SUNITA PALITA & OTHERS versus M/S PANCHAMI STONE QUARRY

[2022] 14 S.C.R.

ASUNITA PALITA & OTHERS

M/S PANCHAMI STONE QUARRY

(Criminal Appeal No. 1105 of 2022)

BAUGUST 01, 2022

[INDIRA BANERJEE AND J. K. MAHESHWARI, JJ.]

Code of Criminal Procedure, 1973: s.482 – Quashing ofproceedings – Dishonour of cheque – Account Payee Cheque signedby accused no. 2, who was M.D. of the Company in favour ofCrespondent in discharge of liability – On dishonour of cheque,respondent filed complaint u/s.138 r/w s.141 of NI Act – In thecomplaint, appellants who were independent/non-executive directorwere impleaded as accused no. 3 to 5 – Appellants unsuccessfullyfiled application in High Court u/s.482 praying that the proceedingDbe quashed – Hence instant appeal – Held: Jurisdiction u/s.482must be exercised if the interest of justice so requires – High Courtfailed to appreciate that none of these appellants were ManagingDirector or Joint Managing Director of the Accused Company –Nor were they signatories of the cheque which was dishonoured –A Director of company who was not in charge or responsible forEthe conduct of the business of the company at the relevant time, willnot be liable u/s.139 r/w. 141 of NI Act – The materials on recordclearly show that these appellants were independent, non-executiveDirectors of the company – High Court adopted hyper technicalapproach in rejecting the application u/s.482 – High Court erredFin law in not exercising its jurisdiction u/s.482 in the facts andcircumstances of this case to grant relief to the appellants –Companies Act, 2013 – ss.2(47), 149 and 150 – NegotiableInstrument Act, 1881 – ss. 139,141.

Allowing the appeal, the CourtG

HELD: 1. Section 482 of the Cr.P.C. protects the inherentpower of the High Court to make such orders as may be necessaryto give effect to any order under the Cr.P.C or to prevent abuseof the process of any Court or otherwise secure the ends ofjustice. While it is true that inherent jurisdiction under SectionH482 should be exercised sparingly, carefully and with caution and

only when such exercise is justified by the tests specially laiddown in the Section, the Court is duty bound to exercise itsjurisdiction under Section 482 of the Cr.P.C. when the exerciseof such power is justified by the tests laid down in the said Section.Jurisdiction under Section 482 of the Cr.P.C. must be exercisedif the interest of justice so requires. [Paras 34 and 35][473-G-H;747-A-B]

2. The High Court failed to appreciate that none of theseAppellants were Managing Director or Joint Managing Directorof the Accused Company. Nor were they signatories of the chequewhich was dishonoured. As held by this Court in, inter alia, S.M.S.Pharmaceuticals Ltd., the liability under Section 138/141 of theNI Act arises from being in charge of and responsible for theconduct of the business of the company at the relevant time whenthe offence was committed, and not on the basis of merely holdinga designation or office in company. It would be travesty ofjustice to drag Directors, who may not even be connected withthe issuance of cheque or dishonour thereof, such as Director(Personnel), Director (Human Resources Development) etc. intocriminal proceedings under the NI Act, only because of theirdesignation. [Paras 38 and 42][474-E-F; 475-E-G]

S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla (2005) 8SCC 89 : [2005] 3 Suppl. SCR 371 – followed.

3. Liability depends on the role one plays in the affairs of acompany and not on designation or status alone. The materialson record clearly show that these Appellants were independent,non-executive Directors of the company. non-ExecutiveDirector is not involved in the day-to-day affairs of the companyor in the running of its business. Such Director is in no wayresponsible for the day-to-day running of the Accused Company.Moreover, when complaint is filed against Director of thecompany, who is not the signatory of the dishonoured cheque,specific averments have to be made in the pleadings tosubstantiate the contention in the complaint, that such Directorwas in charge of and responsible for conduct of the business ofthe Company or the Company, unless such Director is thedesignated Managing Director or Joint Managing Director who

Awould obviously be responsible for the company and/or itsbusiness and affairs. [Para 43][475-G-H; 476-A-B]

Pooja Ravinder Devidasani v. State of Maharashtra andAnr. (2014) 16 SCC 1 : [2014] 14 SCR 1468- reliedon.

K.K. Ahuja v. V.K. Vora (2009) 10 SCC 48 : [2009]9 SCR 1144; National Small Industries CorporationLtd. v. Harmeet Singh Paintal (2010) 3 SCC 330 : [2010]2 SCR 805; Pepsi Foods Ltd. v. Special JudicialMagistrate and Ors. (1998) 5 SCC 749 : [1997] 5 Suppl.CSCR 12 – referred to.

