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Sukhija (Advocate)     19 July 2008

138 NI Act

 Dear Friends

Pl advice, In one case Accused being Director of company is convicted though no specific role is mentioned in complaint, only averment that Accused along with other two Directors were looking after day to day working of the company.Other accused is mentioned as managing director not my client.But since other accused were absconding my client alone faced trial and was convicted.

My client has approached High Court against issuance of process but lost it.There is no mention in order of High Court that Observations of H C will have no bearings on trial. It was held that "accused was considered as one of the director  and sufficient averments r made in complaint."

But during trial it has come in evidence that no role of Accused as managing director and in dealing with complainant, he is also not signatory to alleged cheque.

Complainant have not proved that accused is signatory to the chq or any transactions were done by accused with complainant.

Accused did not examined himself on oath.

Was it necessary to examine himself on oath to rebut presumption? No burden is shifted from complainant as per my opinion,so I did not examine him,

Trial court was of opinion that since High Court has already decided this point that Accused was director so it also held him guilty and convicted him.Now in sessions court again this point has arisen that HC has already decided this point.What can I do now before sessions court passes order? can I now go to High Court for getting clarifications on earlier order saying that order has no bearing on facts  found by trial court?What is the use of facing trial by accused if before facing trial ,he is presumed as one of the managing director without considering evidence on record?

Can u suggest early Remedy please. What application if any I shd file in High Court?




Learning

 3 Replies

Guest (n/a)     19 July 2008

The trial court erred materially in convicting the accused solely based upon the opinion expressed by the High Court. The trial court has to give its Judgment independently based on the material evidence placed before it. Merely because one person is a director of the company he cannot be convicted for the offence u/s 138 of the Negotiable Instruments Act. It is mandatory for the complainant to allege and prove by producing positive evidence to the effect that the accused is the director of the company and he is responsible for the issuance of the cheque in question. Unless the complainant proves that the accused is in charge of and responsible for the day to day business of the company, he cannot be convicted by presuming that he is jointly and severally liable to pay the cheque amount. Hence, you may file appeal against the Judgment before the Court of Sessions concerned u/s 374(3) Cr.P.C. Go through the Judgment cited at 2006(1) A.L..T Criminal Page No.423. and Judgment of the Hon'ble Supreme Court in S.M.S. pharmaceuticals Case.

KANDE VENKATESH GUPTA (ADVOCATE)     19 July 2008

The trial court erred materially in convicting the accused solely based upon the opinion expressed by the High Court.  The trial court has to give its Judgment independently based on the material evidence placed before it. Merely because one person is a director of the company he cannot be convicted for the offence u/s 138 of the Negotiable Instruments Act.  It is mandatory for the complainant to allege and prove by producing positive evidence to the effect that the accused is the director of the company and he is responsible for the issuance of the cheque in question.   Unless the complainant proves that the accused is in charge of and responsible for the day to day business of the company, he cannot be convicted by presuming that he is jointly and severally liable to pay the cheque amount.   Hence, you may file appeal against the Judgment before the Court of Sessions concerned u/s 374(3) Cr.P.C.   Go through the Judgment cited at 2006(1) A.L..T Criminal Page No.423.  and Judgment of the Hon'ble Supreme Court in S.M.S. pharmaceuticals Case.

You cannot approach the High Court as there is statutory appeal is provided for

K.C.Suresh (Advocate)     20 July 2008

Dear Sukhija,


You may got through the ruling stated by Mr. Gupta. Its citation is 2005(8)SCC 89.


CASE NO.:

Appeal (crl.)  664 of 2002


PETITIONER:

S.M.S. Pharmaceuticals Ltd.  


RESPONDENT:

Neeta Bhalla and anr.


DATE OF JUDGMENT: 20/09/2005


BENCH:

Y.K. Sabharwal,Arun Kumar & B.N. Srikrishna


JUDGMENT:

J   U    D   G   M   E   N   T

With


S.L.P.(Crl.)Nos. 2286/2002, 1926-1927/2003,   2090-

2091/ 2003, 2214/2003,   4795/2004,  4992/ 2004,


5073/2004, 5097/2004, 5130/2004, 612/2005, 613/2005,


614/2005, 615/2005 and 616/2005


 




ARUN KUMAR, J:


 

This matter arises from a reference made by a two Judge Bench of this

Court for determination of the following questions by a larger Bench :

"   ( 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 complaint 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 Director who admittedly would be in

charge of the company and responsible to the company for

conduct of its business could be proceeded against. "


 The controversy has arisen in the context of prosecutions launched

against officers of Companies under Sections 138 and 141 of the Negotiable

Instruments Act of 1881 (hereinafter referred to as the "Act"). The relevant

part of the provisions are quoted as under :


