Gujarat High Court
Meghdoot Hiralal Patel vs State Of Gujarat on 9 April, 2025
NEUTRAL CITATION
R/CR.MA/6387/2018 ORDER DATED: 09/04/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/CRIMINAL MISC.APPLICATION (FOR QUASHING & SET ASIDE
FIR/ORDER) NO. 6387 of 2018
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MEGHDOOT HIRALAL PATEL
Versus
STATE OF GUJARAT & ANR.
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Appearance:
MR VK RANA FOR MR AM BHATASARA(5846) for Applicant(s) No. 1
MR. MAULIK M SONI(7249) for the Applicant(s) No. 1
MR. ARCHIT P JANI(7304) for the Respondent(s) No. 2
MR SOHAM JOSHI, ADDL.PUBLIC PROSECUTOR for Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE J. C. DOSHI
Date : 09/04/2025
ORAL ORDER
1. Rule. Learned advocate Mr.Archit Jani waives service of
Rule for respondent No.2 and learned APP Mr.Joshi waives
service of Rule for the respondent – State.
1.1 By way of this petition under Section 482 of the Cr.P.C.,
the petitioner has prayed following reliefs :
“(A) Your Lordships be pleased to admit this petition;
(B) Your Lordship may be pleased to issue appropriate
writ, order or direction for quashing and setting aside the
impugned complaint dated 02.08.2016, filed before the
Hon’ble Chief Judicial Magistrate, Mehsana being
Criminal Case No.8437 of 2016 (Annexure-A) and also
quash all consequential or other proceedings arising out
of the said complaint qua the petitioner.
(C) Your Lordship may be pleased to pending hearing
and final disposal of present petition, stay further
proceedings of impugned complaint dated 02.08.2016,
filed before the Hon’ble Chief Judicial Magistrate,
Mehsana being Criminal Case No.8437 of 2016
(Annexure-A).”
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2. The brief facts of the case are as under :
2.1 It is the case of the complainant that accused No.1 is a
private limited company and accused No.2 is the Managing
Director of the said company. Accused Nos.3 to 5 are the
directors of accused No.1. Accused No.2 who is managing day-
to-day affairs of accused No.1 company has issued cheque in
favour of the complainant on behalf of accused No.1, however,
the said cheque was dishonoured with endorsement of
“insufficient funds”. Thereafter, the complainant filed Criminal
Case before the learned Chief Judicial Magistrate, Mehsana.
Hence, this petition.
3. Learned advocate Mr.V.K.Rana appearing for the petitioner
invoking the provisions of Section 141 of the Negotiable
Instruments Act, 1881 (“N.I. Act“, for short), having referred to
para 2 of the complaint would submit that role of the accused
are specifically mentioned and accused No.2 was handling day-
to-day affairs of the company and he was handling and
managing monetary affairs of the company. Name of the present
petitioner – accused No.4 is stated by general averments i.e. he
was managing day-to-day affairs of the company. He would
further submit that later on the petitioner has been removed
from the directorship of B & C Energy Infra Private Limited and
as on date, the petitioner is not the director of the accused
company. Therefore, learned advocate for the petitioner submits
that in view of provisions of Section 141 of the N.I. Act, the
petitioner cannot be prosecuted as he is not managing the day-
to-day affairs of the company and even he is not the signatory of
the cheque in question. Upon above submissions, while referring
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to the judgment of Hon’ble Apex Court in case of Susela
Padmavathy Amma vs. M/s. Bharti Airtel Limited – 2024 (3)
SCR 647 : 2024 (0) AIJEL-SC 73394, learned advocate
Mr.Rana submits to allow this petition and to quash the
prosecution against the petitioner.
4. On the other hand, learned advocate Mr.Archit Jani for the
complainant vehemently objected to grant of the relief on the
ground that sufficient averments are made in para 2 of the
complaint to hold the petitioner as accused in the offence, being
director of the company. He would submit that it is clearly stated
in para 2 that accused Nos.3 to 5 which includes the petitioner
are directors of the accused company and since they form part of
the same family and managing day-to-day affairs of the
company, sufficient averments are found in the complaint.
Learned advocate Mr.Jani would submit that whether petitioner
has played active role or not can be tested during the trial,
however, at this juncture, complaint by the complainant should
not be quashed believing that petitioner has not played any role
in commission of the offence. Upon above submissions, he would
submit to dismiss this petition.
5. Noticing that it is a private dispute between the parties,
learned APP submits to pass necessary orders.
6. I have heard learned advocates for both sides and perused
the record. Para 2 of the criminal complaint filed under Section
138 and 141 of N.I. Act reads as under :
“(2) The accused No.1 is the Private Ltd., company and
the Accused No.2 Mr.Ashvinkumar Jayntilal Patel is
Managing Director of accused No.1, company andPage 3 of 43
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Accused No.3 to 5 are directors of accused company
No.1. Accused No.2 is in charge of all the day-to-day
affairs of the company. Accused No.2 is totally in charge
of the the management of the said company and in that
capacity accused No.2 is managing and doing all kinds
of monetary transactions for and on behalf of the said
company and in that capacity accused No.2 have signed
the cheque issued in favour of complainant. Accused
No.3 to 5 are also the directors of the No.1 company and
they all are from the same family and are also managing
the affairs and day to day management of the company
along with accused No.2 Ashvinbhai.”
7. While reading between the lines of aforesaid averments,
what could be noticed that accused No.2 Mr.Ashvinkumar
Jayantilal Patel is Managing Director of accused No.1 – company
and accused No.3 to 5 are directors of the company. Accused
No.2 is alleged to have been in charge of all the day-to-day affairs
of the company. It is further submitted that accused No.2 is
totally in charge of the the management of the said company and
in that capacity, accused No.2 is managing and doing all kinds
of monetary transactions for and on behalf of the said company.
It is also stated that accused No.2 has signed the cheque issued
in favour of complainant. Thus, allegations of commission of
offence by the company is not levelled against the petitioner.
Neglect, if any, has been attributed to the Managing Director
who is signatory of the cheque and arraigned as accused No.2.
The law so far as liability of the director of the company under
Section 141 of N.I. Act is concerned, is no more res integra. The
Hon’ble Apex Court in case of National Small Industries
Corporation Limited v. Harmeet Singh Paintal and another
(2010) 3 SCC 330 has explained, the law very succinctly:
“1) Leave granted in all the above special leave petitions.
The appeals arising out of S.L.P. (Criminal) Nos. 445-
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461 of 2008 have been filed by the appellant-National
Small Industries Corporation Limited against the
common judgment and order dated 24.10.2007 passed
by the High Court of Delhi at New Delhi in a batch of
cases whereby the High Court quashed the summoning
orders passed by the trial Court against respondent No.1
– Harmeet Singh Paintal, under Section 138 read with
Section 141 of the Negotiable Instruments Act, 1881 (for
short the Act)
2) The connected criminal appeal arising out of S.L.P. Crl.
No. 1079 of 2008 is filed against the judgment and order
dated 24.05.2007 passed by the High Court of Delhi in
Criminal Revision Petition No. 163 of 2005, whereby the
High Court quashed the summoning order passed by the
trial Court against respondent No.1 – Dev Sarin under
Section 138 read with Section 141 of the Act.
3) Since all these appeals are identical and same legal
issues arise, they are being disposed of by this common
judgment.
4) The appellant – National Small Industries Corporation
Ltd. had filed 12 criminal complaints under Section 138
read with Sections 141 and 142 of the Act against M/s
Jay Rapid Roller Limited, a Company incorporated under
the Companies Act, its Managing Director – Shri Sukhbir
Singh Paintal, and its Director – Shri Harmeet Singh
Paintal.
