Capt. D. KarunakarDirector v. Veekshanam Road

IN THE HIGH COURT OF JUDICATURE AT MADRASDATE: 12-04-2007CORAM:THE HONOURABLE MR. JUSTICE K.N. BASHACRL.O.P.Nos.1222 & 4098 of 2007andCrl.M.P.Nos.1 of 2007In Crl.O.P.No.1222 of 2007:Capt. D. KarunakarDirector,M/s. Manito Electronics Pvt. Ltd.,Anchorage, East HillCalicut – 673 005... Petitioner/5th Accused. In Crl.O.P.No.4098 of 2007:

Lt.Cl. A.C. ViswanathanDirectorM/s. Manito Electronics Pvt. Ltd.,II Floor, 40/7997Veekshanam Road, Kochi – 682 0352.Mr. Cherian VargheseDirectorM/s. Manito Electronics Pvt. Ltd.,Geojith, Securities Ltd.,40/1997, Veekshanam RoadCalicut – 682 0353.Mr. Suprabhat LalaDirectorM/s. Manito Electronics Pvt. Ltd. Geojit Securities Ltd.40/7997, Veekshanan RoadCalicut – 682 035... Petitioners/Accused 4 to 7. Vs. https://hcservices.ecourts.gov.in/hcservices/ TamilNadu News Print & Papers Ltd.,rep. By Sr. Officer (Marketing)Mr. S. Anbusamy having its office at 39, Mount Road, GuindyChennai – 32... Respondent in both the petitions / Complainant. Petitions filed under Section 482 Cr.P.C. Calling for the records from thetrial court and quash the proceedings against the petitioners bydismissing the complaint against the petitioners, A5 in Crl.O.P.No.1222/07and A4, A6 and A7 in Crl.O.P.No.4098 of 2007 in C.C.No.3022/2000 on thefile of learned IX Metropolitan Magistrate, Saidapet, Chennai – 15. For petitioners :: Mr. N. Sudharshan(in Crl.O.P.1222/07) Mr. N.A. Kareem(in Crl.O.P.4098/07) For respondent:: Mr. V.M. Shivakumar in both the petitionsO R D E RIn Crl.O.P.No.1222 of 2007, the fifth accused is the petitioner and in Crl.O.P.No.4098 of 2007, the petitioners are the fourth, sixth and seventhaccused. The petitioners in both the petitions were facing trial for thealleged offence under Section 138 and 141 of the Negotiable InstrumentsAct ('NI Act' in short) before the learned IX Metropolitan Magistrate, Saidapet, Chennai. The respondent filed the case for the offence under Section 138 of the NI Act implicating 10 accused in this case and the caseis pending on the file of the IX Metropolitan Magistrate, Saidapet, Chennai in C.C. No.3022 of 2000.

Mr. N. Sudharshan, learned counsel appearing for the petitionersubmits that the fifth accused, the petitioner in Crl.O.P.No.1222 of 2007has come forward with this petition seeking for the relief of quashing theproceedings initiated against the petitioner and other accused for theoffence under Section 138 of the NI Act. It is submitted by the learnedcounsel for the petitioner that the petitioner is the Ship Captainemployed with Eurasia Shipping and Management Company Limited, Quarry, Hongkong. It is also submitted by the learned counsel for the petitionerthat the petitioner was also conferred with the Honour of Masters(ForeignGoing) by Ministry of Transport, Government of India and as a Captain ofthe Ship, he travels all over the world.2 (a) The learned counsel for the petitioner mainly contended that thepetitioner has been implicated in this case by the respondent only on theground that the petitioner is one of the Directors of the Company.

In support of his contentions, the learned counsel for thepetitioner placed reliance on the following decisions :(i) Saroj Kumar Poddar Vs. State (N.C.T. of Delhi) (2007 (1) TNLR 87 = 2007 (1) CTC 529(SC))(ii) Sabita Ramamurthy Vs. R.B.S. Channabasavaradhya(2006(2) TNLR 551(SC))(iii)S.M.S. Pharmaceuticals Ltd., Vs. Neeta Bhalla & Anr. (2006 (1) TNLR 330(SC)= 2005 8 SCC 89)(iv) S.M.S. Pharmaceuticals Ltd., Vs. Neeta Bhalla & Anr..(2007 (2) CTC 86(SC) = )

Mr.N.A. Kareem, learned counsel for the petitioners in Crl.O.P.No.4098 of 2007 submits that the petitioners have been arrayed asA4, A6 and A7. It is also contended by the learned counsel for thepetitioners that these petitioners who are the Directors of A1, the Company and has nothing to do with the conduct of the business of thecompany, also stand on the same footing as that of the petitioner in Crl.O.P.No.1222 of 2007. In this matter also, the learned counsel for thepetitioners pointed out that in the complaint there is only a vague andgeneral allegation to the effect that the accused A3 to A8 were also incharge of the conduct of the business of A1, the Company and as such theyare liable for the offence committed by the first accused under Section138 of the NI Act. Therefore, it is contended by the learned counsel forthe petitioner that by making such a bald and vague allegation withoutspecifying the role said to have been played by the petitioners herein the https://hcservices.ecourts.gov.in/hcservices/ petitioners cannot be held vicariously liable for the offence said to havebeen committed by A1, the company.

