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CASE NO.: Appeal (crl.)  664 of 2002

PETITIONER: S.M.S. Pharmaceuticals Ltd

RESPONDENT: Neeta Bhalla & Anr

DATE OF JUDGMENT: 20/02/2007

BENCH: S.B. Sinha & Markandey Katju

JUDGMENT: J U D G M E N T  

S.B. Sinha, J.

       Appellant herein is a company registered and incorporated under the  Companies Act.  Respondent No. 1 was a Director of a company known as  M/s. Direct Finance and Investment Ltd., New Delhi.  She allegedly  submitted her resignation on 15.04.1994.

       Against the said company, the Managing Director thereof, Respondent  No. 1 herein as also another director, a complaint petition was filed by the  appellant alleging that the Company represented by its Managing Director  had called for inter-corporate deposit for a short period of 15 days to the  extent of rupees two crores and to such a proposal it agreed.  The rate of  interest for such deposit was stipulated at 25% per annum therefor payable  within 15 days.  A promissory note was executed by the accused No. 2 on  behalf of the Company.  The date of maturity of the said deposit was fixed  on 15.03.1995.  Upon expiry of the period of deposit, the accused \026  Company represented by its Managing Director allegedly issued a cheque  for a sum of rupees two crores as also a cheque for a sum of Rs. 1,58,219.00  and another cheque for a sum of Rs. 8,33,334.00 drawn on Canara Bank,  Janpath, New Delhi.  All the cheques were dated 15.08.1996.  The cheques  for Rs. 8,33,334.00 and Rs. 1,58,219.00 represented the interest part on the  deposit of rupees two crores for 15 days.  The said cheques upon  presentation were dishonoured on the ground of insufficient funds.  It stands  accepted that a notice dated 21.09.1996 was issued by the appellant asking  the accused No. 1 \026 Company to pay the said sum.  The said notice was  served upon the accused Nos. 2 and 3, viz., the Managing Director and  another Director of the Company.  Respondent No. 1 who was arrayed as the  accused No. 4 in the complaint petition was however not served with any  notice.  The address of Respondent No. 1 herein \026 accused No. 4 was shown  as the Director of the Company being resident of 353, Bhera Enclave, Outer  Ring Road, Delhi \026 110 041.  We may, however, notice that in the complaint  petition her address had been shown to be Outer Ring Road, Paschin Vihar,  Delhi \026 110 041.

       In the complaint petition the allegations made inter alia are as under:

"The Accused No. 1 is a duly incorporated  Company, having its registered office at the  address mentioned above, represented by the  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 are actively  involved in the management of the affairs of the  Accused No. 1 Company."

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       Appellant along with the said complaint petition annexed a purported  resolution dated 15.02.1995 authorizing the Managing Director of the  Company to execute the promissory note which reads as under:

"RESOVED THAT the Company to avail an Inter  Corporate Deposit of Rs. 2 Crores (Rupees Two  Crores Only) for 15 days @ 25% p.a. from Reddy  Nagar, Hyderabad and that Mr. Rajiv Anand,  Director be and is hereby authorized to sign and  execute Demand Promissory Note, Post Dated  Cheques and other documents as may be required  by M/s. SMS Pharmaceuticals Ltd. on behalf of the  Company and deliver the same to M/s. SMS  Pharmaceuticals Ltd.

RESOVED FURTHER THAT Mr. Rajiv Anand,  Director of the Company be and is hereby  authorized to affix common seal of the Company  on such documents and papers as may be required  in this connection pursuant to the Articles of  Association of the Company."

       In the said proceedings, a petition for discharge was filed by  Respondent No. 1 which was rejected by the learned Trial Judge.  A revision  petition filed thereagainst was also dismissed by the learned Sessions Judge.   An application under Section 482 of the Code of Criminal Procedure was  filed questioning the said orders which, however, was permitted to be  withdrawn by the High Court stating:

"The learned counsel for the petitioner seeks leave  of the Court to withdraw this application.  The  same shall accordingly stand dismissed as  withdrawn.   

Leave granted to the petitioner to avail the  remedies if any available to him in law.

The trial Court shall expeditiously dispose of the  matter in accordance with law.  The Trial Court is  directed not to grant any unreasonable  adjournments to any of the parties to the  proceedings."

       Another discharge application was filed which was dismissed on  03.08.2000.  The application for quashing of the proceeding was filed  thereafter.

