In all these special leave petitions common
question of law and facts arise and, therefore, they
have been heard together and are being disposed of by
this common judgment.
Leave granted.
In all these cases we are concerned with
accused A.K. Singhania and Vikram Prakash. Several
JUDGMENTcomplaints were filed by Gujarat State Fertilizer
Company against Esslon Synthetics Ltd., its Chairman,
Managing Director and other Directors including
aforesaid A.K. Singhania and Vikram Prakash alleging
commission of an offence under Section 138 of the
Negotiable Instruments Act, hereinafter referred to
as ‘the Act’.
In Complaint Case No. 331 of 1996 the allegations
which are relevant for the decision of these appeals
read as follows:
“3. The accused No. 14 is a
Limited Company registered under the
Companies Act, 1956 and are doing
business of chemicals, synthetics etc.
The accused No. 1 is Managing Director
of accused company No. 14 and accused
No. 2 is Deputy Managing Director,
accused No. 3 is Chairman, accused No.
4 is Whole Time Director, accused No.
5 is Finance Director, accused No. 6
to 12 are the Directors and the
accused No. 13 was Senior Manager
(Finance) of the accused company No.
14 Esslon Synthetics Ltd.
4. All the business and financial
affairs of the accused company No. 14
are decided, organized, administered
by accused No. 1 being Managing
Director and accused No. 2 being
Deputy Managing Director, accused No.
3 Chairman, accused No. 4 Whole Time JUDGMENT
Director, accused No. 5 Finance
Director with consultation of other
Directors from accused Nos. 6 to 12
and accused No. 13 was Sr. Manager
(Finance) of accused company No. 14.
So accused Nos. 1 to 12 and accused
No. 13 are also responsible for all
the transactions and business affairs
done on behalf of accused Company No.
14 and are responsible for all the
financial affairs and administration
of accused Company No. 14.”
A.K. Singhania is the accused No. 7 and Vikram
Prakash is accused No. 9 in this complaint.
In Complaint Case No. 1293 of 1996, the
allegations with which we are concerned in these
appeals read as follows:
“4. All the business and financial
affairs of the accused company No. 1
are decided, organized, administered
by the accused No. 2 being Managing
Director and accused No. 3 being
Managing Director, accused No. 4
Chairman, accused No. 5 Whole Time
Director, accused No. 6 Finance
Director with consultation of other
Directors from accused Nos. 7 to 13
and accused No. 14 was Sr. Manager
(Finance) of accused No. 1. At the
time the offence was committed, they
were incharge of and were responsible
to the company for the conduct of the
business of the accused company.
Therefore, they are responsible for
day to day affairs and all the JUDGMENT
transactions and business done on
behalf of the accused Company No. 1
and they are also responsible for all
the financial affairs and
administration of accused company
No. 1.”
A.K. Singhania and Vikram Prakash have been
arrayed as accused Nos. 8 and 10 in this complaint
and in all other complaints, the allegations against
A.K. Singhania are identical to what have been
alleged in the Complaint Case No. 331 of 1996.
Taking into account the allegations made in the
respective complaints, the learned Magistrate took
cognizance of the offence, issued process to the
accused aforesaid besides other accused to face trial
for commission of the offence under Section 138 of
the Act.
Vikram Prakash, aggrieved by the order issuing
summons to face trial under Section 138 of the Act in
different complaints, filed applications under
Section 482 of the Code of Criminal Procedure for quashing the order taking cognizance and issuing process. The applications filed by said Vikram
Prakash were registered as Criminal Miscellaneous
Application Nos. 13393-13399 of 2007. The High Court
by its common order dated January 20, 2012 allowed
all the applications and quashed his prosecution.
While doing so, the High Court held as follows:
“7.…………It is to be noted that as
such there are general allegations and
averments against the applicant in the
complaints, however there are no
specific allegations and averments in
the complaint against the applicant
with respect to transaction for which
the cheques were issued by the accused
no. 14 company. Under the
circumstance, on the ground that
applicant was non Executive Director
of the Company on the board of the
company, which is not disputed by the
complainant, the applicant cannot be
prosecuted for the offence under
Sections 138 r/w 141 of the Negotiable
Instruments Act and cannot be held
vicariously liable for the offence
alleged to have been committed by the
accused no. 14 company. Under the
circumstance, this Court is of opinion
that this is a fit case to exercise
the powers under Section 482 of the
Code of Criminal Procedure and to
quash and set aside the impugned
complaint/criminal case qua applicant-
original accused no. 9……”
It is this common order which has been assailed
by the Gujarat State Fertilizer Company Ltd. in the
special leave petitions filed by it.