Case Law Reference

CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No.E1105 of 2022.

From the Judgment and Order dated 11.09.2019 of the High Courtof Calcutta in CRR No.2835 of 2018.

Sidharth Luthra, Sr. Adv., Saraswat Mohapatra, Akshat Kumar,Ms. S. Janani, Advs. for the Appellants.F

Sanjay R. Hegde, Sr. Adv., Dibyadyuti Banerjee, Abhijit Sengupta,Advs. for the Respondent.

The Judgment of the Court was delivered by

INDIRA BANERJEE, J.

Leave granted.

2. This appeal is against judgment and order dated 11[th]September 2019 passed by the Calcutta High Court dismissing theCriminal Revisional Application being C.R.R. No.2835 of 2018 filed bythe Appellants being the 3[rd], 4[th] and 5[th] Accused, under Section 482 ofH

the Code of Criminal Procedure, 1973, hereinafter referred to as “theCr.P.C.”, for quashing the proceedings in Case No. AC/121/2017, interalia, under Section 138/141 of the Negotiable Instruments Act, 1881,hereinafter referred to as “the NI Act”, pending against the Appellantsin the Court of the Judicial Magistrate, 2[nd] Court, Suri, Birbhum, WestBengal.

3. The Respondent M/s Panchami Stone Quarry, hereinafterreferred to as “PSQ” filed petition of complaint, inter alia, against theAppellants under Section 138/141 of the NI Act which was registeredas Case No. AC/121/2017.

4. In the petition of complaint, PSQ impleaded M/s MBLInfrastructure Limited, public limited company, within the meaning ofthe Companies Act 2013 (hereinafter referred to as “the AccusedCompany”), as Accused No.1. One Mr. Anjanee Kumar Lakhotia,Managing Director of the Accused Company was impleaded as theAccused No.2 and the Appellants were impleaded as Accused Nos. 3, 4and 5. The Appellant No.1 was the fourth accused, Appellant No.2 wasthe fifth accused and Appellant No.3 was the third accused.

5. In the said petition of complaint, PSQ alleged “Accused Nos.2,3, 4 and 5 are the Directors of Accused No.1. i.e., M/s MBLInfrastructures Ltd. respectively [and] are responsible to conductthe day-to-day business affairs of the Accused No.1.”

6. The Accused Company placed orders on PSQ on differentdates for purchase, inter alia, of Stone Dust and Stone Aggregate.Purchase Orders dated 24.12.2015, 25.05.2016, 07.01.2016 and09.04.2016 were issued by the Accused Company, specifying thematerials required to be supplied, along with the rates and quantity thereof.

7. Pursuant to the aforesaid purchase orders, PSQ suppliedmaterials to the Accused Company, and raised bills totallingRs.2,31,60,674/- (Rupees Two Crore, Thirty One Lakhs, Sixty Thousand,Six Hundred and Seventy Four only) on the Accused Company.

8. In discharge of its liability against the bills raised by PSQ on theAccused Company, the Accused Company had issued an Account PayeeCheque being No.001174 dated 15[th] March 2017 for sum ofRs.1,71,08,512/- (Rupees One Crore, Seventy One Lakhs, EightThousand, Five Hundred and Twelve only) drawn on the Park StreetBranch of Kotak Mahindra Bank at Kolkata, in favour of PSQ.

A9. It is not in dispute that the Accused No.2-Anjanee KumarLakhotia is the Managing Director and authorised signatory of the AccusedCompany. The said Accused No.2, Anjanee Kumar Lakhotia signed thesaid cheque.

10. In the Petition of Complaint there is bald averment that theBAppellants being the Accused Nos. 3, 4 and 5 were Directors of theAccused Company and responsible for the day-to-day affairs of theAccused Company. This averment is devoid of any particulars.

11. On 10[th] April 2017, PSQ deposited the cheque in its bank forencashment, but the cheque was dishonoured, with the endorsementC‘account closed’. On 3[rd] May 2017, PSQ received intimation of dishonourof the cheque from its banker. Thereafter, PSQ sent demand noticedated 29[th] May 2017 by speed post, calling upon the Accused to makepayment of the amount of the dishonoured cheque, as per the provisionsof Section 138 of the NI Act.

