IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 19.04.2010
CORAM:
THE HONOURABLE MR.JUSTICE C.T.SELVAM
Crl. O.P. Nos. 29808 and 30729 of 2007
and
M.P. Nos. 1, 1 of 2007
1.Namburi Venkatarambabu
2.Mudunuri Venkata Suryanarayana Raju
3.Pericharla Venkata Satyanarayana
.. Petitioners in both Crl.O.P. Nos.
-vs-
1.The Water Base limited
No.22, Sadasivam Street
Gopalapuram, Chennai-86
rep. By its Credit controller
and Power of attorney.
2.M/S.Sri Charan Agencies
rep. By its Managing partner
Mr.P.V.Srinivasa Raju
D.No.3-208-A main road
Buvanapalli, West Godavari
District, Andhra Pradesh.
3.P.V.Srinivasa Raju .. Respondents in both Crl.O.P. Nos.
Prayer: Criminal Original Petitions filed under Section 482 of Criminal Procedure Code, to call for the records relating to C.C. No.2649 of 2006 and 2694 of 2006 respectively, on the file of the learned XVIII Metropolitan Magistrate, Saidapet, Chennai and to quash the proceedings therein as against the petitioners.
----
For Petitioners : Mr. K.G. Senthil Kumar
For Respondents : Mr. S.A.Rajan for R1
Mr.G.Krishnakumar for R2
No appearance
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C O M M O N O R D E R
In these two quash petitions, the petitioners are the persons who have been arrayed as accused No. 3 to 5 in C.C. Nos. 2694 of 2006 and 2649 of 2006, on the file of the learned XVIII Metropolitan Magistrate, Saidapet, Chennai.
2. The cases allege commission of offence under Sections 138 r/w 141 of the Negotiable Instruments Act. The first accused is the partnership firm, while the second accused is the Managing partner and signatory of the cheques giving rise to the complaints. The petitioners herein are arrayed as accused 3 to 5, on the allegation that they were partners and in-charge of and responsible of day to day transactions and conduct of the business of first accused. The two complaint cases have come to be filed on the presentation of respective cheques in sum of Rs. 6,60,494/- and Rs.5,84,010.70 for payment, on the same being dishonoured, and after following the procedure envisaged under Section 138 of Negotiable Instruments Act.
3. Heard both the learned counsel for the petitioners as also the respondents.
4. The learned counsel for the petitioners places reliance on the decision reported by the Hon’ble Apex Court in 2005 (5) CTC 65 (S.M.S. Pharmaceuticals Ltd., v. Neeta Bhalla) wherein the Apex Court dealt with the following questions:
“(a) Whether for purposes of Section 141 of the Negotiable Instruments Act, 1881, it is sufficient if the substance of the allegation read as a whole fulfill the requirements of the said section and it is not necessary to specifically state in the complainant that the persons 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 of Joint Managing who admittedly would be in charge of the company and responsible to the company for conduct of its business could be proceeded against.”
After a detailed consideration of the law on the subject, the Apex Court held as follows:
“19.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 respondent falls within 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.
20.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 offence was committed the person accused was in-charge of, and responsible for the conduct of business of the company. This averments 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 question posed in sub-para (b) has to be in 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 conduct of its business. The requirement of Section 141 is that the person sought to be made liable should 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 affirmative. The question notes that the Managing Director or Joint Managing Director would be admittedly in charge of the company and responsible to the company for 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 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.”
The learned counsel submits that the complaints do not contain averments that the petitioners were in-charge of and responsible to the first accused firm in the conduct of day to day affairs at the time of the commission of offence in the absence thereof, the complaints as against the petitioners could not stand.
5. The learned counsel for the respondents on the other hand would submit that a reading of the complaint would show that these petitioners were in-charge of and responsible for the day to day transactions and conduct of the business of the first accused firm. The complainant could not be aware of the internal arrangements between the partners of the first accused firm and whether these petitioners are sleeping partners would have to be established, in the course of the trial. This would not be a fit case in which this Court would exercise its powers under Section 482 Cr.P.C. Further, the learned counsel places the reliance on the decision of the Apex Court in AIR 2007 SC 1682 (N.Rangachari v. Bharat Sanchar Nigam Limited) wherein the Apex Court had found sufficient averments to the effect “That accused no.1 is a company incorporated under the Companies Act. Accused Nos. 2 and 3 are its Directors. They are in-charge of and responsible to accused No.1 for conduct of business of accused No.1 company. They are jointly and severally liable for the acts of accused No.1.”. The learned counsel contends that the averments in the complaints which are now under challenge are similar to that as held sufficient by the Apex Court. The circumstances which necessitated the insertion of Chapter VII in the Negotiable Instruments Act by the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988, with effect from 01.04.1989 and Sections 138 and 142 were included were considered by the Apex Court. The position that the internal workings of a concern would not be to the knowledge of the payee was taken into consideration. It is also contended that the decision in S.M.S. Pharmaceuticals was considered by the Apex Court in such case. The Apex Court had disagreed with the earlier Judgment in Saroj Kumar Poddar case in AIR 2007 SCW 656 and found no warrant for assuming that the complaint would be bad, if no specific averment is made to the effect that at the time of issuance of the cheque dishonoured, the persons named in the complaint were in-charge of the affairs of the company was not made. The learned counsel for the respondents contended that the decision cited by him is subsequent and the same would have to be followed.
6. Considered the rival submissions.
7. I am unable to accept the contention of the learned counsel for the respondents. The decision in S.M.S. Pharmaceuticals case was rendered by a three Judge Bench. It specifically was found that averments of the persons being in-charge of and responsible of day to day transactions and conduct of the business of first accused at the time of commission of offence were an absolute must. Despite, the observations in the decision in AIR 2007 SC 1682 (N.Rangachari v. Bharat Sanchar Nigam Limited), this Court has to follow the decision of the Larger Bench in 2005 (5) CTC 65 (S.M.S. Pharmaceuticals Ltd., v. Neeta Bhalla) . The complaints, as rightly submitted by the petitioners does not contain the necessary averments that the petitioners were in-charge of and responsible of day to day affairs and conduct of the business of the first accused firm at the time of commission of offence. Though, further contentions were made by the petitioners that the partnership firm of the first accused would reflect the position that these petitioners merely were sleeping partners thereof, the same, besides not warranting, acceptance also does not arise for consideration.
7. In view of the above reasoning, this criminal original petition shall stand allowed and the proceedings in C.C. Nos.2694 of 2006 and 2649 of 2006 are quashed, in so far as the petitioners are concerned. Consequently, the connected miscellaneous petitions are closed.
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To
The XVIII Metropolitan Magistrate
Saidapet,
Chennai