sec.138 & sec.141 of N.I.Act - whether the High Court was justified in quashing the proceedings initiated by the Magistrate on the ground that there was merely a bald assertion in the complaint filed under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881 (“the NI Act”) that the Directors were at the time when the offence was committed in charge of and responsible for the conduct and day-to-day business of the accused-company which bald assertion was not sufficient to maintain the said complaint. & whether the Director, who has resigned can be prosecuted after his resignation has been accepted by the Board of Directors of the company. = 2015 SC (2014) MSK LAW REPORTS 12

  

whether
the High Court was justified in quashing the proceedings  initiated  by  the
Magistrate on the ground that there was  merely  a  bald  assertion  in  the
complaint filed under Section 138 read with Section 141  of  the  Negotiable
Instruments Act, 1881 (“the NI Act”) 
that the Directors  were  at  the  time
when the offence was committed in charge of and responsible for the  conduct
and day-to-day business of the accused-company which bald assertion was  not
sufficient to maintain the said complaint.

“141. Offences 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,  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.]

(2)   Notwithstanding anything  contained  in  sub-section  (1),  where  any
offence under this Act has been committed by a  company  and  it  is  proved
that the offence has been committed with the consent or  connivance  of,  or
is attributable to, any neglect on  the  part  of,  any  director,  manager,
secretary  or  other  officer  of  the  company,  such  director,   manager,
secretary or other officer shall  also  be  deemed  to  be  guilty  of  that
offence  and  shall  be  liable  to  be  proceeded  against   and   punished
accordingly.

Explanation.— For the purposes of this section,—

(a)   “company” means any body  corporate  and  includes  a  firm  or  other
association of individuals; and

(b)   “director”, in relation to a firm, means a partner in the firm.]”

It is settled law that a  specific  averment  in  the  complaint  that
he/she is in charge of and is responsible to the company for the conduct  of
the business of the company is sufficient to maintain  the  complaint  under
Section 138 of the NI Act.  
It is not  incumbent  upon  the  complainant  to
elaborate in the complaint the role played by each of the Directors  in  the
transaction forming the subject matter of the complaint.

The doctrine of ‘Indoor Management’ would be a relevant factor  to  be
considered  while  assessing  the  averments  to  be  made  to  satisfy  the
requirements of Section 141 of the NI Act.  
A complainant to whom  a  cheque
is issued by a company may not be aware of  the  functions  performed  by  a
particular Director in the company.   The  responsibility  of  each  of  the
Directors is exclusively the internal management of the company itself.

We must begin with SMS Pharma-(1),  which
is  a  decision  of  three-Judge  Bench  of  this  Court.    All  subsequent
decisions are of two-Judge Benches.  The three-Judge Bench was dealing  with
the reference made by a two-Judge Bench for determination of  the  following
questions:

“(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 [pic]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.”

After considering Sections 138 and 141 of the NI Act, Sections  203  &
204 of the Code and the relevant  provisions  of  the  Companies  Act,  this
Court answered the questions posed in the reference 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  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.”

 We may summarize our conclusions as follows:

a)    Once in a complaint filed under Section 138 read with Section  141  of
the NI Act the basic averment is made that the Director  was  in  charge  of
and responsible for the conduct of  the  business  of  the  company  at  the
relevant time when the offence  was  committed,  the  Magistrate  can  issue
process against such Director;

b)    If a petition is filed under Section 482 of the Code for  quashing  of
such a complaint by the Director, the High Court may,  in  the  facts  of  a
particular case, on an overall reading of the  complaint,  refuse  to  quash
the complaint because the complaint contains the  basic  averment  which  is
sufficient to make out a case against the Director.