5) It is the claim of the appellant that so as to make the
Managing Director and Director of the Company liable to
be prosecuted under the provisions of the Act, they had
specifically averred in the complaint that all the accused
persons approached it for financing of bill integrated
market support programme. It was also stated that the
accused persons had issued cheques which were
dishonoured on presentation against which the appellant
had filed criminal complaints under the provisions of the
Act against all the respondents herein. It is their further
case that all the accused persons accepted their liability
and delivered various cheques, which are the subject
matter of the present appeals.
6) In the connected appeal, the appellant – DCM
Financial Services Ltd., entered into a hire purchase
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agreement on 25.02.1996 with M/s International Agro
Allied Products Ltd. At the time of entering into contract,
the Company handed over post-dated cheques to the
appellant towards payment of monthly hire/rental
charges. Respondent No.1 Dev Sarin was one of the
Directors of the said Company. The cheque issued by
International Agro and Allied Products Ltd. in favour of
the appellant was duly presented for payment on
28.10.1998 and the same was returned unpaid for the
reason that the Company had issued instructions to the
bankers stopping payment of the cheque.
7) The appellant issued a legal notice on 05.12.1998 to
the Company, Respondent No.1 and other Directors
under Section 138 of the Act informing them about the
dis-honouring of the cheque in question. Despite the
service of the notice, the Company did not make the
payment to the appellant. The appellant, on 11.01.1999,
filed a complaint before the Metropolitan Magistrate, New
Delhi against respondent No.1 and others under Section
138 read with Section 141 of the Act. By order dated
04.02.1999, the Metropolitan Magistrate, New Delhi,
after recording evidence summoned the accused persons
including respondent No.1 herein.
8) Respondent No.1 filed an application before the
Additional Sessions Judge, Delhi for dropping of
proceedings against him. By order dated 08.09.2004,
the Metropolitan Magistrate dismissed the said
application. Aggrieved by the said order, the respondent
filed a petition under Section 482 of the Criminal
Procedure Code before the High Court for quashing of the
complaint. The High Court, after finding that the
averments against respondent No.1 are unspecific and
general and no particular role is assigned to the
appellant, quashed the summoning order insofar as it
concerned to him.
9) In this factual matrix, the issue which arises for
determination before this Court is whether the order of
the High Court quashing the summoning orders insofar
as the respondents are concerned is sustainable and
what should be the averments in the complaint under
Section 138 read with Section 141 of the Act against the
Director of a Company before he can be subjected to
criminal proceedings.
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10) Heard learned counsel for the appellants as well as
the learned ASG and senior counsel for the respondents.
11) Section 138 of the Act refers about penalty in case of
dishonour of cheque for insufficiency of funds in the
account. We are more concerned about Section 141
dealing with offences by Companies which reads as
under:-
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,
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(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.
12) It is very clear from the above provision that what is
required is that the persons who are sought to be made
vicariously liable for a criminal offence under Section
141 should be, 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. Every
person connected with the company shall not fall within
the ambit of the provision. Only those persons who were
incharge of and responsible for the conduct of the
business of the company at the time of commission of an
offence will be liable for criminal action. It follows from
the fact that if a Director of a Company who was not
incharge of and was not responsible for the conduct of
the business of the company at the relevant time, will not
be liable for a criminal offence under the provisions. The
liability arises from being in-charge of and responsible
for the conduct of the business of the company at the
relevant time when the offence was committed and not
on the basis of merely holding a designation or office in a
company.
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 No.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.
14) A company may have a number of Directors and to
make any or all the Directors as accused in a complaint
merely on the basis of a statement that they are
incharge of and responsible for the conduct of the
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business of the company without anything more is not a
sufficient or adequate fulfillment of the requirements
under Section 141.
15) In a catena of decisions, this Court has held that for
making Directors liable for the offences committed by the
company under Section 141 of the Act, there must be
specific averments against the Directors, showing as to
how and in what manner the Directors were responsible
for the conduct of the business of the company.
16) In the light of the above provision and the language
used therein, let us, at the foremost, examine the
complainta filed by National Small Industries
Corporation Limited and the DCM Financial Services Ltd.
17) In the case of National Small Industries Corpn. Ltd.,
the High Court has reproduced the entire complaint in
the impugned order and among other clauses, clause 8
is relevant for our consideration which reads as under:
8. That the accused No. 2 is the Managing Director and
accused No. 3 is the Director of the accused company.
The accused No. 2 and 3 are the in-charge and
responsible for the conduct of the business of the
company accused No. 1 and hence are liable for the
offences.
18) In the case of DCM Financial Services Ltd., in
complaint- Annexure-P2 the relevant clause is 13 which
reads as under:
13. That the accused No. 1 is a Company/Firm and the
accused Nos. 2 to 9 were in charge and were responsible
to the accused No. 1 for the conduct of the business to
the accused No. 1 at the time when offence was
committed. Hence, the accused Nos. 2 to 9 in addition to
the accused No. 1, are liable to be prosecuted and
punished in accordance with law by this Honble Court
as provided by section 141 of the N.I. Act, 1881. Further
the offence has been committed by the accused No. 1
with the consent and connivance of the accused Nos. 2 to
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19) Now, let us consider whether the abovementioned
complaint in both cases has satisfied the necessary
ingredients to attract Section 141 insofar as the
respondents, namely, Directors of the company are
concerned.
20) Section 141 of the Act has been interpreted by this
Court in various decisions. As to the scope of Section 141
of the Act, a three-Judge Bench of this Court considered
the following questions which had been referred to it by
a two-Judge Bench of this Court in SMS Pharmaceuticals
vs. Neeta Bhalla and Anr. (2005) 8 SCC 89:
(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 fulfil 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.
21) While considering the above questions, this Court
held as under:
18. To sum up, there is almost unanimous judicial
opinion that necessary averments ought to be contained
in a complaint before a person can be subjected to
criminal process. A liability under Section 141 of the Act
is sought to be fastened vicariously on a person
connected with a company, the principal accused being
the company itself. It is a departure from the rule inPage 10 of 43
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criminal law against vicarious liability. A clear case
should be spelled out in the complaint against the person
sought to be made liable. Section 141 of the Act contains
the requirements for making a person liable under the
said provision. That the respondent falls within the
parameters of Section 141 has to be spelled out. A
complaint has to be examined by the Magistrate in the
first instance on the basis of averments contained
therein. If the Magistrate is satisfied that there are
averments which bring the case within Section 141, he
would issue the process. We have seen that merely
being described as a director in a company is not
sufficient to satisfy the requirement of Section 141. Even
a non-director can be liable under Section 141 of the Act.
The averments in the complaint would also serve the
purpose that the person sought to be made liable would
know what is the case which is alleged against him.
This will enable him to meet the case at the trial.
19. 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.
(c) The answer to Question (c) has to be in the
affirmative. The question notes that the managing
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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.
22) Therefore, this Court has distinguished the case of
persons who are in-charge 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
concerned Directors should be specific. The description
should be clear and there should be some unambiguous
allegations as to how the concerned Directors were
alleged to be incharge of and was responsible for the
conduct and affairs of the company.
23) In Sabitha Ramamurthy vs. R.B.S.
Channabasavaradhya, (2006) 10 SCC 581, this Court
while dealing with the same issue observed as under:
&&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 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 with the statutory requirementsPage 12 of 43
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would be insisted. Not only the averments made in para
7 of the complaint petitions do not meet the said
statutory requirements, the sworn statement of the
witness made by the son of the respondent herein, does
not contain any statement that the 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 with 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.
