Harbhajan Singh v. Janak Raj Gupta

CORAM : Hon'ble Ms. Justice Nirmaljit Kaur Present:- Mr. Sandeep Jain, Advocate for the petitioner. Mr. Achin Gupta, Advocate for the respondent. *****

1. Whether Reporters of Local Newspapers may be allowed to see the judgment ?

2. To be referred to the Reporters or not ? 3. Whether the judgment should be reported in the Digest ? ** NIRMALJIT KAUR, J. This Order shall dispose of all the three above mentioned petitions as the petitioner, as well as, the issue involved in all these petitions is same. The prayer in Crl. Misc. No.M-10685 of 2011 is for quashing Crl. Misc. No.M-10685 of 2011 2 of complaint No.757 dated 05.12.2007, as well as, the summoning Order dated 07.07.2008, in Crl. Misc. No.M-15342 of 2011, the prayer is for quashing of complaint No.761 dated 05.12.2007, as well as, the summoning Order dated 31.01.2008 and in Crl. Misc. No.M-16136 of 2011, the prayer is for quashing of complaint No.761 dated 07.12.2007, as well as, the summoning Order dated 09.06.2008 under Section 138 of the Negotiable Instruments Act, 1881 passed by Chief Judicial Magistrate, Bathinda. However, for the sake of convenience, the facts are being taken from Crl. Misc. No.M-10685 of 2011. The respondent filed a complaint under Sections 138 of the Negotiable Instruments Act, 1881 as amended upto date in respect of Cheque No.757891 dated 30.04.2007 for Rs.4,00,000/-. He filed the said complaint against M/s Shivalik Vihar Sites Private Limited, Patiala Road Zirakpur and two other persons. In the said complaint, the petitioner along with others have been summoned by the Sub Divisional Judicial Magistrate vide Order dated 07.07.2008, whereas, the petitioner had resigned from the Managing Directorship of the Company on 14.08.2006. While praying for quashing of the complaint, as well as, the summoning Order, the only argument raised by learned counsel for the petitioner was that the cheque, in question, was signed by Gulab Singh, who is the Director of the Company and the petitioner has nothing to do with the affairs of the said Company in view of the fact that he had already resigned from the Company on 14.08.2006. Reliance has been placed on the judgments of Hon'ble the Apex Court rendered in the cases titled as N.K. Wahi vs. Shekar Singh and Others reported as 2007(2) Civil Court Cases 0177, as well as, the judgment titled as Harshendra Kumar D. v. Rebatilata Koley etc. Crl. Misc. No.M-10685 of 2011 3 reported as 2011(1) BC 685. The respondent has filed his reply. As per the reply, at the time of agreement, the petitioner was the Managing Director of the Company and the said cheque was returned unpaid by the bank with the remarks “Funds Insufficient” which attracts the provisions of Section 138 of the Negotiable Instruments Act. Heard. Neither the learned counsel for the respondent nor the respondent in his reply has denied that the petitioner had resigned before issuing of the cheque, in question. It is admitted that the cheque, in question, was issued on 30.04.2007. It is not disputed that on the said date, the petitioner was not the Managing Director of the Company as he had resigned from the Company on 14.08.2006. After the resignation of the petitioner, the Company had filed the statutory returns with the Registrar of Companies intimating the resignation of the petitioner on form No.32. Further, a Memorandum of Understanding has also been signed vide which Gulab Singh and one Sukhdev Singh were made the Directors of the above said Company and the whole charge was handed over to the said Directors. Moreover, the petitioner has neither signed the cheque, in question, nor had anything to do with the Company on the date of issuance of the said cheque. The said cheque has been signed by one Gulab Singh, Director of the Company. Section 141 of the Negotiable Instruments Act, 1881 reads as under :-

141. Offences by companies – (1) If the person committing an ofence 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 Crl. Misc. No.M-10685 of 2011 4 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 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.” Hon'ble the Supreme Court in the case titled as K.K.Ahuja v. V.K.Vora and another reported as 2009 (3) R.C.R (Criminal) 571: 2009 (3) R.C.R (Civil) 788: 2009 (4) R.A.J 310: 2009 (10) Supreme Court Cases 48 held that it is necessary to specifically aver in a complaint under Sections 138 and 141 of the Act that at the time when the offence was committed, the person accused was in charge of and responsible for the conduct of business of the company and that in the absence of such averment, Section 141 cannot be invoked. The same was Crl. Misc. No.M-10685 of 2011 5 held on by relying on the judgment in the case of S.M.S Pharmaceuticals Ltd. v. Neeta Bhalla reported as 2005 (4) R.C.R (Criminal) 141 : 2005 (3) Apex Criminal 229 : 2005 (8) SCC 89 in para 9 as under :- “9. A three-Judge Bench of this Court considered the scope of Section 141 of the Act in SMS Pharma and held that it is necessary to specifically aver in a complaint under Sections 138 and 141 of the Act, that at the time when the offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company and that in the absence of such averment, Section 141 cannot be invoked. This Court held : (SCC pp.98-99 & 102-03, para 18). “ 18. To sum up, 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 the company, the principal accused being the company itself. It is a departure from the rule in criminal law against vicarious liability. A clear case should be spelled out in the complaint against the person sought to be made liable. Section 141 of the Act contains the requirements for making a person liable under the said provision. That the respondent falls within the parameters of Section 141 has to be spelled out. A complaint has to be examined by the Magistrate in the first instance on the basis of averments contained therein. If the Magistrate is satisfied that there are averments which bring the case within Section 141, he would issue the process. We have seen that merely being described as a Director in a company is not sufficient to satisfy the requirement of Section 141. Even a non-Director can be liable under Section 141 of the Act. The averments in the complaint would also serve the purpose that the Crl. Misc. No.M-10685 of 2011 6 person sought to be made liable would know what is the case which is alleged against him. This will enable him to meet the case at the trial.” The issue before Hon'ble the Supreme Court in the case of K.K. Ahuja (supra) was decided as under :- “23. Therefore, if a person does not meet the first requirement, that is, being a person who is responsible to the company for the conduct of the business of the company, neither the question of his meeting the second requirement (being a person in charge of the business of the company), nor the question of such person being liable under sub-section (1) of Section 141 arises. To put it differently, to be vicariously liable under sub-section (1) of Section 141, a person should fulfill the “legal requirement” of being a person in law (under the statute governing companies) responsible to the company for the conduct of the business of the company and also fulfill the “factual requirement” of being a person in charge of the business of the company.