"Section 138 :


Dishonour of cheque for insufficiency, etc., of funds in

the account 


Where  any cheque drawn by a persons on an account

maintained by him with a banker for payment of any

amount of money to another persons from out of that

account for the discharge, in whole or in part, of any debt

or other liability, is returned by the bank unpaid, either

because of the amount of money standing to the credit of

that account is insufficient to honour the cheque or that it

exceeds the amount arranged to be paid from that account

by an agreement made with that bank, such person shall

be deemed to have committed an offence and shall,

without prejudice to any other provisions of this Act, be

punished with imprisonment for a term which may be

extended to two years, or with fine which may extend to

twice the amount of the cheque, or with both:


 Provided that nothing contained in this section shall

apply unless 


(a)  the cheque has been presented to the bank within a     

period of six months from the date on which it is  

drawn or within the period of its validity, whichever us

earlier.


(b) the payee or the holder in due course of the cheque, as

the case may be, makes a demand for the payment of

the said account of money by giving a notice in

writing, to the drawer of the cheque, within thirty days 

of the receipt of information by him from the bank

regarding the return of the cheque as unpaid; and


( c )the drawer of such cheque fails to make the payment

of the said amount of money to the payee or, as the

case may be, to the holder in due course of the cheque,

within fifteen days of the receipt of the said notice.

  Explanation  For the purposes of this section, "debt or

other liability" means a legally enforceable debt or other

liability.


 


Section 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    


[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." 


 




 It will be seen from the above provisions that Section 138 casts

criminal liability punishable with imprisonment or fine or with both on a

person who issues a cheque towards discharge of a debt or liability as a

whole or in part and the cheque is dishonoured by the Bank on presentation.

Section 141 extends such criminal liability in case of a Company to every

person who at the time of the offence, was incharge of, and was responsible

for the conduct of the business of the Company.  By a deeming provision

contained in Section 141 of the Act, such a person is vicariously liable to be

held guilty for the offence under Section 138 and punished accordingly. 

Section 138 is the charging section creating criminal liability in case of

dishonour of a cheque and its main ingredients are :

(i) Issuance of a cheque.

(ii) Presentation of the cheque

(iii) Dishonour of the cheque 

(iv) Service of statutory notice on the person sought to be made liable,

and

(v) Non-compliance or non-payment in pursuance of the notice within

15 days of the receipt of the notice.


Sections 138 and 141 of the Act form part of Chapter XVII introduced

in the Act by way of an amendment carried out by virtue of Act 66 of 1988

effective from 1st April, 1989.   These provisions were introduced with a

view to encourage the culture of use of cheques and enhancing the

credibility of the instruments. The legislature has sought to inculcate faith in

the efficacy of banking operations and use of negotiable instruments in

business transactions.  The penal provision is meant to discourage people

from not honouring their commitments by way of payment through cheques.   

Section 139, occurring in the same Chapter of the Act creates a presumption

that the holder of a cheque receives the cheque in discharge, in whole or in

part, of any debt or other liability.


In the present case, we are concerned with criminal liability on

account of dishonour of  cheque.  It primarily falls on the drawer company

and is extended to  officers of the Company.  The normal rule in the cases

involving criminal liability is against vicarious liability, that is, no one is to

be held criminally liable for an act of another.  This normal rule is, however,

subject to exception on account of specific provision being made in  statutes

extending  liability to others.  Section 141 of the Act is an instance of 

specific provision which in case an offence under Section 138 is committed

by a Company, extends criminal liability for dishonour of  cheque  to

officers of the Company.  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.  In other words, persons who had nothing to do with the

matter need not be roped in.  A company being a juristic person, all its deeds

and functions are result of acts of others.  Therefore, officers of  a  Company

who are responsible for acts done in the name of the Company are sought to

be made personally liable for acts which result in criminal action being taken

against the Company.  It makes every person who, at the time the offence

was committed, was incharge of, and was responsible to the Company for

the conduct of business of the Company, as well as the Company, liable for

the offence.  The proviso to the sub-section contains an escape route for 

persons who are able to prove that the offence was committed without their

knowledge or that they had exercised all due diligence to prevent 

commission of  the offence.