D12. Alleging that the Accused Company had not paid the amountof the dishonoured cheque, that is, Rs.1,71,08,512/- (Rupees One Crore,Seventy One Lakhs, Eight Thousand, Five Hundred and Twelve only) toPSQ within the time stipulated, PSQ filed the aforesaid complaint underSection 138 read with Section 141 of the NI Act, through its proprietor.

E13. By an order dated 13[th] July 2017, the Additional Chief JudicialMagistrate, 2[nd] Court, Suri, Birbhum registered the petition as complaintcase, and after taking cognizance, directed issuance of summons to theAccused, with liberty to the Accused to adopt plea bargaining. Caserecords were directed to be transferred to the file of the JudicialMagistrate, 2[nd] Court, Suri, Birbhum. On the same day, the JudicialFMagistrate, 2[nd] Court, Suri, Birbhum, West Bengal, received the caserecords for trial and disposal.

14. On 26[th] March 2018, the Accused appeared through Advocatesand filed petitions under Section 205 of the Cr.P.C. and under Section305 of the Cr.P.C. Sections 205 and 305 of the Cr.P.C. are set outGhereinbelow:-

“Section 205. Magistrate may dispence with personalappearance of accused.- (1) Whenever Magistrate issues asummons, he may, if he sees reason so to do, dispense withthe personal attendance of the accused and permit him toHappear by his pleader.

(2) But the Magistrate inquiring into or trying the case may,in his discretion, at any stage of the proceedings, direct thepersonal attendance of the accused, and, if necessary, enforcesuch attendance in the manner hereinbefore provided.”

“Section 305. Procedure when corporation or registered societyis an accused.- (1) In this section, “corporation” means anincorporated company or other body corporate, and includesa society registered under the Societies Registration Act, 1860(21 of 1860).

(2) Where corporation is the accused person or one of theaccused persons in an inquiry or trial, it may appoint arepresentative for the purpose of the inquiry or trial and suchappointment need not be under the seal of the corporation.

(3) Where representative of corporation appears, anyrequirement of this Code that anything shall be done in thepresence of the accused or shall be read or stated or explainedto the accused, shall be construed as requirement that thingshall be done in the presence of the representative or read orstated or explained to the representative, and any requirementthat the accused shall be examined shall be construed as arequirement that the representative shall be examined.

(4) Where representative of corporation does not appear,any such requirement as is referred to in subsection (3) shallnot apply.

(5) Where statement in writing purporting to be signed bythe Managing Director of the corporation or by any person(by whatever name called) having, or being one of the personshaving the management of the affairs of the corporation tothe effect that the person named in the statement has beenappointed as the representative of the corporation for thepurposes of this section, is filed, the Court shall, unless thecontrary is proved, presume that such person has been soappointed.

(6) If question arises as to whether any person, appearingas the representative of corporation in an inquiry or trial

Abefore Court is or is not such representative, the questionshall be determined by the Court.”

15. By an order dated 9[th] July 2018, the Court of Judicial Magistrate,2[nd] Court, Suri, Birbhum declined to dispense with the appearance of theAppellants and directed the accused to appear on 20[th] August 2018.B[[th]][[th ]]

16. On 26[[th]] March 2018, the matter was adjourned till 16[[th ]]May2018 for appearance. The case was heard on diverse dates and ultimatelyadjourned till 9[th] July 2018 for Orders. By an Order dated 9[th] July 2018,the Judicial Magistrate, 2[nd] Court, Suri, Birbhum rejected the Petitionsunder Sections 305 and 205 of the Cr.P.C., in the absence of the accusedCpersons. The Court directed the accused persons to remain present inCourt positively on next date, that is 20[th] August 2018 to face appropriateproceedings.

17. The Appellants filed Criminal Revisional Application in theHigh Court under Section 482 of the Cr.P.C., inter alia, praying that theDproceedings in Case No.AC.121/2017 under Section 138 read withSection 141 of the NI Act pending in the Court of the Judicial Magistrate,2[nd] Court, Suri be quashed and pending such order, all proceedings in thesaid case be stayed.

18. In the High Court, it was contended that the Judicial Magistrate,E2[nd] Court, Suri, dealt with the application under Section 205 of the Cr.P.C.without considering whether any useful purpose would be served byrequiring the personal attendance of the Accused or whether the progressof the trial was likely to be hampered on account of their absence.

19. By the judgment and order impugned in this Appeal, SingleFBench of the High Court rejected the application under Section 482 ofthe Cr.P.C. Being aggrieved, the Appellants have approached this Court.The Appellants claim that they are independent non-executive Directorsof the Accused Company, who are in no way responsible for the day-to-day affairs of the Accused Company.