Per contra, the learned counsel appearing for the respondent inboth the petitions vehemently contended that there are sufficientallegations contained in the complaint against the petitioners in both thepetitions viz., A4, A5, A6 and A7 to the effect that they are in chargeand responsible for the conduct of the business of A1, the company andthereby they are also vicariously liable for the offence said to have beencommitted by the A1, the Company. The learned counsel for the respondentrelied upon the judgment of the larger Bench of the Honourable SupremeCourt in S.M.S. Pharmaceuticals Ltd., V. Neeta Bhalla & Anr. reported in(2005) 8 SCC 89 wherein it was held that, "the complaint should containthe allegation to the effect that there should be a specific averment tothe fact that the concerned person viz., the partner or the directorshould be in charge and responsible for the conduct of the company at therelevant point of time" and would state that there is a specific anddefinite allegation levelled against the petitioners viz., A4, A5, A6 andA7 and also A3 and A9 to the effect that they are involved and in chargeof the conduct of the business of A1, the company and as such all theaccused are liable to be prosecuted for the offence under Section 138 ofthe NI Act.

I have carefully considered the rival contentions putforth oneither side and also perused the impugned complaint. At the outset it isrelevant to incorporate the exact allegations contained in the complaintin Paragraph No.9 of the complaint in respect of the petitioners in both https://hcservices.ecourts.gov.in/hcservices/ the petitions which reads as follows: "9. The complainant states that the second accused, representing the first accused has signed the said Cheque. Tothe knowledge of the complainant, the third to nineth accused andaccused are involved and in charge of the day-to-day business ofthe first accused and as such all the accused are jointly andseverally liable to be prosecuted and punished as envisaged underthe provisions of Secs.138 & 141(1) of the Negotiable InstrumentsAct, 1881."

A perusal of the complaint reveals that the respondent-complainantimplicated as many as 10 number of accused. A1 is the company; A2 is the Managing Director; A3 is the Executive Director; A4 to A9 are the Directors of A1 Company. As far as the petitioners in both the petitionsare concerned they have been arrayed as A5, A4, A6 and A7 and all of themhave been described in the cause title of the complaint as Directors. Itis pertinent to note that in the complaint at Paragraph No.9 asincorporated above, there is an allegation to the effect that A3 to A9 areinvolved and in charge of the day to day business of A1, the Company andas such they are also liable to be prosecuted for the offence under Section 138 of the NI Act. As already pointed out only in that paragraphthe petitioners have been implicated along with the other accused and thecomplainant has not whispered a word about the position held by thepetitioners herein and there is not even a single statement to the effectthat the petitioners are Directors and as such they are in charge of theday to day business of A1, the Company.

In yet another decision in Saroj Kumar Poddar Vs. State (N.C.T. of Delhi) reported in 2007 (1) CTC 529 (cited supra), the Apex Court has heldthat,"13. The purported averments which have been made in the Complaint Petitions so as to make the appellant vicariouslyliable for the offence committed by the Company read as under: "That the accused No.1 is a public limited companyincorporated and registered under the Companies Act, 1956, andthe accused 2 to 8 are/ were its Directors at the relevant timeand the said company is managed by the Board of Directors andthey are responsible for the in charge of the conduct andbusiness of the company-Accused No.1. However, cheques referredto in the complaint have been signed by the Accused No.3 & 8 i.e.Shri K.K. Pilania and Shri.N.K. Munjal for and on behalf of the Accused Company No.1."... there is no averment in the Complaint Petitions as tohow and in what manner the appellant was responsible for theconduct of the business of the Company or otherwise responsibleto it in regard to its functioning. He had not issued anycheque. How he is responsible for dishonour of the cheque hasnot been stated. The allegations made in paragraph 3, thus, inour opinion do not satisfy the requirements of Section 141 of the Act. " https://hcservices.ecourts.gov.in/hcservices/

The Honourable Supreme Court also considered the principles laiddown by the larger Bench in S.M.S. Pharmaceuticals ltd., V. Neeta Bhalla &Anr. reported in 2005 (8) SCC 89(cited supra) and ultimately held that, "With a view to make a Director of a Company vicariouslyliable for the acts of the Company, it was obligatory on thepart of the complainant to make specific allegations as arerequired in law". Therefore, it is clear that a mere general allegation to the effect thatthe accused who are the Directors at the relevant point of time areresponsible and in charge of the conduct of the business of the Company isnot sufficient to hold a Director to be vicariously liable for the offencesaid to have been committed by a Company.

