Appeal
Appeal against the order quashed by the Hon’ble High Court
2. The present appeal calls in question the correctness of the judgment dated 10.01.2024 passed by the High Court of Judicature at Bombay in Criminal Writ Petition No. 275 of 2022. By the said judgment, the High Court has quashed the criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881 (for short ‘NI Act’) insofar as it was against Respondent No. 2-Mrs. Ranjana Sharma was concerned. The proceedings have been quashed on the ground that there were no sufficient averments in the complaint filed by the appellant to invoke the vicarious liability against the respondent No. 2 under Section 141 of the NI Act. Aggrieved, the appellant is before us.
Brief facts
3. The facts lie in a narrow compass. The respondent no. 2 – Mrs. Ranjana Sharma along with her daughter Ms. Rachana Sharma and one Mr. Rakesh Rajpal were directors of a company named M/s R Square Shri Sai Baba Abhikaran Pvt. Ltd. According to the complaint filed by the appellant, the accused no. 1 – company along with respondent no. 2 (accused no.2) and other two directors approached the appellant/complainant for grant of credit facility in the form of Revolving Loan Facility as Inventory Funding for the working capital requirements. According to the appellant, loan amounts were extended and on account of the failure of the accused to repay the outstanding dues, the account of the company was classified as a Non-Performing Asset on 27.03.2018 in accordance with the guidelines issued by the Reserve Bank of India. It is the case of the appellant that a cheque issued by the accused for a sum of Rs. 6,02,04,217/- on deposit was dishonored for the reason “account blocked”. According to the appellant, a legal notice was issued to all the accused. However, the said notice was returned back as “unclaimed”. The appellant thus prosecuted the company and the three directors and prayed for appropriate punishment of imprisonment as well as direction to pay fine up to double the amount of the dishonored cheque. On 16.12.2018, the Trial Court issued process to the respondents in the complaint.
Complaint clearly averred that Accused nos 2 to 4 are responsible for day to day affairs
5. It will be noticed that in Para 2 of the complaint quoted above, it has been categorically averred as under:
“Accused Nos. 2 to 4 are the directors of the accused no. 1 – company and is responsible for its day-to-day affairs, management and working of the accused no. 1 – company. Furthermore, the accused no. 3 is the signatory of the dishonored cheque”.
(Emphasis supplied)
6. Not only this, it is further averred in Para 3 that accused no. 1 (the company) through accused nos. 2 to 4 had approached the complainant above named for grant of credit facility in the form of Revolving Loan Facility as inventory funding for the working capital requirements. It has been stated : –
“That, after, due deliberation and negotiations with Accused nos. 2 to 4, the Complainant granted the Revolving Loan facility initially to the extent of……”.
Question for consideration
15. In the above background, the question that arises for consideration is whether the High Court was justified in quashing the complaint insofar as respondent no. 2 – Mrs. Ranjana Sharma was concerned on the ground that necessary averments were lacking?
Analysis and reasoning
Section 141 N.I Act
16. Section 141(1) of the NI Act along with its provisos 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.”
17. It will be noticed that Section 141 of the NI Act employs the phrase “was in charge of, and was responsible to the company for the conduct of the business of the company”. Insofar as the aspect of vicarious liability is concerned, in the present case, the averments made are to the following effect:-
“Accused Nos. 2 to 4 are the Directors of Accused No.1 Company” and
“Is responsible for its day-to-day affairs, management and working of the Accused No.1-Company”
18. The real question is, is the above averment along with the other averments in the complaint sufficient to meet the tests laid down by this Court in the leading judgment of S.M.S. Pharmaceuticals-I (supra).
The word ‘in charge of’ is explained
19. Before we advert to S.M.S. Pharmaceuticals-I (supra), it will be useful to refer to the meaning of the word “in charge of”. P. Ramanatha Aiyar’s Advanced Law Lexicon defines the word “in charge of” as follows:-
“A person “in charge of” and responsible to the company for the conduct of the business of the company must be a person in overall control of the day-to-day business of the company or firm”.
