The High Court
Case Details
1 IN THE HIGH COURT OF JHARKHAND, RANCHI ---- Cr.M.P. No. 3354 of 2017 1. Prabhat Ranjan Mallick @ Prabhat Ranjan Mallik 2. Namita Mallick @ Namita Mallik ---- -- Versus -- ….. Petitioners 1.The State of Jharkhand 2.Kaji Sakil Ekta …... Opposite Parties ---- CORAM: HON’BLE MR. JUSTICE SANJAY KUMAR DWIVEDI --- For the Petitioner :- Mr. Shailesh Kr. Singh, Advocate
Legal Reasoning
For the State :- Mr. Fahad Allam, APP For the O.P.No.2 :- Mr. A. Allam, Sr. Advocate ---- 09/18.07.2023 Heard Mr. Shailesh Kr. Singh, the learned counsel appearing on behalf of the petitioners, Mr. A. Allam, the learned Senior counsel appearing on behalf of the O.P.No.2 and Mr. Fahad Allam, the learned counsel appearing on behalf of the respondent State. 2. This petition has been filed for quashing the entire criminal proceeding as well as order dated 19.07.2016 passed in C.P. Case No. 376/2016 (Old No. C.P. 152/2014), whereby cognizance has been taken under section 138 of the N.I. Act, pending in the Court of learned Judicial Magistrate, Ist Class, Dhanbad. 3. The O.P. No.2 filed the complaint case alleging therein the O.P. No.2 had two factories namely, Ekta Iron and Alloys Pvt Ltd. and Ekta Ferro Alloys Pvt. Ltd. situated at Kanchandih which he sold to the petitioners company namely Koustuv Metal Pvt. Ltd. and in lieu thereof the petitioners gave seven account payee cheque to the tune of Rs. Seven crores two lacs and twenty two thousand. All cheques when 2 presented got dishonoured, as such a demand notice dated 20.06.2013 was sent to the petitioners by the O.P. No.2. The petitioners after receipt of notice regretted and paid one crore two lacs immediately to the O.P. No. 2 and further gave six account payee cheques for payment of rest six crores twenty two thousand. All the six cheques when presented on different dates got dishonoured and as such a demand notice dated 6.12.2013 was sent to the petitioners regarding their liability to pay six crores twenty two thousand. 4. Mr. Shailesh Kr. Singh, the learned counsel appearing on behalf of the petitioners submits that the entire case record was sent to Bhuvneshwar keeping in view of the jurisdiction issue but then subsequently the record were again transferred back to the court of the learned CJM, Dhanbad and as such on 09.02.2016 thereafter the complaint case was renumbered as C.P. Case No. 376 of 2017. He submits that the learned court has been pleased to take cognizance vide order dated 19.07.2016. He submits that in the complaint it has been alleged that the grievance of the petitioner arises out of in view of Memorandum of Understanding dated 10.08.2010 entered into between the Opposite Party No. 2 and Koustuv Metal Pvt. Ltd. wherein O.P. No. 2 as a seller sold two companies Ekta Iron and Alloys Pvt. Ltd and Ekta Ferro Alloys to Koustuv Metal Pvt. Ltd. He submits that for consideration of the said agreement Koustuv Metal Pvt. Ltd issued several cheques in favour of O.P. No. 2 which got dishonoured and hence the O.P. No.2 lodged a case under section 138 of the N.I. Act in which the company namely, Koustuv Metal Pvt. Ltd has not been made accused. He submits that in view of this vicarious liability cannot be fastened upon the petitioners who happen to be the directors of Koustuv Metal Pvt. Ltd. To buttress his such argument, he relied in the case of “Aneeta Hada v. Godfather Travels and Tours Private Limited” reported in (2012) 5 SCC 661. He submits that the petitioners have not signed on the 3 cheques and cheques in question was issued by the company. On these grounds he submits that so far these petitioners are concerned, the entire criminal proceeding may be quashed. 5. On the other hand, Mr. A. Allam, learned senior counsel for the O.P. No. 2 submits that the O.P. No. 2 sold two companies namely, Ekta and Alloys Pvt. Ltd and Ekta Ferro Alloys to the petitioners. He submits that in fact the O.P. No. 2 had agreed to sell his companies to the petitioner namely, Prabhat Ranjan @ Prabhat Ranjan Mallik. He further submits that the O.P. No. 2 had not agreed to transfer its two companies to the Koustuv Metal Pvt. Ltd. of which the petitioner was the owner rather Sri P.R. Mallick in its individual capacity as a person decided to purchase the instant companies of the O.P. No. 2 after the entire liability of the Allahabad bank is taken over by the petitioner which was above six crores and further after paying one crore and two lakhs to the O.P. No.2. In this back ground he submits that the complaint case has rightly been lodged against the petitioners and not making the Koustu Metal Pvt. Ltd an accused is not necessary and the petitioners are at the whelm of affairs. On these grounds the submits that the complaint has rightly been entertained by the learned court and at this stage this Court may not interfere. 