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REPORTABLE

IN THE SUPREME COURT OF INDIA CRIMINAL APPELLATE JURISDICTION

SPECIAL LEAVE PETITION (CRL.) NO.5093 OF 2008

Central Bank of India .. Petitioner   

          Vs. M/s Asian Global Ltd. & Ors. .. Respondents

WITH SPECIAL LEAVE PETITION(CRL.) NOS. 5094, 5095 and  

5096 of 2008 J U D G M E N T

ALTAMAS KABIR, J.

1. Special Leave Petition (Crl.) No.5093 of 2008,  

has been filed by the Central Bank of India against  

the judgment and order dated 22.8.2007 passed by  

the Delhi High Court in Crl. M.C. No.5167 of 2003  

allowing  the  said  petition  under  Section  482  

Cr.P.C. filed by the Respondents and discharging  

them  and  quashing  the  complaint  filed  by  the

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Petitioner Bank and the process issued thereupon.  

By the said judgment, three other petitions, being  

Crl. M.C. No.5161 of 2003, Crl. M.C. No.5162 of  

2003  and  Crl.  M.C.  No.2166  of  2003,  were  also  

disposed of in favour of the Respondent Nos.1 and  

2,  M/s  Asian  Global  Ltd.  and  its  Director,  Mr.  

Rajiv Jain. Several other petitions filed by Sarla  

Jain, a Director of the Respondent No.1 Company,  

also  challenging  the  complaint  filed  by  the  

Petitioner Bank and praying for discharge therefrom  

and quashing thereof, were allowed by the aforesaid  

judgment.  Consequently, the Bank has also filed  

SLP (Crl.) Nos.5094, 5095 and 5096 of 2008, which  

are also being heard along with SLP(Crl.)No.5093 of  

2008.

2. The facts as disclosed indicate that in 1993  

the Respondent No.1 had availed of various credit  

facilities  from  the  Petitioner  Bank,  including  

packing  credit  facility  and  overdraft  facility.  

For whatever reason, the account of the Respondent  

No.1 is alleged to have become irregular compelling

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the Bank to call upon the Respondent No.1 Company  

to  regularize  its  packing  credit  account.  It  

appears that corporate guarantee for due repayment  

of  the  outstanding  dues  of  the  Respondent  No.1  

Company was given by the Respondent No.3 Company  

which  was  allegedly  a  sister  concern  of  the  

Respondent No.1 and the Respondent No.2 while being  

a Director of Respondent No.1 Company was a Joint  

Managing Director of the Respondent No.3 Company.  

3. In  order  to  discharge  its  liability  to  the  

Petitioner Bank, the Respondent No.3 Company issued  

Cheque No.255242 dated 16.5.1996, along with three  

other cheques, each for a sum of Rs.5 lakhs in  

favour  of  the  Respondent  No.1  Company  which  was  

deposited by the Respondent No.1 Company with the  

Petitioner Bank towards the outstanding dues of the  

Respondent No.1 Company.  On being presented for  

encashment  on  16.5.1996,  the  said  cheques  were  

returned to the Petitioner Bank with the remarks  

“funds insufficient”.  On the request made by the  

Respondents,  the  cheque  was  again  presented  for

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payment on 31.7.1996, but was again returned by the  

New Delhi Gulmohar Park Branch of the Petitioner  

Bank with the remark “since account closed”.  It is  

only thereafter that the Petitioner Bank filed a  

complaint  against  the  Respondents  under  Sections  

138  and  139  of  the  Negotiable  Instruments  Act,  

1881, read with Section 120-B and 420 I.P.C., upon  

which cognizance was taken by the Additional Chief  

Metropolitan Magistrate, Patiala House, New Delhi,  

on 27.1.2001.

4.  Aggrieved by the order issuing summons, the  

Respondent Nos.1 to 3 and other accused persons,  

being the Directors of the Respondent Nos.1 to 3  

Companies,  moved  an  application  under  Section  

245(2)  Cr.P.C.  praying  for  recall  of  the  order  

issuing summons and consequent discharge from the  

criminal  proceedings  initiated  on  the  complaint  

filed by the Petitioner Bank on the ground that  

there  was  no  privity  of  contract  between  the  

Petitioner  Bank  and  the  Respondent  No.3,  Asian  

Consolidated Industries Ltd. (ACIL).  On the other

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hand, the Petitioner Bank took the stand that being  

a “holder in due course”, the Bank was entitled to  

maintain its complaint.