Responsible for day-to-day affairs means in charge of the company
20. It will be seen that the averment made in the complaint, in the present case, clearly uses the phrase “responsible for its day-to-day affairs, management and working of the Accused No.1 Company”, which going by the dictionary meaning set out hereinabove in substance is the same as “in charge of and was responsible to the Company for the conduct of the business of the Company”.
21. Read in the background of the other averments, the above averment clearly fulfils the requirement of Section 141. The contention of the learned counsel for the respondent no. 2, however, is that actual words mentioned in Section 141 in the same form be employed in the complaint, for the complaint to be sustained. Learned Counsel placed strong reliance on S.M.S. Pharmaceuticals-I (supra).
22. To answer this issue, a closer look at the judgment in S.M.S. Pharmaceuticals-I (supra) needs to be undertaken. S.M.S. Pharmaceuticals -I (supra) arose out of a reference by a two-Judge Bench of this Court. This Court, in the said judgment, set out for determination the following questions: –
“(a) Whether for purposes of Section 141 of the Negotiable Instruments Act, 1881, it is sufficient if the substance of the allegation read as a whole 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.”
23. The following principles are deducible from the said judgment. (i) “Section 141 contains conditions which have to be satisfied before the liability can be extended to officers of a company. Since the provision creates criminal liability, the conditions have to be strictly complied with. The conditions are intended to ensure that a person who is sought to be made vicariously liable for an offence of which the principal accused is the company, had a role to play in relation to the incriminating act and further that such a person should know what is attributed to him to make him liable”. [See Para 4]
(ii) “There is nothing which suggests that simply by being a director in a company, one is supposed to discharge particular functions on behalf of a company. It happens that a person may be a director in a company but he may not know anything about the day-to-day functioning of the company. As a director he may be attending meetings of the Board of Directors of the company where usually they decide policy matters and guide the course of business of a company. It may be that a Board of Directors may appoint sub-committees consisting of one or two directors out of the Board of the company who may be made responsible for the day-to-day functions of the company. These are matters which form part of resolutions of the Board of Directors of a company. Nothing is oral. What emerges from this is that the role of a director in a company is a question of fact depending upon the peculiar facts in each case. There is no universal rule that a director of a company is in charge of its everyday affairs”. [See Para 8]
(Emphasis supplied)
(iii) “Mere use of a particular designation of an officer without more, may not be enough by way of an averment in a complaint. When the requirement in Section 141, which extends the liability to officers of the company, is that such a person should be in charge of and responsible to the company for conduct of business of the company, how can a person be subjected to liability of criminal prosecution without it being averred in the complaint that satisfies those requirements. Not every person connected with a company is made liable under Section 141. Liability is cast on persons who may have something to do with the transaction complained of. A person who is in charge of and responsible for conduct of business of a company would naturally know why the cheque in question was issued and why it got dishonoured”. [See Para 8] (Emphasis supplied)
(iv) “What is required is that the persons who are sought to be made criminally liable under Section 141 should be, at the time the offence was committed, in charge of and 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. It is only those persons who were in charge of and responsible for the conduct of business of the company at the time of commission of an offence, who will be liable for criminal action. It follows from this that if a director of a company who was not in charge of and was not responsible for the conduct of the business of the company at the relevant time will not be liable under the provision”. [See Para 10] (Emphasis supplied)
(v) “Therefore, in order to bring a case within Section 141 of the Act, the complaint must disclose the necessary facts which make a person liable”. [See Para 12]
While construing a complaint preventing bouncing of cheques and sustaining credibility of commercial transactions had to be borne in mind
24. After setting out the above principles, this Court in S.M.S. Pharmaceuticals-I (supra), cited a whole host of judgments of various High Courts and this Court, including the judgment of this Court which was then the latest in line, namely, Monaben Ketanbhai Shah and Another vs. State of Gujarat and Others, (2004) 7 SCC 15. This Court in S.M.S. Pharmaceuticals-I (supra) cited Monaben Ketanbhai Shah (supra) which had held that it was not necessary to reproduce the language of Section 141 verbatim in the complaint since the complaint was required to be read as a whole. Monaben Ketanbhai Shah (supra) had held that if the substance of the allegations made in the complaint fulfil the requirements of Section 141, the complaint has to proceed and is required to be tried with. It was further held in Monaben Ketanbhai Shah (supra) that in construing a complaint, a hypertechnical approach should not be adopted and the laudable object of preventing bouncing of cheques and sustaining the credibility of commercial transactions had to be borne-in-mind.