20. Mr. Sidharth Luthra appearing on behalf of the AppellantsGsubmitted that Section 205 of the Cr.P.C. confers discretion on the Courtto exempt personal appearance of an accused, till such time as hisappearance may be considered necessary. In considering an applicationunder Section 205 of the Cr.P.C., the Magistrate has to bear in mind thenature of the case, as also the conduct of the persons summoned. TheHMagistrate may not exempt personal appearance, where any useful

purpose would be served by requiring the personal attendance of theaccused, or where the progress of the trial was likely to be hampered onaccount of his absence.

21. Mr. Luthra pointed out that Section 305 of the Cr.P.C. provideshow body corporate, made accused in criminal case, may berepresented. The Magistrate overlooked the fact that the AccusedCompany was being represented by an authorized officer.

22. Mr. Luthra further argued that Section 141 of the NI Actbeing penal provision creating vicarious liability, the same must bestrictly construed. Mere statement in the complaint that the Appellantswere in charge of and responsible to the Accused Company, for theconduct of the business of the Accused Company without any specificrole attributed to the Appellants, was not sufficient for proceeding againstthe Appellants under Section 141 of the said Act.

23. In S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla[1]cited byMr. Luthra, this Court held:

“10. While analysing Section 141 of the Act, it will be seenthat it operates in cases where an offence under Section 138is committed by company. The key words which occur in thesection are “every person”. These are general words and takeevery person connected with company within their sweep.Therefore, these words have been rightly qualified by use ofthe words:

“Who, at the time the offence was committed, was in chargeof, and was responsible to the company for the conduct ofthe business of the company, as well as the company, shallbe deemed to be guilty of the offence, etc.”

What is required is that the persons who are sought to bemade criminally liable under Section 141 should be, at thetime the offence was committed, in charge of and responsibleto the company for the conduct of the business of the company.Every person connected with the company shall not fall withinthe ambit of the provision. It is only those persons who werein charge of and responsible for the conduct of business ofthe company at the time of commission of an offence, who

Awill be liable for criminal action. It follows from this that if adirector of company who was not in charge of and was notresponsible for the conduct of the business of the company atthe relevant time, will not be liable under the provision. Theliability arises from being in charge of and responsible forthe conduct of business of the company at the relevant timeBwhen the offence was committed and not on the basis of merelyholding designation or office in company. Conversely, aperson not holding any office or designation in companymay be liable if he satisfies the main requirement of being incharge of and responsible for the conduct of business of aCcompany at the relevant time. Liability depends on the role oneplays in the affairs of company and not on designation orstatus. If being director or manager or secretary was enoughto cast criminal liability, the section would have said so. Insteadof “every person” the section would have said “every director,manager or secretary in company is liable”…, etc. TheDlegislature is aware that it is case of criminal liability whichmeans serious consequences so far as the person sought to bemade liable is concerned. Therefore, only persons who can besaid to be connected with the commission of crime at therelevant time have been subjected to action.”

24. Mr. Luthra emphatically argued that the Appellants areindependent, non-executive Directors of the Accused Company and inno way responsible for the day-to-day affairs of the Accused Company.Such Directors are inducted in the company for their expertise or specialknowledge in any particular discipline. They are not in charge of theFmanagement of the company.

25. Mr. Luthra argued that the Appellants had relied onunimpeachable documents, particularly, Form No. DIR-12 of AppellantNo.1 and Appellant No.3, and DRI Form No.32 of the Appellant No.2,which showed the status of the respective Appellants as Non-ExecutiveGIndependent Directors w.e.f. 01.04.2014.The Appellants being Non-Executive Independent Directors, are entitled to have the ComplaintCase No. AC/121/2017 quashed as against them.