A.K. Singhania also, aggrieved by the order
issuing process under Section 138 of the Act, filed
separate applications for quashing the entire
prosecution including the aforesaid order under
Section 482 of the Code of Criminal Procedure. All
the applications filed by A.K. Singhania were taken
together by the High Court for consideration and by
the impugned order the applications filed by him have
been dismissed. While doing so, the High Court
observed as follows:
“9. As the paragraphs of the
complaint reproduced in earlier part
of decision specifically para 4 and
subsequent paragraphs would reveal
that the applicant in the capacity of
Director was responsible for business
affairs and he was in-charge of the
Company. Not only that but nowhere it
can be said that the applicant was
non-Executive Director and even if it
is so the said argument is in realm of
defence to be decided by Court trying
the case under the Negotiable
Instruments Act. Since sufficient
averments attracting of Section 138 of
Negotiable Instrument Act are the
foundation of the complaint and it is JUDGMENT
further averred that cheques were
issued with mischievous, dishonest
intention, knowingly and willingly to
cheat the complainant company.
Arguments canvassed by learned
advocate for the applicant do not
require any further deliberation in
exercise of powers under Section 482
of the Code since quashing the
complaint would not secure end of
justice but would result into
miscarriage of justice………..”
A.K. Singhania, aggrieved by the aforesaid common
order, has preferred these special leave petitions.
Leave granted.
We have heard Mr.Ranjit Kumar, learned Senior
Counsel on behalf of the accused A.K. Singhania and
Mr.Ashok Kr. Srivastava, learned Senior Counsel on
behalf of Vikram Prakash whereas the complainant,
Gujarat State Fertilizer Company Ltd. is represented
by Mr. Jayant Bhushan, learned Senior Counsel. Mr.
Ranjit Kumar appearing on behalf of the accused
submits that necessary averments that at the time the
offence was committed, the accused were in-charge of
and responsible for the conduct of the business of the company have not been averred, which is sine qua non for proceeding against the Directors of the
company. He has drawn our attention to the averments
made in the complaints, which we have reproduced in
the preceding paragraphs of this judgment and submits
that mere assertion that these accused persons were
the Directors of the company is not sufficient to
make them liable under Section 141 of the Act. Mr.
Jayant Bhushan however, submits that there is clear
averment in the complaint that these accused persons
were the Directors of the company and, in fact, in-
charge of and responsible for the conduct of the
business of the company and, hence, they were rightly
summoned to face the trial. He points out that the
judgment and order of the High Court quashing the
prosecution of accused Vikram Prakash is under
challenge in this batch of appeals and accused A.K.
Singhania cannot take benefit of the said order and
the fate of both the accused shall depend upon the
decision in all these appeals. Mr. Ranjit Kumar
submits that on same set of facts when the
prosecution of the accused Vikram Prakash has been quashed, there JUDGMENTdoes not seem any justification to decline the prayer of the accused A.K. Singhania.
In view of rival submissions, we proceed to
consider the exact allegations made against the
accused A.K. Singhania and accused Vikram Prakash.
It is not in dispute that allegations against both
the accused in different complaints are one and the
same. In Complaint Case No. 331 of 1996, the
allegation is that “all business and financial
affairs of the accused company are decided,
organized, administered by Accused Nos. 1 to 5”. It
has further been alleged that Accused Nos. 1 to 5 do
so with consultation of other Directors namely,
Accused Nos. 6 to 12. In view of aforesaid,
according to the complainant, accused Nos. 1 to 13
are also responsible for all the transactions and
business affairs, financial affairs and
administration done on behalf of the accused company.
It is relevant here to state that A.K. Singhania and
Vikram Prakash are accused Nos. 7 and 9 in this
complaint. The averments made in the complaint nowhere suggest JUDGMENTthat these two accused, at the time the offence was committed, were in-charge of and
responsible for the conduct of the business of the
company. According to the complainant itself, it was
accused Nos. 1 to 5 who were taking decisions and the
allegation that in taking the decisions they used to
consult these accused also will not mean that these
two accused were at the time the offence was
committed, were in-charge of and responsible for the
conduct of business of the company. In complaint
Case No. 1293 of 1996 and all other complaints with
which we are concerned in the present appeals the
allegation is that “all business and financial
affairs of the accused company No.1, are decided,
organized, administered by accused Nos. 2 to 6 and in
consultation of other directors i.e. from accused
Nos. 7 to 13”. It has further been averred that at
the time the offence was committed “they were in-
charge and responsible to the company for the conduct
of the business” and, therefore, “they are
responsible for day to day affairs and transaction,
business and all financial affairs of the accused company.” Mr.JUDGMENTRanjit Kumar submits that the aforesaid averments are not sufficient and from that
it cannot be inferred that accused A.K. Singhania and
accused Vikram Prakash have been alleged to be
in-charge and responsible for the conduct of the
business of the company at the time the offence was
committed. He points out that A.K. Singhania is
accused No. 8 whereas accused Vikram Prakash is
accused No. 10 in these complaints. Mr. Jayant
Bhushan, however, joins issue and submits that the
substance of the accusation clearly indicates that
the two accused were in-charge and responsible for
the conduct of the business of the company at the
time of the offence.