24) In Saroj Kumar Poddar vs. State (NCT of Delhi)
(2007) 3 SCC 693, while following SMS Pharmaceuticals
case (supra) and Sabhita Ramamurthy case (supra), this
Court held that with a view to make the Director of a
company vicariously liable for the acts of the company, it
was obligatory on the part of the complainant to make
specific allegations as are required under the law and
under Section 141 of the Act and further held that in the
absence of such specific averments in the complaint
showing as to how and in what manner the Director is
liable, the complaint should not be entertained.
25) The relevant portion of the judgment is reproduced
hereinbelow:-
12. A person would be vicariously liable for commission
of an offence on the part of a company only in the event
the conditions precedent laid down therefor in Section
141 of the Act stand satisfied. For the aforementioned
purpose, a strict construction would be necessary.
13. The purported averments which have been made in
the complaint petitions so as to make the appellant
vicariously liable for the offence committed by the
Company read as under:
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That Accused 1 is a public limited company incorporated
and registered under the Companies Act, 1956, and
Accused 2 to 8 are/were its Directors at the relevant
time and the said Company is managed by the Board of
Directors and they are responsible for and in charge of
the conduct and business of the Company, Accused 1.
However, cheques referred to in the complaint have been
signed by Accused 3 and 8 i.e. Shri K.K. Pilania and Shri
N.K. Munjal for and on behalf of Accused 1 Company.
14. Apart from the Company and the appellant, as
noticed hereinbefore, the Managing Director and all other
Directors were also made accused. The appellant did not
issue any cheque. He, as noticed hereinbefore, had
resigned from the directorship of the Company. It may be
true that as to exactly on what date the said resignation
was accepted by the Company is not known, but, even
otherwise, there is no averment in the complaint petitions
as to how and in what manner the appellant was
responsible for the conduct of the business of the
Company or otherwise responsible to it in regard to its
functioning. He had not issued any cheque. How he is
responsible for dishonour of the cheque has not been
stated. The allegations made in para 3, thus, in our
opinion do not satisfy the requirements of Section 141 of
the Act.
26) In a subsequent decision in N.K. Wahi vs. Shekhar
Singh & Ors., (2007) 9 SCC 481 while following the
precedents of SMS Pharmaceuticalss case (supra),
Sabhita Ramamurthys case (supra) and Saroj Kumar
Poddars case (supra), this Court reiterated that for
launching 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. The relevant
portion of the judgment is as under:
7. This provision clearly shows that so far as the
companies are concerned if any offence is committed by
it then every person who is a Director or employee of the
company is not liable. Only such person would be held
liable if at the time when offence is committed he was in
charge and was responsible to the company for the
conduct of the business of the company as well as the
company. Merely being a Director of the company in the
absence of above factors will not make him liable.
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8. To launch a prosecution, therefore, 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.
27) The said issue again came up for consideration
before a three-Judge Bench of this Court recently in
Ramraj Singh vs. State of M.P. & Anr. (2009) 6 SCC 729.
In this case, the earlier decisions were also considered in
detail. Following the decisions of SMS Pharmaceuticals
case (supra), Sabhita Ramamurthys case (supra), Saroj
Kumar Poddars case (supra) and N.K. Wahis case
(supra) this Court held that it is necessary to specifically
aver in a complaint under Section 141 that at the time
when the offence was committed, the person accused
was incharge of, and responsible for the conduct of the
business of the company. Furthermore, it held that
vicarious liability can be attributed only if the requisite
statements, which are required to be averred in the
complaint petition, are made so as to make the accused/
Director therein vicariously liable for the offence
committed by the company. It was further held that
before a person can be made vicariously liable, strict
compliance of the statutory requirements would be
insisted. Thus, the issue in the present case is no more
res integra and has been squarely covered by the
decisions of this Court referred above. It is submitted
that the aforesaid decisions of this Court have become
binding precedents.
28) In the case of second SMS Pharmaceuticals vs. Neeta
Bhalla, (2007) 4 SCC 70, this Court has categorically
held that there may be a large number of Directors but
some of them may not assign themselves in the
management of the day-to-day affairs of the company
and thus are not responsible for the conduct of the
business of the company. Para 20 of the said judgment
is relevant which is reproduced hereunder:-
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20. The liability of a Director must be determined on the
date on `which the offence is committed. Only because
Respondent 1 herein was a party to a purported
resolution dated 15-2-1995 by itself does not lead to an
inference that she was actively associated with the
management of the affairs of the Company. This Court in
this case has categorically held that there may be a
large number of Directors but some of them may not
associate themselves in the management of the day-to-
day affairs of the Company and, thus, are not
responsible for the conduct of the business of the
Company. The averments must state that the person
who is vicariously liable for commission of the offence of
the Company both was in charge of and was responsible
for the conduct of the business of the Company.
Requirements laid down therein must be read conjointly
and not disjunctively. When a legal fiction is raised, the
ingredients therefor must be satisfied.
29) Relying on the judgment of this Court in Everest
Advertising Pvt. Ltd. vs. State Govt. of NCT of Delhi &
Ors., (2007) 5 SCC 54, learned counsel for the appellants
argued that this Court has not allowed the recalling of
summons in a criminal complaint filed under sections
138 and 141. However, a perusal of the judgment would
reveal that this case was of recalling of summons by the
Magistrate for which the Magistrate had no jurisdiction.
Further, para 22 of the judgment would reveal that in the
complaint
23…allegations have not only been made in terms of the
wordings of section but also at more than one place, it
has categorically been averred that the payments were
made after the meetings held by and between the
representative of the Company and accused nos. 1 to 5
which would include Respondent Nos. 2 and 3.
30) In para 24, this Court concluded that:
it is therefore, not a case where having regard to the
position held by the said respondents in the Company,
they could plead ignorance of the entire transaction.
Furthermore, this Court has relied upon S.M.S.
Pharamaceuticals case (three-Judge Bench) (supra),
Saroj Kumar Poddars case (supra) and N.K. Wahis case
(supra).
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31) Relying on the judgment of this Court in N.
Rangachari vs. Bharat Sanchar Nigam Ltd., (2007) 5
SCC 108, learned counsel for the appellants further
contended that a payee of cheque that is dishonoured
can be expected to allege is that the persons named in
the complaint are in-charge of its affairs and the
Directors are prima facie in that position. However, it is
pertinent to note that in this case it was specifically
mentioned in the complaint that (i) accused no. 2 was a
director and in charge of and responsible to the accused
Company for the conduct of its business; and (ii) the
response of accused no. 2 to the notice issued by BSNL
that the said accused is no longer the Chairman or
Director of the accused Company was false and by not
keeping sufficient funds in their account and failing to
pay the cheque amount on service of the notice, all the
accused committed an offence. Therefore, this decision is
clearly distinguishable on facts as in the said case
necessary averments were made out in the complaint
itself. Furthermore, this decision does not and could not
have overruled the decisions in S.M.S. Pharmaceuticals
case (three-Judge Bench)(supra), Ramraj Singhs case
(threeJudge Bench)(supra), Saroj Kumar Poddars case
(supra) and N.K. Wahis case (supra) wherein it is clearly
held that specific averments have to be made against the
accused Director.
32) Learned counsel for the appellants after elaborately
arguing the matter, by inviting our attention to Paresh P.
Rajda vs. State of Maharashtra & Anr., (2008) 7 SCC
442 contended that a departure/digression has been
made by the Court in the case of N. Rangachari vs. BSNL
(supra). However, in this case also the Court has
observed in para 4 that the High Court had noted that:
an overall reading of the complaint showed that specific
allegations had been leveled against the accused as
being a responsible officer of the accused Company and
therefore, equally liable…
In fact, the Court recorded the allegations in the
complaint that the Complainant knew all the accused
and that accused no. 1 was the Chairman of the accused
Company and was responsible for day to day affairs of
the Company. This Court though has only noted the
decision in N. Rangacharis case (supra) and observedPage 17 of 43
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that an observation therein showed a slight departure
vis-?nbsp;-vis the other judgments (i.e. S.M.S.
