For quashing of proceedings against a Director u/s 138/141 of the Act it must be shown that no offence is made out against him and quashing is not to be granted merely on asking #indianlaws

When in view of the basic averment process is issued, the complaint must proceed against the Directors. But, if any Director of a company wants the process to be quashed by filing a petition under Section 482 of the Code on the ground that only a bald averment is made in the complaint and that he is really not concerned with the issuance of the cheque, he must in order to persuade the High Court to quash the process either furnish some sterling incontrovertible material or acceptable circumstances to substantiate his contention. He must make out a case that making him stand the trial would be an abuse of process of court. He cannot get the complaint quashed merely on the ground that apart from the basic averment no particulars are given in the complaint about his role, because ordinarily the basic averment would be sufficient to send him to trial and it could be argued that his further role could be brought out in the trial.

Order of the Magistrate directing issuance of summons under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) was the subject matter of dispute before the Apex Court.

The matter originates from the granting of short term loan facility by Bank to the Company. The company, had allegedly, executed an indemnity in favour of the Bank and agreed to repay the amount in three instalments on respective dates towards the repayment of the liability. As per the dates cheques in question were presented before the bank but due to “insufficient funds” and “account blocked” the cheques were dishonoured. Statutory notice for each cheque was issued and upon receiving no response, three complaints were filed under Section 138 of the Act where cognizance was taken and summons were issued against all the accused persons.

The Executive Director and Whole-time Director in the instant petitions challenged order of summoning on the ground that the complainant had Respondent to be responsible without making any specific assertion in the complaint about their role, connecting them with the affairs of the Company.

The order of High Court whereby quashing of summon was affirmed, was challenged with the contention that the High Court should not have exercised the inherent jurisdiction under Section 482 CrPC to set aside the order issuing summons against the Executive Director and the whole-time Director who are really the persons responsible and in charge of day to day affairs of the company.

It was observed by the Court that in order to constitute the criminal liability the complainant is required to show that a cheque was issued; that it was presented in the bank in question; that on due presentation, it was dishonoured; that, as enshrined in the provision, requisite notice was served on the person who was sought to be made liable for criminal liability; and that in spite of service of notice, the person who has been arraigned as an accused did not comply with the notice by making payment or fulfilling other obligations within the prescribed period, that is, 15 days from the date of receipt of notice.

Under Section 141 if the person who commits an offence under Section 138 of the Act is a company, the company as well as other person in charge of or responsible to the company for the conduct of the business of the company at the time of commission of the offence is deemed to be guilty of the offence.

Thus, it creates a constructive liability on the persons responsible for the conduct of the business of the company. A complaint must contain material to enable the Magistrate to make up his mind for issuing process and if this were not the requirement, consequences would be far-reaching.

If a Magistrate has to issue process in every case, the burden of work before the Magistrate as well as the harassment caused to the respondents to whom process has to be issued would be tremendous. At the time of issuing of the process, the Magistrate is required to see only the allegations in the complaint and where the allegations in the complaint or the chargesheet do not constitute an offence against a person, the complaint is liable to be dismissed.

Complaint should make out a case for issue of process. As far as the officers responsible for conducting the affairs of the company are concerned, 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. 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 the 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 the 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.

The liability arises on account of conduct, act or omission on the part of an officer and not merely on account of holding office or position in a company and, therefore, in order to bring a case within Section 141 of the Act, the complaint must disclose the necessary facts which makes a person liable.

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.

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 alleged against him.

The position under Section 141 of the Act can be summarised as:

(i) If the accused is the Managing Director or a Joint Managing Director, it is not necessary to make an averment in the complaint that he is in charge of, and is responsible to the company, for the conduct of the business of the company. It is sufficient if an averment is made that the accused was the Managing Director or Joint Managing Director at the relevant time. This is because the prefix “Managing” to the word “Director” makes it clear that they were in charge of and are responsible to the company, for the conduct of the business of the company.

(ii) In the case of a Director or an officer of the company who signed the cheque on behalf of the company, there is no need to make a specific averment that he was in charge of and was responsible to the company, for the conduct of the business of the company or make any specific allegation about consent, connivance or negligence.

The very fact that the dishonoured cheque was signed by him on behalf of the company, would give rise to responsibility under sub-section (2) of Section 141.

(iii) 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.

(iv) Other officers of a company cannot be made liable under sub-section (1) of Section 141. Other officers of a company can be made liable only under sub-section (2) of Section 141, by averring in the complaint their position and duties in the company and their role in regard to the issue and dishonour of the cheque, disclosing consent, connivance or negligence.

When in view of the basic averment process is issued the complaint must proceed against the Directors. But, if any Director wants the process to be quashed by filing a petition under Section 482 of the Code on the ground that only a bald averment is made in the complaint and that he is really not concerned with the issuance of the cheque, he must in order to persuade the High Court to quash the process either furnish some sterling incontrovertible material or acceptable circumstances to substantiate his contention. He must make out a case that making him stand the trial would be an abuse of process of court. He cannot get the complaint quashed merely on the ground that apart from the basic averment no particulars are given in the complaint about his role, because ordinarily the basic averment would be sufficient to send him to trial and it could be argued that his further role could be brought out in the trial. Quashing of a complaint is a serious matter. Complaint cannot be quashed for the asking. For quashing of a complaint it must be shown that no offence is made out at all against the Director.

Making reference to settled legal position and facts of the instant matter, it was held that there was sufficient content in the complaint to continue with the process and the High Court failed to notice those averments. The Appeal by Bank was accordingly allowed.

[Standard Chartered Bank vs. State of Maharashtra and Others]

(SC, 06.04.2016)

Criminal Appeal Nos. 271-273 of 2016