Telangana High Court
M/S. Rallis India Limited, vs M/S. Sri Lakshmi Agencies, on 12 March, 2025
HON'BLE SRI JUSTICE K.SURENDER
CRIMINAL APPEAL Nos.523, 591, 592 and 627 OF 2018
COMMON JUDGMENT:
1. Criminal Appeal No.523 of 2018 is filed by the appellant,
aggrieved by the acquittal of accused vide judgment in C.C.No.81 of
2013 dated 08.02.2017. Criminal Appeal No.591 of 2018 is filed by
the appellant aggrieved by the acquittal of accused vide judgment in
C.C.No.84 of 2013 dated 08.02.2017. Criminal Appeal No.592 of
2018 is filed by the appellant aggrieved by the acquittal of accused
vide judgment in C.C.No.82 of 2013 dated 08.02.2017, and
Criminal Appeal No.627 of 2018 is filed by the appellant aggrieved
by the acquittal of accused vide judgment in C.C.No.83 of 2013
dated 08.02.2017. Since parties in all the appeals are one and the
same, they are being heard together and disposed off by way of this
Common Judgment.
2. The appellant company herein is the complainant before the
learned III Special Magistrate, Hyderabad. A private complaint was
filed to punish the respondent/accused for the offence under
Section 138 of the Negotiable Instruments Act. The complainant
company is a public limited company and the 1st respondent/1st
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accused is a partnership firm represented by its partners A2 to A7.
A3 is the signatory of the cheques in question, in all the cases.
According to the complainant, all other accused, i.e., A2, A4 to A7
were responsible for the day to day activities of A1 partnership firm
and are jointly liable.
3. Briefly, the case of the complainant company in all the cases is
that the complainant company’s products, which are fertilizers,
chemicals, and pesticides, were supplied to the
respondents/accused on a regular basis as part of a business
understanding. The products were delivered by the complainant
company and accepted by the accused firm. Towards payment of
the outstanding amounts for the products supplied, cheques in
question were issued. The following cheques, when presented for
clearance, were returned unpaid on the ground of, “payment
stopped by drawer”, and in Crl.A.No.627 of 2018, the reason for
return of the cheque is, “insufficient funds”.
Crl.Appeal number Parties names Cheque No.& amount
Against CC No.
Crl.A.No.523 of 2018 M/s.Rallis India Two cheques bearing
Against CC No.81 of Limited. No.382872, 382873,
2013 M/s.Sri Lakshmi dt.31.03.2004 for
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Agencies & others Rs.15,00,000/- each
were issued
Crl.A.No.591 of 2018 M/s.Rallis India Three cheques
Against CC No.84 of Limited. bearing Nos.382881,
2013 M/s.Sri Lakshmi 382882, 382883 of
Agencies & others Rs.15,00,000/- each
for a total amount of
Rs.45,00,000/- were
issued
Crl.A.No.592 of 2018 M/s.Rallis India Two cheques bearing
against CC No.82 of Limited. Nos.382874, 382875
2013 M/s.Sri Lakshmi for 15,00,000/- each
Agencies & others were issued
Crl.A.No.627 of 2018 M/s.Rallis India A cheque bearing
against C.C.No.83 of Limited. No.382876
2013 M/s.Sri Lakshmi dt.30.04.2004 for
Agencies & others 5,00,000/- was
issued.
4. The learned Magistrate examined witnesses on behalf of the
complainant and the documents marked by them. Heavy reliance
was placed on Ex.P11, MOU dated 31.03.2004, to substantiate the
outstanding to be paid by the accused to the complainant company.
Learned Magistrate, having considered the evidence on record,
acquitted the accused on the following grounds:
1) As per the MOU dated 31.03.2004, it is not clear whether
the cheques were issued towards the liability of the
4complainant firm or towards the liability of another firm
namely M/s.Vaishnavi Chemicals.
2) The MOU is in between the complainant company and two
firms, namely M/s. Sri Lakshmi Agencies (A1) and another
firm M/s.Vaishnavi Chemicals, and both were represented
by A2. B.Sudhakar.
3) Ex.P6, which is a photocopy of the partnership deed dated
01.04.1998, shows that A2 and A3 are not partners of A1
firm. In the complaint cause title, A2 is shown as partner in
M/s.Vaishnavi Chemicals and A1 firm is not shown to have
been represented by any partner.