Pharmaceuticals first case and S.M.S. Pharmaceuticals
second case), but then Court went on to record that in
N.K. Wahis case (supra) this Court had reiterated the
view in S.M.S. Pharmaceuticals case (supra). The Court
then concluded in para 11 that:
it was clear from the aforequoted judgments that the
entire matter would boiled down to an examination of
the nature of averments made in the complaint…. On
facts, the Court found necessary averments had been
made in the complaint….
33) Though, the learned counsel for the appellants
relying on a recent decision in K.K. Ahuja vs. V.K. Vora &
Anr., (2009) 10 SCC 48, it is clearly recorded that in the
complaint it was alleged that the accused were in-charge
of and was responsible for the conduct of the day-to-day
business of the accused Company and further all the
accused were directly and actively involved in the
financial dealings of the Company and the same was
also reiterated in the pre-summoning evidence.
Furthermore, this decision also notes that it is necessary
to specifically aver in a complaint that the person
accused was incharge of and responsible for the conduct
of the business of the Company.
34) After noting Saroj Kumar Poddars case (supra) and
N.K. Wahis case (supra), this Court further noted in para
9 that:
&&the prevailing trend appear to require the
Complainant to state how a Director who is sought to be
made an accused, was in-charge of the business of the
Company, as every Director need not be and is not
incharge of the business of the Company&…
35) In Para 11, this Court has further recorded that:
&..When conditions are prescribed for extending such
constructive criminal liability to others, courts will insist
upon strict literal compliance. There is no question of
inferential or implied compliance. Therefore, a specific
averment complying with the requirements of Section
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Though the Court then said that an averment in the
complaint that the accused is a Director and in-charge of
and responsible for the conduct of the business may be
sufficient but this would not take away from the
requirement that an overall reading of the complaint has
to be made to see whether the requirements of Section
141 have been made out against the accused Director or
not. Furthermore, this decision cannot be said to have
overruled the various decisions of this Court.
36) Section 291 of the Companies Act provides that:
291. General powers of Board.- (1)subject to the
provisions of that Act, the Board of Directors of a
company shall be entitled to exercise all such powers,
and to do all such acts and things, as the company is
authorized to exercise and do.
A company, though a legal entity, can act only through
its Board of Directors. The settled position is that a
Managing Director is prima facie in-charge of and
responsible for the companys business and affairs and
can be prosecuted for offences by the company. But
insofar as other Directors are concerned, they can be
prosecuted only if they were in-charge of and
responsible for the conduct of the business of the
company.
37) A combined reading of Sections 5 and 291 of
Companies Act, 1956 with the definitions in clauses 24,
26, 30, 31 and 45 of Section 2 of that Act would show
that the following persons are considered to be the
persons who are responsible to the company for the
conduct of the business of the company:
(a) the Managing Director/s;
(b) the whole-time Director/s;
(c) the Manager;
(d) the Secretary;
(e) any person in accordance with whose directions or
instructions the Board of Directors of the company is
accustomed to act;
(f) any person charged by the Board of Directors with the
responsibility of complying with that provision; Provided
that the person so charged has given his consent in this
behalf to the Board; (g) where any company does not
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director or directors who may be specified by the Board
in this behalf or where no director is so specified, all the
directors:
Provided that where the Board exercises any power
under clause (f) or clause (g), it shall, within thirty days
of the exercise of such powers, file with the Registrar a
return in the prescribed form.
38) But if the accused is not one of the persons who falls
under the category of persons who are responsible to the
company for the conduct of the business of the company
then merely by stating that he was in-charge of the
business of the company or by stating that he was
incharge of the day-to-day management of the company
or by stating that he was in-charge of, and was
responsible to the company for the conduct of the
business of the company, he cannot be made vicariously
liable under Section 141(1) of the Act. To put it clear that
for making a person liable under Section 141(2), the
mechanical repetition of the requirements under Section
141(1) will be of no assistance, but there should be
necessary averments in the complaint as to how and in
what manner the accused was guilty of consent and
connivance or negligence and therefore, responsible
under sub-section (2) of Section 141 of the Act.
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 criminal liability 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 asPage 20 of 43
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to make accused therein vicariously liable for offence
committed by company along with averments in the
petition containing that 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 accused is Managing Director or 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 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
complaint.
(vii) The person sought to be made liable should be
incharge 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.”
8. The coordinate Bench of this Court has also examined the
principle of vicarious liability in case of Nikhil P. Gandhi vs.
State of Gujarat & Ors. – (2016) 4 GLR 2838. The relevant para
are as under :
“”78 Before I proceed to consider the case of the other
applicants, who have been arrayed as accused, by
virtue of their vicarious liability, I propose to take note of
the relevant portion of the complaint, which reads thus:
4) For and on behalf of accused No.1 Company, the
accused No.2 had given cheque as security. In the year
2000 some cheques had arisen between the complainant
firm and the accused No.2 and the accused No.1
Company did not pay legitimate amount of the
complainant firm, therefore, the complainant has filed
SPL. Civil Suit No.35 of 2000, 36/2000 and 37/2000 inPage 21 of 43
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the Civil Court at Amreli for recovery of dues, wherein
the Court granted exparte interim injunction below Ex. 5
in SPL. Civil Suit No.36 of 2000…
xxx xxx xxx
17) …The accused No.3 to 13 and 17 and 17 to 19 are
the directors of accused No.1 company, and they are in
charge of day-to-day management of affairs of accused
No.1 company hence, they are also responsible persons
for the management of accused No.1 company…
…Moreover, the accused No.3 to 13 and 17 to 19 did not
take proper care and caution to prevent occurrence of
offence of dishonour of cheque nor did they make
arrangement of money. The aforesaid cheque issued by
accused No.1 company has returned/dishonoured,
hence, the accused No.3 to 13 and 17 to 19 in their
capacity as directors of accused No.1 have abated the
commission of offence. The accused No.3 to 13 and 17 to
19 are in charge of day-to-day management of affairs of
accused No.1 company. These accused persons had also
attended various meetings on behalf of accused No.1
company. If the minutes of meeting Board of Directors
dated 18-1- 2010 are considered, then it is clear that
there is mention therein about the dues of complainant
and the cheque given for payment thereof. Therefore, it is
clear that the accused No.3 to 13 and 17 to 19 were
aware about the issuance of cheque by accused No.1.
79 Two classes of persons are liable to be prosecuted
under Section 138. First, those persons who are in
charge of and responsible to the company for the conduct
of its business. They are per se responsible. In the
second category comes those persons with whose
consent or connivance the offence can be attributed.
When the offence under Section 138 of the Negotiable
Instruments Act has been 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,
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. (vide Section 141 of the
Negotiable Instruments Act).
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In Anil Hada v. Indian Acrylic Ltd [2000 Cri. LJ 373
(SC) : (2001) 1 SCC 1, it has been pointed out that three
categories of persons can be discerned as brought within
the purview of the penal liability, through the legal fiction
envisaged in Section 141 of the Negotiable Instruments
Act. They are: (1) The company which committed the
offence. (2) Every person who was incharge of and
responsible to the company for the conduct of the
business of the company. (3) Any other person who is a
director or a manager or a secretary or any officer of the
company with whose connivance or with whose neglect
the company has committed the offence. [Followed in
M/s. B.S.I. Ltd v. Gift Holdings Pvt Ltd, 2000 Cr. LJ
1424 : AIR 2000 SC 926]
The Apex Court in the said case of Anil Hada further
explaining the law as to the liability of the company and
its directors, for committing offence of dishonour of
cheque, has held that normally an offence can be
committed by human beings who are natural persons.