26. Mr. Luthra referred to Section 2(47) and Section 149 of theCompanies Act, 2013 dealing with independent Directors which areextracted hereinbelow for convenience:-H

“2. Definitions: …

(47) “independent director” means an independent directorreferred to in sub-section (5) of section 149;***

149. Company to have Board of Directors: …

(6) An independent director in relation to company, meansa director other than managing director or whole-timedirector or nominee director,—

(a) who, in the opinion of the Board, is person of integrityand possesses relevant expertise and experience;

(b)(i) who is or was not promoter of the company or itsholding, subsidiary or associate company;

(ii) who is not related to promoters or directors in the company,its holding, subsidiary or associate company;

(c) who has or had no pecuniary relationship, other thanremuneration as such director or having transaction notexceeding ten per cent of his total income or such amount asmay be prescribed, with the company, its holding, subsidiaryor associate company, or their promoters, or directors, duringthe two immediately preceding financial years or during thecurrent financial year;

(d) none of whose relatives—

(i) is holding any security of or interest in the company, itsholding, subsidiary or associate company during the twoimmediately preceding financial years or during the currentfinancial year:

Provided that the relative may hold security or interest in thecompany of face value not exceeding fifty lakh rupees or twoper cent. of the paid-up capital of the company, its holding,subsidiary or associate company or such higher sum as maybe prescribed;

(ii) is indebted to the company, its holding, subsidiary orassociate company or their promoters, or directors, in excessof such amount as may be prescribed during the two

Aimmediately preceding financial years or during the currentfinancial year;

(iii) has given guarantee or provided any security inconnection with the indebtedness of any third person to thecompany, its holding, subsidiary or associate company or theirBpromoters, or directors of such holding company, for suchamount as may be prescribed during the two immediatelypreceding financial years or during the current financial year;or

(iv) has any other pecuniary transaction or relationship withCthe company, or its subsidiary, or its holding or associatecompany amounting to two per cent or more of its grossturnover or total income singly or in combination with thetransactions referred to in sub-clause (i), (ii) or (iii);

(e) who, neither himself nor any of his relatives—

(i) holds or has held the position of key managerialpersonnel or is or has been employee of the company or itsholding, subsidiary or associate company in any of the threefinancial years immediately preceding the financial year inwhich he is proposed to be appointed:

Provided that in case of relative who is an employee, therestriction under this clause shall not apply for his employmentduring preceding three financial years.

(ii) is or has been an employee or proprietor or partner, inany of the three financial years immediately preceding theFfinancial year in which he is proposed to be appointed, of—

(A) firm of auditors or company secretaries in practice orcost auditors of the company or its holding, subsidiary orassociate company; or

(B) any legal or consulting firm that has or had anyGtransaction with the company, its holding, subsidiary orassociate company amounting to ten per cent or more of thegross turnover of such firm;

(iii) holds together with his relatives two per cent or more ofthe total voting power of the company; or

(iv) is Chief Executive or director, by whatever name called,of any non-profit organisation that receives twenty-five percent or more of its receipts from the company, any of itspromoters, directors or its holding, subsidiary or associatecompany or that holds two per cent or more of the total votingpower of the company; or

(f) who possesses such other qualifications as may beprescribed.”

27. Mr. Luthra has also referred to Section 150 of the CompaniesAct, 2013 which is set out hereinbelow:-

150. Manner of selection of independent directors andmaintenance of databank of independent directors.—(1)Subject to the provisions contained in sub-section (5) ofSection 149, an independent director may be selected from adata bank containing names, addresses and qualificationsof persons who are eligible and willing to act as independentdirectors, maintained by any body, institute or association,as may by notified by the Central Government, havingexpertise in creation and maintenance of such data bank andput on their website for the use by the company making theappointment of such directors:

Provided that responsibility of exercising due diligence beforeselecting person from the data bank referred to above, asan independent director shall lie with the company makingsuch appointment.

(2) The appointment of independent director shall be approvedby the company in general meeting as provided in sub-section(2) of Section 152 and the explanatory statement annexed tothe notice of the general meeting called to consider the saidappointment shall indicate the justification for choosing theappointee for appointment as independent director.

(3) The data bank referred to in sub-section (1), shall createand maintain data of persons willing to act as independentdirector in accordance with such rules as may be prescribed.

(4) The Central Government may prescribe the manner andprocedure of selection of independent directors who fulfil thequalifications and requirements specified under Section 149.

28. In K.K. Ahuja v. V.K. Vora[2]this Court discussed the principlesof the vicarious liability of the officers of company in respect ofdishonour of cheque and held: -

“27. The position under Section 141 of the Act can besummarised thus:

(i) If the accused is the Managing Director or Joint ManagingDirector, it is not necessary to make an averment in thecomplaint that he is in charge of, and is responsible to thecompany, for the conduct of the business of the company. Itis sufficient if an averment is made that the accused was theManaging Director or Joint Managing Director at the relevanttime. This is because the prefix “Managing” to the word“Director” makes it clear that they were in charge of and areresponsible to the company, for the conduct of the businessof the company.