4) In Ex.P11, the complainant failed to show that A2 is partner
of A1 firm or that the MOU dated 31.03.2004 was executed
by partner of A1 firm. As per Ex.P12 partnership deed, A4
to A7 are partners with equal shares and all rights, but A4
is shown as the person responsible for the management of
A1 firm, and A5 to A7 are not given any rights to look after
the business of A1 firm.
5) P.W.2 admitted that he is not aware whether the
outstanding is towards A1 firm or M/s.Vaishnavi Chemicals
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(which is not an accused) since the MOU does not contain a
specific clause regarding whether the cheques were issued
towards the loan of A1 firm or M/s.Vaishnavi Chemicals. In
the said circumstances, it cannot be assumed that the
cheques were towards the liability of A1 firm only.
6) No reason is given as to why M/s.Vaishnavi Chemicals was
not made a party.
7) The existence of the MOU dated 31.03.2004 was not spoken
to by P.W.2 and also, there is no mention of the MOU in the
complaint.
8) The complaint lacks the specific details of the supply of
material to the accused.
9) Ex.P10-Special Power of Attorney, executed by the
complainant in favour of Kishore Kumar Mundada, Ex.P11
dated 31.03.2004, and Ex.P12 partnership deed dated
01.04.1998, are all photocopies. The conditions laid down
under Section 65 of the Indian Evidence Act, for acceptance
of secondary evidence are not complied with, to rely on the
contents of Exs.P10, P11, and P12.
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10) No notice was given to the accused to produce the
original documents, nor is it the claim of the complainant in
the complaint that the originals are in the possession of the
accused.
11) According to clause 7 of the MOU, two originals were
prepared, however, the complainant company failed to file
the original documents that were in their possession.
12) No specific role is attributed to A2, A4 to A7, to make
them vicariously liable under Section 141 of the Negotiable
Instruments Act.
5. Learned counsel appearing for the appellant would submit
that once the signature on the cheque and its issuance are
admitted, presumption is raised under Section 139 of the
Negotiable Instruments Act, and the accused failed to rebut the
presumption by any admissible evidence. The learned Magistrate
had committed an error in finding the accused not guilty, though
there was no dispute regarding the issuance of the cheques.
6. On the other hand, learned counsel appearing for the
respondents/accused argued that the findings of the learned
7
Magistrate needs no interference since they are based on record and
reasonable.
7. The Hon’ble Supreme Court, in K.S.Mehta v. M/s.Morgan
Securities and Credits Private Limited 1, held as follows:
“16. This Court has consistently held that non-executive and independent
director(s) cannot be held liable under Section 138 read with Section
141 of the NI Act unless specific allegations demonstrate their direct
involvement in affairs of the company at the relevant time.16.1. This Court in National Small Industries Corpn. Ltd. v. Harmeet Singh
Paintal & Anr., (2010) 3 SCC 330 observed:
“13. Section 141 is a penal provision creating vicarious liability, and
which, as per settled law, must be strictly construed. It is therefore, not
sufficient to make a bald cursory statement in a complaint that the Director
(arrayed as an accused) is in charge of and responsible to the company for
the conduct of the business of the company without anything more as to
the role of the Director. But the complaint should spell out as to how and in
what manner Respondent 1 was in charge of or was responsible to the
accused Company for the conduct of its business. This is in consonance
with strict interpretation of penal statutes, especially, where such statutes
create vicarious liability.
22. Therefore, this Court has distinguished the case of persons who are
incharge of and responsible for the conduct of the business of the company
at the time of the offence and the persons who are merely holding the post
in a company and are not in charge of and responsible for the conduct of
the business of the company. Further, in order to fasten the vicarious
liability in accordance with Section 141, the averment as to the role of the
Directors concerned should be specific. The description should be clear and
there should be some unambiguous allegations as to how the Directors
concerned were alleged to be in charge of and were responsible for the
conduct and affairs of the company.