Section 203 of the Code empowers a Magistrate to dismiss a

complaint without even issuing a process. It uses the words "after

considering" and "the Magistrate is of opinion that there is no sufficient

ground for proceeding".  These words suggest that the Magistrate has to

apply his mind to a complaint at the initial stage itself and see whether a case

is made out against the accused persons before issuing process to them on

the basis of the complaint.  For applying his mind and forming an opinion as

to whether there is sufficient ground for proceeding, a complaint must make

out a prima facie case to proceed. This, in other words, means that a

complaint must contain material to enable the Magistrate to make up his

mind for issuing process.  If this were not the requirement, consequences

could  be far reaching.  If a Magistrate had to issue process in every case, 

the burden of work before Magistrates as well as  harassment caused to the

respondents to whom process is issued would be tremendous.  Even Section

204 of the Code starts with the words "if in the opinion of the Magistrate

taking cognizance of an offence there is sufficient ground for

proceeding"  The words "sufficient ground for proceeding" again

suggest that ground should be made out in the complaint for proceeding

against the respondent.  It is settled law that at the time of issuing of the

process the Magistrate is required to see only the allegations in the

complaint and where allegations in the complaint or the chargesheet do not

constitute an offence against a person, the complaint is liable to be

dismissed.


As the points of reference will show, the question for consideration is

what should be the averments in a complaint under Sections 138 and 141. 

Process on a complaint under  Section 138  starts  normally on basis of a

written complaint which is placed before a Magistrate.  The Magistrate

considers the complaint as per provisions of Sections 200 to 204 of the Code

of Criminal Procedure. The question of requirement of averments in a

complaint has to be considered on the basis of provisions contained in

Sections 138 and 141 of the Negotiable Instruments Act read in the light of

powers of a Magistrate referred to in Sections 200 to 204 of the Code of

Criminal Procedure.  The fact that a Magistrate has to consider the complaint

before issuing process and he has power to reject it at the threshold, suggests

that a complaint should make out a case for issue of process.

As to what should be the averments in a complaint, assumes 

importance in view of the fact that, at the stage of issuance of process, the

Magistrate will have before him only the complaint and the accompanying

documents.  A person who is sought to be made accused has no right to

produce any documents or evidence in defence at that stage.  Even at the

stage of framing of charge the accused has no such right and a Magistrate

cannot be asked to look into the documents produced by an accused at that

stage,  State of Orissa vs. Debendra Nath Padhi  [2005 (1) SCC 568].

 The officers responsible for conducting affairs of companies are

generally referred to as Directors, Managers, Secretaries, Managing

Directors etc.  What is required to be considered is: is it sufficient to simply

state in a complaint that a particular person was a director of the Company at

the time the offence was committed and nothing more is required to be said? 

For this, it may be worthwhile to notice the role  of a director in a company. 

The word 'director' is defined in Section 2 (13) of the Companies Act, 1956

as under:

"     "director" includes any person occupying the position of director,

by whatever name called" ;

There is a whole chapter in the Companies Act on directors, which is

Chapter II.  Sections 291 to 293 refer to powers of Board of Directors.  A

perusal of these provisions shows that what a Board of Directors is

empowered to do in relation to a particular company depends upon the role

and functions assigned to Directors as per the Memorandum and Articles of

Association of the company.  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 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 day-to-

day functions of the Company. These are matters which form part of

resolutions of 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 on the peculiar facts in each case.  There is no universal rule

that a  director of a company is in charge of its everyday affairs.  We have

discussed about the position of a Director in a company in order to illustrate

the point that there is no magic as such in  a particular word, be it Director,

Manager or Secretary. It all depends upon respective roles assigned to the  

officers in a company.  A company may have Managers or Secretaries for

different departments, which means, it may have more than one Manager or

Secretary.  These officers may also be authorised to issue cheques under

their signatures with respect to affairs of their respective departments.  Will

it be possible to prosecute a Secretary of Department-B regarding a cheque

issued by the Secretary of Department-A which is dishonoured?  The

Secretary of Department-B may not be knowing anything about issuance of

the cheque in question. Therefore, 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 a 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 he satisfies those requirements ?  Not every

person connected with a Compnay 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.

 The position of a Managing Director or a Joint Managing Director in

a company may be different.  These persons, as the designation of their

office suggests, are in charge of a company and are responsible for the

conduct of the business of the company.  In order to escape liability such

persons may have to bring their case within the proviso to Section 141 (1),

that is,  they will have to prove that when the offence was committed they 

had no knowledge of the offence or that they exercised all due diligence to

prevent the commission of the offence.


While analysing Section 141 of the Act, it will be seen that it operates

in cases where an offence under Section 138 is committed by a company. 