D(ii) In the case of Director or an officer of the companywho signed the cheque on behalf of the company, there is noneed to make specific averment that he was in charge ofand was responsible to the company, for the conduct of thebusiness of the company or make any specific allegation aboutconsent, connivance or negligence. The very fact that theEdishonoured cheque was signed by him on behalf of thecompany, would give rise to responsibility under sub-section(2) of Section 141.

(iii) In the case of Director, secretary or manager [as definedin Section 2(24) of the Companies Act] or person referredFto in clauses (e) and (f) of Section 5 of the Companies Act, anaverment in the complaint that he was in charge of, and wasresponsible to the company, for the conduct of the businessof the company is necessary to bring the case under Section141(1) of the Act. No further averment would be necessary inGthe complaint, though some particulars will be desirable. Theycan also be made liable under Section 141(2) by makingnecessary averments relating to consent and connivance ornegligence, in the complaint, to bring the matter under thatsub-section.

(iv) Other officers of company cannot be made liable undersub-section (1) of Section 141. Other officers of companycan be made liable only under sub-section (2) of Section 141,by averring in the complaint their position and duties in thecompany and their role in regard to the issue and dishonourof the cheque, disclosing consent, connivance or negligence.”

29. In Pooja Ravinder Devidasani v. State of Maharashtraand Anr.[3 ]this Court held as under:-

“17. ... Non-executive Director is no doubt custodian of thegovernance of the company but is not involved in the day-to-day affairs of the running of its business and only monitorsthe executive activity. To fasten vicarious liability under Section141 of the Act on person, at the material time that personshall have been at the helm of affairs of the company, onewho actively looks after the day-to-day activities of thecompany and is particularly responsible for the conduct ofits business. Simply because person is Director of acompany, does not make him liable under the NI Act. Everyperson connected with the Company will not fall into the ambitof the provision. Time and again, it has been asserted by thisCourt that only those persons who were in charge of andresponsible for the conduct of the business of the Companyat the time of commission of an offence will be liable forcriminal action. Director, who was not in charge of andwas not responsible for the conduct of the business of theCompany at the relevant time, will not be liable for an offenceunder Section 141 of the NI Act. In National Small IndustriesCorpn. [National Small Industries Corpn. Ltd. v. HarmeetSingh Paintal, (2010) 3 SCC 330 : (2010) 1 SCC (Civ) 677 :(2010) 2 SCC (Cri) 1113] this Court observed: (SCC p. 336,paras 13-14)

“13. Section 141 is penal provision creating vicariousliability, and which, as per settled law, must be strictlyconstrued. It is therefore, not sufficient to make baldcursory statement in complaint that the Director (arrayedas an accused) is in charge of and responsible to the

company for the conduct of the business of thecompany without anything more as to the role of theDirector. But the complaint should spell out as to how andin what manner Respondent 1 was in charge of or wasresponsible to the accused Company for the conduct of itsbusiness. This is in consonance with strict interpretation ofpenal statutes, especially, where such statutes createvicarious liability.

14. company may have number of Directors and tomake any or all the Directors as accused in complaintmerely on the basis of statement that they are in chargeof and responsible for the conduct of the business of thecompany without anything more is not sufficient oradequate fulfilment of the requirements under Section141.”

18. In Girdhari Lal Gupta v. D.H. Mehta [Girdhari LalGupta v. D.H. Mehta, (1971) 3 SCC 189 : 1971 SCC (Cri)279 : AIR 1971 SC 2162] , this Court observed that person“in charge of business” means that the person should be inoverall control of the day-to-day business of the Company.

19. Director of company is liable to be convicted for anoffence committed by the company if he/she was in charge ofand was responsible to the company for the conduct of itsbusiness or if it is proved that the offence was committed withthe consent or connivance of, or was attributable to anyFnegligence on the part of the Director concerned (see Stateof Karnataka v. Pratap Chand [State of Karnataka v. PratapChand, (1981) 2 SCC 335 : 1981 SCC (Cri) 453] ).

20. In other words, the law laid down by this Court is that formaking Director of company liable for the offencescommitted by the company under Section 141 of the NIAct, there must be specific averments against the Directorshowing as to how and in what manner the Director wasresponsible for the conduct of the business of the company.”