Such offence can be tried according to the procedure
established by law. But there are offences which could
be attributed to the juristic persons also. If the drawer of
a cheque happens to be a juristic person like a body
corporate it can be prosecuted for the offence under
Section 138 of the Act. Now there is no scope for doubt
regarding that aspect in view of the clear language
employed in Section 141 of the Act. In the expanded
ambit of the word company even firms or any other
associations of persons are included and as a necessary
adjunct thereof a partner of the firm is treated as a
director of that company.
Thus when the drawer of the cheque who falls within the
ambit of Section 138 of the Act is a human being or a
body corporate or even a firm, prosecution proceedings
can be initiated against such drawer. In this context the
phrase as well as used in sub-section (1) of Section 141
of the Act has some importance. The said phrase would
embroil the persons mentioned in the first category
within the tentacles of the offence on a par with the
offending company. Similarly the words shall also in
subsection (2) are capable of bringing the third category
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persons additionally within the dragnet of the offence on
an equal par. The effect of reading Section 141 is that
when the company is the drawer of the cheque such
company is the principal offender under Section 138 of
the Act and the remaining persons are made offenders
by virtue of the legal fiction created by the Legislature as
per the section. Hence the actual offence should have
been committed by the company, and then alone the
other two categories of persons would become liable for
the offence.
Section 141 (1) of the Negotiable Instruments Act would
provide that 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. Section 141(2)
provides, where any offence 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. So, the joint reading
of the sub-sections (i)a(2) of Section 141 would make it
clear that both the company as well as other persons
who are connected and responsible for the conduct of the
business of the company are liable to be proceeded.
Where offence under Section 138 of Negotiable
Instruments Act is committed by a company, the
complaint must prima facie disclose the act committed by
the Directors from which a reasonable inference of their
vicarious liability cane be drawn. [Ashok Muthanna v.
Exports Finance Ltd (2001) 2 Crimes 602 (Mad)]
Vicarious liability in legal parlance means the liability of
the master for the acts of the servant or agent done in
the course of employment. Section 141 makes a natural
person vicariously liable for the contravention committed
by a company provided such person has some nexus
with the crime either because of his connivance with it or
due to by criminal negligence which had resulted in its
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commission. No doubt the law makes the principal liable
for the acts of his agent, but unless there is some
absolute duty cast upon the principal, he cannot be held
responsible for the acts of his agent. [State of
Shewprasad, AIR 1956 All. 610 : 1956 Cr.L.J.
1156]
80 In K.K. Ahuja (supra), the Supreme Court while
explaining the vicarious liability of persons of the
company observed as under:
16. Having regard to section 141, when a cheque issued
by a company (incorporated under the Companies Act,
1956) is dishonoured, in addition to the company, the
following persons are deemed to be guilty of the offence
and shall be liable to be proceeded against and
punished :
(i) 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;
(ii) any Director, Manager, Secretary or other officer of
the company with whose consent and connivance, the
offence under Section 138 has been committed; and (iii)
any Director, Manager, Secretary or other officer of the
company whose negligence resulted in the offence under
Section 138 of the Act, being committed by the company.
While liability of persons in the first category arises
under sub-section (1) of Section 141, the liability of
persons mentioned in categories (ii) and (iii) arises under
sub-section (2). The scheme of the Act, therefore is, that a
person who is responsible to the company for the
conduct of the business of the company and who is in
charge of business of the company is vicariously liable
by reason only of his fulfilling the requirements of sub-
section (1). But if the person responsible to the company
for the conduct of business of the company, was not in
charge of the conduct of the business of 11 the company,
then he can be made liable only if the offence was
committed with his consent or connivance or as a result
of his negligence.
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17. The criminal liability for the offence by a company
under Section 138, is fastened vicariously on the
persons referred to in sub-section (1) of Section 141 by
virtue of a legal fiction. Penal statutes are to be
construed strictly. Penal statutes providing constructive
vicarious liability should be construed much more
strictly. When conditions are prescribed for extending
such constructive criminal liability to others, courts will
insist upon strict literal compliance. There is no question
of inferential or implied compliance. Therefore, a specific
averment complying with the requirements of Section
141 is imperative. As pointed out in K. Srikanth Singh
vs. North East Securities Ltd – 2007 (12) SCC 788, the
mere fact that at some point of time, an officer of a
company had played some role in the financial affairs of
the company, will not be sufficient to attract the
constructive liability under Section 141 of the Act.
18 Sub-section (2) of section 141 provides that a Director,
Manager, Secretary or other officer, though not in charge
of the conduct of the business of the company will be
liable if the offence had been committed with his consent
or connivance or if the offence was a result of any 12
negligence on his part. The liability of persons mentioned
in subsection (2) is not on account of any legal fiction but
on account of the specific part played – consent and
connivance or negligence. If a person is to be made liable
under sub-section (2) of section 141, then it is necessary
to aver consent and connivance, or negligence on his
part.
19 This takes us to the next question under subsection
(1) of section 141, as to (i) who are the persons who are
responsible to the company for the conduct of the
business of the company, and (ii) who could be said to
be in charge and was responsible to the company for the
conduct of the business of the company. The words
“every person who, at the time of the offence was
committed, was in charge of, and was responsible for
the conduct of the business of the company” occurs not
only in section 141(1) of the Act but in several
enactments dealing with offences by companies, to
mention a few section 278 B of the Income Tax Act,
1961, Section 22C of Minimum Wages Act, 1948, Section
86A of the Employees State Insurance Act, 1948, Section
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14A of Employees Provident Fund and Miscellaneous
Provisions Act, 1952, Section 29 of Payment of Bonus
Act, 1965, Section 40 of The Air 13 (Prevention and
Control of Pollution) Act, 1981 and Section 47 of Water
(Prevention and Control of Pollution) Act, 1974. But
neither section 141(1) of the Act, nor the pari materia
provisions in other enactments give any indication as to
who are the persons responsible to the company, for the
conduct of the business of the company. Therefore, we
will have to fall back upon the provisions of Companies
Act, 1956 which is the law relating to and regulating
companies.
20 Section 291 of the said Act provides that subject to
the provisions of that Act, the Board of Directors of a
company shall be entitled to exercise all such powers,
and to do all such acts and things, as the company is
authorised to exercise and do. A company though a legal
entity can act only through its Board of Directors. The
settled position is that a Managing Director is prima facie
in charge of and responsible for the company’s business
and affairs and can be prosecuted for offences by the
company. But insofar as other directors are concerned,
they can be prosecuted only if they were in charge of
and responsible for the conduct of the company’s
business.
21 A combined reading of Section 5 and 291 of
Companies Act, 1956 with the definitions in clauses (24),
(26), (30), (31), (45) of section 2 of that Act would show
that the following persons are considered to be the
persons who are responsible to the company for the
conduct of the business of the company : —
(a) the managing director(s);
(b) the whole-time director(s);
(c) the manager;
(d) the secretary;
(e) any person in accordance with whose directions or
instructions the Board of directors of the company is
accustomed to act;
(f) any person charged by the Board with the
responsibility of complying with that provision (and who
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has given his consent in that behalf to the Board); and
(g) where any company does not have any of the officers
specified in clauses
(a) to (c), any director or directors who may be specified
by the Board in this behalf or where no director is so
specified, all the directors.
It follows that other employees of the company, cannot
be said to be persons who are responsible to the
company, for the conduct of the business of the
company.
