, will notbe liable under the provision. The liability arisesfrom being in charge of and responsible for the conductof business of a company at the relevant time when theoffence was committed and not holding a designation oroffice in a company. Conversely, a person not holdingany office or designation in a company may be liable ifhe satisfies the main requirement of being in charge ofand responsible for the conduct of business of a companyat the relevant time. Liability depends on the role oneplays in the affairs of a company and not on designationor status. If being a Director or Manager or Secretarywas enough to cast criminal liability, the section wouldhave said so. Instead of "every person" the sectionwould have said "every director, manager or secretary ina company is liable"....etc. The legislature is awarethat it is a case of criminal liability which meansserious consequences so far as the person sought to bemade liable is concerned. Therefore, only persons whocan be said to be connected with the commission of acrime at the relevant time have been subjected toaction."12.In the decision reported in SMS PHARMACEUTICALS LTD., Vs.NEETA BHALLA & ANOTHER [(2007) 3 SCALES 245)], while consideringwhether the following allegations contained in the complaint inthat case are sufficient to attract the provisions contained inSection 141 of the Act and whether the Directors of the company canbe proceeded with for the vicarious liability, the Apex Court heldthat the allegations are not sufficient to proceed against them.In the complaint in that case, the allegations made were as under:"3....'The Accused No.1 is dulyincorporated Company, having itsregistered office at the addressmentioned above, represented by theDirector, Accused No.2. The accusedNo.3 and 4 are also the Directors of the https://hcservices.ecourts.gov.in/hcservices/ Accused No.1 company and the accused 2to 4 are actively involved in themanagement of the affairs of the AccusedNo.1 Company."13.After considering the said allegations and after referringto the decision of the Three Judges Bench, referred to supra, inparagraph Nos. 16 and 17, the Apex Court has observed as under:"16.Section 141 of the Act does not say that aDirector of a company shall automatically bevicariously liable for commission of an offence onbehalf of the Company. What is necessary is thatsufficient averments should be made to show that theperson who is sought to e proceeded against o thepremise of his being vicariously liable for thecommission of an offence by the Company must beincharge and shall also be responsible to thecompany for the conduct of its business.17.By reason of the said provision, a legalfiction has been created. The larger Bench in thiscase [since reported in (2005) 8 SCC 89]categorically held:"11. A reference to sub-section (2)of Section 141 fortifies the abovereasoning because sub-section (2)envisages direct involvement of anydirector, manager, secretary or otherofficer of a company in the commission ofan offence. This section operates when ina trial it is proved that the offence hasbeen committed with the consent orconnivance or is attributabe to neglect onthe part of any of the holders of theseoffices in a company. In such a case,such persons are to be held liable.Provision has been made for directors,managers, secretaries and other officersof a company to cover them in cases oftheir proved involvement.12.The conclusion is inevitable thatthe liability arises on account ofconduct, act or omission on the part of aperson and not merely on account ofholding an office or a position inacompany. Therefore, in order to bring acase within Section 141 of the Act thecomplaint must disclose the necessaryfacts which make a person liable."and ultimately held that a plain reading of the averments made inthe complaint/objection does not satisfy the statutory requirementsas contemplated under section 141 of the Act and quashed the https://hcservices.ecourts.gov.in/hcservices/ complaint.14.In the decision reported in SAROJ KUMAR PODDAR Vs. STATE OFNCT OF DELHI reported in (2007) 1 CTC 529, the Hon'ble SupremeCourt has laid down as follows:"8.......A person would be vicariously liable forcommission of an offence on the part of a Company onlyin the event the conditions precedent laid downtherefor in Section 141 of the Act stand satisfied.For the aforementioned purpose, a strict constructionwould be necessary.9.The purported averments which have been made inthe complaint petitions so as to make the appellantvicariusly liable for the offence committed by thecompany read as under:That the accused No.1 is a public limitedcompany incorporated and registered underthe Companies Act, 1956, and the accused 2to 8 are /were its Directors at the relevanttime and the said company is managed by theBoard of Directors and they are responsiblefor the incharge of the conduct and businessof the company-Accused No.1. However,cheques referred to in the complaint havebeen signed by the Accused No.3 & 8 i.e.Shri K.K.Pllania and Shri N.K.Munjal for andon behalf of the Accused Company No.1.10.Apart from the Company and the appellant, asnoticed hereinbefore, the Managing Director and allother Directors were also made accused. The appellantdid not issue any cheque. He, as noticedhereinbefore, had resigned from the Directorship ofthe Company. It may be true that as to exactly onwhat date the said resignation was accepted by theCompany is not known, but, even otherwise, there is noaverment in the complaint petitions as to how and inwhat manner the appellant was responsible for theconduct of the business of the Company or otherwiseresponsible to it in regard to its functioning. Hehad not issued any