6. In view of above submissions of the learned counsels for the parties, the Court has gone through the contents of complaint, cognizance order and counter-affidavit filed on behalf of the O.P. No.2. In course of argument when the court inclined to look into the said cheques it has been pointed out that the said cheques are annexed with the counter affidavit however, the said cheques were not annexed with the counter affidavit that is how the learned counsel for the petitioners and O.P. No. 2 have produced the said cheques in course of argument. Photocopy of said cheques along with Memorandum of Understanding are taken on record. 4 7. Looking into the contents of complaint, it appears that memorandum of understanding for purchase of Ekta Iron & Alloys Pvt. Ltd. and Ekta Ferro Alloys Pvt. Ltd. by the Koustuv Metal Pvt. Ltd has been made for that transaction six cheques in question have been issued by none other than company namely, Koustuv Metal Pvt. Ltd. The Court looked into the photocopy of cheqeus which have been taken on record and looking into all the cheques it appears that cheques have been issued by the Koustuv Metal Pvt. Ltd. Memorandum of Understanding further stipulates that it was between Mr. Quazi Shakeel Ekta and the Koustuv Metal Pvt. Ltd through its Managing Director. Thus the Memorandum of Understanding was also with the Koustu Metal Pvt. Ltd and not in the individual capacity of these two petitioners and further the said Koustuv Metal Pvt. Ltd has not been made accused in the complaint case. For correct appreciation of section 141 of the Negotiable Instruments Act, the said Section is quoted hereinbelow: “141. Offences by companies.—(1) If the person committing an offence under Section 138 is a company, 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, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub- section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence. [Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this chapter.] (2) Notwithstanding anything contained in sub- section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or 5 connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation.—For the purposes of this section,— (a) “company” means any body corporate and includes a firm or other association of individuals; and (b) “director”, in relation to a firm, means a partner in the firm.” 8. On perusal of this section, it is crystal clear that vicarious liability under sub section 1 or 2 of section 141 of the Negotiable Instruments Act can be fastened if the person is having the control over the day to day affairs of the company. Looking into the explanation of the said section, it is crystal clear that the firm or the company are required to be made an accused in the complaint, which is lacking in the case in hand. However, such vicarious liability arises only when the company or the firm commits offence as primary offence. Reference may be made to the case of case of “Aneeta Hada v. Godfather Travels and Tours Private Limited” (supra). Paragraph nos.41, 42, 52, 53, 58 and 69 of the said judgment, which are quoted hereinbelow: “41. After so stating, it has been further held that while analysing Section 141 of the Act, it will be seen that it operates in cases where an offence under Section 138 is committed by a company. In para 18 of the judgment, it has been clearly held as follows: (S.M.S. Pharmaceuticals Ltd. case, SCC p. 102) “18. … there is almost unanimous judicial opinion that necessary averments ought to be contained in a complaint before a person can be subjected to criminal process. A liability under Section 141 of the Act is sought to be fastened vicariously on a person connected with a company, the principal accused being the company itself. It is a departure from the rule in criminal law against vicarious liability.” 