39. From the above discussion, the following principles emerge: (i) The
primary responsibility is on the complainant to make specific averments as
are required under the law in the complaint so as to make the accused
vicariously liable. For fastening the criminal liability, there is no
presumption that every Director knows about the transaction. (ii) Section
141 does not make all the Directors liable for the offence. The criminal1
Arising out of SLP (Criminal) No.4774 of 2024, dated 04.03.2025
8liability can be fastened only on those who, at the time of the commission
of the offence, were in charge of and were responsible for the conduct of
the business of the company. (iii) Vicarious liability can be inferred against
a company registered or incorporated under the Companies Act,
1956 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 offence committed by the company along with
averments in the petition containing that the accused were in charge of
and responsible for the business of the company and by virtue of their
position they are liable to be proceeded with. (iv) Vicarious liability on the
part of a person must be pleaded and proved and not inferred. (v) If the
accused is a Managing Director or a Joint Managing Director then it is not
necessary to make specific averment in the complaint and by virtue of their
position they are liable to be proceeded with. (vi) If the accused is a
Director or an officer of a company who signed the cheques on behalf of
the company then also it is not necessary to make specific averment in the
complaint. (vii) 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.” 16.2. In N. K. Wahi v. Shekhar Singh
& Ors., (2007) 9 SCC 481 this Court in Para 8 observed:
“To launch a prosecution, against the alleged Directors there must be a
specific allegation in the complaint as to the part played by them in the
transaction. There should be clear and unambiguous allegation as to how
the Directors are in-charge and responsible for the conduct of the business
of the company. The description should be clear. It is true that precise
words from the provisions of the Act need not be reproduced and the court
can always come to a conclusion in facts of each case. But still, in the
absence of any averment or specific evidence the net result would be that
complaint would not be entertainable.” 16.3. In S.M.S. Pharmaceuticals
Ltd. v. Neeta Bhalla & Anr., (2005) 8 SCC 89, this Court laid down that
mere designation as a director is not sufficient; specific role and
responsibility must be established in the complaint.
16.4. In Pooja Ravinder Devidasani v. State of Maharashtra & Anr.,
(2014) 16 SCC 1, this Court while taking into consideration that a non-
executive director plays a governance role, they are not involved in the
daily operations or financial management of the company, held that to
attract liability under Section 141 of the NI Act, the accused must have
been actively in charge of the company’s business at the relevant time.
Mere directorship does not create automatic liability under the Act. The law
has consistently held that only those who are responsible for the day- to-
day conduct of business can be held accountable.
16.5 In Ashok Shewakramani & Ors. v. State of Andhra Pradesh & Anr.,
(2023) 8 SCC 473, this Court held:
“8. After having considered the submissions, we are of the view that there
is non-compliance on the part of the second Respondent with the
9requirements of Sub-section (1) of Section 141 of the NI Act. We may note
here that we are dealing with the Appellants who have been alleged to be
the Directors of the Accused No. 1 company. We are not dealing with
the cases of a Managing Director or a whole- time Director. The Appellants
Have not signed the cheques. In the facts of these three cases, the cheques
have been signed by the Managing Director and not by any of the
Appellants.” 16.6. In Hitesh Verma v. M/s Health Care At Home India Pvt.
Ltd. & Ors., Crl. Appeal No. 462 of 2025, this Court held:
“4. As the appellant is not a signatory to the cheque, he is not liable
under Section 138 of the 1881 Act. “As it is only the signatory to the
cheque who is liable under Section 138, unless the case is brought within
the four corners of Section 141 of the 1881 Act, no other person can be
held liable….”
5. There are twin requirements under sub-Section (1) of Section 141 of the
1881 Act. In the complaint, it must be alleged that the person, who is
sought to be held liable by virtue of vicarious liability, 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. A Director who is
in charge of the company and a Director who was responsible to the
company for the conduct of the business, are two different aspects. The
requirement of law is that both the ingredients of sub-Section (1) of Section
141 of the 1881 Act must be incorporated in the complaint. Admittedly,
there is no assertion in the complaints that the appellant, at the time of the
commission of the offence, was in charge of the business of the company.
Therefore, on a plain reading of the complaints, the appellant cannot be
prosecuted with the aid of sub-Section (1) of Section 141 of the 1881 Act.”
17. Upon perusal of the record and submissions of the parties, it is evident
that the Appellant(s) neither issued nor signed the dishonoured cheques,
nor had any role in their execution. There is no material on record to
suggest that they were responsible for the issuance of the cheques in
question. Their involvement in the company’s affairs was purely non-
executive, confined to governance oversight, and did not extend to financial
decision- making or operational management.
18. The complaint lacks specific averments that establish a direct nexus
between the Appellant(s) and the financial transactions in question or
demonstrate their involvement in the company’s financial affairs.