cheque. How he is responsible fordishonour of the cheque has not been stated. Theallegations made in paragraph 3, thus, in our opiniondo not satisfy the requirements of Section 141 of theAct."15.If the allegations in the complaint in the case on hand andthe sworn statement of the witness examined by the complaint areconsidered, in the light of the law laid down by the Hon'ble ApexCourt in the aforesaid decisions and other decisions, it could beeasily held that the statutory requirements contained in section141 of the Act have not been complied with. It may be true that it https://hcservices.ecourts.gov.in/hcservices/ is not necessary for the complainant to specifically reproduce thewordings of the section, but what is required is a clear statementof fact so as to enable the Court to arrive at a prima facieopinion that the accused are vicariously liable. Section 141raises legal fiction. By reason of the said provision, a personalthough is not personally liable for commission of such an offencewould be vicariously liable for the offence committed by thecompany. Before a person can be made vicariously liable, strictcompliance with statutory requirements would be insisted. Not onlythe averments made in para 7 of the complaint petition do not meetthe said statutory requirements, the sworn statement of the witnessmade by the son of the respondent herein also does not containany statement that the petitioner was in charge of the business ofthe Company. In a case where the Court is required to issuesummons which would put the accused to some sort of harassment, theCourt should insist strict compliance with statutory requirements.In terms of Section 200 of the Code of Criminal Procedure, thecomplainant is bound to make statements on oath as to how theoffence has been committed and how the accused persons areresponsible therefor.16.In the decision reported in K.SRIKANTH SINGH Vs. NORTH EASTSECURITIES LTD., AND ANOTHER reported in (2008) 1 MLJ (Crl) 1098(SC), the Apex Court has made the following observations. "6..........In any event, ultimately, the prosecution isfound to be frivolous or otherwise malafide, theCourt may direct registration of case against thecomplainant for malafide prosecution of theaccused. The accused wuld also be entitled to filea suit for damages. The relevant provisions of theCode of Criminal Procedure are required to beconstructed from the aforementioned point of view."17.The aforesaid observation of the Hon'ble Apex Court makesit abundantly clear that it is the bounden duty of the learnedMagistrate before taking cognizance of the complaint to scrutinisethe averments in the complaint as well as the statement of thecomplainant or his witness carefully to find out whether thestatutory requirements of section 141 of the Act have been strictlycomplied with and the complaint is neither frivolous nor malafide.18.In my considered view, in the case on hand, the learnedMagistrate before taking cognizance of the complaint, does notappear to have applied his judicial mind to the averments containedin the complaint as well as in the sworn statement. Admittedly inthis case, the petitioner herein had not issued the cheque andthere is no averment in the complaint as to how and in what manner,the petitioner was responsible for the conduct of the business ofthe company or otherwise responsible to it in regard to itsfunctioning and it has also not been stated as to how thepetitioner is responsible for the dishonour of the cheque and thesevital aspects have not been considered by the learned Magistratebefore taking cognizance of the complaint and therefore the https://hcservices.ecourts.gov.in/hcservices/ complaint as against the petitioner herein is liable to be quashed.19.The second contention of the learned counsel for thepetitioner that since the petitioner had resigned from the post ofDirector of the first accused company even before the relevant dateand the same was communicated by him to the Registrar of theCompanies is concerned, this Court cannot entertain the contentionas no document, evidencing such resignation from the post ofDirectorship, which can be said to be of impeachable and sterlingquality has been produced before this Court. The letter said tohave been written by the petitioner to the Registrar of Companiescannot be looked into at this stage.20.Similarly the contention of the learned counsel for therespondent based on certain letters said to have been written bythe petitioner herein to the respondent company, cannot also beentertained as those letters were admittedly not filed along withthe complaint and as such the same cannot be looked into by thisCourt.21.The order of mine dated 6.12.2007 in Crl.O.P.Nos.27176 of2007 and etc. batch of case has no relevance to the facts of thiscase. There the accused was also the signatory of the cheque andover and above that sufficient allegations specifying therequirements of section 141 of the Act had been made in thecomplaint itself and only on a consideration of those facts, thoseCriminal Original petitions were dismissed. Therefore, the saidorder is not applicable to the facts of this case.22.For the aforesaid reasons, the above Criminal OriginalPetition is allowed and all further proceedings in C.C.No.3644 of2006 on the file of the learned IX Metropolitan Magistrate arequashed in so far as the petitioner/third accused alone isconcerned. Consequently, connected Miscellaneous Petition isclosed.Sd/Asst.Registrar/true copy/Sub Asst.RegistrarrpaTo1.IX Metropolitan Magistrate, Saidapet, Chennai.2.-Do- Through The Chief Metropolitan Magistrate Egmore, Chennai-81 CC To Mr. Shivakumar, Advocate, SR NO.40706.Crl. O.P. No.5458 of 2008jp(co)pmk/26.8.2008.