REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO.1103  OF 2003

Ramrajsingh  ..Appellant

Versus

State of M.P. and Anr.  ..Respondents

J U D G M E N T

Dr. ARIJIT PASAYAT, J.

1. Challenge in this appeal is to the judgment of a learned Single Judge

of the Madhya Pradesh High Court, Indore Bench, dismissing the revision

application filed by the appellant questioning his conviction for an offence

relating to Section 138 of the Negotiable Instruments Act, 1881 (in short the

‘Act’).

2. Respondent  No.2-complainant  was  dealing  in  the  business  of

transportation.  The  appellant  was  the  General  Manager  of  J.K.  Utility

Division  of  J.K.  Synthetics  Ltd.  whereas  the  absconding  accused  Anup

Chaturvedi  was  the  Finance  Manager.  Both  were  working  under  the

Managing Director Manoj Kumar Mathur.  The non-applicant  and the co-

accused  Anup  Chaturvedi  placed  order  No.U/QMR/Coal  96028  dated

7.8.1996 with one Vinayak Coal Corporation. In pursuance of this order, the

coal was transported by Maruti Road Carrier, Indore which is owned by the

appellant.  The transportation  charges  of  Rs.9,45,000/-  were  paid  through

four cheques. All the four cheques were given to the appellant by the co-

accused.  

3. As per the information given by the co-accused to the appellant, the

appellant placed the cheques before the Bank for encashment but the same

were dishonored. All the cheques were issued on Bank of Rajasthan Branch

Jhalawad. The cheques were returned dishonoured with the endorsement of

‘Stop  Payment’.  On  28.11.1996,  a  registered  notice  was  sent  to  the

Company  which  was  served  by  “Registered  Acknowledgment  Due”  on

6.12.1996.  Even  thereafter  payments  were  not  made.  Therefore,  the

complaint  was  filed  by  respondent  No.2  against  the  appellant  and  co-

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accused Anup Chaturvedi and Manoj Mathur and the case was proceeded

against the appellant and absconding accused Anup Chaturvedi.  

4. Respondent  No.2  had  stated  in  the  complaint  that  appellant  was

working in the company. The order of transportation was placed by him, the

material  was received by him and the cheques were given to him by the

appellant  and  co-accused  Anup  Chaturvedi.  Out  of  four  cheques,  the

complaint in regard to the cheque amount of Rs.2,00,000/- dated 12.9.1996

was not pressed because a separate complaint was filed for dishonour of this

cheque.      

5. The  learned  Judicial  Magistrate,  First  Class,  Indore,  found  the

appellant  guilty  and  the  appeal  was  dismissed  by  learned  Additional

Sessions Judge, Indore.  Both the courts found the appellant guilty.  The

appellant’s  stand  was  that  he  was  not  in  charge  and  responsible  for  the

conduct of the business of the company and, therefore, he should not have

been held guilty. The cheques were not signed by him and a notice under

Section 138 proviso (b) of the Act was not given in his name. The High

Court did not accept the stand and dismissed the revision application.  

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6. Learned counsel for the appellant submitted that there is no evidence

that  the  appellant  was  in  charge  and  responsible  for  the  conduct  of  the

business  of  the  company. A notice  was  not  given  to  him. There  was  no

specific  role  attributed  to  him  in  the  complaint  petition.  Therefore,  the

conviction as recorded cannot be maintained.

7. Learned  counsel  for  respondent  No.2-complainant  supported  the

judgment of the High Court.  

8. It appears that the accused No.3 (Manoj Mathur) was discharged.  

9. In  S.M.S. Pharmaceuticals  Ltd. v.  Neeta  Bhalla  and Anr. (2007(4)

SCC 70) it was inter-alia observed held as follows:  

“16. Section 141 of the Act does not say that a Director of  a  company shall  automatically  be  vicariously  liable for commission of an offence on behalf of the Company. What is necessary is that sufficient averments should be made  to  show  that  the  person  who  is  sought  to  be proceeded  against  on  the  premise  of  his  being vicariously liable for  commission of an offence by the Company must be in charge and shall also be responsible to the Company for the conduct of its business.

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20. The liability of a Director must be determined on the date on which the offence is  committed.  Only because Respondent  1  herein  was  a  party  to  a  purported resolution dated 15-2-1995 by itself does not lead to an inference  that  she  was  actively  associated  with  the management of the affairs of the Company. This Court in this case has categorically held that there may be a large number of Directors but some of them may not associate themselves in the management of the day-to-day affairs of  the  Company and,  thus,  are  not  responsible  for  the conduct of the business of the Company. The averments must state that the person who is vicariously liable for commission of the offence of the Company both was in charge  of  and  was  responsible  for  the  conduct  of  the business  of  the  Company.  Requirements  laid  down therein  must  be  read  conjointly  and  not  disjunctively. When a legal  fiction is  raised,  the ingredients  therefor must be satisfied.

10. In N.K. Wahi v. Shekhar Singh and Ors. (2007 (9) SCC 481) it was

observed as follows:

“6.  Chapter  XVII  has  been  incorporated  under  the  Act  with effect from 1.4.1989.  In certain contingencies referred to under Section 138 of the Act on the cheques being dishonored a new offence  as  such  had  been  created.   But  to  take  care  of  the offences purported to have been committed provisions of sub- section (1) to Section 141 of the Act come into play.  It reads as under:-

“141 -  Offence 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,

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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.”