c)    In the facts of a given case, on an overall reading of the  complaint,
the High Court may, despite the presence of the basic  averment,  quash  the
complaint because of the absence of  more  particulars  about  role  of  the
Director  in  the  complaint.   It  may  do  so  having  come  across   some
unimpeachable, uncontrovertible evidence which is beyond suspicion or  doubt
or totally acceptable circumstances which  may  clearly  indicate  that  the
Director could not have been concerned with  the  issuance  of  cheques  and
asking him to stand the trial would be abuse of the process  of  the  court.
Despite the presence of basic averment, it may come to a conclusion that  no
case is made out against the Director.   Take  for  instance  a  case  of  a
Director suffering  from  a  terminal  illness  who  was  bedridden  at  the
relevant time or a  Director  who  had  resigned  long  before  issuance  of
cheques.  In such cases, if the High Court  is  convinced  that  prosecuting
such a Director is merely an arm-twisting tactics, the High Court may  quash
the proceedings.  It bears repetition to state that to establish  such  case
unimpeachable, uncontrovertible evidence which is beyond suspicion or  doubt
or some totally acceptable circumstances will have  to  be  brought  to  the
notice of the High Court.  Such cases may be few and  far  between  but  the
possibility of such a case being there cannot be ruled out.  In the  absence
of such evidence or circumstances, complaint cannot be quashed;

d)    No restriction can be placed on the High Court’s powers under  Section
482 of the Code.  The High  Court  always  uses  and  must  use  this  power
sparingly and with great circumspection to prevent inter alia the  abuse  of
the process of the Court.   There are no fixed formulae to  be  followed  by
the High Court in this regard and the exercise of this  power  depends  upon
the facts and circumstances of each case.  The  High  Court  at  that  stage
does not conduct a mini trial or roving inquiry, but,  nothing  prevents  it
from taking unimpeachable evidence or totally acceptable circumstances  into
account which may lead it to conclude that  no  trial  is  necessary  qua  a
particular Director.

whether  the  Director,  

who  has  resigned  can  be prosecuted  after  his resignation has been accepted by 

the Board  of  Directors  of  the  company.

High Court did not go into the  second  question  raised  before  it 

Pertinently, in the application filed by the respondents, no clear case  was
made out that at the material time, the Directors were not in charge of  and
were not responsible for the conduct of  the  business  of  the  company  by
referring to or producing any  uncontrovertible  or  unimpeachable  evidence
which is beyond suspicion or doubt or any totally acceptable  circumstances.
 

It is merely stated that Sidharth Mehta had resigned from the  Directorship
of the  company  on  30/9/2010  but  no  uncontrovertible  or  unimpeachable
evidence was produced before the High Court as was done  in  Anita  Malhotra
to show that he had, in fact, resigned long before the cheques  in  question
were issued.  

Similar is the case with Kanhaiya Lal  Mehta  and  Anu  Mehta.
Nothing was produced to substantiate the contention that they  were  not  in
charge of and not responsible  for  the  conduct  of  the  business  of  the
company at the relevant time. In the circumstances, we are  of  the  opinion
that the matter deserves  to  be  remitted  to  the  High  Court  for  fresh
hearing.  However, we are inclined to confirm the order passed by  the  High
Court quashing the process as against Shobha Mehta.  Shobha Mehta is  stated
to be an old lady who is over 70 years of age.  Considering  this  fact  and
on  an  overall  reading  of  the  complaint  in  the  peculiar  facts   and
circumstances of the case, we feel that making her stand the trial would  be
an abuse of process of the court.  

It is however,  necessary  for  the  High
Court to consider the cases of other Directors in  light  of  the  decisions
considered by us and the conclusions drawn by us in this judgment.   

In  the
circumstances, we confirm the impugned order to the extent  it  quashes  the
process issued against Shobha Mehta, an accused in C.C.  No.24035  of  2011.
We set aside the impugned order to the extent it quashes the process  issued
against other Directors viz. Kanhaiya Lal Mehta,  Anu  Mehta  and  Siddharth
Mehta.  We remit the matter to the High Court.  We request  the  High  Court
to hear the parties and consider the matter afresh.