http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 4  

CASE NO.: Appeal (crl.)  950 of 2006

PETITIONER: Sabitha Ramamurthy & Anr.                                        

RESPONDENT: R.B.S. Channabasavaradhya                                        

DATE OF JUDGMENT: 13/09/2006

BENCH: S.B. Sinha & Dalveer Bhandari

JUDGMENT: J U D G M E N T [Arising out of SLP (Crl.) No. 6134-6135 of 2005] WITH   CRIMINAL APPEAL NO. 951  OF 2006 [Arising out of SLP (Crl.) No. 6252 of 2005]

S.B. SINHA, J :

       Leave granted in SLPs.                  Two cheques dated 23.6.2001 and 30.6.2001 for a sum of Rs.  1,24,406/- each were issued in favour of the Respondent allegedly on behalf  of a company known as Karnataka News Net (Bangalore) Ltd. The  Appellants herein were not directors of the said company at the material  time.  Two complaint petitions were filed by the Respondent herein before  the Addl. Chief Metropolitan Magistrate, Bangalore wherein Appellants  were described as Accused Nos. 6 and 8.  In the said complaint petitions, it  was categorically stated that the company which had been dealing with  imparting of computer education in rural areas represented by its Managing  Director, Chairman,Vice-Chairman and other Directors borrowed a sum of  Rs. 2,25,000/- from the Respondent on an interest of 24% per annum.   Towards payment of the said loan, the accused had issued two cheques on  23.6.2001 and 30.6.2001 for a sum of Rs. 1,24,406/- each which upon being  presented were dishonoured as the company did not have sufficient fund.  In  the complaint petition, it was averred:

"7) The complainant submits that the accused  persons have failed to clear the liability.  The  accused being Company and all the directors are  responsible for the clearance of liability under  Section 141 of the N.I. Act and the acts and deeds  of the accused persons is punishable under Section  138 of N.I. Act."

       In support of the said complaint petition, one Ravidraradya, son of the  complainant filed a sworn affidavit stating:

"\005The accused No. 2 is the M.D. and others are  Chairman and partners.  The accused-company  towards repayment of the loan, issued a cheque in  favour of the complainant.  The M.D. signed and  issued the cheque dated 23.6.2001 for Rs.  1,24,406/- on the account maintained by the  company.  On presentation of the said cheque to  the Bank for collection, the same was returned on

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 4  

30.6.2001 as insufficient funds.  Notice dated  12.7.2001 was issued through Advocate to the  accused was served on 13.7.2001.  The case was  filed on 27.8.2001\005"

       Processes were directed to be issued on the said statement for alleged  commission of an offence under Section 138 of the Negotiable Instruments  Act.   

       Appellants herein filed an application under Section 482 of the Code  of Criminal Procedure praying for quashing of the processes issued against  them in the said proceedings.   

       The High Court by reason of the impugned judgment dismissed the  said application stating:

"3)     The material on record prima facie disclose  that these petitioners were Directors on the date of  the offence i.e. on 30.7.2003.  The question as to  whether these petitioners were involved in day to  day affairs of the business of the company is to be  decided based on the material on record collected  during the course of trial."

       Section 138 of the Negotiable Instruments Act provides that where a  cheque drawn by a person is returned by the bank unpaid on the grounds  specified therein, the person who had drawn the said cheque shall be deemed  to have committed an offence thereunder.  Section 139 provides for a  presumption in favour of a holder of a negotiable instrument.  Section 141 of  the Act provides for offences by a company.  Sub-section (1) of Section 141  reads as under:

"141. Offences by companies.\027(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,  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."   

       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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 4  

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.  Not only the averments made in paragraph  7 of the complaint petitions does not meet the said statutory requirements,  the sworn statement of the witness made by the son of Respondent herein,  does not contain any statement that Appellants were in charge of the  business of the company.  In a case where the court is required to issue  summons which would put the accused to some sort of harassment, the court  should insist strict compliance of the statutory requirements.  In terms of  Section 200 of the Code of Criminal procedure, the complainant is bound to  make statements on oath as to how the offence has been committed and how  the accused persons are responsible therefor.  In the event, ultimately, the  prosecution is found to be frivolous or otherwise mala fide, the court may  direct registration of case against the complainant for mala fide prosecution  of the accused.  The accused  would also be entitled to file a suit for  damages.  The relevant provisions of the Code of Criminal Procedure are  required to be construed from the aforementioned point of view.

       This Court in Monaben Ketanbhai Shah and Another v. State of  Gujarat and Others [(2004) 7 SCC 15] held as under:

"From the above, it is evident that in the complaint  there are no averments against the appellants  except stating in the title that they are partners of  the firm. Learned counsel for the respondent  complainants contended that a copy of the  partnership deed was also filed which would show  that the appellants were active in the business. No  such document was filed with the complaint or  made part thereof. The filing of the partnership  deed later is of no consequence for determining the  point in issue. Section 141 does not make all  partners liable for the offence. The criminal  liability has been fastened on those who, at the  time of the commission of the offence, were in  charge of and were responsible to the firm for the  conduct of the business of the firm. These may be  sleeping partners who are not required to take any  part in the business of the firm; they may be ladies  and others who may not know anything about the  business of the firm. The primary responsibility is  on the complainant to make necessary averments  in the complaint so as to make the accused  vicariously liable. For fastening the criminal  liability, there is no presumption that every partner  knows about the transaction. The obligation of the  appellants to prove that at the time the offence was  committed they were not in charge of and were not  responsible to the firm for the conduct of the  business of the firm, would arise only when first  the complainant makes necessary averments in the  complaint and establishes that fact. The present  case is of total absence of requisite averments in  the complaint."

       Yet again in Katta Sujatha (Smt) v. Fertilizers & Chemicals  Travancore Ltd. and Another [(2002) 7 SCC 655] it was held:

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 4  

"\005However, one thing is clear that the appellant  was in no way involved in any of the transactions  referred to in the complaint and it was not stated  that she was in charge of the business and was  responsible for the conduct of the business of the  firm in terms of Section 141 of the Act nor was  there any other allegation made against the  appellant that she had connived with any other  partner in the matter of issue of cheque\005"

       [See also K.P.G. Nair v. Jindal Menthol India Ltd., (2001) 10 SCC  218]

       The question has been set at rest by a Three-Judge Bench of this Court  in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Another [(2005) 8 SCC  89] wherein the law has been laid down in the following terms:

"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."

       As the law laid down in the aforementioned decisions are clearly  attracted in the instant case, we are of the opinion that the impugned  judgments cannot be sustained which are set aside accordingly  and the  processes issued by the court of the Addl. Chief Metropolitan Magistrate,  Bangalore against Appellants herein are quashed.  The appeals are, thus,  allowed.