       The High Court by reason of the impugned judgment opining that the  allegations contained in the complaint petition as against Respondent No. 1  are vague and indefinite and do not satisfy the requirements of law as  contained in Section 141 of the Negotiable Instruments Act (for short "the  Act"), held that no case had been made out for issuance of any summons  against her.  As regards the contention raised by the appellant herein that the  involvement of Respondent No. 1 in the affairs of the Company is evident  from the resolution dated 15.02.1995, the High Court opined that the same  by itself did not disclose commission of any offence on the day of  commission of the offence.

       Appellant has filed the appeal aggrieved by the said judgment.

       Requirements of law for proceeding against the Directors of the  Company for their purported constructive liability came up for consideration

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in this case before a Division Bench of this Court, wherein the following  questions were posed:

"(a) Whether for purposes of Section 141 of the  Negotiable Instruments Act, 1881, it is sufficient if  the substance of the allegation read as a whole  fulfil the requirements of the said section and it is  not necessary to specifically state in the complaint  that the person accused was in charge of, or  responsible for, the conduct of the business of the  company. (b) Whether a director of a company would be  deemed to be in charge of, and responsible to, the  company for conduct of the business of the  company and, therefore, deemed to be guilty of the  offence unless he proves to the contrary. (c) Even if it is held that specific averments are  necessary, whether in the absence of such  averments the signatory of the cheque and or the  managing directors or joint managing director who  admittedly would be in charge of the company and  responsible to the company for conduct of its  business could be proceeded against."   

       Having regard to the importance of the questions, the matter was  referred to a 3-Judge Bench of this Court.  Upon noticing the rival  contentions of the parties as also the precedents operating in the field, the  questions were answered by the larger bench in the following terms:

"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. (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

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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."

       The Bench, however, referred the matter back to the Division Bench  for determination on merit.   The matter is, thus, before us.

       Mr. P.S. Mishra, learned senior counsel appearing on behalf of the  appellant, would submit that the averments made in paragraph 2 of the  complaint petition are sufficient to attract the provisions of Section 141 of  the Act inasmuch as the involvement of Respondent No. 1 insofar as the  management of the affairs of the Company is concerned is evident from the  documents appended to the complaint petition.   

       The learned counsel brought to our notice that the well-settled  principle of law that for the purpose of attracting the provisions of Section  141 of the Act, it is not necessary to reproduce the exact wordings of the  statute and submitted that the involvement of an accused as a Director of a  Company being incharge of or responsible to the conduct of the Company  must be gathered from the other averments made in the complaint petition as  also the documents appended thereto.

       It was submitted that for the said purpose, the term "management"  should be given its ordinary or dictionary meaning which would include the  act or manner of managing, controlling or conducting.

       Mr. Ranjit Kumar, learned senior counsel appearing on behalf of  Respondent No. 1, on the other hand submitted that no allegation has been  made as against Respondent No. 1 herein in the complaint petition which  satisfies the requirements of Section 141 of the Act but as would appear  from the facts of the case that she had no role to play in commission of the  offence at all.

       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 incharge and shall also be responsible to the Company for  the conduct of its business.           By reason of the said provision, a legal fiction has been created.  The  larger Bench in this case [since reported in (2005) 8 SCC 89] categorically  held:

"11. A reference to sub-section (2) of Section 141  fortifies the above reasoning because sub-section  (2) envisages direct involvement of any director,  manager, secretary or other officer of a company  in the commission of an offence. This section  operates when in a trial it is proved that the offence  has been committed with the consent or  connivance or is attributable to neglect on the part  of any of the holders of these offices in a company.  In such a case, such persons are to be held liable.  Provision has been made for directors, managers,  secretaries and other officers of a company to  cover them in cases of their proved involvement. 12. The conclusion is inevitable that the liability  arises on account of conduct, act or omission on  the part of a person and not merely on account of  holding an office or a position in a company.

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Therefore, in order to bring a case within Section  141 of the Act the complaint must disclose the  necessary facts which make a person liable."   

       Referring to this Court’s earlier decisions in K.P.G. Nair v. Jindal  Menthol India Ltd. [(2001) 10 SCC 218] and Monaben Ketanbhai Shah and  Another v. State of Gujarat and Others [(2004) 7 SCC 15], it was stated:

"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 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 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 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."           In terms of Section 138 of the Act, a complaint petition alleging an  offence thereto must demonstrate that the following ingredients exist that:

(i)     a cheque was issued; (ii)    the same was presented; (iii)   but, it was dishonoured; (iv)    a notice in terms of the said provision was served on the person  sought to be made liable; and (v)     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.

