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Not Necessary For Managing Director To Be In Charge Of The Companies Affairs To Make A Charge Under Sec 141 NI Act: SC

Shvena Neendoor ,
  04 August 2022       Share Bookmark

Court :
Supreme Court of India
Brief :

Citation :
Arising out of SLP (Crl.) No. 10396 of 2019

Case title:
Sunita Palita & Others Vs. M/S Panchami Stone Quarry

Date of Order:
August 1st, 2022

Bench:
Justices Indira Banerjee and J.K. Maheshwari

Parties:
Appellant-Sunita Palita& Others
Respondent- M/S Panchami Stone Quarry

SUBJECT

The Supreme Court stated that an averment that a Managing Director or Joint Managing Directors were in control of and accountable for the conduct of a company's operations is not required to charge them under Section 141 of the Negotiable Instruments Act, 1881.

IMPORTANT PROVISIONS

  • 1. Section 482, Code of Criminal Procedure, 1973- The section provides that the High Court has the inherent ability to recall a judgement and/or order that was made without jurisdiction or without hearing a person who was disadvantaged by the judgement and/or order.
  • 2. Section 205, Code of Criminal Procedure, 1973- This section states that when a Magistrate issues a summons, he may waive the accused's personal attendance and allow him to appear through his pleader.Section 205 of the Cr.P.C. gives the Court power to exclude an accused's personal presence unless his attendance is deemed required.
  • 3. Section 305, Code of Criminal Procedure, 1973- It states that when a company is charged or one of the accused is in an investigation or trial, it may designate a representative for the purposes of the inquiry or trial, and such designation does not have to be under the corporation's seal.
  • 4. Section 138, Negotiable Instruments Act, 1881- Dealing with cheques dishonoured due to insufficient money in the account, etc., the section states that if a cheque issued by an individual on an account held by him with a banker for payment of any monetary amount to another person is returned by the bank unpaid, such individual will be considered to have committed a violation and will be punished with imprisonment for a period not exceeding two years, or with a fine not exceeding twice the value of the cheque, or with both.
  • 5. Section 141, Negotiable Instruments Act, 1881- If the individual committing an offence under section 138 is a company, every person who was in control of and accountable to the company for the conduct of its business at the time the offence was committed, in addition to the company, will be deemed guilty of the offence and shall be investigated and punished accordingly.

OVERVIEW

  • The Respondent, M/s Panchami Stone Quarry, lodged a complaint petition, among other things, against the Appellants under Sections 138/141 of the NI Act.
  • The Accused Corporation placed orders on PSQ on various dates for the acquisition of Stone Dust and Stone Aggregate, among other things.
  • The Accused Company produced Purchase Orders describing the items to be provided, as well as the prices and quantity. PSQ delivered items to the Accused Company in accordance with the aforementioned purchase orders, and raised invoices of Rs.2,31,60,674/- against the Accused Company.
  • The Accused Company submitted an Account Payee Cheque dated 15th March 2017 for a value of Rs.1,71,08,512/- to satisfy its responsibility against the bills levied by PSQ on the Accused Company.
  • The Appellants filed a Criminal Revisional Application in the High Court under Section 482 of the Cr.P.C., praying that the proceedings in pending in the Court of the Judicial Magistrate, under Section 138 read with Section 141 of the NI Act be quashed and that every proceeding in the said case be stayed awaiting such order.
  • It was argued in the High Court that the Judicial Magistrate treated the application under Section 205 of the Cr.P.C. without assessing whether having the Accused's physical attendance would serve any beneficial purpose or if the trial would be impeded by their absence.

ISSUES RAISED

Whether the decision of the High Court to deny relief to the appellants under Section 482 CrPc was erroneous?

ARGUMENTS ADVANCED BY THE APPELLANT

  • It was submitted that Section 205 of the Cr.P.C. gives the Court the power to exclude an accused's presence unless his attendance is deemed required.
  • The counsel argued that the Magistrate must consider the substance of the matter as well as the behaviour of those called. The Magistrate may not exclude personal presence when any good purpose would be served by requiring the accused's attendance, or where the process of the trial would be delayed by his absence.
  • It was submitted that Section 305 of the Criminal Procedure Code specifies how a body corporate charged in a criminal case may be represented. The Magistrate failed to recognise that the Accused Company was represented by an authorised officer.
  • Furthermore, it was submitted that because Section 141 of the NI Act is a criminal provision that creates vicarious culpability, it must be rigorously read.
  • It was contended that the Appellantswere autonomous, non-executive Directors of the Accused Company who were not responsible for the Accused Company's day-to-day operations. As Non-Executive Independent Directors, the Appellants were authorized to have the Complaint dismissed against them.

ARGUMENTS ADVANCED BY THE RESPONDENT

  • The Respondent, M/s Panchami Stone Quarry, filed a complaint petition against the Appellants, among other things, under Sections 138/141 of the NI Act.
  • PSQ named M/s MBL Infrastructure Limited, a public limited company under the Companies Act 2013, as Accused No.1 in their petition of complaint. Mr. Anjanee Kumar Lakhotia, the Accused Company's Managing Director, was named as Accused No. 2, while the Appellants were named as Accused Nos. 3, 4, and 5. The Appellant No.1 was the 4th accused, Appellant No.2 was the 5th and Appellant No.3 was the 3rd accused. PSQ claimed in the aforementioned petition of complaint that Accused Nos.2, 3, 4, and 5 are the Directors of Accused No.1, i.e., M/s MBL Infrastructures Ltd., respectively and are accountable to handle the day-to-day business operations of the Accused No.1.

JUDGEMENT ANALYSIS

  • The bench of the Supreme Court stated that the High Court correctly ruled that when a complaint was lodged against a company's Director, a particular averment that such person was in control of and accountable for the company's conduct of business was an important condition of Section 141 of the NI Act.
  • The High Court also correctly found that simply being a Director of a firm does not make a person culpable under Section 141 of the NI Act. The High Court also correctly decided that, as Managing Director or Joint Managing Director, they would be in command of the company and accountable to the company for the conduct of its operations.
  • It was however stated that the High Court, on the other hand, overlooked the fact that none of the Appellants were Joint Managing Directors of the Accused Company. They were also not signatories to the check that was rejected.
  • It was opined that a complaint should not be interpreted with a pedantically hyper-technical approach in order to deny remedy under Section 482 of the Cr.P.C. to persons impleaded as accused who have no criminal culpability for the offence stated in the complaint. A corporate director who was not in control or accountable for the conduct of the firm's operations at the relevant period is not liable under those requirements.
  • Placing reliance on the case ofS.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla [(2005) 8 SCC 89] it was held that liability is determined by the role one plays in the business of a firm, not by title or rank alone.
  • The bench noted that the provisions of Sections 138/141 of the NI Act constitute a statutory presumption of dishonesty on the side of the signatory of the cheque and, when the cheque was delivered on behalf of a company, it implicated those people in control of or responsible for the company or the company's activity. Section 141 of the NI Act does not apply to everyone associated with the firm.

CONCLUSION

The High Court erred in law by failing to use its jurisdiction under Section 482 of the Cr.P.C. in this matter to give relief to the Appellants. The appeal was granted and t he High Court's verdict and decree were overturned. Insofar as the Appellants were concerned, the criminal case proceeding in the Court of Judicial Magistrate under Section 138/141 of the NI Act was quashed. It was made apparent that the procedures against the other accused in the criminal case, including the Accused Company, its Managing Directors, and/or the signature of the disputed cheque, may continue.

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