Additionally, the CGR(s) and ROC records unequivocally confirm their non-
executive status, underscoring their limited role in governance without any
executive decision-making authority. The mere fact that Appellant(s)
attended board meetings does not suffice to impose financial liability on
the Appellant(s), as such attendance does not automatically translate into
control over financial operations.”
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8. The finding of the trial Court can be reversed by the appellate
Court only when the appellant makes out a case to show that the
trial Court has omitted to consider the evidence on record or that
the findings are contrary to the evidence adduced by the
complainant. Unless compelling reasons are shown, the question of
reversing an order of acquittal does not arise.
9. In Ravi Sharma v. State (Government of NCT of Delhi) and
another 2, the Hon’ble Supreme Court held that, while dealing with an
appeal against acquittal, the appellate court has to consider whether the
trial Court’s view can be termed as a possible one, particularly when
evidence on record has been analysed. The reason is that an order of
acquittal adds up to the presumption of innocence in favour of the
accused. Thus, the appellate court has to be relatively slow in reversing
the order of the trial court rendering acquittal.
10. In Ghurey Lal v. State of Uttar Pradesh 3, the Hon’ble Supreme
Court, after referring to several Judgments regarding the settled
principles of law and the powers of appellate Court in reversing the order
of acquittal, held at para 70 as follows:
2
(2022) 8 Supreme Court Cases 536
3
(2008) 10 Supreme Court Cases 450
11“70. In the light of the above, the High Court and other appellate Courts
should follow the well-settled principles crystallized by number of Judgments
if it is going to overrule or otherwise disturb the trial court’s acquittal:
1. The appellate court may only overrule or otherwise disturb the trial
court’s acquittal if it has “very substantial and compelling reasons” for doing
so.
A number of instances arise in which the appellate court would have
“very substantial and compelling reasons” to discard the trial court’s decision.
“Very substantial and compelling reasons” exist when:
i) The trial court’s conclusion with regard to the facts is palpably wrong:
ii) The trial court’s decision was based on an erroneous view of law;
iii) The trial court’s judgment is likely to result in “grave miscarriage of
justice”;
iv) The entire approach of the trial court in dealing with the evidence was
patently illegal;
v) The trial court’s judgment was manifestly unjust and unreasonable;
vi) The trial court has ignored the evidence or misread the material
evidence or has ignored material documents like dying declarations/report of
the ballistic expert, etc.
vii) This list is intended to be illustrative, not exhaustive.
2. The appellate court must always give proper weight and
consideration o the findings of the trial court.
If two reasonable views can be reached__ one that leads to acquittal, the
other to conviction__the High Courts/appellate courts must rule in favour of the
accused.”
11. In the case on hand, even according to the complainant, the
transactions were over a period of time and the material was
supplied and payments were also received. However, the
outstanding, according to the MOU stood at more than Rs.4.00
Crores. Only for the reason of the issuance of cheques and
signatures being admitted, the Court cannot lose sight of the
transactions in between the parties, to come to a conclusion
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regarding the outstanding and liability against the cheques issued.
The transactions in between the parties are to be looked into in its
entirety, and the Court cannot place reliance only on the fact that
the cheques were issued. The burden that shifts onto the accused
can be discharged by the preponderance of probability. Once the
accused places before the Court, either by producing any evidence
or on the basis of the oral and documentary evidence of the
complainant that there is no outstanding, the Court can consider
the evidence on record and acquit the accused. Once it is found
that the complainant stated that there was sufficient evidence to
prove the outstanding, however, could not prove the documents on
record by admissible evidence, the complainant fails to prove its
case against the accused. Only on the ground that the issuance of
cheques was admitted, the same cannot be made basis to convict
the accused since the complainant failed to prove the outstanding,
as discussed.
12. Learned Magistrate found that the very basis for launching
prosecution is the MOU dated 31.03.2004, which is inadmissible for
the reason of there being no clarity regarding the liability of A1 firm.
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Further, there was no proof of supply of material and there was no
evidence that the cheques in question were issued to pay any
existing outstanding. In the present facts, when there are no
specific averments to implicate A2, A4 to A7 by making them
vicariously liable, or reflecting their involvement, and also the MOU
has not been proved by complying with the requirements of
secondary evidence, there is no infirmity in the finding of the
learned Magistrate. There are no compelling reasons to interfere
with the said finding.
13. Accordingly, all the Criminal Appeals are dismissed.
__________________
K.SURENDER, J
Date: 12.03.2025
kvs