22 Section 141 uses the words “was in charge of, and
was responsible to the company for the conduct of the
business of the company”. It is evident that a person
who can be made vicariously liable under sub-section (1)
of Section 141 is a person who is responsible to the
company for the conduct of the business of the company
and in addition is also in charge of the business of the
company. There may be many directors and secretaries
who are not in charge of the business of the company at
all. The meaning of the words “person in charge of the
business of the company” was considered by this Court
in Girdhari Lal Gupta v. D.N. Mehta [1971 (3) SCC 189]
followed in State of Karnataka v. Pratap Chand [1981 (2)
SCC 335] and Katta Sujatha vs. Fertiliser & Chemicals
Travancore Ltd. [2002 (7) SCC 655]. This Court held that
the words refer to a person who is in overall control of
the day to day business of the company. This Court
pointed out that a person may be a director and thus
belongs to the group of persons making the policy
followed by the company, but yet may not be in charge
of the business of the company; that a person may be a
Manager who is in charge of the business but may not
be in overall charge of the business; and that a person
may be an officer who may be in charge of only some
part of the business.
23 Therefore, if a person does not meet the first
requirement, that is being a person who is responsible to
the company for the conduct of the business of the
company, neither the question of his meeting the second
requirement (being a person in charge of the business of
the company), nor the question of such person being
liable under sub-section (1) of section 141 does not arise.
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To put it differently, to be vicariously liable under
subsection (1) of Section 141, a person should fulfill the
‘legal requirement’ of being a person in law (under the
statute governing companies) responsible to the company
for the conduct of the business of the company and also
fulfill the ‘factual requirement’ of being a person in
charge of the business of the company.
24 Therefore, the averment in a complaint that an
accused is a director and that he is in charge of and is
responsible to the company for the conduct of the
business of the company, duly affirmed in the sworn
statement, may be sufficient for the purpose of issuing
summons to him. But if the accused is not one of the
persons who falls under the category of ‘persons who
are responsible to the company for the conduct of the
business of the company’ (listed in para 14 above), then
merely by stating that ‘he was in charge of the business
of the company’ or by stating that ‘he was in charge of
the day to day management of the company’ or by
stating that he was in charge of, and was responsible to
the company for the conduct of the business of the
company’, he cannot be made vicariously liable under
section 141(1) of the Act.
25 It should, however, be kept in view that even an
officer who was not in charge of and was responsible to
the company for the conduct of the business of the
company can be made liable under sub-section (2) of
Section 141. For making a person liable under Section
141(2), the mechanical repetition of the requirements
under Section 141(1) will be of no assistance, but there
should be necessary averments in the complaint as to
how and in what manner the accused was guilty of
consent and connivance or negligence and therefore,
responsible under sub-section (2) of Section 141 of the
Act.
26 Another aspect that requires to be noticed is that only
a Director, Manager, Secretary or other officer can be
made liable under sub-section (2) of section 141. But
under sub-section (1) of section 141, it is theoretically
possible to make even a person who is not a director or
officer, liable, as for example, a person falling under
category (e) and (f) of section 5 of Companies Act, 1956.
When in SMS Pharma (I), this Court observed that
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‘conversely, a person not holding any office or
designation in a company may be liable if he satisfies
the requirement of being in charge of and responsible for
conduct of the business of the company’, this Court
obviously had in mind, persons described in clauses (e)
and (f) of section 5 of Companies Act. Be that as it may.
27 The position under section 141 of the Act can be
summarized thus :
(i) If the accused is the Managing Director or a Joint
Managing Director, it is not necessary to make an
averment in the complaint that he is in charge of, and is
responsible to the company, for the conduct of the
business of the company. It is sufficient if an averment is
made that the accused was the Managing Director or
Joint Managing Director at the relevant time. This is
because the prefix `Managing’ to the word `Director’
makes it clear that they were in charge of and are
responsible to the company, for the conduct of the
business of the company.
(ii) In the case of a director or an officer of the company
who signed the cheque on behalf of the company, there
is no need to make a specific averment that he was in
charge of and was responsible to the company, for the
conduct of the business of the company or make any
specific allegation about consent, connivance or
negligence. The very fact that the dishonoured cheque
was signed by him on behalf of the company, would give
rise to responsibility under sub-section (2) of section 141.
(iii) In the case of a Director, Secretary or Manager (as
defined in Sec. 2(24) of the Companies Act) or a person
referred to in clauses (e) and (f) of section 5 of
Companies Act, an averment in the complaint that he
was in charge of, and was responsible to the company,
for the conduct of the business of the company is
necessary to bring the case under section 141(1). No
further averment would be necessary in the complaint,
though some particulars will be desirable. They can also
be made liable under section 141(2) by making
necessary averments relating to consent and connivance
or negligence, in the complaint, to bring the matter under
that sub-section.
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(iv)Other Officers of a company can not be made liable
under sub-section (1) of section 141. Other officers of a
company can be made liable only under sub-section (2)
of Section 141, be averring in the complaint their position
and duties in the company and their role in regard to the
issue and dishonour of the cheque, disclosing consent,
connivance or negligence.
28 If a mere reproduction of the wording of section
141(1) in the complaint is sufficient to make a person
liable to face prosecution, virtually every
officer/employee of a company without exception could
be impleaded as accused by merely making an averment
that at the time when the offence was committed they
were in charge of and were responsible to the company
for the conduct and business of the company. This would
mean that if a company had 100 branches and the
cheque issued from one branch was dishonoured, the
officers of all the 100 branches could be made accused
by simply making an allegation that they were in charge
of and were responsible to the company for the conduct
of the business of the company. That would be absurd
and not intended under the Act.
29 As the trauma, harassment and hardship of a
criminal proceedings in such cases, may be more serious
than the ultimate punishment, it is not proper to subject
all and sundry to be impleaded as accused in a
complaint against a company, even when the
requirements of section 138 read and section 141 of the
Act are not fulfilled.
81 In view of the aforesaid dictum of law explained by
the Supreme Court, the other accused who have been
arrayed as accused by virtue of Section 141 of the N.I.
Act could not be held liable. I take notice of the fact that
some of the accused are Office Bearers, like the Chief
Operating Officer, Chief Financial Officer, Financial
Controller. Some of the Directors are nominated Directors
and also Non-Executive.
82 I am also not impressed by the argument of Mr.
Ponda that as the inherent powers of this Court under
Section 482 of the Cr.P.C. are circumscribed, and should
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be exercised only in cases where the Court finds an
abuse of the process of law, all the applications deserve
to be outright rejected, leaving all the legal contentions
open to be canvassed before the trial Court.
83 In Harshendra Kumar D. v. Rebatilata Koley etc
[2011 Criminal Law Journal 1626], the Supreme
Court held as under:
21 In our judgment, the above observations cannot be
read to mean that in a criminal case where trial is yet to
take place and the matter is at the stage of issuance of
summons or taking cognizance, materials relied upon by
the accused which are in the nature of public documents
or the materials which are beyond suspicion or doubt, in
no circumstance, can be looked into by the High Court in
exercise of its jurisdiction under Section 482 or for that
matter in exercise of revisional jurisdiction under Section
397 of the Code. It is fairly settled now that while
exercising inherent jurisdiction under Section 482 or
revisional jurisdiction under Section 397 of the Code in a
case where complaint is sought to be quashed, it is not
proper for the High Court to consider the defence of the
accused or embark upon an enquiry in respect of merits
of the accusations. However, in an appropriate case, if
on the face of the documents – which are beyond
suspicion or doubt – placed by accused, the accusations
against him cannot stand, it would be travesty of justice
if accused is relegated to trial and he is asked to prove
his defence before the trial court. In such a matter, for
promotion of justice or to prevent injustice or abuse of
process, the High Court may look into the materials
which have significant bearing on the matter at prima
facie stage.
22. Criminal prosecution is a serious matter; it affects
the liberty of a person. No greater damage can be done
to the reputation of a person than dragging him in a
criminal case.