25. After setting out the holding in Monaben Ketanbhai Shah (supra), this Court in S.M.S. Pharmaceuticals-I (supra) in para 18 held as follows:-
“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 in 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.” (Emphasis supplied)
27. Hence, it is very clear that the conclusion in para 19(a) in S.M.S. Pharmaceuticals-I (supra) has to be read with the other holdings in judgment especially the ratio extracted hereinabove culminating in para 18. Merely reading para 19(a) to contend that what is required is parroting of the words of the section for a complaint to be sustained is completely unjustified. Para 19(a) does not mention that the words of the Section 141 has to be mechanically parroted. In fact, the cases that we discuss hereinbelow have expressly rejected the said contention.
Merely because somebody is managing the affairs of company, per se they do not become in charge of the conduct of the business of the company
31. In Ashok Shewakramani and Others vs. State of Andhra Pradesh and Another, (2023) 8 SCC 473, a judgment relied upon by Respondent No.2, the averments did not satisfy the ingredients of Section 141 and this Court observed that all that was averred in that case (the first set of appeal therein) was that the accused were liable for the transactions of the company and they were fully aware of the issuance of the cheque and dishonor of the cheque. This Court held that even taking a broad and liberal view of the pleadings in the complaint, there was no compliance with the requirements of Section 141 (1). In the second set of appeals therein the accused directors were not even described as directors of the first accused company therein. On that simple ground proceedings were quashed. In the third set of appeals therein, insofar as the directors were concerned who 24 were accused nos. 4 to 7 an omnibus averment was made in the following terms.
“(1) It is submitted that the complainant is the proprietor of Chakra Cotton Traders, doing business in cotton, resident of bearing Door No. 3/917-1, Sri Chackra Nilayam, YMR Colony, Proddatur Town-516 360, Kadapa District, A.P.
Accused 1 is the private limited Company concerned and registered under the Companies Act. Accused 2 is Chairman of Accused 1. Accused 3 is the Managing Director of Accused 2 and Accused 4 to 7 are the Directors of Accused 1 Company and Accused 2 to 7 are managing the Company and busy with day-to-day affairs of the Company and all are managing the Company and also in charge of the Company and all are jointly and severally liable for the acts of Accused 1 Company.”
Considering these averments the Court while quashing the proceedings held that merely because somebody is managing the affairs of company, per se they do not become in charge of the conduct of the business of the company or the person responsible for the company for the conduct of the business of the company. It was further held that the averment that the accused were busy with the day-to-day affairs was also insufficient to attract the ingredients of Section 141(1). Proceeding further, the Court held that merely averring that the accused were in-charge of the company was neither here nor there as such averment was insufficient to conclude that the accused were responsible to the company for the conduct of the business. This is vastly different from the averments in the present case wherein it is clearly averred that the respondent no. 2 was responsible for the day-to-day affairs, management and working of the accused no. 1 company.
Lumping the role of directors with others and making omnibus averments was insufficient to attract vicarious liability unde section 141(1) N.I Act
32. Ashok Shewakramani (supra) turned on the special facts of that case. This is more so since the averments in the complaint therein extracted hereinabove lumping the role of the directors with others and making omnibus averments, was found to be insufficient to attract the vicarious liability under Section 141(1) of the NI Act.
34. What is important to note is that the repetition of the exact words of the Section in the same order, like a mantra or a magic incantation is not the mandate of the law. What is mandated is that the complaint should spell out that the accused sought to be arrayed falls within the parameters of Section 141(1) of the NI Act. Only then could vicarious liability be inferred against the said accused, so as to proceed to trial. Substance will prevail over form.