5.  By its order dated 28.7.2003 the Trial Court  

rejected the application filed by the Respondents  

for  discharge  upon  holding  that  under  Section  

118(E)  of  the  Negotiable  Instruments  Act,  1881,  

hereinafter  referred  to  as  “the  1881  Act”,  a  

“holder” of a cheque is presumed to be a “holder in  

due course” unless and until the contrary is proved  

by the accused.   

6. Being  aggrieved  by  the  said  order  dated  

28.7.2003,  the  Respondent  Nos.1  and  2  moved  the  

Delhi High Court under Section 482 Cr.P.C. in Crl.  

M.C. No.5167 of 2003.  As indicated hereinbefore,  

separate  petitions  were  filed,  being  Crl.  M.C.  

No.5161 of 2003, Crl. M.C. No.5162 of 2003 and Crl.  

M.C. No.2166 of 2003, which were heard and disposed  

of in favour of the Respondent Nos.1 and 2 by the  

learned Single Judge of the Delhi High Court by

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discharging  the  respondents  and  quashing  the  

complaint and the orders issuing summons.

7. It is against the said order of the High Court  

that the present Special Leave Petitions have been  

filed by the Central Bank of India.  

8. On  behalf  of  the  Petitioner  Bank  it  was  

submitted that the High Court had misconstrued the  

provisions of Sub-Section (1) of Section 141 of the  

1881 Act, which merely provide that if a person  

committing  an  offence  under  Section  138  is  a  

Company, every person, who at the time when 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 guilty of the offence.  It was  

urged that the High Court had wrongly interpreted  

the provisions of Sub-section (1) of Section 141 of  

the  aforesaid  Act  in  their  application  to  the  

statements  made  in  paragraphs  12  and  21  of  the  

complaint  in  arriving  at  a  finding  that  the

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complaint had merely presumed that the Directors  

would  be  guilty  because  of  holding  a  particular  

office since law would assume so.  It was submitted  

that  while  correctly  holding  that  to  fasten  

liability on a Director it has to be proved that  

such Director was responsible to the Company and  

was in charge of its affairs and that such fact  

would have to be pleaded and proved, the High Court  

had  erred  in  holding  that  the  pleadings  in  

paragraphs 12 and 21 of the complaint fell short of  

sufficient  averments  required  to  be  made  in  a  

complaint under Section 138 read with Section 141  

of the 1881 Act.

9. It  was  submitted  that  the  decision  of  this  

Court  in  S.M.S.  Pharmaceuticals  Ltd. vs.  Neeta  

Bhalla & Anr.  [(2005) 8 SCC 89], did not affect  

the Bank’s case, since it had been stated in the  

complaint in clear and unambiguous terms that the  

respondents as Directors of the Company were liable  

for its acts and that such an allegation could be

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proved by leading evidence, which stage was yet to  

arrive when the High Court quashed the complaint  

and discharged the accused.  It was submitted that  

the impugned order of the High Court was liable to  

be  set  aside  and  the  matter  was  liable  to  be  

remanded  to  the  Trial  Court  for  being  proceeded  

with from the stage when the complaint was quashed.

10. Apart  from  the  above  submissions,  a  further  

submission was made on behalf of the Bank to the  

effect that since the cheques which were issued in  

favour of the Bank had been handed over by the  

Respondent  No.1  for  collection  and  had  been  

dishonoured, the Bank had become the holder of the  

cheques in due course and were, therefore, entitled  

to proceed against the Respondent No.1.     

11. The  submissions  made  on  behalf  of  the  

Petitioner Bank were strongly opposed on behalf of  

the respondents and it was submitted that having  

regard  to  the  decision  of  this  Court  in  S.M.S.  

Pharmaceuticals Ltd.’s case (supra) which was later

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followed  in  N.K.  Wahi vs.  Shekhar  Singh  &  Ors.  

[(2007) 9 SCC 481], there was no scope to urge that  

the  ingredients  of  a  complaint  against  the  

respondents  had  been  satisfied  by  the  averments  

made in paragraphs 12 and 21 of the complaint.  