84 I take notice of the fact that in complaints filed for the
offence under Section 138 of the N.I. Act, all the Directors
of the company and even the Office Bearers are routinely
being proceeded against by invoking the provisions
under Section 141 of the N.I. Act by glibly repeating the
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words in the section that certain Director was incharge of
and responsible to the company for the conduct of
business of the company. It is necessary to emphasis
that Section 141 of the N.I. Act where an offence under
Section 138 of the N.I. Act has been committed by a
company, the complainant is required to give a serious
thought and make enquiries and ascertain the fact as to
whether a particular Director was incharge of and
responsible to the affairs and conduct of the business of
the company. Routinely roping in all the Directors by
merely repeating the words used in Section 141 of the
N.I. Act without ascertaining the facts is a serious matter
which has to be deprecated.
85 Some of the applicants before me are indisputably
non-executive Directors of the company. A non-executive
Director is no doubt a custodian of the governance of the
company, but does not involve in the day-to-day affairs
of the running of its business and only monitors the
executive activity. [See: Pooja Ravinder Devidasani v.
State of Maharastra, AIR 2015 SC 675]
86 In Pooja Ravinder Devidasani (supra), the Supreme
Court made the following observations in para 30, which
I deem fit to refer and rely upon :
30. Putting the criminal law into motion is not a matter of
course. To settle the scores between the parties which
are more in the nature of a civil dispute, the parties
cannot be permitted to put the criminal law into motion
and Courts cannot be a mere spectator to it. Before a
Magistrate taking cognizance of an offence under Section
138/141 of the N.I. Act, making a person vicariously
liable has to ensure strict compliance of the statutory
requirements. The Superior Courts should maintain
purity in the administration of justice and should not
allow abuse of the process of the Court. The High Court
ought to have quashed the complaint against the
appellant which is nothing but a pure abuse of process
of law.
87 A Division Bench of this Court (to which I was a
party) in the case of Ionic Metalliks and others [Special
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Civil Application No.645 of 2014 decided on 9th
September 2014], while examining the challenge to the
legality and validity of a master circular dated 2nd July
2012 issued by the Reserve Bank of India in respect of
willful defaulters had an occasion to consider the
categories of Directors as classified under the
Companies Act. I may quote the following from the
judgment referred to above:
The circular speaks about director and independent and
nominee director. The classification of the directors under
the Companies Act is as under :
A. Classification under the Companies Act
Categories of Directors
The Companies Act refers to the following two specific
categories of Directors:
1. Managing Directors; and
2. Whole-time Directors.
A Managing Director is a Director who has substantial
powers of management of the affairs of the company
subject to the superintendence, control and direction of
the Board in question. A Whole-time Director includes a
Director who is in the whole-time employment of the
company, devotes his whole-time of working hours to the
company in question and has a significant personal
interest in the company as his source of income.
Every public company and private company, which is a
subsidiary of a public company, having a share capital
of more than Five Crore rupees (Rs. 5,00,00,000/-) must
have a Managing or Whole-time Director or a Manager.
Further classification of Directors
Based on the circumstances surrounding their
appointment, the Companies Act recognizes the following
further types of Directors:
1. First Directors: Subject to any regulations in the
Articles of a company, the subscribers to the
Memorandum of Association, or the company’s charter or
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Directors of the company, until such time when Directors
are duly appointed in the annual general meeting
(“AGM”).
2. Casual vacancies: Where a Director appointed at the
AGM vacates office before his or her term of office expires
in the normal course, the resulting vacancy may, subject
to the Articles, be filled by the Board. Such person so
appointed shall hold office up to the time which the
Director who vacated office would have held office if he
or she had not so vacated such office.
3. Additional Directors: If the Articles specifically so
provide or enable, the Board has the discretion, where it
feels it necessary and expedient, to appoint Additional
Directors who will hold office until the next AGM.
However, the number of Directors and Additional
Directors together shall not exceed the maximum
strength fixed in the Articles for the Board.
4. Alternate Director: If so authorized by the Articles or
by a resolution passed by the company in general
meeting, the Board may appoint an Alternate Director to
act for a Director (“Original Director”), who is absent for
whatever reason for a minimum period of three months
from the State in which the meetings of the Board are
ordinarily held. Such Alternate Director will hold office
until such period that the Original Director would have
held his or her office. However, any provision for
automatic re-appointment of retiring Directors applies to
the Original Director and not to the Alternate Director.
5. ‘Shadow’ Director: A person, who is not appointed to
the Board, but on whose directions the Board is
accustomed to act, is liable as a Director of the company,
unless he or she is giving advice in his or her
professional capacity. Thus, such a ‘shadow’ Director
may be treated as an ‘officer in default’ under the
Companies Act.
6. De facto Director: Where a person who is not actually
appointed as a Director, but acts as a Director and is
held out by the company as such, such person is
considered as a de facto Director. Unlike a ‘shadow’
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Director, a de facto Director purports to act, and is seen
to the outside world as acting, as a Director of the
company. Such a de facto Director is liable as a Director
under the Companies Act.
7. Rotational Directors: At least two-thirds of the
Directors of a public company or of a private company
subsidiary of a public company have to retire by rotation
and the term “rotational Director” refers to such Directors
who have to retire (and may, subject to the Articles, be
eligible for reappointment) at the end of his or her tenure.
8.Nominee Directors: They can be appointed by certain
shareholders, third parties through contracts, lending
public financial institutions or banks, or by the Central
Government in case of oppression or mismanagement.
The extent of a nominee Director’s rights and the scope of
supervision by the shareholders, is contained in the
contract that enables such appointments, or (as
appropriate) the relevant statutes applicable to such
public financial institution or bank. However, nominee
Directors must be particularly careful not to act only in
the interests of their nominators, but must act in the best
interests of the company and its shareholders as a
whole.The fixing of liabilities on nominee Directors in
India does not turn on the circumstances of their
appointment or, indeed, who nominated them as
Directors. Chapter 4 and Chapter 5 that follow set out
certain duties and liabilities that apply to, or can be
affixed on, Directors in general. Whether nominee
Directors are required by law to discharge such duties or
bear such liabilities will depend on the application of the
legal provisions in question, the fiduciary duties involved
and whether such nominee Director is to be regarded as
being in control or in charge of the company and its
activities. This determination ultimately turns on the
specific facts and circumstances involved in each case.
B. Classification under the Listing Agreement The
Securities Contracts (Regulation) Act, 1956, read with
the rules and regulations made thereunder, requires
every company desirous of listing its shares on a
recognized Indian stock exchange, to execute a listing
agreement (“Agreement”) with such Indian stock
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exchange. This Agreement is in a standard format
(prescribed by the Securities Exchange Board of India
(“SEBI”)), as amended by SEBI from time to time. The
Agreement provides for the following further categories of
Directors:
Categories under Listing Agreement
1. Executive Director;
2. Non-executive Director; and
3. Independent Director.
Executive and non-executive Directors
An Executive Director can be either a Whole-time Director
of the company (i.e., one who devotes his whole time of
working hours to the company and has a significant
personal interest in the company as his source of
income), or a Managing Director (i.e., one who is
employed by the company as such and has substantial
powers of management over the affairs of the company
subject to the superintendence, direction and control of
the Board). In contrast, a non-executive Director is a
Director who is neither a Whole-time Director nor a
Managing Director. Clause 49 of the Agreement
prescribes that the Board shall have an optimum
combination of executive and non-executive Directors,
with not less than fifty percent (50%) of the Board
comprising non-executive Directors. Where the Chairman
of the Board is a nonexecutive Director, at least one-third
of the Board should comprise independent Directors and
in case he is an executive Director, at least half of the
Board should comprise independent Directors. Where the
non-executive Chairman is a promoter of the company or
is related to any promoter or person occupying
management positions at the Board level or at one level
below the Board, at least one-half of the Board of the
company shall consist of independent Directors.