30. As held in K.K. Ahuja v. V.K. Vora (supra) when the accusedHis the Managing Director or Joint Managing Director of company, it

is not necessary to make an averment in the complaint that he is incharge of, and is responsible to the company for the conduct of thebusiness of the company. This is because the prefix “Managing” to theword “Director” makes it clear that the Director was in charge of andresponsible to the company, for the conduct of the business of thecompany. Director or an Officer of the company who signed the chequerenders himself liable in case of dishonour. Other officers of companycan be made liable only under sub-section (2) of Section 141 of the NIAct by averring in the complaint, their position and duties in the company,and their role in regard to the issue and dishonour of the cheque, disclosingconsent, connivance or negligence.

31. In course of the hearing Mr. Luthra emphasized on theproceedings initiated against the Accused Company under Section 7 ofthe Insolvency and Bankruptcy Code 2016, hereinafter referred to asthe “IBC”.

32. By an order dated 30[th] March 2017, the Calcutta Bench ofthe National Company Law Tribunal, hereinafter referred to as the“NCLT”, admitted the application of Financial Creditor of the AccusedCompany for appointment of an Interim Resolution Professional (IRP)to administer the Accused Company, as result of which the Appellantswere suspended by operation of law. When statutory notice of dishonourwas sent to the Appellants, the management of the Accused Companyhad been taken over by the IRP.

33. It is stated that PSQ had availed the remedy under the IBCand filed its claim before the IRP, which now forms part of an ApprovedResolution Plan of the Accused Company. PSQ would, therefore, bepaid in terms of the Approved Resolution Plan. Mr. Luthra submittedthat the Resolution Plan of the Accused Company had been upheld bythe National Company Law Appellate Tribunal (NCLAT). All appealsagainst the Resolution Plan had been dismissed by the NCLAT.

34. Section 482 of the Cr.P.C. protects the inherent power of theHigh Court to make such orders as may be necessary to give effect toany order under the Cr.P.C or to prevent abuse of the process of anyCourt or otherwise secure the ends of justice.

35. While it is true that inherent jurisdiction under Section 482should be exercised sparingly, carefully and with caution and only whensuch exercise is justified by the tests specially laid down in the Section,

Athe Court is duty bound to exercise its jurisdiction under Section 482 ofthe Cr.P.C. when the exercise of such power is justified by the tests laiddown in the said Section. Jurisdiction under Section 482 of the Cr.P.C.must be exercised if the interest of justice so requires.

36. The High Court rightly held that when complaint was filedBagainst the Director of company, specific averment that such personwas in charge of and responsible for the conduct of business of thecompany was an essential requirement of Section 141 of the NI Act.The High Court also rightly held that merely being Director of thecompany is not sufficient to make the person liable under Section 141 ofthe NI Act. The requirement of Section 141 of the NI Act was that theCperson sought to be made liable should be in charge of and responsiblefor the conduct of the business of the company. This has to be averredas fact.37. The High Court also rightly held that the Managing Directoror Joint Managing Director would admittedly be in charge of the companyDand responsible to the company for the conduct of its business by virtueof the office they hold as Managing Director or Joint Manging Director.These persons are in charge of and responsible for the conduct of thebusiness of the company and they get covered under Section 141 of theNI Act. signatory of cheque is clearly liable under Section 138/141of the NI Act.E

38. The High Court, however, failed to appreciate that none ofthese Appellants were Managing Director or Joint Managing Directorof the Accused Company. Nor were they signatories of the cheque whichwas dishonoured.F39. The High Court proceeded to hold that, in construing acomplaint, hyper technical approach should not be adopted, to quashthe same. The High Court observed rightly that the laudable object ofpreventing bouncing of cheques and sustaining the credibility ofcommercial transactions, resulting in enactment of Sections 138 and 141of the NI Act has to be borne in mind. complaint should also not beGread with pedantically hyper technical approach to deny relief underSection 482 of the Cr.P.C. to those impleaded as accused, who do nothave any criminal liability in respect of the offence alleged in the complaint.As observed by the High Court, the provisions of Section 138/141 of theNI Act create statutory presumption of dishonesty, against thoseHcovered by Section 138/141 of the NI Act and expose them to criminal

liability, if payment is not made within the statutory period, even afterissue of notice.

40. The High Court further held that the power of quashing isrequired to be exercised sparingly. The High Court, in effect, found thateven though, on perusal of the complaint, it appeared that the exactwords used in Section 141 of the NI Act had not been used in thecomplaint, the essential pleadings were there in the complaint.