We have perused the complaints and, in fact, the
relevant portions of the allegations have been
reproduced in the foregoing paragraphs of the
judgment. From that it is difficult to infer that
there is any averment that these two accused were
in-charge of and responsible for the conduct of the
business of the company at the time the offence was
committed. The allegations in the complaints in sum
and substance mean that business and financial JUDGMENT affairs of the company used to be decided, organized
and administered by accused Nos. 2 to 6 and while
doing so, other Directors including the two accused
herein were consulted. The inference drawn by the
complainant on that basis that these two accused,
therefore, are in-charge and responsible to the
company for the conduct of its business, is
absolutely misconceived. We are, therefore, of the
opinion that essential averment in the complaints is
lacking.
In case of offence by company for dishonour of
cheque, the culpability of the Directors has to be
decided with reference to Section 141 of the Act,
same reads as follows:
“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 JUDGMENT
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,-
(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
JUDGMENTfirm.”
From a plain reading of the aforesaid provision
it is evident that every person who at the time the
offence was committed is in charge of and responsible
to the Company shall be deemed to be guilty of the
offence under Section 138 of the Act. In the face of
it, will it be necessary to specifically state in the
complaint that the person accused was in charge of
and responsible for the conduct of the business of
the Company? In our opinion, in the case of offence
by Company, to bring its Directors within the
mischief of Section 138 of the Act, it shall be
necessary to allege that they were in charge of and
responsible to the conduct of the business of the
Company. It is necessary ingredient which would be
sufficient to proceed against such Directors.
However, we may add that as no particular form is
prescribed, it may not be necessary to reproduce the
words of the section. If reading of the complaint
shows and substance of accusation discloses necessary
averments, that would be sufficient to proceed
against such of the Directors and no particular form is necessary. JUDGMENTHowever, it may not be necessary to allege and prove that, in fact, such of the Directors
have any specific role in respect of the transaction
leading to issuance of cheque. Section 141 of the
Act makes the Directors in charge and responsible to
Company “for the conduct of the business of the
Company” within the mischief of Section 138 of the
Act and not particular business for which the cheque
was issued. We cannot read more than what has been
mandated in Section 141 of the Act.
A large number of authorities of this Court have
been cited by the counsel representing the party to
bring home their point. We deem it inexpedient to
refer to all of them. Suffice it to say that this
question has been answered eloquently by a three-
Judge Bench decision of this Court in the case of
S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8
SCC 89, in the following words:
“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 JUDGMENT 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.”
This Court in the case of National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal,
(2010) 3 SCC 330, after reviewing all its earlier
judgments summarized the legal position as follows:
“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. JUDGMENT
(iii) Vicarious liability can be
inferred against a company registered
or incorporated under the Companies
Act, 1956 only if the requisite
statements, which are required to be
averred in the complaint/petition, are
made so as to make the accused therein
vicariously liable for offence
committed by the company along with
averments in the petition containing
that the accused were in charge of and
responsible for the business of the
company and by virtue of their
position they are liable to be
proceeded with.
(iv) Vicarious liability on the part
of a person must be pleaded and proved
and not inferred.
(v) If the accused is a Managing
Director or a Joint Managing Director
then it is not necessary to make
specific averment in the complaint and
by virtue of their position they are
liable to be proceeded with.
(vi) If the accused is a Director or
an officer of a company who signed the
cheques on behalf of the company then
also it is not necessary to make
specific averment in the complaint.
(vii) The person sought to be made
liable should be in charge of and
responsible for the conduct of the
business of the company at the
relevant time. This has to be averred
as a fact as there is no deemed
liability of a Director in such
cases.” JUDGMENT
In Harshendra Kumar D. v. Rebatilata Koley,
(2011) 3 SCC 351, after referring to its earlier
decisions in S.M.S. Pharmaceuticals Ltd.(supra),
National Small Industries Corpn. Ltd.(supra), N. Rangachari v. Bharat Sanchar Nigam Ltd., (2007) 5 SCC
108 and K.K. Ahuja v. V.K. Vora, (2009) 10 SCC 48,
this Court reiterated the same view.
We have found on fact that there is no averment
that the two accused herein were in charge of and
responsible for the conduct of the business of the
company at the time the offence was committed.
Hence, there is no essential averment in the
complaints. In view of what we have observed above,
the prosecution of accused A.K. Singhania and accused
Vikram Prakash cannot be allowed to continue.
Accordingly, the order of the High Court quashing the
prosecution of the accused Vikram Prakash is not fit
to be interfered with. For the same reason the order
passed by the High Court declining the prayer of A.K. Singhania for quashing of the prosecution cannot be
sustained and the appeals preferred by him deserve to
be allowed.
In the result, we dismiss the appeals preferred
by the complainant Gujarat State Fertilizers Company
Ltd. and allow the appeals preferred by A.K.
Singhania and quash his prosecution in all these
cases.