       The liability of a Director must be determined on the date on which  the offence is committed.  Only because Respondent No. 1 herein was a  party to a purported resolution dated 15.02.1995 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 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 incharge 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.

       If the complaint petition is read in its entirety, the same would show

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that the only person who was actively associated in the matter of obtaining  loan, signing cheques and other affairs of the company which would lead to  commission of the alleged offence was the accused No. 2.  By reason of the  purported resolution dated 15.02.1995, whereupon strong reliance has been  placed by Mr. Mishra, only the accused No. 2 was authorized to do certain  acts on behalf of the Company.  The cheques were issued on 15.08.1996,  i.e., after a period of 17 months from the date of the said resolution.  As is  evident from the averments made in the complaint petition, the cheques  represented the amount of interest payable for a total period of 15 days only  calculated at the rate of 25% per annum on the amount of deposit, viz.,  rupees two crores.

       The High Court has gone into the matter at some length.  The High  Court found that the resolution by itself did not constitute an offence even  assuming that the same bore the signature of Respondent No. 1 (although the  genuineness thereof was disputed).

       On a plain reading of the averments made in the complaint petition,  we are satisfied that the statutory requirements as contemplated under  Section 141 of the Act were not satisfied.

       This aspect of the matter has recently been considered by this Court in  Sabitha Ramamurthy & Anr.       v. R.B.S. Channabasavaradhya [2006 (9)  SCALE 212], wherein it was held:

       "A bare perusal of the complaint petitions  demonstrates that the statutory requirements  contained in Section 141 of the Negotiable  Instruments Act had not been complied with.  It  may be true that it is not necessary for the  complainant to specifically reproduce the wordings  of the section but what is required is a clear  statement of fact so as to enable the court to arrive  at a prima facie opinion that the accused are  vicariously liable.  Section 141 raises a legal  fiction.  By reason of the said provision, a person  although is 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..."

       Yet again in Saroj Kumar Poddar v. State (NCT of Delhi) and Anr.  [2007 (2) SCALE 36], the said legal principle was reiterated stating:

       "Apart from the Company and the appellant,  as noticed hereinbefore, the Managing Director  and all other Directors were also made accused.   The appellant did not issue any cheque.  He, as  noticed hereinbefore, had resigned from the  Directorship of the Company.  It may be true that  as to exactly on what date the said resignation was  accepted by the Company is not known, but, even  otherwise, there is no averment in the complaint  petitions as to how and in what manner the  appellant was responsible for the conduct of the  business of the Company or otherwise responsible  to it in regard to its functioning.  He had not issued

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any cheque.  How he is responsible for dishonour  of the cheque has not been stated.  The allegations  made in paragraph 3, thus, in our opinion do not  satisfy the requirements of Section 141 of the  Act."   

       A faint suggestion was made that this Court in Saroj Kumar Poddar  (supra) has laid down the law that the complaint petition not only must  contain averments satisfying the requirements of Section 141 of the Act but  must also show as to how and in what manner the appellant was responsible  for the conduct of the business of the company or otherwise responsible to it  in regard to its functioning.  A plain reading of the said judgment would  show that no such general law was laid down therein.  The observations  were made in the context of the said case as it was dealing with a contention  that although no direct averment was made as against the appellant of the  said case fulfilling the requirements of Section 141 of the Act but there were  other averments which would show that the appellant therein was liable  therefor.

       We, therefore, are of the opinion that the judgment of the High Court  cannot be faulted.

       Another submission of Mr. Mishra was that the second application  was not maintainable.  Such a question had not been raised before the High  Court.  Even otherwise, the High Court was not denuded from exercising its  inherent jurisdiction in a matter of this nature.  The principles of res judicata  are not attracted.  Reliance placed by Mr. Mishra on Simrikhia v. Dolley  Mukherjee and Chhabi Mukherjee and Another [(1990) 2 SCC 437] is  misplaced.  The question which arose for consideration therein was as to  whether despite dismissal of an earlier application a second application  would be maintainable which would virtually amount to review of the earlier  order which would be contrary to the spirit of Section 362 of the Code of  Criminal Procedure.  It was held:

