REPORTABLE

IN THE SUPREME COURT OF INDIA CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL No…………../2008 (arising out of SLP(Crl.) No. 3074/2006             

Paresh P.Rajda    …….Appellants

Vs.

State of Maharashtra & Anr.      …….Respondents WITH  Crl. A. No………….…../2008  @ SLP(Crl.) No.3075/2006

J U D G M E N T

HARJIT SINGH BEDI,J.

1. Leave granted.

2. This judgment will dispose off  Criminal Appeals arising

out of  SLP (Crl.) Nos.3074 and 3075 of 2006. The facts

have been taken from the record of SLP (Crl.) No. 3074 of

2006. They are as under:

3. Tata  Finance  Limited,  which  had  commercial  dealings

with the accused, filed a complaint under Section 138 of

the Negotiable Instruments Act, 1881 (hereinafter called

the  “Act”)  alleging  that  the  accused  had  issued  two

cheques dated 25th November 2001 and 18th December

2001,  each  for  Rupees  One  Lakh,  which  had  been

dishonoured on 20th December  2001 with the remarks

“Exceeds Arrangements”.  Notice was issued to accused

No.1 i.e.  the Company,  including accused No.2 Paresh

P.Rajda, the Chairman and accused No.4 Vijay Shroff, a

director of the Company and they appeared reluctantly

before the court after bailable warrants had been issued.

Accused Paresh Rajda thereupon moved an application

that as per the averments made in the complaint itself,

no case for summoning him had been made out as no

overt act with regard to the issuance of the dishonoured

cheques had been attributed to him.  The High Court,

however, vide its order dated 9th June 2004 directed that

the  application  under  Section  395  of  the  Code  of

Criminal Procedure, 1974 which had already been made

before the Metropolitan Magistrate be decided at the first

instance.   The  Magistrate,  however,  rejected  the

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application on  18th October 2004 holding that he had no

jurisdiction in the matter, as process under Section 395

of  the  Code  had  already  been  issued.   It  is  in  this

circumstance  that  the  accused  once  again  moved  the

High  Court.   The  High  Court  in  its  order  dated  20th

December 2005 held that the argument that the accused

had  been  arrayed  as  such  merely  because  he  was  a

Director  of  the  Company  was  wrong  inasmuch  as  an

over-all  reading  of  the  complaint  showed  that  specific

allegations  had  been  levelled  against  him  as  being  a

responsible officer of the accused Company and therefore

equally liable, and that if it was ultimately found that the

accused had, in fact, no role to play, he would be entitled

to an acquittal.  The petition was accordingly dismissed.

It is in this background that the present appeal is before

us.

4. The learned counsel for the appellant has argued that a

perusal of the complaint would show that no allegation

whatsoever had been made against the accused and he

had  been  arrayed  in  a  mechanical  manner,  merely

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because he happened to be a Director of the company.

He  has,  in  particular,  referred  us  to  the  provisions  of

Section 141 of the Act that if an offence was committed

by 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,  would  be deemed to be  guilty of  the offence

and would be liable to be proceeded against and as no

such allegations  had been made  in  the  complaint,  the

issuance  of  process  against  the  accused  was  not

justified.   In  support  of  this  argument,  he  has  placed

reliance  on  S.M.S.Pharmaceuticals  Ltd. vs.  Neeta

Bhalla  &  Anr.  (2005)  8  SCC  89  and  N.K.Wahi  vs.

Shekhar Singh & Ors. (2007) 9 SCC 481.  The learned

counsel  for  the  respondents  has,  however,  submitted

that  it  was  not  possible  at  this  stage  and  without

evidence to reach a conclusion as to the liability of the

appellant  and  it  was,  therefore,  appropriate  that  the

matter be left to trial, as had been observed by the High

Court.  The learned counsel has also drawn our attention

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to paragraphs 2 and 8 of the complaint to contend that

the allegations that the accused were, in fact, responsible

officers  of  the  Company  and  were  also  conducting  its

day-to-day activities, had been specifically made.  It has

also been pointed out that a great deal of material had

been put on record to show that the accused company

and  its  officers  had  issued  several  cheques  to  other

organizations as well, which too had bounced, and that

huge sums were due from the Company on that account

and, they being habitual offenders, were not entitled to

any  relief.   The  learned  counsel  has  relied  upon

S.M.S.Pharmaceuticals  Ltd. vs. Neeta  Bhalla  & Anr.

(2007)  4  SCC  70, Everest  Advertising  (P)  Ltd.  vs.

State, Govt of NCT of Delhi & Ors. (2007) 5 SCC 54

and  N.Rangachar vs. Bharat  Sanchar  Nigam  Ltd.

(2007) 5 SCC 108 in support of his submissions.   

5. We  have  gone  through  the  judgments  cited  by  the

learned  counsel.   In  S.M.S  Pharmaceuticals  [(2005)8

SCC 89], a three Judge Bench of this Court examined

the scope and ambit of Section 141 of the Act and the

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liability created with respect to the Directors and other

persons  responsible  for  the  affairs  of  the  company.