The contentions of the learned counsel for the respondent to theeffect that the Honourable Supreme Court has clarified its position inrespect of the decision rendered in S.M.S. Pharmaceuticals ltd., V. NeetaBhalla & Anr. reported in 2005 (8) SCC 89 (cited supra) is unacceptable asthe same is not applicable to the facts of the instant case. The ApexCourt has only pointed out that the decision is only made on the basis ofthe context of the said case. I have already pointed out the specificallegations contained in respect of certain Directors in the said case. It is also pertinent to note the specific allegations contained in respectof the Directors in S.M.S. Pharmaceutical Ltd., Vs. Neeta Bhalla & Anr.reported in 2007 (2) Supreme 459 (cited supra) :"3. In the complaint petition the allegations made interalia are as under: "The Accused No.1 is a duly incorporated Company, having itsregistered office at the address mentioned above, represented bythe Director, Accused no.2. The accused No.3 and 4 are also the Directors of the Accused No.1 company and the accused 2 to 4 areactively involved in the management of the affairs of the Accused No.1 Company. "The Hon'ble Apex Court held that the above said allegation is notsufficient to fasten one of the Directors with vicarious liability for theoffence said to have been committed by a Company and ultimately, confirmedthe quashing order passed by the High Court and it is extracted as follows: "If the complaint petition is read in its entirety, the samewould show that the only person who was actively associated inthe matter of obtaining loan, signing cheques and other affairsof the company which would lead to commission of the allegedoffence was the accused No.2. ... 23. On a plain reading of the averments made in thecomplaint petition, we are satisfied that the statutoryrequirements as contemplated under Section 141 of the Act werenot satisfied. "

The Hon'ble Supreme Court in N.K.Wahi v. Shekhar Singh & Ors.reported in 2007 (2) Supreme 811 taken a similar view. In that case, the https://hcservices.ecourts.gov.in/hcservices/ Hon'ble Apex Court has held as follows :"To launch a prosecution, therefore, against the allegedDirectors there must be a specific allegation in thecomplaint as to the part played by them in the transaction. There should be clear and unambiguous allegation as to whothe Directors are incharge and responsible for the conductof the business of the company. The description should beclear. It is true that precise words from the provisions ofthe Act need not be reproduced and the Court can always cometo a conclusion in facts of each case. But still in theabsence of any averment or specific evidence the net resultwould be that complaint would not be entertainable. "

The Hon'ble Supreme Court further incorporated the allegationcontained in that case as follows :"The accused Nos.2 to 12 are the Directors/persons responsiblefor carrying out the business of the company and the liabilityof the accused persons in the present complaint is joint andseveral. "The Hon'ble Apex Court, ultimately held that the above said allegationsare not sufficient to fasten the accused to be held vicariously liable forthe offence committed by the company.

Therefore, in view of the above well settled principle of lawlaid down by a catena of decisions of the Honourable Supreme Court inorder to implicate a particular accused who was holding a position as Director, a mere vague and general allegation to the effect that the saidDirectors are also responsible and in charge of the business of the Company itself is not sufficient to make them vicariously liable for theoffence said to have been committed by a Company and on the other hand, there should be a specific averment and allegation in the complaint tothat effect, which should be clear and unambiguous in respect of thespecific role played by such Director indicating as to how and in whatmanner such Director was responsible for the conduct of the business ofthe company or otherwise responsible with regard to its functioning.

In the instant case also, as already pointed out, there isabsolutely no specific, clear and unambiguous allegations as to how and inwhat manner the petitioners were responsible for the conduct of thebusiness and there is absolutely no specific role assigned to thepetitioners in respect of the conduct of the business of the first accusedcompany.

Mr.N.Sudharshan, learned counsel also placed reliance on adecision of this Court in V.Kathikeyan and another v. The Registrar of Companies, etc. reported in 2001-2-L.W. (Crl.) 656 to the effect thatbenefit should be extended to the similarly placed other accused thoughthey have not preferred any petitions for quashing. This Court in thatdecision after allowing the quashing petition held as follows : https://hcservices.ecourts.gov.in/hcservices/ "31. Under the circumstances, the entire proceedings inpursuance of the wrong cognizance taken in E.O.C.C.No.177 of1998 on the file of the Additional Chief MetropolitanMagistrate, E.O.I, Egmore, are liable to be quashed not onlyas against the petitioners but also as against all the otheraccused though they are not the petitioners herein. "In this case also, apart from the petitioners herein, the other accused, viz., A-3, A-9 and A-10 also stand on a similar footing like thepetitioners herein and therefore, the proceedings initiated against themis also liable to be quashed.

This Court is also constrained to direct the learned IXMetropolitan Magistrate, Saidapet to expedite the trial in C.C.No.3022 of2000 as the case itself relates to the year 2000 and more particularly, within a period of five months from the date of receipt of a copy of thisorder. Sd/-Asst. Registrar./true copy/Sub Asst. Registrar.glp/gg https://hcservices.ecourts.gov.in/hcservices/ To1. The IX Metropolitan Magistrate, Saidapet, Chennai 15.2. -do- through the Chief Judicial Magistrate, Egmore, Chennai.+ 2 CCs to Mr.Sudarsan, Advocate SR NO 24337+ 1 CC To Mr.Shivakumar, Advocate SR NO. 24276+ 1 CC To Mr.N.A.Kareem, Advocate SR NO.23993CRL.O.P.Nos.1222 & 4098 of 2007andCrl.M.P.Nos.1 of 2007tm[co]Gp/22.5.