41. There can be no doubt that in deciding Criminal RevisionalApplication under Section 482 of the Cr.P.C. for quashing proceedingunder Section 138/141 of the NI Act, the laudable object of preventingbouncing of cheques and sustaining the credibility of commercialtransactions resulting in enactment of the said Sections has to be bornein mind. The provisions of Section 138/141 of the NI Act create statutorypresumption of dishonesty on the part of the signatory of the cheque,and when the cheque is issued on behalf of company, also those personsin charge of or responsible for the company or the business of thecompany. Every person connected with the company does not fall withinthe ambit of Section 141 of the NI Act.

42. Director of company who was not in charge or responsiblefor the conduct of the business of the company at the relevant time, willnot be liable under those provisions. As held by this Court in, inter alia,S.M.S. Pharmaceuticals Ltd. (supra), the liability under Section 138/141 of the NI Act arises from being in charge of and responsible for theconduct of the business of the company at the relevant time when theoffence was committed, and not on the basis of merely holding adesignation or office in company. It would be travesty of justice todrag Directors, who may not even be connected with the issuance of acheque or dishonour thereof, such as Director (Personnel), Director(Human Resources Development) etc. into criminal proceedings underthe NI Act, only because of their designation.

43. Liability depends on the role one plays in the affairs of companyand not on designation or status alone as held by this Court in S.M.S.Pharmaceuticals Ltd. (supra). The materials on record clearly showthat these Appellants were independent, non-executive Directors of thecompany. As held by this Court in Pooja Ravinder Devidasani v. Stateof Maharashtra and Anr. (supra) non-Executive Director is notinvolved in the day-to-day affairs of the company or in the running of itsbusiness. Such Director is in no way responsible for the day-to-day

Arunning of the Accused Company. Moreover, when complaint is filedagainst Director of the company, who is not the signatory of thedishonoured cheque, specific averments have to be made in the pleadingsto substantiate the contention in the complaint, that such Director was incharge of and responsible for conduct of the business of the Companyor the Company, unless such Director is the designated ManagingBDirector or Joint Managing Director who would obviously be responsiblefor the company and/or its business and affairs.

44. The High Court correctly observed that three categories ofpersons were covered by Section 141 of the NI Act – the company whocommitted the offence as alleged; everyone who was in-charge of orCwas responsible for the business of the company and any other personwho was Director or Manager or Secretary or Officer of theCompany with whose connivance or due to whose neglect the companyhad committed the offence.

45. Even though the High Court deprecated the adoption of aDhyper technical approach in construing pleadings, to quash criminalproceedings, the High Court adopted hyper technical approach inrejecting the application under Section 482 of the Cr.P.C., on cursoryreading of the formalistic pleadings in the complaint, endorsing the contentsof Section 141 of the NI Act, without any particulars. What the HighECourt overlooked was, the contention of these Appellants that they werenon-Executive Independent Directors of the Accused Company, basedon unimpeachable materials on record. The High Court observed that inthe petition it had specifically been averred that all the accused personswere responsible and liable for the whole business management of theAccused Company, andtook the view that the averments in the complaintFwere sufficient to meet the requirements of Section 141 of the NI Act.

46. As held by this Court in National Small IndustriesCorporation Ltd. v. Harmeet Singh Paintal[4]quoted with approval inthe subsequent decision of this Court in Pooja Ravinder Devidasani v.State of Maharashtra and Anr. (supra) the impleadment of all DirectorsGof an Accused Company on the basis of statement that they are incharge of and responsible for the conduct of the business of the company,without anything more, does not fulfil the requirements of Section 141 ofthe NI Act.

H4 (2010) 3 SCC 330

47. In any event there could be no justification for not dispensingwith the personal appearance of the Appellants, when the Company hadentered appearance through an authorized officer. As held by this Courtin Pepsi Foods Ltd. v. Special Judicial Magistrate and Ors.[5]summoning an accused person cannot be resorted to as matter ofcourse and the order must show application of mind.

48. In our considered view, the High Court erred in law in notexercising its jurisdiction under Section 482 of the Cr.P.C in the factsand circumstances of this case to grant relief to the Appellants.

49. For the reasons discussed above, the appeal is allowed. Thejudgment and order of the High Court is set aside. Criminal Case No.AC/121/2017 pending under Section 138/141 of the NI Act in the Courtof Judicial Magistrate, 2[nd] Court, Suri, Birbhum is quashed in so far asthese Appellants are concerned. It is made clear that the proceedingsmay continue against the other accused in the criminal case, including inparticular the Accused Company, its Managing

Director/Additional Managing Director and/or the signatory ofthe cheque in question.

Devika Gujral(Assisted by : Shubhanshu Das, LCRA)

Appeal allowed.