42. Presently, we shall deal with the ratio laid down in C.V. Parekh. In the said case, a three-Judge Bench was interpreting Section 10 of the 1955 Act. The respondents in C.V. Parekh, were active participants in the management of the company. The trial court had convicted them on the ground that the 6 goods were disposed of at a price higher than the control price by Vallabhadas Thacker with the aid of Kamdar and the same could not have taken place without the knowledge of the partners of the firm. The High Court set aside the order of conviction on the ground that there was no material on the basis of which a finding could be recorded that the respondents knew about the disposal by Kamdar and Vallabhadas Thacker. 52. At this juncture, we may usefully refer to the decision in U.P. Pollution Control Board v. Modi Distillery. In the said case, the company was not arraigned as an accused and, on that score, the High Court quashed the proceeding against the others. A two-Judge Bench of this Court observed as follows: (SCC p. 690, para 6) “6. … Although as a pure proposition of law in the abstract the learned Single Judge’s view that there can be no vicarious liability of the Chairman, Vice-Chairman, Managing Director and members of the Board of Directors under sub-section (1) or (2) of Section 47 of the Act unless there was a prosecution against Modi Industries Ltd., the Company owning the industrial unit, can be termed as correct, the objection raised by the petitioners before the High Court ought to have been viewed not in isolation but in the conspectus of facts and events and not in vacuum. We have already pointed out that the technical flaw in the complaint is attributable to the failure of the industrial unit to furnish the requisite information called for by the Board. Furthermore, the legal infirmity is of such a nature which could be easily cured. Another circumstance which brings out the narrow perspective of the learned Single Judge is his failure to appreciate the fact that the averment in para 2 has to be construed in the light of the averments contained in paras 17, 18 and 19 which are to the effect that the Chairman, Vice-Chairman, Managing Director and members of the Board of Directors were also liable for the alleged offence committed by the Company.” Be it noted, the two-Judge Bench has correctly stated that there can be no vicarious liability unless there is a prosecution against the company owning the industrial unit but, regard being had to the factual matrix, namely, the technical fault on the part of the company to furnish the requisite information called for by the Board, directed for making a formal amendment by the applicant and substitute the name of the owning industrial unit. It is worth noting that in the said case, M/s Modi Distilleries was arrayed as a party instead of M/s Modi Industries Ltd. Thus, it was a defective complaint which was curable but, a pregnant one, the law laid down as regards the primary liability of the company without which no vicarious liability can be imposed has been appositely stated. 53. It is to be borne in mind that Section 141 of the Act is 7 concerned with the offences by the company. It makes the other persons vicariously liable for commission of an offence on the part of the company. As has been stated by us earlier, the vicarious liability gets attracted when the condition precedent laid down in Section 141 of the Act stands satisfied. There can be no dispute that as the liability is penal in nature, a strict construction of the provision would be necessitous and, in a way, the warrant. 58. Applying the doctrine of strict construction, we are of the considered opinion that commission of offence by the company is an express condition precedent to attract the vicarious liability of others. Thus, the words “as well as the company” appearing in the section make it absolutely unmistakably clear that when the company can be prosecuted, then only the persons mentioned in the other categories could be vicariously liable for the offence subject to the averments in the petition and proof thereof. One cannot be oblivious of the fact that the company is a juristic person and it has its own respectability. If a finding is recorded against it, it would create a concavity in its reputation. There can be situations when the corporate reputation is affected when a Director is indicted. 