Three 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  fulfill  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.”

The above questions were answered in the following terms:

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(a) It is necessary to specifically aver in a complaint under Section 141 that at the time offence was committed, the person accused was in charge of, and responsible  for  the conduct  of  business  of the  company.  This  averments  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  the  conduct  of business  of  the  company.  Therefore,

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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.”

6.     As  this  matter  had  come  before  the  three-Judge

Bench on a  reference,  the  Bench reverted  the  matter  for  a

discussion on facts to a Bench of  two-Judges.   It  was this

matter which was again examined by the Bench and reported

as S.M.S.Pharmaceuticals Ltd. (2007) 4 SCC 70 and it was

found that the necessary averments had been made in the

complaint so as to attract the provisions of Section 141 of the

Act.   The  appeal  filed  by  the  company  was  accordingly

dismissed. This matter once again came up for consideration

in  Rangachari’s  case  (supra) and  in  paragraph  21  it  was

observed:

“A  person  normally  having  business or commercial dealings with a company, would  satisfy  himself  about  its creditworthiness and reliability by looking at  its  promoters  and Board of  Directors and the nature and extent of its business and  its  memorandum  or  articles  of

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association. Other than that, he may not be aware of the arrangements within the company  in  regard  to  its  management, daily  routine,  etc.  Therefore,,  when  a cheque issued to him by the company is dishonoured,  he  is  expected  only  to  be aware generally  of  who are  in charge of the  affairs  of  the  company.  It  is  not reasonable  to  expect  him  to  know whether  the  person  who  signed  the cheque  was  instructed  to  do  so  or whether  he  has  been  deprived  of  his authority  to  do  so  when  he  actually signed  the  cheque.  Those  are  matters peculiarly  within  the  knowledge  of  the company and those in charge of it. So, all tht  a  payee  of  a  cheque  that  is dishonoured can be expected to allege is that the persons named in the complaint are in charge of its affairs. The Directors are prima facie in that position.”

7. A reading of this passage would reveal a slight departure

vis-à-vis the other judgments in favour of the complainant. It

will  be  noticed  that  this  decision  too  was  rendered  on  a

consideration  of  both  the  judgments  in  S.M.S.

Pharmaceuticals.  The  matter  came  up  yet  again  for

consideration in N.K. Wahi case (supra) which reiterated the

earlier view and held that where there were no clear averment

in the complaint or the evidence with regard to the role played

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by the Directors and as to whether and they were in charge

and responsible for the conduct of the affairs of the company,

it would not be possible to maintain the prosecution against

them and they were entitled to acquittal. It may however be

noticed that this was a case where an acquittal was recorded

after trial.

8. It  will  be clear from the afore quoted judgments that the

entire  matter  would  boil  down to  an  examination of  the

nature  of  averments  made  in  the  complaint  though  we

observe  a  slight  digression  in  the  judgment  in  N.

Rangachari case (supra).  It is in this background, that the

complaint needs to be examined.  Paragraphs 2 and 8 are

reproduced below:

“(2)   I  know  the  all  the  accused.  The accused No.1 is company registered under  the  Companies  Act,  1956. Accused  No.2  is  the  Chairman  of the accused No.1. Accused No.3 is the Joint Managing Director of the Accused  No.1  and accused  No.4,5 and  6  are  the  Directors  of  the accused No.1.

(8) The accused No.2 is the Chairman of accused No.1 and is responsible for the day to day affairs of accused

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No.1  and  therefore  he  is  liable  to repay  amount  of  dishonoured cheques. Accused No.3 being Joint Managing  Director  and  accused No.4,5  and 6 being the Director of the  accused  No.1  are  responsible officer  of  accused  No.1  and therefore  they  are  liable  to  repay the  amounts  of  the  dishonoured cheques.  As  the  accused  have failed to make the payment within the  stipulated  period  of  15  days after receipt of statutory notice they have  committed  and  offence punishable under Section 138 r/w 141 of  the Negotiable  Instruments Act 1881 (As amended). Hence this complaint  is  filed  before  this Hon’ble Court.”

9.     A perusal of the aforesaid paragraphs would show that

accused  No.2  is  Paresh  Rajda,  the  Chairman  of  the

Company, and as per the impugned judgment of the High

Court, the question of his responsibility for the business of

the  Company  has  not  been  seriously  challenged.  We,

nonetheless,  find  clear  allegations  against  both  the

accused/appellants to the effect that they were officers and

responsible for the affairs of the company.   We are of the

opinion that at a stage where the trial has not yet started, it

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would be inappropriate  to quash the proceedings against

them in the light of the observations of this Court quoted

above.  We, accordingly, find no merit in the appeals.  They

are dismissed.

……………………………J. (TARUN CHATTERJEE )

  …………………………

…J.        (  HARJIT

SINGH BEDI)

New Delhi, Dated:   May 16, 2008

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