24. Therefore, the averment in a complaint that an accused is a Director and that he is in charge of and is responsible to the company for the conduct of the business of the company, duly affirmed in the sworn statement, may be sufficient for the purpose of issuing summons to him. But if the accused is not one of the persons who falls under the category of “persons who are responsible to the company for the conduct of the business of the company” then merely by stating that “he was in charge of the business of the company” or by stating that “he was in charge of the day-to-day management of the company” or by stating that “he was in charge of, and was responsible to the company for the conduct of the business of the company”, he cannot be made vicariously liable under Section 141 (1) of the Act. Crl. Misc. No.M-10685 of 2011 7

25. It should, however, be kept in view that even an officer who was not in charge of and was responsible to the company for the conduct of the business of the company can be made liable under sub-section (2) of Section 141. For making a person liable under Section 141 (2), the mechanical repetition of the requirements under Section 141 (1) will be of no assistance, but there should be necessary averments in the complaint as to how and in what manner the accused was guilty of consent and connivance or negligence and therefore, responsible under sub Crl. Section (2) of Section 141 of the Act.” Thereafter, Hon'ble the Apex Court in the case of Harshendra Kumar D. (supra) while relying on the judgment of Hon'ble the Apex Court rendered in the case of National Small Industries Corporation Limited vs. Harmeet Singh Paintal and another reported as 2010(2) RCR (Criminal) 122 held in para 15 as under :- “15. Every company is required to keep at its registered office a register of its directors, managing director, manager and secretary containing the particulars with respect to each of them as set out in clauses (a) to (e) of sub-section (1) of Section 303 of the Companies Act, 1956. Sub-section (2) of Section 303 mandates every company to send to the Registrar a return in duplicate containing the particulars specified in the register. Any change among its directors, managing directors, managers or secretaries specifying the date of change is also required to be furnished to the Registrar of Companies in the prescribed form within 30 days of such change. There is, thus, statutory requirement of informing the Registrar of Companies about change among directors of the company. In this view of the matter, in our opinion it must be held that a director- whose resignation has been accepted by Crl. Misc. No.M-10685 of 2011 8 the company and that has been duly notified to the Registrar of Companies – cannot be made accountable and fastened with liability for anything done by the company after the acceptance of his resignation. The words 'every person who, at the time the offence was committed', occurring in Section 141 (1) of the NI Act are not without significance and these words indicate that criminal liability of a director must be determined on the date the offence is alleged to have been committed.” Applying the test in the present case, it has already been discussed above that the cheque was issued on 30.04.2007. The petitioner as Managing Director had resigned from the Company on 14.08.2006. The said information was duly sent to the Registrar of Companies on Form no.32 as required and in his place, Gulab Singh and one Sukhdev Singh were appointed and the whole charge was handed over to the said Directors. The said Memorandum of Understanding has also been placed on record. Moreover, it is not even the case of the complainant that the dishonoured cheque was issued by the petitioner. Thus, it leaves no matter of doubt that on the said date when the offence was committed by the Company, the petitioner was neither the Incharge nor he had anything to do with the affairs of the Company. Thus, in the facts of the present case, the basic ingredients of Section 141 of the Negotiable Instruments Act, 1881 are missing. Thus, in case, the said complaints are allowed to proceed against the petitioner, it would result in gross injustice to the petitioner and tantamount to an abuse of process of the Court. The facts of the present case are squarely covered by the judgment rendered by Hon'ble the Apex Court in the case titled as Harshendra Kumar D. (supra). In view of the above, these three petitions are, accordingly, Crl. Misc. No.M-10685 of 2011 9 allowed. Complaint No.757 dated 05.12.2007, as well as, the summoning Order dated 07.07.2008 in Crl. Misc. No.M-10685 of 2011, Complaint No.761 dated 05.12.2007, as well as, the summoning Order dated

31.01.2008 in Crl. Misc. No.M-15342 of 2011 and the Complaint No.761 dated 07.12.2007, as well as, the summoning Order dated 09.06.2008 in Crl. Misc. No.M-16136 of 2011 under Section 138 of the Negotiable Instruments Act, 1881, are hereby, quashed. Allowed as above. A photocopy of this Order be placed on the files of other connected cases.

17.05.2012 gurpreet (NIRMALJIT KAUR) JUDGE