12. As far as the second limb of the submissions  

made on behalf of the Bank was concerned, it was  

submitted  that  the  same  was  an  argument  of  

desperation  as  the  cheques  in  question  had  been  

drawn by the Respondent No.3 on its own Bank which  

had dishonoured the cheques. Except for presenting  

the  cheques  to  the  Bank  for  collection,  the  

Respondent No.1 had no other role to play in the  

dishonour thereof.   

13. We  have  carefully  considered  the  submissions  

made on behalf of the respective parties and we are  

unable  to  persuade  ourselves  to  differ  with  the  

judgment and order of the High Court.  The judgment  

in  S.M.S.  Pharmaceuticals  Ltd.’s  case  (supra),  

which  was  relied  upon  by  the  High  Court,  while

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interpreting the provisions of sub-section (1) of  

Section 141 of the 1881 Act, made it very clear  

that unless a specific averment was made in the  

complaint that at the time when the offence was  

committed, the person accused was in charge of and  

responsible for the conduct of the business of the  

Company, the requirements of Section 141 would not  

be satisfied.  It was further held that while a  

Managing  Director  or  a  Joint  Director  of  the  

Company  would  be  admittedly  in  charge  of  the  

Company  and  responsible  to  the  Company  for  the  

conduct of its business, the same yardstick would  

not  apply  to  a  Director.   The  position  of  a  

signatory to a cheque would be different in terms  

of Sub-section (2) of Section 141 of the 1881 Act.  

That, of course, is not the fact in this case.  

14. The law as laid down in S.M.S. Pharmaceuticals  

Ltd. ’s case (supra) has been consistently followed  

and as late as in 2007, this Court in the case of  

N.K.  Wahi’s  case  (supra),  while  considering  the

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question of vicarious liability of a Director of a  

Company,  reiterated  the  sentiments  expressed  in  

S.M.S.  Pharmaceuticals  Ltd.’s  case  (supra)  that  

merely being a Director would not make a person  

liable for an offence that may have been committed  

by the Company. For launching a prosecution against  

the Directors of a Company under Section 138 read  

with Section 141 of the 1881 Act, there had to be a  

specific allegation in the complaint in regard to  

the  part  played  by  them  in  the  transaction  in  

question.  It  was  also  laid  down  that  the  

allegations had to be clear and unambiguous showing  

that  the  Directors  were  in  charge  of  and  

responsible for the business of the Company. This  

was done to discourage frivolous litigation and to  

prevent  abuse  of  the  process  of  Court  and  from  

embarking  on  a  fishing  expedition  to  try  and  

unearth material against the Director concerned.  

15. In this case, save and except for the statement  

that the Respondents, Mr. Rajiv Jain and Sarla Jain

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and some of the other accused, were Directors of  

the  accused  Companies  and  were  responsible  and  

liable  for  the  acts  of  the  said  Companies,  no  

specific allegation has been made against any of  

them.  The question of proving a fact which had not  

been mentioned in the complaint did not, therefore,  

arise in the facts of this case.  This has prompted  

the High Court to observe that the Bank had relied  

on  the  mistaken  presumption  that  as  Directors,  

Rajiv Jain, Sarla Jain and the other Directors were  

vicariously  liable  for  the  acts  of  the  Company.  

Admittedly, except for the aforesaid statement, no  

other material has been disclosed in the complaint  

to make out a case against the respondents that  

they  had  been  in  charge  of  the  affairs  of  the  

Company and were responsible for its action.  The  

High  Court,  therefore,  rightly  held  that  in  the  

absence  of  any  specific  charge  against  the  

Respondents, the complaint was liable to be quashed  

and the respondents were liable to be discharged.

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16. As to the submission made on behalf of the Bank  

that they were holders in due course of the four  

cheques issued by the Respondent No.3 Company and  

that by presenting them to the Petitioner Bank for  

encashment, the Respondent No.1 Company had become  

liable for dishonour thereof, has been adequately  

dealt with and negated by the High Court and does  

not require any further elaboration.  

17. The  Special  Leave  Petitions  filed  by  the  

Central  Bank  of  India,  therefore,  fail  and  are  

dismissed.  

________________J. (ALTAMAS KABIR)

________________J. (CYRIAC JOSEPH)

New Delhi, Dated: July 06, 2010.   

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