The key words which occur in the Section are "every person".  These are

general words and take every person connected with a company within their

sweep.  Therefore, these words have been rightly qualified  by use of the

words  " 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 etc." 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 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.  The liability arises from being in charge of and

responsible for conduct of business of the company at the relevant time

when the offence was committed and not on the basis of merely holding a

designation or office in a company.  Conversely, a  person not holding any

office or designation in a Company may be liable if he satisfies the main

requirement of being in charge of and responsible for conduct of business of

a Company at the relevant time.  Liability depends on the role one plays in

the affairs of a Company and not on designation or status. If being a Director

or Manager or Secretary was enough to cast criminal liability, the Section

would have said so.  Instead of  "every person" the section would have said

"every Director, Manager or Secretary in a Company is liable"..etc.  The

legislature is aware that it is a case of criminal liability which means serious

consequences so far as the person sought to be made liable is concerned. 

Therefore, only persons who can be said to be connected with the

commission of a crime at the relevant time have been subjected to action. 

A reference to sub-section (2) of Section 141 fortifies the above

reasoning because sub-section (2) envisages direct involvement of any

Director, Manager, Secretary or other officer of a company in commission of

an offence.  This section operates when in a trial it is proved that the offence

has been committed with the consent or connivance or is attributable to

neglect on the part of any of the holders of these offices in a company. In

such a case, such  persons are to be held liable.  Provision has been made for

Directors, Managers, Secretaries and other officers of a company to cover

them in cases of their proved involvement.

The conclusion is inevitable that the liability arises on account of

conduct , act or omission on the part of a person and not merely on account

of holding an office or a position in a company.  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.

The question of what should be averments in a criminal complaint has

come up for consideration before various High Courts in the country as also

before this Court.  Secunderabad Health Care Ltd. and others v.

Secunderabad Hospitals Pvt. Ltd. and others  [1999 (96) C.C.(AP) 106]

was a case under the Negotiable Instruments Act specifically dealing with

Sections 138 and 141 thereof.  The Andhra Pradesh High Court held that

every Director of a company is not automatically vicariously liable for the

offence committed by the company.  Only such Directors or Director who

were in charge of or responsible to the company for the conduct of business

of the company at the material time when the offence was committed  alone

shall be deemed to be guilty of the offence.  Further it was observed that the

requirement of law is that "there must be clear, unambiguous and specific

allegations against the persons who are impleaded as accused that they were

in charge of and responsible to the company in the conduct of its business in

the material time when the offence was committed."  The same High Court

in v. Sudheer Reddy v. State of Andhra Pradesh and others [2000 (99) CC

(AP)107] held  that "the purpose of Section 141 of the Negotiable

Instruments Act would appear to be that a person who appears to be merely

a director of the Company cannot be fastened with criminal liability for an

offence under Section 138 of the Negotiable Instruments Act unless it is

shown that he was involved in the day-today affairs of the company and was

responsible to the company."  Further, it was held that allegations in this

behalf have to be made in a complaint before  process can be issued against

a person in a complaint.  To same effect is the judgment of the Madras High

Court in R. Kannan v. Kotak Mahindra Finance Ltd. 2003 (115) CC (Mad)

321.    In Lok Housing and Constructions Ltd. v. Raghupati Leasing and

Finance Ltd. and another [2003 (115) CC (Del) 957], the Delhi High Court

noticed that there were clear averments about  the fact that accused No.2 to

12 were officers in charge of and responsible to the company in the conduct

of day-to-day business at the time of commission of offence. Therefore, the

Court refused to quash the complaint.   In Sunil Kumar Chhaparia v.

Dakka Eshwaraiah and another [2002 (108) CC (AP) 687, the Andhra

Pradesh High Court noted that there was a consensus of judicial opinion that

" a director of a company cannot be prosecuted for an offence under Section

138 of the Act in the absence of  a specific allegation in the complaint that

he was in charge of and responsible to the company in the conduct of its

business at the relevant time or that the offence was committed with his

consent or connivance."   The Court has quoted several judgments of various

High Courts in support of this proposition.  We do not feel it necessary to

recount them all.

Cases have arisen under other Acts where similar provisions are

contained creating vicarious liability for officers of a company in cases

where primary liability is that of a company.  State of Karnataka v. Pratap

Chand and others 1981 (2) SCC 335 was a case under the Drugs and

Cosmetics Act, 1940.  Section 34 contains a similar provision making every

person in charge of and responsible to the company for conduct of its

business liable for offence committed by a company.  It was held that a

person liable for criminal action under that provision  should be a person in

overall control of day-to-day affairs of the company or a firm.  This was a

case of a partner in a firm and it was held that a partner who was not in such

overall control of the firm could not be held liable.  In Municipal

Corporation of Delhi v. Ram Kishan Rohtagi and others [1983 (1) SCC 1],

the case was under the Prevention of Food Adulteration Act. It was first

noticed that under Section 482 of the Criminal Procedure Code  in a

complaint, the order of a Magistrate issuing process against the accused can

be quashed or set aside in a case where the allegation made in the complaint

or the statements of the witnesses recorded in support of the same taken at

their face value make out absolutely no case against the accused or the

complaint does not disclose the essential ingredients of an offence which is

arrived at against accused.  This emphasises the need for proper averments

in a complaint before a person can be tried for the offence alleged in the

complaint.