7. This provision clearly shows that so far as the companies are  concerned  if  any  offence  is  committed  by  it  then  every person who is a Director or employee of the company is  not liable.  Only such  person would be held liable if at the time when  offence  is  committed  he  was  in  charge  and  was responsible to the company for the conduct of the business of the company as well as the company.  Merely being a Director of the company in the absence of above factors will not make him liable.

8.   To  launch  a  prosecution,  therefore,  against  the  alleged Directors there must be a specific allegation in the complaint as to the part played by them in the transaction.  There should be clear and unambiguous allegation as to how the Directors are incharge and responsible for the conduct of the business of the company.   The  description  should  be  clear.  It  is  true  that precise  words  from  the  provisions  of  the  Act  need  not  be reproduced and the court can always come to a conclusion in facts of each case.  But still in the absence of any averment or specific evidence the net result would be that complaint would not be entertainable.               9. Section 138 of the Act reads as under:-

“138.  Dishonour  of  cheque  for  insufficiency, etc., of funds in the account –

Where  any  cheque  drawn  by  a  person  on  an account  maintained  by  him  with  a  banker  for

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payment  of  any  amount  of  money  to  another persons from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount  of  money  standing  to  the  credit  of  that account is insufficient to honour the cheque or that it  exceeds  the  amount  arranged  to  be paid  from that  account  by  an  arrangement  made  with  that bank,  such  person  shall  be  deemed  to  have committed an offence and shall, without prejudice to  any other  provisions  of this  Act,  be punished with  imprisonment  for  a  term  which  may  be extended  to  two  years,  or  with  fine  which  may extend to twice the amount of the cheque, or with both.”             

10. In  order  to  bring  application  of  Section  138  the complaint must show:

1 That Cheque was issued;         2. The same was presented; 3. It was dishonored on presentation; 4. A notice in terms of the provisions was served on the person sought to be made liable; 5. Despite service of notice, neither any payment was made nor other obligations, if any, were complied with within fifteen days from the date of receipt of the notice.  

11. Section 141 of the Act in terms postulates constructive liability  of  the  Directors  of  the  company  or  other  persons responsible for its conduct or the business of the company.

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13. In  S.M.S.  Pharmaceuticals  Ltd. v.  Neeta  Bhalla  and Another (2007 (4) SCC 70) it was, inter-alia, held as follows:-

“18.   To  sum  up,  there  is  almost  unanimous judicial opinion that necessary averments ought to

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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. A clear case should be spelled out in the complaint against the person sought to  be made liable.  Section 141of 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 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.

19. In view of the above discussion, our answers to  the  questions  posed  in  the  reference  are  as under:

(a)  It  is  necessary  to  specifically  aver  in  a complaint under Section 141 that at the time the offence was committed, the person accused was in charge  of,  and  responsible  for  the  conduct  of business  of  the  company.  This  averment  is  an essential requirement of Section 141 and has to be made in a complaint. Without this averment being made in a complaint, the requirements of Section 141 cannot be said to be satisfied.

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(b) The answer to the question posed in sub-para (b)  has  to  be  in  the  negative.  Merely  being  a director of a company is not sufficient to make the person  liable  under  Section  141  of  the  Act.  A director in a company cannot be deemed to be in charge of and responsible to the company for the conduct  of  its  business.  The  requirement  of Section 141 is that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a director in such cases.

(c)  The answer to  Question  (c) has  to  be in  the affirmative. The question notes that the managing director  or  joint  managing  director  would  be admittedly  in  charge  of  the  company  and responsible to the company for the conduct of its business.  When  that  is  so,  holders  of  such positions  in  a  company  become  liable  under Section 141 of the Act. By virtue of the office they hold  as  managing  director  or  joint  managing director,  these  persons  are  in  charge  of  and responsible  for  the  conduct  of  business  of  the company.  Therefore,  they  get  covered  under Section 141. So far as the signatory of a cheque which  is  dishonoured is  concerned,  he is  clearly responsible  for the  incriminating act  and will  be covered under sub-section (2) of Section 141”.

14. The matter was again considered in Sabitha Ramamurthy and  Anr. v.  R.B.S.  Channabasavaradhya  and  Anr. (2006  (9) SCALE 212) and  Saroj Kumar Poddar v. State (NCT of Delhi) and Anr.   (JT 2007 (2)  SC 233).  It  was,  inter  -alia,  held  as follows:

“….Section  141  raises  a  legal  fiction.  By reason of the said provision, a person although is

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not  personally  liable  for  commission  of  such  an offence would be vicariously liable therefor. Such vicarious  liability  can  be  inferred  so  far  as  a company  registered  or  incorporated  under  the Companies  Act,  1956  is  concerned  only  if  the requisite  statements,  which  are  required  to  be averred in the complaint petition, are made so as to make the accused therein vicariously liable for the offence  committed  by  the  company.  Before  a person  can  be  made  vicariously  liable,  strict compliance of the statutory requirements would be insisted….”   

11. When the factual background of the present case is considered  in the

light  of  the  principles  referred  to  in  Neeta  Bhalla and  N.K.  Wahi cases

(supra),  the inevitable conclusion is that the appeal is bound to succeed.

The conviction as recorded cannot be maintained. The appeal is allowed.  

………………………………….J. (Dr. ARIJIT PASAYAT)

………………………………….J. (LOKESHWR SINGH PANTA)

………………………………….J. (P. SATHASIVAM)

New Delhi, April 15, 2009

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