59. In view of our aforesaid analysis, we arrive at the irresistible conclusion that for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the drag-net on the touchstone of vicarious liability as the same has been stipulated in the provision itself. We say so on the basis of the ratio laid down in C.V. Parek which is a three-Judge Bench decision. Thus, the view expressed in Sheoratan Agarwal does not correctly lay down the law and, accordingly, is hereby overruled. The decision in Anil Hada is overruled with the qualifier as stated in para 51. The decision in Modi Distiller has to be treated to be restricted to its own facts as has been explained by us hereinabove.” 9. Recently the Hon’ble Supreme Court has again examined this aspect of the matter in the case of “Dilip Hariramani v. Bank of Baroda” reported in (2022) 0 Supreme (SC) 417. In this case, the subject matter was the firm itself and the Hon’ble Supreme Court discussed the law laid down on this point. As the argument of the learned senior counsel appearing for the O.P. No.2 that it has been issued by the petitioners and in view of that the reference may be made to paragraph nos. 14 and 15 of the said judgment, which is quoted below: “14. The provisions of Section 141 impose vicarious liability by deeming fiction which presupposes and requires the commission of the offence by the company or firm. Therefore, unless the company or firm has 8 committed the offence as a principal accused, the persons mentioned in sub-section (1) or (2) would not be liable and convicted as vicariously liable. Section 141 of the NI Act extends vicarious criminal liability to officers associated with the company or firm when one of the twin requirements of Section 141 has been satisfied, which person(s) then, by deeming fiction, is made vicariously liable and punished. However, such vicarious liability arises only when the company or firm commits the offence as the primary offender. This view has been subsequently followed in Sharad Kumar Sanghi v. Sangita Rane,17 Himanshu v. B. Shivamurthy and Another,18 and Hindustan Unilever Limited v. State of Madhya Pradesh.19 The exception carved out in Aneeta Hada (supra),20 which applies when there is a legal bar for prosecuting a company or a firm, is not felicitous for the present case. No such plea or assertion is made by the respondent. 15. Given the discussion above, we allow the present appeal and set aside the appellant’s conviction under Section 138 read with 17 (2015) 12 SCC 781:11. In the case at hand as the complainant’s initial statement would reflect, the allegations are against the Company, the Company has not been made a party and, therefore, the allegations are restricted to the Managing Director. As we have noted earlier, allegations are vague and in fact, principally the allegations are against the Company. There is no specific allegation against the Managing Director. When a company has not been arrayed as a party, no proceeding can be initiated against it even where vicarious liability is fastened under certain statutes. It has been so held by a three-Judge Bench in Aneeta Hada v. Godfather Travels and Tours (P) Ltd. in the context of the Negotiable Instruments Act, 1881. 18 (2019) 3 SCC 797:13.” 10. In the above judgment the Hon’ble Supreme Court has clearly held that section 141 of the Negotiable Instruments Act extends vicarious liability to the officers associated with company or firm when one of twin requirements of section 141 has been satisfied, which person(s) then, by deeming fiction, is made vicariously liable and punished. In absence of the firm and looking into the admitted position that the petitioners are not the drawer and in both the cases, they can not be liable to be punished . 11. Admittedly, the Memorandum of Understanding is with the Koustuv Metal Pvt. Ltd. Cheques have been issued by the Koustuv Metal 9 Pvt. Ltd but the said company has not been made accused and in view of well settled provision of and in view of several judgments of the High Courts as well as Hon’ble Supreme Court the complaint petition in absence of the company not made accused cannot be maintainable. Accordingly, entire criminal proceeding as well as order dated 19.07.2016 passed in C.P. Case No. 376/2016 (Old No. C.P. 152/2014), whereby cognizance has been taken under section 138 of the N.I. Act, pending in the Court of learned Judicial Magistrate, Ist Class, Dhanbad is quashed.
Decision
12. This petition stands allowed and disposed of. Pending I.A, if any, stands disposed of. Interim order is vacated. 13. This order has been passed in view of complaint case and this Court is not saying anything of other remedy available to the O.P. No.2. ( Sanjay Kumar Dwivedi, J.) satyarthi/AFR