 

In State of Haryana v. Brij Lal Mittal and others 1998 (5) SCC 343

it was held that vicarious liability of a person for being prosecuted for an

offence committed under the Act by a company arises if at the material time

he was in charge of and was also responsible to the company for the conduct

of its business.  Simply because a person is a director of a company, it does

not necessarily mean that he fulfils both the above requirements so as to

make him liable.  Conversely, without being a director a person can be in

charge of and responsible to the company for the conduct of its business.

K.P.G. Nair v. Jindal Menthol India Ltd. [2001 (10) SCC 218]  was a

case under the Negotiable Instruments Act.  It was found that the allegations

in the complaint did not in express words or with reference to the allegations

contained therein make out a case that at the time of commission of the

offence, the appellant was in charge of and was responsible to the company

for the conduct of its business.  It was held that requirement of Section 141

was not met and the complaint against the accused was quashed.  Similar

was the position in Katta Sujatha v. Fertilizers & Chemiucals Travancore

Ltd. and another [ 2002 (7 SCC 655].  This was a case of a partnership.  It

was found that no allegations were contained in the complaint regarding the

fact that the accused was a partner in charge of and was responsible to the

firm for the conduct of business of the firm nor was there any allegation that

the offence was made with the consent and connivance or that it was

attributable to any  neglect on the part of the accused.  It was held that no

case was made out against the accused who was a partner and the complaint

was quashed.  The latest in the line is the judgment of this Court in

Monaben Ketanbhai Shah and another v. State of Gujarat and others

[2004 (7) SCC 15].   It was observed as under:

"4. .It is not necessary to reproduce the language of Section

141 verbatim in the complaint since the complaint is required to

be read as a whole.  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 is

also true that in construing a complaint a hypertechnical

approach should not be adopted so as to quash the same.  The

laudable object of preventing bouncing of cheques and

sustaining the credibility of commercial transactions resulting

in enactment of Sections 138 and 141 has to be borne in mind. 

These provisions create a statutory presumption of dishonesty,

exposing a person to criminal liability if payment is not made

within the statutory period even after issue of notice.  It is also

true that the power of quashing is required to be exercised very

sparingly and where, read as a whole, factual foundation for the

offence has been laid in the complaint, it should not be quashed. 

All the same, it is also to be remembered that it is the duty of

the court to discharge the accused if taking everything stated in

the complaint as correct and construing the allegations made

therein liberally in favour of the complainant, the ingredients of

the offence are altogether lacking.  The present case falls in this

category as would be evident from the facts noticed

hereinafter."


It was further observed:


"6 ..The criminal liability has been fastened on those who, at 

the time of the commission of the offence, were in charge of

and were responsible to the firm for the conduct of the business

of the firm.  These may be sleeping partners who are not

required to take any part in the business of the firm; they may

be ladies and others who may not know anything about the

business of the firm.  The primary responsibility is on the

complainant to make necessary averments in the complaint so

as to make the accused vicariously liable.  For fastening the

criminal liability, there is no presumption that every partner

knows about the transaction.  The obligation of the appellants to

prove that at the time the offence was committed they were not

in charge of and were not responsible to the firm for the

conduct of the business of the firm, would arise only when first

the complainant makes necessary averments in the complaint

and establishes that fact.  The present case is of total absence of

requisite averments in the complaint."


 To sum up, there is almost unanimous judicial opinion that necessary

averments ought to be contained in a complaint before a persons 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.

 In view of the above discussion, our answers to the questions posed in

the Reference are as under:

(a) It is necessary to specifically aver in a complaint under Section

141 that at the time the offence was committed, the person accused

was in charge of, and responsible for the conduct of business of the

company.  This averment is an essential requirement of Section

141 and has to be made in a complaint.  Without this averment

being made in a complaint, the requirements of Section 141 cannot

be said to be satisfied.

(b) The answer to 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 be

in charge of and responsible for the conduct of the business of the

company at the relevant time.  This has to be averred as a fact as

there is no deemed liability of a director in such cases.

(c) The answer to question (c ) has to be in 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 Reference having been answered, individual cases may be listed

before appropriate Bench for disposal in accordance with law.


You may asses the facts of the case and decide whether this principle will apply to your case.  


 


 


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