38. As was rightly held therein, the administrative role of each director would be within the special knowledge of the company or the director of the firm and it is for them to establish that they were not in charge of the affairs of the company. In view of this, the contention of the learned counsel for the respondent No.2 that the specific role attributed to the directors should be set out in the complaint does not merit acceptance. Reliance has been placed on National Small Industries Corporation Limited vs. Harmeet Singh Paintal and Another, (2010) 3 SCC 330 by the learned counsel for the respondent No.2 in support of the proposition canvassed. We are unable to countenance the said submission. If the learned counsel by the said submission seeks to contend that the complainant in a Section 138 complaint is obliged to plead administrative matters which are especially within the knowledge of the company and the directors, then he is completely wrong in the understanding of the ingredients of Section 141. As held in K.K. Ahuja (supra) and reiterated in S.P. Mani (supra), the complainant is supposed to know only generally as to who are in charge of the affairs of the company. Harmeet Singh Paintal (supra) when it holds in para 22 that
“further, in order to fasten the vicarious liability in accordance with Section 141, the averment as to the role of the Directors concerned should be specific. The description should be clear and there should be some unambiguous allegations as how the Directors concerned were alleged to be in charge of and were responsible for the conduct of the affairs of the company”
should be understood to only mean vis-à-vis the transaction concerning the issue of the cheque, in question, which are within the knowledge of the complainant. K.K. Ahuja (supra) where it holds that
“in the case of a Director, secretary or manager [as defined in Section 2(24) of the Companies Act] or a person referred to in clauses (e) and (f) of Section 5 of the 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) of the Act. 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”
sets out the correct legal position. A harmonious reading of the judgments in K.K. Ahuja (supra), Harmeet Singh Paintal (supra) and S.P. Mani (supra) brings out the position that there is no obligation on the complainant to plead in the complaint as to matters within the special knowledge of the company or the directors or firm about the specific role attributed to them in the company.
Conclusion
Averments in the complaint set out and fulfil the requirement of section 141(1) NI Act
39. Applying the said legal position to the facts of the present case, it is found that the averments in the complaint set out hereinabove against the respondent No.2 – Mrs. Ranjana Sharma fulfill the requirement of Section 141(1) of the NI Act, and this is not a case where trial against her can be aborted by quashment of proceedings. The High Court was completely unjustified in quashing the proceedings against her.
Appeal allowed
40. The appeal is, accordingly, allowed and the judgment of the High Court of Judicature at Bombay dated 10.01.2024 in Criminal Writ Petition No. 275 of 2022 is set aside. Consequently, the order dated 16.12.2019 issuing process to respondent No.2 in proceeding in C.C. No. 2486/SS/2019 is restored to the file of the Metropolitan Magistrate, 7 th Court, Bhiwandi, Dadar, Mumbai to be proceeded with in accordance with law.
Judgments involved/cited in this judgment
- S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla and Another, (2005) 8 SCC 89
- Siby Thomas vs. Somany Ceramics Limited, (2024) 1 SCC 348
- Monaben Ketanbhai Shah and Another vs. State of Gujarat and Others, (2004) 7 SCC 15
- Sabitha Ramamurthy and Another vs. R.B.S. Channabasavaradhya, (2006) 10 SCC 581
- S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla and Another, (2007) 4 SCC 70
- A.K. Singhania vs. Gujarat State Fertilizer Company Limited and Another, (2013) 16 SCC 630
- Ashok Shewakramani and Others vs. State of Andhra Pradesh and Another, (2023) 8 SCC 473
- Ashutosh Ashok Parasrampuriya and Another vs. Gharrkul Industries Private Limited and Others, (2023) 14 SCC 770
- S.P. Mani and Mohan Dairy vs. Dr. Snehalatha Elangovan, (2023) 10 SCC 685
- K.K. Ahuja vs. V.K. Vora and Another, (2009) 10 SCC 48
- National Small Industries Corporation Limited vs. Harmeet Singh Paintal and Another, (2010) 3 SCC 330
Acts and Sections involved
Negotiable Instruments Act, 1881
– Section 138
– Section 141(1) and provisos
– Companies Act, 2013 (and reference to Companies Act, 1956)
Parties
HDFC Bank Limited (Appellant) vs. State of Maharashtra and Anr. (Respondents); Spl (Cri) No. 6964 of 2024 – 2025 INSC 759 – 22nd May 2025 – Judges: Hon’ble Justice K.V. Viswanathan and Hon’ble Justice Manoj Misra.