"7. The inherent jurisdiction of the High Court  cannot be invoked to override bar of review  under Section 362. It is clearly stated in Sooraj  Devi v. Pyare Lal, that the inherent power of the  court cannot be exercised for doing that which is  specifically prohibited by the Code. The law is  therefore clear that the inherent power cannot be  exercised for doing that which cannot be done on  account of the bar under other provisions of the  Code. The court is not empowered to review its  own decision under the purported exercise of  inherent power. We find that the impugned order  in this case is in effect one reviewing the earlier  order on a reconsideration of the same materials.  The High Court has grievously erred in doing so.  Even on merits, we do not find any compelling  reasons to quash the proceedings at that stage."           We have noticed the previous order passed by the High Court.  The  High Court gave liberty to Respondent No. 1 to agitate the matter once  again.  Respondent No. 1 merely took recourse thereto.  Equally misplaced  is the judgment of this Court in Rajinder Prasad v. Bashir and Others [(2001)  8 SCC 522].  Although therein it was held that when an earlier revision  application under Section 397 of the Code of Criminal Procedure has been  dismissed, as not pressed, a second application under Section 482 thereof for  grant of same relief should not have been entertained, this Court opined:

"8. We are of the opinion that no special  circumstances were spelt out in the subsequent  application for invoking the jurisdiction of the

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High Court under Section 482 of the Code and the  impugned order is liable to be set aside on this  ground alone."

       It is, therefore, an authority for the proposition that the High Court is  not completely denuded of its power to exercise inherent jurisdiction for the  second time.

       Furthermore, this court therein also went into the merit of the matter.   In this case, not only the merit of the matter had been gone into by the High  Court as also by this Court, the questions raised in the petition had been  referred to a larger Bench for obtaining an authoritative pronouncement.  It  is, therefore, too late in the day for the appellant to contend that the  application under Section 482 of the Code of Criminal Procedure was not  maintainable.   

       We may, however, notice that this Court in Superintendent and  Remembrancer of Legal Affairs, West Bengal v. Mohan Singh and Others  [(1975) 3 SCC 706] held that when there is a changed set of circumstances, a  second application under Section 561A of the Code of Criminal Procedure  would be maintainable stating:

"2. The main question debated before us was  whether the High Court had jurisdiction to make  the order dated April 7, 1970 quashing the  proceeding against Respondents 1, 2 and 3 when  on an earlier application made by the first  respondent, the High Court had by its order dated  December 12, 1968 refused to quash the  proceeding. Mr Chatterjee on behalf of the State  strenuously contended that the High Court was not  competent to entertain the subsequent application  of Respondents 1 and 2 and make the order dated  April 7, 1970 quashing the proceeding, because  that was tantamount to a review of its earlier order  by the High Court, which was outside the  jurisdiction of the High Court to do. He relied on  two decisions of the Punjab and Orissa High  Courts in support of his contention, namely,  Hoshiar Singh v. State and Namdeo Sindhi v.  State. But we fail to see how these decisions can  be of any help to him in his contention. They deal  with a situation where an attempt was made to  persuade the High Court in exercise of its  revisional jurisdiction to reopen an earlier order  passed by it in appeal or in revision finally  disposing of a criminal proceeding and it was held  that the High Court had no jurisdiction to revise its  earlier order, because the power of revision could  be exercised only against an order of a subordinate  court. Mr Chatterjee also relied on a decision of  this Court in U.J.S. Chopra v. State of Bombay  where N.H. Bhagwati, J., speaking on behalf of  himself and Imam, J., observed that once a  judgment has been pronounced by the High Court  either in exercise of its appellate or its revisional  jurisdiction, no review or revision can be  entertained against that judgment and there is no  provision in the Criminal Procedure Code which  would enable the High Court to review the same or  to exercise revisional jurisdiction over the same.  These observations were sought to be explained by  Mr Mukherjee on behalf of the first respondent by  saying that they should not be read as laying down  any general proposition excluding the applicability

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of Section 561-A in respect of an order made by  the High Court in exercise of its appellate or  revisional jurisdiction even if the conditions  attracting the applicability of that section were  satisfied in respect of such order, because that was  not the question before the Court in that case and  the Court was not concerned to inquire whether the  High Court can in exercise of its inherent power  under Section 5 61 A review an earlier order made  by it in exercise of its appellate or revisional  jurisdiction..."

       For the reasons aforementioned, we do not find any error whatsoever  in the impugned judgment.  The appeal is dismissed with costs.  Counsel’s  fee assessed at Rs. 10,000/-.