Independent Directors
The Agreement defines an “Independent Director” as a
non-executive Director of the company who:
a. apart from receiving Director’s remuneration, does not
have material pecuniary relationships or transactions
with the company, its promoters, its Directors, its seniorPage 37 of 43
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management, or its holding company, its subsidiaries,
and associates which may affect independence of the
Director;
b. is not related to promoters or persons occupying
management positions at the board level or at one level
below the board;
c. has not been an executive of the company in the
immediately preceding three (3) financial years;
d. is not a partner or an executive or was not a partner
or an executive during the preceding three (3) years, of
any of the following:
i. the statutory audit firm or the internal audit firm that is
associated with the company, and
ii. the legal firms and consulting firms that have a
material association with the company;
e. is not a material supplier, service provider or customer
or a lessor or lessee of the company, which may affect
the independence of the Director; or
f. he is not a substantial shareholder of the company,
i.e., owning two percent (2%) or more of the block of
voting shares; and
g. he is not less than twenty-one (21) years of age.
Nominee directors appointed by an institution that has
invested in, or lent money to, the company are also
treated as independent Directors.
88 The following observations of the Supreme Court,
made in the case of M/s. Pepsi Foods Ltd v. Special
J.M. [1998 Cri. L.J. 1 : AIR 1998 SC 128] should be
kept in mind by the Magistrates, when they decide to
summon a director or partner of a company or firm to
face trial under Section 138 of the Negotiable
Instruments Act.
Summoning of an accused in a criminal case is a serious
matter. Criminal law cannot be set into motion as a
matter of course. It is not that the complainant has to
bring only two witnesses to support his allegations in the
complaint to have the criminal law set into motion. The
order of the Magistrate summoning the accused must
reflect that he has applied his mind to the facts of the
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case and the law applicable thereto. He has to examine
the nature of allegations made in the complaint and the
evidence both oral and documentary in support thereof
and would that be sufficient for the complainant to
succeed in bringing charge home to the accused. It is not
that the Magistrate is a silent spectator at the time of
recording of preliminary evidence before summoning of
the accused. Magistrate has to carefully scrutinise the
evidence brought on record and may even himself put
questions to the complainant and his witnesses to elicit
answers to find out the truthfulness of the allegations or
otherwise and then examine if any offence is prima facie
committed by all or any of the accused.
This has assumed all the more significance in view of the
recent trend found that in respect of offences under
Section 138 of the Negotiable Instruments Act alleged
against a company, all the Directors of the company are
being routinely roped in as accused with a statement
that they are in-charge of and responsible to the
business of the company as required under Section 141
of the Negotiable Instruments Act. In fact, it has been
seen that some times, even the nominee Directors
nominated by the financial agencies like IDBI have also
been arrayed as accused for the offence committed by
the Company on the Board of which they have been
nominated. The need to carefully scrutinize the material
and if necessary to question the complainant as to the
basis for implicating an accused as observed by the
Supreme Court in the above cited judgment cannot be
ignored.
Considering this, it appears necessary that at any rate
even if on the basis of formal allegations in the complaint
such Directors have been summoned to face the trial,
they must be afforded an opportunity at least at the
earliest stage to show with reference to the material
which may be placed before the Court that they are not
in-charge of and are not responsible to the business of
the company and on that basis seek their discharge from
the array of the accused. In such cases, I think it will be
a great injustice if they are asked to go through the
ordeal of the trial and plead their defence only during the
trial. [Om Prakash Agrawal v. State of A.P., 2001
Cri. L.J. 253 (para 13) A.P.]
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89 In N.K. Wahi v. Shekhar Singh and others [2007 (9)
SCC 481], the Supreme Court, after considering its
earlier judgment on the point in question, held as under:
7. This provision clearly shows that so far as the
companies are concerned if any offence is committed by
it then every person who is a Director or employee of the
company is not liable. Only such person would be held
liable if at the time when offence is committed he was in
charge and was responsible to the company for the
conduct of the business of the company as well as the
companyMerely being a Director of the company in the
absence of above factors will not make him liable.
8. To launch a prosecution, therefore, 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 incharge 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.
90 In Gunmala Sales Private Limited (supra), the
Supreme Court, after an exhaustive review of all its
earlier decisions on Section 141 of the N.I. Act,
summarized its conclusion as under:
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 overallPage 40 of 43
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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
armtwisting 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.
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NEUTRAL CITATION
R/CR.MA/6387/2018 ORDER DATED: 09/04/2025
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91 In view of the above, there is no cogent material on
record to fasten any vicarious liability so far as the other
accused are concerned who are Non-Executive Directors
including the Office Bearers concerned with the Accounts
Department of the company.
92 The plain reading of Section 138 of the N.I. Act would
clearly go to show that by reason thereof, a legal fiction
had been created. A legal fiction, as is well-known,
although is required to be given full effect, yet has its
own limitations. It cannot be taken recourse to for any
purpose other than the one mentioned in the statute
itself. Section 138 of the Act moreover provides for a
penal provision. A penal provision created by reason of a
legal fiction must receive strict construction. Such a penal
provision, enacted in terms of the legal fiction drawn,
would be attracted when a cheque is returned by the
bank unpaid. Before a proceeding thereunder is
initiated, all the legal requirements therefor must be
complied with. The Court must be satisfied that all the
ingredients of commission of an offence under the said
provision have been complied with. [See: Raj Kumar
Khurana v. State of (NCT of Delhi) and another, (2009) 6
SCC 72].”
9. Recently, the Hon’ble Supreme Court in case of Susela
Padmavathy Amma (supra), after surveying authoritative
pronouncements on the subject held as under :
“19. It can thus be seen that the only allegation against
the present appellant is that the present appellant and
the accused No.2 had no intention to pay the dues that
they owe to the complainant. It is stated that the 2 nd
accused and the 3rd accused (appellant herein) are the
Directors, promoters of the 1st accused being the
Company. It is further averred that the 2 nd accused is
the authorized signatory, who is in-charge of and
responsible for the day-to-day affairs of the Company,
i.e., the 1st accused.
20. It can thus be clearly seen that there is no averment
to the effect that the present appellant is in-charge of
and responsible for the day-to-day affairs of the
Company. It is also not the case of the respondent thatPage 42 of 43
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NEUTRAL CITATIONR/CR.MA/6387/2018 ORDER DATED: 09/04/2025
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the appellant is either the Managing Director or the Joint
Managing Director of the Company.
21. It can thus clearly be seen that the averments made
are not sufficient to invoke the provisions of Section 141
of the N.I. Act qua the appellant.”
10. Coming back to the case on hand, it is noticed that the
complainant has stated that accused No.2 is in-charge and
responsible for day-to-day affairs of the accused – company. He
is the signatory of the cheque in question and he is in charge of
management of the accused company. The present petitioner
who is arraigned as accused No.4 on the ground that that he
was director of the company, cannot to be put to trial because of
insufficient averments which are stated in para 2 of the
complaint, in view of specific role alleged to have been played by
accused No.2 who has signed the cheque.
11. In net result, the petition succeeds. The proceedings being
Criminal Case No.8437 of 2016 filed before the learned Chief
Judicial Magistrate, Mehsana qua the present petitioner is
hereby quashed. It is needless to state that proceedings under
Section 138 of N.I. Act for other accused shall proceed in
accordance with law as held by coordinate Bench of this Court
vide order dated 02.04.2018 and since it is proceedings under
Section 138 of the N.I. Act, it is expected to be concluded within
six months without being influenced by aforesaid reasons and
observations. Rule is made absolute. Direct service is permitted.
(J. C. DOSHI, J)
GAURAV J THAKER
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